<PAGE>
Registration Number 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
Post-Effective Amendment No. 2
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
(Exact Name of Registrant)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Complete Address of Depositor's Principal Executive Offices)
Rex D. Hemme Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National With copy to: One Moody Plaza, 18th Floor
Insurance Company Galveston, Texas 77550
One Moody Plaza
Galveston, Texas 77550
(Name and Address of Agent for Service)
=================================================================
Declaration Required By Rule 24f-2(a)(1): An indefinite number of securities of
the Registrant has been registered under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Notice required by Rule
24f-2(b)(1) has been filed in the Office of the Securities and Exchange
Commission on March 31, 1999 for the Registrant's fiscal year ending December
31, 1998.
=================================================================
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of securities being registered: Variable Life Insurance Policies
<PAGE>
INVESTRAC ADVANTAGE VARIABLE UNIVERAL LIFE
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Home Office One Moody Plaza Galveston, Texas 77550
PROSPECTUS MAY 1, 1999 1-800-306-2959
This prospectus describes a variable universal life insurance policy offered by
American National Insurance Company. The policy provides life insurance
protection with flexibility to vary the amount and timing of premium payments
and the level of death benefit. The death benefits available under your policy
can increase if the value of the policy increases.
The value of your policy will vary with the investment performance of investment
options you choose. You can choose to have your net premium payments (premium
payments less applicable charges) allocated to subaccounts of the American
National Variable Life Separate Account and to our general account. Each
subaccount invests in a corresponding portfolio of American National Investment
Accounts, Inc., Variable Insurance Products Fund, Variable Insurance Products
Fund II, Variable Insurance Products Fund III, T. Rowe Price International
Series, Inc. or T. Rowe Price Equity Series, Inc. The portfolios currently
available for purchase by the subaccounts are:
AMERICAN NATIONAL FUND
. AN Money Market
. AN Growth
. AN Balanced
. AN Managed
T. ROWE PRICE FUNDS
. T. Rowe Price Equity Income
. T. Rowe Price Mid-Cap Growth
. T. Rowe Price International Stock
FIDELITY FUNDS
. VIP Money Market
. VIP Equity-Income
. VIP High Income
. VIP Growth
. VIP Overseas
. VIP Contrafund
. VIP Asset Manager: Growth
. VIP Investment Grade Bond
. VIP Asset Manager
. VIP Index 500
. VIP Balanced
. VIP Growth and Income
. VIP Mid Cap
. VIP Growth Opportunities
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED
THE POLICY OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE POLICY IS NOT A DEPOSIT OR OBLIGATION OF, OR GUARANTEED OR ENDORSED BY,
ANY BANK, NOR IS IT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. THE POLICY
INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Please read this prospectus and keep it for future reference.
<PAGE>
TABLE OF CONTENTS
Page
Definitions............................................................... 4
Summary................................................................... 6
The Policy.............................................................. 6
Issuance of a Policy.................................................... 6
Allocation of Premiums.................................................. 6
Policy Benefits and Rights.............................................. 7
Charges................................................................. 8
Taxes................................................................... 11
Policy Benefits........................................................... 11
Purposes of the Policy.................................................. 11
Death Benefit Proceeds.................................................. 11
Death Benefit Options................................................... 12
Guaranteed Coverage Benefit............................................. 16
Duration of the Policy.................................................. 17
Accumulation Value...................................................... 17
Payment of Policy Benefits.............................................. 18
Policy Rights............................................................. 19
Loan Benefits........................................................... 19
Surrenders.............................................................. 21
Transfers............................................................... 22
Refund Privilege........................................................ 23
Dollar Cost Averaging................................................... 23
Rebalancing............................................................. 24
Payment and Allocation of Premiums........................................ 24
Issuance of a Policy.................................................... 24
Premiums................................................................ 24
Premium Flexibility..................................................... 24
Allocation of Premiums and Accumulation Value........................... 25
Grace Period and Reinstatement.......................................... 25
Charges and Deductions.................................................... 26
Premium Charges......................................................... 26
Charges from Accumulation Value......................................... 26
Monthly Deduction..................................................... 26
Cost of Insurance..................................................... 27
Surrender Charge...................................................... 28
Transfer Charge....................................................... 28
Partial Surrender Charge.............................................. 28
Daily Charges Against the Separate Account............................ 28
2
<PAGE>
Fees and Expenses Incurred by Eligible Portfolios..................... 28
Taxes................................................................. 28
Exceptions to Charges................................................... 29
American National Insurance Company, the Separate Account, the Funds
and the Fixed Account.................................................... 29
American National Insurance Company..................................... 29
The Separate Account.................................................... 29
The Funds............................................................... 32
Fixed Account........................................................... 34
Federal Income Tax Considerations......................................... 35
Introduction............................................................ 35
Tax Status of the Policy................................................ 35
Tax Treatment of Policy Proceeds........................................ 36
American National's Income Taxes........................................ 39
Other Information......................................................... 39
Sale of the Policy...................................................... 39
Year 2000............................................................... 40
The Contract............................................................ 40
Dividends............................................................... 42
Legal Matters........................................................... 42
Legal Proceedings....................................................... 42
Registration Statement.................................................. 42
Experts................................................................. 42
Senior Executive Officers and Directors of American National Insurance
Company.................................................................. 44
Financial Statements...................................................... 51
Appendix.................................................................. 85
Illustrations of Death Benefits, Accumulation Values and
Surrender Values....................................................... 87
3
<PAGE>
DEFINITIONS
Accumulation Value. The total amount that a Policy provides for investment at
any time.
Age at Issue. The age at the Insured's last birthday before the Date of Issue.
American National Fund. American National Investment Accounts, Inc.
Attained Age. Age at Issue plus the number of complete Policy Years.
Beneficiary. The Beneficiary designated in the application or the latest change,
if any, filed and recorded with us.
Daily Asset Charge. A charge equal to an annual rate of 1.25% of the average
daily Accumulation Value of each subaccount.
Date of Issue. The Date of Issue in the Policy and any riders to the Policy.
Death Benefit. The amount of insurance coverage provided under the selected
Death Benefit option.
Death Benefit Proceeds. The proceeds payable upon death of the Insured.
Declared Rate. The rate at which interest is credited in the Fixed Account.
Effective Date. The later of the Date of Issue or the date on which:
. the first premium, as shown on the Policy Data Page, has been paid; and
. the Policy has been delivered during the Insured's lifetime and good health.
. Any increase in Specified Amount, addition of a benefit rider, or
reinstatement of coverage will take effect on the Monthly Deduction Date which
coincides with or next follows the date we approve an application for such
change or for reinstatement of the Policy.
Eligible Portfolio. A Portfolio of American National Investment Accounts, Inc.,
Variable Insurance Products Fund, Variable Insurance Products Fund II, Variable
Insurance Products Fund III, T. Rowe Price International Series, Inc., and T.
Rowe Price Equity Series, Inc., in which a subaccount can be invested.
Fidelity Funds. Variable Insurance Products Fund, Variable Insurance Products
Fund II and Variable Insurance Products Fund III
Fixed Account. A part of our General Account which accumulates interest at a
fixed rate.
General Account. Includes all of our assets except assets segregated into
separate accounts.
Guaranteed Coverage Benefit. Our agreement to keep the Policy in force if the
Guaranteed Coverage Premium is paid and other Policy provisions are met.
Guaranteed Coverage Premium. A specified premium which, if paid in advance
as required, will keep the Policy in force so long as other Policy provisions
are met.
Insured. The person upon whose life the Policy is issued.
4
<PAGE>
Monthly Deduction. The sum of (1) cost of insurance charge, (2) charge for any
riders, and (3) monthly policy charge shown on the Policy Data Page.
Monthly Deduction Date. The same date in each succeeding month as the Date
of Issue, except that whenever the Monthly Deduction Date falls on a date other
than a Valuation Date, the Monthly Deduction Date will be deemed to be the next
Valuation Date. The Date of Issue is the first Monthly Deduction Date.
Net Amount at Risk. Your Death Benefit minus your Accumulation Value.
Planned Periodic Premiums. Scheduled premiums selected by you.
Policy. The variable universal life insurance policy described in this
prospectus.
Policy Data Page. The pages of the Policy so titled.
Policy Debt. The sum of all unpaid Policy loans and accrued interest thereon.
Policyowner ("YOU"). The owner of the Policy, as designated in the application
or as subsequently changed. If a Policy has been absolutely assigned, the
assignee is the Policyowner. A collateral assignee is not the Policyowner.
Policy Year. The period from one Policy anniversary date until the next Policy
anniversary date.
Satisfactory Proof of Death. Submission of the following:
. certified copy of the death certificate;
. a claimant statement;
. the Policy; and
. any other information that we may reasonably require to establish the validity
of the claim.
Specified Amount. The minimum Death Benefit under the Policy until the
Insured reaches Attained Age of 95. The Specified Amount is an amount you
select in accordance with Policy requirements.
Surrender Value. The Accumulation Value less Policy Debt and surrender
charges.
T. Rowe Price Funds. T. Rowe Price International Series, Inc. and T. Rowe Price
Equity Series, Inc.
Valuation Date. Each day the New York Stock Exchange is open for regular
trading.
Valuation Period. The close of business on one Valuation Date to the close of
business on another.
5
<PAGE>
SUMMARY
The Policy is not available in some states. You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is different.
You should read the following summary in conjunction with the detailed
information appearing elsewhere in this prospectus. Unless otherwise indicated,
the description of the Policy assumes that the Policy is in effect and there is
no Policy Debt.
THE POLICY
The Policy is a flexible premium variable universal life insurance policy.
You do not have a fixed schedule for premium payments. You can establish a
schedule of Planned Periodic Premiums, but you are not required to follow such
schedule. (See "Premium Flexibility," page 24.)
The Death Benefit under the Policy may, and the Accumulation Value will,
reflect the investment performance of the investments you choose. (See "Death
Benefits," page 7 and "Accumulation Value," page 17.) You benefit from any
increase in value and bear the risk that your chosen investment options may
decrease in value. The amount and duration of the life insurance coverage
provided by the Policy is not guaranteed, except under the Guaranteed Coverage
Benefit provision. Further, the Accumulation Value is not guaranteed, except in
the Fixed Account.
ISSUANCE OF A POLICY
In order to purchase a Policy, you must submit an application to us. We review
the application to determine whether the Policy can be issued in accordance with
our underwriting standards. Once the underwriting process is completed, the
Date of Issue is designated. You, however, must submit your initial premium for
the Policy to have an Effective Date. Accordingly, the Date of Issue may be
before the Effective Date. If the underwriting process is not completed within
45 days after you submit your application and initial premium, we will refund
your premium. Your initial premium can be resubmitted if the underwriting
review of the application is later completed.
ALLOCATION OF PREMIUMS
You can allocate premiums to one or more of the subaccounts and to the Fixed
Account. (See "The Separate Account," page 29 and "Fixed Account," page 34.)
The assets of the various subaccounts are invested in Eligible Portfolios. The
prospectuses or prospectus profiles for the Eligible Portfolios accompany this
prospectus.
Premium payments received before the Date of Issue are held in our General
Account without interest. On the Date of Issue, premiums received on or before
that date are allocated to the subaccount for the AN Money Market Portfolio.
6
<PAGE>
Premium payments received within 15 days after the Date of Issue are also
allocated to the AN Money Market Portfolio. After the 15 day period, premium
payments and Accumulation Value are allocated among the Eligible Portfolios in
accordance with your instructions as contained in the application. The minimum
percentage that you may allocate to any one subaccount or to the Fixed Account
is 10% of the premium, and fractional percentages may not be used.
POLICY BENEFITS AND RIGHTS
Death Benefit. The Death Benefit is available in two options. (See "Death
Benefit Options," page 12.) The Death Benefit Proceeds may be paid in a lump sum
or in accordance with an optional payment plan. (See "Payment of Policy
Benefits," page 18.)
Adjustments to Death Benefit. You can adjust the Death Benefit by changing the
Death Benefit option and by increasing or deceasing the Specified Amount.
Changes in the Specified Amount or the Death Benefit option are subject to
certain limitations. (See "Death Benefit Options," page 12 and "Change in
Specified Amount," page 15.)
Accumulation Value and Surrender Value. The Accumulation Value reflects the
investment performance of the chosen subaccounts, the rate of interest paid on
the Fixed Account, premiums paid, partial surrenders, and charges deducted from
the Policy. There is no guaranteed minimum Accumulation Value. You can
withdraw the entire Surrender Value. Subject to certain limitations, you can
also withdraw a portion of the Surrender Value. Partial surrenders reduce both
the Accumulation Value and the Death Benefit payable under the Policy. A
surrender charge will be deducted from the amount paid upon a partial
withdrawal. (See "Partial Surrender Charge," page 28. See "Surrenders," page
21.) Surrenders may have tax consequences. (See "Federal Income Tax
Considerations," page 35.)
Policy Loans. You can borrow money from us using the Policy as security for the
loan. (See "Loan Benefits," page 19.) Policy Loans may have tax consequences.
(See "Federal Income Tax Considerations," page 35.)
Free Look Period. You have a free look period in which to examine a Policy and
return it for a refund. The length of the free look period varies among
different states, but generally runs for 10 days after you receive your Policy.
The date you receive your Policy will not necessarily be the date you submit
your premium. (See "Refund Privilege," page 23.)
Policy Lapse and Guaranteed Coverage Benefit. We will provide a Guaranteed
Coverage Benefit so long as the Guaranteed Coverage Premium is paid and other
Policy provisions are met. After the Guaranteed Coverage Benefit period, the
Policy will lapse at any time the Surrender Value is insufficient to pay the
Monthly Deductions and the grace period expires without sufficient additional
premium payment. The grace period starts when written notice of lapse is mailed
to your last known address and expires 61 days later. Unless the Guaranteed
Coverage Benefit requirements have been met, lapse can occur even if Planned
Periodic Premiums are paid. (See "Payment and Allocation of Premiums," page
24.)
7
<PAGE>
CHARGES
Charges from Accumulation Value. The Accumulation Value of the Policy will be
reduced by certain Monthly Deductions and Daily Asset Charges as follows:
. On each Monthly Deduction Date by:
. Cost of Insurance Charge. Because the cost of insurance depends upon
several variables, the cost can vary from month to month. We will determine
the monthly cost of insurance charges by multiplying the applicable cost of
insurance rate by the Net Amount at Risk, as of the Monthly Deduction
Date, for each Policy month.
The monthly cost of insurance rate is based on the Insured's sex (if Policy
is issued on a sex distinct basis), Attained Age, Specified Amount and
underwriting risk class. The rate may vary if the Insured is a tobacco user
or tobacco non-user, if the Insured is in a preferred or standard risk
classification, or if the Insured is in a substandard risk classification
and rated with a tabular extra rating.
. Charge for the Cost of any Riders.
. Monthly Policy Charge. The monthly policy charge, which will vary by Age
at Issue and risk class, will be a maximum of $7.50 plus $.31034 per $1,000
of Specified Amount. The monthly policy charge is determined when the
policy is issued.
. On each Valuation Date, by a Daily Asset Charge not to exceed 1.25% annually
of the average daily Accumulation Value in each subaccount. (See
"Charges and Deductions," page 26.)
Eligible Portfolio Expenses. The values of the units in each subaccount will
reflect the net asset value of shares in the corresponding Eligible Portfolios.
The net asset value of those shares is reduced by the Eligible Portfolios'
expenses.
8
<PAGE>
ELIGIBLE PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
<TABLE>
<CAPTION>
MANAGEMENT OTHER
FEES EXPENSES TOTAL
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
AN Money Market Portfolio /1,5/ 0.00% 0.87% 0.87%
AN Growth Portfolio /2,5/ 0.36% 0.51% 0.87%
AN Balanced Portfolio /3,5/ 0.44% 0.74% 1.18%
AN Managed Portfolio /4,5/ 0.16% 0.49% 0.65%
VIP High Income Portfolio /7/ 0.58% 0.12% 0.70%
VIP Investment Grade Bond Portfolio 0.43% 0.14% 0.57%
VIP Asset Manager Portfolio /7/ 0.54% 0.10% 0.64%
VIP Index 500 Portfolio /6/ 0.24% 0.04% 0.28%
VIP Money Market Portfolio 0.20% 0.10% 0.30%
VIP Equity-Income Portfolio /7/ 0.49% 0.09% 0.58%
VIP Growth Portfolio /7/ 0.59% 0.09% 0.68%
VIP Overseas Portfolio /7/ 0.74% 0.17% 0.91%
VIP Contrafund Portfolio /7/ 0.59% 0.11% 0.70%
VIP Asset Manager: Growth Portfolio /7/ 0.59% 0.14% 0.73%
VIP Balanced Portfolio /7/ 0.44% 0.15% 0.59%
VIP Growth and Income Portfolio /7/ 0.49% 0.12% 0.61%
VIP Growth Opportunities Portfolio /7/ 0.59% 0.12% 0.71%
VIP Mid-Cap Portfolio 0.56% 0.30% 0.86%
T. Rowe Price Equity Income Portfolio /8/ 0.85% 0.00% 0.85%
T. Rowe Price Mid-Cap Growth Portfolio /8/ 0.85% 0.00% 0.85%
T. Rowe Price International Stock Portfolio /8/ 1.05% 0.00% 1.05%
</TABLE>
Note: The Eligible Portfolio Annual Expenses are expenses for the most recent
fiscal year. The above table is intended to assist you in understanding the fund
expenses that you will bear, directly or indirectly; however such table is based
upon historical information and it is not a guarantee or prediction of future
performance. Actual Eligible Portfolio Expenses for future years may be more or
less than those shown in this table. For a more complete description of these
expenses, see the Prospectuses for the Eligible Portfolios that accompany this
Prospectus.
/1/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.37%.
/2/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.01%.
/3/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.24%.
/4/ Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 0.99%.
/5/ Under its Administrative Service Agreement with the American National
Fund, Securities Management and Research, Inc. ("SM&R"), the American
National Fund's investment advisor and manager, has agreed to pay (or to
reimburse each portfolio for) each portfolio's expenses (including the
advisory fee and administrative services fee paid to SM&R, but exclusive of
interest, commissions and other expenses incidental to portfolio
transactions) in excess of 1.50% per year of such portfolio's average daily
net assets. In addition,
9
<PAGE>
SM&R has entered into a separate undertaking with the American National Fund
effective May 1, 1994 until April 30, 2000, pursuant to which SM&R has
agreed to reimburse the AN Money Market Portfolio and the AN Growth
Portfolio for expense in excess of 0.87%; the AN Balanced Portfolio for
expenses in excess of 1.18% and the AN Managed Portfolio for expenses in
excess of 0.65%, of each of such portfolio's average daily net assets during
such period. SM&R is under no obligation to renew this undertaking for any
portfolio at the end of such period.
/6/ The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor. Absent reimbursement, management fee, other expenses and
total expenses would have been 0.24%, 0.11% and 0.35%, respectively.
/7/ A portion of the brokerage commissions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent where by interest
earned on uninvested cash balances was used to reduce custodian and transfer
agent expenses. Including these reductions, the total operating expenses
presented in the table would have been 0.78% for the VIP Asset Manager
Portfolio, 0.80% for the VIP Contrafund Portfolio, 0.89% for the VIP Asset
Manager: Growth Portfolio, 0.80% for the VIP Growth Portfolio, 0.68% for the
VIP Equity-Income Portfolio, 1.01% for the VIP Overseas Portfolio, 0.82% for
the VIP High Income Portfolio, 0.70% for the VIP Balanced Portfolio, 0.71%
for the VIP Growth and Income Portfolio, 0.80% for the VIP Growth
Opportunities Portfolio, and 0.96% for the VIP Mid-Cap Portfolio.
/8/ T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe
Price an annual all-inclusive fee of 0.85% based on such portfolios' average
daily net assets. The T. Rowe Price International Stock Portfolio pays
Rowe Price-Fleming International, Inc. an annual all-inclusive fee of 1.05%
based on such portfolio's average daily net assets. These fees pay for
investment management services and other operating costs of the Portfolios.
See the prospectuses for American National Investment Accounts, Inc., Variable
Insurance Products Fund, Variable Insurance Products Fund II, Variable Insurance
Products Fund III, T. Rowe Price International Series, Inc. and T. Rowe Price
Equity Series, Inc. for more detailed information about the Eligible Portfolios'
fees and expenses.
