<PAGE>
Registration No. 333 - 47321
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM S-6
FOR REGISTRATION UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF UNIT INVESTMENT TRUSTS
REGISTERED ON FORM N-8B-2
Pre-effective Amendment Number 1
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Trust)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Complete Address of Depositor's Principal Executive Offices)
Rex D. Hemme Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National With copy to: One Moody Plaza, 18th Floor
Insurance Company Galveston, Texas 77550
One Moody Plaza
Galveston, Texas 77550
(Name and Address of Agent for Service)
=================================================================
Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
Securities being offered: Variable Universal Life Insurance Policies.
=================================================================
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[X] 60 days after filing pursuant to paragraph (a) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
CROSS REFERENCE SHEET
Item Number in Form N-8B-2 Caption in Prospectus
- -------------------------- ---------------------
1 Cover Page
2 Cover Page
3 Safekeeping of the Separate Account's Assets
4 Distributor of the Policies
5 American National Insurance Company and the
Separate Account
6 American National Insurance Company and the
Separate Account
7 Not Applicable
8 Not Applicable
9 Legal Proceedings
10 American National Insurance Company and the
Separate Account; Allocation of Premium and
Accumulation Value; Surrender Charges and
Deductions; General Provisions; Voting Rights
11 American National Insurance Company and the
Separate Account; Fixed Account
12 Cover Page; Summary; American National Insurance
Company and the Separate Account
13 Summary; Charges and Deductions; Other Charges
i
<PAGE>
14 The Policy; Allocation of Premium and Accumulation
Value
15 Allocation of Premium and Accumulation Value
16 American National Insurance Company and the
Separate Account; Allocation of Premium and
Accumulation Value
17 The Policy; Surrender
18 American National Insurance Company and the
Separate Account; Fixed Account; The Policy;
Allocation of Premium and Accumulation Value;
General Provisions
19 Safekeeping of the Separate Account's Assets
20 Not Applicable
21 Policy Loans
22 Not Applicable
23 Not Applicable
24 Not Applicable
25 American National Insurance Company and the
Separate Account
26 Summary; American National Insurance Company and
the Separate Account; Charges and Deductions
27 American National Insurance Company and the
Separate Account
28 American National Insurance Company and the
Separate Account; Management of American National
Insurance Company
29 American National Insurance Company and the
Separate Account
30 American National Insurance Company and the
Separate Account
31 Not Applicable
32 Not Applicable
33 Not Applicable
34 Not Applicable
35 American National Insurance Company and the
Separate Account
36 Not Applicable
37 Not Applicable
38 Distributor of the Policies
39 Distributor of the Policies
40 American National Insurance Company and the
Separate Account; Distributor of the Policies
41 Distributor of the Policies
42 Not Applicable
43 Not Applicable
44 Allocation of Premium and Accumulation Value
ii
<PAGE>
45 Not Applicable
46 American National Insurance Company and the
Separate Account; Allocation of Premium and
Accumulation Value
47 American National Insurance Company and the
Separate Account; Allocation of Premium and
Accumulation Value
48 Safekeeping of the Separate Account's Assets
49 Not Applicable
50 American National Insurance Company and the
Separate Account
51 Summary; The Policy; Allocation of Premiums and
Accumulation Value; Charges and Deductions
52 American National Insurance Company and the
Separate Account
53 Federal Tax Matters
54 Not Applicable
55 Appendix - Illustration of Death Benefits and
Accumulation Values
56 Not Applicable
57 Not Applicable
58 Not Applicable
59 Financial Statements
iii
<PAGE>
WealthQuest(TM) Shield
VARIABLE LIFE
[Logo of WealthQuest Appears Here]
Prospectus for
Varible Life Insurance Policy
Issued by
AMERICAN NATIONAL
INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
1-800-306-2959
DISTRIBUTOR
SECURITIES MANAGEMENT AND RESEARCH, INC.
2450 SOUTH SHORE BLVD SUITE 400
LEAGUE CITY, TEXAS 77573
CUSTODIAN
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
INVESTMENT MANAGER
SECURITIES MANAGEMENT AND RESEARCH, INC.
2450 SOUTH SHORE BLVD SUITE 400
LEAGUE CITY, TEXAS 77573
INSURER
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
[LOGO OF
AMERICAN NATIONAL
APPEARS HERE]
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
This prospectus describes an individual variable life insurance policy (the
"Policy") offered by American National Insurance Company ("we, us, our, American
National"). The Policy provides for the payment of a Death Benefit upon the
death of the Insured, and for Surrender Value that can be obtained by
surrendering the Policy or by policy loans. The Policy continues in effect while
the Surrender Value is sufficient to pay the Monthly Deduction amount.
In almost all cases, the Policy will be a modified endowment contract for
federal income tax purposes. IF THE POLICY IS A MODIFIED ENDOWMENT, SURRENDER,
ASSIGNMENTS AND LOANS (INCLUDING LOANS TO PAY LOAN INTEREST) UNDER OR SECURED BY
THE POLICY WILL BE TAXABLE TO THE POLICYOWNER TO THE EXTENT OF ANY GAIN IN THE
POLICY. A 10% penalty tax may also apply to the taxable portion of any
distribution prior to the Insured's age 59 l/2. In most cases, the Death Benefit
payable under the Policy will be excludable from the gross income of the
Beneficiary. (See "FEDERAL TAX MATTERS" on page 19.)
The minimum initial premium is $10,000. Although the Policy may operate as a
single premium policy, additional payments may be made at any time, subject to
certain restrictions. You may, within limits, allocate premiums (net of any
charges) to one or more of the twenty-seven eligible investments, which are the
Fixed Account and the twenty-six Subaccounts of the American National Variable
Life Separate Account (the "Separate Account"). The Fixed Account offers a
minimum guaranteed return and is funded by the general assets of American
National.
The Policy is a variable policy because the Death Benefit may, and the
Accumulation Value will, vary up or down to reflect the investment performance
of amounts allocated to Subaccounts of the Separate Account. The Policyowner
("you, your") bears the investment risk for all amounts so allocated; there is
no guaranteed minimum Accumulation Value.
Assets of each Subaccount of the Separate Account are invested in an Eligible
Portfolio. The Eligible Portfolios are described in separate prospectuses that
accompany this Prospectus. The Policy's Eligible Portfolios are:
AMERICAN NATIONAL PORTFOLIOS
ANIA BALANCED PORTFOLIO
ANIA GROWTH PORTFOLIO
ANIA MANAGED PORTFOLIO
ANIA MONEY MARKET PORTFOLIO
FIDELITY PORTFOLIOS
VIP II ASSET MANAGER PORTFOLIO
VIP II INDEX 500 PORTFOLIO
VIP III GROWTH OPPORTUNITIES PORTFOLIO
VIP II CONTRAFUND PORTFOLIO
VIP II ASSET MANAGER GROWTH PORTFOLIO
T. ROWE PRICE PORTFOLIOS
T. ROWE PRICE EQUITY INCOME PORTFOLIO
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO
MFS PORTFOLIOS
MFS VALUE SERIES PORTFOLIO
MFS EMERGING GROWTH SERIES PORTFOLIO
MFS RESEARCH SERIES PORTFOLIO
MFS GROWTH WITH INCOME SERIES PORTFOLIO
VAN ECK PORTFOLIOS
VAN ECK HARD ASSETS PORTFOLIO
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO
FEDERATED PORTFOLIOS
FEDERATED UTILITY FUND II PORTFOLIO
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO
FEDERATED EQUITY INCOME FUND II PORTFOLIO
LAZARD PORTFOLIOS
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
LAZARD RETIREMENT SMALL CAP PORTFOLIO
It may not be advantageous to purchase the Policy described in this prospectus
to replace existing life insurance nor to increase insurance coverage when other
insurance is owned.
This Prospectus provides a detailed discussion of matters you should consider
before buying a Policy. The Policy or certain of its investment options may not
be available in all jurisdictions. Various rights and benefits may differ among
jurisdictions to meet applicable law and/or regulations.
An interest in the Policy is not a deposit or obligation of, nor guaranteed or
endorsed by any bank or bank subsidiary; nor is the Policy federally insured by
the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any
other Agency. The Policy involves investment risk, including possible loss of
principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION, OR ANY STATE SECURITIES REGULATORY AUTHORITY, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus must be accompanied by a current prospectus or a prospectus
profile for each Eligible Portfolio.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
THE DATE OF THIS PROSPECTUS IS
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Definitions........................................... 3
Summary............................................... 5
The Policy.......................................... 5
Right to Examine.................................... 5
Premium Payments.................................... 5
Investment of Premiums.............................. 5
Transfers........................................... 5
Accumulation Value.................................. 5
Charges, Deductions and Expenses.................... 5
Surrenders.......................................... 5
Death Benefit....................................... 5
Policy Loans........................................ 5
Federal Income Tax Consequences..................... 5
Portfolio Company Annual Expenses................... 6
American National Insurance Company
and the Separate Account............................ 7
American National Insurance Company................. 7
The Separate Account................................ 7
The American National Fund...................... 8
The Fidelity Funds.............................. 8
T. Rowe Price Series............................ 8
MFS Variable Insurance Trust.................... 9
Van Eck Worldwide Insurance Trust............... 9
Federated Insurance Series...................... 9
Lazard Retirement Series, Inc................... 10
Addition, Deletion or Substitution
of Investments.................................. 10
Resolving Material Conflicts.......................... 11
Fixed Account......................................... 11
The Policy............................................ 11
Purpose of the Policy............................... 11
Policy Application and Issuance..................... 11
Premium Payments.................................... 11
Policy Lapse and the Grace Period................... 12
Reinstatement....................................... 12
Allocation of Premium and Accumulation Value.......... 12
Allocation of Premium............................... 12
Determination of Accumulation Value................. 12
Crediting of Accumulation Units..................... 12
Determining the Accumulation Unit Values............ 13
Transfers........................................... 13
Dollar Cost Averaging............................... 13
Asset Allocation Program............................ 13
Policy Benefits....................................... 13
Death Benefit....................................... 13
Increase in Specified Amount........................ 14
Surrender............................................. 14
Policy Loans.......................................... 15
Loan Privileges..................................... 15
Loan Interest....................................... 15
Effect of Policy Loans.............................. 15
Policy Debt......................................... 15
Repayment of Policy Debt............................ 15
Payment of Policy Benefits............................ 15
Optional Methods of Payment........................... 15
General Provisions for Settlement Options............. 16
Charges and Deductions................................ 16
Premium Charges..................................... 16
Monthly Deduction................................... 17
Cost of Insurance Charge............................ 17
Expense Charge 17
Asset Charge........................................ 17
Annual Fee.......................................... 17
Portfolio Company Annual Expenses................... 17
Surrender Charge.................................... 17
Other Charges......................................... 18
Transfer Fee........................................ 18
Charges for Taxes................................... 18
Exceptions to Charges............................... 18
General Provisions.................................... 18
The Contract........................................ 18
Right to Examine.................................... 18
Control of Policy................................... 18
Beneficiary......................................... 18
Change of Beneficiary............................... 18
Change in Policyowner or Assignment................. 18
Payment of Proceeds................................. 18
Incontestability.................................... 19
Misstatement of Age or Sex.......................... 19
Suicide............................................. 19
Postponement of Payments............................ 19
Dividends........................................... 19
Distributor of the Policies........................... 19
Federal Tax Matters................................... 19
Tax Status of the Policy............................ 19
Definition of Life Insurance...................... 19
Diversification and Investor Control.............. 20
Tax Treatment of Policy Benefits.................. 20
General........................................... 20
Modified Endowment Contracts...................... 20
Distributions from Policies Classified as
Modified Endowment Contracts.................... 21
Distributions from Policies not Classified as
Modified Endowment Contracts.................... 21
Policy Loan Interest............................ 21
Investment in the Contract...................... 21
Multiple Policies............................... 21
Possible Legislative Changes........................ 21
Taxation of American National....................... 21
Safekeeping of the Separate Account's Asset........... 22
Voting Rights......................................... 22
Disregard of Voting Instructions.................... 22
State Regulations of American National................ 22
Preparing for the Year 2000........................... 23
Legal Matters......................................... 23
Legal Proceedings..................................... 23
Experts............................................... 23
Additional Information................................ 23
Financial Statements.................................. 23
Management of American National Insurance Company..... 24
Appendix A............................................ 44
</TABLE>
2
<PAGE>
DEFINITIONS
Accumulation Unit - A standard of measurement used with respect to each
Subaccount to calculate the Accumulation Value of a Policy. The value of an
Accumulation Unit fluctuates with the value of the shares of the corresponding
Eligible Portfolio owned by each Subaccount less any applicable deductions (See
"CHARGES AND DEDUCTIONS" on page 16).
Accumulation Unit Value - The value of an Accumulation Unit.
Accumulation Value - The total amount that a Policy provides for investment at
any time. It is equal to the total of the accumulation value held in the
Separate Account, the Fixed Account, and the Accumulation Value held in American
National's General Account to secure Policy Debt.
Age at Issue - The age at the Insured's last birthday preceding the Policy
Date.
Attained Age - The Age at Issue of the Insured plus the number of complete
Policy Years that the Policy has been in force.
Beneficiary - The Beneficiary is designated by the Policyowner in the
application. If changed, the Beneficiary is as shown in the latest change filed
and recorded with American National. If no Beneficiary survives the Insured, the
Insured's estate will be the Beneficiary. The interest of any Beneficiary is
subject to that of any assignee.
Daily Asset Charge - A charge equal to an annual rate of 1.25% of the average
daily Accumulation Value of each Subaccount of the Separate Account.
Date of Issue - The Date of Issue set forth in the Policy that is used to
determine Policy anniversary dates, Policy Years and Monthly Deduction Date.
Policy anniversaries are one-year periods measured from the Date of Issue and
each succeeding Policy anniversary date.
Declared Rates - American National guarantees that it will credit interest in
the Fixed Account at an effective annual rate of at least 3.0%. American
National may, at its discretion, declare higher interest rates for amounts
allocated or transferred to the Fixed Account.
Death Benefit - The amount of insurance coverage provided under the Policy.
Death Benefit Proceeds - The proceeds payable to the Beneficiary upon receipt
by American National of the proof of the death of the Insured while the Policy
is in force equal to: (1) the Death Benefit; minus (2) any Policy Debt; minus
(3) any Monthly Deduction that may apply to that period, including the deduction
for the month of death.
Eligible Portfolio - A Portfolio which corresponds to a Subaccount and in
which a Subaccount can be invested.
Fixed Account - An account that is a part of American National's General
Account to which all or a portion of Net Premiums and transfers may be allocated
for accumulation at fixed rates of interest.
General Account - The General Account of American National which includes all
of American National's assets except those assets segregated into its separate
accounts.
Home Office - American National's Home Office is located at One Moody Plaza,
Galveston, Texas 77550-7999.
Insured - The person upon whose life the Policy is issued.
Monthly Deduction - The sum of the cost of insurance charge and the expense
charge specified on the Policy data page.
Monthly Deduction Date - The same date in each succeeding month as the Date of
Issue except that whenever the Monthly Deduction falls on a date other than a
Valuation Date, the Monthly Deduction Date will be deemed the next Valuation
Date.
Net Premium - The Premium less the applicable premium charge, if any. No
premium charge is deducted from premiums paid during the first Policy Year.
Policy Date - The date that all financial, contractual and administrative
requirements have been met and processed for the Policy and any supplements
thereto. This date is the effective date for all coverage applied for in the
original application and any supplemental applications.
Policy Debt - The sum of all unpaid Policy loans and accrued interest thereon.
Policyowner - The person or entity entitled to exercise rights of ownership of
the Policy, as designated in the application or as subsequently changed. If a
Policy has been absolutely assigned, the assignee is the Policyowner. A
collateral assignee is not the Policyowner.
Policy Year - The period from one Policy anniversary date until the next
Policy anniversary date.
Portfolio - A separate series of securities designed to meet specified
investment objectives. Currently there are twenty-six Portfolios which are
Eligible Portfolios.
Premium - A payment made into a Policy other than to repay Policy Debt.
Satisfactory Proof of Death - Means all of the following must be submitted:
(1) a certified copy of the death certificate;
(2) a claimant statement;
(3) the Policy; and
(4) any other information that American National may reasonably require to
establish the validity of the claim.
Separate Account - American National Variable Life Separate Account, a
Separate Account created by American National to receive and invest Net Premiums
allocated by the Policyowner to the Separate Account.
Specified Amount - The amount of insurance selected, as shown on the Policy's
data page.
Subaccount - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a corresponding
3
<PAGE>
Eligible Portfolio.
Surrender Premium - Surrender Premium is calculated separately for the initial
Specified Amount and each increase in Specified Amount. Surrender Premium will
equal the initial premium required to effect any increase in Specified Amount.
The Surrender Premium is shown on the policy data page, or as changed by
subsequent endorsements for increases in Specified Amount.
Surrender Value - The Accumulation Value on the date of surrender, less any
Policy Debt and surrender charges.
Valuation Date - A valuation date is each day on which the New York Stock
Exchange ("NYSE") and American National are open for trading. American National
will be closed on each national holiday on which the NYSE is closed, and will be
closed on Friday, November 27, 1998 and on Thursday, December 24, 1998. The
Policyowner will not have access to the Accumulation Value on days when American
National is closed for business even if the NYSE is open for business.
Valuation Period - The period commencing at the close of regular trading on
the NYSE on one Valuation Date and ending at the close of regular trading on the
NYSE on the next succeeding Valuation Date.
4
<PAGE>
SUMMARY
THE FOLLOWING SUMMARY OF THE INFORMATION IN THIS PROSPECTUS SHOULD BE READ IN
CONJUNCTION WITH THE DETAILED INFORMATION APPEARING ELSEWHERE IN THIS
PROSPECTUS.
THE POLICY
The individual flexible premium variable life insurance Policy offered by this
prospectus is designed to provide lifetime insurance coverage for the Insured
named in the Policy. It is not offered primarily as an investment.
RIGHT TO EXAMINE
You have the right to return the Policy within 10 days (or more where required
by applicable state insurance law) after you receive it. We will return to you
the Premiums paid adjusted by investment gains or losses, unless state insurance
law requires otherwise. (See "Right to Examine" on page 18.)
PREMIUM PAYMENTS
Premiums may be paid at any time subject to certain restrictions and
limitations. The minimum initial Premium for a Policy is $10,000. Any additional
Premium must be at least $5,000 and may require additional underwriting. (See
"Premium Payments" on page 11.)
INVESTMENT OF PREMIUMS
Your initial Premium will be held in the ANIA Money Market Portfolio of the
American National Fund during the 15-day period after the Date of Issue.
Thereafter, your initial and all subsequent Premium is invested according to
your instructions in one or more of the Subaccounts of the Separate Account or
the Fixed Account. Allocations must be in whole percentages. The minimum initial
amount allocated to any Subaccount and/or the Fixed Account is $500. (See
"Allocation of Premium" on page 12.)
TRANSFERS
Once we mail the confirmation for the initial Premium payment, and after the
right to examine period, you may transfer portions of the Accumulation Value
without charge among the Subaccounts and/or the Fixed Account up to twelve times
each Policy Year. Subsequent transfers will be subject to a $10 transfer fee.
Transfers out of the Fixed Account are limited. (See "Transfers" on page 13.)
ACCUMULATION VALUE
The Accumulation Value will vary daily based on, among other things, the net
investment experience of the Subaccounts to which amounts have been allocated
and the interest paid on the Fixed Account. The Accumulation Value is not
guaranteed except in the Fixed Account. You bear the investment risk with
respect to the Accumulation Value that is invested in the Subaccounts, and we
bear the investment risk with respect to the Accumulation Value that is invested
in the Fixed Account.
CHARGES, DEDUCTIONS AND EXPENSES
After the first Policy Year, a 4% premium charge will be deducted from each
Premium before allocating any amount to a Subaccount or the Fixed Account. (See
"Premium Charges" on page 17.)
The Accumulation Value will be reduced by a monthly cost of insurance charge
on each Monthly Deduction Date and by an expense charge on each Monthly
Deduction Date. The current cost of insurance will not exceed the maximums
stated in the Policy. The annualized expense charge is 0.40% of Accumulation
Value attributable to Premium paid in the first Policy Year. The monthly charge
is one-twelfth of the annualized rate. (See "Monthly Deduction" on page 16.) A
$35.00 annual fee will be assessed on the first Monthly Deduction Date of each
Policy Year. (See "Annual Fee" on page 17.)
The Accumulation Value will be reduced by an asset charge at an annual rate of
1.25%. (See "Asset Charge" on page 17.) In addition any amounts invested in the
Subaccounts will be subject to the Eligible Portfolio annual expenses shown on
the following page.
SURRENDERS
The Policy permits surrender for the Surrender Value at any time. (See
"Surrender" on page 14.) Surrenders may be subject to a Surrender Charge of up
to 9.00% of Surrender Premium withdrawn. Any increase in Specified Amount will
result in additional Surrender Charges. (See "Surrender Charge" on page 17.)
DEATH BENEFIT
The Death Benefit equals the greater of (a) the initial Specified Amount plus
any later increase ; and (b) the Accumulation Value on the date of death
multiplied by the corridor percentage for the Insured's Attained Age. The amount
and/or duration of the life insurance coverage provided by the Policy are not
guaranteed. (See "Death Benefit" on page 13.)
POLICY LOANS
After the first Policy Year, a loan privilege is available under the Policy
subject to certain limitations. (See "Policy Loans" on page 15.)
FEDERAL INCOME TAX CONSEQUENCES
Under current federal tax law, life insurance policies receive tax-favored
treatment. The Death Benefit is fully excludable from the Beneficiary's gross
income for federal income tax purposes, according to Section 101(a)(1) of the
Internal Revenue Code. A Policyowner is not taxed on any increase in the
Accumulation Value while a life insurance policy remains in force. In most
cases, the Policy will be a Modified Endowment Contract ("MEC"). If a Policy is
a MEC, certain distributions made during an Insured's lifetime such as
surrender, collateral assignments and loans are included in gross income on an
income-first basis. A 10% federal penalty tax may be imposed on income
distributed before the Policyowner attains age 59 1/2. Policies that are not
MECs receive preferential tax treatment with respect to certain distributions.
(See "FEDERAL TAX MATTERS" on page 19.)
5
<PAGE>
PORTFOLIO COMPANY ANNUAL EXPENSES
AS A PERCENTAGE OF AVERAGE NET ASSETS PORTFOLIO
<TABLE>
<CAPTION>
Management Other Total
Fees Expenses Portfolio Management Other Total
with with 12b-1 with Fees w/o w/o w/o
Reduction Reduction Fees Reduction Reduction Reduction Reduction
<S> <C> <C> <C> <C> <C> <C> <C>
ANIA Balanced/1/ 0.10 % 0.80% 0.90% 0.50% 0.80% 1.30%
ANIA Growth/1/ 0.28% 0.59% 0.87% 0.50% 0.59% 1.09%
ANIA Managed/1/ 0.33% 0.60% 0.93% 0.50% 0.60% 1.10%
ANIA Money Market/1/ 0.14% 0.73% 0.87% 0.50% 0.73% 1.23%
VIP II Asset Manager/2/ 0.55% 0.10% 0.65% 0.75%
VIP II Index 500 0.24% 0.04% 0.28% 0.27% 0.13% 0.40%
VIP II Contrafund/2/ 0.60% 0.11% 0.71% 0.81%
VIP II Asset Manager: Growth/2/ 0.60% 0.17% 0.77% 0.87%
VIP III Growth Opportunities/2/ 0.60% 0.14% 0.74% 0.84%
T. Rowe Price Equity Income/3/ 0.85% 0.00% 0.85%
T. Rowe Price International
Stock/3/ 1.05% 0.00% 1.05%
T. Rowe Price Mid-Cap
Growth/3/ 0.85% 0.00% 0.85%
T. Rowe Price Limited-Term
Bond/3/ 0.70% 0.00% 0.70%
MFS Value Series 0.75% 0.25% 1.00% 0.75% 1.33% 2.08%
MFS Emerging Growth Series 0.75% 0.12% 0.87%
MFS Research Series 0.75% 0.13% 0.88%
MFS Growth With Income Series 0.75% 0.25% 1.00% 0.75% 0.35% 1.10%
Van Eck Worldwide Hard Assets 1.00% 0.17% 1.17%
Van Eck Worldwide Emerging
Markets 1.00% 0.34% 1.34%
Federated Utility Fund II 0.48% 0.37% 0.85% 0.75% 0.37% 1.12%
Federated Growth Strategies
Fund II 0.08% 0.77% 0.85% 0.75% 0.77% 1.52%
Federated Fund for U.S.
Government Securities II 0.15% 0.65% 0.80% 0.60% 0.65% 1.25%
Federated High Income Bond
Fund II 0.51% 0.29% 0.80% 0.64% 0.25% 0.89%
Federated Equity Income Fund II
0.00% 0.85% 0.85% 1.44% 0.85% 2.29%
Lazard Retirement Emerging
Markets/4,5/ 1.00% 0.32% 0.25% 1.57%
Lazard Retirement Small
Cap/4,5/ 0.75% 0.07% 0.25% 1.07%
</TABLE>
1. Under its Administrative Service Agreement with the American National Fund,
Securities Management and Research, Inc. ("SM&R"), the American National
Fund's investment advisor and manager, has agreed to pay (or to reimburse
each Portfolio for) each Portfolio's expenses (including the advisory fee and
administrative services fee paid to SM&R, but exclusive of interest,
commissions and other expenses incidental to Portfolio transactions) in
excess of 1.50% per year of such Portfolio's average daily net assets. In
addition, SM&R has entered into a separate undertaking with the American
National Fund effective May 1, 1994 until April 30, 1999, pursuant to which
SM&R has agreed to reimburse the ANIA Money Market Portfolio and the ANIA
Growth Portfolio for expenses in excess of 0.87%; the ANIA Balanced Portfolio
for expenses in excess of 0.90% and the ANIA Managed Portfolio for expenses
in excess of 0.93%, of each of such portfolio's average daily net assets
during such period, SM&R is under no obligation to renew this undertaking for
any Portfolio at the end of such period.
2. A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned
on uninvested cash balances was used to reduce custodian and transfer agent
expenses.
3. T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price
an annual all-inclusive fee of 0.85% based on such Portfolios' average daily
net assets. T. Rowe Price Limited-Term Bond Portfolio pays T. Rowe Price an
annual all-inclusive fee of 0.70% based on such Portfolio's average daily net
assets. T. Rowe Price International Stock Portfolio pays Rowe-Price-Fleming
International, Inc. an all-inclusive fee of 1.05% based on such Portfolio's
average daily net assets. These fees pay for investment management services
and other operating costs of the Portfolios.
4. Shares of the Lazard Retirement Portfolios are subject to a Distribution and
Servicing Plan which is a so-called "12b-1 plan" adopted pursuant to
Rule 12b-1 under the 1940 Act. Under the Distribution and Servicing Plan,
each Portfolio pays Lazard Freres & Co. LLC ("Lazard Freres"), the
distributor for the Portfolio's shares, for advertising, marketing, and
distributing the Portfolio's shares and for the provision of certain services
to Policyowners with amounts invested in the Portfolios at an annual rate of
0.25% of the Portfolio's average daily assets. Lazard Freres may, in turn,
make payments to insurance companies such as American National (or affiliates
of such insurance companies) that use the Portfolios to fund their variable
annuity and variable life insurance policies, for providing services to
Policyowners or to certain financial institutions, securities dealers, and
other industry professionals for providing services to participants in
qualified pension and retirement plans that invest in the Portfolios. The
fees payable by each Portfolio to Lazard Freres under the Distribution and
Servicing Plan for its services and for payments to insurance companies and
other third parties are payable without regard to actual expenses incurred.
For a more complete description of the Distribution and Servicing Plan, see
the prospectus for the Lazard Retirement Series.
5. Other expenses are based on estimated amounts for the current fiscal year.
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AMERICAN NATIONAL INSURANCE COMPANY AND THE SEPARATE ACCOUNT
American National Insurance Company
American National is a stock life insurance company chartered in 1905 in the
State of Texas. It is licensed to do life insurance business in 49 states, the
District of Columbia, Puerto Rico, Guam, and American Samoa. American National's
Home Office is located at the American National Insurance Building, One Moody
Plaza, Galveston, Texas 77550-7999. The Moody Foundation (the "Foundation"), a
charitable foundation established for charitable and educational purposes, owns
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owns approximately 37.6% of such shares. Robert L. Moody
("RLM"), Chairman of the Board, President and Chief Executive Officer of
American National, RLM's son, Ross R. Moody, and Frances Moody Newman, RLM's
mother, are trustees of the Foundation.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie S.
Moody Trust. RLM is Chairman of the Board and Chief Executive Officer of the
Bank and a Director and President of Moody Bank Holding Company, Inc. ("MBHC"),
the Bank's controlling stockholder. RLM is also a Director and President of
Moody Bancshares, Inc. ("Bancshares"), MBHC's sole shareholder. The Three R
Trusts, trusts established by RLM for the benefit of his children, own 100% of
Bancshares' Class B stock (which elects a majority of Bancshares' directors) and
49.6% of its Class A Stock. The trustee of the Three R Trusts is Irwin M. Herz,
Jr., a partner in Greer, Herz & Adams, L.L.P., 18th Floor, One Moody Plaza,
Galveston, Texas, General Counsel to American National, the Bank, Bancshares,
MBHC, the American National Fund and SM&R.
American National's total assets on December 31,1997 were $6,911,337,624 on a
statutory basis.
American National writes life, health and accident insurance and annuities.
THE SEPARATE ACCOUNT
American National established the Separate Account on July 30, 1987 pursuant
to the insurance laws of the State of Texas. American National is the depositor
of the Separate Account. Under Texas law, the assets of the Separate Account are
held exclusively for the benefit of Policyowners and persons entitled to
payments under variable life policies issued by American National. American
National is the legal holder of the assets in the Separate Account and will at
all times maintain assets in the Separate Account with a total market value at
least equal to the reserve and other contract liabilities for the Separate
Account. The assets of the Separate Account attributable to the Policies are not
chargeable with liabilities arising out of any other business that American
National may conduct. Income, as well as both realized and unrealized gains or
losses from the assets of the Separate Account, is credited to or charged
against the Separate Account without regard to income, gains or losses arising
out of other business that American National conducts. Nevertheless, these
assets shall be available to cover the liabilities of American National's
General Account, but only to the extent that the Separate Account's assets
exceed the reserve and other contract liabilities for the Separate Account. In
addition to these assets, the Separate Account assets may include accumulations
of the charges American National makes against Policies and other variable life
policies participating in the Separate Account. From time to time, any such
assets due American National may be transferred in cash to American National's
General Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust, which is a type of investment company. Such registration does
not involve any SEC supervision of the management or investment policies or
practices of the Separate Account. For state law purposes, the Separate Account
is treated as a division of American National. There are currently twenty-six
Subaccounts within the Separate Account available to Policyowners and each
invests only in a corresponding Eligible Portfolio.
Each Subaccount of the Separate Account will only invest in the shares of a
corresponding Eligible Portfolio. The Eligible Portfolios are investment
Portfolios of the following investment companies: American National Investment
Accounts, Inc. ("American National Fund"); Variable Insurance Products Fund,
Variable Insurance Products Fund II, and Variable Insurance Products Fund III
("Fidelity Funds");T. Rowe Price Equity Series, Inc. T. Rowe Price International
Series, Inc. and T. Rowe Price Fixed Income Series, Inc. ("T.Rowe Price
Series"); MFS Variable Insurance Trust, Van Eck Worldwide Insurance Trust,
Federated Insurance Series, and Lazard Retirement Series, Inc., each of which is
registered with the SEC under the 1940 Act as an open-end, diversified, series
management investment company.
The investment objectives and policies of certain Eligible Portfolios may be
similar to the investment objectives and policies of mutual fund portfolios
other than the Eligible Portfolios that may be managed by the same investment
adviser or manager. The investment results of the Eligible Portfolios however,
may be higher or lower than the results of such other portfolios. There can be
no assurance, and no representation is made, that the investment results of any
of the Eligible Portfolios will be comparable to the investment results of any
other portfolio, even if the other portfolio has the same investment adviser or
manager.
The Separate Account will purchase and redeem shares of the Eligible
Portfolios at net asset value. Shares will be redeemed to the extent necessary
for American National to collect charges under the Policy, to pay the Surrender
Value upon surrender, to make Policy loans, to provide a Death Benefit under the
Policy, or to transfer assets from one Subaccount to another, or to the Fixed
Account, as requested by the Policyowners. Any dividend or capital gain
distribution received from an Eligible Portfolio will be reinvested immediately
at net asset value in shares of that Eligible Portfolio and retained as assets
of the corresponding Subaccount.
The investment objectives and policies of each Eligible Portfolio are
summarized below. There is no assurance that any of the Eligible Portfolios will
achieve their stated objectives. More detailed information, including a
description of investment objectives, policies, restrictions, expenses and
risks, is in the prospectuses for the Eligible Portfolios, which must accompany
this Prospectus and which should be read carefully together with this Prospectus
and retained.
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Each Policyowner should periodically consider the allocation among the
Subaccounts and the Fixed Account in light of current market conditions and the
investment risks attendant to investing in the Eligible Portfolios.
THE AMERICAN NATIONAL FUND
Four of the Subaccounts of the Separate Account invest in the shares of a
corresponding Portfolio of the American National Fund. The American National
Fund is registered with the SEC under the 1940 Act as an open-end diversified,
series management investment company. The American National Fund's current
Eligible Portfolios and respective investment objectives are as follows:
ANIA GROWTH PORTFOLIO ... seeks to achieve capital appreciation, normally
through the purchase of common stocks (although such Portfolio investments are
not restricted to any one type of security). Capital appreciation may also be
sought in other types of securities, including bonds and preferred stocks.
ANIA BALANCED PORTFOLIO ... seeks to provide conservation of principal,
reasonable current income and long-term capital appreciation by investing in a
balanced portfolio of fixed-income securities such as bonds, preferred stock and
short-term obligations combined with common stocks and securities convertible
into common stocks.
ANIA MANAGED PORTFOLIO ... seeks to achieve growth of capital and/or current
income by investing in a diversified portfolio consisting of, at the American
National Fund's investment adviser's discretion, money market instruments, debt
securities, stock or a combination thereof. It is anticipated that over longer
periods a larger portion of the Managed Portfolio will consist of equity
securities.
ANIA MONEY MARKET PORTFOLIO ... seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The
Money Market Portfolio will invest only in money market instruments of high
quality determined by the American National Fund's investment advisor.
SM&R is the investment adviser and manager of the American National Fund. It
also provides investment advisory and portfolio management services to American
National and other clients. It maintains a staff of experienced investment
personnel and related support facilities.
THE FIDELITY FUNDS
Pursuant to a Participation Agreement between American National, Fidelity
Distributors Corporation and the Fidelity Funds, five of the Subaccounts of the
Separate Account invest in the shares of five corresponding Portfolios of the
Fidelity Funds. The Fidelity Funds are registered with the SEC under the 1940
Act as open-end diversified, series management investment companies organized as
Massachusetts's business trusts.
Fidelity Management & Research Company ("FMR"), the Fidelity Funds' investment
adviser, was founded in 1946. FMR provides a number of mutual funds and other
clients with investment research and portfolio management services. It maintains
a large staff of experienced investment personnel and a full compliment of
related support facilities. Fidelity Management & Research (U.K.) Inc. ("FMR
U.K.") and Fidelity Management and Research (Far East) Inc. ("FMR Far East") are
wholly owned subsidiaries of FMR that provide research with respect to foreign
securities. FMR U.K. and FMR Far East maintain their principal business offices
in London and Tokyo, respectively. As of December 31, 1997, FMR advised funds
having more than 29 million shareholder accounts with a total value of more than
$432 billion. Fidelity Distributors Corporation distributes shares for the
Fidelity funds. FMR Corp. is the holding company for the Fidelity companies.
Through ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Fidelity Funds, and various trusts for the benefit of Johnson
family members form a controlling group with respect to FMR Corp. The Fidelity
Fund's current Eligible Portfolios and respective investment objectives are as
follows:
VIP II ASSET MANAGER PORTFOLIO ... seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
VIP II INDEX 500 PORTFOLIO ... seeks to provide investment results that
correspond to the total return (i.e., the combination of capital charges and
income) of common stocks publicly traded in the United States. In seeking this
objective, the Fidelity Index 500 Portfolio attempts to duplicate the
composition and total return of the Standard & Poor's 500 Composite Stock Price
Index while keeping transaction costs and other expenses low. The Fidelity Index
500 Portfolio is designed as a long-term investment option.
VIP II CONTRAFUND PORTFOLIO ... seeks capital appreciation by investing in
companies FMR believes to be undervalued due to an overly pessimistic appraisal
by the public. In pursuit of the fund's goal, FMR looks for companies with the
following characteristics: (i) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an improved
balance sheet; (ii) recently popular, but temporarily out of favor due to short-
term or one-time factors; or (iii) undervalued compared to other companies in
the same industry.
VIP II ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total return over
the long term by allocating its assets among stocks, bonds, and short-term
instruments. Allocating among different types of investments allows the fund to
take advantage of opportunities wherever they may occur, but also subjects the
fund to the risks of a given investment type.
VIP III GROWTH OPPORTUNITIES PORTFOLIO ... seeks to ride out stock market
pursuit of potentially high long-term returns. The Portfolio is designed for
investors who want to be invested in the stock market for its long-term growth
potential. The fund invests for growth and does not pursue income.
T. ROWE PRICE SERIES
Pursuant to a Participation Agreement between American National, T. Rowe Price
Associates, Inc. and Robert Fleming Holdings Limited, four of the Subaccounts of
the Separate Account invest in the shares of four corresponding Portfolios of
the T. Rowe Price Series. T. Rowe Price Associates, Inc. is responsible for
selection and management of the portfolio investments of T. Rowe Price Equity
Series and T. Rowe Price Fixed Income Series. 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.
The T. Rowe Price Fund's current Eligible Portfolios and respective investment
objectives are as follows:
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T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ... seeks to provide substantial
dividend income and also capital appreciation by investing primarily in
dividend-paying common stocks particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ... seeks to provide long term capital
appreciation by investing primarily in common stocks of medium-sized (mid-cap)
growth companies. The focus is on companies with superior earnings growth
potential that are no longer considered new or emerging, but are not yet well
established. Mid-cap growth company stocks are generally more volatile than
stocks of large, well established companies, but they offer the possibility of
more rapid growth.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ... seeks a total return on its
assets from long-term growth of capital and income, by investing substantially
all of its assets in common stocks of established non-U.S. companies. The
Portfolio will not purchase any debt security which at the time of purchase is
rated below investment grade. This would not prevent the Portfolio from
retaining a security downgraded to below investment grade after purchase.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO ... seeks a high level of income
consistent with modest price fluctuation by investing primarily in investment
grade debt securities.
MFS VARIABLE INSURANCE TRUST
Pursuant to a Participation Agreement between American National, Massachusetts
Financial Services Company and the MFS Variable Insurance Trust, four of the
Subaccounts of the Separate Account invest in the shares of four corresponding
Portfolios of the MFS Variable Insurance Trust. Massachusetts Financial Service
Company is the investment advisor to each series and manages the Portfolios in
accordance with the investment objectives and policies of each series. The MFS
Variable Insurance Trust's current Eligible Portfolios and respective investment
objectives are as follows:
MFS VALUE SERIES PORTFOLIO ... seeks capital appreciation. Dividend income, if
any, is a consideration incidental to the Series' objective of capital
appreciation. While the Series' policy is to invest primarily in common stocks,
it may seek appreciation in other types of securities such as fixed income
securities (which may be unrated), convertible bonds, convertible preferred
stocks and warrants when relative values make such purchases appear attractive
either as individual issues or as types of securities in certain economic
environments. The Series may invest in lower rated fixed income securities or
comparable unrated securities.
MFS EMERGING GROWTH SERIES PORTFOLIO ... seeks to provide long-term growth of
capital through investing primarily in common stocks of emerging growth
companies, which involves greater risk than is customarily associated with
investments in more established companies. The Series may invest in a limited
extent in lower rated fixed income securities or comparable unrated securities.
MFS RESEARCH SERIES PORTFOLIO ... seeks to provide long-term growth of capital
and future income by investing a substantial proportion of its assets in the
common stocks or securities convertible into common stocks of companies believed
to possess better than average prospects for long-term growth. No more than 5%
of the Portfolio's convertible securities, if any, will consist of securities in
lower rated categories or securities believed to be of similar quality to lower
rated securities. The Portfolio may invest in a limited extent in lower rated
fixed income securities or comparable unrated securities.
MFS GROWTH WITH INCOME SERIES PORTFOLIO ... seeks to provide reasonable
current income and long-term growth and income. Under normal market conditions
the Series will invest at least 65% of its assets in common stocks or securities
convertible into common stocks that are believed to have long-term prospects for
growth and income. The Series may also invest up to 75% of its net assets in
foreign securities that are not traded on a U.S. exchange.
VAN ECK WORLDWIDE INSURANCE TRUST
Pursuant to a Participation Agreement between American National and Van Eck
Worldwide Insurance Trust, two Subaccounts of the Separate Account invest in the
shares of two corresponding Portfolios of the Van Eck Worldwide Insurance Trust.
The Van Eck Worldwide Insurance Trust's current Eligible Portfolios and
respective investment objectives are as follows:
VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO (formerly Van Eck Gold and Natural
Resources Portfolio) ... seeks long-term capital appreciation by investing
primarily in "Hard Asset Securities." Income is a secondary consideration. Hard
Asset Securities include equity securities of "Hard Asset Companies" and
securities, including structured notes, whose value is linked to the price of a
Hard Asset commodity or a commodity index. "Hard Asset Companies" includes
companies that are directly or indirectly (whether through supplier
relationships, servicing agreements or otherwise) engaged to a significant
extent in the exploration, development, production or distribution of one or
more of the following (together "Hard Assets"): (i) precious metals, (ii)
ferrous and non-ferrous metals, (iii) gas, petroleum, petrochemicals and other
hydrocarbons, (iv) forest products, (v) real estate and (vi) other basic non-
agricultural commodities.
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ... seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Associates Corporation serves as investment advisor and manages the
investment operations of the Van Eck Portfolios and furnishes the Portfolios
with a continuous investment program which includes determining which securities
should be bought, sold or held.
FEDERATED INSURANCE SERIES
Pursuant to a Participation Agreement between American National, Federated
Advisors and the Federated Insurance Series, five of the Subaccounts of the
Separate Account invest in the shares of five corresponding Portfolios of the
Federated Insurance Series. Federated Advisors is responsible for the portfolio
investment decisions of the Federated Insurance Series, subject to direction by
the Federated Insurance Series Trustees. The Federated Insurance Series' current
Eligible Portfolios and respective investment objectives are as follows:
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FEDERATED UTILITY FUND II PORTFOLIO ... seeks to achieve high current income
and moderate capital appreciation. The Portfolio invests primarily in equity and
debt securities of utility companies.
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO ... seeks capital appreciation.
The Portfolio invests at least 65% of its assets in equity securities of
companies with prospects for above average growth in earnings and dividends.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO ... seeks current
income by investing in a diversified portfolio limited to U.S. government
securities.
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO ... seeks high current income.
The Portfolio invests in fixed income securities that are lower rated corporate
debt obligations, which are commonly referred to as "junk bonds." The risk in
investing in junk bonds is described in the prospectus for Federated High Income
Bond Fund II, which should be read carefully before investing.
FEDERATED EQUITY INCOME FUND II PORTFOLIO ... seeks to provide above average
income and capital appreciation by investing in income producing equity
securities including common stocks, preferred stocks, and debt securities that
are convertible into common stocks, in cash and cash items during times of
unusual conditions to maintain liquidity. Cash items may include commercial
paper, Europaper, certificates of deposit, obligations of the U. S. Government,
repurchase agreements and other short-term instruments.
LAZARD RETIREMENT SERIES, INC.
Pursuant to a Participation Agreement between American National, Lazard Freres
Asset Management and the Lazard Retirement Series, Inc., two of the Subaccounts
of the Separate Account invest in the shares of two corresponding Portfolios of
the Lazard Retirement Series, Inc. The investment objectives and policies of
each Portfolio of the Lazard Retirement Series, Inc. are summarized below. There
is no assurance that any of the Portfolios will achieve their stated objectives.
More detailed information, including a description of investment objective,
policies, restrictions, expenses and risks, is in the prospectus of the Lazard
Retirement Series, Inc. which must accompany this Prospectus and which should be
read carefully together with this Prospectus and retained.
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ... seeks capital appreciation.
This Portfolio invests primarily in equity securities of non-United States
issuers located, or doing significant business, in emerging market countries
that the investment manager considers inexpensively priced relative to the
return on total capital or equity.
LAZARD RETIREMENT SMALL CAP PORTFOLIO ... seeks capital appreciation. This
Portfolio invests primarily in equity securities of companies with market
capitalization under $1 billion that the investment manager considers
inexpensively priced relative to the return on total capital or equity.
Lazard Freres Asset Management serves as investment advisor and continually
furnishes an investment program for each Portfolio consistent with its
investment objectives and policies, including the purchase, retention and
disposition of securities.
American National has entered into arrangements with either the investment
advisor or distributor for certain of the Eligible Portfolios pursuant to which
the advisor or distributor pays American National a fee based upon an annual
percentage of the average aggregate net amount invested by American National on
behalf of the Portfolio. These percentages differ, and American National is paid
a greater percentage by some investment advisors or distributors than other
advisors or distributors. These agreements reflect administrative and other
services provided by American National.
ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
American National reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Separate Account or that the Separate Account may purchase. If the shares of
an Eligible Portfolio are no longer available for investment or if in American
National's judgment further investment in any Eligible Portfolio should become
inappropriate in view of the purposes of the Separate Account, American National
may redeem the shares, if any, of that Eligible Portfolio, and substitute shares
of another registered open-end investment company. American National will not
substitute any shares attributable to a Policyowner's interest in a Subaccount
of the Separate Account without notice and prior approval of the SEC and
possibly state insurance authorities, to the extent required by the 1940 Act or
other applicable law. The Separate Account may, to the extent permitted by law,
purchase other securities for other policies or permit a conversion between
policies upon request by the Policyowners.
American National also reserves the right to establish additional Subaccounts
of the Separate Account, each of which would invest in shares corresponding to a
new Portfolio of the American National Fund, the Fidelity Funds, the T. Rowe
Price Series, the MFS Variable Insurance Trust, the Federated Insurance Series,
the Van Eck Worldwide Insurance Trust, the Lazard Retirement Series or in shares
of another investment company having a corresponding investment objective.
American National may eliminate one or more Subaccounts with SEC approval if
marketing needs, tax considerations or investment conditions warrant. Any new
Subaccounts may be made available to existing Policyowners on a basis to be
determined by American National.
If any of these substitutions or changes are made, American National may by
appropriate endorsement change the Policy to reflect the substitution or change.
If American National deems it to be in the best interest of Policyowners, and
subject to any approvals that may be required under applicable law, the Separate
Account may be operated as a management company under the 1940 Act, it may be
de-registered under that Act if registration is no longer required, or it may be
combined with other American National separate accounts. In addition, American
National may, when permitted by law, restrict or eliminate any voting rights as
to the Separate Account.
The Policyowner will be notified of any material change in the investment
policy of any Eligible Portfolio in which the Policyowner has an interest.
Unless Policyowners have directed a different allocation, shares of the
Eligible Portfolios will be redeemed, pro rata, to the extent necessary for
American National to collect charges under the Policy, to pay the Surrender
Value upon surrender of the Policy, to
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provide a Death Benefit under the Policy, or to transfer assets from one
Subaccount to another or to the Fixed Account.
RESOLVING MATERIAL CONFLICTS
The Eligible Portfolios presently serve as the investment medium for the
Policies. In addition, the Eligible Portfolios (other than the Portfolios of the
American National Fund) are available to registered separate accounts of
insurance companies, other than American National, offering variable annuity and
variable life insurance contracts. The Eligible Portfolios may also be available
to certain qualified pension and retirement plans.
We do not currently foresee any disadvantages to you resulting from the
Eligible Portfolios selling shares to fund products other than the Policies.
However, there is a possibility that a material conflict of interest may arise
between Policyowners whose Accumulation Value is allocated to the Separate
Account and the owners of variable life insurance policies and variable annuity
contracts issued by other companies whose values are allocated to one or more
other separate accounts investing in any one of the Eligible Portfolios. Shares
of certain Eligible Portfolios may also be sold to certain qualified pension and
retirement plans. As a result, there is a possibility that a material conflict
may arise between the interests of Policyowners or owners of other policies
(including policies issued by other companies), and such retirement plans or
participants in such retirement plans. In the event of a material conflict,
American National will take any necessary steps, including removing the Eligible
Portfolio from the Separate Account, to resolve the matter. The Board of
Directors of each Eligible Portfolio will monitor events in order to identify
any material conflicts that may arise and determine what action, if any, should
be taken in response to those events or conflicts. See the accompanying
prospectuses for the Eligible Portfolios for more information.
FIXED ACCOUNT
Policyowners may elect to allocate all or a portion of their Net Premium to
the Fixed Account and, subject to certain limitations, they may also transfer
Accumulation Value from the Subaccounts to the Fixed Account. Transfers from the
Fixed Account to the Subaccounts are restricted. (See "Transfers" on page 13.)
Net Premiums allocated to the Fixed Account and transfers from a Subaccount to
the Fixed Account are placed in the General Account of American National. The
General Account includes all of American National's assets except those
segregated in its separate accounts. American National has the sole discretion
to invest the assets of its General Account, subject to applicable law. American
National bears an investment risk for all amounts allocated or transferred to
the Fixed Account and interest credited thereto, less any deduction for charges
and expenses, whereas the Policyowner bears the investment risk that the
declared rate will fall to a lower rate after the expiration of a declared rate
period. Because of exemptive and exclusionary provisions, interests in the
General Account have not been registered under the Securities Act (the "1933
Act"), nor is the General Account registered as an investment company under the
1940 Act. Accordingly, neither the General Account nor any interest therein is
generally subject to the provisions of the 1933 or 1940 Act. American National
understands that the staff of the SEC has not reviewed the disclosures in this
Prospectus relating to the Fixed Account portion of the Policy; however,
disclosures regarding the Fixed Account portion of the Policy may be subject to
generally applicable provisions of the federal securities laws regarding the
accuracy and completeness of statements made in prospectuses.
American National guarantees that it will credit interest to the Fixed Account
at an effective annual rate of at least 3.0% compounded daily. American National
may, at its discretion, declare higher interest rate(s) for amounts allocated or
transferred to the Fixed Account. With respect to each amount allocated to the
Fixed Account, the declared interest rate in effect at the time of allocation
will be credited for one year from that date.
THE POLICY
PURPOSE OF THE POLICY
The Policy is designed to provide the Policyowner with lifetime insurance
protection. Unlike traditional life insurance, the Policyowner is not required
to pay scheduled Premiums to keep a Policy in force, but may, subject to certain
limitations, vary the frequency and amount of Premium payments.
The Policy varies from conventional fixed benefit life insurance in a number
of additional respects. Because the Death Benefit may, and the Accumulation
Value will, vary with the investment experience of the chosen Subaccounts of the
Separate Account, the Policyowner benefits from any appreciation in value of the
underlying assets, but bears the investment risk of any depreciation in value.
Because the Policy provides for an accumulation of Surrender Value as well as
a Death Benefit, the Policy can be used for various individual and business
financial planning purposes. Purchasing the Policy in part for such purposes
entails certain risks. For example, if the investment performance of the
Subaccounts to which Accumulation Value is allocated is poorer than expected,
the Policy may lapse or may not accumulate sufficient Accumulation Value or
Surrender Value to fund the purpose for which the Policy was purchased. Policy
loans may significantly affect current and future Accumulation Value, Surrender
Value, or Death Benefit Proceeds. Depending upon Subaccount investment
performance and the amount of a loan, a loan may cause a Policy to lapse.
Because the Policy is designed to provide benefits on a long-term basis, a
purchaser should consider whether the nature of the Policy is consistent with a
specialized purpose before purchasing a Policy. Using a Policy for a specialized
purpose may have tax consequences. (See "FEDERAL TAX MATTERS" on page 19.)
POLICY APPLICATION AND ISSUANCE
Individuals wishing to purchase a Policy must complete an application and
submit it to American National's Home Office. A Policy will generally be issued
only to individuals 90 years of age or less on their last birthday who supply
satisfactory evidence of insurability to American National. Before accepting an
application, we conduct underwriting to determine insurability. We reserve the
right to reject an application or Premium for any reason. If a Policy is not
issued, we will return any submitted premium payment.
PREMIUM PAYMENTS
The minimum initial Premium for a Policy is $10,000. Except with respect to
additional payments required in a grace period, any additional payment must be
at least $5,000. No additional Premium payments may be made after age 90 of the
Insured, except as may be required in a grace period. Unless you designate
otherwise in
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writing when submitting the payment to us, a payment received while a loan is
outstanding generally is treated first as repayment of loan interest, second as
repayment of the loan, and last as additional Premium.
If additional payments would cause the Policy to violate the maximum premium
limitations required by federal tax law, at the Policyowner's election, the
Premium may be returned or the Specified Amount may be increased subject to
underwriting requirements. (See "Increase in Specified Amount" on page 14.) We
reserve the right to reject additional payments for any reason.
POLICY LAPSE AND THE GRACE PERIOD
The Policy will lapse when the Surrender Value is insufficient to cover the
Monthly Deduction due on that date and a grace period expires without a
sufficient Premium payment. The grace period is 61 days from the date American
National mails a notice that the grace period has begun. The notice will be
addressed to the Policyowner's last known address on file with American National
and will specify the Premium required to keep the Policy in force. Failure to
pay the required amount within the grace period will result in termination of
the Policy without value as of the first day of the grace period. A lapse of the
Policy may result in adverse tax consequences. If the Insured dies during the
grace period, any overdue Monthly Deductions and Policy Debt will be deducted
from the Death Benefit.
REINSTATEMENT
A lapsed Policy may be reinstated at any time within five years after the end
of the grace period if the Policy was not surrendered for its Surrender Value.
Reinstatement will be effected based on the Insured's underwriting
classification at the time of the reinstatement.
Reinstatement is subject to the following:
a. Evidence of insurability of the Insured satisfactory to American National;
b. Reinstatement or repayment of any Policy Debt;
c. Payment of Premium sufficient to pay the following:
1) the amount of any Monthly Deductions and annual fee not paid during the
grace period; and
2) the amount of the Monthly Deductions for the next three months and an
annual fee, if any; and
3) the amount necessary to pay the Premium charge.
The original Date of Issue, and the Dates of Issue of increases in Specified
Amount (if applicable), will be used for purposes of calculating the surrender
charges for the reinstated Policy. If any Policy Debt is reinstated, the amount
thereof will be held in American National's General Account. Accumulation Value
calculations will then proceed as described under "Determination of Accumulation
Value" . The Policy Date of reinstatement will be the first Monthly Deduction
Date on or next following the date of approval by American National of the
application for reinstatement.
ALLOCATION OF PREMIUM AND ACCUMULATION VALUE
ALLOCATION OF PREMIUM
The Policyowner indicates in the application one or more Subaccounts and/or
the Fixed Account to which a specified portion of the Net Premium should be
applied. No allocation will be permitted which would result in less than 1% of
the Net Premium being allocated to any one Subaccount and/or the Fixed Account.
The minimum initial allocation to any Subaccount and/or the Fixed Account is
$500. Changes in allocation of future Net Premiums (with the same 1% minimum)
may be made at any time by written instruction to the Home Office or by
telephone instruction, provided that American National has authorization to
accept telephone transfers.
The initial Net Premium payment will be allocated to the Subaccount of the
ANIA Money Market Portfolio, as of the Date of Issue, for 15 days. After the
expiration of this period, the Accumulation Value will be allocated to the
Subaccounts and/or the Fixed Account as selected by the Policyowner. If
additional Premium is accepted, we will credit it to your Accumulation Value
pursuant to your current allocation selections, unless you provide other
instructions as of the date of payment.
DETERMINATION OF ACCUMULATION VALUE
Accumulation Value is determined on each Valuation Date. On the Date of Issue,
Accumulation Value will equal the Net Premium, reduced by the Monthly Deduction
and the annual fee. Thereafter, on each Valuation Date, the Accumulation Value
of a Policy will equal:
a) The sum of the values attributable to the Policy in each of the
Subaccounts on that Valuation Date, determined for each Subaccount by
multiplying the Subaccount's Accumulation Unit Value by the number of
Accumulation Units allocated to the Policy; plus
b) The value attributable to the Policy in the Fixed Account; plus
c) Any Accumulation Value impaired by Policy Debt held in the General
Account; plus
d) Any Net Premiums received on that Valuation Date; less
e) Any Monthly Deduction and annual fee to be made on that Valuation Date;
less
f) Any federal or state income taxes charged against the Accumulation Value.