Surrender Charges. If you surrender all or a portion of your Policy, a surrender
charge will be assessed. The surrender charge for a full surrender is assessed
based on a rate per $1,000 of Specified Amount, with the charges being
calculated separately for the original Specified Amount and each increase, if
any, in Specified Amount. The surrender charge for the initial Specified Amount
is applicable until the 14th Policy anniversary. For an increase in Specified
Amount, the surrender charge is applicable for 14 years after the Effective Date
of such increase. Thereafter, there is no surrender charge.
The surrender charge varies by Age at Issue and risk class. In the first Policy
Year, the surrender charge shall range from $14.07 per $1,000 of Specified
Amount to $49.04 per $1,000 of Specified Amount. The rate is the same for the
10
<PAGE>
first five years since issue or increase, and reduces to zero after fourteen
years. (See "Surrender Charge," page 28.)
We will charge an additional $25 fee for partial surrenders. (See "Partial
Surrender Charge," page 28.) A surrender charge will also be assessed on
decreases in the Specified Amount of the Policy or on Death Benefit option
changes that result in decreases in Specified Amount.
Transfer Charge. The first 12 transfers of Accumulation Value in a Policy Year
are free. Thereafter, a transfer charge of $10 will be deducted from the amount
transferred. (See "Transfer Charge," page 28.)
TAXES
We intend for the Policy to satisfy the definition of life insurance under the
Internal Revenue Code. Therefore, the Death Benefit Proceeds generally should be
excludible from the gross income of the recipient. Similarly, you should not be
taxed on increases in the Accumulation Value until there is a distribution from
the Policy.
Under certain circumstances, a Policy could be a Modified Endowment Contract. If
so, all pre-death distributions, including Policy loans, will be treated first
as distributions of taxable income and then as a return of basis or investment
in the policy. In addition, prior to age 59 1/2 any such distributions generally
will be subject to a 10% penalty tax.
If the Policy is not a Modified Endowment Contract, distributions generally will
be treated first as a return of basis or investment in the policy and then as
distributing taxable income. Moreover, loans will not be treated as
distributions and neither distributions nor loans are subject to the 10% penalty
tax.
See "Federal Tax Matters" for a discussion of when distributions, such as
surrenders and loans, could be subject to federal income tax.
POLICY BENEFITS
PURPOSES OF THE POLICY
The Policy is designed to provide you:
. life insurance protection,
. Death Benefits which may and Accumulation Value which will vary with
performance of your chosen investment options,
. flexibility in the amount and frequency of premium payments,
. flexibility in the level of life insurance protection, subject to certain
limitations, and
. a Guaranteed Coverage Benefit, if you pay the Guaranteed Coverage Premium
and meet the other Policy requirements.
DEATH BENEFIT PROCEEDS
We will, upon Satisfactory Proof of Death, pay the Death Benefit Proceeds in
11
<PAGE>
accordance with the Death Benefit option in effect when the Insured dies. The
amount of the Death Benefit will be determined at the end of the Valuation
Period in which the Insured dies. Death Benefit Proceeds equal:
. the Death Benefit; plus
. additional life insurance proceeds provided by riders; minus
. Policy Debt; minus
. unpaid Monthly Deduction.
Subject to the rights of any assignee, we will pay the Death Benefit Proceeds
to:
. the Beneficiary or Beneficiaries, or
. if no Beneficiary survives the Insured, the Insured's estate will receive the
proceeds.
The Death Benefit Proceeds may be paid to the Beneficiary in a lump sum or
under one or more of the payment options in the Policy. (See "Payment of Policy
Benefits," page 18.)
DEATH BENEFIT OPTIONS
You choose one of two Death Benefit options in the application. Until age 95,
the Death Benefit under either option will equal or exceed the current Specified
Amount of the Policy.
Option A. Until age 95, under Option A the Death Benefit is the Specified
Amount or, if greater, the corridor percentage of Accumulation Value at the end
of the Valuation Period that includes the date of death. The Death Benefit at
age 95 and thereafter equals the Accumulation Value. The applicable percentage
declines as the age of the Insured increases as shown in the following Corridor
Percentage Table:
CORRIDOR PERCENTAGE TABLE
Attained Corridor Attained Corridor Attained Corridor
Age Percentage Age Percentage Age Percentage
- --------------------------------------------------------------------------------
40 or younger 250 54 157 68 117
41 243 55 150 69 116
42 236 56 146 70 115
43 229 57 142 71 113
44 222 58 138 72 111
45 215 59 134 73 109
46 209 60 130 74 107
47 203 61 128 75 to 90 105
48 197 62 126 91 104
49 191 63 124 92 103
50 185 64 122 93 102
51 178 65 120 94 101
52 171 66 119 95 and thereafter 100
53 164 67 118
12
<PAGE>
OPTION A EXAMPLE. Assume that the Insured's Attained Age is between 0
and 40. A Policy with a $50,000 Specified Amount will generally pay $50,000 in
Death Benefits. However, the Death Benefit will be the greater of $50,000 or
250% of Accumulation Value. Anytime the Accumulation Value exceeds $20,000, the
Death Benefit will exceed the $50,000 Specified Amount. Each additional dollar
added to Accumulation Value above $20,000 will increase the Death Benefit by
$2.50. If the Accumulation Value exceeds $20,000 and increases by $100 because
of investment performance or premium payments, the Death Benefit will increase
by $250. A Policy with an Accumulation Value of $30,000 will provide a Death
Benefit of $75,000 ($30,000 x 250%); an Accumulation Value of $40,000 will
provide a Death Benefit of $100,000 ($40,000 x 250%); and, an Accumulation Value
of $50,000 will provide a Death Benefit of $125,000 ($50,000 x 250%).
Similarly, so long as Accumulation Value exceeds $20,000, each dollar decrease
in Accumulation Value will reduce the Death Benefit by $2.50. If, for example,
the Accumulation Value is reduced from $25,000 to $20,000 because of partial
withdrawals, charges or negative investment performance, the Death Benefit will
be reduced from $62,500 to $50,000.
Option B. Until age 95, the Death Benefit is the Specified Amount plus the
Accumulation Value or, if greater, the applicable corridor percentage of the
Accumulation Value at the end of the Valuation Period that includes the
Insured's date of death. The corridor percentage is the same as under Option A:
250% at Attained Age 40 or younger on the Policy anniversary before the date of
death, and for an Attained Age over 40 on that Policy anniversary the percentage
declines as shown in the Corridor Percentage Table. Accordingly, before age 95,
the amount of the Death Benefit will always vary as the Accumulation Value
varies but will never be less than the Specified Amount. The Death Benefit at
age 95 and thereafter equals the Accumulation Value.
OPTION B EXAMPLE. Assume that the Insured is age 40 or younger. A Policy
with a Specified Amount of $50,000 will generally provide a Death Benefit of
$50,000 plus Accumulation Value. For example, for a Policy with Accumulation
Value of $5,000, the Death Benefit will be $55,000 ($50,000 + $5,000); for an
Accumulation Value of $10,000, the Death Benefit will be $60,000 ($50,000 +
$10,000). The Death Benefit, however, must be at least 250% of Accumulation
Value. As a result, if the Accumulation Value exceeds approximately $33,334, the
Death Benefit will be greater than the Specified Amount plus Accumulation
Value. Each additional dollar of Accumulation Value above $33,334 will increase
the Death Benefit by $2.50. If the Accumulation Value exceeds $33,334 and
increases by $100 because of investment performance or premium payments, the
Death Benefit will increase by $250. For a Policy with Accumulation Value of
$20,000, the Death Benefit will be $70,000 (Specified Amount $50,000 plus
$20,000 Accumulation Value); for an Accumulation Value of $30,000, the Death
Benefit will be $80,000 ($50,000 plus $30,000); and for an Accumulation Value
of $50,000, the Death Benefit will be $125,000 ($50,000 x 250% is greater than
$50,000 plus $50,000).
13
<PAGE>
Similarly, any time Accumulation Value exceeds $33,334, each dollar taken out
of Accumulation Value will reduce the Death Benefit by $2.50. If, for example,
the Accumulation Value is reduced from $40,000 to $35,000 because of partial
surrenders, charges, or negative investment performance, the Death Benefit will
be reduced from $100,000 to $87,500. If at any time, however, the Accumulation
Value multiplied by the applicable corridor percentage is less than the
Specified Amount plus the Accumulation Value, the Death Benefit will be the
Specified Amount plus the Accumulation Value.
If you want favorable investment performance to:
. increase your Death Benefit, you should:
. choose Option A if your Accumulation Value times corridor percentage is
greater than your Specified Amount, or
. choose Option B if:
- your Accumulation Value times corridor percentage is less than your
Specified Amount, or
- your Accumulation Value times corridor percentage is greater than your
Specified Amount plus Accumulation Value
. keep your cost of insurance charges to a minimum, you should:
. choose Option A if your Accumulation Value times corridor percentage is
less than your Specified Amount, or
. choose Option B if your Accumulation Value times corridor percentage is
greater than your Specified Amount.
Change in Death Benefit Option. You may change the Death Benefit option at
any time by sending us a written request. The effective date of a change will be
the Monthly Deduction Date on or following the date we receive the written
request. A change may have Federal Tax consequences. (See "Federal Income
Tax Considerations," page 35.)
If you change from Option A to Option B, the Specified Amount will equal the
Specified Amount before the change minus the Accumulation Value on the
effective date of the change. If you change from Option B to Option A, the
Specified Amount after the change will equal the Death Benefit under Option B
on the effective date of change. You cannot change your Death Benefit option if
the Specified Amount remaining in force after the change would be less than the
minimum Specified Amount shown in the following schedule:
MINIMUM SPECIFIED AMOUNT TABLE
During Policy Year Minimum Specified Amount
--------------------------------------------------------------
1 $ 50,000
2 $ 45,000
3 $ 40,000
4 $ 35,000
Thereafter $ 25,000
The minimum Specified Amount to maintain a preferred risk class is $100,000.
(See "Charges from Accumulation Value," page 26.)
14
<PAGE>
An increase in Specified Amount due to a Death Benefit option change will
increase the Monthly Deduction and the Guaranteed Coverage Premium. A
surrender charge may apply to a change in Death Benefit option. (See "Surrender
Charge," page 28.)
A change in the Death Benefit option may affect subsequent cost of insurance
charges which vary with our Net Amount at Risk. In addition, a change may
affect subsequent monthly policy charges. (See "Charges and Deductions," page
26.)
Change in Specified Amount. Subject to certain limitations, you may increase the
Specified Amount of your Policy at any time and may decrease the Specified
Amount at any time after the first three Policy Years. A change in Specified
Amount may affect the cost of insurance rate and our Net Amount at Risk, both
of which may affect your cost of insurance charge and have Federal Tax
consequences. (See "Cost of Insurance," page 27 and "Federal Income Tax
Considerations," page 35.)
The Specified Amount after a decrease may not be less than the minimum
Specified Amount shown in the Minimum Specified Amount Table (see "Change
in Death Benefit Option," page 15.)
If following the decrease in Specified Amount, the Policy would not comply with
the maximum premium limitations required by federal tax law, the decrease may
be limited or a portion of Accumulation Value may be returned to you at your
election, to the extent necessary to meet these requirements. A decrease in the
Specified Amount will be applied first against increases in Specified Amount in
order of the more recent increase first, and finally against the initial
Specified Amount.
If your Specified Amount decreases, we will deduct a surrender charge from the
Accumulation Value. Such deduction will equal the sum of surrender charges
computed separately for each portion of Specified Amount reduced in the above
order. The surrender charge for each reduction is a pro rata portion of any
surrender charge applicable to a full surrender of the related increase or
initial Specified Amount. You cannot decrease the Specified Amount if the
Insured's Attained Age exceeds 94. A decrease in Specified Amount will take
effect on the Monthly Deduction Date which coincides with or next follows the
date we receive your written request.
If you want to increase the Specified Amount, you must submit a written
supplemental application and provide evidence of insurability. You may have a
different underwriting risk classification for the initial Specified Amount and
each increase in Specified Amount. (See "Charges from Accumulation Value", page
26.) An additional premium may be required. (See "Premiums Upon Increase in
Specified Amount," page 25.) The minimum amount of any increase is $5,000. You
cannot increase the Specified Amount if the Insured's Attained Age is over 80.
An increase in the Specified Amount will increase certain charges. Those charges
will be deducted from the Accumulation Value on each Monthly Deduction Date. An
increase in the Specified Amount may also increase surrender charges. An
increase in the Specified Amount during the time the Guaranteed Coverage
15
<PAGE>
Benefit provision is in effect will increase the Guaranteed Coverage Premium
requirement. (See "Charges and Deductions," page 26.)
You have a "free look period" for each increase in Specified Amount. The free
look period will apply only to the increase in Specified Amount. (See "Refund
Privilege," page 23.)
Methods of Affecting Insurance Protection. Your "pure insurance protection" will
be the difference between your Death Benefit and your Accumulation Value. You
may increase or decrease the pure insurance protection provided by a Policy as
your insurance needs change. You can change the pure insurance protection by
increasing or decreasing the Specified Amount, changing the level of premium
payments, or making a partial surrender of the Policy. Some of these changes
may have federal tax consequences. Although the consequences of each change
will depend upon individual circumstances, they can be summarized as follows:
. A decrease in Specified Amount will, subject to the applicable corridor
percentage limitations, decrease insurance protection and cost of insurance
charges.
. An increase in Specified Amount may increase pure insurance protection,
depending on the amount of Accumulation Value and the corridor percentage
limitation. If insurance protection is increased, the Policy charges generally
increase as well.
. If Option A is in effect, increased premium payments may reduce pure insurance
protection, until the corridor percentage of Accumulation Value exceeds
the Specified Amount. Increased premiums should also increase the amount of
funds available to keep the Policy in force.
. If Option A is in effect, reduced premium payments generally will increase the
amount of pure insurance protection, depending on the corridor percentage
limitations. Reducing premium payments may also result in a reduced amount
of Accumulation Value and increase the possibility that the Policy will lapse.
. A partial surrender will reduce the Death Benefit. However, a partial
surrender only affects the amount of pure insurance protection if the
percentage from the Corridor Percentage Table is applicable in determining the
Death Benefit. Otherwise, the decrease in Death Benefit is offset by the
amount of Accumulation Value withdrawn. The primary use of a partial surrender
is to withdraw Accumulation Value.
GUARANTEED COVERAGE BENEFIT
We will keep the Policy in force for the period stipulated under the Guaranteed
Coverage Benefit so long as the sum of premiums paid at any time during such
period is at least:
. the sum of Guaranteed Coverage Premium for each month from the start of
the period, including the current month, plus
. partial surrenders and Policy Debt.
16
<PAGE>
The Guaranteed Coverage Benefit is based on Age at Issue according to the
following table:
Age at Issue Policy Years
-------------------------------------------
0 - 20 First 7 Years
21 - 30 First 6 Years
31 - 40 First 5 Years
41 - 50 First 4 Years
50 + First 3 Years
An increase in Specified Amount does not start a new Guaranteed Coverage
Benefit period, but does increase Guaranteed Coverage Premium.
DURATION OF THE POLICY
The Policy will remain in force so long as the Surrender Value is sufficient to
pay the Monthly Deduction. The tax consequences associated with continuing the
Policy beyond age 100 are unclear and a tax advisor should be consulted. Where,
however, the Surrender Value is insufficient to pay the Monthly Deduction and
the grace period expires without an adequate payment, the Policy will lapse and
terminate without value. (See "Grace Period and Reinstatement," page 25.)
ACCUMULATION VALUE
Determination of Accumulation Value. On each Valuation Date, Accumulation
Value is determined as follows:
. the aggregate of the value in each subaccount, determined by multiplying a
subaccount's unit value by the number of units in the subaccount; plus
. the value in the Fixed Account; plus
. premiums (less premium taxes), plus
. Accumulation Value securing Policy Debt; less
. partial surrenders, and related charges, processed on that Valuation Date;
less
. any Monthly Deduction processed on that Valuation Date; less
. any federal or state income taxes.
The number of subaccount units allocated to the Policy is determined after any
transfers among subaccounts, or the Fixed Account (and deduction of transfer
charges), but before any other Policy transactions on the Valuation Date.
Determination of Unit Value. The unit value of each subaccount is equal to:
. the per share net asset value of the corresponding Eligible Portfolio on the
Valuation Date, multiplied by
. the number of shares held by the subaccount, after the purchase or redemption
of any shares on that date, minus
. the Daily Asset Charge, and divided by
. the total number of units held in the subaccount on the Valuation Date, after
any transfers among subaccounts, or the Fixed Account (and deduction of
transfer charges), but before any other Policy transactions.
17
<PAGE>
PAYMENT OF POLICY BENEFITS
Death Benefit Proceeds will usually be paid within seven days after we receive
Satisfactory Proof of Death. Policy loans and surrenders will ordinarily be paid
within seven days after receipt of your written request. We may defer payment of
any surrender, refund or Policy loan until a premium payment made by check
clears the banking system. Payments may also be postponed in certain other
circumstances. (See "Postponement of Payments," page 41.) You can decide how
benefits will be paid. During the Insured's lifetime, you may arrange for the
Death Benefit Proceeds to be paid in a lump sum or under one or more of the
optional methods of payment described below. These choices are also available if
the Policy is surrendered. When Death Benefit Proceeds are payable in a lump sum
and no election of an optional payment method is in force at the death of the
Insured, the Beneficiary may select one or more of the optional payment methods.
If you or the Beneficiary do not elect one of these options, we will pay the
benefits in a lump sum.
An election or change of method of payment must be in writing. A change in
Beneficiary revokes any previous election. Further, if the Policy is assigned,
any amount due to the assignee will be paid first in a lump sum. The balance, if
any, may be applied under any payment option. Once payments have begun, the
payment option may not be changed.
Optional Methods of Payment. In addition to a lump sum payment of benefits
under the Policy, any proceeds to be paid under the Policy may be paid in any of
the following four methods:
. Option 1. Equal Installments for a Fixed Number of Years. Installments will
include interest at the effective rate of 2.5% per year or at a higher rate,
as our option.
. Option 2. Installments for Life with the Option to Choose a Period Certain.
The fixed period may be 10 or 20 years.
. Option 3. Equal Installments of a Fixed Amount Payable Annually,
semi-annually, quarterly, or monthly. The sum of the installments paid in one
year must be at least $40.00 for each $1,000.00 of proceeds. Installments will
be paid until the total of the following amount is exhausted: (1) the net sum
payable; plus (2) interest at the effective rate of 2.5% per year; plus (3)
any additional interest that we may elect to pay. The final installment will
be the balance of the proceeds payable plus interest.
. Option 4. Interest Only. We will hold the proceeds and pay interest at the
effective rate of 2.5% per year or at a higher rate, at our option. On
interest due dates, the payee may withdraw an amount of at least $100.00 from
the amount held.
Any amount left with us for payment under a settlement option will be
transferred to our General Account and will not be affected by the investment
performance associated with the Separate Account. We may make other options
available in the future.
18
<PAGE>
When proceeds become payable in accordance with a settlement option, the
Policy will be exchanged for a supplementary contract specifying all rights and
benefits. The effective date will be the date of the Insured's death or other
termination of the Policy.
Amounts under the supplemental contact remaining payable after the Beneficiary's
death will be paid to the estate of the Beneficiary or in any other manner
provided for in the supplementary contract or as otherwise provided under
applicable law.
General Provisions for Settlement Options. If the amount held falls below
$2,000.00, we will pay the entire amount held to the payee. The first
installment under Option 1, 2 or 3 will be paid the date the proceeds are
available. With our consent, the first installment may be postponed for up to
ten years. If payment is postponed, the proceeds will accumulate with compound
interest at the effective rate of 2.5% per year.
To avoid paying installments of less than $20.00 each, we will:
. change the installments to a quarterly, semi-annual or annual basis; and/or
. reduce the number of installments.
If you elect an option, you may restrict the Beneficiary's right to assign,
encumber, or obtain the discounted present value of any unpaid amount.
Except as permitted by law, unpaid amounts are not subject to claims of a
Beneficiary's creditors.
At our option, a Beneficiary may be permitted to receive the discounted present
value of installments, except under option 2. If the payee dies, under Option 1
or 2 we will pay the discounted present value of any unpaid fixed-period
installments to the payee's estate except Option 2 lifetime. Under Option 3 or
4, we will pay any balance to the payee's estate. The effective interest rate
used to compute discounted present value is the interest rate used in computing
the settlement option plus 1%. With our consent, the option elected may provide
for payment in another manner.
Limitations. You must obtain our consent to have an option under which proceeds
are payable to:
. joint or successive payees, or
. other than a natural person.
POLICY RIGHTS
LOAN BENEFITS
Loan Privileges. You can borrow money from us using your Policy as security for
the loan. The minimum loan amount is $100. Except as otherwise required by
applicable state law or regulation:
. during the first three Policy Years, you cannot borrow more than 75% of the
Surrender Value, as calculated at the end of the Valuation Period during which
your loan request is received
19
<PAGE>
. after the first three Policy Years, you can borrow up to 90% of the Surrender
Value, as calculated at the end of the Valuation Period during which your loan
request is received
Preferred loans accrue interest at a lower rate. You cannot obtain a preferred
loan until after the seventh Policy Year. We determine whether a loan is
preferred at the time the loan is made. The amount available for a preferred
loan is equal to the lesser of:
. the above-mentioned loan limits, or
. the Accumulation Value less Policy Debt and less premiums paid (adjusted by
partial surrenders).
The loan may be repaid in whole or in part during the Insured's lifetime. Each
loan repayment must be at least $10 or the full amount of Policy Debt, if less.
Loans generally are funded within seven days after receipt of a written request.
(See "Postponement of Payments," page 41.) Loans may have tax consequences.
(See "Federal Income Tax Considerations," page 35.)
Interest. Loans will accrue interest on a daily basis at a rate of 5.0% per
year, 3.0% on preferred loans. Interest is due and payable on each Policy
anniversary date or when a loan payment is made if earlier. If unpaid, interest
will be added to the amount of the loan and bear interest at the same rate.
Amounts held to secure Policy loans will earn interest at the annual rate of
3.0% credited on the Policy anniversary. We will allocate interest to the
subaccounts and the Fixed Account on each Policy anniversary in the same
proportion that premiums are being allocated to those subaccounts and the Fixed
Account at that time.
Effect of Policy Loans. When a loan is made, we transfer Accumulation Value
equal to the loan amount from the Separate Account and the Fixed Account to
our General Account as security for the Policy Debt. The Accumulation Value
transferred will be deducted from the subaccounts and the Fixed Account in
accordance with your instructions. The minimum amount which can remain in a
subaccount or the Fixed Account as a result of a loan is $100. If you do not
provide allocation instructions, the Accumulation Value transferred will be
allocated among the subaccounts and the Fixed Account pro-rata. If allocation
instructions conflict with the $100 minimum described above, we may allocate
the Accumulation Value transferred among the subaccounts and the Fixed Account
pro-rata. We will also transfer Accumulation Value from the subaccounts
and the Fixed Account to the General Account to secure unpaid loan interest. We
will allocate this transfer among the subaccounts and the Fixed Account as
described above. We will not impose a charge for these transfers. A Policy loan
may have tax consequences. (See "Federal Income Tax Considerations," page
35.)
A Policy loan may permanently affect the Accumulation Value, even if repaid.
The effect could be favorable or unfavorable depending on whether the investment
performance of the subacccount(s)/Fixed Account chosen by you is greater
or less than the interest rate credited to the Accumulation Value held in the
General Account to secure the loan. In comparison to a Policy under which no
20
<PAGE>
loan was made, the Accumulation Value will be lower if the General Account
interest rate is less than the investment performance of the subaccount(s)/Fixed
Account, and greater if the General Account interest rate is higher than the
investment performance of the subaccount(s)/Fixed Account. Since your Death
Benefit may be affected by Accumulation Value, a Policy loan may also affect the
amount of the Death Benefit, even if repaid.
Policy Debt. Policy Debt reduces Death Benefit Proceeds and Surrender Value. If
the Policy Debt exceeds the Accumulation Value less any surrender charge, you
must pay the excess or your Policy will lapse. We will notify you of the amount
which must be paid. (See "Grace Period and Reinstatement," page 25.)
Repayment of Policy Debt. If we receive payments while a Policy loan is
outstanding, those payments are treated as additional premiums, unless you
request otherwise. As Policy Debt is repaid, we will transfer Accumulation Value
equal to the loan amount repaid from the General Account to the subaccounts and
the Fixed Account. We will allocate the transfers among the subaccounts and the
Fixed Account in the same proportion that premiums are being allocated at the
time of repayment. We will make the allocation at the end of the Valuation
Period during which the repayment is received. If you do not repay the Policy
Debt, we will deduct the amount of the Policy Debt from any amount payable under
the Policy.
SURRENDERS
During the life of the Insured, you can surrender the Policy in whole or in part
by sending us a written request. The maximum amount available for surrender is
the Surrender Value at the end of the Valuation Period during which the
surrender request is received at our Home Office. Surrenders will generally be
paid within seven days of receipt of the written request. (See "Postponement of
Payments," page 41.) Any proceeds payable upon full surrender shall be paid in
one sum unless an optional method of payment is elected. (See "Payment of Policy
Benefits," page 18.) Surrenders may have tax consequences. (See "Federal Income
Tax Considerations," page 35.)
Full Surrenders. If the Policy is being fully surrendered, you must return the
Policy to us with your request. Coverage under the Policy will terminate as of
the date of a full surrender.
Partial Surrenders. The amount of a partial surrender may not exceed the
Surrender Value at the end of the Valuation Period during which the request is
received less an amount sufficient to cover Monthly Deductions for three months.
The minimum partial surrender is $100.
The Accumulation Value will be reduced by the amount of partial surrender and
any applicable partial surrender charge. (See "Partial Surrender Charge," page
28.) This amount will be deducted from the Accumulation Value at the end of the
Valuation Period during which the request is received. The deduction will be
allocated to the subaccounts and the Fixed Account according to your
instructions, provided that the minimum amount remaining in a subaccount as a
result of the allocation is $100. If you do not provide allocation instructions
or if your allocation instructions conflict with the $100 minimum described
above, we will
21
<PAGE>
allocate the partial surrender among the subaccounts and the Fixed Account pro-
rata.
Partial surrenders reduce the Death Benefit by the amount the Accumulation
Value is reduced. If Option A is in effect, the Specified Amount will be reduced
by the amount of the partial surrender. Where increases in Specified Amount
occurred, a partial surrender will reduce the increases in order of the more
recent increase first, and finally the initial Specified Amount. Thus, partial
surrenders may affect the cost of insurance charge and the Net Amount at Risk.
(See "Cost of Insurance," page 27; "Methods of Affecting Insurance Protection,"
page 16.) If Option B is in effect, the Specified Amount will not change, but
the Accumulation Value will be reduced.
The Specified Amount remaining in force after a partial surrender may not be
less than the minimum Specified Amount shown in the Minimum Specified
Amount Table. (see "Change in Death Benefit Option," page 14.)
The amount of any partial surrender will generally be paid within seven (7) days
after receipt of your written request. (See "Postponement of Payments," page
41.)
TRANSFERS
You can transfer Accumulation Value among the subaccounts or from the
subaccounts to the Fixed Account as often as you like. You can make transfers in
person, by mail, or, if a telephone transfer authorization form is on file, by
telephone. The minimum transfer from a subaccount is $250, or the balance of the
subaccount, if less. The minimum that may remain in a subaccount after a
transfer is $100. We will make transfers and determine all values in connection
with transfers on the later of the end of the Valuation Period which includes
the requested transfer date or during which the transfer request is received.
Accumulation Value on the date of a transfer will not be affected except to the
extent of the transfer charge, if applicable. The first twelve transfers in a
Policy Year will be free. We will charge $10 for each additional transfer. Such
charge will be deducted from the amount transferred. (See "Transfer Charge,"
page 28.) Transfers resulting from Policy loans, the dollar cost averaging
program or the rebalancing program will not be subject to a transfer charge or
be counted for purposes of determining the number of free transfers.
During the thirty day period beginning on the Policy anniversary, you may make
one transfer from the Fixed Account to the subaccounts. This transfer is free.
The amount you can transfer from the Fixed Account to the subaccounts is the
greater of:
. twenty-five percent of the amount in the Fixed Account, or
. $1,000.
If we receive a request to transfer funds out of the Fixed Account before the
Policy anniversary, the transfer will be made at the end of the Valuation Period
during which the Policy anniversary occurs. If we receive a proper transfer
request within 30 days after the Policy anniversary, the transfer will be made
as of the end of the Valuation Period in which we received the transfer request.
22
<PAGE>
We will employ reasonable procedures to confirm that the transfer instructions
communicated by telephone are genuine. These procedures may include some form of
personal identification before acting, providing you written confirmation of the
transaction, and making a tape recording of the telephoned instructions.
REFUND PRIVILEGE
Under state law, you have a free look period in which to examine a Policy and
return it for a refund. The length of the free look period varies among
different states, but generally runs for 10 days after your receipt of the
Policy. If the Policy is canceled during the free look period, you will receive
a refund equal to premiums paid adjusted by investment gains during the 15-day
period such premiums have been allocated to the AN Money Market Portfolio. (See
"Allocation of Premiums," page 25.) A free look period also applies to any
increase in Specified Amount. If you cancel the increase, you will receive the
amount premiums paid attributable to such increase in Specified Amount adjusted
by investment gains or losses.
To cancel the Policy, you should mail or deliver the Policy to our Home Office
or to the office of one of our agents. We may delay paying a refund of premiums
paid by check until the check has cleared your bank. (See "Postponement of
Payments," page 41.)
DOLLAR COST AVERAGING
Under the dollar cost averaging program, you can instruct us to automatically
transfer, on a periodic basis, a predetermined amount or percentage from any one
subaccount or Fixed Account, to any subaccount(s) or Fixed Account. The
automatic transfers can occur monthly, quarterly, semi-annually or annually. The
amount transferred each time must be at least $1,000. The minimum transfer to
each subaccount must be at least $100. At the time the program begins, you must
have at least $10,000 Accumulation Value. Transfers under dollar cost averaging
will be made, and values resulting from the transfers determined, at the end of
the Valuation Period that includes the transfer date designated in your
instructions.
Using dollar cost averaging, you purchase more units when the unit value is low,
and fewer units when the unit value is high. There is no guarantee that the
dollar cost averaging program will result in higher Accumulation Value or
otherwise be successful.
You can specify that only a certain number of transfers will be made, in which
case the program will terminate when that number of transfers has been made. In
addition, the program will terminate if Accumulation Value is less than $5,000
on a transfer date.
You can increase or decrease the amount of transfers or discontinue the program
by sending us written notice or, if a telephone transfer authorization form is
on file, notifying us by phone. There is no charge for this program and
transfers made pursuant to this program will not be counted in determining the
number of free transfers.
23
<PAGE>
REBALANCING
Because the subaccounts and the Fixed Account may have different investment
results, your Accumulation Value may not stay in the same percentages as your
initial allocation instructions. At your request, we will rebalance your
Accumulation Value by allocating premiums and transferring Accumulation Value to
ensure conformity with your allocation instructions. We will rebalance your
allocation on a calendar quarter, semi-annual or annual basis according to your
instructions. We will rebalance, and determine any values resulting from the
rebalancing, at the end of the Valuation Period that includes the rebalancing
date in your request. There is no charge for this program and transfers made
pursuant to this program will not be counted in determining the number of free
transfers. At the time the program begins, you must have at least $10,000 of
Accumulation Value. If the Accumulation Value is less than $5,000 on a
rebalancing date, the program will be discontinued.
You can request participation in the rebalancing program at any time. You can
discontinue the program by sending us written notice or, if a telephone transfer
authorization form is on file, by calling by telephone.
PAYMENT AND ALLOCATION
OF PREMIUMS
ISSUANCE OF A POLICY
If you want to purchase a Policy, you must complete an application and submit it
to our Home Office. We will only issue a Policy to individuals 80 years of age
or less on their last birthday who supply satisfactory evidence of insurability.
Acceptance is subject to our underwriting rules.
The Date of Issue is used to determine Policy anniversary dates, Policy Years
and Policy months.
PREMIUMS
You must pay the initial premium for the Policy to be in force. The initial
premium must be at least 1/12 of the first year Guaranteed Coverage Premium.
The initial premium and all other premiums are payable at our Home Office.
Subject to certain limitations, you have flexibility in determining the
frequency and amount of premiums since the Planned Periodic Premium schedule is
not binding on you.
PREMIUM FLEXIBILITY
You may make unscheduled premium payments at any time in any amount,
subject to the premium limitations described herein.
Planned Periodic Premiums. At the time the Policy is issued, you can determine
a Planned Periodic Premium schedule. The amounts and frequency of the
Planned Periodic Premiums will be shown on the Policy Data Page. During the
Guaranteed Coverage Benefit period, the Planned Periodic Premium must be at
24
<PAGE>
least the Guaranteed Coverage Premium. You are not required to pay premiums
in accordance with this schedule.
You can change the frequency and amount of Planned Periodic Premiums by
sending a written request to our Home Office. We may limit any increase in
premium to comply with applicable federal tax law. We will send premium
payment notices annually, semi-annually, quarterly or monthly depending upon
the frequency of the Planned Periodic Premiums. Payment of the Planned Periodic
Premiums does not guarantee that the Policy will remain in force unless the
Guaranteed Coverage Benefit provision is in effect.
Premium Limitations. Total premiums paid cannot exceed the current maximum
premium limitations established by federal tax laws. If a premium is paid which
would cause total premiums to exceed such maximum premium limitations, we
will only accept that portion of the premium equal to the maximum. We will
return any part of the premium in excess of that amount or apply it as otherwise
agreed. No further premiums will be accepted until permitted under the laws
prescribing maximum premium limitations. We may refuse to accept a premium
or require additional evidence of insurability if the premium would increase Net
Amount at Risk. We may also establish a minimum acceptable premium amount.
Premiums Upon Increase in Specified Amount. If you request an increase in the
Specified Amount, we will notify you if any additional premium is required.
Whether additional premium will be required will depend upon
. the Accumulation Value of the Policy at the time of the increase, and
. the amount of the increase you request.
ALLOCATION OF PREMIUMS AND ACCUMULATION VALUE
Allocation of Premiums. Premiums are allocated according to your instructions.
You can change the allocation without charge by providing proper notification to
our Home Office. Your notice must include the policy number to which the
instructions apply. Your revised allocation instructions will apply to premiums
received by us on or after the date proper notification is received.
Accumulation Value. The value of subaccounts will vary with the investment
performance of these subaccounts and the you bear the risk that those
investments might actually lose money. The performance of these investments
affects the Policy's Accumulation Value, and may affect the Death Benefit as
well.
GRACE PERIOD AND REINSTATEMENT
Grace Period. If the Surrender Value is insufficient to pay the Monthly
Deduction, you have a grace period of sixty-one days to pay an additional
premium. The grace period begins on the date Surrender Value is insufficient to
cover the Monthly Deduction. At the beginning of the grace period, we will mail
you notice to your last known address we have on file advising you of the
necessary additional premium. If you do not pay the additional premium during
the grace period, the Policy will terminate. If the Insured dies during the
grace period, any overdue Monthly Deductions and Policy Debt will be deducted
from the Death Benefit Proceeds.
25
<PAGE>
Reinstatement. A Policy may be reinstated any time within five years after
termination. A Policy cannot be reinstated if it was surrendered. Reinstatement
will be effected based on the Insured's underwriting classification at the time
of the reinstatement.
Reinstatement is subject to the following:
. evidence of insurability satisfactory to us;
. reinstatement or repayment of Policy Debt;
. payment of Monthly Deductions not collected during the grace period;
. payment of the premium sufficient to pay the Monthly Deduction for three
months after the date of reinstatement.
Reinstatement will be effected based on the Insured's underwriting
classification at the time of the reinstatement.
The original Date of Issue, and the Effective Dates of increases in Specified
Amount (if applicable), will be used for purposes of calculating Monthly
Deductions and the surrender charge. If any Policy Debt was reinstated, the
amount of the debt will be held in our General Account. During the lapse period,
Policy Debt will accrue interest at a rate of 6%. Accumulation Value will then
be calculated as described under "Accumulation Value" on page 17. The Effective
Date of reinstatement will be the first Monthly Deduction Date on or next
following the date of we approve the application for reinstatement.
CHARGES AND DEDUCTIONS
PREMIUM CHARGES
No charges will be deducted from any premium payment before allocating such
premiums among the subaccounts and the Fixed Account.
CHARGES FROM ACCUMULATION VALUE
We will deduct the following charges from the Accumulation Value:
Monthly Deduction. The Monthly Deduction is the sum of the cost of insurance
charge, applicable charge for any riders, and the monthly policy charge. The
Monthly Deduction compensates us for providing the insurance benefits and
administering the Policy. We deduct the Monthly Deduction as of the Date of
Issue and on each Monthly Deduction Date thereafter. We will allocate the
deduction among the subaccounts and the Fixed Account pro-rata. The cost of
insurance and the monthly policy charge are described in more detail below.
Because portions of the Monthly Deduction, such as the cost of insurance, can
vary from month to month, the Monthly Deduction itself may vary in amount
from month to month.
We are currently charging less than the maximum monthly policy charges. We
may reduce or increase the monthly policy charge. Any change will be on a
uniform basis for all insureds with this Policy, for the same Specified Amount,
and that have been in force the same time. A change in health or other risk
factors after the Date of Issue will not affect the monthly policy charge. We
will not
26
<PAGE>
reduce or increase the monthly policy charge more than once each Policy Year.
We will notify you in writing before a new monthly policy charge is effective.
Cost of Insurance. For the initial Specified Amount, the cost of insurance rate
will not exceed those in the Schedule of Monthly Guaranteed Maximum Cost of
Insurance Rates shown on the Policy Data Page. These guaranteed rates are
based on the Insured's age last birthday. The current rates range between 24%
and 68% of the guaranteed rates. Any change in the current cost of insurance
rates will apply to all persons of the same age, sex, risk class and Specified
Amount.
Guaranteed maximum cost of insurance rates for ages 15 and above are calculated
based on the 1980 Commissioners Standard Ordinary (CSO) Smoker or Nonsmoker
Mortality Tables (Age Last Birthday). For ages 0-14, the 1980 CSO Mortality
Table (Age Last Birthday) was used through Attained Age 14 and the 1980 CSO
Nonsmoker Mortality Table (Age Last Birthday) for Attained Ages 15 and above.
Policies issued in states that require "unisex" policies (currently Montana) and
policies issued in conjunction with employee benefit plans provide for Policy
values that do not vary by the sex of the Insured. References in this prospectus
to sex-distinct and any values that vary by the sex of the Insured are not
applicable to Policies issued in states that require "unisex" policies or to
Policies issued in conjunction with employee benefit plans. Illustrations of the
effect of these unisex rates on premiums, Accumulation Values and Death Benefits
are available from us on request.
Guaranteed maximum cost of insurance rates for Policies issued on a non-sex
distinct basis are calculated based on the 1980 CSO-SB and the 1980 CSO-NB
Mortality Tables (Age Last Birthday) for issue or increase ages 15 and above.
For ages 0-14, the 1980 CSO-B Mortality Table (Age Last Birthday) was used
through attained age 14 and the 1980 CSO-NB Mortality Table (Age Last Birthday)
for attained ages 15 and above.
The underwriting risk class for the initial Specified Amount and the Specified
Amount for any increase may be different. As a result the cost of insurance rate
for the initial Specified Amount and each increase in Specified Amount may be
different. Decreases will also be reflected in the cost of insurance rate. (See
"Change in Specified Amount," page 27.)
The actual charges made during the Policy Year will be shown in the annual
report delivered to you.
The rate class of an Insured may affect the cost of insurance rate. We currently
place insureds into either a preferred rate class, standard rate class, or
substandard rate class that involves a higher mortality risk. In an otherwise
identical Policy, an Insured in the standard rate class will typically have a
lower cost of insurance than an Insured in a substandard rate class. Similarly,
in an otherwise identical Policy, an Insured in a preferred rate class typically
has a lower cost of insurance than one in a standard class. If a Policy is rated
at issue with a tabular extra rating, the guaranteed rate is generally a
multiple of the guaranteed rate for a standard issue.