In computing the Accumulation Value on the Valuation Date, the number of
Subaccount Accumulation Units allocated to the Policy is determined after any
transfers among the Subaccounts or the Fixed Account and after deduction of
transfer charges but before any other Policy transactions, such as applying Net
Premiums.
CREDITING OF ACCUMULATION UNITS
All Net Premiums allocated to and Accumulation Value transferred to a
Subaccount will purchase Accumulation Units in the Subaccount. The number of
Accumulation Units purchased is determined by dividing the dollar amount of the
Net Premium allocated to the Subaccount by the Subaccount's Accumulation Unit
Value next computed following allocation of the Net Premium.
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DETERMINING THE ACCUMULATION UNIT VALUES
The Accumulation Unit Value of each Subaccount reflects the investment
performance of that Subaccount. The Accumulation Unit Value of each Subaccount
shall be calculated by: (i) multiplying the per share net asset value of the
corresponding Eligible Portfolio on the Valuation Date times the number of
shares held in the Subaccount, after the purchase or redemption of any shares on
that date; (ii) subtracting therefrom a Daily Asset Charge for that Subaccount
and (iii) dividing the result by the total number of Accumulation Units held in
the Subaccount on the Valuation Date, before the purchase or redemption of any
Accumulation Units on that date. The Accumulation Unit Value for each Subaccount
shall be calculated at the end of each Valuation Period. Investment performance
of the Eligible Portfolios, Eligible Portfolio company expenses, and the
deduction of certain charges affect the Accumulation Unit Value for each
Subaccount.
TRANSFERS
Accumulation Value may be transferred among the Subaccounts and/or the Fixed
Account subject to the following limits. The total amount transferred from a
Subaccount must be at least $250, or the balance of the Subaccount, if less. The
minimum amount that may remain in a Subaccount after a transfer is $100.
Transfers may be requested in person, by mail, or by telephone. Authorization
must be on file at American National's Home Office before any telephone
instructions will be allowed. American National will effectuate transfers and
determine all values in connection with transfers on the later of the end of the
Valuation Period that includes the date designated in the request or at the end
of the Valuation Period during which the transfer request is received. The
maximum amount which may be transferred from the Fixed Account to the
Subaccounts during a Policy month is the greater of (a) ten percent of the
amount in the Fixed Account, or (b) $1,000.
The first twelve transfers per Policy Year will be permitted free of charge.
Any additional transfers will be charged a $10 transfer fee at the time of the
transfer which, will be deducted from the amount transferred. (See "Transfer
Fee" on page 18). American National may at any time revoke or modify the
transfer privilege, including the number of free transfers and the minimum
amount transferable.
American National will employ reasonable procedures to confirm that the
transfer instructions communicated by telephone are genuine. The procedures
American National will follow for telephone transfers may include requiring some
form of personal identification prior to acting on instructions received by
telephone, providing written confirmation of the transaction, and making a tape
recording of the instructions given by telephone.
DOLLAR COST AVERAGING
Under the dollar cost averaging program, the Policyowner can instruct American
National to automatically transfer, on a periodic basis, a predetermined amount
or percentage specified by the Policyowner from any one Subaccount or the Fixed
Account, to any Subaccount(s) and/or the Fixed Account. The automatic transfers
can occur monthly, quarterly, semi-annually or annually, but the amount
transferred each time must be at least $1,000 in total. The transfer to each
Subaccount must be at least $100. At the time the program begins, there must be
at least $10,000 of Accumulation Value in the Policy. Dollar cost averaging
results in the purchase of more Accumulation Units when the Accumulation Unit
Value is low, and fewer units when the Accumulation Unit Value is high. However,
there is no guarantee that the dollar cost averaging program will result in
higher Accumulation Value or otherwise be successful.
The Policyowner can request participation in the dollar cost averaging program
when purchasing the Policy or at a later date. Transfers will begin as specified
by the Policyowner. Transfers under dollar cost averaging will be effected and
values in connection therewith determined, at the end of the Valuation Period
that included the transfer date designated in the instructions. The Policyowner
can specify that only a certain number of transfers will be made, in which case
the program will terminate when that number of transfers has been made.
Otherwise, the program will terminate on a transfer date if the Accumulation
Value is less than $5,000 or if there are insufficient funds for the transfer
from a Subaccount or the Fixed Account.
The Policyowner can increase or decrease the amount of the transfers or
discontinue the program by sending written notice or notice by telephone, if a
telephone transfer authorization form is on file. There is no charge for
participation in this program. Transfers of Accumulation Value made pursuant to
this program will not be counted in determining whether the transfer fee
applies.
ASSET ALLOCATION PROGRAM
Under the asset allocation program, the Policyowner can instruct American
National to allocate Net Premiums and transfer Accumulation Value among the
Subaccounts and the Fixed Account in accordance with allocation instructions
specified by the Policyowner or allocation instructions recommended by American
National and approved by the Policyowner. American National will rebalance a
Policyowner's investment by allocating Net Premiums and transferring
Accumulation Value among the Subaccounts and the Fixed Account to ensure
conformity with current allocation instructions. Rebalancing will be performed
on a calendar quarterly, semiannual or annual basis as specified by the
Policyowner. Rebalancing will be effected, and values in connection therewith
determined, at the end of the Valuation Period that includes the rebalancing
date designated in the instructions. At the time the program begins, there must
be at least $10,000 of Accumulation Value under the Policy. The Program will be
discontinued if, on a rebalancing date, the Accumulation Value is less than
$5,000.
The Policyowner can request participation in the asset allocation program when
purchasing the Policy or at a later date. The Policyowner can change the
allocation instructions or discontinue the program by sending written notice or
notice by telephone, if a telephone transfer authorization form is on file.
There is no charge for participation in this program. Transfers of Accumulation
Value made pursuant to this program will not be counted in determining whether
the transfer fee applies.
POLICY BENEFITS
DEATH BENEFIT
As long as the Policy remains in force, American National will, upon receipt of
Satisfactory Proof of Death of the Insured, pay the Death Benefit Proceeds of a
Policy at the time of the Insured's death. The Death Benefit Proceeds may be
paid in a lump sum or under one or more of the payment options set forth in the
Policy. (See "Optional Methods of Payment" on page 15.)
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Subject to the rights of any assignee, Death Benefit Proceeds will be paid to
the surviving Beneficiary or Beneficiaries specified in the application or as
subsequently changed. If no Beneficiary is chosen, the proceeds will be paid to
the Insured's estate.
The amount of the Death Benefit Proceeds payable will be determined at the end
of the Valuation Period during which the Insured's death occurred and is equal
to: (1) the Death Benefit; minus (2) any Policy Debt; minus (3) any overdue
Monthly Deduction when death occurs during a grace period. For Attained Ages of
100 or more, the Death Benefit equals the Accumulation Value. For Attained Ages
less than 100, the Death Benefit equals the greater of:
a) the initial Specified Amount plus any later increase; or
b) the Accumulation Value at the end of the Valuation Period that includes the
date of death multiplied by the corridor percentage for the Insured's
Attained Age;
<TABLE>
<CAPTION>
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
<S> <C> <C> <C> <C> <C>
0-40 250% 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% 75-90 105%
48 197% 62 126% 91 104%
49 191% 63 124% 92 103%
50 185% 64 122% 93 102%
51 178% 65 120% 94 101%
52 171% 66 119% 95+ 100%
53 164% 67 118%
</TABLE>
Example. For this purpose, assume that the Insured is under the age of 40, the
Specified Amount is $100,000, and that there is no Policy Debt nor any due and
unpaid Monthly Deductions. The Policy will initially provide for a $100,000
Death Benefit. However, because the Death Benefit cannot be less than 250% (the
applicable corridor percentage) of Accumulation Value, any time the Accumulation
Value of this Policy exceeds $40,000, the Death Benefit will exceed the $100,000
Specified Amount. If the Accumulation Value equals or exceeds $40,000, each
additional dollar added to the Accumulation Value will increase the Death
Benefit by $2.50. Thus, for a Policy with a Specified Amount of $100,000 and a
Accumulation Value of $80,000, the Beneficiary will be entitled to a Death
Benefit of $200,000 (250% x $80,000); Accumulation Value of $120,000 will yield
a Death Benefit of $300,000 (250% x $120,000); and a Accumulation Value of
$200,000 will yield a Death Benefit of $500,000 (250% x $200,000). Similarly, so
long as Accumulation Value exceeds $40,000, each dollar decrease in Accumulation
Value will reduce the Death Benefit by $2.50. If at any time, however, the
Accumulation Value multiplied by the corridor percentage is less than the
Specified Amount, the Death Benefit will equal the Specified Amount of the
Policy.
The applicable corridor percentage becomes lower as the Insured's Attained Age
increases. If the Attained Age of the Insured in the illustration were, for
example, 50 (rather than under age 40), the applicable corridor percentage would
be 185%. Therefore, the Death Benefit payable would not exceed the $100,000
Specified Amount unless the Accumulation Value exceeded approximately $54,054
(rather than $40,000), and each $1 increase or decrease in the Accumulation
Value would change the Death Benefit by $1.85 (rather than $2.50).
INCREASE IN SPECIFIED AMOUNT
If the Policyowner elects, the Specified Amount may be increased to allow
additional Premium payments that would otherwise cause the Policy to violate the
maximum premium limitations required by federal tax law. A written supplemental
application must be submitted with the additional Premium payment and American
National may require additional evidence of insurability. An increase in the
Specified Amount will become effective on the Monthly Deduction Date on or
following the date a written request is approved by American National. American
National may limit the number and size of increases in a Policy Year and a
Policy may not be increased after the Insured's age 90.
Each Policyowner who elects to increase the Specified Amount of a Policy will
have a "free look period", which right will apply only to the increase in
Specified Amount and not the entire Policy. These rights are comparable to the
rights of a purchaser of a new Policy. (See "Right to Examine" on page 18.) The
Policyowner may cancel the increase in Specified Amount within 10 days (or more
where required by applicable state insurance law) after the Policyowner has
received the Policy as increased. We will return to you the Premiums paid
adjusted by investment gains or losses, unless state insurance law requires
otherwise.
An increase in the Specified Amount may result in certain increased charges,
including the cost of insurance charge and the surrender charge, and may have
federal tax consequences. (See "CHARGES AND DEDUCTIONS" on page 16 and "FEDERAL
TAX MATTERS" on page 19.)
SURRENDER
At any time while the Policy is in force during the lifetime of the Insured,
the Policyowner may surrender the Policy, subject to the limitations discussed
herein, by sending a written request to American National. The surrender may be
subject to a surrender charge and/or a federal tax penalty. (See "Surrender
Charge" on page 17 and "FEDERAL TAX MATTERS" on page 19.)
If the Policy is surrendered, the actual Policy form must be returned to
American National along with the request. American National will pay the
Surrender Value. Coverage under the Policy will terminate as of the date of
surrender.
Upon a partial withdrawal, the amount of the partial withdrawal and any
surrender charges will be deducted from the Accumulation Value at the end of the
Valuation Period during which the request is received. If a partial withdrawal
would leave less than $5,000 of Accumulation Value in the Policy, then the
Policy will be fully surrendered. A request for a partial withdrawal should
specify the allocation of that surrender from the Fixed Account and each
Subaccount, as applicable. In the absence of specification, American National
will take amounts as needed to satisfy the surrender in the manner set forth in
"Monthly Deduction".
Upon receipt of a request for surrender of the Policy signed by the
Policyowner, the applicable Accumulation Unit Value for determining the
Accumulation Value will be the Accumulation Unit Value next
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determined after such application is received in American National's Home
Office. (See "Determination of Accumulation Value" on page 12.) Surrender Value
will generally be paid within seven days of receipt of the written request in
proper form. (See "Postponement of Payments" on page 19.)
If at the time the Policyowner makes a surrender request, he or she has not
provided American National with a written election not to have federal and state
income taxes withheld, American National is required by law to withhold such
taxes from the taxable portion of the surrender, and to remit that amount to
the federal and/or state government.
POLICY LOANS
LOAN PRIVILEGES
After the first Policy Year, the Policyowner may borrow money from American
National using the Policy as the only security for the loan. The minimum amount
that may be borrowed is $100. The maximum amount that may be borrowed is 90% of
the Surrender Value at the end of the Valuation Period during which the loan
request is received. Policyowners in certain states may borrow 100% of the
Surrender Value. Loans usually are funded within seven days after receipt of a
written request. (See "Postponement of Payments" on page 19.) Loans may result
in adverse tax consequences and/or penalties. (See "FEDERAL TAX MATTERS" on page
19.)
When a loan is made, some or all of the loan may be borrowed on a preferred
basis. Subject to the aforementioned maximum loan amount,the amount available as
a preferred loan is equal to the Accumulation Value less Policy Debt and less
Premiums paid. In addition, once this amount is exhausted, an additional amount
equal to 10% of Premium will be available each year as a preferred loan. A loan
may be classified as preferred only at the time the loan is made and the loan
classifications do not change.
LOAN INTEREST
Loan interest will accrue on a daily basis at a rate of 5.0% per year and is
due on each Policy anniversary. If interest is not paid when due, a new loan
will be made on the interest due date equal to the interest due.
EFFECT OF POLICY LOANS
On the date of the loan, Accumulation Value equal to the loan amount will be
transferred on a pro-rata basis from the Subaccount(s) and/or the Fixed Account
to American National's General Account as security for the indebtedness. No
charge will be imposed for these transfers.
Amounts held in the General Account as security for loans will earn interest
at an annual rate of 5.0%, if the loan is preferred, or 3% otherwise. Interest
is credited on the Policy anniversary. Interest earned on amounts held in the
General Account will be allocated to the Subaccounts and/or the Fixed Account on
each Policy anniversary in the same proportions as Net Premiums are being
allocated to those Subaccounts and/or the Fixed Account at that time.
A loan will permanently affect the Accumulation Value of a Policy, even if the
loan is repaid. The effect could be favorable or unfavorable depending on
whether the investment performance of the Subaccount(s) and/or the Fixed Account
selected by the Policyowner is less than or greater than the interest rate
credited to the Accumulation Value held in the General Account to secure the
loan. In comparison to a Policy under which no loan was made, the Accumulation
Value will be lower if the General Account interest rate is less than the
investment performance of the Subaccount(s) and/or the Fixed Account, and
greater if the General Account interest rate is higher than the investment
performance of the Subaccount(s) and/or the Fixed Account. Also, if not repaid,
the aggregate outstanding loan(s) will reduce the Death Benefit Proceeds and
Surrender Value otherwise payable.
POLICY DEBT
The Policy Debt equals the total of loans and accrued interest on loans. If
the Policy Debt exceeds the Accumulation Value less any surrender charge, the
Policyowner must pay the excess. American National will send a notice of the
amount that must be paid. If the Policyowner does not make the required payment
within the 61 days after American National sends the notice, the Policy will
terminate without value. A lapsed Policy may later be reinstated. (See "Policy
Lapse and the Grace Period" on page 12 and "Reinstatement" on page 12.)
REPAYMENT OF POLICY DEBT
Loans may be completely or partially repaid at any time while the Insured is
living. Payments received for repayment of Policy Debt are first applied toward
non-preferred loans. Unless you designate otherwise in writing when submitting
the payment to us, a payment received while a loan is outstanding generally is
treated first as repayment of loan interest, second as repayment of the loan,
and last as additional Premium. As Policy Debt is repaid, Accumulation Value
equal to the loan amount repaid will be transferred from the General Account to
the Separate Account and/or the Fixed Account in the same proportions as Net
Premiums are being allocated at the time of repayment. The transfer will occur
at the end of the Valuation Period during which the repayment is received. If
not repaid, American National will deduct Policy Debt from any amount payable
under the Policy.
PAYMENT OF POLICY BENEFITS
Death Benefit Proceeds under the Policy will usually be paid within seven days
after American National receives Satisfactory Proof of Death. Accumulation Value
benefits will ordinarily be paid within seven days of receipt of a written
request. American National reserves the right to defer payment of surrenders,
refunds or loans which would be derived from a Premium payment made by a check
which has not cleared the banking system. Payments may also be postponed in
certain other circumstances. (See "Postponement of Payments" on page 19.) The
Policyowner may decide the form in which the benefits will be paid. During the
Insured's lifetime, the Policyowner may arrange for the Death Benefit Proceeds
to be paid in a lump sum or under one or more of the optional methods of payment
described below. These choices are also available if the Policy is surrendered.
If no election is made, American National will pay the benefits in a lump sum.
When Death Benefits are payable in a lump sum and no election of an optional
method of payment is in force at the death of the
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Insured, the Beneficiary may select one or more of the optional methods of
payment.
An election or change of method of payment must be in writing. A change in
Beneficiary revokes any previous settlement election. Further, if the Policy is
assigned, any amount due to the assignee will first be paid in one sum. The
balance, if any, may be applied under any payment option. Once payments have
begun, the payment option may not be changed.
OPTIONAL METHODS OF PAYMENT
In addition to a lump sum payment of benefits under the Policy, any proceeds
to be paid under the Policy may be paid in any of four methods. Any amount left
with American National for payment under a settlement option will be transferred
to our General Account and will not be affected by the investment performance
associated with the Separate Account. American National may make other options
available in the future.
When proceeds become payable in accordance with a settlement option, the
Policy will be exchanged for a supplementary contract specifying all rights and
benefits. The effective date will be the date of the Insured's death or other
termination of the Policy.
Should the Beneficiary die before all proceeds have been paid, the remaining
proceeds will be paid either to the estate of the Beneficiary or in any other
manner provided for in the supplementary contract or as otherwise provided for
under applicable law.
Policyowner may elect to have the proceeds of this Policy paid under any of
the payment options described below.
Option 1. Installments for a Fixed Period. Equal installments will be paid for
a fixed number of years. Installments will include interest at the effective
rate of 2.5% per year.
Option 2. Installments for a Fixed Period and Life Thereafter. Equal monthly
installments will be paid for as long as the payee lives with installments
certain for a fixed period. The fixed period may be 10 years, 20 years, or as
long as the payee lives.
Option 3. Installments of a Fixed Amount. Equal annual, semiannual, quarterly,
or monthly installments will be paid. The sum of the installments paid in one
year must be at least $40.00 for each $1,000.00 of proceeds. Installments will
be paid until the total of the following amounts is exhausted: (1) the net sum
payable; plus (2) interest at the effective rate of 2.5% per year. The final
installment shall be the balance of the proceeds payable plus interest, and may
be more or less than the other installments.
Option 4. Interest Payment. American National will hold the proceeds at
interest. Interest will be paid at the effective rate of 2.5% per year. On
interest due dates, an amount of at least $100.00 may be withdrawn from the
amount held. If the amount held falls below $2,000.00, American National will
pay the entire amount held to the payee.
GENERAL PROVISIONS FOR SETTLEMENT OPTIONS
Typically, the first installment under Option 1, 2 or 3 will be paid as of the
date the proceeds are available. The first installment may be postponed for up
to ten (10) years, but only with American National's consent. If it is
postponed, the proceeds payable will accumulate with compound interest at the
effective rate of 2.5% per year.
To avoid paying installments of less than $20.00 each, American National may:
a) change the installments to a quarterly, semi-annual or annual basis; and/or
b) reduce the number of installments.
If the Policyowner elects an option, the Policyowner may restrict the
Beneficiary's right to assign, encumber, or obtain the discounted present value
of any unpaid amount.
Except to the extent permitted by law, unpaid amounts are not subject to any
claims of a Beneficiary's creditors. In no case may a Beneficiary receive the
discounted present value of installments payable under Option 2. At American
National's option, a Beneficiary may be permitted to receive the commuted
present value of installments under the other options. The effective interest
rate used to compute discounted present value is equal to the interest rate used
in computing the settlement option, plus 1%.
If the payee dies after payments have started under Option 1 or 2, American
National will pay the discounted present value of any unpaid fixed period
installments to the payee's estate except Option 2 lifetime; under Option 3 or
4, American National will pay any balance held by American National to the
payee's estate. With American National's consent, the option elected may provide
for payment in another manner.
Election of an option where proceeds are to joint or successive payees or
proceeds are payable to other than a natural person may be made only with the
consent of American National.
CHARGES AND DEDUCTIONS
Charges will be deducted in connection with the Policy to compensate American
National for: (1) providing the insurance benefits set forth in the Policy and
any optional insurance benefits; (2) administering the Policy; (3) assuming
certain risks in connection with the Policy; and (4) incurring expenses in
distributing the Policy. Routine Policy administration includes record keeping,
processing Death Benefit claims, surrenders, policy changes, and preparing and
mailing reports. Risks assumed by American National in connection with the
Policy include mortality risk and expense risk. The mortality risk assumed by
American National is that Insureds may live for a shorter time than assumed, and
that an aggregate amount of Death Benefits greater than assumed would be paid.
The expense risk is that expenses incurred in issuing and administering the
Policies will exceed those assumed would be paid. The nature and amount of
these charges are described more fully below. American National may realize a
profit on any charge or deduction under the Policy. Any such profit may be used
for any purpose, including the payment of distribution costs.
PREMIUM CHARGES
After the first Policy Year, Premiums paid will be reduced by a 4% charge
prior to allocation among the Subaccounts and the Fixed Account. This charge
compensates American National for the cost and risk associated with issuing,
maintaining and distributing the Policy.
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MONTHLY DEDUCTION
On each Monthly Deduction Date, the Monthly Deduction will be deducted from
the Accumulation Value. Each of these charges is described in more detail below.
The Monthly Deduction will be allocated among the Subaccounts and the Fixed
Account in the same proportion as the Accumulation Value in each Subaccount and
the Fixed Account, bears to the total Accumulation Value in all Subaccounts and
the Fixed Account on that date. 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 CHARGE
This charge is deducted from the Accumulation Value on each Monthly Deduction
Date prior to Attained Age 100, as part of the Monthly Deduction. The cost of
insurance charge compensates American National for providing insurance
protection under the Policy. Currently, the cost of insurance charge for a
Policy is calculated as a percentage of the Accumulation Value on the Monthly
Deduction Date. The charge is based on the duration of the insurance, which is
determined separately for the Specified Amount at issue and for any increase in
Specified Amount. To determine the cost of insurance, Accumulation Value will be
allocated proportionately based on Specified Amounts to the original and
increase insurance segments. We may, at our discretion, change the cost of
insurance charges. However, the cost of insurance charge deducted on a Monthly
Deduction Date is guaranteed not to exceed the amount calculated using the
guaranteed cost of insurance rates set forth in the Policy for that date. The
guaranteed cost of insurance rate for a Monthly Deduction Date under a Policy
depends on the Insured's sex (except in Montana) and age on the first day of a
Policy Year. The maximum cost of insurance charge for a Monthly Deduction Date
is equal to the Policy's net amount at risk multiplied by the guaranteed cost of
insurance rate for that date. The net amount at risk on any Monthly Deduction
Date is the Death Benefit which would be payable on the Monthly Deduction Date
less the Accumulation Value on the Monthly Deduction Date after deducting the
Expense charge and annual fee.
EXPENSE CHARGE
The annual rate of this charge is guaranteed not to exceed 0.40% of the
Accumulation Value attributable to Premium paid in the first Policy Year. The
Accumulation Value attributable to Premium paid in the first Policy Year is
calculated as the first year premium percentage times the Accumulation Value on
the Monthly Deduction Date. Currently, there is no expense charge after the
tenth policy year. This charge compensates American National for the cost and
risk associated with issuing, maintaining and distributing the Policy.
The first year premium percentage is recalculated every time Premium is paid.
During the first Policy Year and prior to receiving any Premium after the first
Policy Year, the first year premium percentage is one. When Premium is paid
after the first Policy Year, the first year premium percentage is calculated as
(a) multiplied by the result of one minus the quotient of (b) divided by (c),
where (a) is the first year premium percentage immediately before receipt of the
Premium, (b) is the amount of the additional Premium paid, and (c) is the
Accumulation Value immediately after receipt of the additional Premium. For
example, assume the Policyowner paid $10,000 of Premium at issue followed by
$5,000 on Policy Anniversaries 2 and 3 and the Accumulation Value grows by 5%
each year. The first year premium percentage would change as follows:
<TABLE>
<CAPTION>
(a) Prior
First Year (c) Accumulation First Year
Premium (b) Premium Value Immediately Premium
Year Percentage Amount after Premium Percentage
<S> <C> <C> <C> <C>
1 100.00% $10,000 $10,000 100.00%
2 100.00% $5,000 $15,500 67.74%
3 67.74% $5,000 $21,275 51.82%
</TABLE>
ASSET CHARGE
An asset charge will be deducted from the Accumulation Value at an annual rate
of 1.25%. Such is to compensate American National for mortality and expense
risks assumed in connection with the Policy.
For Accumulation Value held in the Fixed Account or the General Account, the
asset charge will be deducted on each Monthly Deduction Date. For Accumulation
Value held in the Separate Account, the asset charge will be deducted on each
Valuation Date. The daily charge will be deducted from the Accumulation Value of
each Subaccount, on each Valuation Date. The deduction rate on the Valuation
Date will be calculated as (a) raised to the (b) power, minus one, where (a) is
one plus the annual rate and (b) is the number of days since the last Valuation
Date divided by 365.
ANNUAL FEE
A $35.00 annual fee will be assessed on the first Monthly Deduction Date of
each Policy Year. Currently, the annual fee is waived when the Accumulation
Value exceeds $50,000 on the Monthly Deduction Date. This charge compensates
American National for the cost and risk associated with issuing, maintaining and
distributing the Policy.
PORTFOLIO COMPANY ANNUAL EXPENSES
Amounts invested in the Subaccounts will be subject to the Eligible Portfolio
annual expenses shown on page 6.
SURRENDER CHARGE
If a Policy is surrendered, American National may assess a surrender charge
based upon the amount of Premium withdrawn and the amount of the Surrender
Premium shown in the Policy. Surrender Premiums are calculated separately for
the original Specified Amount and for each increase in Specified Amount.
To calculate the surrender charge multiply the surrender charge percentage
times the appropriate Surrender Premium. The surrender charge will never exceed
$56.65 per $1000 of Specified Amount. There are no surrender charges on Premiums
in excess of the total Surrender Premium. The surrender charge percentages are
shown in the following table:
<TABLE>
<CAPTION>
Number of Years Issue/ Issue/ Issue/
Since Surrender Increase Increase Increase
Premium Was Paid Age 0-65 Age 66-75 Age 76-90
<S> <C> <C> <C>
1 9.00% 8.00% 6.00%
2 8.50% 7.50% 5.50%
3 8.00% 7.00% 5.00%
4 7.00% 6.00% 4.00%
5 6.00% 5.00% 3.00%
6 5.00% 4.00% 2.00%
7 4.00% 3.00% 1.75%
8 3.00% 2.00% 1.50%
9 2.00% 1.75% 1.25%
10 or more 0.00% 0.00% 0.00%
</TABLE>
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OTHER CHARGES
TRANSFER FEE
A transfer fee of $10.00 will be imposed for each additional transfer among
the Subaccounts and Fixed Account after twelve transfers per Policy Year to
compensate American National for the costs of effecting the transfer. This fee
will be deducted from the amount transferred. The amount of the transfer fee
will not be increased.
CHARGES FOR TAXES
Currently, no charge will be made against the Separate Account for federal,
state or local income taxes. American National may, however, make such a charge
in the future if income or gains within the Separate Account will incur any
federal, or any significant state or local tax treatment or if tax treatment of
American National changes. Charges for such taxes if any, would be deducted from
the Separate Account and/or the Fixed Account. American National would not
realize a profit on such taxes with respect to the Policies.
EXCEPTIONS TO CHARGES
Policy charges and deductions may be reduced for, or additional amounts
credited on, sales of Policies to a trustee, employer, or similar entity
representing a group where American National determines that such sales result
in savings of sales or administrative expenses. In addition, directors, officers
and bona fide full-time employees (and their spouses and minor children) of SM&R
and American National are permitted to purchase Policies with substantial
reduction of the surrender charges, fees, or administrative charges.
The Policies may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of American
National and its affiliated companies, and spouses and immediate family members
(i.e., children, siblings, parents and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Policies, and spouses and immediate family
members 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 Policy
being sold directly, rather than through an agent with an associated commission,
but only if such credit will not be unfairly discriminatory to any person.
GENERAL PROVISIONS
THE CONTRACT
The Policy, the application, any supplemental applications, and any amendments
or endorsements make up the entire contract. All statements made by the Insured
in the application, in the absence of fraud, are considered representations and
not warranties. Only statements in the application that is attached to the
Policy and any supplemental applications made a part of the Policy when a change
in coverage went into effect can be used to contest a claim or the validity of
the Policy. The President, Vice President or Secretary of American National must
approve any changes in writing. 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.
RIGHT TO EXAMINE
If the Policyowner is not satisfied with the Policy, he/she may return it to
our agent or us within 10 days (or more where required by applicable state
insurance law) after he/she receives the Policy. American National will cancel
the Policy as of the date any insurance became effective and return the Premiums
paid adjusted by investment gains or losses, unless state insurance law requires
otherwise.
To cancel the Policy, the Policyowner should mail or deliver the actual Policy
form to American National at the Home Office or to the office of one of its
agents. A refund of Premiums paid by check may be delayed until the check has
cleared the Policyowner's bank. (See "Postponement of Payments" on page 19.)
CONTROL OF POLICY
The Policyowner is as shown in the application or subsequent written
endorsement. Subject to the rights of any irrevocable Beneficiary and any
assignee of record, all rights, options, and privileges belong to the
Policyowner, if living; otherwise to any contingent owner or owners, if living;
otherwise to the estate of the last Policyowner to die. If the Policyowner is a
minor, first the Applicant, then the Beneficiary, if living and legally
competent may exercise all rights of ownership.
BENEFICIARY
The Policyowner may name both primary and contingent Beneficiaries. The
Beneficiary(ies) and their designated class are specified in the application.
Payments will be shared equally among Beneficiaries of the same class unless
otherwise stated. If a Beneficiary dies before the Insured, payments will be
made to any surviving Beneficiaries of the same class; otherwise to any
Beneficiary(ies) of the next class; otherwise to the estate of the Insured.
CHANGE OF BENEFICIARY
The Policyowner may change the Beneficiary by written request on a Change of
Beneficiary form at any time during the Insured's lifetime unless otherwise
provided in the previous designation of Beneficiary. American National, at its
option, may require that the actual Policy form be returned to the Home Office
for endorsement of any change, or that other forms be completed. The change will
take effect as of the date the change is recorded at the Home Office. American
National will not be liable for any payment made or action taken before the
change is recorded. No limit is placed on the number of changes that may be
made.
CHANGE IN POLICYOWNER OR ASSIGNMENT
In order to change the Policyowner or assign Policy rights, an assignment of
the Policy must be made in writing and filed with American National at its Home
Office. The change will take effect as of the date the change is recorded at the
Home Office, and American National will not be liable for any payment made or
action taken before the change is recorded. Payment of proceeds is subject to
the rights of any assignee of record. No partial or contingent assignment of the
Policy will be permitted. A collateral assignment is not a change of ownership.
PAYMENT OF PROCEEDS
The proceeds are subject first to any Policy Debt and then to the interest of
any assignee of record. Payments to satisfy any such Policy Debt and to any
assignee shall each be paid in one sum. The
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<PAGE>
balance of any Death Benefit Proceeds shall be paid in one sum to the designated
Beneficiary unless an optional method of payment is selected. If no Beneficiary
survives the Insured, the proceeds shall be paid in one sum to the estate of the
Insured. Any proceeds payable upon surrender shall be paid in one sum unless an
optional method of payment is elected.
INCONTESTABILITY
The Policy is incontestable after it has been in force during the lifetime of
the Insured for two years from the Date of Issue. An increase in the Specified
Amount after the Date of Issue shall be incontestable after such increase has
been in force during the lifetime of the Insured for two years from its Policy
Date. Any reinstatement of a Policy shall be incontestable only after having
been in force during the lifetime of the Insured for two years after the Policy
Date of the reinstatement.
MISSTATEMENT OF AGE OR SEX
If the age or sex of the Insured has been misstated, the amount of the Death
Benefit will be adjusted as provided in the Policy.
SUICIDE
Suicide within two years of the Date of Issue is not covered by the Policy
unless otherwise provided by a state's insurance law. If the Insured, while sane
or insane, commits suicide within two years after the Date of Issue, American
National will pay only the Premiums received less any Policy Debt. If the
Insured, while sane or insane, commits suicide within two years after the Policy
Date of any increase in the Specified Amount, American National's liability with
respect to such increase will only be the total cost of insurance and expenses
paid to date for the increase. If the Insured, while sane or insane, commits
suicide within two years from the Policy Date of reinstatement, American
National's liability with respect to such reinstatement will only be for the
return of cost of insurance and expenses, if any, paid on or after the
reinstatement.
POSTPONEMENT OF PAYMENTS
Payment of any amount upon refund, surrender, loans, benefits payable at death
and transfers may be postponed whenever: (i) the New York Stock Exchange is
closed, other than customary weekend and holiday closings, or trading on the New
York Stock Exchange is restricted as determined by the Securities and Exchange
Commission ("Commission"); (ii) the Commission, by order, permits postponement
for the protection of Policyowners; or (iii) an emergency exists, as determined
by the Commission, as a result of which, disposal of securities is not
reasonably practicable or it is not reasonably practicable to determine the
value of the Separate Account's Accumulation Value. Surrenders, or loans from
the Fixed Account may be deferred for up to 6 months from the date of written
request.
DIVIDENDS
The Policy is nonparticipating. This means the Policy is not eligible for
dividends and does not participate in any distribution of American National's
surplus.
DISTRIBUTOR OF THE POLICIES
SM&R, 2450 South Shore Blvd., League City, Texas 77573, a wholly-owned
subsidiary of American National, will act as the principal underwriter of the
Policies pursuant to a Distribution and Administrative Services Agreement
between itself and American National. SM&R was organized under the laws of the
State of Florida in 1964, and is a registered broker/dealer pursuant to the
Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers. (See the American National Fund's Prospectus.)
Registered representatives of SM&R who sell the Policy will receive
commissions from SM&R based upon a commission schedule. After issuance of the
Policy, broker/dealers will receive sales commissions aggregating to no more
than 9.0% of the Surrender Premiums. Upon any subsequent increase in Specified
Amount, commissions will be paid based on the amount of the increase in
Surrender Premium. SM&R and American National may authorize other registered
broker/dealers and their Registered Representatives to sell the Policies subject
to applicable law.
FEDERAL TAX MATTERS
The following summary provides a general description of the federal income tax
considerations associated with the Policy and does not purport to be complete or
to cover all situations. This discussion is not intended as tax advice. Counsel
or other competent tax advisers should be consulted for more complete
information. This discussion is based upon American National's understanding of
the present federal income tax laws as they are currently interpreted by the
Internal Revenue Service (the "Service"). No representation is made as to the
likelihood of continuation of the present federal income tax laws or of the
current interpretations by the Service. Moreover, no attempt has been made to
consider in detail any applicable state (except premium taxes, see "CHARGES AND
DEDUCTIONS" on page 16) or other tax laws.
If you are contemplating a Policy in connection with a qualified retirement
plan, you should consult a qualified tax adviser.
TAX STATUS OF THE POLICY
DEFINITION OF LIFE INSURANCE
Section 7702 of the Internal Revenue Code of 1986, as amended ("Code") defines
a life insurance contract for federal income tax purposes.
The Section 7702 definition can be met if a life insurance contract satisfies
either one of two tests set forth in that section. The manner in which these
tests should be applied to certain features of the Policy is not directly
addressed by Section 7702 or proposed regulations issued under that Section. The
presence of these Policy features, the absence of final regulations, and the
lack of other pertinent interpretations of Section 7702, thus create some
uncertainty about the application of Section 7702 to the Policy.
Nevertheless, American National believes that it is reasonable to
19
<PAGE>
conclude that the Policy qualifies as a life insurance contract for federal tax
purposes, so that the death benefit should be fully excludible from the gross
income of the Beneficiary under Section 101(a)(1) of the Code and the
Policyowner should not be considered in constructive receipt of the Surrender
Value, including any increases, unless and until they are distributed from the
Policy.
If a Policy were determined not to be a life insurance contract for purposes
of Section 7702, such Policy would not provide most of the tax advantages
normally provided by a life insurance contract. American National thus reserves
the right to make changes in the Policy if such changes are deemed necessary to
attempt to assure its qualification as a life insurance contract for tax
purposes.
DIVERSIFICATION AND INVESTOR CONTROL
Section 817(h) of the Code requires that the investments of each of the
Subaccount must be "adequately diversified" in accordance with Treasury
regulations in order for the Policy to qualify as a life insurance contract
under the Code. The Subaccounts, through the Eligible Portfolios, intend to
comply with the diversification requirements prescribed in Treas. Reg. (S)
1.817-5, which affect how an Eligible Portfolio's assets are to be invested.
American National believes that the Subaccounts will, therefore, meet the
diversification requirements, and American National will monitor continued
compliance with this requirement.
In certain circumstances, owners of variable life insurance contracts may be
considered the owners, for federal income tax purposes, of the assets of the
subaccounts used to support their contracts. In those circumstances, income and
gains from the subaccount assets would be includible in the variable
Policyowner's gross income. The Service has stated in published rulings that a
variable Policyowner will be considered the owner of subaccount assets if the
policyowner possesses incidents of ownership in those assets, such as the
ability to exercise investment control over the assets. The Treasury Department
has also announced, in connection with the issuance of regulations concerning
diversification, that those regulations "do not provide guidance concerning the
circumstances in which investor control of the investments of a segregated asset
account may cause the investor (i.e., the Policyowner), rather than the
insurance company, to be treated as the owner of the assets in the account."
This announcement also stated that guidance would be issued by way of
regulations or rulings on the "extent to which policyholders may direct their
investments to particular subaccounts without being treated as owners of the
underlying assets".
The ownership rights under the Policy are similar to, but different in certain
respects from, those described by the Service in rulings in which it was
determined that policyowners were not owners of subaccount assets. For example,
the investment objective of certain Eligible Portfolios may be narrower and a
Policyowner has additional flexibility in allocating Premium and Accumulation
Values. These differences could result in a Policyowner being treated as the
owner of a pro rata portion of the assets of the Subaccounts. In addition,
American National does not know what standards will be set forth, if any, in the
regulations or rulings that the Treasury Department has stated it expects to
issue. American National therefore reserves the right to modify the Policy as
necessary to attempt to prevent a Policyowner from being considered the owner of
a pro rata share of the assets of the Subaccounts.
TAX TREATMENT OF POLICY BENEFITS
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
GENERAL
American National believes that the Death Benefit Proceeds and Accumulation
Value increases of a Policy should be treated in manner consistent with a fixed-
benefit life insurance contract for federal income tax purposes. Thus, the Death
Benefit under the Policy should be excludable from the gross income of the
Beneficiary under Section 101(a)(1) of the Code.
Depending on the circumstances, a loan, a surrender, a change in ownership, or
an assignment of the Policy may have federal income tax consequences. In
addition, federal, state and local estate, transfer, and other tax consequences
of ownership or receipt of Policy proceeds depend on the circumstances of each
Policyowner or Beneficiary. If the Policy is used in connection with tax-
qualified retirement plans, certain limitations prescribed by the Service on,
and rules with respect to the taxation of, life insurance protection provided
through such plans may apply.
The Policy may continue after the Insured attains age 100. The tax
consequences associated with continuing a Policy beyond age 100 are unclear. A
qualified tax adviser should be consulted on this issue.
The Policy may also be used in various arrangements, including nonqualified
deferred compensation or salary continuance plans, split dollar insurance plans,
executive bonus plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts and
circumstances of each individual arrangement. Therefore, if you are
contemplating the use of a Policy in any arrangement the value of which depends
in part on its tax consequences, you should be sure to consult a qualified tax
adviser regarding the tax attributes of the particular arrangement. Moreover, in
recent years, Congress has adopted new rules relating to corporate owned life
insurance. Any business contemplating the purchase of a new life insurance
contract or a change in an existing contract should consult a qualified tax
adviser.
Generally, the Policyowner will not be deemed to be in constructive receipt of
the Accumulation Value, including increments thereof, until there is a
distribution. Upon a surrender or lapse of a Policy, the excess, if any, of the
amount received plus the amount of indebtedness over the total investment in the
Policy will generally be taxed as ordinary income. The tax consequences of other
distributions from, and loans taken from or secured by, a Policy depend on
whether the Policy is classified as a "Modified Endowment Contract" ("MEC").
You should be aware that, in almost all cases, the Policy will be a MEC.
MODIFIED ENDOWMENT CONTRACTS
Section 7702A establishes a class of life insurance contracts designated as
"Modified Endowment Contracts." In general, a Policy will be a MEC if at any
time during the first seven Policy Years the sum of Premiums paid exceeds the
sum of the net level premiums that would have been paid on or before such time
if the Policy provided for paid-up future benefits after the payment of seven
level annual premiums. While classification as a MEC will depend on the
individual circumstances of each Policy, in almost all
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<PAGE>
cases the Policy is expected to be a MEC. The determination of whether a Policy
will be a MEC after a material change generally depends upon the relationship of
the Death Benefit and Accumulation Value at the time of such change and the
additional Premiums paid in the seven years following the material change. If a
Policy is not a MEC, since the rules relating to whether that Policy could
become a MEC as the result of a proposed Policy transaction are complex and
cannot be fully described in the limited confines of this summary, Policyowners
should consult with a qualified tax adviser to determine whether such a Policy
transaction will cause the Policy to be treated as a MEC.
DISTRIBUTIONS FROM POLICIES CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS
Policies classified as MEC's will be subject to the following tax rules.
First, all distributions, including distributions upon surrender up to the
excess, if any, of the Accumulation Value immediately before the distribution
over the investment in the contract (described below) at such time are treated
as ordinary income subject to tax. Second, a 10 percent additional income tax is
imposed on the portion of any distribution from a MEC that is included in income
except where the distribution is made on or after the Policyowner attains age 59
1/2, is attributable to the Policyowner's becoming disabled, or is part of a
series of substantially equal periodic payments for the life (or life
expectancy) of the Policyowner or the joint lives (or joint life expectancies)
of the Policyowner and the Policyowner's Beneficiary. Third, loans taken from or
secured by a MEC are treated as distributions and taxed accordingly. Past due
loan interest that is added to the loan amount is treated as a loan.
If a Policy becomes a MEC after it is issued, distributions made during the
Policy Year in which it becomes a MEC, distributions in any subsequent Policy
Year and distributions within two years before the Policy becomes a MEC will be
subject to the tax treatment described above. This means that a distribution
from a Policy that is not a MEC could later become taxable as a distribution
from a MEC.
DISTRIBUTIONS FROM POLICIES NOT CLASSIFIED AS MODIFIED ENDOWMENT CONTRACTS
Any Policy issued in exchange for a MEC will be subject to the tax treatment
accorded to a MEC. However, American National believes that any Policy issued in
exchange for a life insurance contract that is not a MEC generally will not be
treated as a MEC if the Death Benefit of the Policy is greater than or equal to
the death benefit of the contract being exchanged. The payment of any Premiums
at the time of or after the exchange may, however, cause the Policy to become a
MEC. A Policyowner may, of course, choose not to exercise the right to make
additional payments in order to prevent a Policy from being treated as a MEC.
If your Policy is not a MEC, distributions from the Policy are generally
treated as first recovering the investment in the contract (described below) and
then, only after the return of all such investment in the contract, as
distributing taxable income. In the first 15 years after the Policy is issued,
an exception to this general rule occurs when there is a decrease in the Death
Benefit or any other change that reduces future benefits under the Policy and
that results in a cash distribution to the Policyowner in order for the Policy
to continue complying with the Section 7702 definitional limits. Such a cash
distribution will be taxed in whole or in part as ordinary income (to the extent
of any gain in the Policy) under rules prescribed in Section 7702.
Loans from, or secured by, a Policy that is not a MEC are not treated as
distributions. Instead, such loans are treated as indebtedness of the
Policyowner.
Finally, the 10 percent additional tax is not imposed on distributions from
(including distributions upon surrender) nor loans from, or secured by, a Policy
that is not a MEC.
POLICY LOAN INTEREST
Interest paid on any loan under a Policy generally is not deductible. A
Policyowner should consult a tax adviser before deducting any loan interest.
INVESTMENT IN THE CONTRACT
Investment in the contract means: (i) the aggregate amount of any Premiums or
other consideration paid for a Policy, minus (ii) the aggregate amount received
under the Policy that is excluded from gross income of the Policyowner (except
that the amount of any loan from, or secured by, a Policy that is a MEC will be
disregarded to the extent such amount is excluded from gross income), plus (iii)
the amount of any loan from, or secured by, a Policy that is a MEC to the extent
that such amount is included in the gross income of the Policyowner.
MULTIPLE POLICIES
All MEC that are issued by American National (or its affiliates) to the same
Policyowner during any calendar year are treated as one MEC for purposes of
determining the amount includible in the gross income under Section 72(e) of the
Code.
POSSIBLE LEGISLATIVE CHANGES
The President's Budget Proposal has recommended legislation in 1998 that, if
enacted, would adversely modify the federal taxation of certain insurance and
annuity contracts. For example, one proposal would tax transfers among
investment options and tax exchanges involving variable contracts. A second
proposal would reduce the "investment in the contract" under cash value life
insurance and certain annuity contracts, thereby increasing the amount of income
for purposes of computing gain. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Policy could change by legislation or other means. Moreover, it is also possible
that any change could be retroactive (that is, effective prior to the date of
the change). You should consult a qualified tax adviser with respect to
legislative developments and their effect on the Policy.
TAXATION OF AMERICAN NATIONAL
At the present time, American National makes no charge for any federal, state
or local income taxes that it incurs that may be attributable to the Subaccounts
or to the Policies. American National, however, reserves the right in the future
to make additional charges for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the Subaccounts or to the Policies. If any tax charges are made
in the future, they will be accumulated daily and transferred from the
applicable Subaccount to American National's General Account. Any investment
earnings on tax charges accumulated in a Subaccount will be retained by American
National.
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SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
American National holds the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from the General Account
assets, except for the Fixed Account and assets securing loans. American
National maintains records of all purchases and redemptions of shares of
Eligible Portfolios by each of the Subaccounts.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Separate Account will be
invested in shares of the corresponding Eligible Portfolios. American National
is the legal holder of those shares and as such has the right to vote to elect
the Board of Directors of the Eligible Portfolio, to vote upon certain matters
that are required by the 1940 Act to be approved or ratified by the shareholders
of a mutual fund, and to vote upon any other matter that may be voted upon at a
shareholders' meeting. To the extent required by law, American National will
vote all shares of Eligible Portfolios held in the Separate Account at regular
and special shareholder meetings in accordance with instructions received from
Policyowners. The number of votes for which each Policyowner has the right to
provide instructions will be determined as of the record date selected by the
Board of Directors of the American National Fund, the Fidelity Funds, the MFS
Variable Insurance Trust, the T. Rowe Price Series, the Van Eck Worldwide
Insurance Trust, the Federated Insurance Series or the Lazard Retirement Series,
Inc., as the case may be. American National will furnish Policyowners with the
proper forms, materials and reports to enable them to give it these
instructions.
The number of shares of an Eligible Portfolio in a Subaccount for which
instructions may be given by a Policyowner is determined by dividing the
Accumulation Value held in that Subaccount by the net asset value of one share
in the corresponding Eligible Portfolio. Fractional shares will be counted.
Shares of an Eligible Portfolio held in each Subaccount for which no timely
instructions from Policyowners are received and shares of an Eligible Portfolio
held in each Subaccount which do not support Policyowner interests will be voted
by American National in the same proportion as those shares in that Subaccount
for which timely instructions are received. Voting instructions to abstain on
any item to be voted will be applied on a pro rata basis to reduce the votes
eligible to be cast. Should applicable federal securities laws or regulations
permit, American National may elect to vote shares of the Eligible Portfolios in
its own right.
Matters on which Policyowners may give voting instructions include the
following: (1) election of the Board of Directors of the American National Fund,
the Fidelity Funds, the T. Rowe Price Series, the MFS Variable Insurance Trust,
the Van Eck Worldwide Insurance Trust, the Federated Insurance Series or the
Lazard Retirement Series, Inc.; (2) ratification of the independent accountant
of the American National Fund, the Fidelity Funds, the T. Rowe Price Series, the
MFS Variable Insurance Trust, the Van Eck Worldwide Insurance Trust, the
Federated Insurance Series or the Lazard Retirement Series, Inc.; (3) approval
of the Investment Advisory Agreement for the Eligible Portfolio(s) corresponding
to the Policyowner's selected Subaccount(s); (4) any change in the fundamental
investment Policies of the Eligible Portfolio(s) corresponding to the
Policyowner's selected Subaccount(s); and (5) any other matter requiring a vote
of the shareholders of the American National Fund, the Fidelity Funds, the T.
Rowe Price Series, the MFS Variable Insurance Trust, the Van Eck Worldwide
Insurance Trust, the Federated Insurance Series or the Lazard Retirement Series,
Inc., under the 1940 Act.
DISREGARD OF VOTING INSTRUCTION
American National may, if required by state insurance officials, disregard
voting instructions if those instructions would require shares to be voted to
cause a change in the subclassification or investment objectives or policies of
one or more of the Eligible Portfolios, or to approve or disapprove an
investment adviser or principal underwriter for the Eligible Portfolios. In
addition, American National itself may disregard voting instructions that would
require changes in the investment objectives or policies of any Eligible
Portfolio or in an investment adviser or principal underwriter for the Eligible
Portfolios, if American National reasonably disapproves those changes in
accordance with applicable federal regulations. If American National does
disregard voting instructions, it will advise Policyowners of that action and
its reasons for the action in the next annual report or proxy statement to
Policyowners.
STATE REGULATIONS OF AMERICAN NATIONAL
American National, a stock life insurance company organized under the laws of
Texas, is subject to regulation by the Texas Department of Insurance. On or
before March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of American National and the Separate
Account as of December 31 of the preceding year must be filed with the Texas
Department of Insurance.
Periodically, the Texas Department of Insurance examines the liabilities and
reserves of American National and the Separate Account and certifies their
adequacy. A full examination of American National's operations is also conducted
periodically by the National Association of Insurance Commissioners.
In addition, American National is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. The Policies offered by the Prospectus are available in the various
states as approved. Generally, the insurance department of any other state
applies the laws of the state of domicile in determining permissible investment.
However, differences in state laws may require American National to offer a
Policy in one or more states which has suicide, incontestability, refund
provisions and surrender charges or other provisions which are more favorable to
a Policyowner than provisions in a Policy offered in other states.
22
<PAGE>
PREPARING FOR YEAR 2000
Like all financial services providers, American National utilizes systems and
relies on service providers, including the Eligible Portfolios, that may be
affected by Year 2000 transition issues. American National has developed, and is
in the process of implementing, a Year 2000 transition plan, and is confirming
that its service providers are also so engaged. The resources that are being
devoted to this effort are substantial. It is difficult to predict with
precision whether the amount of resources ultimately devoted, or the outcome of
these efforts, will have any negative impact on American National. However, as
of the date of this Prospectus, it is not anticipated that Policyowners will
experience negative effects on their Accumulation Value, or on the services
provided in connection therewith, as a result of Year 2000 transition
implementation. American National currently anticipates that its systems will be
Year 2000 compliant on or about January 1, 1999, but there can be no assurance
that American National will be successful, or that interaction with other
service providers will not impair American National's services at that time.
LEGAL MATTERS
Various matters of Texas law pertaining to the Policy, including the validity
of the Policy and American National's right to issue the Policy under Texas
Insurance Law, have been passed upon by Greer, Herz and Adams, L.L.P., General
Counsel.
LEGAL PROCEEDINGS
American National and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, American National believes that
at the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
American National. (See footnote 15 of the Financial Statements of American
National, on page 43)
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1997 and December 31, 1996 and for the years
then ended, included in the registration statement have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in accounting and auditing in giving said report.
Actuarial matters included in the Prospectus have been examined by Rex D.
Hemme, as stated in the opinion filed as an exhibit to the registration
statement.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Policy offered hereby. This Prospectus does not contain all the information set
forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, American National and the Policy
offered hereby. Statements contained in this Prospectus as to the contents of
the Policy and other legal instruments are summaries. For a complete statement
of the terms thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of American National should be considered only as
bearing on the ability of American National to meet its obligations under the
Policies. They should not be considered as bearing on the investment performance
of the assets held in the Separate Account. No financial statements of the
Separate Account have been included in this Prospectus because, as of the date
of this Prospectus, the Subaccounts funding the Polices had no assets or
liabilities.
23
<PAGE>
MANAGEMENT OF AMERICAN NATIONAL INSURANCE COMPANY
NAME AND POSITION(S) WITH PRINCIPAL OCCUPATIONS LAST FIVE YEARS
AMERICAN NATIONAL INSURANCE COMPANY AND OTHER POSITIONS HELD
- --------------------------------------------------------------------------------
ROBERT L. MOODY
CHAIRMAN OF THE BOARD, DIRECTOR,
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
President, January 1996 to present, Chairman of the Board, April 1982 to
present, Chief Executive Officer, July 1991 to present, and Director, March 1960
to present, American National. Director, September 1985 to present, ANREM
Corporation. Director and President, 1982 to present, Moody Bancshares, Inc.
Director and President, 1988 to present, Moody Bank Holding Company, Inc.
President, 1980 to 1993, Chairman of the Board, Director and Chief Executive
Officer, 1980 to present, The Moody National Bank of Galveston. Chairman of the
Board and Director, 1971 to present, National Western Life Insurance Company.
Trustee, 1955 to present, The Moody Foundation. Director, 1954 to present, Gal-
Tex Hotel Corporation. Chairman of the Board and Director of Transitional
Learning Community at Galveston; Chairman of the Board and Director of The Moody
Endowment.
G.R. FERDINANDTSEN
SENIOR EXECUTIVE VICE PRESIDENT
AND CHIEF OPERATING OFFCER
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. Vice President, Health Insurance
Operations, April 1993 to present, American National Life Insurance Company of
Texas. Director, November 1992 to present, American National Property and
Casualty Company. Director, November 1992 to present, American National General
Insurance Company. Director, April 1978 to present, McMarr Properties (formerly
American Securities Company). Director, April 1992 to present, McCreless
Foundation. Director, January 1985 to present, United Land. Director, June 1993
until company was merged in December 1994, Commonwealth Life and Accident
Insurance Company. Underwriter, March 1994 to present, American National Lloyds
Insurance Company. Director, 1995 to present, Pacific P & C, Inc. Director,
January 1996 to present, Standard Life and Accident Insurance Company.
IRWIN M. HERZ, JR.
DIRECTOR
Director, 1984 to present, American National. Partner, March 1980 to present,
Greer, Herz & Adams, L.L.P., General Counsel to American National. Trustee,
April 1971 to present, Three R Trusts. Director, April 1983 until company was
merged in December 1994, Commonwealth Life and Accident Insurance Company.
Director, June 1992 to present, Garden State Life Insurance Company. Director of
American National Property and Casualty Company.
R. EUGENE LUCAS
DIRECTOR
Director, April 1981 to present, American National. President and Director,
March 1971 to present, Gal-Tex Hotel Corporation. President and Director, March
1971 to present, Gal-Tenn Hotel Corporation. President and Director, May 1985 to
present, Gal-Tex Management Company. President and Director, November 1995 to
present, Gal-Tex Woodstock, Inc. Director, November 1982 to present, Securities
Management and Research, Inc. Director, September 1982 to present, ANREM
Corporation. Director, March 1985 to present, Colonel Museum, Inc.
HAROLD C. MACDONALD
DIRECTOR
Director, April 1982 to present, American National. Comptroller, December 1962
to present, The Moody Foundation. Director, November 1982 to present, American
National Property and Casualty Company. Director, November 1982 to present,
American National General Insurance Company. Director, March 1981 to August
1996, Seal Fleet, Inc. Director, 1995 to present, Pacific Property and Casualty,
Inc.