27
<PAGE>
Insureds may also be assigned a flat extra rating to reflect certain additional
risks. The flat extra rating will not impact the cost of insurance rate but
1/12 of any annualized flat extra cost will be deducted as part of the Monthly
Deduction.
Surrender Charge. If a Policy is surrendered, we may assess a surrender charge.
Surrender charges are intended to compensate us for the costs of distributing
the Policy.
We may also assess a surrender charge upon decreases in Specified Amount or
upon Death Benefit option changes that result in a decrease in Specified Amount.
(See "Change in Specified Amount," page 15.)
The surrender charge is more substantial in early Policy Years. (See "Surrender
Charges," page 10.) Accordingly, the Policy is more suitable for long-term
purposes.
Transfer Charge. We will make the first 12 transfers of Accumulation Value in
any Policy Year without a transfer charge. A charge of $10 will be deducted from
the amount transferred for each additional transfer among the subaccounts or
from the subaccounts to the Fixed Account. This charge compensates us for the
costs of effecting the transfer. The transfer charge cannot be increased.
Partial Surrender Charge. We will impose a $25 fee for each partial surrender.
In addition, if Death Benefit Option A is in effect, a partial surrender charge
will be charged for a decrease in Specified Amount. (See "Change in Specified
Amount," page 15.)
Daily Charges Against the Separate Account. On each Valuation Date, we will
deduct a Daily Asset Charge from the Separate Account. This charge is to
compensate us for mortality and expense risks. The mortality risk is that
Insureds may live for a shorter time than we assumed. If so, we will have to pay
Death Benefits greater than we estimated. The expense risk is that expenses
incurred in issuing and administering the Policies will exceed our estimates.
Such charge shall not exceed 1.25% annually of the average daily Accumulation
Value of each subaccount, but not the Fixed Account. We will deduct the daily
charge from the Accumulation Value of the Separate Account on each Valuation
Date. The deduction will equal the 1.25% annual rate divided by 365 and
multiplying the result by the number of days since the last Valuation Date. We
will not deduct a Daily Asset Charge from the Fixed Account.
Fees and Expenses Incurred by Eligible Portfolios. In addition, the managers of
the Eligible Portfolios will charge certain fees and expenses against the
Eligible Portfolios. (See "Eligible Portfolio Annual Expenses," page 9. Also,
see the funds' prospectuses.) No portfolio fees or expenses will be charged from
the Fixed Account.
Taxes. Currently, we will not make a charge against the Separate Account for
federal, state or local income taxes. We may, however, make such a charge in the
future if income or gains within the Separate Account will incur any Federal
tax, or any significant state or local tax treatment of our Company changes. We
would deduct such charges, if any, from the Separate Account and/or the Fixed
Account. We would not realize a profit on such tax charges with respect to the
Policies.
28
<PAGE>
EXCEPTIONS TO CHARGES
We may reduce the surrender charge, monthly policy charge, cost of insurance and
daily asset charge for, or credit additional amounts on, sales of the Policy to
a trustee, employer, or similar entity where we determine that such sales result
in savings of sales or administrative expenses. In addition, directors, officers
and bona fide full-time employees (and their spouses and minor children) of the
Company or Securities Management and Research, Inc. may be permitted to purchase
the Policy with substantial reductions of surrender charge, monthly policy
charge, cost of insurance or daily asset charge.
The Policy may be sold directly, without compensation, to: (1) a registered
representative, (2) employees, officers, directors, and trustees of our Company
and its affiliated companies, and spouses and immediate family members (i.e.,
children, siblings, parents, and grandparents) of the foregoing, and (3)
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Policy, and spouses and immediate family
member of the foregoing. If sold under these circumstances, a Policy may be
credited in part or in whole with any cost savings resulting from the sale being
direct, rather than through an agent with an associated commission, but only if
such credit will not be unfairly discriminatory to any person.
AMERICAN NATIONAL INSURANCE COMPANY
THE SEPARATE ACCOUNT, THE FUNDS
AND THE FIXED ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
We are a stock life insurance company chartered under Texas law in 1905. We
write life, health and accident insurance and annuities and are licensed to do
life insurance business in 49 states, the District of Columbia, Puerto Rico,
Guam and American Samoa. Our home office is located at the American National
Insurance Building, One Moody Plaza, Galveston, Texas 77550. The Moody
Foundation, a charitable foundation established for charitable and educational
purposes, owns approximately 23.7% of our stock and the Libbie S. Moody Trust, a
private trust, owns approximately 37.6%.
We are subject to regulation by the Texas Department of Insurance. In addition,
we are subject to the insurance laws and regulations of other states within
which we are licensed to operate. On or before March 1 of each year we must
submit to the Texas Department of Insurance a filing describing our operations
and reporting on our financial condition and that of the Separate Account as of
December 31 of the preceding year. Periodically, the Department examines our
liabilities and reserves and those of the Separate Account and certifies their
adequacy. A full examination of our operations is also conducted periodically by
the National Association of Insurance Commissioners.
THE SEPARATE ACCOUNT
We established the Separate Account under Texas law on July 30, 1987. The
29
<PAGE>
assets of the Separate Account are held exclusively for your benefit and the
benefit of other people entitled to payments under variable life policies we
issue. We are the legal holder of the Separate Account's assets. The assets are
held separate and apart from the General Account assets. We maintain records of
all purchases and redemptions of shares of Eligible Portfolios by each of the
subaccounts. We will at all times maintain assets in the Separate Account with a
total market value at least equal to the reserve and other contract liabilities
of the Separate Account. Liabilities arising out of other aspects of our
business cannot be charged against the assets of the Separate Account. Income,
as well as both realized and unrealized gains or losses from the Separate
Account's assets, are credited to or charged against the Separate Account
without regard to income, gains or losses arising out of other aspects of our
business. If, however, the Separate Account's assets exceed its liabilities, the
excess shall be available to cover the liabilities of our General Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust, which is a type of investment company.
Such registration does not involve any SEC supervision of the management or
investment policies or practices of the Separate Account.
The Separate Account will purchase and redeem shares of the Eligible Portfolios
at net asset value. The net asset value of a share is equal to the total assets
of the portfolio less the total liabilities of the portfolio divided by the
number of shares outstanding.
We will redeem shares in the Eligible Portfolios as needed to:
. collect charges,
. pay the Surrender Value,
. secure Policy loans,
. provide benefits, or
. transfer assets from one subaccount to another, or to the Fixed Account.
Any dividend or capital gain distribution received from an Eligible Portfolio
will be reinvested immediately at net asset value in shares of that Eligible
Portfolio and retained as assets of the corresponding subaccount.
The Separate Account may include other subaccounts that are not available under
the Policy. We may from time to time discontinue the availability of some of the
subaccounts. If the availability of a subaccount is discontinued, we may redeem
any shares in the corresponding Eligible Portfolio and substitute shares of
another registered, open-end management company.
We may also establish additional subaccounts. Each new subaccount would
correspond to a portfolio of a registered, open-end management company. We
would establish the terms upon which existing Policyowners could purchase
shares in such portfolios.
If any of these substitutions or changes are made, we may change the Policy by
sending an endorsement. We may:
30
<PAGE>
. operate the Separate Account as a management company,
. de-register the Separate Account if registration is no longer required,
. combine the Separate Account with other separate accounts,
. restrict or eliminate any voting rights associated with the Separate Account,
or
. transfer the assets of the Separate Account relating to the Policies to
another separate account.
We would, of course, not make any changes to the menu of Eligible Portfolios or
to the Separate Account without complying with applicable laws and regulations.
Such laws and regulations may require notice to and approval from the
Policyholders, the SEC and state insurance regulatory authorities.
Since we are the legal holder of the Eligible Portfolio shares held by the
Separate Account, we can vote on any matter that may be voted upon at a
shareholders' meeting. To the extent required by law, we will vote all shares of
the Eligible Portfolios held in the Separate Account at shareholders' meetings
in accordance with instructions we receive from you and other policyowners. The
number of votes for which each policyowner has the right to provide instructions
will be determined as of the record date selected by the Board of Directors of
the American National Fund, the Fidelity Funds or the T. Rowe Price Funds, as
the case may be. We will furnish Policyowners with the proper forms, materials
and reports to enable them to give us these instructions. We will vote Eligible
Portfolio shares held in each subaccount for which no timely instructions from
policyowners are received and shares held in each subaccount which do not
support Policyowner interests in the same proportion as those shares in that
subaccount for which timely instructions are received. Voting instructions to
abstain on any item to be voted will be applied on a pro rata basis to reduce
the votes eligible to be cast. Should applicable federal securities laws or
regulations permit, we may vote shares of the American National Fund, the
Fidelity Funds or the T. Rowe Price Funds in our own right. We may, if required
by state insurance officials, disregard voting instructions if those
instructions would require shares to be voted to cause a change in the
subclassification or investment objectives or policies of one or more of the
Eligible Portfolios, or to approve or disapprove an investment adviser or
principal underwriter for the Eligible Portfolios. In addition, we may disregard
voting instructions that would require changes in the investment objectives or
policies of any Eligible Portfolio or in an investment adviser or principal
underwriter for the Eligible Portfolios, if we reasonably disapprove those
changes in accordance with applicable federal regulations. If we do disregard
voting instructions, we will advise Policyowners of that action and our reasons
for the action in the next annual report or proxy statement to Policyowners.
The Separate Account is not the only separate account that invests in the
Eligible Portfolios. Other separate accounts, including those funding other
variable life policies, variable annuity contracts, other insurance contracts
and retirement plans, invest in certain of the Eligible Portfolios. We do not
currently see any disadvantages to you resulting from the Eligible Portfolios
selling shares to fund products other than the Policy. However, there is a
possibility that a material
31
<PAGE>
conflict of interest may arise between the Policyowners and the owners of
variable life insurance policies and the owners of variable annuity contracts
whose values are allocated to another separate account investing in the Eligible
Portfolios. In addition, there is a possibility that a material conflict may
arise between the interests of Policyowners or owners of other contracts and the
retirement plans which invest in the Eligible Portfolios or those plans
participants. If a material conflict arises, we will take any necessary steps,
including removing the Eligible Portfolio from the Separate Account, to resolve
the matter. The Board of Directors of each Eligible Portfolio will monitor
events in order to identify any material conflicts that may arise and determine
what action, if any, should be taken in response to those events or conflicts.
See the accompanying prospectuses for the Eligible Portfolios for more
information.
THE FUNDS
Each of the twenty-one subaccounts of the Separate Account will invest in shares
of a corresponding Eligible Portfolio.
The investment objectives and policies of each Eligible Portfolio are summarized
below. The Eligible Portfolios may not achieve their stated objectives. You will
be notified of any material change in the investment policy of any portfolio in
which you have an interest.
Each Eligible Portfolio's total operating expenses will include fees for
management, shareholder services and other expenses, such as custodial, legal,
and other miscellaneous fees. The prospectuses for the American National Fund,
the Fidelity Funds and the T. Rowe Price Funds contain more detailed information
about the Eligible Portfolios, including a description of investment objectives,
restrictions, expenses and risks. You should carefully read those prospectuses
and retain them for future reference.
You should periodically review your allocation to make sure that your investment
choices are still appropriate in light of any market developments or changes in
your personal financial situation.
. The American National Fund's current Eligible Portfolios and respective
investment objectives are as follows:
. The AN Money Market Portfolio seeks the highest current income consistent
with the preservation of capital and maintenance of liquidity.
. The AN Growth Portfolio seeks to achieve capital appreciation.
. The AN Balanced Portfolio seeks to conserve principal, produce reasonable
current income, and achieve long-term capital appreciation.
. The AN Managed Portfolio seeks to achieve growth of capital and/or
current income.
Securities Management and Research, Inc. ("SM&R") is the investment adviser
and manager of the American National Fund. SM&R also provides investment
advisory and portfolio management services to our Company and other clients.
SM&R maintains a staff of experienced investment personnel and related support
facilities.
32
<PAGE>
[ ] The Fidelity Funds' current Eligible Portfolios and respective
investment objectives are as follows:
. VIP Money Market Portfolio ... seeks as high a level of current
income as is consistent with the preservation of capital and
liquidity.
. VIP Investment Grade Bond Portfolio ... seeks as high a level of
current income as is consistent with the preservation of capital.
. VIP High Income Portfolio ... seeks a high level of current income
while also considering growth of capital.
. VIP Asset Manager Portfolio ... seeks high total return with
reduced risk over the long-term by allocating its assets among
stocks, bonds and short-term instruments.
. VIP Asset Manager: Growth Portfolio ... seeks to maximize total
return by allocating its assets among stocks, bonds, short-term
instruments, and other investments.
. VIP Balanced Portfolio ... seeks both income and growth of
capital.
. VIP Equity-Income Portfolio ... seeks reasonable income. The fund
will also consider the potential for capital appreciation. The
fund seeks a yield which exceeds the composite yield on the
securities comprising the S&P 500.
. VIP Index 500 Portfolio ... seeks investment results that
correspond to the total return of common stocks publicly traded in
the United States, as represented by the S&P 500.
. VIP Growth and Income Portfolio ... seeks high total return
through a combination of current income and capital appreciation.
. VIP Mid Cap Portfolio ... seeks long-term growth of capital.
. VIP Growth Opportunities Portfolio ... seeks to provide capital
growth.
. VIP Contrafund Portfolio ... seeks long-term capital appreciation.
. VIP Growth Portfolio ... seeks capital appreciation.
. VIP Overseas Portfolio ... seeks long-term growth of capital.
Fidelity Management and Reseach Company ("FMR"), the Fidelity Funds'
investment adviser, was founded in 1946. FMR provides a number of mutual
funds and other clients with investment research and portfolio
management services. It maintains a large staff of experienced
investment personal and a full compliment of related support facilities.
Fidelity Management & Research (U.K.) Inc. ("FMR U.K.") and Fidelity
Management and Research (Far East) Inc. ("FMR Far East") are wholly
owned subsidiaries of FMR that provide research with respect to foreign
securities. FMR U.K. and FMR Far East maintain their principal business
offices in London and Tokyo, respectively. As of December 31, 1998, FMR
advised funds having more than 39 million shareholder accounts with a
total value of more than $694 billion. Fidelity Distributors Corporation
distributes shares for the Fidelity Funds. FMR Corp. is the holding
company for the Fidelity companies. Through ownership of voting common
stock, Edward C.
33
<PAGE>
Johnson 3d, President and a Trustee of the Fidelity Funds, and various
trusts for the benefit of Johnson family members form a controlling
group with respect to FMR Corp.
[ ] The T. Rowe Price Funds' current Eligible Portfolios and respective
investment objectives are as follows:
T. Rowe Price International Series, Inc.
. T. Rowe Price International Stock Portfolio ... seeks to provide
long-term growth of capital through investments primarily in common
stocks of established non-U.S. companies.
T. Rowe Price Equity Series, Inc.
. T. Rowe Price Mid-Cap Growth Portfolio ... seeks to provide long-
term capital appreciation by investing in mid-cap stocks with
potential for above-average earnings growth.
. T. Rowe Price Equity Income Portfolio ... seeks to provide
substantial dividend income as well as long-term growth of capital
through investments in common stocks of established companies.
T. Rowe Price Associates, Inc. is responsible for selection and
management of the portfolio investments of T. Rowe Price Equity Series,
Inc. Rowe Price-Fleming International, Inc., incorporated in 1979 as a
joint venture between T. Rowe Price Associates, Inc. and Robert Fleming
Holdings Limited, is responsible for selection and management of the
portfolio investments of T. Rowe Price International Series, Inc.
We have entered into or may enter into agreements with the investment
advisor or distributor for certain of the Eligible Portfolios. These
agreements require us to provide administrative and other services. In
return, we receive a fee based upon an annual percentage of the average
net assets amount we invested on behalf of the Separate Account and our
other separate accounts. Some advisors or distributors may pay us a
greater percentage than others.
FIXED ACCOUNT
You can allocate some or all of your premium payments to the Fixed
Account. You can also, subject to certain limitations, transfer amounts
from the Separate Account to the Fixed Account or from the Fixed Account
to the Separate Account. (See "Transfers," page 22.)
We establish the Declared Rate and may adjust the rate each month;
however, we guarantee an effective annual rate of at least 3.0%
compounded daily.
Payments allocated to the Fixed Account and transfers from the Separate
Account to the Fixed Account are placed in our General Account which
supports insurance and annuity obligations. The General Account includes
all of our assets, except those assets segregated in our separate
accounts. We have discretion over the investment of assets of the
General Account, subject to applicable law. We bear the risk that the
investments in the General Account will lose money. You bear the risk
that the Declared Rate will fall to a lower rate.
34
<PAGE>
Interests in the General Account have not been registered with the SEC
as securities and the General Account has not been registered as an
investment company. Accordingly, neither the General Account nor any
interest in the General Account is generally subject to the provisions
of federal securities laws. The SEC has not reviewed the disclosures in
this prospectus relating to the Fixed Account portion of the Contract;
however, disclosures regarding the Fixed Account portion of the Contract
may be subject to generally applicable provisions of the federal
securities laws regarding the accuracy and completeness of statements
made in prospectuses.
FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is general and is not tax advice.
INTRODUCTION
The following summary provides a general description of the federal
income tax considerations relating to the Policy. This summary is based
upon our understanding of the present federal income tax laws as they
are currently interpreted by the Internal Revenue Service ("IRS").
Because of the complexity of such laws and the fact that tax results
will vary according to the factual status of the specific Policy
involved, tax advice from a qualified tax advisor may be needed by a
person contemplating the purchase of a Policy or the exercise of certain
elections under the Policy. These comments concerning federal income tax
consequences are not an exhaustive discussion of all tax questions that
might arise under the Policy. Further, these comments do not take into
account any federal estate tax and gift, state, or local tax
considerations which may be involved in the purchase of a Policy or the
exercise of certain elections under the Policy. For complete information
on such federal and state tax considerations, a qualified tax advisor
should be consulted. We do not make any guarantee regarding the tax
status of any Policy, and the following summary is not tax advice.
TAX STATUS OF THE POLICY
In order to qualify as a life insurance contract for federal income tax
purposes and to receive the tax treatment normally accorded life
insurance contracts under federal tax law, a Policy must satisfy certain
requirements which are set forth in the Internal Revenue Code (the
"Code"). Guidance as to how these requirements apply is limited.
Nevertheless, we believe that Policies issued on a standard or preferred
basis should satisfy the applicable requirements. There is less
guidance, however, with respect to Policies issued on a sub-standard
basis and it is not clear whether such Policies will in all cases
satisfy the applicable requirements. We reserve the right to restrict
Policy transactions and to make other modifications in order to bring
the Policy into compliance with such requirements.
In certain circumstances, owners of variable life insurance contracts
may be considered for federal income tax purposes to be the owners of
the assets of the separate account supporting their contracts due to
their ability to exercise investment control over those assets. Where
this is the case, the contract owners would be taxed on income and gains
attributable to separate account assets. There is
35
<PAGE>
little guidance in this area, and some features of the Policies, such as
the flexibility of a Policyowner to allocate premium payments and
transfer Accumulation Value, have not been explicitly addressed in
published rulings. While we believe that the Policies do not give
Policyowners investment control over Separate Account assets, we reserve
the right to modify the Policies as necessary to prevent a Policyowner
from being treated as the owner of the Separate Account assets.
In addition, the Code requires that the investments of the Separate
Account be "adequately diversified" in order for the Policies to be
treated as life insurance contracts for federal income tax purposes. It
is intended that the Separate Account, through the Eligible Portfolios,
will satisfy these diversification requirements.
The following discussion assumes that the Policy will qualify as a life
insurance contract for federal income tax purposes.
TAX TREATMENT OF POLICY PROCEEDS
In General. We believe that the Death Benefit Proceeds under a Policy
will be excludable from the gross income of the Beneficiary.
Generally, the Policyowner will not be deemed to be in constructive
receipt of the Accumulation Value until there is a distribution. When
distributions from a Policy occur, or when loans are taken out from or
secured by a Policy, the tax consequences depend on whether the Policy
is classified as a "Modified Endowment Contract."