E. DOUGLAS MCLEOD
DIRECTOR
Director, April 1984 to present, American National. Director, 1986 to present,
ANREM Corporation. Director, October 1979 to present, National Western Life
Insurance Company. Director, June 1984 to present, Independent County Mutual
Fire Insurance Company of Texas. Attorney. Director of Development, May 1982 to
present, The Moody Foundation. Owner of McLeod Properties. Past Member of State
House of Representatives of the State of Texas. Chairman and Director, 1988 to
present, Moody Gardens, Inc. Vice President and Director, 1985 to present,
Colonel Museum, Inc. Director, 1983 to present, Center for Transportation and
Commerce.
24
<PAGE>
FRANCES ANNE MOODY
DIRECTOR
Director, April 1987 to present, American National. Executive Director, January
1998 to present, and Regional Grants Advisor, September 1996 to present, The
Moody Foundation. Director, 1990 to present, National Western Life Insurance
Company. Executive Director, 1991 to present, The Moody Endowment. Investments,
Dallas, Texas.
RUSSELL S. MOODY
DIRECTOR
Director, April 1986 to present, American National. Director, 1988 to March
1996, National Western Life Insurance Company. Director, 1981 to present, Gal-
Tex Hotel Corporation. Director, 1982 to 1996, Seal Fleet, Inc.
WILLIAM L. MOODY IV
DIRECTOR
Director, March 1951 to present, American National. Director, January 1969 to
March 1996, Advisory Director, March 1996 to present, The Moody National Bank of
Galveston. President and Director, May 1959 to present, Moody Ranches, Inc.
Director, November 1969 to present, American National Life Insurance Company of
Texas. Board of Trustees, 1970 to present, Rosenberg Library. Director, 1970 to
present, University of Texas Medical Branch Development Board.
JOE MAX TAYLOR
DIRECTOR
Director, April 1992 to present, American National. Sheriff, 1980 to present,
Galveston County, Texas. Director and President, 1988 to present, Moody Gardens,
Inc. Director, 1985 to present, Transitional Learning Community at Galveston.
President, 1981 to present, Galveston County Bail-Bond Board. Director, 1981 to
present, Fifty Club Board of Galveston. Director, 1992 to present, Landry's
Seafood Restaurants, Inc. Pre-Trial Release Board of Galveston County 1982 to
present. Chairman, 1993 to present, Juvenile Crime Prevention-Intervention Task
Force. President's Cabinet, 1994 to present, University of Texas Medical Branch.
R.A. FRUEND
EXECUTIVE VICE PRESIDENT
Executive Vice President, Director of Ordinary Agencies, April 1989 to present,
American National. Director and Vice President, April 1989 to present, American
National Life Insurance Company of Texas. Director, November 1979 to present,
American National Property and Casualty Insurance Company. Director, November
1981 to present, American National General Insurance Company. Director, November
1988 to present, Securities Management and Research, Inc. Director, 1995 to
present, Pacific P & C, Inc. Director, November 1988 to present, American
National Insurance Service Company. Director, December 1995 to present, ANPAC
Lloyds Insurance Management, Inc. Director, December 1995 to present, American
National Lloyds Insurance Company.
B.J. GARRISON
EXECUTIVE VICE PRESIDENT
Executive Vice President, Director of Home Service Division, April 1991 to
present, American National. Director, February 1993 until company was merged in
December 1994, Commonwealth Life and Accident Insurance Company.
M.W. MCCROSKEY
EXECUTIVE VICE PRESIDENT
Executive Vice President-Investments, 1995 to present, and Senior Vice
President-Real Estate and Mortgage Loans, 1986 to 1995, American National.
Director, June 1977 to present, and President, October 1986 to present, ANREM
Corporation. Assistant Secretary, December 1986 to present, American National
Life Insurance Company of Texas. Vice President, May 1988 to present, Standard
Life and Accident Insurance Company. President and Director, 1995 to present,
ANTAC, Inc. President, Chief Executive Officer and Director, 1994 to present,
Securities Management and Research, Inc. President and Director, 1994 to
present, American National Funds Group. President and Director, 1994 to
present, SM&R Capital Funds, Inc. President and Director, 1994 to present,
American National Investment Accounts, Inc. Vice President, 1995 to present,
Pacific P & C, Inc. Vice President, May 1994 to present, Garden State Life
Insurance Company. Vice President, June 1994 to present, American National
Property and Casualty Company. Vice President, June 1994 to present, American
National General Insurance Company.
J.E. POZZI
EXECUTIVE VICE PRESIDENT
Executive Vice President, Independent Markets, April 1996 to present. Senior
Vice President, Corporate Planning and Development, June 1992 to April 1996,
American National. Vice President, April 1993 to present, American National Life
Insurance Company of Texas.
25
<PAGE>
R.J. WELCH
EXECUTIVE VICE PRESIDENT
Executive Vice President and Chief Actuary, April 1996 to present. Senior Vice
President and Chief Actuary, April 1986 to April 1996, American National.
Director, December 1987 to present, Standard Life and Accident Insurance
Company. Director, November 1987 to present, American National Property and
Casualty Company. Director, November 1987 to present, American National General
Insurance Company. Director, November 1986 to present, Actuary, April 1980 to
present, and Senior Vice President, April 1990 to present, American National
Life Insurance Company of Texas. Vice President, until company was merged in
December 1994, Commonwealth Life and Accident Insurance Company. Chairman of the
Board and Director, June 1992 to present, Garden State Life Insurance Company.
Director, 1995 to present, Pacific P & C, Inc. Director, December 1995 to
present, American National Insurance Service Company.
C.H. ADDISON
SENIOR VICE PRESIDENT
Senior Vice President, Systems Planning and Computing, April 1978 to present,
American National. Director, November 1981 to present, American National
Property and Casualty Company. Director, November 1981 to present, American
National General Insurance Company. Director, 1995 to present, Pacific P & C,
Inc. Director, January 1996 to present, Standard Life and Accident Insurance
Company.
A.L. AMATO
SENIOR VICE PRESIDENT
Senior Vice President, Life Policy Administration, April 1994 to present, Vice
President, Life Policy Administration, April 1984 to April 1994, American
National. Vice President, May 1984 to present, American National Life Insurance
Company of Texas. Vice President, August 1992 to present, Director, August 1992
to December 1993, and Advisory Director, December 1993 to present, Garden State
Life Insurance Company. Director, August 1992 until company was merged in
December 1994, Commonwealth Life and Accident Insurance Company.
G.C. LANGLEY
SENIOR VICE PRESIDENT
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 Action Program
Coordinator, April 1976 to April 1983, and Assistant Vice President, Personnel
Placement Director, April 1969 to April 1976, American National.
S.E. PAVLICEK
SENIOR VICE PRESIDENT AND CONTROLLER
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, American National. Assistant Treasurer, 1995 to present,
ANTAC, Inc. Controller, June 1992 to present, Garden State Life Insurance
Company. Controller, August 1994 to present, American National Life Insurance
Company of Texas.
J.R. THOMASON
SENIOR VICE PRESIDENT
Senior Vice President, Credit Insurance Services, April 1987 to present,
American National.
G.W. TOLMAN
SENIOR VICE PRESIDENT
Senior Vice President, Corporate Affairs, April 1996 to present, and Vice
President, Corporate Affairs, April 1976 to April 1996, American National.
V.E. SOLER, JR.
VICE PRESIDENT, SECRETARY AND TREASURER
Vice President, Secretary and Treasurer, 1994 to present, and Vice President and
Controller, March, 1984 to 1994, American National. Treasurer, October 1984 to
present, ANREM Corporation. Treasurer, April 1984 to present, Controller, April
1984 to August 1994, and Secretary, August 1994 to present, American National
Life Insurance Company of Texas. Assistant Secretary, January 1996 to present,
Standard Life and Accident Insurance Company. Secretary, 1995 to present, ANTAC,
Inc. Secretary and Treasurer, August 1994 to present, Garden State Life
Insurance Company. Assistant Secretary, August 1994 to present, American
National Property and Casualty Company. Assistant Secretary, American National
General Insurance Company.
The principal business address of each person listed above is American National
Insurance Company, One Moody Plaza, Galveston, Texas 77550-7999.
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statements of financial position
of American National Insurance Company and subsidiaries (the Company) as of
December 31, 1997 and 1996, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years then ended. These
consolidated financial statements (pages 28 through 43) are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Insurance Company and subsidiaries as of December 31, 1997 and 1996,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
27
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 349,073 $ 329,937
Accident and health premiums 378,521 364,198
Property and casualty premiums 312,987 257,845
Other policy revenues 99,930 82,911
Net investment income 472,895 435,691
Gain from sale of investments 103,320 58,001
Other income 23,178 21,416
- -------------------------------------------------------------------------------------------------------
Total revenues 1,739,904 1,549,999
- -------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 382,696 363,035
Accident and health 279,348 261,942
Property and casualty 233,887 206,120
Increase (decrease) in liability for future policy benefits:
Life and annuity 50,995 37,988
Accident and health (4,843) (1,570)
Commissions for acquiring and servicing policies 239,633 267,305
Other operating costs and expenses 167,079 156,128
Increase in deferred policy acquisition costs, net of amortization (12,267) (73,880)
Taxes, licenses and fees 39,687 38,234
- -------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,376,215 1,255,302
- -------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF UNCONSOLIDATED
AFFILIATES AND FEDERAL INCOME TAXES 363,689 294,697
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 9,333 10,764
- -------------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 373,022 305,461
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 134,271 90,103
Deferred (9,606) (237)
- -------------------------------------------------------------------------------------------------------
NET INCOME $ 248,357 $ 215,595
=======================================================================================================
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 9.38 $ 8.14
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------
1997 1996
- ---------------------------------------------------------------------------------------------------------------
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $3,605,927 $3,430,726
Bonds available-for-sale, at market 600,380 528,306
Marketable equity securities, at market:
Preferred stocks 40,744 51,625
Common stocks 882,864 754,039
Mortgage loans on real estate 1,103,333 1,098,583
Policy loans 300,574 303,336
Investment real estate, net of accumulated depreciation
of $100,298 and $108,974 258,210 323,826
Short-term investments 126,732 5,470
Other invested assets 63,135 70,064
- ---------------------------------------------------------------------------------------------------------------
Total investments 6,981,899 6,565,975
Cash 5,497 13,545
Investments in unconsolidated affiliates 100,888 95,836
Accrued investment income 102,361 97,883
Reinsurance ceded receivables 48,193 42,695
Prepaid reinsurance premiums 140,791 109,965
Premiums due and other receivables 85,945 70,922
Deferred policy acquisition costs 748,341 739,023
Property and equipment 32,142 26,455
Other assets 57,889 73,713
Separate account assets 179,027 152,533
- ---------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,482,973 $7,988,545
===============================================================================================================
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $1,990,978 $1,939,926
Accident and health 101,550 106,555
Policy account balances 2,422,828 2,353,245
Policy and contract claims 326,182 289,846
Other policyholder funds 419,736 356,456
- ---------------------------------------------------------------------------------------------------------------
Total policyholder liabilities 5,261,274 5,046,028
Current federal income taxes 14,340 17,810
Deferred federal income taxes 215,606 196,712
Other liabilities 107,309 101,556
Separate account liabilities 179,027 152,533
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,777,556 5,514,639
- ---------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Net unrealized gains on securities 215,883 163,352
Retained earnings 2,561,218 2,382,238
Treasury stock, at cost (102,727) (102,727)
- ---------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,705,417 2,473,906
- ---------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,482,973 $7,988,545
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
NET
ADDITIONAL UNREALIZED TOTAL
CAPITAL PAID-IN GAINS ON RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL SECURITIES EARNINGS STOCK EQUITY
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31,1995 $ 30,832 $ 211 $ 158,898 $ 2,233,899 $ (102,727) $ 2,321,113
Net income 215,595 215,595
Dividends to stockholders
($2.54 per share) (67,256) (67,256)
Increase in unrealized gains on
marketable securities, net
of applicable federal
income taxes 4,454 4,454
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 30,832 211 163,352 2,382,238 (102,727) 2,473,906
Net income 248,357 248,357
Dividends to stockholders
($2.62 per share) (69,377) (69,377)
Increase in unrealized gains on
marketable securities, net
of applicable federal
income taxes 52,531 52,531
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $ 30,832 $ 211 $ 215,883 $ 2,561,218 $ (102,727) $ 2,705,417
============================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- --------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 248,357 $ 215,595
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 145,663 103,946
Charges to policy account balances (99,625) (81,651)
Interest credited to policy account balances 135,478 121,689
Deferral of policy acquisition costs (151,891) (182,124)
Amortization of deferred policy acquisition costs 138,710 108,017
Deferred federal income tax expense (benefit) (9,606) (237)
Depreciation 20,454 20,104
Accrual and amortization of discounts and premiums (34,416) (7,959)
Gain from sale of investments (103,320) (58,001)
Equity in earnings of unconsolidated affiliates (9,333) (10,764)
Decrease (increase) in premiums receivable (15,023) 3,093
Increase in accrued investment income (4,478) (15,342)
Capitalization of interest on policy and mortgage loans (14,475) (14,338)
Other changes, net (26,937) (36,969)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 219,558 165,059
- --------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 196,807 201,485
Stocks 331,679 191,284
Real estate 89,448 26,528
Other invested assets 5,706 1,112
Principal payments received on:
Mortgage loans 168,603 56,352
Policy loans 40,207 37,645
Purchases of investments:
Bonds (424,721) (725,070)
Stocks (279,690) (120,441)
Real estate (1,537) (7,696)
Mortgage loans (151,471) (218,019)
Policy loans (23,023) (25,137)
Other invested assets (15,250) (74,259)
Decrease (increase) in short-term investments, net (121,262) 9,596
Decrease (increase) in investment in unconsolidated affiliates, net (4,281) 13,718
Increase in property and equipment, net (3,173) (2,867)
- --------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (191,958) (635,769)
- --------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 391,607 756,727
Policyholders' withdrawals from policy account balances (357,878) (219,161)
Dividends to stockholders (69,377) (67,256)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (35,648) 470,310
- --------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (8,048) (400)
Cash:
Beginning of the year 13,545 13,945
- --------------------------------------------------------------------------------------------------------------------
End of the year $ 5,497 $ 13,545
====================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiple line
insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues are generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiple line ordinary, group
brokerage, credit and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas, Garden State Life Insurance Company, Standard Life
and Accident Insurance Company, American National Property and Casualty Company,
American National General Insurance Company and American National Lloyds
Insurance Company. The major non-insurance subsidiaries are Securities
Management & Research, Inc. and ANREM Corporation. As part of its investment
portfolio, American National also owns interests in unconsolidated affiliates,
primarily several real estate joint ventures and partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--The consolidated
financial statements include the accounts of American National Insurance Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. Investments in unconsolidated affiliates
are shown at cost plus equity in undistributed earnings since the dates of
acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance companies,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 12.)
Certain reclassifications have been made to the 1996 financial information to
conform to the 1997 presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using
those estimates.
ACCOUNTING CHANGES
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF-- Effective January 1, 1996, American National adopted
Statement of Financial Accounting Standard (FAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
This statement requires that long-lived assets be reviewed for impairment
whenever circumstances indicate that the carrying value may not be recoverable.
The review must be done by estimating future undiscounted cash flows to be
received. If the sum of the expected future undiscounted cash flows is less than
the carrying value, an analysis of the investment's fair value compared with its
carrying value is performed. If the fair value is less than the carrying value,
an impairment loss is recognized as a charge to current earnings. As American
National used similar methods to calculate valuation reserves on investment real
estate in prior years, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations.
FAS No. 121 also requires that long-lived assets to be disposed of be carried
at the lower of book value or the expected amount to be received on sale, less
the cost to sell. Prior to January 1, 1996, American National's real estate
acquired in satisfaction of debt (foreclosed real estate) was carried at cost
less accumulated depreciation and reserves for possible losses. Upon the
adoption of FAS No. 121, American National determined that all of its foreclosed
real estate was held for sale and should therefore be held at the lower of book
value or the expected amount to be received on sale, less the cost to sell,
without any further allowance for depreciation. Since all of the book values for
foreclosed real estate were below the expected amount to be received on sale,
less the cost to sell, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations.
EARNINGS PER SHARE--As of December 31, 1997, American National adopted FAS No.
128 "Earnings per Share." This statement establishes standards for computing and
presenting earnings per share. As American National has a simple capital
structure, the adoption of this new standard did not have any effect on the
calculation of earnings per share.
NEW ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME--FAS No. 130, "Reporting Comprehensive Income,"
is effective for years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components in a financial statement that are displayed with the same prominence
as the rest of the financial statements in a report.
American National will adopt FAS No. 130 on January 1, 1998. Management
believes that the adoption of FAS No. 130 will have no effect on American
National's financial position or results from operations.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--FAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," is
effective for years beginning after December 15, 1997. This statement
establishes standards for the way information is reported about operating
segments in financial statements. The statement requires disclosure of
information on operating segments that are evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and assess
performance. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
American National will adopt FAS No. 131 on January 1, 1998. The adoption of
this standard will require American National to
32
<PAGE>
change the way it reports segment information to match more closely the way the
business is analyzed by management. Upon adoption, applicable prior period
results will be revised to reflect the new disclosure. However, management
believes that the adoption of FAS No. 131 will have no effect on American
National's financial position or results from operations.
INVESTMENTS
DEBT SECURITIES--Bonds which are intended to be held-to-maturity are carried
at amortized cost. The carrying value of these debt securities is expected to be
realized, due to American National's ability and intent to hold these securities
until maturity.
Bonds held as available-for-sale are carried at market.
PREFERRED STOCKS--All preferred stocks are classified as available-for-sale
and are carried at market
COMMON STOCKS-- All common stocks are classified as available-for-sale and are
carried at market.
UNREALIZED GAINS--For all investments carried at market, the unrealized gains
or losses (differences between amortized cost and market), net of applicable
federal income taxes, are reflected in stockholders' equity.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized cost,
less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of loan
and property information, such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation allowances are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowances for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years) using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through the
review of operating information and periodic inspections. This information is
evaluated in light of current economic conditions and other factors, such as
geographic location and property type. As a result of this review, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial paper)
are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures as used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for other than temporary impairments of mortgage
loans, real estate and other assets in accordance with the policies established
for each class of invested asset. The increase in the valuation allowances is
reflected in current period income as a realized loss.
Management believes that the valuation allowances are adequate. However, it is
possible that a significant change in economic conditions in the near term could
result in losses exceeding the amounts established.
CASH AND CASH EQUIVALENTS--American National considers cash on hand and in banks
as cash for purposes of the consolidated statements of cash flows.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES--These assets are primarily investments
in real estate joint ventures, and are accounted for under the equity method of
accounting.
PROPERTY AND EQUIPMENT--These assets consist of buildings occupied by the
companies, electronic data processing equipment, and furniture and equipment.
These assets are carried at cost, less accumulated depreciation. Depreciation is
provided using straight-line and accelerated methods over the estimated useful
lives of the assets (3 to 50 years).
INSURANCE SPECIFIC ASSETS AND LIABILITIES
DEFERRED POLICY ACQUISITION COSTS--Certain costs of acquiring new insurance
business have been deferred. For life, annuity and accident and health business,
such costs consist of inspection report and medical examination fees,
commissions, related fringe benefit costs and the cost of insurance in force
gained through acquisitions. The amount of commissions deferred includes first-
year commissions and certain subsequent year commissions that are in excess of
ultimate level commission rates.
The deferred policy acquisition costs on traditional life and health products
are amortized with interest over the anticipated premium-paying period of the
related policies, in proportion to the ratio of annual premium revenue to be
received over the life of the policies. Expected premium revenue is estimated by
using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. The amount of deferred policy
acquisition costs is reduced by a provision for possible inflation of
maintenance and settlement expenses in the determination of such amounts by
means of grading interest rates.
Costs deferred on universal life, limited pay and investment type contracts
are amortized as a level percentage of the present value of anticipated gross
profits from investment yields, mortality, and surrender charges. The effect on
the deferred policy acquisition costs that would result from realization of
unrealized gains (losses) is recognized with an offset to net unrealized gains
(losses) in consolidated stockholders' equity as of the balance sheet date. It
is possible that a change in interest rates could have a significant impact on
the deferred policy acquisition costs calculated for these contracts.
Deferred policy acquisition costs associated with property and casualty
insurance business consist principally of commissions,
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
underwriting and issue costs. These costs are amortized over the coverage period
of the related policies, in relation to premium revenue recognized.
FUTURE POLICY BENEFITS--For traditional products, liabilities for future
policy benefits have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality and other assumptions which
were appropriate at the time the policies were issued. Estimates used are based
on the companies' experience, as adjusted to provide for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs
significantly from the assumed, the estimates are revised for current and future
issues.
Future policy benefits for universal life and investment-type contracts
reflect the current account value before applicable surrender charges. In the
near term, it is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
RECOGNITION OF PREMIUM REVENUE AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH--Life and accident and health premium is
recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
ANNUITIES--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in the
case of variable annuities, administrative fees. Policy account balances for
annuities represent the premiums received plus accumulated interest less
applicable accumulated administrative fees. It is possible that a change in
interest rates could have a significant impact on the values calculated for
these contracts.
UNIVERSAL LIFE AND SINGLE PREMIUM WHOLE LIFE--Revenues from universal life
policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges actually paid and earned policy service fees. Policyholder
account balances consist of the premiums received plus credited interest, less
accumulated policyholder assessments. Amounts included in expense represent
benefits in excess of account balances returned to policyholders.
PROPERTY AND CASUALTY--Property and casualty premiums are recognized as
revenue proportionately over the contract period. Policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case basis estimates for reported losses and experience for claims
incurred but not reported. These loss reserves are reported net of an allowance
for salvage and subrogation. Management believes that American National's
reserves have been appropriately calculated, based on available information as
of December 31, 1997. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to participating
policyowners is based upon a comparison of experience rates of mortality,
interest and expense, as determined periodically for representative plans of
insurance, issue ages and policy durations, with the corresponding rates assumed
in the calculation of premiums. Participating business comprised approximately
2.6% of the life insurance in force at December 31, 1997, and 4.5% of life
premiums in 1997.
FEDERAL INCOME TAXES--American National and all but one of its subsidiaries file
a consolidated life/non-life federal income tax return. Garden State Life
Insurance Company files a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Realization of the deferred tax assets is dependent on generating sufficient
taxable income in the future. Management believes that it is more likely than
not that sufficient income will be generated to realize the net deferred tax
assets.
SEPARATE ACCOUNT ASSETS AND LIABILITIES--The separate account assets and
liabilities represent funds maintained to meet the investment objectives of
contract holders who bear the investment risk. The investment income and
investment gains and losses from these separate funds accrue directly to the
contract holders of the policies supported by the separate accounts. The assets
of each separate account are legally segregated and are not subject to claims
that arise out of any other business of American National. The assets of these
accounts are carried at market value. Deposits, net investment income and
realized investment gains and losses for these accounts are excluded from
revenues, and related liability increases are excluded from benefits and
expenses in this report.
NET INCOME PER COMMON SHARE--Net income per common share is based on the
weighted average number of shares outstanding (26,479,165 shares for 1997 and
1996).
34
<PAGE>
(3) INVESTMENTS
The amortized cost and estimated market values of investments in held-to-
maturity and available-for-sale securities are shown below (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997:
- ------------------
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies $ 180,156 $ 5,662 $ (220) $ 185,598
States and political subdivisions 11,367 261 (15) 11,613
Foreign governments 121,643 7,147 -- 128,790
Public utilities 1,198,814 39,353 (2,374) 1,235,793
All other corporate bonds 1,885,700 85,963 (1,925) 1,969,738
Mortgage-backed securities 208,247 12,809 (2) 221,054
- ----------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,605,927 151,195 (4,536) 3,752,586
- ----------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. Government and agencies 49,990 1,348 -- 51,338
Foreign governments 47,141 4,328 -- 51,469
Public utilities 185,078 12,330 -- 197,408
All other corporate bonds 280,860 19,311 (6) 300,165
- ----------------------------------------------------------------------------------------------
Total bonds available-for-sale 563,069 37,317 (6) 600,380
- ----------------------------------------------------------------------------------------------
Total debt securities 4,168,996 188,512 (4,542) 4,352,966
- ----------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,313 1,510 (79) 40,744
Common stock 575,058 331,280 (23,474) 882,864
- ----------------------------------------------------------------------------------------------
Total marketable equity securities 614,371 332,790 (23,553) 923,608
- ----------------------------------------------------------------------------------------------
Total investments in securities $ 4,783,367 $ 521,302 $ (28,095) $5,276,574
==============================================================================================
- ----------------------------------------------------------------------------------------------
DECEMBER 31, 1996:
- ------------------
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies $ 174,399 $ 3,911 $ (506) $ 177,804
States and political subdivisions 14,185 216 (39) 14,362
Foreign governments 107,573 4,257 (133) 111,697
Public utilities 1,142,072 19,654 (22,213) 1,139,513
All other corporate bonds 1,698,451 46,039 (17,584) 1,726,906
Mortgage-backed securities 294,046 13,527 (11) 307,562
- ----------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,430,726 87,604 (40,486) 3,477,844
- ----------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. Government and agencies 26,062 559 (75) 26,546
Foreign governments 41,594 2,961 (10) 44,545
Public utilities 184,677 7,267 (222) 191,722
All other corporate bonds 252,053 13,826 (386) 265,493
- ----------------------------------------------------------------------------------------------
Total bonds available-for-sale 504,386 24,613 (693) 528,306
- ----------------------------------------------------------------------------------------------
Total debt securities 3,935,112 112,217 (41,179) 4,006,150
- ----------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 50,546 1,563 (484) 51,625
Common stock 517,385 249,796 (13,142) 754,039
- ----------------------------------------------------------------------------------------------
Total marketable equity securities 567,931 251,359 (13,626) 805,664
- ----------------------------------------------------------------------------------------------
Total investments in securities $ 4,503,043 $ 363,576 $ (54,805) $ 4,811,814
==============================================================================================
</TABLE>
35
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
DEBT SECURITIES:
The amortized cost and estimated market value, by contractual maturity of debt
securities at December 31, 1997, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- -------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year
or less $ 40,881 $ 41,139 $ -- $ --
Due after one year
through five years 433,567 457,505 136,408 146,007
Due after five years
through ten years 2,893,187 3,000,519 421,661 448,609
Due after ten years 30,045 32,369 5,000 5,764
- -------------------------------------------------------------------------
3,397,680 3,531,532 563,069 600,380
Without single
maturity date 208,247 221,054 -- --
- -------------------------------------------------------------------------
$ 3,605,927 $ 3,752,586 $ 563,069 $ 600,380
=========================================================================
</TABLE>
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $331,679,000 for 1997. Gross gains of $118,985,000
and gross losses of $12,301,000 were realized on those sales. Bonds were called
by the issuers during 1997, which resulted in proceeds from the disposal of
$11,442,000. Gross gains of $531,000 were realized on those disposals.
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $190,636,000 for 1996. Gross gains of $71,768,000
and gross losses of $227,000 were realized on those sales. Bonds were called by
the issuers during 1996, which resulted in proceeds of $40,126,000 from the
disposal. Gross gains of $54,000 were realized on those disposals.
All gains and losses were determined using specific identification of the
securities sold.
UNREALIZED GAINS ON SECURITIES:
Unrealized gains on marketable equity securities and bonds available-for-sale,
presented in the stockholder's equity section of the consolidated statements of
financial position, are net of deferred tax liabilities of $116,062,000 and
$87,561,000 for 1997 and 1996, respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Bonds available-for-sale $ 13,391 $(22,725)
Preferred stocks 352 (262)
Common stocks 71,152 (40,718)
Amortization of deferred
policy acquisition costs (3,863) (10,740)
- ----------------------------------------------------------
81,032 (6,991)
Provision for federal
income taxes (28,501) (2,537)
- ----------------------------------------------------------
$ 52,531 $ 4,454
==========================================================
</TABLE>
MORTGAGE LOANS:
In general, mortgage loans are secured by first liens on income- producing
real estate. The loans are expected to be repaid from the cash flows or proceeds
from the sale of real estate. American National generally allows a maximum loan-
to-collateral-value ratio of 75% to 90% on newly funded mortgage loans. As of
December 31, 1997, mortgage loans have both fixed rates from 5.25% to 13% and
variable rates from 7% to 10.25%. The majority of the mortgage loan contracts
require periodic payments of both principal and interest, and have amortization
periods of 3 to 31 years.