Depending on the circumstances, the exchange of a Policy, a change in
the Policy's Death Benefit option, a Policy loan, a partial or full
surrender, the addition of the Accelerated Death Benefit, the
continuation of the Policy beyond the Insured's 100th birthday, a change
in ownership, or an assignment of the Policy may have federal income tax
consequences.
Modified Endowment Contracts. Whether a Policy is treated as a Modified
Endowment Contract depends upon the amount of premiums paid in relation
to the Death Benefit provided under the Policy. The rules for
determining whether a Policy is a Modified Endowment Contract are
extremely complex. In general, however, a Policy will be considered to
be a Modified Endowment Contract if the accumulated premium payments
made at any time during the first seven Policy Years exceed the sum of
the net level premiums which would have been paid on or before such time
if the Policy provided for paid-up future benefits after the payment of
seven level annual premium payments.
In addition, if a Policy is "materially changed," it may cause such
Policy to be treated as a Modified Endowment Contract. The material
change rules for determining whether a Policy is a Modified Endowment
Contract are also extremely complex. In general, however, the
determination of whether a Policy will be a Modified Endowment Contract
after a material change depends upon (i) the relationship of the Death
Benefit at the time of change to the Accumulation Value at the time of
such change, and (ii) the additional premiums paid in the seven Policy
Years following the date on which the material change occurs.
36
<PAGE>
The manner in which the premium limitation and material change rules
should be applied to certain features of the Policy and its riders is
unclear. If we determine that a Policyowner has made excessive premium
payments which will cause a Policy to be considered a Modified Endowment
Contract, we will notify the Policyowner of the tax consequences and
give the Policyowner the option of having the excessive premiums
refunded. If the Policyowner requests a refund within 30 days after
receipt of such notice, we will refund the excessive premium payments to
prevent the Policy from becoming a Modified Endowment Contract.
Due to the Policy's flexibility, classification of a Policy as a
Modified Endowment Contract will depend upon the individual
circumstances of each Policy. Accordingly, a prospective Policyowner
should contact a qualified tax advisor before purchasing a Policy to
determine the circumstances under which the Policy would be a Modified
Endowment Contract. In addition, a Policyowner should contact a tax
advisor before making any change to a Policy, exchanging a Policy, or
reducing Policy benefits, to determine whether such change would cause
the Policy (or the new Policy in the case of an exchange) to be treated
as a Modified Endowment Contract.
If a Policy becomes a Modified Endowment Contract, distributions such as
partial surrenders and Policy loans that occur during the Policy Year it
becomes a Modified Endowment Contract and any subsequent Policy Year
will be taxed as distributions from a Modified Endowment Contract. In
addition, distributions from a Policy within two years before it becomes
a Modified Endowment Contract will be taxed in this manner. This means
that a distribution made from a Policy that is not a Modified Endowment
Contract could later become taxable as a distribution from a Modified
Endowment Contract.
Whether a Policy is or is not a Modified Endowment Contract, upon a
complete surrender or a lapse or termination of a Policy, if the amount
received plus the amount of any indebtedness exceeds the total
investment in the policy (described below), the excess will generally be
treated as ordinary income subject to tax.
Distributions Other Than Death Benefit Proceeds from Modified Endowment
Contracts. Policies classified as Modified Endowment Contracts will be
subject to the following tax rules:
(1) All distributions from such a Policy (including distributions upon
partial or full surrender and benefits paid at maturity) are treated
as ordinary income subject to tax up to the amount equal to the
excess (if any) of the Accumulation Value immediately before the
distribution over the investment in the policy at such time.
(2) Loans taken from (or secured by) such a Policy are treated as
distributions from such a Policy and taxed accordingly. This
includes unpaid loan interest that is added to the principal of a
loan.
(3) A 10 percent penalty tax is imposed on the portion of any
distribution from such a Policy that is included in income. This
includes any loan taken from or secured by such a Policy. This
penalty tax does not apply if the distribution or loan:
(a) is made on or after the Policyowner reaches actual age 59 1/2;
37
<PAGE>
(b) is attributable to the Policyowner's becoming disabled; or
(c) is part of a series of substantially equal periodic payments for
(i) the life (or life expectancy) of the Policyowner, or (ii)
the joint lives (or joint life expectancies) of the Policyowner
and the Beneficiary .
Distributions Other Than Death Benefit Proceeds from Policies that are
not Modified Endowment Contracts. Distributions other than Death Benefit
Proceeds from a Policy that is not classified as a Modified Endowment
Contract generally are treated first as a recovery of the Policyowner's
investment in the policy. After the recovery of all investment in the
policy, additional amounts distributed are taxable income. However,
certain distributions which must be made in order to enable the Policy
to continue to qualify as a life insurance contract for federal income
tax purposes if Policy benefits are reduced during the first 15 Policy
Years may be treated in whole or in part as ordinary income subject to
tax.
Policy Loans. Loans from a Policy (or secured by a Policy) that is not a
Modified Endowment Contract are generally not treated as distributions.
Instead, such loans are treated as indebtedness of the Policyowner.
However, the tax consequences associated with Policy loans that are
outstanding after the first 15 Policy Years are less clear and a tax
adviser should be consulted about such loans. Interest paid on a Policy
loan generally is not be tax-deductible. The Policyowner should consult
a tax advisor regarding the deductibility of interest paid on a Policy
loan.
Finally, neither distributions from nor loans from (or secured by) a
Policy that is not a Modified Endowment Contract are subject to the 10
percent additional income tax.
Investment in the Policy. "Investment in the policy" means:
(a) the aggregate amount of any premium payments or other consideration
paid for a Policy; minus
(b) the aggregate amount of distributions received under the Policy
which is excluded from the gross income of the Policyowner (except
that the amount of any loan from, or secured by, a Policy that is a
Modified Endowment Contract, to the extent such amount is excluded
from gross income, will be disregarded); plus
(c) the amount of any loan from, or secured by, a Policy that is a
Modified Endowment Contract to the extent that such amount is
included in the gross income of the Policyowner.
Multiple Policies. All Modified Endowment Contracts that are issued by
us (or our affiliates) to the same Policyowner during any calendar year
are treated as one Modified Endowment Contract. This applies to
determining the amount includible in the Policyowner's income when a
taxable distribution occurs.
Accelerated Benefits Rider. We believe that payments received under the
Accelerated Death Benefit Rider should be fully excludable from the
gross income of the Beneficiary if the Beneficiary is the Insured under
the Policy. However, you should consult a tax adviser about the
consequences of adding this rider to a Policy or requesting payment
under this rider.
38
<PAGE>
Other Policyowner Tax Matters. The tax consequences of continuing the
Policy beyond the Insured's 100th year are unclear. You should consult a
tax advisor if you intend to keep the Policy in force beyond the
Insured's 100th year.
Businesses can use the Policies in various arrangements, including
nonqualified deferred compensation or salary continuance plans, split
dollar insurance plans, executive bonus plans, tax exempt and nonexempt
welfare benefit plans, retiree medical benefit plans and others. The tax
consequences of such plans may vary depending on the particular facts
and circumstances. If you are purchasing the Policy for any arrangement
the value of which depends in part on its tax consequences, you should
consult a qualified tax adviser. In recent years, moreover, Congress has
adopted new rules relating to life insurance owned by businesses. Any
business contemplating the purchase of a new Policy or a change in an
existing Policy should consult a tax adviser.
Federal, state and local estate, inheritance, transfer, and other tax
consequences of ownership or receipt of Policy proceeds depend on the
circumstances of each Policyowner or Beneficiary. A tax advisor should
be consulted on these consequences.
Possible Tax Law Changes. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of
the Policy could change by legislation or otherwise. Moreover, it is
possible that any change could be retroactive (that is, effective prior
to the date of change). Consult a tax adviser with respect to
legislative developments and their effect on the Policy.
AMERICAN NATIONAL'S INCOME TAXES
American National is taxed as a life insurance company under the Code.
Under current federal income tax law, American National is not taxed on
the Separate Account's operations. Thus, we currently do not deduct a
charge from the Separate Account for federal income taxes. Nevertheless,
we reserve the right in the future to make a charge for any such tax
that we determine to be properly attributable to the Separate Account or
to the Policies.
Under current laws in some states, we may incur state and local taxes
(in addition to premium taxes for which a deduction from premium
payments is currently made). At present, these taxes are not significant
and we are not currently charging for them. However, we may deduct
charges for such taxes in the future.
OTHER INFORMATION
SALE OF THE POLICY
SM&R, one of our wholly-owned subsidiaries, is the principal underwriter
of the Policy. SM&R was organized December 15, 1964 under the laws of
the State of Florida. SM&R is a registered broker-dealer and a member of
the National Association of Securities Dealers. (See the American
National Fund's prospectus.)
SM&R will pay commissions to its registered representatives who sell the
Policies based upon a commission schedule. In Policy Years one through
five, the
39
<PAGE>
commissions to the registered representatives will not exceed 13.6% of
the total premium contribution. In later years, the registered
representatives will receive renewal commissions which will not exceed
0.25% of the Accumulation Value. We may pay registered representatives
who meet certain production standards additional compensation. SM&R will
pay overriding commissions to managers and we may pay bonuses to the
managers for the sale of the Policy. SM&R and the Company may also
authorize other registered broker-dealers and their registered
representatives to sell the Policy.
YEAR 2000
Many of the services provided to the Separate Account and Policyowners
depend on the smooth functioning of computer systems. Many computer
software systems in use today cannot distinguish the year 2000 from the
year 1900 because of the way dates are encoded and calculated, referred
to as the "Year 2000 Problem." The Year 2000 Problem could have a
negative impact on handling securities trades, payment of interest and
dividends, pricing and account services. Like all financial services
providers, we utilize systems that may be affected by Year 2000 Problems
and we rely on service providers, including the Eligible Portfolios,
that may also be affected. We have developed, and are continuing to
implement, a Year 2000 transition plan, and we are confirming that our
service providers are doing the same. It is difficult to predict with
precision whether the outcome of these efforts will have any negative
impact on our Company. As of the date of this prospectus, we do not
anticipate that you will experience any negative effects on your
Accumulation Value, or on the services provided in connection with your
Policy, as a result of Year 2000 Problems. At this time, however, there
can be no assurance that these steps will be sufficient to avoid any
adverse impact on the Separate Account or the Policyowners.
THE CONTRACT
The Policy, the application, any supplemental applications, and any
riders, amendments or endorsements make up the entire contract. Only
statements in the application attached to the Policy and any
supplemental applications made a part of the Policy can be used to
contest a claim or the validity of the Policy. Any changes must be
approved in writing by the President, Vice President or Secretary of
American National. No agent has the authority to alter or modify any of
the terms, conditions or agreements of the Policy or to waive any of its
provisions. Differences in state laws may require us to offer a Policy
in a state which has suicide, incontestability, refund provisions,
surrender charges or other provisions more favorable than provisions in
other states.
Control of Policy. Subject to the rights of any irrevocable Beneficiary
and assignee of record, all rights, options, and privileges belong to
the Policyowner, if living; otherwise to any contingent owner or owners,
if living; otherwise to the estate of the last Policyowner to die. If
the Policyowner is a minor, first the Applicant, then the Beneficiary,
if living and legally competent, may exercise all rights of ownership.
Beneficiary. You can name primary and contingent beneficiaries. Initial
Beneficiary(ies) are specified in the application. Payments will be
shared equally
40
<PAGE>
among Beneficiaries of the same class unless otherwise stated. If a
Beneficiary dies before the Insured, payments will be made to any
surviving Beneficiaries of the same class; otherwise to any
Beneficiary(ies) of the next class; otherwise to the estate of the
Insured.
Change of Beneficiary. Unless the Beneficiary designation is
irrevocable, you can change the Beneficiary by written request on a
Change of Beneficiary form at any time during the Insured's lifetime. We
may require that the Policy be returned to the Home Office for
endorsement of any change, or that other forms be completed. The change
will take effect as of the date the change is recorded at the Home
Office. We will not be liable for any payment made or action taken
before the change is recorded. There is no limit on the number of
changes that may be made.
Change in Policyowner or Assignment. In order to change the Policyowner
or assign Policy rights, an assignment of the Policy must be made in
writing and filed at our Home Office. The change will take effect as of
the date the change is recorded at our Home Office, and we will not be
liable for any payment made or action taken before the change is
recorded. Payment of proceeds is subject to the rights of any assignee
of record. No partial or contingent assignment of the Policy will be
permitted. A collateral assignment is not a change of ownership.
Incontestability. The Policy is incontestable after it has been in force
for two years from the Date of Issue during the lifetime of the Insured.
An increase in the Specified Amount or addition of a rider after the
Date of Issue shall be incontestable after such increase or addition has
been in force for two years from its Policy Date during the lifetime of
the Insured. However, this two year provision shall not apply to riders
that provide disability or accidental death benefits. Any reinstatement
of a Policy shall be incontestable during the lifetime of the Insured
only after having been in force for two years after the Policy Date of
the reinstatement.
Misstatement of Age or Sex. If the age or sex of the Insured or any
person insured by rider has been misstated, the amount of the Death
Benefit will be adjusted as provided for in the Policy.
Suicide. Suicide within two years after Date of Issue is not covered by
the Policy unless otherwise provided by a state's insurance law. If the
Insured, while sane or insane, commits suicide within two years after
the Date of Issue, we will pay only the premiums received less any
partial surrenders and Policy Debt. If the Insured, while sane or
insane, commits suicide within two years after the Policy Date of any
increase in the Specified Amount, our liability with respect to such
increase will only be the total cost of insurance applied to the
increase. If the Insured, while sane or insane, commits suicide within
two years from the Policy Date of reinstatement, our liability with
respect to such reinstatement will only be for the return of cost of
insurance and expenses, if any, paid on or after the reinstatement.
Postponement of Payments. Payment of any amount upon refund, full
surrender, partial surrender, Policy loans, benefits payable at death,
and transfers, which require valuation of a subaccount, may be postponed
whenever: (1) the New York
41
<PAGE>
Stock Exchange is closed other than customary week-end and holiday
closings, or trading on the New York Stock Exchange is restricted as
determined by the SEC; (2) the SEC by order permits postponement for the
protection of Policyowners; or (3) an emergency exists, as determined by
the SEC, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value
of the Separate Account's Accumulation Value. Surrenders, loans or
partial surrenders from the Fixed Account may be deferred for up to 6
months from the date of written request.
Additional Insurance Benefits (Riders). Subject to certain requirements,
certain additional optional benefits may be obtained. The cost of any
such additional insurance benefits, which will be provided by "riders"
to the Policy, will be deducted as part of the Monthly Deduction. Riders
in force during the time the Guaranteed Coverage Benefit is in effect
will increase the Guaranteed Coverage Premium requirement.
DIVIDENDS
The Policy is non-participating and therefore is not eligible for
dividends and does not participate in any distribution of our surplus.
LEGAL MATTERS
Greer, Herz and Adams, L.L.P., our general counsel, has reviewed various
matters of Texas law pertaining to the Policy, including the validity of
the Policy and our right to issue the Policy.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class
action and other law-suits involving insurers, substantial damages have
been sought and/or material settlement payments have been made. Although
the outcome of any litigation cannot be predicted with certainty, we
believe that at the present time no lawsuits are pending or threatened
that reasonably likely to have a material adverse impact on the Separate
Account or us.
REGISTRATION STATEMENT
We filed a registration statement covering information about the Policy
with the SEC. The registration statement, and its subsequent amendments,
included this prospectus, but it also contained additional information.
This prospectus is simply a summary of the contents of the Policy and
related legal instruments. If you want more complete information
regarding any of the matters described in this prospectus, you should
consult the registration statement.
EXPERTS
The consolidated financial statements of American National Insurance
Company and subsidiaries as of December 31, 1998 and 1997, and for the
years then
42
<PAGE>
ended, and the statements of net assets of American National Variable
Life Separate Account as of December 31, 1998, and the related
statements of operations and statements of changes in net assets for
each of the three years in the period then ended, included in this
prospectus and elsewhere in the registration statement have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in
their reports with respect thereto, and are included herein in reliance
upon the authority of said firm as experts in accounting and auditing in
giving said reports.
As stated in his opinion which was filed as an exhibit to the
registration statement, Rex D. Hemme has examined the actuarial matters
included in this prospectus.
43
<PAGE>
SENIOR EXECUTIVE OFFICERS AND
DIRECTORS OF
AMERICAN NATIONAL INSURANCE COMPANY
NAME
POSITION(S) WITH AMERICAN NATIONAL INSURANCE COMPANY
Principal Occupations Last Five Years and Other Positions Held
------------------------------------------------------------------------
ROBERT L. MOODY
CHAIRMAN OF THE BOARD, DIRECTOR, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
American National: President, January 1996 to present; Chairman of the
Board, April 1982 to present; Chief Executive Officer, July 1991 to
present; and Director, March 1960 to present.
ANREM Corporation: Director, September 1985 to present. Moody
Bancshares, Inc.: Director and President, 1982 to present. Moody Bank
Holding Company, Inc.: Director and President, 1988 to present. Moody
National Bank of Galveston: President, 1980 to 1993; Chairman of the
Board, Director and Chief Executive Officer, 1980 to present. National
Western Insurance Company: Chairman of the Board, Director and Chief
Executive Officer, 1971 to present. The Moody Foundation: Trustee, 1955
to present. Gal-Tex Hotel Corporation: Chairman of the Board and
Director, 1954 to present. Gal-Tenn Hotel Corporation: Director. GTG
Corporation: Director. Gal-Tex Management Co.: Director. Gal-Tex
Woodstock, Inc.: Director. New Paxton Hotel Corporation: Director.
Transitional Learning Community at Galveston: Chairman of the Board and
Director. The Moody Endowment: Chairman of the Board and Director.
G. RICHARD FERDINANDTSEN
DIRECTOR, SENIOR EXECUTIVE VICE PRESIDENT AND
CHIEF OPERATING OFFICER
American National: Director, 1998 to present; Senior Executive Vice
President and Chief Operating Officer, April 1997 to present; Senior
Executive Vice President and Chief Administrative Officer, April 1996 to
April 1997; Senior Vice President, Health Insurance Operations, April
1993 to April 1996; Senior Vice President, Director of Group Insurance,
July 1990 to April 1993. American National Life Insurance Company of
Texas: Chairman of the Board, President and Director, 1998 to present;
and Vice President, Health Insurance Operations, April 1993 to 1998.
American National Property and Casualty Company: Director, November 1992
to present; and Vice Chairman of the Board, 1998 to present. American
National General Insurance Company: Director, November 1992 to present;
and Vice Chairman of the Board, 1998 to present. McMarr Properties
(formerly American Securities Company): Director, April 1978 to present.
McCreless Foundation: Director, April 1992 to present. United Land:
Director, January 1985 to present. Commonwealth Life and Accident
Insurance
44
<PAGE>
Company: Director, June 1993 until company was merged in December 1994.
American National Lloyds Insurance Company: Underwriter, March 1994 to
present. Pacific P & C, Inc.: Director, 1995 to present; and Vice
Chairman of the Board. Standard Life and Accident Insurance Company:
Director, January 1996 to present; Chairman of the Board, President and
Chief Executive Officer, 1998 to present. Garden State Life Insurance
Company: Director. Securities Management & Research, Inc.: Director.
Comprehensive Investment Services, Inc.: Director. Alternative Benefit
Management, Inc.: Director, President and Chief Executive Officer. ANMEX
International Services, Inc.: Director and President. ANMEX
International, Inc.: Director and President.
IRWIN M. HERZ, JR.
DIRECTOR
American National: Director: 1984 to present. Greer, Herz & Adams,
L.L.P.: Partner, March 1980 to present, General Counsel to American
National. Three R Trust: Trustee, April 1971 to present. Commonwealth
Life and Accident Insurance Company: Director, April 1983 until company
was merged in December 1994. Garden State Life Insurance Company:
Director, June 1992 to present. American National Property and Casualty
Company: Director. American National General Insurance Company:
Director. Pacific P & C, Inc.: Director.
R. EUGENE LUCAS
DIRECTOR
American National: Director, April 1981 to present. Gal-Tex Hotel
Corporation: President and Director, March 1971 to present. Gal-Tenn
Hotel Corporation: President and Director, March 1971 to present. Gal-
Tex Management Company: President and Director, May 1985 to present.
Gal-Tex Woodstock, Inc.: President and Director, November 1995 to
present. New Paxton Hotel Corporation: President and Director.