American National has investments in first lien mortgage loans on real estate
with carried values of $1,103,300,000 and $1,098,583,000 at December 31, 1997
and 1996, respectively. Problem loans, on which impairment allowances were
established, totaled $6,493,900 and $14,602,000 at December 31, 1997 and 1996,
respectively.
POLICY LOANS:
Policy loans have interest rates ranging from 2.5% to 8%. Approximately 99% of
the policy loan portfolio carried interest rates of 5% to 8% at December 31,
1997.
INVESTMENT INCOME AND REALIZED GAINS (LOSSES):
Investment income and realized gains (losses) from disposals of investments,
before federal income taxes, for the years ended December 31 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
GAINS (LOSSES) FROM
INVESTMENT INCOME DISPOSALS OF INVESTMENTS
- --------------------------------------------------------------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Bonds $303,426 $ 281,780 $ 530 $ 172
Preferred stocks 3,173 3,372 21 13
Common stocks 18,977 17,649 106,662 71,410
Mortgage loans 109,165 94,823 (1,277) (4,212)
Real estate 84,344 85,810 (5,977) (7,249)
Other invested assets 26,872 23,399 (83) (93)
Investment in
unconsolidated affiliates -- -- (79) 864
- --------------------------------------------------------------------------------
545,957 506,833 99,797 60,905
Investment expenses (73,062) (71,142) -- --
Decrease (increase) in
valuation allowances -- -- 3,523 (2,904)
- --------------------------------------------------------------------------------
$ 472,895 $ 435,691 $ 103,320 $ 58,001
================================================================================
</TABLE>
36
<PAGE>
(4) OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest return
possible commensurate with sound and prudent underwriting practices to ensure a
well diversified investment portfolio.
BONDS:
American National's bond portfolio is of high investment quality and is well
diversified. The bond portfolio distributed by quality rating at December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------
<S> <C> <C>
AAA 8% 14%
AA 13% 6%
A 56% 54%
BBB & below 23% 26%
- -----------------------------------
100% 100%
===================================
</TABLE>
COMMON STOCK:
American National's stock portfolio by market sector distribution at December
31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------
<S> <C> <C>
Basic materials 8% 8%
Capital goods 10% 9%
Consumer goods 18% 20%
Energy 7% 7%
Finance 9% 6%
Technology 12% 13%
Health care 21% 21%
Miscellaneous 15% 16%
- -----------------------------------
100% 100%
===================================
</TABLE>
MORTGAGE LOANS AND INVESTMENT REAL ESTATE:
American National invests primarily in the commercial sector in areas that
offer the potential for property value appreciation. Generally, mortgage loans
are secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- ---------------------------------------------------------
1997 1996 1997 1996
- ---------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings 21% 21% 19% 30%
Shopping centers 56% 56% 40% 30%
Commercial 3% 4% 15% 16%
Apartments 2% 1% 3% 2%
Hotels/motels 3% 3% 16% 13%
Industrial 12% 12% 4% 4%
Residential -- 1% -- --
Other 3% 2% 3% 5%
- ---------------------------------------------------------
100% 100% 100% 100%
=========================================================
</TABLE>
American National has a well diversified portfolio of mortgage loans and real
estate properties. Mortgage loans and real estate investments by geographic
distribution at December 31 are as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- ----------------------------------------------------------------------
1997 1996 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas 18% 15% 45% 53%
South Central, except Texas 2% 2% 1% --
California 11% 14% 7% 10%
Western, except California 6% 6% 4% 4%
Southeastern 10% 13% 22% 16%
North Central U.S. 10% 10% 14% 11%
North Eastern U.S. 43% 40% 7% 6%
- ----------------------------------------------------------------------
100% 100% 100% 100%
======================================================================
</TABLE>
For discussion of other off-balance sheet risks, see Note 15.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in developing the estimates of fair value.
Accordingly, these estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange or the amounts that may
ultimately be realized. The use of different market assumptions or estimating
methodologies may have a material effect on the estimated market values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values from
published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
MORTGAGE LOANS:
The market value for mortgage loans is estimated using discounted cash flow
analyses based on interest rates currently being offered for comparable loans.
Loans with similar characteristics are aggregated for purposes of the analyses.
POLICY LOANS:
The carrying amount for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amount for short-term investments approximates their market value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
37
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration, and
the market value was not significant at December 31, 1997 or 1996.
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds:
Held-to-maturity $3,605,927 $3,752,586 $3,430,726 $3,477,844
Available-for-sale 600,380 600,380 528,306 528,306
Preferred stock 40,744 40,744 51,625 51,625
Common stock 882,864 882,864 754,039 754,039
Mortgage loans on
real estate 1,103,333 1,229,078 1,098,583 1,195,053
Policy loans 300,574 300,574 303,336 303,336
Short-term
investments 126,732 126,732 5,470 5,470
Financial liabilities:
Investment contracts 1,867,233 1,867,233 1,821,715 1,821,715
- ---------------------------------------------------------------------------------
</TABLE>
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December
31, 1997 and 1996, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 $ 562,393 $ 106,528 $ 6,735 $ 675,656
- --------------------------------------------------------------------------------
Additions 143,046 17,847 21,004 181,897
Amortization (70,786) (17,311) (19,920) (108,017)
Effect of change in
unrealized gains on
available-for-sale
securities (10,740) (10,740)
- --------------------------------------------------------------------------------
Net change 61,520 536 1,084 63,140
Acquisitions 9 128 -- 227
- --------------------------------------------------------------------------------
Balance at
December 31, 1996 624,012 107,192 7,819 739,023
- --------------------------------------------------------------------------------
Additions 105,268 21,373 24,336 150,977
Amortization (92,830) (23,553) (22,327) (138,710)
Effect of change in
unrealized gains on
available-for-sale
securities (3,863) (3,863)
- --------------------------------------------------------------------------------
Net change 8,575 (2,180) 2,009 8,404
Acquisitions 752 162 -- 914
- --------------------------------------------------------------------------------
Balance at
December 31, 1997 $ 633,339 $ 105,174 $ 9,828 $ 748,341
================================================================================
1997 Premiums $ 349,073 $ 378,521 $ 312,987 $1,040,581
================================================================================
1996 Premiums $ 329,937 $ 364,198 $ 257,845 $ 951,980
================================================================================
</TABLE>
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios under
assumption reinsurance agreements.
(7) FUTURE POLICY BENEFITS
LIFE INSURANCE:
Interest assumptions used in the calculation of future policy benefits for
life policies are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ORDINARY--
1996-1997 7.5% for years 1 through 5, graded to 5.5%
at the end of year 25, and level thereafter 1%
1981-1995 8% for years 1 through 5, graded to 6% at
the end of year 25, and level thereafter 19%
1976-1981 7% for years 1 through 5, graded to 5% at
the end of year 25, and level thereafter 22%
1972-1975 6% for years 1 through 5, graded to 4% at
the end of year 25, and level thereafter 9%
1969-1971 6% for years 1 through 5, graded to 3.5%
at the end of year 30, and level thereafter 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5%
at the end of year 15, and level thereafter 14%
1948-1961 4% for years 1 through 5, graded to 3.5% at
the end of year 10, and level thereafter 14%
1947 and prior Statutory rates of 3% or 3.5% 2%
INDUSTRIAL--
1948-1967 4% for years 1 through 5, graded to 3.5% at
the end of year 10, and level thereafter 6%
1947 and prior Statutory rates of 3% 6%
- --------------------------------------------------------------------------------
100%
================================================================================
</TABLE>
Future policy benefits for universal life are calculated from the current
account value.
Future policy benefits for other policies have been calculated using level
interest rates principally as follows: annuities at 6% and group at 4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
38
<PAGE>
(8) LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for accident and health, and property and casualty
unpaid claims and claim adjustment expenses is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------
<S> <C>
Balance at January 1 $222,996 $214,599
Less reinsurance recoverables 2,439 1,346
- -------------------------------------------------------------
Net balance at January 1 220,557 213,253
- -------------------------------------------------------------
Incurred related to:
Current year 515,202 482,988
Prior years (1,098) (13,820)
- -------------------------------------------------------------
Total incurred 514,104 469,168
- -------------------------------------------------------------
Paid related to:
Current year 343,333 332,305
Prior years 144,256 129,559
- -------------------------------------------------------------
Total paid 487,589 461,864
- -------------------------------------------------------------
Net balance at December 31 247,072 220,557
Plus reinsurance recoverables 2,567 2,439
- -------------------------------------------------------------
Balance at December 31 $249,639 $222,996
=============================================================
</TABLE>
The balances at December 31 are included in policy and contract claims on the
consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure portions of
certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
The company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. At December 31,
1997, amounts recoverable from reinsurers with a carrying value of $89,232,000
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. The company
holds collateral related to these credit reinsurers totaling $70,760,000. This
collateral is in the form of custodial accounts controlled by the company, which
can be drawn on for amounts that remain unpaid for more than 120 days. American
National believes that the failure of any single reinsurer to meet its
obligations would not have a significant effect on its financial position or
results of operations.
Premiums, premium-related reinsurance amounts and reinsurance recoveries for
the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Direct premiums $ 1,135,094 $ 1,032,072
Reinsurance premiums assumed
from other companies 25,146 (20,052)
Reinsurance premiums ceded
to other companies (119,659) (100,144)
- ----------------------------------------------------------------
Net premiums $ 1,040,581 $ 951,980
================================================================
Reinsurance recoveries $ 56,535 $ 54,871
================================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Direct life insurance in force $43,143,187 $41,945,640
Reinsurance risks assumed
from other companies 662,171 583,853
- ----------------------------------------------------------------
Total life insurance in force 43,805,358 42,529,493
Reinsurance risks ceded to
other companies (6,985,956) (6,007,905)
- ----------------------------------------------------------------
Net life insurance in force $36,819,402 $36,521,588
================================================================
</TABLE>
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(10) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business, and operate primarily in six segments (lines of business)
within the insurance industry.
The following table summarizes the premiums and other revenue, gain (loss)
from operations before equity in earnings of unconsolidated affiliates and
federal income taxes, and assets by line of business for the years ended
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
GAIN (LOSS)
BEFORE
APPLICABLE
FEDERAL
PREMIUMS INCOME TAXES
AND OTHER AND OTHER
LINE OF BUSINESS: REVENUE ITEMS ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
1997
- ----
Individual life insurance $ 501,812 $85,210 $2,608,582
Individual accident and
health insurance 191,840 (77) 108,731
Annuities 218,719 6,965 1,962,252
Group life & health insurance 181,034 (11,211) 49,234
Credit insurance 58,254 2,208 136,520
Property and casualty insurance 325,419 28,524 343,280
- --------------------------------------------------------------------------------
Total insurance lines 1,477,078 111,619 5,208,599
Capital and surplus 151,187 146,917 3,206,487
Non-insurance 8,319 1,833 67,887
- --------------------------------------------------------------------------------
1,636,584 260,369 8,482,973
Gain from sale of investments 103,320 103,320 --
- --------------------------------------------------------------------------------
$ 1,739,904 $ 363,689 $8,482,973
================================================================================
1996
- ----
Individual life insurance $ 496,571 $ 79,076 $2,564,102
Individual accident and
health insurance 199,982 (4,943) 108,922
Annuities 167,226 5,783 1,870,659
Group life & health insurance 159,004 811 42,844
Credit insurance 53,411 1,978 123,508
Property and casualty insurance 269,519 15,052 292,113
- --------------------------------------------------------------------------------
Total insurance lines 1,345,713 97,757 5,002,148
Capital and surplus 137,573 138,781 2,912,340
Non-insurance 8,712 158 74,057
- --------------------------------------------------------------------------------
1,491,998 236,696 7,988,545
Gain from sale of investments 58,001 58,001 --
- --------------------------------------------------------------------------------
$1,549,999 $ 294,697 $7,988,545
================================================================================
</TABLE>
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines. It is based on the funds generated
by each line at the average yield available from these fixed income assets at
the time such funds become available. Net investment income from policy loans is
allocated to the insurance lines according to the amount of loans made by each
line. Net investment income from all other assets is allocated to capital and
surplus.
Identifiable commissions and expenses are charged directly to the appropriate
line of business. The remaining expenses are allocated to the lines based upon
various factors including premium and commission ratios within the respective
lines.
Fixed income assets and policy loans have been directly assigned to the
insurance lines to the extent required for reserves. Equity type assets, such as
stocks and real estate and all other assets not required for the insurance
lines, have been assigned to capital and surplus.
Policy account deposits totaled $391,607,000 in 1997 and $756,727,000 in 1996.
The majority of these deposits were in the annuity line, which totaled
$281,287,000 and $648,234,000 in 1997 and 1996, respectively.
A significant portion of American National's insurance business is written
through one third-party marketing organization. During 1997, approximately 18%
of the total premium and policy account deposits were written through that
organization. This compares with 35% in 1996. Of the total business written by
this one organization, the majority was annuities.
(11) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when applying
the statutory federal income tax rate. A reconciliation of the effective tax
rate of the companies to the statutory federal income tax rate follows (in
thousands, except percentages):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
Amount Rate Amount Rate
- --------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax on pre-tax income $130,558 (35.00)% $106,911 (35.00)%
Tax-exempt investment income (383) (0.10)% (384) (0.13)%
Dividend exclusion (3,046) (0.82)% (3,303) (1.08)%
Tax refund -- -- (7,360) (2.41)%
Prior year reserve method change -- -- (3,994) (1.31)%
Miscellaneous tax credits, net (1,238) (0.33)% (1,350) (0.44)%
Other items, net (1,226) (0.33)% (654) (0.21)%
- --------------------------------------------------------------------------
$ 124,665 (33.42)% $ 89,866 (29.42)%
==========================================================================
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Investment in bonds, real estate and
other invested assets, principally due to
investment valuation allowances $ 11,858 $ 12,943
Policyowner funds, principally
due to policy reserve discount 81,935 86,282
Policyowner funds, principally
due to unearned premium reserve 9,527 7,294
Other assets 6,701 7,375
- ------------------------------------------------------------------------
Total gross deferred tax assets 110,021 113,894
Less valuation allowance (3,000) (3,000)
- ------------------------------------------------------------------------
Net deferred tax assets 107,021 110,894
- ------------------------------------------------------------------------
Deferred tax liabilities:
Marketable equity securities, principally
due to net unrealized gains on stock (107,767) (90,526)
Investment in bonds, principally
due to accrual of discount on bonds (16,312) (14,283)
Deferred policy acquisition costs, due to
difference between GAAP and tax (185,903) (188,725)
Property, plant and equipment, principally
due to difference between GAAP
and tax depreciation methods (12,563) (12,445)
Other liabilities (82) (1,627)
- ------------------------------------------------------------------------
Net deferred tax liabilities (322,627) (307,606)
- ------------------------------------------------------------------------
Total deferred tax $(215,606) $(196,712)
========================================================================
</TABLE>
40
<PAGE>
Management believes that a sufficient level of taxable income will be achieved
to utilize the net deferred tax assets.
Through 1983, under the provision of the Life Insurance Company Income Tax Act
of 1959, life insurance companies were permitted to defer from taxation a
portion of their income (within certain limitations) until and unless it is
distributed to stockholders, at which time it was taxed at regular corporate tax
rates. No provision for deferred federal income taxes applicable to such untaxed
income has been made, because management is of the opinion that no distributions
of such untaxed income (designated by federal law as "policyholders' surplus")
will be made in the foreseeable future. There was no change in the
"policyholders' surplus" between December 31, 1996 and December 31, 1997, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $136,212,000 and $83,475,000 were
paid to the Internal Revenue Service in 1997 and 1996, respectively. The statute
of limitations for the examination of federal income tax returns through 1993
for American National and its subsidiaries by the Internal Revenue Service has
expired. All prior year deficiencies have been paid or provided for, and
American National has filed appropriate claims for refunds through 1994. In the
opinion of management, adequate provision has been made for any tax deficiencies
that may be sustained.
(12) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from those used to prepare financial statements on the basis of generally
accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as determined
using statutory accounting principles, to the amounts included in the
accompanying consolidated financial statements, as of and for the years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- -----------------------------------------------------------------------
<S> <C> <C>
Statutory net income of insurance companies $ 207,998 $ 146,100
Net gain (loss) of non-insurance companies 2,592 750
- -----------------------------------------------------------------------
Combined net income 210,590 146,850
Increases (decreases):
Deferred policy acquisition costs 12,267 73,880
Policyholder funds 7,963 (16,323)
Deferred federal income tax benefit 9,606 237
Premiums deferred and other receivables 602 5,549
Gain on sale of investments 79 1,102
Change in interest maintenance reserve 1,532 (463)
Asset valuation allowances 3,524 (2,904)
Other adjustments, net 2,218 7,711
Consolidating eliminations and adjustments (24) (44)
- -----------------------------------------------------------------------
Net income reported herein $ 248,357 $ 215,595
=======================================================================
1997 1996
- -----------------------------------------------------------------------
Statutory capital and
surplus of insurance companies $2,011,016 $1,784,692
Stockholders' equity
of non-insurance companies 77,725 79,316
- -----------------------------------------------------------------------
Combined capital and surplus 2,088,741 1,864,008
Increases (decreases):
Deferred policy acquisition costs 748,341 739,023
Policyholder funds 135,262 126,925
Deferred federal income taxes (215,606) (196,712)
Premiums deferred and other receivables (77,629) (78,231)
Reinsurance in "unauthorized companies" 34,010 30,506
Statutory asset valuation reserve 370,102 326,336
Statutory interest maintenance reserve 7,989 6,457
Asset valuation allowances (44,899) (47,518)
Investment market value adjustments 39,050 25,414
Non-admitted assets and
other adjustments, net 258,191 257,617
Consolidating eliminations and adjustments (638,135) (579,919)
- -----------------------------------------------------------------------
Stockholders' equity reported herein $2,705,417 $2,473,906
=======================================================================
</TABLE>
In accordance with various government and state regulations, American National
and its insurance subsidiaries had bonds with an amortized value of $73,790,000
on deposit with appropriate regulatory authorities.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(13) STOCKHOLDERS' EQUITY
American National has only one class of common stock, no preferred stock and
no options which could be converted into common or preferred stock. At December
31, 1997 and 1996, American National had 50,000,000 authorized shares of $1.00
par value common stock. At December 31, 1997 and 1996, issued shares were
30,832,449; treasury shares were 4,353,284; and outstanding shares were
26,479,165.
American National's payment of dividends to stockholders is restricted by
statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity, as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1997, approximately $529,692,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(14) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. One of the programs is contributory and
covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home office clerical employees subject to a collective bargaining
agreement. The program covering salaried and management employees provides
pension benefits that are based on years of service and the employee's
compensation during the five years before retirement. The programs covering
hourly employees and agents generally provide benefits that are based on the
employee's career average earnings and years of service. American National also
sponsors two non-tax-qualified pension plans for key executives that restore
benefits that would otherwise be curtailed by statutory limits on qualified plan
benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense (before income taxes) produced a
pension debit of $2,474,000 for 1997 and $902,000 for 1996.
The pension debit is made up of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost--benefits earned during period $ 5,402 $ 5,040
Interest cost on projected benefit obligation 7,221 6,735
Actual return on plan assets (9,927) (6,542)
Net amortization and deferral (222) (4,331)
- --------------------------------------------------------------------------------
Total pension debit $ 2,474 $ 902
================================================================================
</TABLE>
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial position at December 31 for the companies'
pension plans.
Actuarial present value of benefit obligation:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- --------------------------------------------------------------------------------------------
Vested benefit obligation $ (71,811) $ (22,468) $ (66,688) $(16,029)
============================================================================================
Accumulated benefit
obligation $ (75,492) $ (22,468) $ (70,303) $(16,029)
============================================================================================
Projected benefit obligation $ (92,422) $ (22,616) $ (85,891) $(20,975)
Plan assets at fair value
(long-term securities) 129,380 -- 125,068 --
- --------------------------------------------------------------------------------------------
Plan assets in excess of
projected benefit
obligation 36,958 (22,616) 39,177 (20,975)
Unrecognized net loss 8,305 2,614 7,842 3,519
Prior service cost not yet
recognized in periodic
pension cost -- 1,505 18 1,902
Unrecognized net transition
asset at January 1 being
recognized over 15 years (10,477) -- (13,097) --
Adjustment required to
recognize additional
liability -- -- -- (513)
- --------------------------------------------------------------------------------------------
Prepaid pension cost
included in other assets $ 34,786 $ (18,497) $ 33,940 $(16,067)
============================================================================================
Assumptions used at December 31:
1997 1996
- --------------------------------------------------------------------------------------------
Weighted-average discount rate
on benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.50%
Expected long-term rate of return on plan assets 7.00% 8.00%
</TABLE>
Under American National and its subsidiaries' various group benefit plans for
active employees, a $2,500 paid-up life insurance certificate is provided upon
retirement for eligible participants who meet certain age and length of service
requirements.
American National has one retiree health benefit plan for retirees of all
companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan.
42
<PAGE>
Participation in either of these plans is limited to current retirees and their
dependents and those employees and their dependents who met certain age and
length of service requirements as of December 31, 1993. No new participants will
be added to these plans in the future.
The retiree health benefit plans provide major medical benefits for
participants under the age of 65 and Medicare supplemental benefits for those
over 65. Prescription drug benefits are provided to both age groups. The plans
are contributory, with the company's contribution limited to $80 per month for
retirees and spouses under the age of 65 and $40 per month for retirees and
spouses over the age of 65. All additional contributions necessary, over the
amount to be contributed by the companies, are to be contributed by the
retirees.
The accrued post-retirement benefit obligation, included in other liabilities,
was $12,970,000 and $13,007,000 at December 31, 1997 and 1996, respectively.
These amounts were approximately equal to the unfunded accumulated post-
retirement benefit obligation. Since the companies' contributions to the cost of
the retiree benefit plans are fixed, the health care cost trend rate will have
no effect on the future expense or the accumulated post-retirement benefit
obligation.
(15) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various cities
for their insurance sales offices. The long-term lease commitments at December
31, 1997 were approximately $6,315,000.
In the ordinary course of their operations, the companies also had commitments
outstanding at December 31, 1997 to purchase, expand or improve real estate, and
to fund mortgage loans aggregating $74,522,000, all of which are expected to be
funded in 1998. Of the commitment amount, $54,138,000 of mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged failure to
honor certain loan commitments, alleged breach of certain agency and real estate
contracts, various employment matters, allegedly deceptive insurance sales and
marketing practices, and other litigation arising in the ordinary course of
operations. Certain of these lawsuits include claims for compensatory and
punitive damages. Management is of the opinion, after reviewing the above
matters with legal counsel, that the ultimate liability, if any, resulting from
any of or all of the above matters would not have a material adverse effect on
the companies' consolidated financial position or results of operations.
However, these lawsuits are in various stages of development and future facts
and circumstances could result in management changing its conclusions.
In 1995 a series of fires occurred at a warehouse, located in Houston, Texas,
which American National owns. American National leased the warehouse to a
company that, in turn, rented out space to various other parties to store
materials. As a result of these fires, some of the materials stored in the
warehouse caused damage at the warehouse site. As the owner of the warehouse,
American National is now named as a defendant in several lawsuits concerning
alleged damages related to the fires. After reviewing this situation with legal
counsel, management believes that American National has meritorious defenses
against these lawsuits. The company also has meritorious grounds to recover any
damages from the third parties who actually owned the materials that caused the
fires. Therefore, no specific reserves for this matter have been recorded in the
consolidated financial statements. However, if the defenses and recoveries are
not resolved in the manner that management anticipates, it is possible that the
resulting liability could have a material impact on the consolidated financial
results.
In 1996, American National was named as a defendant in a purported nationwide
class action lawsuit, filed in the state of Alabama, in which the plaintiffs
allege that American National and a third party marketing and administration
organization engaged in improper sales practices in connection with a group
annuity. This litigation is still in the discovery stage, and management
believes that American National has meritorious defenses to class certification
and the substantive allegations in the complaint. Because the ultimate outcome
of this litigation is not foreseeable, no estimate of potential loss, if any, is
possible. Therefore, no provision for this matter has been recorded in the
consolidated financial statements. However, if the defenses are not successful
and a nationwide class is certified, it is possible that the resulting liability
could have a material impact on the consolidated financial results.
43
<PAGE>
APPENDIX A
ILLUSTRATIONS OF DEATH BENEFITS AND POLICY VALUES
The tables in Appendix A illustrate the way in which a Policy operates. The
tables show how the Accumulation Values, Surrender Values and Death Benefits of
a Policy issued to an Insured of a given age and sex and who pays the given
premium would vary over time if the investment return on the assets held in each
Eligible Portfolio of the Separate Account was a uniform, gross, after-tax
annual rate of 0%, 6% or 12%. The tables on pages 45 through 46 illustrate a
Policy issued to a male insured, age 65. The Accumulation Values, Surrender
Values and Death Benefits would be different from those shown if the gross
annual investment rates of return averaged 0%, 6% and 12% over a period of
years, but fluctuated above and below those averages for individual Policy
Years, or if the Insured were a different age or sex, or if the Policyowner
makes additional Premium payments, or if the Policy were issued in Montana.
The amounts shown for the Death Benefits, Surrender Values and Accumulation
Values take into account an average charge for investment advisory and other
expenses of the Eligible Portfolios at an annual rate of 0.89% of the net assets
for each Eligible Portfolio. In addition, the Daily Asset Charge is levied
against each Subaccount at an annual rate of 1.25% of the average daily
Accumulation Value attributable to the Subaccount. After deducting these
amounts, the illustrated hypothical gross annual investment rates of return of
0%, 6% and 12% correspond to approximate net annual rates of -2.11%, 3.81% and
9.74%.
The tables assume that premium is paid only at the time of Policy issue. If
premium were paid after the first Policy Year, a premium charge would be
assessed.
The second column of the tables shows the accumulated value of the premiums
paid at five percent. The following columns show the Death Benefits, Surrender
Values and the Accumulation Values for uniform hypothetical rates of return
shown in these tables. The table on page 45 is based on the current schedule of
charges and deductions. This reflects the basis on which American National
currently sells its policies. The maximum cost of insurance rates allowable
under the Policy are based upon the 1980 Commissioner's Standard Ordinary
Mortality Tables. Sex distinct mortality is used in all states except Montana,
where an 80%/20% Male/Female blend is used. The Death Benefits, Surrender Values
and Accumulation Values shown in the table on page 46 are based on the
assumption that the maximum allowable charges and deductions are made throughout
the life of the Policy.
The hypothetical values shown in the tables do not reflect any tax charges
attributable to the Separate Account, since American National is not currently
making such charges. However, such charges may be made in the future, and in
that event, the gross annual investment rate of return would have to exceed 0%,
6% or 12% by an amount sufficient to cover the tax charges in order to produce
the Death Benefits, Surrender Values and Accumulation Values demonstrated. (See
"FEDERAL TAX MATTERS" on page 19.)
The tables illustrate the Policy values that would result based upon the
hypothetical investment rates of return if Premiums are paid as indicated, if
all Net Premiums are allocated to the Separate Account, and if no Policy loans
have been made. The tables are also based on the assumptions that the Specified
Amount has not been changed, that no transfer charges have been incurred and
there were no transfers to the Fixed Account. Illustrated values would be
different if the proposed Insured were a resident of Montana or were another age
or sex, or if a higher or lower Premium was illustrated.
Upon request, American National will provide a comparable illustration based
upon the proposed Insured's age and sex and the Specified Amount and the
Premium requested.