Securities Management and Research, Inc.: Director, November 1982 to
present. ANREM Corporation: Director, September 1982 to present. Colonel
Museum, Inc.: Director, March 1985 to present.
E. DOUGLAS MCLEOD
DIRECTOR
American National: Director, April 1984 to present. ANREM Corporation:
Director, October 1979 to present. National Western Life Insurance
Company: Director, 1986 to present. Independent County Mutual Fire
Insurance Company of Texas: Director, June 1984 to present. Attorney.
The Moody Foundation: Director of Development, May 1982 to present.
McLeod Properties: Owner. Texas State House of Representatives: Past
Member. Moody Gardens, Inc.: Chairman and Director, 1988 to present.
Colonel Museum, Inc.: Vice President and Director, 1985 to present.
Center for Transportation and Commerce: Director, 1983 to present.
45
<PAGE>
FRANCES ANNE MOODY
DIRECTOR
American National: Director, April 1987 to present. The Moody
Foundation: Executive Director, January 1998 to present and Regional
Grants Advisor, September 1996 to present. National Western Life
Insurance Company: Director, 1990 to present. The Moody Endowment:
Director, 1991 to present. Investments, Dallas, Texas.
RUSSELL S. MOODY
DIRECTOR
American National: Director, April 1986 to present. National Western
Life Insurance Company: Director, 1988 to March 1996. Gal-Tex Hotel
Corporation: Director, 1981 to 1997. Seal Fleet, Inc.: Director, 1982 to
1996.
WILLIAM L. MOODY IV
DIRECTOR
American National: Director, March 1951 to present. Moody National Bank
of Galveston: Director, January 1969 to March 1996, and Advisory
Director, March 1996 to present. Moody Ranches, Inc.: President and
Director, May 1959 to present. American National Life Insurance Company
of Texas: Director, November 1969 to present. Rosenberg Library: Board
of Trustees, 1970 to present. University of Texas Medical Branch
Development Board: Director, 1970 to present.
JOE MAX TAYLOR
DIRECTOR
American National: Director, April 1992 to present. County of Galveston,
Texas: Sheriff, 1980 to present. Moody Gardens, Inc.: Director and
President, 1988 to present. Transitional Learning Community at
Galveston: Director, 1985 to present. Galveston County Bail-Bond Board:
President, 1981 to present. Fifty Club Board of Galveston: Director,
1981 to present. Landry's Seafood Restaurants, Inc.: Director, 1992 to
present. Pre-Trial Release Board of Galveston County: 1982 to present.
Juvenile Crime Prevention-Intervention Task Force: Chairman, 1993 to
present. University of Texas Medical Branch: President's Cabinet, 1994
to present.
ROBERT A. FRUEND
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President, Director of Multiple Line
Marketing, April 1989 to present. American National Life Insurance
Company of Texas: Director and Vice President, April 1989 to present.
American National Property and Casualty Insurance Company: Chairman of
the Board; and Director, November 1979 to present. American National
General Insurance Company: Chairman of the Board; and Director, November
1981 to present. Securities
46
<PAGE>
Management and Research, Inc.: Director, November 1988 to present:
Pacific P & C, Inc.: Director, 1995 to present; and Chairman of the
Board. American National Insurance Service Company: Director, November
1988 to present. ANPAC Lloyds Insurance Management, Inc.: Director,
December 1995 to present. American National Lloyds Insurance Company:
Director, December 1995 to present.
BILL J. GARRISON
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President, Director of Home Service
Division, April 1991 to present. ANMEX International Services, Inc.:
Vice President. ANMEX International, Inc.: Vice President. Commonwealth
Life and Accident Insurance Company: Director, February 1993 until
company was merged in December 1994.
MICHAEL W. McCROSKEY
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President-Investments, 1995 to
present; and Senior Vice President-Real Estate and Mortgage Loans, 1986
to 1995. ANREM Corporation: Director, June 1977 to present; and
President, October 1986 to present. American National Life Insurance
Company of Texas: Assistant Secretary, December 1986 to present.
Standard Life and Accident Insurance Company: Vice President, May 1988
to present. ANTAC, Inc.: President and Director, 1995 to present.
Securities Management and Research, Inc.: President, Chief Executive
Officer and Director, 1994 to present. American National Funds Group:
President and Director, 1994 to present. SM&R Investments, Inc.
(formerly SM&R Capital Funds, Inc.): Chief Executive Officer; President
and Director, 1994 to present. American National Investment Accounts,
Inc.: President and Director, 1994 to present. Pacific P & C, Inc.: Vice
President, 1995 to present. Garden State Life Insurance Company: Vice
President, May 1994 to present. American National Property and Casualty
Company Vice President: June 1994 to present. American National General
Insurance Company: Vice President, June 1994 to present. SM&R Growth
Fund, Inc.: Director and President. SM&R Equity Income Fund, Inc.:
Director and President. SM&R Balanced Fund, Inc.: Director and
President. ANDV `97: Director and President. Comprehensive Investment
Services, Inc.: Director.
JAMES E. POZZI
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President, Independent Markets, April
1996 to present; and Senior Vice President, Corporate Planning and
Development, June 1992 to April 1996. American National Life Insurance
Company of Texas: Vice President, April 1993 to present.
47
<PAGE>
RONALD J. WELCH
EXECUTIVE VICE PRESIDENT
American National: Executive Vice President and Chief Actuary, April
1996 to present; and Senior Vice President and Chief Actuary, April 1986
to April 1996. Standard Life and Accident Insurance Company: Director,
December 1987 to present. American National Property and Casualty
Company: Director, November 1987 to present. American National General
Insurance Company: Director, November 1987 to present. American National
Life Insurance Company of Texas: Director, November 1986 to present,
Actuary, April 1980 to present, and Senior Vice President, April 1990 to
present. Commonwealth Life and Accident Insurance Company: Vice
President, until company was merged in December 1994. Garden State Life
Insurance Company: Chairman of the Board and Director, June 1992 to
present: Pacific P & C, Inc.: Director, 1995 to present. American
National Insurance Service Company: Director, December 1995 to present.
Securities, Research & Management, Inc.: Director. ANMEX International
Services, Inc.: Director and Vice President. ANMEX International, Inc.:
Director and Vice President. Alternative Benefit Management, Inc.:
Director.
CHARLES H. ADDISON
SENIOR VICE PRESIDENT
American National: Senior Vice President, Systems Planning and
Computing, April 1978 to present. American National Property and
Casualty Company: Director, November 1981 to present. American National
General Insurance Company: Director, November 1981 to present. Pacific
P & C, Inc.: Director, 1995 to present. Standard Life and Accident
Insurance Company: Director, January 1996 to present.
ALBERT L. AMATO
SENIOR VICE PRESIDENT
American National: Senior Vice President, Life Policy Administration,
April 1994 to present; and Vice President, Life Policy Administration,
April 1984 to April 1994. American National Life Insurance Company of
Texas: Vice President, May 1984 to present. Garden State Life Insurance
Company: Vice President, August 1992 to present, Director, August 1992
to December 1993, and Advisory Director, December 1993 to present.
Standard Life and Accident Insurance Company: Vice President, Life
Policy Administration. Alternative Benefit Management, Inc.: Director
and Senior Vice President. Commonwealth Life and Accident Insurance
Company: Director, August 1992 until company was merged in December
1994.
GLENN C. LANGLEY
SENIOR VICE PRESIDENT
American National: Senior Vice President, Human Resources, November 1995
to present; Vice President, Assistant Personnel Director, April 1983 to
November 1995; Assistant Vice President, Equal Employment
Opportunity/Affirmative
48
<PAGE>
Action Program Coordinator, April 1976 to April 1983; and Assistant Vice
President, Personnel Placement Director, April 1969 to April 1976.
Standard Life and Accident Insurance Company: Vice President, Director
of Human Resources.
STEPHEN E. PAVLICEK
SENIOR VICE PRESIDENT AND CONTROLLER
American National: Senior Vice President and Controller, April 1996 to
present; Vice President and Controller, 1994 to April 1996; and
Assistant Vice President-Financial Reports, 1983 to 1994. ANTAC, Inc.:
Assistant Treasurer, 1995 to present. Garden State Life Insurance
Company: Controller, June 1992 to present. American National Life
Insurance Company of Texas: Controller, August 1994 to present. ANREM
Corporation: Director. American National Property and Casualty Company:
Director. American National General Insurance Company: Director. Pacific
P & C, Inc.: Director. Standard Life and Accident Insurance Company:
Vice President, Controller and Director. ANDV '97: Assistant Treasurer.
ANMEX International Services, Inc.: Controller. ANMEX International,
Inc.: Controller. Alternative Benefit Management, Inc.: Senior Vice
President, Controller and Director.
STEVEN H. SCHOUWEILER
SENIOR VICE PRESIDENT
American National: Senior Vice President, Health Insurance Operations,
May 1998 to present. Standard Life and Accident Insurance Company: Vice
President, Claims, May 1998 to present. American National Life Insurance
Company of Texas: Director and Senior Vice President, May 1998 to
present. Alternative Benefit Management, Inc.: Chief Administrative
Officer, Senior Vice President and Director. Galveston Health Network,
Inc.: President. Conseco Group Risk Management: President and Chief
Executive Officer, December 1989 to April 1998 .
JAMES R. THOMASON
SENIOR VICE PRESIDENT
American National: Senior Vice President, Credit Insurance Services,
April 1987 to present.
GARETH W. TOLMAN
SENIOR VICE PRESIDENT
American National: Senior Vice President, Corporate Affairs, April 1996
to present; and Vice President, Corporate Affairs, April 1976 to April
1996.
49
<PAGE>
VINCENT E. SOLER, JR.
VICE PRESIDENT, SECRETARY AND TREASURER
American National: Vice President, Secretary and Treasurer, 1994 to
present; and Vice President and Controller, March, 1984 to 1994. ANREM
Corporation: Treasurer, October 1984 to present. American National Life
Insurance Company of Texas: Treasurer, April 1984 to present;
Controller, April 1984 to August 1994; and Secretary, August 1994 to
present. Standard Life and Accident Insurance Company: Secretary and
Treasurer, 1998 to present; Assistant Secretary, January 1996 to 1998.
ANTAC, Inc.: Secretary, 1995 to present. Garden State Life Insurance
Company: Secretary and Treasurer, August 1994 to present. American
National Property and Casualty Company: Assistant Secretary, August 1994
to present. American National General Insurance Company: Assistant
Secretary. Pacific P & C, Inc.: Assistant Secretary. Galveston Health
Network, Inc.: Secretary. ANDV '97: Secretary. ANMEX International
Services, Inc.: Secretary and Treasurer. ANMEX International, Inc.:
Secretary and Treasurer. Comprehensive Investment Services, Inc.:
Secretary. Alternative Benefit Management, Inc.: Secretary and
Treasurer.
The principal business address of each person listed above is American
National Insurance Company, One Moody Plaza, Galveston, Texas 77550-
7999.
50
<PAGE>
FINANCIAL STATEMENTS
Our financial statements which are included in this prospectus should be
considered only as bearing on our ability to meet our obligations under the
Policy. Our financial statements should not be considered as bearing on the
investment performance of the assets held in the Separate Account.
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American National
Variable Life Separate Account:
We have audited the accompanying statements of net assets of the
American National Variable Life Separate Account (comprised of American
National (AN) Growth, AN Money Market, AN Balanced, AN Managed, Fidelity
VIP II Investment Grade Bond, Fidelity VIP II Asset Manager, Fidelity
VIP II Index 500, Fidelity VIP Money Market, Fidelity VIP Equity Income,
Fidelity VIP High Income, Fidelity VIP Growth, Fidelity VIP Overseas,
Fidelity VIP II Contra Fund, Fidelity VIP II Asset Manager Growth,
Fidelity VIP III Balanced, Fidelity VIP III Growth & Income, Fidelity
VIP III Growth Opportunities, T. Rowe Price Equity Income, T. Rowe Price
Mid-Cap Growth, and T. Rowe Price International Stock Portfolios)
(collectively, the Account) as of December 31, 1998, and the related
statements of operations and the statements of changes in net assets for
the period from September 14, 1998 (inception) through December 31,
1998. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of December 31, 1998 by correspondence with the custodians. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of the Account
as of December 31, 1998 and the results of its operations and changes in
net assets for the period from September 14, 1998 (inception) through
December 31, 1998, in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 1999
52
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 122,693 $ 160,372 $ 40,364 $ 166,138
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 122,693 $ 160,372 $ 40,364 $ 166,138
Equity of sponsor -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 122,693 $ 160,372 $ 40,364 $ 166,138
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 67,786 160,372 26,210 94,936
Cost $ 115,939 $ 160,372 $ 38,775 $ 155,640
==================================================================================================================================
STATEMENTS OF NET ASSETS
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
VIP II VIP II VIP II VIP
INVESTMENT ASSET INDEX MONEY
GRADE MANAGER 500 MARKET
BOND PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 11,835 $ 83,556 $ 492,483 $ 41,695
==================================================================================================================================
LIABILITIES:
Individual contract owner reserves $ 11,835 $ 83,556 $ 492,483 $ 41,695
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 913 4,601 3,487 41,695
Cost $ 11,825 $ 81,317 $ 463,402 $ 41,695
==================================================================================================================================
</TABLE>
53
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP VIP FIDELITY FIDELITY
EQUITY- HIGH VIP VIP
INCOME INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 156,356 $ 12,767 $ 56,806 $ 11,137
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 156,356 $ 12,767 $ 56,806 $ 11,137
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 6,151 1,107 1,266 555
Cost $ 149,694 $ 12,834 $ 53,191 $ 10,699
==================================================================================================================================
STATEMENTS OF NET ASSETS
December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY
VIP II FIDELITY
FIDELITY ASSET FIDELITY VIP III
VIP II MANAGER: VIP III GROWTH
CONTRAFUND GROWTH BALANCED & INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 98,296 $ 47,287 $ 175 $ 48,552
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 98,296 $ 47,287 $ 175 $ 48,552
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 4,022 2,777 11 3,006
Cost $ 90,377 $ 44,619 $ 172 $ 45,303
==================================================================================================================================
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY
VIP III T. ROWE PRICE T. ROWE PRICE T. ROWE PRICE
GROWTH EQUITY MID-CAP INTERNATIONAL
OPPORTUNITIES INCOME GROWTH STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 85,639 $ 49,035 $ 18,344 $ 1,271
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 85,639 $ 49,035 $ 18,344 $ 1,271
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 3,743 2,547 1,285 88
Cost $ 80,382 $ 49,517 $ 15,465 $ 1,254
==================================================================================================================================
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the Period September 14, 1998 to December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ -- $ 80 $ -- $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (130) (201) (42) (230)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (130) $ (121) $ (42) $ (230)
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments $ 668 $ -- $ 178 $ 362
Capital gains distributions from mutual funds -- -- -- --
Net unrealized appreciation of investments during the period 6,754 -- 1,589 10,498
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $7,422 $ -- $1,767 $10,860
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $7,292 $ (121) $1,725 $10,630
===================================================================================================================================
STATEMENTS OF OPERATIONS
For the Period September 14, 1998 to December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY
VIP II VIP II FIDELITY VIP
INVESTMENT ASSET VIP II MONEY
GRADE BOND MANAGER INDEX 500 MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend from mutual funds $ -- $ -- $ -- $ 619
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (7) (47) (1) (64)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (7) $ (47) $ (1) $ 555
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments $ 2 $ 2 $ 2,277 $ --
Capital gains distributions from mutual fun -- -- -- --
Net unrealized appreciation of investments during the period 10 2,239 29,081 --
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 12 $2,241 $31,358 $ --
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5 $2,194 $31,357 $ 555
===================================================================================================================================
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the Period September 14, 1998 to December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
VIP VIP VIP VIP
EQUITY-INCOME HIGH INCOME GROWTH OVERSEAS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ -- $ -- $ -- $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (180) (6) (49) (9)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (180) $ (6) $ (49) $ (9)
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments $ 603 $ -- $ 320 $ 4
Capital gains distributions from mutual funds -- -- -- --
Net unrealized appreciation (depreciation)
of investments during the period 6,662 (67) 3,615 438
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS $ 7,265 $ (67) $ 3,935 $ 442
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 7,085 $ (73) $ 3,886 $ 433
===================================================================================================================================
STATEMENTS OF OPERATIONS
For the Period September 14, 1998 to December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
FIDELITY VIP II FIDELITY VIP III
VIP II ASSET MANAGER: VIP III GROWTH
CONTRAFUND GROWTH BALANCED & INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend from mutual funds $ -- $ -- $ -- $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (88) (59) -- (56)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (88) $ (59) $ -- $ (56)
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments $ 1,279 $ 69 $ -- $ 56
Capital gains distributions from mutual funds -- -- -- --
Net unrealized appreciation of investments during the period 7,919 2,668 3 3,249
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 9,198 $ 2,737 $ 3 $ 3,305
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,110 $ 2,678 $ 3 $ 3,249
===================================================================================================================================
</TABLE>
57
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the Period September 14, 1998 to December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
FIDELITY
VIP III T. ROWE PRICE T. ROWE PRICE T. ROWE PRICE
GROWTH & EQUITY MID-CAP INTERNATIONAL
OPPORTUNITIES INCOME GROWTH STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ -- $ 249 -- $ 1
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (105) (68) (28) --
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (105) $ 181 (28) $ 1
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments $ 627 $ 4 -- $ --
Capital gains distributions from mutual funds -- 1,174 196 1
Net unrealized appreciation (depreciation)
of investments during the period 5,259 (481) 2,879 17
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 5,886 $ 697 3,075 $ 18
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,781 $ 878 3,047 $ 19
===================================================================================================================================
</TABLE>
58
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For The Period September 14, 1998 to December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY FIDELITY
AN VIP II VIP II VIP II VIP VIP
AN MONEY AN AN INVESTMENT ASSET INDEX MONEY EQUITY-
GROWTH MARKET BALANCED MANAGED GRADE BOND MANAGER 500 MARKET INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ (130) $ (121) (42) $ (230) $ (7) $ (47) $ (1) $ 555 $ (180)
Net realized gain on investments 668 -- 178 362 2 2 2,277 -- 603
Capital gains distributions from
mutual funds -- -- -- -- -- -- -- -- --
Net unrealized appreciation
of investments during the year 6,754 -- 1,589 10,498 10 2,239 29,081 -- 6,662
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 7,292 $ (121) $ 1,725 $ 10,630 $ 5 $2,194 $31,357 $ 555 $ 7,085
- ------------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and other
transfers $120,235 $178,200 $ 39,445 $157,331 $11,987 $ 81,696 $ 467,856 $41,480 $151,930
Surrenders of accumulation units
by terminations, withdrawals,
and maintenance fees (4,834) (17,707) (806) (1,823) (157) (334) (6,730) (340) (2,659)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting
from policy related
transactions $115,401 $160,493 $ 38,639 $155,508 $11,830 $ 81,362 $ 461,126 $41,140 $149,271
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $122,693 $160,372 $ 40,364 $166,138 $11,835 $ 83,556 $ 492,483 $41,695 $156,356
NET ASSETS, BEGINNING OF PERIOD -- -- -- -- -- -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $122,693 $160,372 $ 40,364 $166,138 $11,835 $ 83,556 $ 492,483 $41,695 $156,356
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning
of year -- -- -- -- -- -- -- -- --
Purchase payments 106,777 1,114,257 37,781 160,287 11,714 96,567 426,732 41,697 156,783
Policy withdrawals and charges (6,466) (955,217) (2,169) (22,125) (156) (20,632) (31,541) (339) (23,879)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 100,311 159,040 35,612 138,162 11,558 75,935 395,191 41,358 132,904
===================================================================================================================================
Accumulation unit value $ 1.223 $ 1.008 $ 1.133 $ 1.202 $ 1.023 $ 1.100 $ 1.246 $ 1.008 $ 1.176
===================================================================================================================================
</TABLE>
59
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For The Period September 14, 1998 to December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY
FIDELITY FIDELITY VIP II FIDELITY FIDELITY
VIP FIDELITY FIDELITY VIP II ASSET FIDELITY VIP III VIP III
HIGH VIP VIP CONTRA- MANAGER: VIP III GROWTH & GROWTH
INCOME GROWTH OVERSEAS FUND GROWTH BALANCED INCOME OPPORTUNTIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS:
Net investment (loss) $ (6) $ (49) $ (9) $ (88) $ (59) $ -- $ (56) $ (105)
Net realized gain on investments -- 320 4 1,279 69 -- 56 627
Capital gains distributions from mutual
funds -- -- -- -- -- -- -- --
Net unrealized appreciation (depreciation)
of investments during the year (67) 3,615 438 7,919 2,668 3 3,249 5,259
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ (73) $ 3,886 $ 433 $ 9,110 $ 2,678 $ 3 $ 3,249 $ 5,781
- -----------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and other transfers $ 12,926 $ 55,010 $ 10,931 $ 90,844 $ 45,127 $ 182 $ 46,136 $ 81,616
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (86) (2,090) (227) (1,658) (518) (10) (833) (1,758)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 12,840 $ 52,920 $ 10,704 $ 89,186 $ 44,609 $ 172 $ 45,303 $ 79,858
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 12,767 $ 56,806 $ 11,137 $ 98,296 $ 47,287 $ 175 $ 48,552 $ 85,639
NET ASSETS, BEGINNING OF PERIOD -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 12,767 $ 56,806 $ 11,137 $ 98,296 $ 47,287 $ 175 $ 48,552 $ 85,639
===================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year -- -- -- -- -- -- -- --
Purchase payments 13,182 44,985 10,199 81,580 39,599 175 44,528 76,136
Policy withdrawals and charges (391) (1,971) (210) (6,742) (592) (10) (2,704) (7,475)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 12,791 43,014 9,989 74,838 39,007 165 41,824 68,661
===================================================================================================================================
Accumulation unit value $ 0.998 $ 1.321 $ 1.115 $ 1.313 $ 1.212 $ 1.061 $ 1.161 $ 1.247
===================================================================================================================================
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For The Period September 14, 1998 to December 31, 1998
- --------------------------------------------------------------------------------------------------------------
T. Rowe Price T. Rowe Price T. Rowe Price
Equity Mid- Cap International
Income Growth Stock
Portfolio Portfolio Portfolio
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Net investment income (loss) $ 181 $ (28) $ 1
Net realized gain on investments 4 -- --
Capital gains distributions from mutual funds 1,174 196 1
Net unrealized appreciation (depreciation)
of investments during the year (481) 2,879 17
- --------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 878 $ 3,047 $ 19
- --------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and other transfers $ 48,613 $ 16,217 $ 1,285
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (456) (920) (33)
- --------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 48,157 $ 15,297 $ 1,252
- --------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 49,035 $ 18,344 $ 1,271
NET ASSETS, BEGINNING OF PERIOD -- -- --
- --------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 49,035 $ 18,344 $ 1,271
==============================================================================================================
CHANGE IN UNITS OUTSTANDING:
Accumulation units beginning of year -- -- --
Purchase payments 44,785 13,902 1,206
Policy withdrawals and charges (420) (854) (32)
- --------------------------------------------------------------------------------------------------------------
Accumulation units end of year 44,365 13,048 1,174
==============================================================================================================
Accumulation unit value $ 1.105 $ 1.406 $ 1.082
==============================================================================================================
</TABLE>
61
<PAGE>
AMERICAN NATIONAL VARIABLE LIFE SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL ... American National Variable Life Separate Account (Separate
Account) was established on July 30,1987 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on February 20, 1991. The assets of the
Separate Account are segregated from the Sponsor's other assets and are used
only to support variable life products issued by the Sponsor. The Separate
Account is registered under the Investment Company Act of 1940, as amended, as a
unit investment trust.