44
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE LIFE INSURANCE
ILLUSTRATION OF DEATH BENEFITS AND POLICY VALUES
CURRENT CHARGES AND DEDUCTIONS *
Male Issue Age 65
Initial Premium at Issue = $10,000
<TABLE>
<CAPTION> VALUES ASSUMING A HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
----------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,652 8,752 17,790 10,237 9,337 17,790 10,821 9,921 17,790
2 11,025 9,316 8,466 17,790 10,480 9,630 17,790 11,713 10,863 17,790
3 11,576 8,990 8,190 17,790 10,730 9,930 17,790 12,681 11,881 17,790
4 12,155 8,674 7,974 17,790 10,987 10,287 17,790 13,733 13,033 17,790
5 12,763 8,368 7,768 17,790 11,251 10,650 17,790 14,875 14,275 17,790
6 13,401 8,072 7,572 17,790 11,522 11,021 17,790 16,116 15,616 18,211
7 14,071 7,785 7,384 17,790 11,800 11,400 17,790 17,471 17,070 19,392
8 14,775 7,507 7,206 17,790 12,086 11,786 17,790 18,950 18,649 20,655
9 15,513 7,237 7,037 17,790 12,380 12,179 17,790 20,568 20,368 22,007
10 16,289 6,976 6,976 17,790 12,681 12,681 17,790 22,343 22,343 23,460
11 17,103 6,757 6,757 17,790 13,056 13,056 17,790 24,395 24,395 25615
12 17,959 6,544 6,544 17,790 13,444 13,444 17,790 26,630 26,630 27,962
13 18,856 6,337 6,337 17,790 13,843 13,843 17,790 29,063 29,063 30,516
14 19,799 6,135 6,135 17,790 14,256 14,256 17,790 31,709 31,709 33,295
15 20,789 5,938 5,938 17,790 14,682 14,682 17,790 34,585 34,585 36,315
16 21,829 5,746 5,746 17,790 15,122 15,122 17,790 37,709 37,709 39,594
17 22,920 5,560 5,560 17,790 15,577 15,577 17,790 41,116 41,116 43,172
18 24,066 5,379 5,379 17,790 16,046 16,046 17,790 44,834 44,834 47,076
19 25,270 5,202 5,202 17,790 16,530 16,530 17,790 48,892 48,892 51,337
20 26,533 5,030 5,030 17,790 17,030 17,030 17,881 53,321 53,321 55,987
25 33,864 4,236 4,236 17,790 19,784 19,784 20,773 82,557 82,557 86,684
30 43,219 3,542 3,542 17,790 23,053 23,053 23,053 128,043 128,043 128,043
</TABLE>
* (See "CHARGES AND DEDUCTIONS" on page 16.)
** The Policy is lapsed.
The Death Benefit at age 100 and thereafter equals the Accumulation Value.
The illustration assumes no policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6% OR
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
45
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE LIFE INSURANCE
ILLUSTRATION OF DEATH BENEFITS AND POLICY VALUES
GUARANTEED CHARGES AND DEDUCTIONS*
Male Issue Age 65
Initial Premium at Issue = $10,000
<TABLE>
<CAPTION>
VALUES ASSUMING A HYPOTHETICAL GROSS ANNUAL INVESTMENT RETURN OF
--------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ----------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 10,500 9,501 8,601 17,790 10,090 9,190 17,790 10,679 9,779 17,790
2 11,025 8,979 8,129 17,790 10,165 9,315 17,790 11,422 10,572 17,790
3 11,576 8,430 7,630 17,790 10,223 9,423 17,790 12,241 11,441 17,790
4 12,155 7,849 7,149 17,790 10,261 9,561 17,790 13,150 12,450 17,790
5 12,763 7,228 6,628 17,790 10,277 9,677 17,790 14,163 13,563 17,790
6 13,401 6,558 6,058 17,790 10,265 9,765 17,790 15,302 14,802 17,790
7 14,071 5,827 5,427 17,790 10,218 9,818 17,790 16,580 16,180 18,404
8 14,775 5,019 4,719 17,790 10,129 9,829 17,790 17,982 17,682 19,600
9 15,513 4,116 3,915 17,790 9,987 9,786 17,790 19,515 19,315 20,881
10 16,289 3,095 3,095 17,790 9,780 9,780 17,790 21,198 21,198 22,258
11 17,103 1,933 1,933 17,790 9,496 9,496 17,790 23,051 23,051 24,203
12 17,959 601 601 17,790 9,118 9,118 17,790 25,060 25,060 26,313
13 18,856 ** ** ** 8,629 8,629 17,790 27,237 27,237 28,599
14 19,799 ** ** ** 8,001 8,001 17,790 29,596 29,596 31,076
15 20,789 ** ** ** 7,202 7,202 17,790 32,150 32,150 33,757
16 21,829 ** ** ** 6,180 6,180 17,790 34,910 34,910 36,656
17 22,920 ** ** ** 4,868 4,868 17,790 37,892 37,892 39,786
18 24,066 ** ** ** 3,165 3,165 17,790 41,107 41,107 43,162
19 25,270 ** ** ** 936 936 17,790 44,568 44,568 46,797
20 26,533 ** ** ** ** ** ** 48,290 48,290 50,704
25 33,864 ** ** ** ** ** ** 71,290 71,290 74,854
30 43,219 ** ** ** ** ** ** 106,180 106,180 106,180
</TABLE>
* (See "CHARGES AND DEDUCTIONS" on page 16.)
** The Policy is lapsed.
The Death Benefit at age 100 and thereafter equals the Accumulation Value.
The illustration assumes no Policy loan has been made.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6% OR
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
46
<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 cross reference sheet
The prospectus consisting of 46 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:
<TABLE>
<CAPTION>
<S> <C> <C>
(1) Form of Resolution of the Board
of Directors of American National
Insurance Company authorizing
establishment of American National
Variable Life Separate Account........ Filed with Registrant's Original Registration
Statement on April 24, 1998
(2) Not Applicable
(3) (a) Distribution and Administrative
Services Agreement............... Filed with Registrant's Original Registration
Statement on April 24, 1998
(b) Not Applicable
(c) Schedule of Sales Commissions.... Attached hereto as Exhibit "99.3c"
(4) Not Applicable
(5) Flexible Premium Variable Life
Insurance Policy...................... Filed with Registrant's Original Registration
Statement on April 24, 1998
(6) Articles of Incorporation of
American National Insurance Company... Filed with Registrant's Original Registration
Statement on April 24, 1998
By-laws of American National
Insurance Company..................... Filed with Registrant's Original Registration
Statement on April 24, 1998
(7) Not Applicable
(8) Form of American National Investment
Accounts, Inc. Fund Participation
Agreement............................. Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of Variable Insurance Products Fund
Fund Participation Agreement.......... Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of Variable Insurance Products Fund II
Fund Participation Agreement.......... Filed with Registrant's Original Registration
Statement on April 24, 1998
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Form of Variable Insurance Products Fund III
Fund Participation Agreement.......... Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of T. Rowe Price Fund
Participation Agreement............... Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of MFS Variable Insurance Trust
Participation Agreement............... Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of Insurance Series
Participation Agreement............... Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of Van Eck Worldwide Insurance Trust
Participation Agreement............... Filed with Registrant's Original Registration
Statement on April 24, 1998
Form of Lazard Retirement Series, Inc.
Participation Agreement............... Filed with Registrant's Original Registration
Statement on April 24, 1998
(9) Not Applicable
(10) Application Form...................... Attached hereto as Exhibit "99.10"
(11) Independent Auditors' Consent......... Attached hereto as Exhibit "99.11"
(12) Opinion of Counsel.................... Attached hereto as Exhibit "99.12"
(13) Consent of Counsel.................... Attached hereto as Exhibit "99.12"
(14) Actuarial Opinion..................... Attached hereto as Exhibit "99.14"
(15) Procedures Memorandum Pursuant to
Rule 6e-3(T)(b)(12)(iii).............. Attached hereto as Exhibit "99.15"
</TABLE>
<PAGE>
SIGNATURES
As required by the Securities Act of 1933, the Registrant has caused this
Pre-Effective Amendment Number 1 to the Registration Statement to be signed on
its behalf, in the City of Galveston, and the State of Texas on the 15th day of
January, 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 Registration Statement has
been signed by the following persons in their capacities and on the dates
indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Michael W. McCroskey Executive Vice President - January 15, 1999
_____________________________________ Investments (Principal Financial
Michael W. McCroskey Officer)
/s/ Stephen E. Pavlicek Vice President and Controller January 15, 1999
- ------------------------------------- (Principal Accounting Officer)
Stephen E. Pavlicek
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert L. Moody Chairman of the Board, January 15 ,1999
- ------------------------------------- Director, President and Chief
Robert L. Moody Executive Officer
/s/ G. Richard Ferdinandtsen Director January 15 ,1999
- -------------------------------------
G. Richard Ferdinandtsen
/s/ Irwin M. Herz, Jr. Director January 15 ,1999
- -------------------------------------
Irwin M. Herz, Jr.
- ------------------------------------- Director -------------
R. Eugene Lucas
/s/ E. Douglas McLeod January 15, 1999
- ------------------------------------- Director
E. Douglas McLeod
- ------------------------------------- Director -------------
Frances Anne Moody
- ------------------------------------- Director -------------
Russell S. Moody
- ------------------------------------- Director -------------
W. L. Moody IV
/s/ Joe Max Taylor January 15, 1999
- ------------------------------------- Director
Joe Max Taylor
</TABLE>
<PAGE>
Exhibit 99.B3c
Schedule of Sales Commissions
Percentage of Premium
Age at Issue Paid as Commission
- ------------ ------------------
through 65 8.0
66-75 7.0
75-80 5.5
over 80 3.0
This schedule is the standard commission schedule for representatives selling
the Policies, however this schedule may be modified in particular situations.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 99.10
APPLICATION FOR VARIABLE LIFE
AMERICAN NATIONAL INSURANCE COMPANY, GALVESTON, TEXAS
[LOGO APPEARS HERE]
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1. NAME OF PROPOSED INSURED | Sex | Date of Birth | Age | Height | Weight
| [_] M | Mo./Day/Yr. | | |
| [_] F | | | |
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Street Address City State ZIP Telephone No.
- ------------------------------------------------------------------------------------------------------------------------------------
(b) Social Security No. | (c) Occupation | (d) Annual Income | (e) Are you a U.S. Citizen | (f) Do you have a Permanent Visa
| | | [_] Yes | [_] Yes Visa No. ________
| | | [_] No | [_] No
- ------------------------------------------------------------------------------------------------------------------------------------
2. OWNER IF OTHER THAN PROPOSED INSURED | (b) Relationship to the Insured | (c) Age | (d) Social Security No.
(a) Name | | |
- ------------------------------------------------------------------------------------------------------------------------------------
(e) Street Address City State ZIP Telephone No.
- ------------------------------------------------------------------------------------------------------------------------------------
3. [_] JOINT OWNER (with right to survivorship [_] CONTINGENT OWNER (with right to survivorship)
- ------------------------------------------------------------------------------------------------------------------------------------
(a) Name | (b) Relationship to the Insured | (c) Age | (d) Social Security No.
- ------------------------------------------------------------------------------------------------------------------------------------
(e) Street Address City State ZIP Telephone No.
- ------------------------------------------------------------------------------------------------------------------------------------
4. BENEFICIARIES (For additional space, use form 1048-ED3)
Primary Beneficiary ____________________________________________________________________________________________________________
Relationship to Insured _________________________________________ SSN # ___-__-____ Date of Birth ______________________________
Second Beneficiary _____________________________________________________________________________________________________________
Relationship to Insured _________________________________________ SSN # ___-__-____ Date of Birth ______________________________
- ------------------------------------------------------------------------------------------------------------------------------------
5. AMOUNT PAID WITH APPLICATION ($10,000 Minimum) $ ____________________________ Specified Amount $ ________________________
Anticipated Transfer Amount $ _________________________
- ------------------------------------------------------------------------------------------------------------------------------------
6. SUITABILITY FOR VARIABLE LIFE Yes No
(a) Do you understand that the death benefit and cash value may increase or decrease depending on the investment
return on the contract? [_] [_]
(b) Do you believe that this contract will meet your insurance needs and financial objectives? [_] [_]
(c) Did you receive all of the appropriate Fund Prospectuses? [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
7. (a) Total Insurance/Annuities in Force On Proposed Insured: If none in force indicate "NONE." See
Full Name of Company | POLICY NO. | ISSUE | Insured's Name | Plan | AMOUNT | Acc. | Dis. | "b"
| | DATE | Death | Inc. | below
- ------------------------------------------------------------------------------------------------------------------------------------
| | | | | | | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | | | | | | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | | | | | | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | | | | | | |
- ------------------------------------------------------------------------------------------------------------------------------------
(b) Will the variable life insurance applied for replace or use cash values of any existing insurance or annuity policy issued
by any company? [_] Yes [_] No If "Yes", indicate which one(s). (Attach replacement forms)
- ------------------------------------------------------------------------------------------------------------------------------------
8. TELEPHONE TRANSFER PRIVILEGE I (We) hereby authorize and direct American National Insurance Company to make transfers from fund
to fund and/or change the allocation of future investments based upon telephone instruction. I (We) agree to hold harmless and
indemnify American National Insurance Company, its affiliates and employees and this account for any claim, loss, liability or
expense arising out of any telephone transfer effected or any failure or overload of the telephone system.
INITIAL A OR B ONLY IF YOU ELECT THIS OPTION.
- ---------------------------------------------
_______________________
|_____________________| (a) Telephone Transfer executive by Owner only
_______________________
|_____________________| (b) Telephone Transfer executed by Owner OR Registered Representative
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Form 804b
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
9. (a) ALLOCATION OF PREMIUM(S) Choose OPTION 1 OR OPTION 2.
OPTION 1 [_] Allocate my premium(s) as follows -- (Whole % only. Total allocation must equal 100%.)
SM&R FIDELITY MFS
ANIA BALANCED ____________ % ASSET MANAGER ____________ % GROWTH WITH INCOME ____________ %
ANIA MONEY MKT ____________ % INDEX 500 ____________ % EMERGING GROWTH ____________ %
ANIA MANAGED ____________ % CONTRAFUND ____________ % RESEARCH ____________ %
ANIA GROWTH ____________ % ASSET MGR: GROWTH ____________ % VALUE ____________ %
GROWTH OPP ____________ %
T. ROWE PRICE VAN ECK LAZARD
EQUITY INCOME ____________ % WORLDWIDE EMERGING MARKETS ____________ %
INT'L STOCK ____________ % HARD ASSET ____________ % SMALL CAP ____________ %
MID-CAP GROWTH ____________ % WORLDWIDE
LTD-TERM BOND ____________ % EMERGING MKTS ____________ % FIXED ACCOUNT ____________ %
FEDERATED
UTILITY ____________ %
U.S. GOV'T. SECURITIES ____________ %
HIGH INCOME BOND ____________ %
EQUITY INCOME ____________ %
GROWTH STRATEGIES ____________ %
OPTION 2 [_] Allocate my premium(s) to one of the following model portfolios.
(b) ACCOUNT REBALANCING [_] Aggressive [_] Moderately Aggressive [_] Moderate [_] Moderately Conservative [_] Conservative
Rebalance my portfolio as indicated in Option 1 OR 2 [_] Yes [_] No
IF YES, check how often you would like your portfolio rebalanced. [_] Quarterly [_] Semiannually [_] Annually
- ------------------------------------------------------------------------------------------------------------------------------------
10. DOLLAR COST AVERAGING (A minimum accumulation value of $10,000 (in all subaccounts) is required at the time of election. No
more than 10% can be transferred from the Fixed Account at the time of election.)
**CANNOT CHOOSE BOTH DOLLAR COST AVERAGING AND ACCOUNT REBALANCING (ITEM 9b) AT THE SAME TIME**
Start date ________________________________________________ End date _____________________________________________________
FREQUENCY [_] Monthly [_] Quarterly [_] Semiannually [_] Annually
PLEASE TRANSFER THE AMOUNTS INDICATED BELOW.
FROM Subaccount 1 __________________ $ _________________________ Subaccount 2 __________________ $ _________________________
TO (Whole % only. Total allocation must equal 100%.)
SM&R FIDELITY MFS
ANIA BALANCED ____________ % ASSET MANAGER ____________ % GROWTH WITH INCOME ____________ %
ANIA MONEY MKT ____________ % INDEX 500 ____________ % EMERGING GROWTH ____________ %
ANIA MANAGED ____________ % CONTRAFUND ____________ % RESEARCH ____________ %
ANIA GROWTH ____________ % ASSET MGR: GROWTH ____________ % VALUE ____________ %
GROWTH OPP ____________ %
T. ROWE PRICE VAN ECK LAZARD
EQUITY INCOME ____________ % WORLDWIDE EMERGING MARKETS ____________ %
INT'L STOCK ____________ % HARD ASSET ____________ % SMALL CAP ____________ %
MID-CAP GROWTH ____________ % WORLDWIDE
LTD-TERM BOND ____________ % EMERGING MKTS ____________ % FIXED ACCOUNT ____________ %
FEDERATED
UTILITY ____________ %
U.S. GOV'T. SECURITIES ____________ %
HIGH INCOME BOND ____________ %
EQUITY INCOME ____________ %
GROWTH STRATEGIES ____________ %
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
11. SIMPLIFIED UNDERWRITING INFORMATION YES NO
(a) In the past 10 years have you been treated for or diagnosed by a member of the medical profession as having
cancer (other than non-melanoma skin cancer), insulin dependent diabetes, or disease of the heart, blood or
circulation system? (CIRCLE ALL THAT APPLY) [_] [_]
(b) In the past 5 years, have you been treated for mental or nervous disorder, chronic respiratory disorder,
kidney failure, liver disorder. or had or been advised to have treatment for drug or alcohol use?
(CIRCLE ALL THAT APPLY) [_] [_]
(c) Have you ever been treated for or diagnosed as having Acquired Immune Deficiency (AIDS) or AIDS related
complex (ARC) or tested positive on an AIDS related test, including HIV? [_] [_]
Give details to each "yes" answer to questions 11(a) through 11(c).
- ------------------------------------------------------------------------------------------------------------------------------------
Question # | Description of Disorder | Date | Attending Physician and Hospital
- ------------------------------------------------------------------------------------------------------------------------------------
| | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | |
- ------------------------------------------------------------------------------------------------------------------------------------
| | |
- ------------------------------------------------------------------------------------------------------------------------------------
YES NO
(d) Have you ever been rated for Life Insurance? If "Yes", give details. __________________________________ [_] [_]
_______________________________________________________________________________________________________
(e) Has the proposed Insured used tobacco in any form during the past 12 months? [_] [_]
(f) If the Insured does not qualify for Variable Life Insurance, would you like to apply for an annuity? [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
APPLICATION DECLARATIONS & AGREEMENTS OF THE PROPOSED INSURED
The Proposed Insured declares for himself, and all other interested parties, that all of the answers in the 3 pages of this
application and any supplements to it are full, complete and true to the best of the proposed insured's knowledge and belief. The
proposed insured also agrees that: (1) these answers as written: (i) were given to induce the Company to issue a Policy; and (ii)
shall form the basis for and become a part of any Policy issued on this application; (2) except as otherwise provided in the
Conditional Receipt with the same serial number as this application, no Policy will be effective until it is: (i) issued; (ii)
delivered to the applicant; and (iii) the full first premium paid, all during the lifetime and good health of the insured; (3) the
Company may issue a Policy different from that specified in this application by listing the difference(s) on the Policy Data Page,
and acceptance of such different Policy will be a ratification of the changes except in those states that require agreement by the
owner in writing; and (4) only the President or a Vice President or the Secretary of the Company has the authority to waive any of
the Company rights or requirements or to waive or alter any of the provisions of: (i) this application; or (ii) any Policy issued on
this application.
Dated at _________________________________________________________ ___________________________________________________________
City State Signature of Proposed Insured (if age 16 or older)
this __________ day of _______________________________, __________ ___________________________________________________________
Signature of Owner or Premium Payer
Witnessed by _____________________________________________________ ___________________________________________________________
Signature of Licensed Agent Signature of Joint Owner
Print Agent's Name _______________________________________________ State License Number ______________________________________
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE REQUIRED IF CONDITIONAL RECEIPT TO BE DETACHED
I hereby certify that I have read and received the Conditional Receipt, and agree to its terms. I understand that the Company will
not permit acceptance of my deposit or detachment of the Conditional Receipt unless this statement is true.
___________________________________________________________ ___________________________________________________________
Signature of Proposed insured (if age 16 or older) Signature of Premium Payer
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
13. SOLICITING AGENT'S REPORT - THESE QUESTIONS MUST BE ANSWERED IN EVERY CASE YES NO
- ------------------------------------------------------------------------------------------------------------------------------------
(a) As agent, do you certify that on the date of this application you asked the Proposed Insured each question in the
application, recorded the answers given you, witnessed such person's signature and collected the initial premium
shown in the application? You further certify that, to the best of your knowledge and belief, such person is of
good moral character and temperate habits, and you know nothing that is not stated herein that would adversely
affect such person's insurability? [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
(b) As Agent, do you have knowledge or reason to believe that replacement of existing business may be involved? [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
(c) As Agent, have you complied with State Replacement Regulations? [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
(d) As Agent, did you include individualized sales proposals in your presentations? (If Proposed Insured replaces
insurance products, then, comparative information forms for each policy to be replaced and copies of all sales
material must be included with this application sent to Home Office.) [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
(e) Did you see the person proposed for insurance when the application was completed? [_] [_]
- ------------------------------------------------------------------------------------------------------------------------------------
(f) What is your estimate of premium payers annual income? ________________________________________ Net Worth? ____________________
- ------------------------------------------------------------------------------------------------------------------------------------
Dated at ___________________ this ____ day of _____________________________, _____ _______________________________________________
Licensed Agent's Signature
Branch Ofc. No. (and PSO No.) _______________________________ Agent P.C. No. __________________ Social Security Number ___/__/____
- ------------------------------------------------------------------------------------------------------------------------------------
14. MEDICAL REQUIREMENTS ORDERED BY AGENT/BRANCH OFFICE: [_] Oral Fluid [_] APS [_] Exam [_] Blood [_] Military Medical Records
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<PAGE>
<TABLE>
<CAPTION>
AUTHORIZATION TO OBTAIN, RELEASE AND DISCLOSE INFORMATION
<S> <C>
I hereby authorize any physician, medical practitioner, hospital, clinic or other medical or medically related facility, insurance
company, the Medical Information Bureau, or other organization, institution or person that has any records or knowledge of me, or my
health to give to the American National Insurance Company or its Reinsurers any such information about me, with reference to my
health and medical history and any hospitalization, advice, diagnosis, treatment, disease or ailment. I have received notification
describing the Medical Information Bureau, and this authorization will be valid for two (2) years from its date.
To facilitate rapid submission of such information, I authorize all the above sources, except the Medical Information Bureau, to
give such records or knowledge to any agency employed by the American National Insurance Company to collect and transmit such
information. A photo copy of this authorization shall be as valid as the original.
Date ______________________________________ ______________________________________________________________________________
Signature of Proposed Insured (or parent if Proposed Insured is under age 16)
Witness ____________________________________
______________________________ CONDITIONAL RECEIPT ____________________________
| THIS RECEIPT SHALL BE VOID | American National Insurance Company | |
| IF ALTERED OR MODIFIED | One Moody Plaza, Galveston, Texas 77550-7999 | |
______________________________ ____________________________
- ------------------------------------------------------------------------------------------------------------------------------------
PREMIUM CHECKS MUST BE MADE PAYABLE TO THE COMPANY.
DO NOT MAKE CHECK PAYABLE TO THE AGENT OR LEAVE THE PAYEE BLANK
- ------------------------------------------------------------------------------------------------------------------------------------
I have received $ _______________ in connection with an application for life insurance bearing the same number as this receipt. If
each of the following four conditions is satisfied fully, then, subject to the Maximum Amount Limitation described below, insurance
as provided by the terms and conditions of the policy applied for will become effective on the Effective Date, as defined below.
(1) The payment received with the application must equal the minimum initial premium required for the plan and amount of insurance
applied for;
(2) All medical examinations and tests required under the Company's initial application requirements must be completed and the
reports of those medical examinations and tests must be received at the Company's Home Office within 45 days after the date of
this receipt;
(3) On the Effective Date, as defined below, the person proposed for insurance must be insurable for the specified amount requested
in the application, and
(4) There is no material misrepresentation in the application.
MAXIMUM AMOUNT LIMITATION: At no time and in no event shall the total liability of the company under this receipt and all other
receipts providing conditional insurance coverage with the company on the life of the person proposed for insurance exceed $250,000.
"Effective Date" means the latest of (a) the date of completion of the application, (b) the date of completion of all medical exams
and tests required by the Company and (c) if the applicant requests a policy date which is later than the date of this receipt, the
policy date requested by the applicant.
Refund of Payment: If one or more of the above conditions 1,2,3 or 4 have not been satisfied fully within 45 days after the date of
this receipt, the Company's liability is limited to a refund of the amount paid. Only the President, a Vice President or Secretary
of the Company has the authority to waive any of the Company rights or requirements or to waive or alter any of the provisions of
this receipt or amend it in any way.
Dated at __________________________________ on ___________________, ________ __________________________________________________
City, State Month, Day Licensed Agent's Signature
I have read this conditional receipt. It has been explained to me by the agent and I understand and agree to all conditions and
limitations.
_______________________________________________________________ _____________________________________________________________
Signature of Proposed Insured (if age 16 or older) Signature of Owner or Premium Payer
AGENT: THIS NOTICE MUST BE REMOVED AND LEFT WITH THE PROPOSED INSURED
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA, GALVESTON, TEXAS 77550-7999
Thank you for considering American National Insurance company as your insurance carrier.
One of the prime objectives of our Company is to provide insurance at the lowest possible cost. The underwriting process (evaluation
of risks) is necessary not only to assure this low cost, but also to assure that each policyholder contributes their fair share of
the cost. In considering your application, information from various sources must, therefore, be considered. These include the
results of your physical examination, if required, and any reports we may receive from doctors and hospitals who have attended you.
MEDICAL INFORMATION BUREAU (MIB) PRE-NOTIFICATION - Information regarding your insurability will be treated as confidential. The
American National Insurance Company or its Reinsurer(s) may, however, make a brief report thereon to the Medical Information Bureau,
a non-profit membership organization of life insurance companies, which operates an information exchange on behalf of its members.
If you apply to another Bureau member company for life or health insurance coverage, or a claim for benefits is submitted to such a
company, the Bureau, upon request, will supply such company with the information in its file.
Upon receipt of a request from you, the Bureau will arrange disclosure of any information it may have in your file. If you question
the accuracy of information in the Bureau's file, you may contact the Bureau and seek a correction in accordance with procedures set
forth in the Federal Fair Credit Reporting Act. The address of the Bureau's information office is Post Office Box 105, Essex
Station, Boston, Massachusetts, 02112, telephone number (617) 426-3660. The American National Insurance Company
See reverse side
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CONDITIONAL RECEIPT
AMERICAN NATIONAL INSURANCE COMPANY
One Moody Plaza
Galveston, Texas 77550-7999
or its Reinsurer(s) may also release information in its file to other life insurance companies to whom you may apply for life or
health insurance, or to whom a claim for benefits may be submitted.
Fair Credit Reporting Act Pre-Notification - Federal and state laws require notification that, in connection with your application,
we may request an investigative consumer report. In addition, such a report may be requested subsequently to update our records or
if you apply for additional coverage. Upon written request, we will inform you whether or not an investigative consumer report was
requested and, if such a report was requested, the address and telephone number of the investigative agency to which the request was
made. By contacting the local office and providing the proper identification, you may inspect or, for the appropriate fee, receive a
copy of such report.
Typically, the report will contain information as to character, general reputation, personal characteristics and mode of living,
which information is obtained through an interview with you or an adult member of your family, employers or business associates,
financial sources, friends, neighbors or others with whom you are acquainted. The information will consist, when applicable, of a
confirmation of your identity, age, residence, marital status, and past and present employment including occupational duties,
financial information, driving report, sports and recreational activities, health history, use of alcohol or drugs if any, living
conditions and type of community.
</TABLE>
<PAGE>
Exhibit 99.11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
(and to all references to our firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
-------------------
Houston, Texas
January 15, 1999
<PAGE>
Exhibit 99.12
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
Galveston, Texas 77550
Galveston (409) 765-5525
Houston (713) 480-5278
Telecopier (409) 766-6424
January 15, 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")
Pre-Effective Amendment No. 1 to Form S-6; 333-51035; Opinion and
Consent of Counsel
- ------------------------------------
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission ("Commission"). Accordingly, we are familiar
with the corporate records, certificates, and consents of officers of ANICO as
we have deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
<PAGE>
3. The Variable Life Insurance Contracts registered by this Registration
Statement under the Securities Act of 1933 (File No. 333-51035) will, upon
issuance thereof, be validly authorized and issued.
We hereby consent to the use of our opinion of counsel in the Pre-Effective
Amendment No. 1 to Form S-6 Registration Statement (File No. 333-51035) filed on
behalf of the Separate Account. We further consent to the statements made
regarding us and to the use of our name under the caption "Legal Matters" in the
prospectus constituting a part of such Pre-Effective Amendment No. 1 to such
Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L.L.P.