These financial statements report the results of the subaccounts for the
Investrac Advantage Variable Universal Life products which began operations
September 14,1998. There are currently twenty subaccounts within the Separate
Account. Each of the subaccounts is invested only in a corresponding portfolio
of the American National (AN), Fidelity Funds, or T. Rowe Price Funds. The
American National Funds were organized and are managed for a fee by Securities
Management & Research, Inc. (SM&R) which is a wholly-owned subsidiary of the
Sponsor.
BASIS OF PRESENTATION ... The financial statements of the Separate Account
have been prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS ... Investments in shares of the separate investment portfolios
are stated at market value which is the net asset value per share as determined
by the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded
and reinvested upon receipt. Dividends received from mutual funds are reinvested
daily in additional shares of the portfolios and are recorded as dividend income
on the record date.
FEDERAL TAXES ... The operations of the Separate Account form a part of, and
are taxed with, the operations of the Sponsor. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the contract owners are not
taxed to the Sponsor. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on distributions received by the
subaccounts. Accordingly, no provision for income taxes is required in the
accompanying financial statements.
USE OF ESTIMATES ... The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
(2) SECURITY PURCHASES AND SALES
The aggregate cost of purchases (including reinvestment of dividend
distributions) and proceeds from sales of investments in the mutual fund
portfolios, for the year ended December 31, 1998 were as follows (in thousands):
PURCHASES SALES
- ------------------------------------------------------------------------------
AN Growth Portfolio $ 123 $ 8
AN Money Market Portfolio 171 14
AN Balanced Portfolio 41 2
AN Managed Portfolio 174 19
Fidelity VIP II Investment Grade Bond 12 1
Fidelity VIP II Asset Manager 81 1
Fidelity VIP Index 500 492 31
Fidelity VIP Money Market 66 25
Fidelity VIP Equity Income Fund 159 10
Fidelity VIP High Income Fund 13 1
Fidelity VIP Growth 56 3
Fidelity VIP Overseas 11 1
Fidelity VIP II Contra Fund 98 9
Fidelity VIP II Asset Manager Growth 45 1
Fidelity VIP Balanced 1 --
Fidelity VIP Growth & Income 46 1
Fidelity VIP Growth Opportunity 86 6
T. Rowe Price Equity Income Portfolio 50 1
T. Rowe Price Mid Cap Growth Portfolio 15 1
T. Rowe Price International Stock Portfolio 1 --
- ------------------------------------------------------------------------------
Totals $ 1,741 $ 135
===============================================================================
(3) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES ... The mortality risk and expense risk
charges, at an effective annual rate of up to 1.25%, are applied daily against
the net assets representing equity of contract owners held in each subaccount.
MONTHLY ADMINISTRATIVE CHARGES ... A Monthly deduction charge to the
accumulated value will be deducted. The deduction will be equal to (1) a monthly
cost of insurance charge for the current policy month plus (2) a charge for the
cost of any riders plus (3) a monthly policy charge. The monthly charge varies
by age at issue and risk class, with a maximum of $7.50 plus $.31034 per $1,000
of specified amount.
SURRENDER CHARGE ... A surrender charge is imposed upon the surrender of
variable life insurance contracts to compensate the Sponsor for sales and other
marketing expenses. The amount of any surrender charge will depend on the number
of years that have elapsed since the contract was issued. No surrender charge
will be imposed on death benefits.
TRANSFER CHARGE ... A $10 transfer charge is imposed after the first twelve
transfers in any one policy year for transfers made among the subaccounts.
PREMIUM CHARGES ... No sales, premiums tax and transaction charges will be
deducted from each premium before allocating any amount to a subaccount or the
fixed account.
62
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statements of financial
position of American National Insurance Company and subsidiaries (the Company)
as of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These consolidated financial statements (pages 64 through 84) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Insurance Company and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 22,1999
63
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 340,286 $ 348,973
Accident and health premiums 393,602 378,621
Property and casualty premiums 354,820 312,987
Other policy revenue 105,041 99,930
Net investment income 475,242 472,895
Gain from sale of investments 49,768 103,320
Other income 25,906 23,178
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 1,744,665 1,739,904
- -----------------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 259,010 246,855
Accident and health 289,553 280,376
Property and casualty 280,036 233,887
Increase/(decrease) in liability for future policy benefits:
Life and annuity 162,049 185,827
Accident and health (262) (4,862)
Commissions for acquiring and servicing policies 247,015 239,633
Other operating costs and expenses 199,294 176,988
Decrease/(increase) in deferred policy acquisition costs, net of amortization 9,795 (12,267)
Taxes, licenses and fees 32,334 29,778
- -----------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,478,824 1,376,215
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES 265,841 363,689
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 8,048 9,333
- -----------------------------------------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 273,889 373,022
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 77,707 134,271
Deferred (1,216) (9,606)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 197,398 $ 248,357
===================================================================================================================================
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 7.45 $ 9.38
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
64
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $ 3,565,974 $ 3,605,927
Bonds available-for-sale, at market 720,818 600,380
Marketable equity securities, at market:
Preferred stocks 41,664 40,744
Common stocks 1,051,926 882,864
Mortgage loans on real estate 1,025,683 1,103,333
Policy loans 296,109 300,574
Investment real estate, net of accumulated depreciation of $109,415 and $100,298 238,714 258,210
Short-term investments 90,368 126,786
Other invested assets 112,207 63,081
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments 7,143,463 6,981,899
Cash 22,228 5,497
Investments in unconsolidated affiliates 120,098 100,888
Accrued investment income 104,405 102,361
Reinsurance ceded receivables 65,667 49,499
Prepaid reinsurance premiums 171,116 141,270
Premiums due and other receivables 91,518 84,275
Deferred policy acquisition costs 731,703 748,341
Property and equipment 40,860 32,142
Other assets 94,302 58,577
Separate account assets 230,292 179,027
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 8,815,652 $ 8,483,776
===================================================================================================================================
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $ 2,029,396 $ 1,993,723
Accident and health 60,113 60,589
Policy account balances 2,324,310 2,422,828
Policy and contract claims 359,953 326,985
Other policyholder funds 510,130 457,952
- -----------------------------------------------------------------------------------------------------------------------------------
Total policyholder liabilities 5,283,902 5,262,077
Current federal income taxes (20,515) 14,340
Deferred federal income taxes 259,243 215,606
Other liabilities 148,118 107,309
Separate account liabilities 230,292 179,027
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,901,040 5,778,359
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Accumulated other comprehensive income 299,176 215,883
Retained earnings 2,687,120 2,561,218
Treasury stock, at cost (102,727) (102,727)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,914,612 2,705,417
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,815,652 $ 8,483,776
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
65
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 30,832 $ 211 $ 163,352 $ 2,382,238 $ (102,727) $ 2,473,906
Comprehensive income (net of taxes):
Net income 248,357 248,357
Unrealized gains on marketable securities 52,531 52,531
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 300,888
Dividends to stockholders
($2.62 per share) (69,377) (69,377)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $ 30,832 $ 211 $ 215,883 $ 2,561,218 $ (102,727) $ 2,705,417
Comprehensive income (net of taxes):
Net income 197,398 197,398
Unrealized gains on marketable securities 83,293 83,293
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 280,691
Dividends to stockholders
($2.70 per share) (71,496) (71,496)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $ 30,832 $ 211 $ 299,176 $ 2,687,120 $ (102,727) $ 2,914,612
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
66
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 197,398 $ 248,357
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 121,016 145,663
Charges to policy account balances (104,059) (99,625)
Interest credited to policy account balances 126,914 135,478
Deferral of policy acquisition costs (140,707) (151,891)
Amortization of deferred policy acquisition costs 149,116 138,710
Deferred federal income tax benefit (1,216) (9,606)
Depreciation 19,073 20,454
Accrual and amortization of discounts (69,760) (34,416)
Gain from sale of investments (49,768) (103,320)
Equity in earnings of unconsolidated affiliates (8,048) (9,333)
Increase in premiums receivable (7,243) (15,023)
Increase in accrued investment income (2,044) (4,478)
Capitalization of interest on policy and mortgage loans (16,750) (14,475)
Other changes, net (52,366) (26,937)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 161,556 219,558
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 316,067 196,807
Stocks 247,951 331,679
Real estate 33,186 89,448
Other invested assets 171 5,706
Principal payments received on:
Mortgage loans 154,333 168,603
Policy loans 40,069 40,207
Purchases of investments:
Bonds (373,401) (424,721)
Stocks (237,868) (279,690)
Real estate (7,462) (1,537)
Mortgage loans (35,420) (151,471)
Policy loans (21,988) (23,023)
Other invested assets (79,081) (15,250)
Decrease (increase) in short-term investments, net 36,418 (121,262)
Decrease in investment in unconsolidated affiliates, net (19,210) (4,281)
Increase in property and equipment, net (5,721) (3,173)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 48,044 (191,958)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 288,984 391,607
Policyholders' withdrawals from policy account balances (410,357) (357,878)
Dividends to stockholders (71,496) (69,377)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (192,869) (35,648)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 16,731 (8,048)
Cash:
Beginning of the year 5,497 13,545
- -----------------------------------------------------------------------------------------------------------------------------------
End of the year $ 22,228 $ 5,497
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
67
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiple
line insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues is generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiple line ordinary, group
brokerage, credit and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas (ANTEX), Garden State Life Insurance Company,
Standard Life and Accident Insurance Company, American National Property and
Casualty Company (ANPAC), American National General Insurance Company (ANGIC)
and American National Lloyds Insurance Company (ANPAC Lloyds). The major
noninsurance subsidiaries are Securities Management and Research, Inc.;
Comprehensive Investment Services, Inc.; Alternative Benefit Management, Inc.;
ANTAC, Inc.; and ANREM Corporation. As part of its investment portfolio,
American National also owns interests in unconsolidated affiliates, primarily
several real estate joint ventures and partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--The consolidated
financial statements include the accounts of American National Insurance Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. Investments in unconsolidated affiliates
are shown at cost plus equity in undistributed earnings since the dates of
acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance companies,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 14.)
Certain reclassifications have been made to the 1997 financial
information to conform to the 1998 presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from reported
results using those estimates.
ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE--As of December 31, 1997, American National adopted
FAS No. 128, "Earnings per Share." This statement establishes standards for
computing and presenting earnings per share. As American National has a simple
capital structure, the adoption of this new standard did not have any effect on
the calculation of earnings per share.
REPORTING COMPREHENSIVE INCOME--Effective January 1, 1998, American
National adopted FAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for presenting comprehensive income and its components
prominently in the financial statements. American National has elected to
display comprehensive income as part of the consolidated statements of changes
in stockholders' equity. Additional information regarding the components of
comprehensive income is reported in Note 11.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--
Effective January 1, 1998, American National adopted FAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for presenting information about operating segments in
financial statements. The statement requires disclosure of information on
operating segments that are evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and assess performance. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of this new standard required
the restatement of prior period segment disclosures to conform with the new
format, but had no effect on American National's financial position or results
from operations. The segment disclosures are presented in Note 13.
68
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
PENSION AND OTHER POSTRETIREMENT BENEFIT DISCLOSURES--As of December 31,
1998, American National adopted FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement establishes revised
standards for disclosures about pensions and other postretirement benefit plans.
The adoption of this new standard required the restatement of prior period
disclosures to conform with the new requirements, but had no effect on American
National's financial position or results from operations. The retirement
benefits disclosures are presented in Note 15.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS--FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is effective for all quarters
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.
American National will adopt FAS No. 133 on July 1, 1999. Management
believes that the adoption of FAS No. 133 will not have a significant effect on
American National's financial position or results from operations.
INVESTMENTS
DEBT SECURITIES--Bonds that are intended to be held-to-maturity are
carried at amortized cost. American National has the ability and intent to hold
these securities until maturity.
Bonds held as available-for-sale are carried at market.
PREFERRED STOCKS--All preferred stocks are classified as available-for-
sale, and are carried at market.
COMMON STOCKS--All common stocks are classified as available-for-sale,
and are carried at market.
UNREALIZED GAINS--For all investments carried at market, the unrealized
gains or losses (differences between amortized cost and market value), net of
applicable federal income taxes, are reflected in stockholders' equity as a
component of accumulated other comprehensive income.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized
cost, less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of
loan and property information, such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation allowances are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowance for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years), using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through
the review of operating information and periodic inspections. This information
is evaluated in light of current economic conditions and other factors, such as
geographic location and property type. As a result of this review, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial
paper) are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for impairments of mortgage loans, real estate and
other assets in accordance with the policies established for each class of
invested asset. The increase in the valuation allowances is reflected in current
period income as a realized loss.
69
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Management believes that the valuation allowances are adequate. However,
it is possible that a significant change in economic conditions in the near term
could result in losses exceeding the amounts established.
CASH AND CASH EQUIVALENTS--American National considers cash on hand and
in banks as cash for purposes of the consolidated statements of cash flows.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES--These assets are primarily
investments in real estate joint ventures, and are accounted for under the
equity method of accounting.
PROPERTY AND EQUIPMENT--These assets consist of buildings occupied by
the companies, electronic data processing equipment, and furniture and
equipment. These assets are carried at cost, less accumulated depreciation.
Depreciation is provided using straight-line and accelerated methods over the
estimated useful lives of the assets (three to 50 years).
INSURANCE SPECIFIC ASSETS AND LIABILITIES
DEFERRED POLICY ACQUISITION COSTS--Certain costs of acquiring new
insurance business have been deferred. For life, annuity, and accident and
health business, such costs consist of inspection report and medical examination
fees, commissions, related fringe benefit costs and the cost of insurance in
force gained through acquisitions. The amount of commissions deferred includes
first-year commissions and certain subsequent year commissions that are in
excess of ultimate level commission rates.
The deferred policy acquisition costs on traditional life and health
products are amortized with interest over the anticipated premium-paying period
of the related policies, in proportion to the ratio of annual premium revenue to
be received over the life of the policies. Expected premium revenue is estimated
by using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. The amount of deferred policy
acquisition costs is reduced by a provision for possible inflation of
maintenance and settlement expenses in the determination of such amounts by
means of grading interest rates.
Costs deferred on universal life, limited pay and investment-type
contracts are amortized as a level percentage of the present value of
anticipated gross profits from investment yields, mortality, and surrender
charges. The effect on the deferred policy acquisition costs that would result
from realization of unrealized gains (losses) is recognized with an offset to
net unrealized gains (losses) in consolidated stockholders' equity as of the
balance sheet date. It is possible that a change in interest rates could have a
significant impact on the deferred policy acquisition costs calculated for these
contracts.
Deferred policy acquisition costs associated with property and casualty
insurance business consist principally of commissions, underwriting and issue
costs. These costs are amortized over the coverage period of the related
policies, in relation to premium revenue recognized.
FUTURE POLICY BENEFITS--For traditional products, liabilities for future
policy benefits have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality, and other assumptions that
were appropriate at the time that the policies were issued. Estimates used are
based on the companies' experience, as adjusted to provide for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs
significantly from the assumed, the estimates are revised for current and future
issues.
Future policy benefits for universal life and investment-type contracts
reflect the current account value before applicable surrender charges. In the
near term, it is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
RECOGNITION OF PREMIUM REVENUE AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH--Life and accident and health
premium is recognized as revenue when due. Benefits and expenses are associated
with earned premiums to result in recognition of profits over the life of the
policy contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
ANNUITIES--Revenues from annuity contracts represent amounts assessed
against contract holders. Such assessments are principally surrender charges
and, in the case of variable annuities, administrative fees. Policy account
balances for annuities represent the premiums received plus accumulated interest
less applicable accumulated administrative fees. It is possible that a
70
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
change in interest rates could have a significant impact on the values
calculated for these contracts.
UNIVERSAL LIFE AND SINGLE PREMIUM WHOLE LIFE--Revenues from universal
life policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges actually paid, and earned policy service fees. Policyholder
account balances consist of the premiums received plus credited interest, less
accumulated policyholder assessments. Amounts included in expense represent
benefits in excess of account balances returned to policyholders.
PROPERTY AND CASUALTY--Property and casualty premiums are recognized
proportionately as revenue over the contract period. Policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims, and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case basis estimates for reported losses and experience for claims
incurred but not reported. These loss reserves are reported net of an allowance
for salvage and subrogation. Management believes that American National's
reserves have been appropriately calculated, based on available information as
of December 31, 1998. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to
participating policyowners is based upon a comparison of experienced rates of
mortality, interest and expenses, as determined periodically for representative
plans of insurance, issue ages and policy durations, with the corresponding
rates assumed in the calculation of premiums. Participating business comprised
approximately 2.7% of the life insurance in force at December 31, 1998 and 5.1%
of life premiums in 1998.