/s/ Jerry L. Adams
-------------------------------
Jerry L. Adams
<PAGE>
Exhibit 99.14
REX D. HEMME, FSA, MAAA
Vice President and Actuary
Life Product Development
American National Insurance Company
January 15, 1999
Securities and Exchange Commission
450 Fifth Street, N W
Washington, D.C. 20549
Dear Sir:
This opinion is furnished in connection with the Form S-6 Registration Statement
under the Securities Act of 1933, as amended ("Securities Act"), of a certain
Variable Universal Life II insurance policy (the "Policy") that will be offered
and sold by American National Insurance Company and certain units of interest to
be issued in connection with the Policy.
The hypothetical illustrations of the Policy used in the Form S-6 Registration
Statement accurately reflect reasonable estimate of projected performance of the
Policy under the stipulated rates of investment return, the contractual expense
deductions and guaranteed cost-of-insurance rates, and utilizing a reasonable
estimation for expected fund operating expenses.
I hereby consent to the use of this opinion as an exhibit to the Form S-6
Registration Statement and to the reference to my name under the heading
"Experts" in the Prospectus included as a part of such Form S-6 Registration
Statement.
Very truly yours,
/s/ Rex D. Hemme
- ----------------------------
Rex D. Hemme, FSA, MAAA
Vice President and Actuary Life Product Development
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
(409) 766-6627
(409) 766-6933 Fax
<PAGE>
EXHIBIT 99.15
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
PURSUANT TO RULE 6e-3(T)(b)(12)(iii)
OF THE INVESTMENT COMPANY ACT OF 1940
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
TABLE OF CONTENTS
INTRODUCTION 1
I. ISSUANCE OF POLICIES 1
A. Insurance Underwriting Standards and Application Processing 1
B. Rate Structure for Initial Premium, Monthly Deductions and
Surrender Charge 2
C. Premium Processing 3
D. Reinstatement 4
E. Misstatement of Age or Sex 4
F. Increase in Specified Amount 5
G. Repayment of Policy Debt 5
II. REDEMPTION OF POLICIES AND TRANSFERS 6
A. Policy Lapse and Grace Period 6
B. Surrenders 6
C. Policy Loans 7
D. Death Benefits and Death Benefit Proceeds 8
E. Transfers 9
F. Refund Privilege 9
G. Dollar Cost Averaging 10
H. Rebalancing (Asset Allocation Program) 10
I. Monthly Deduction 11
J. Asset Charge 12
K. Annual Fee 12
L. Premium Charge 12
M. Postponement of Payments 12
III. COMMUNICATIONS 13
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
INTRODUCTION
This document sets forth, as required by Rule 6e-3(T)(b)(12)(iii) of the
Investment Company Act of 1940, the administrative procedures to be followed by
American National Insurance Company ("American National" or "the Company") in
connection with its issuance of Variable Universal Life Insurance Policies, the
transfer of assets held thereunder, and the redemption by Policyowners of their
interests in the Policies. Capitalized terms used but not defined herein have
the same meaning as in the prospectus for the Policies that is included in the
current registration statement for the Policies as filed with the Securities and
Exchange Commission ("SEC").
I. ISSUANCE OF POLICIES
A. INSURANCE UNDERWRITING STANDARDS AND APPLICATION PROCESSING
Individuals wishing to purchase a Policy must complete an application and
submit it to American National's Home Office. American National reserves the
right to reject an application. Acceptance of the application and issuance of
a Policy are subject to American National's underwriting rules. The
underwriting procedures followed entail an evaluation of risks designed to
determine whether the proposed Insured is insurable and if so, the appropriate
underwriting risk classification. Such procedures will be in accordance with
American National's established underwriting standards and state insurance
laws. This process may involve verification procedures including, but not
limited to, medical examinations and may require that further information be
provided by the proposed Insured or applicant or obtained from third parties,
such as the Medical Information Bureau or inspection reports. A Policy will
not be issued until this underwriting process is complete.
Differences in state laws may require American National to offer a Policy in
one or more states which has suicide, incontestability, refund, or other
provisions which are more favorable to a Policyowner than provisions in a
Policy offered in other states.
At issue, the minimum initial premium is $10,000. Although the Policy may
operate as a single premium policy, additional payments may be made at any
time, subject to certain restrictions including the maximum premium
limitations under federal tax law. Except with respect to additional payments
required in a grace period, any additional payment must be at least $5,000.
The Company reserves the right to require evidence of insurability with
respect to a premium payment that results in an increase in the net amount at
risk. Age at Issue is determined on the Insured's age last birthday as of the
Policy Date. The Policy is only available on proposed Insureds who have an age
last birthday of 90 or less at the time the Policy is purchased.
The minimum initial premium is required to effectuate the Policy. In general,
if this minimum premium is submitted with the application and each of the
following 4 conditions are satisfied fully, the conditional receipt provided
to the Policyowner in connection with the application grants that insurance as
provided by the terms and
Page 1
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
conditions of the Policy will become effective on the latest of (a) the date
of completion of the application, (b) the date of completion of all medical
exams and tests required by American National, or (c) if the applicant
requests a Policy Date which is later than the date of the conditional receipt
given at time of application, the Policy Date requested by the applicant. In
no event will the total liability of American National under all conditional
receipts with the Company on the life of the proposed Insured exceed $250,000.
The 4 conditions that must be satisfied fully are:
1. The payment received with the application must equal the minimum
initial premium for the plan and amount of insurance applied for;
2. All medical examinations and tests required under American
National's initial application requirements must be completed and
the reports of those medical examinations and tests must be received
at the Company's Home Office;
3. On the effective date (as defined above) all persons proposed for
insurance must be insurable for the plan and amount of insurance
requested in the application; and
4. There is no material misrepresentation in the application.
If one or more of the above conditions have not been satisfied fully within 45
days of the date of the conditional receipt, American National's liability is
limited to a refund of the amount paid.
If the minimum (initial) premium is not submitted with the application or any
of the requirements for coverage as provided under the conditional receipt are
not satisfied fully, then the Policy Date (effective date) is generally the
Date of Issue of the Policy upon:
1. Payment of the initial premium, as shown on the Policy Data Page;
and
2. Policy delivery during the Insured's lifetime and good health.
Insurance coverage may also begin on any other date mutually agreeable to
American National and the Policyowner as long as such date complies with all
applicable state and federal laws and regulations.
B. Rate Structure for Initial Premium, Monthly Deductions and Surrender Charge
The Policies will be offered and sold pursuant to American National's
established underwriting standards and in accordance with state insurance
laws. State laws prohibit unfair discrimination among Policyowners but
recognize that premiums and insurance charges and deductions are based upon
factors such as age, sex, health and occupation.
Rates used to compute initial premium, Policy charges and fees and surrender
charge will not necessarily be the same for all Policyowners. Insurance is
based on the principle of pooling and distribution of risks, which assumes
each policyowner pays premium and insurance charges and deductions
commensurate with the insured's
Page 2
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
mortality risk as actuarially determined utilizing factors such as the
specified amount of the policy and the insured's age, sex, health and
occupation. Accordingly, while rates used to compute initial premium, Policy
charges and fees and surrender charge will not necessarily be the same for all
Policies, there will be uniform rates for all Policies of the same Specified
Amount and Accumulation Value and Insureds of the same Age at Issue, Attained
Age, sex (for Policies issued on a sex distinct basis), and underwriting risk
classification.
C. Premium Processing
The Policy is a flexible premium policy since, subject to the limitations
given below, there is no fixed schedule of required premium payments.
All premiums are payable at American National's Home Office. The initial
premium is due no later than the Policy Date. The minimum initial premium is
$10,000. Except with respect to additional payments required in a grace
period, any additional payment must be at least $5,000. Net Premiums received
within 15 days after the Date of Issue are allocated to the Subaccount for the
ANIA Money Market Portfolio. Any Net Premium received with the application
will be allocated to the ANIA Money Market Portfolio as of the Date of Issue,
for 15 days. Upon expiration of such period, the Accumulation Value of the
Subaccount for the ANIA Money Market Portfolio will be allocated to the
Subaccounts and the Fixed Account as selected by the Policyowner. Net
Premiums received prior to the Date of Issue are held in the General Account,
without interest, until the Date of Issue, at which time they are allocated to
the Subaccount for the ANIA Money Market Portfolio. Net Premiums received 16
or more days after the Date of Issue are allocated to the Subaccounts and the
Fixed Account as selected by the Policyowner. If there is any Policy Debt at
the time of a payment, the payment will be treated first as payment of loan
interest, second as repayment of the loan, and last as additional premium,
unless otherwise instructed by the Policyowner by proper written notice.
Net Premium equals premium less any applicable premium charge. No premium
charge will be deducted from any premium payment during the first Policy Year.
A 4% premium charge is assessed on premium received any time after the first
Policy Year. Net Premium is allocated among the Subaccounts and the Fixed
Account in accordance with Policyowner instructions specified in the Policy
application. The minimum percentage of a Net Premium that may be allocated to
any one Subaccount or the Fixed Account is 1%, and fractional percentages may
not be used. The allocation percentages must total 100%. The minimum initial
allocation to any Subaccount or the Fixed Account is $500. The allocation for
future Net Premiums may be changed by providing proper notice to American
National's Home Office. There is no charge for changing the allocation. The
revised allocation instructions will apply to future Net Premiums received on
or after the day the notice is received.
In no event may the total of all premium paid exceed the current maximum
premium limitation under federal tax law (guideline premium limitation). If
at any time a premium is paid which would result in total premiums exceeding
such limitation, at the
Page 3
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Policyowner's election, the premium may be returned or the Specified Amount
may be increased subject to underwriting requirements.
American National may require additional evidence of insurability if any
premium payment results in an increase in the Policy's net amount at risk on
the date the premium is received.
D. Reinstatement
A lapsed Policy may be reinstated any time within 5 years after the date
coverage is terminated. A Policy cannot be reinstated if it was surrendered.
Reinstatement will be effected based on the Insured's underwriting
classification at the time of the reinstatement. An application for
reinstatement must be submitted to American National. Reinstatement is
subject to the following:
. Evidence of insurability of the Insured satisfactory to American
National;
. Reinstatement or repayment of any Policy Debt; and
. Payment of a premium sufficient to pay:
. the amount of any Monthly Deductions and annual fee not
collected during the grace period (see separate discussion in
Section II.A.);
. the Monthly Deduction for 3 months after the date of
reinstatement and an annual fee, if any; and
. the amount necessary to pay the premium charge.
The original Date of Issue, and the Policy Dates of increases in Specified
Amount (if applicable), will be used for purposes of calculating the surrender
charges for the reinstated Policy. If any Policy Debt is reinstated, the
amount thereof will be held in the General Account. The Policy Date of
reinstatement will be the first Monthly Deduction Date on or next following
the date of approval by American National of the application for
reinstatement.
E. Misstatement of Age or Sex
If the Insured's age or sex (if the Policy is issued on a sex distinct basis)
has been stated incorrectly, the Death Benefit will be that which could have
been purchased by the most recent cost of insurance charge at the correct age
and sex.
Page 4
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
F. Increase in Specified Amount
The Policyowner can increase the Specified Amount of the Policy at any time,
subject to certain limitations including American National's right to evidence
of insurability. A written application for an increase in Specified Amount
must be submitted. An increase cannot be made if the Insured's Attained Age
is over 90. American National will require an additional premium to effect
the requested increase.
An increase in Specified Amount may result in certain increased charges,
including the premium charge, surrender charge and the cost of insurance
charge. The surrender charge and the cost of insurance charge will be
calculated separately for the initial Specified Amount and each increase in
Specified Amount.
The Policyowner will have a "free look period" which will apply only to the
increase in Specified Amount and not the entire Policy. The rights under this
free look are comparable to the rights afforded a purchaser of a new Policy.
The Policyowner may cancel the increase in Specified Amount within 10 days (or
more where required by applicable state insurance law) after receiving the
Policy as increased. Except as otherwise required by state law or regulation,
if so canceled, the amount of refund is premiums paid attributable to such
increase in Specified Amount adjusted by investment gains and losses.
Any increase in Specified Amount will take effect on the Monthly Deduction
Date which coincides with or next follows the date American National approves
an application for such change.
G. Repayment of Policy Debt
See Section II.C., "Policy Loans".
Page 5
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
II. REDEMPTION OF POLICIES AND TRANSFERS
A. Policy Lapse and Grace Period
Policy lapse will occur when the Surrender Value is insufficient to cover the
Monthly Deduction or Policy Debt exceeds Accumulation Value less any surrender
charge, and a grace period expires without a sufficient payment. The grace
period begins on the date the Surrender Value is insufficient to cover the
Monthly Deduction or the date Policy Debt exceeds the Accumulation Value less
any surrender charge. American National will notify the Policyowner and any
assignee on record at the Company's Home Office, at the beginning of the grace
period, by mail addressed to the last known address on file with the Company.
The notice will specify the premium required to be paid to keep the Policy in
force. The grace period ends 61 days after the notice is mailed. Failure to
pay the required amount within the grace period results in lapse of the
Policy. If the Insured dies during the grace period, any overdue Monthly
Deductions and Policy Debt will be deducted from the Death Benefit Proceeds.
B. Surrenders
At any time during the lifetime of the Insured and while the Policy is in
force, the Policyowner may surrender the Policy by sending written notice to
American National and returning the Policy. Except for the provision for
postponement of payments as described in Section II.M., surrenders are
generally paid within 7 days after receipt of a written request at American
National's Home Office. In addition, payment of surrenders which would be
derived from a premium payment made by check which has not cleared the banking
system may also be deferred.
On surrender, American National will pay the Surrender Value, determined at
the end of the Valuation Period during which the surrender request is
received. Coverage under the Policy will terminate as of the date of
surrender.
If the Policy is surrendered, a surrender charge may be assessed. The
surrender charge is based upon the amount of the Surrender Premium. Surrender
Premiums are calculated separately for the initial Specified Amount and for
each increase in Specified Amount. The surrender charge for the initial
Specified Amount is applicable until the 9th Policy anniversary. For an
increase in Specified Amount, the surrender charge is applicable for 9 years
after the Policy Date of such increase. Thereafter, there is no surrender
charge.
The surrender charge equals the surrender charge percentage multiplied by the
Surrender Premium. The surrender charge percentage grades to zero over the 9
years since issue or increase, as applicable.
Page 6
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Proceeds payable upon surrender are generally paid in one sum. However,
American National currently allows the Policyowner to elect to have such
proceeds paid under the provision for settlement options set forth in the
Policy.
C. Policy Loans
After the first Policy Year, the Policyowner can borrow from American National
using the Policy as security for the loan. The minimum amount which may be
borrowed is $100. Except as otherwise required by applicable state law or
regulation, the maximum amount that may be borrowed is 90% of the Surrender
Value at the end of the Valuation Period during which the loan request is
received. Preferred loans are available. Determination of whether a loan is
preferred occurs at the time the loan is made. Subject to the aforementioned
maximum loan amount, the amount available as a preferred loan equals the
Accumulation Value less Policy Debt and less premiums paid. In addition, once
this amount is exhausted, an additional amount equal to 10% of premium will be
available each year as a preferred loan. The loan may be completely or
partially repaid at any time while the Insured is living.
Except for the provision for postponement of payments as described in Section
II.M., loans are generally paid within 7 days after receipt of a written
request. In addition, payment of loans which would be derived from a premium
payment made by check which has not cleared the banking system may also be
deferred.
Loans accrue interest on a daily basis at a rate of 5.0% per year. Interest
is due and payable on each Policy anniversary. If interest is not paid when
due, a new loan will be made on the interest due date equal to the interest
due.
Amounts held in the General Account to secure Policy loans will earn interest
at an annual rate of 5.0%, if the loan is preferred, or 3.0% otherwise.
Interest is credited on the Policy anniversary. This interest will be
allocated to the Subaccounts and the Fixed Account on each Policy anniversary
in the same proportion that Net Premiums are being allocated at that time.
When a loan is made, Accumulation Value equal to the amount of the loan will
be transferred from the Separate Account and the Fixed Account to the General
Account as security for the indebtedness. The Accumulation Value transferred
out will be deducted from the Subaccounts and the Fixed Account in the same
proportion as the Accumulation Value in each Subaccount and the Fixed Account
prior to the loan bears to the total. No charge will be imposed for these
transfers.
Policy Debt equals the total of all Policy loans and accrued interest thereon.
Policy Debt may be totally or partially repaid at any time while the Insured
is still living. Payments received by American National while a Policy loan
is outstanding are treated first as payment of loan interest, second as
repayment of the loan, and last as additional premium, unless otherwise
instructed by the Policyowner by proper written notice. Payments received for
repayment of Policy Debt are first applied toward non-preferred loans. Each
loan repayment amount must be at least $10 or the full amount of Policy Debt,
if less. As Policy Debt is repaid, Accumulation Value equal to the loan
Page 7
<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
amount repaid will be transferred from the General Account to the Subaccounts
and the Fixed Account. Such transfer will be allocated among the Subaccounts
and the Fixed Account at the end of the Valuation Period during which the
repayment is received. The allocation will be in the same proportion that Net
Premiums are being allocated at the time of repayment.
Whenever Policy Debt exceeds the Accumulation Value less any surrender charge,
the Policy's grace period provision will apply. (See Section II.A.)
D. Death Benefits and Death Benefit Proceeds
The Policy provides life insurance coverage as long as it remains in force.
Until age 100 the Death Benefit is the current Specified Amount or, if
greater, the applicable corridor percentage of the Accumulation Value at the
end of the Valuation Period that includes the date of death. The applicable
corridor percentages are listed in the Policy. The Death Benefit at age 100
and thereafter equals the Accumulation Value.
Except for the provision for postponement of payments described in Section
II.M., Death Benefit Proceeds are generally paid within 7 days after American
National receives Satisfactory Proof of Death and all other applicable
requirements are met. During the Insured's lifetime, the Policyowner may
arrange for the Death Benefit Proceeds to be paid in a lump sum or under one
or more of the optional methods of payment provided for in the Policy's
settlement options provision. If no election is made, American National will
pay the Death Benefit Proceeds in a lump sum. When Death Benefit Proceeds are
payable in a lump sum and no election of an optional method of payment is in
force at the date of death of the Insured, the Beneficiary may select one or
more of the optional methods of payment. Any amount left with American
National for payment under a settlement option will be transferred to the
General Account and will not be affected by the investment performance
associated with the Separate Account. Once payments have begun, the payment
option may not be changed. American National reserves the right to make other
payment options available.
An election or change of method of payment of Death Benefit Proceeds must be
in writing. A change in Beneficiary revokes any previous settlement election.
Further, if a Policy is assigned, any amount due to the assignee will first be
paid in one sum. The balance, if any, will be paid in one sum to the
designated Beneficiary unless an optional method of payment is elected.
Death Benefit Proceeds will be reduced by the amount of any Policy Debt. In
addition, if the Insured dies during the grace period, any unpaid Monthly
Deductions that may apply will be deducted from the Death Benefit Proceeds.
Contestability of the Policy is as provided under Policy provisions. American
National's liability may also be affected if the Insured commits suicide, as
provided for under Policy provisions.
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DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
E. Transfers
The Policyowner may transfer Accumulation Value among the Subaccounts and the
Fixed Account subject to the following limits. Transfers may be ordered in
person, by mail, or by telephone. Authorization must be on file at American
National's Home Office before any telephone instructions will be allowed. The
total amount of each transfer from a Subaccount must be at least $250 or the
balance of the Subaccount, if less. The minimum amount that may remain in a
Subaccount after a transfer therefrom is $100. The maximum amount which may
be transferred from the Fixed Account to the Subaccounts during a Policy month
is the greater of 10% of the amount in the Fixed Account or $1,000. Transfers
will be effected, and values in connection therewith determined, on the later
of the end of the Valuation Period which includes the transfer date designated
in the request or the end of the Valuation Period during which the transfer
request is received. The first 12 transfers per Policy Year will be permitted
free of charge. A $10 transfer charge will be imposed each additional time
amounts are transferred during the year. This charge will be deducted from
the amount transferred. Transfers resulting from Policy loans, the dollar
cost averaging program or the rebalancing program will not be subject to a
transfer charge. In addition, such transfers will not be counted for purposes
of determining the number of transfers allowed without charge in each year.
American National will employ reasonable procedures to confirm the transfer
instructions communicated by telephone are genuine. The procedures American
National will follow for telephone transfers may include some form of personal
identification prior to acting on instructions received by telephone,
providing written confirmation of the transaction, and making a tape recording
of the instructions given by telephone.
F. Refund Privilege
The Policyowner may cancel the Policy within 10 days (or more where required
by applicable state law) after receiving it. If a Policy is canceled within
this time period a refund will be paid. Except as otherwise required by state
law or regulation, the amount of the refund will be the amount of the premiums
paid adjusted by investment gains during the period such premiums have
been allocated to the ANIA Money Market Portfolio and by investment gains and
losses thereafter. To cancel the Policy, the Policyowner should mail or
deliver the actual Policy form to American National's Home Office or to the
office of one of its agents.
Payment of refunds may be delayed as per the provision for postponement of
payments described in Section II.M. In addition, payment of refunds which
would be derived from a premium paid by check which has not cleared the
banking system may also be delayed.
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
G. Dollar Cost Averaging
Under the dollar cost averaging program, the Policyowner can instruct American
National to automatically transfer, on a periodic basis, a predetermined
amount or percentage from any one Subaccount or the Fixed Account, to any
Subaccount(s) and/or the Fixed Account. The automatic transfers can occur
monthly, quarterly, semi-annually or annually, and the amount transferred each
time must be at least $1,000 in total. The minimum transfer to each
Subaccount must be at least $100. At the time the program begins, there must
be at least $10,000 of Accumulation Value. Transfers under dollar cost
averaging will be effected, and values in connection therewith determined, at
the end of the Valuation Period that includes the transfer date designated in
the instructions.
The Policyowner can request participation in the dollar cost averaging program
when applying for the Policy or at a later date. Transfers will begin as
specified by the Policyowner. The Policyowner can specify that only a certain
number of transfers will be made, in which case the program will terminate
when that number of transfers has been made. Otherwise, the program will
terminate, if on a transfer date, the Accumulation Value is less than $5,000
or there are insufficient funds for the transfer from a Subaccount or the
Fixed Account.
The Policyowner can increase or decrease the amount of transfers or
discontinue the program by sending written notice to American National or by
the telephone, if a telephone transfer authorization form is on file. There
is no charge for participation in this program. In addition, transfers made
pursuant to this program will not be counted in determining the number of
transfers allowed without charge each year.
H. Rebalancing (Asset Allocation Program)
American National will rebalance a Policy by allocating Net Premiums and
transferring Accumulation Value among the Subaccounts and the Fixed Account to
ensure conformity with current allocation instructions specified by the
Policyholder. Rebalancing will be performed on a calendar quarterly, semi-
annual or annual basis as specified by the Policyowner. Rebalancing will be
effected, and values in connection therewith determined, at the end of the
Valuation Period that includes the rebalancing date designated in the request.
There is no charge for participation in this program. In addition, transfers
of Accumulation Value made pursuant to this program will not be counted in
determining the number of transfers allowed without charge each year. At the
time the program begins, there must be at least $10,000 of Accumulation Value.
The program will be discontinued if, on a rebalancing date, the Accumulation
Value is less than $5,000.
The Policyowner can request participation in the rebalancing program when
applying for the Policy or at a later date. The Policyowner can change the
allocation instructions or discontinue the program by giving written notice or
calling American National by telephone, if a telephone transfer authorization
form is on file.
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
I. Monthly Deduction
The Monthly Deduction is the sum of the:
. cost of insurance charge, and
. expense charge.
The Monthly Deduction will be deducted from the Accumulation Value as of the
Date of Issue and on each Monthly Deduction Date thereafter. It will be
allocated among the Subaccounts and the Fixed Account in the same proportion
as the Accumulation Value in each Subaccount and the Fixed Account bears to
the total on that date.
On a current basis, the cost of insurance charge is calculated as a percentage
of the Accumulation Value on the Monthly Deduction Date. The current cost of
insurance rate varies by duration of the insurance, which is determined
separately for the initial and each increase in Specified Amount. To
determine the cost of insurance, Accumulation Value is allocated
proportionally based on Specified Amounts to the initial and each increase in
Specified Amount insurance segment. The sum of the amounts calculated for
each segment equals the total for the Policy for the month. American National
reserves the right to change the cost of insurance charge. However, the cost
of insurance charge deducted on a Monthly Deduction Date is guaranteed not to
exceed the amount calculated as the guaranteed maximum cost of insurance
charge. The guaranteed maximum cost of insurance charge for a Monthly
Deduction Date equals the guaranteed maximum cost of insurance rate multiplied
by the net amount at risk for that date. The net amount at risk equals the
excess, as of the Monthly Deduction Date, of the Death Benefit over the
Accumulation Value after deduction of the expense charge and annual fee.
The expense charge, which is assessed on each Monthly Deduction Date, equals
0.033333% (0.40% annually) of Accumulation Value attributable to premium paid
in the first Policy Year. The Accumulation Value attributable to premium paid
in the first Policy Year is calculated as the first year premium percentage
multiplied by the Accumulation Value on the Monthly Deduction Date.
Currently, there is no expense charge after the tenth Policy Year.
The first year premium percentage is recalculated every time premium is paid.
During the first Policy Year and prior to receiving any premium after the
first Policy Year, the first year premium percentage is one. When premium is
paid after the first Policy Year, the first year premium percentage is
calculated as [a * (1 - b/c)], where (a) is the first year premium percentage
immediately before receipt of the premium, (b) is the amount of the additional
premium paid, and (c) is the total Accumulation Value immediately after
receipt of the additional premium.
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
J. Asset Charge
A Daily Asset Charge will be deducted from the Separate Account. Such charge
will equal 1.25% annually of the average daily Accumulation Value of the
Separate Account, and therefore each Subaccount. The Daily Asset Charge will
be deducted from the Accumulation Value of each Subaccount on each Valuation
Date. The deduction on each Valuation Date will be calculated using a rate
derived as (a) raised to the (b) power, minus one, where (a) is one plus the
annual rate and (b) is the number of days since the last Valuation Date
divided by 365.
An asset charge will be deducted on each Monthly Deduction Date at an annual
rate of 1.25% of Accumulation Value held in the Fixed Account or the General
Account. The deduction on each Monthly Deduction Date will be calculated
using a rate derived as (a) raised to the (b) power, minus one, where (a) is
one plus the annual rate and (b) is 1 divided by 12.
K. Annual Fee
A $35.00 annual fee will be assessed on the first Monthly Deduction Date of
each Policy Year. Currently, the annual fee is waived when the Accumulation
Value exceeds $50,000 on the Monthly Deduction Date.
L. Premium Charge
After the first Policy Year, premiums paid will be reduced by a 4% charge
prior to allocation among the Subaccounts and the Fixed Account.
M. Postponement of Payments
Payment of any amount upon refund, surrender, Policy loan, benefits payable at
death and transfers, which require valuation of a Subaccount, may be postponed
whenever:
. the New York Stock Exchange (NYSE) is closed other than customary
week-end and holiday closings, or trading on the NYSE is restricted
as determined by the SEC,
. the SEC by order permits postponement for the protection of
Policyowners, or
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<PAGE>
DESCRIPTION OF ISSUANCE, TRANSFER AND REDEMPTION PROCEDURES
FOR VARIABLE UNIVERSAL LIFE INSURANCE POLICIES
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
. an emergency exists, as determined by the SEC, as a result of which
disposal of securities is not reasonably practicable or it is not
reasonably practicable to determine the value of the Separate
Account's Accumulation Value.
Surrenders or Policy loans from the Fixed Account may be deferred up to 6
months from the date of written request.
III. COMMUNICATIONS
American National may from time to time update or otherwise revise procedures,
requirements and specifications for receiving (and sending) communications
regarding the issuance of the Policies, payment of premiums, surrenders,
transfers, increases in Specified Amount, loans, or other matters. Current
requirements for "written" notice or other "written" communications may, at
American National's sole option, be changed to permit some or all such
communications to be made by facsimile, e-mail or other Internet type
transmissions, voice mail, recorded telephone conversations, or other means.
Current requirements that communications must be sent to and/or received at
American National's Home Office may be changed, at American National's sole
option, to permit or require that some or all communications be sent to and/or
received at one or more other locations or facilities designated by American
National.
Page 13