FEDERAL INCOME TAXES--American National and all but one of its
subsidiaries will file a consolidated life/non-life federal income tax return
for 1998. Alternative Benefit Management, Inc files a separate return. In 1997,
Garden State Life Insurance Company filed a separate return.
Deferred federal income tax assets and liabilities have been recognized
to reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
SEPARATE ACCOUNT ASSETS AND LIABILITIES--The separate account assets and
liabilities represent funds maintained to meet the investment objectives of
contract holders who bear the investment risk. The investment income and
investment gains and losses from these separate funds accrue directly to the
contract holders of the policies supported by the separate accounts. The assets
of each separate account are legally segregated, and are not subject to claims
that arise out of any other business of American National. The assets of these
accounts are carried at market value. Deposits, net investment income and
realized investment gains and losses for these accounts, are excluded from
revenues, and related liability increases are excluded from benefits and
expenses in this report.
NET INCOME PER COMMON SHARE--Net income per common share is based on the
weighted average number of shares outstanding (26,479,165 shares for 1998 and
1997).
71
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(3) INVESTMENTS
The amortized cost and estimated market values of investments in held-
to-maturity and available-for-sale securities are shown below (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 166,206 $ 5,503 $ -- $ 171,709
States and political subdivisions 39,427 692 (24) 40,095
Foreign governments 106,924 9,436 -- 116,360
Public utilities 1,210,677 73,784 (135) 1,284,326
All other corporate bonds 1,914,950 132,731 (491) 2,047,190
Mortgage-backed securities 127,790 8,344 (1) 136,133
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,565,974 230,490 (651) 3,795,813
- ------------------------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 71,579 1,368 -- 72,947
Foreign governments 42,780 4,758 -- 47,538
Public utilities 230,534 16,738 -- 247,272
All other corporate bonds 328,132 25,310 (381) 353,061
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 673,025 48,174 (381) 720,818
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,238,999 278,664 (1,032) 4,516,631
- ------------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,264 2,427 (27) 41,664
Common stock 619,197 473,099 (40,370) 1,051,926
- ------------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities 658,461 475,526 (40,397) 1,093,590
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments in securities $ 4,897,460 $ 754,190 $ (41,429) $ 5,610,221
====================================================================================================================================
DECEMBER 31, 1997
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 180,156 $ 5,662 $ (220) $ 185,598
States and political subdivisions 11,367 261 (15) 11,613
Foreign governments 121,643 7,147 -- 128,790
Public utilities 1,198,814 39,353 (2,374) 1,235,793
All other corporate bonds 1,885,700 85,963 (1,925) 1,969,738
Mortgage-backed securities 208,247 12,809 (2) 221,054
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,605,927 151,195 (4,536) 3,752,586
- ------------------------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 49,990 1,348 -- 51,338
Foreign governments 47,141 4,328 -- 51,469
Public utilities 185,078 12,330 -- 197,408
All other corporate bonds 280,860 19,311 (6) 300,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 563,069 37,317 (6) 600,380
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,168,996 188,512 (4,542) 4,352,966
- ------------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,313 1,510 (79) 40,744
Common stock 575,058 331,280 (23,474) 882,864
- ------------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities 614,371 332,790 (23,553) 923,608
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments in securities $ 4,783,367 $ 521,302 $ (28,095) $ 5,276,574
====================================================================================================================================
</TABLE>
72
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
DEBT SECURITIES--The amortized cost and estimated market value, by
contractual maturity of debt securities at December 31, 1998, are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- --------------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 20,555 $ 20,665 $ -- $ --
Due after one year through
five years 781,869 823,428 198,820 212,534
Due after five years through
ten years 2,600,777 2,780,095 448,940 481,640
Due after ten years 34,984 35,494 25,265 26,644
- --------------------------------------------------------------------------------
3,438,185 3,659,682 673,025 720,818
Without single maturity date 127,789 136,131 -- --
- --------------------------------------------------------------------------------
$ 3,565,974 $3,795,813 $673,025 $720,818
================================================================================
</TABLE>
Proceeds from sales of investments in securities classified as available
- -for-sale (bonds and stocks) were $317,556,000 for 1998. Gross gains of
$71,935,000 and gross losses of $36,975,000 were realized on those sales.
Included in the proceeds from sales of available-for-sale securities are
$40,454,000 of proceeds from the sale of bonds that had been reclassified from
bonds held-to-maturity. The bonds had been reclassified due to evidence of a
significant deterioration in the issuer's credit-worthiness. The net gain from
the sale of these bonds was $1,073,000.
Bonds were called by the issuers during 1998, which resulted in proceeds
of $89,205,000 from the disposal. Gross gains of $747,000 were realized on those
disposals.
Proceeds from sales of investments in securities classified as available
- -for-sale (bonds and stocks) were $331,679,000 for 1997. Gross gains of
$118,985,000 and gross losses of $12,301,000 were realized on those sales. Bonds
were called by the issuers during 1997, which resulted in proceeds from the
disposal of $11,442,000. Gross gains of $531,000 were realized on those
disposals.
All gains and losses were determined using specific identification of
the securities sold.
UNREALIZED GAINS ON SECURITIES--Unrealized gains on marketable equity
securities and bonds available-for-sale, presented in the stockholders' equity
section of the consolidated statements of financial position, are net of
deferred tax liabilities of $160,912,000 and $116,062,000 for 1998 and 1997,
respectively.
The change in the net unrealized gains on investments for the years
ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds available-for-sale $ 10,482 $ 13,391
Preferred stocks 969 352
Common stocks 124,923 71,152
Amortization of deferred policy acquisition costs (8,229) (3,863)
- --------------------------------------------------------------------------------
128,145 81,032
Provision for federal income taxes (44,852) (28,501)
- --------------------------------------------------------------------------------
$ 83,293 $ 52,531
================================================================================
</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, 1998, mortgage loans have both fixed rates
from 5.75% to 12.5% and variable rates from 6.25% to 10.25%. The majority of the
mortgage loan contracts require periodic payments of both principal and
interest, and have amortization periods of 3 to 31 years.
American National has investments in first lien mortgage loans on real
estate with carried values of $1,025,683,000 and $1,103,333,000 at December 31,
1998 and 1997, respectively. Problem loans, on which impairment allowances were
established, totaled $2,995,000 and $6,493,900 at December 31, 1998 and 1997,
respectively.
POLICY LOANS--Policy loans have interest rates ranging from 2.75% to 8%.
Approximately 99% of the policy loan portfolio carried interest rates of 5% to
8% at December 31, 1998.
73
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Investment income and
realized gains (losses) from disposals of investments, before federal income
taxes, for the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENT GAINS (LOSSES) FROM
INCOME DISPOSALS OF INVESTMENTS
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $317,481 $303,426 $ 2,614 $ 530
Preferred stocks 2,584 3,173 1 21
Common stocks 16,774 18,977 33,092 106,662
Mortgage loans 97,871 109,165 1,248 (1,277)
Real estate 80,138 84,344 1,338 (5,977)
Other invested assets 29,123 26,872 (564) (83)
Investment in unconsolidated
affiliates -- -- 29 (79)
- --------------------------------------------------------------------------------
543,971 545,957 37,758 99,797
Investment expenses (68,729) (73,062) -- --
Decrease in valuation
allowances -- -- 12,010 3,523
- --------------------------------------------------------------------------------
$475,242 $472,895 $49,768 $103,320
================================================================================
</TABLE>
(4) CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest
return possible commensurate with sound and prudent underwriting practices to
ensure a well-diversified investment portfolio.
BONDS:
American National's bond portfolio is of high investment quality and is
well diversified. The bond portfolio distributed by quality rating at December
31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 9% 8%
AA 14% 13%
A 55% 56%
BBB & below 22% 23%
- --------------------------------------------------------------------------------
100% 100%
================================================================================
</TABLE>
COMMON STOCK:
American National's stock portfolio by market sector distribution at
December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Basic materials 4% 8%
Capital goods 7% 10%
Consumer goods 18% 18%
Energy 5% 7%
Finance 11% 9%
Technology 16% 12%
Health care 24% 21%
Miscellaneous 15% 15%
- --------------------------------------------------------------------------------
100% 100%
================================================================================
</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
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings 21% 21% 19% 19%
Shopping centers 56% 56% 40% 40%
Commercial 3% 3% 14% 15%
Apartments 1% 2% 3% 3%
Hotels/motels 3% 3% 16% 16%
Industrial 13% 12% 4% 4%
Other 3% 3% 4% 3%
- --------------------------------------------------------------------------------
100% 100% 100% 100%
================================================================================
</TABLE>
74
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
American National has a well-diversified portfolio of mortgage loans and
real estate properties. Mortgage loans and real estate investments by geographic
distribution at December 31 are as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas 18% 18% 41% 45%
South Central, except Texas 2% 2% 1% 1%
California 11% 11% 8% 7%
Western, except California 7% 6% 4% 4%
Southeastern 9% 10% 22% 22%
North Central U.S. 8% 10% 15% 14%
North Eastern U.S. 45% 43% 9% 7%
- --------------------------------------------------------------------------------
100% 100% 100% 100%
================================================================================
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in developing the estimates of fair
value. Accordingly, these estimates are not necessarily indicative of the
amounts that could be realized in a current market exchange, or the amounts that
may ultimately be realized. The use of different market assumptions or
estimating methodologies may have a material effect on the estimated market
values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values
from published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market
prices obtained from independent pricing services.
MORTGAGE LOANS:
The market value for mortgage loans is estimated using discounted cash
flow analyses based on interest rates currently being offered for comparable
loans. Loans with similar characteristics are aggregated for purposes of the
analyses.
POLICY LOANS:
The carrying amounts for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amounts for short-term investments approximates their
market value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in
duration, and the market value was not significant at December 31, 1998 or 1997.
VALUES:
The carrying amounts and estimated market values of financial
instruments at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds:
Held-to-maturity $3,565,974 $3,795,813 $3,605,927 $3,752,586
Available-for-sale 720,818 720,818 600,380 600,380
Preferred stock 41,664 41,664 40,744 40,744
Common stock 1,051,926 1,051,926 882,864 882,864
Mortgage loans on real estate 1,025,683 1,158,033 1,103,333 1,229,078
Policy loans 296,109 296,109 300,574 300,574
Short-term investments 90,368 90,368 126,786 126,786
Financial liabilities:
Investment contracts 1,736,223 1,736,223 1,867,233 1,867,233
- --------------------------------------------------------------------------------
</TABLE>
75
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended
December 31, 1998 and 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $624,012 $107,192 $ 7,819 $ 739,023
- --------------------------------------------------------------------------------
Additions 105,268 21,373 24,336 150,977
Amortization (92,830) (23,553) (22,327) (138,710)
Effect of change in
unrealized gains on
available-for-sale
securities (3,863) (3,863)
- -------------------------------------------------------------------------------
Net change 8,575 (2,180) 2,009 8,404
Acquisitions 752 162 -- 914
- -------------------------------------------------------------------------------
Balance at December 31, 1997 633,339 105,174 9,828 748,341
- -------------------------------------------------------------------------------
Additions 87,660 25,897 25,764 139,321
Amortization (98,017) (26,940) (24,159) (149,116)
Effect of change in
unrealized gains on
available-for-sale
securities (8,229) (8,229)
- -------------------------------------------------------------------------------
Net change (18,586) (1,043) 1,605 (18,024)
Acquisitions 782 604 -- 1,386
- -------------------------------------------------------------------------------
Balance at December 31, 1998 $615,535 $104,735 $ 11,433 $ 731,703
================================================================================
1998 premiums $340,286 $393,602 $354,820 $1,088,708
================================================================================
1997 premiums $348,973 $378,621 $312,987 $1,040,581
================================================================================
</TABLE>
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios
under assumption reinsurance agreements.
(7) FUTURE POLICY BENEFITS
LIFE INSURANCE:
Interest assumptions used in the calculation of future policy benefits
for life policies are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- --------------------------------------------------------------------------------
<S> <C> <C>
ORDINARY--
1996-1998 7.5% for years 1 through 5, graded to 5.5% at the
end of year 25, and level thereafter 2%
1981-1995 8% for years 1 through 5, graded to 6% at the end
of year 25, and level thereafter 20%
1976-1981 7% for years 1 through 5, graded to 5% at the end
of year 25, and level thereafter 22%
1972-1975 6% for years 1 through 5, graded to 4% at the end
of year 25, and level thereafter 9%
1969-1971 6% for years 1 through 5, graded to 3.5% at the
end of year 30, and level thereafter 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5% at the
end of year 15, and level thereafter 13%
1948-1961 4% for years 1 through 5,graded to 3.5% at the
end of year 10, and level thereafter 13%
1947 and prior Statutory rates of 3% or 3.5% 2%
INDUSTRIAL--
1948-1967 4% for years 1 through 5, graded to 3.5% at the end
of year 10, and level thereafter 6%
1947 and prior Statutory rates of 3% 6%
- --------------------------------------------------------------------------------
100%
================================================================================
</TABLE>
Future policy benefits for universal life are calculated from the
current account value.
Future policy benefits for other policies have been calculated using
level interest rates principally as follows: annuities at 6% and group at 4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies
are calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
76
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(8) LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for accident and health, and property and
casualty unpaid claims and claim adjustment expenses is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $249,639 $222,996
Less reinsurance recoverables 2,567 2,439
- --------------------------------------------------------------------------------
Net balance at January 1 247,072 220,557
- --------------------------------------------------------------------------------
Incurred related to:
Current year 598,681 515,202
Prior years (6,592) (1,098)
- --------------------------------------------------------------------------------
Total incurred 592,089 514,104
- --------------------------------------------------------------------------------
Paid related to:
Current year 411,352 343,333
Prior years 158,879 144,256
- --------------------------------------------------------------------------------
Total paid 570,231 487,589
- --------------------------------------------------------------------------------
Net balance at December 31 268,930 247,072
Plus reinsurance recoverables 11 2,567
- --------------------------------------------------------------------------------
Balance at December 31 $268,941 $249,639
================================================================================
</TABLE>
The balances at December 31 are included in policy and contract claims
on the consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure
portions of certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
American National evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies. At December 31,
1998, amounts recoverable from reinsurers, with a carrying value of $93,551,000,
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. American
National holds collateral related to these credit reinsurers totaling
$71,554,000. This collateral is in the form of custodial accounts controlled by
American National, which can be drawn on for amounts that remain unpaid for more
than 120 days. American National believes that the failure of any single
reinsurer to meet its obligations would not have a significant effect on its
financial position or results of operations.
Premiums, premium reinsurance amounts and reinsurance recoveries for the
years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Direct premiums $ 1,201,189 $ 1,134,615
Reinsurance premiums assumed from other companies 42,403 25,146
Reinsurance premiums ceded to other companies (154,884) (119,180)
- --------------------------------------------------------------------------------
Net premiums $ 1,088,708 $ 1,040,581
================================================================================
Reinsurance recoveries $ 88,240 $ 56,535
================================================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Direct life insurance in force $44,134,974 $43,143,187
Reinsurance risks assumed from other companies 713,200 662,171
- --------------------------------------------------------------------------------
Total life insurance in force 44,848,174 43,805,358
Reinsurance risks ceded to other companies (7,965,042) (6,985,956)
- --------------------------------------------------------------------------------
Net life insurance in force $36,883,132 $36,819,402
================================================================================
</TABLE>
(10) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when
applying the statutory federal income tax rate. A reconciliation of the
effective tax rate of the companies to the statutory federal income tax rate
follows (in thousands, except percentages):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax on pre-tax income $95,861 35.00 % $130,558 35.00 %
Tax-exempt investment income (971) (0.35)% (383) (0.10)%
Dividend exclusion (5,044) (1.84)% (3,046) (0.82)%
Exempted losses on sale of assets (9,856) (3.60)% -- -- %
Miscellaneous tax credits, net (1,467) (0.54)% (1,238) (0.33)%
Other items, net (2,032) (0.74)% (1,226) (0.33)%
- --------------------------------------------------------------------------------
$76,491 27.93 % $124,665 33.42 %
================================================================================
</TABLE>
77
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Investment in bonds, real estate and other invested
assets, principally due to investment valuation
allowances $ 10,656 $ 11,858
Policyowner funds, principally due to policy
reserve discount 78,279 81,935
Policyowner funds, principally due to unearned
premium reserve 10,020 9,527
Other assets 2,649 6,701
- --------------------------------------------------------------------------------
Total gross deferred tax assets $ 101,604 $ 110,021
Less valuation allowance (3,000) (3,000)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 98,604 $ 107,021
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Marketable equity securities, principally due to
net unrealized gains on stock $(151,396) $(107,767)
Investment in bonds, principally due to accrual
of discount on bonds (17,390) (16,312)
Deferred policy acquisition costs, due to
difference between GAAP and tax (177,057) (185,903)
Property, plant and equipment, principally due to
difference between GAAP and tax depreciation methods (12,004) (12,563)
Other liabilities -- (82)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $(357,847) $(322,627)
- --------------------------------------------------------------------------------
Total deferred tax $(259,243) $(215,606)
================================================================================
</TABLE>
Through 1983, under the provision of the Life Insurance Company Income
Tax Act of 1959, life insurance companies were permitted to defer from taxation
a portion of their income (within certain limitations) until and unless it is
distributed to stockholders, at which time it was taxed at regular corporate tax
rates. No provision for deferred federal income taxes applicable to such untaxed
income has been made, because management is of the opinion that no distributions
of such untaxed income (designated by federal law as "policyholders' surplus")
will be made in the foreseeable future. There was no change in the
"policyholders' surplus" between December 31, 1997 and December 31, 1998, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $111,465,000 and
$136,212,000 were paid to the Internal Revenue Service in 1998 and 1997,
respectively. The statute of limitations for examination by the Internal Revenue
Service of federal income tax returns through 1994 for American National and its
subsidiaries has expired. All prior year deficiencies have been paid or provided
for, and American National has filed appropriate claims for refunds through
1995. In the opinion of management, adequate provision has been made for any tax
deficiencies that may be sustained.
(11) COMPONENTS OF COMPREHENSIVE INCOME
The only item included in comprehensive income, other than net income,
is unrealized gains. The details on the unrealized gains included in
comprehensive income, and the related tax effects thereon are as follows:
<TABLE>
<CAPTION>
FEDERAL
INCOME NET OF
BEFORE TAX FEDERAL
FEDERAL EXPENSE INCOME
TAX (BENEFIT) TAX
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Unrealized gains 163,103 57,086 106,017
Less: reclassification adjustment for gains
realized in net income (34,960) (12,236) (22,724)
- --------------------------------------------------------------------------------
Net unrealized gains component of comprehensive
income 128,143 44,850 83,293
DECEMBER 31, 1997
Unrealized gains 187,501 65,625 121,876
Less: reclassification adjustment for gains
realized in net income (106,684) (37,339) (69,345)
- --------------------------------------------------------------------------------
Net unrealized gains component of comprehensive
income 80,817 28,286 52,531
================================================================================
</TABLE>
78
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(12) STOCKHOLDERS' EQUITY
American National has only one class of common stock, no preferred stock
and no options which could be converted into common or preferred stock. At
December 31, 1998 and 1997, American National had 50,000,000 authorized shares
of $1.00 par value common stock. At December 31, 1998 and 1997, issued shares
were 30,832,449; treasury shares were 4,353,284; and outstanding shares were
26,479,165.
American National's payment of dividends to stockholders is restricted
by statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity, as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1998, approximately $571,986,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(13) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business. Management organizes the business around its marketing
distribution channels. Separate management of each segment is required because
each business unit is subject to different marketing strategies. There are eight
operating segments based on the company's marketing distribution channels.
The operating segments are as follows:
MULTIPLE LINE MARKETING -- This segment derives its revenues from the
sale of individual life, annuity, accident and health, and property and casualty
products marketed through American National Insurance Company, ANTEX, ANPAC,
ANGIC, and ANPAC Lloyds.
HOME SERVICE DIVISION -- This segment derives its revenues from the sale
of individual life, annuity, and accident and health insurance using a system
where the agents collect the premiums.
Independent Marketing -- This segment derives its revenues mainly from
the sale of life and annuity lines marketed through independent marketing
organizations.
HEALTH DIVISION -- This segment derives its revenues primarily from the
sale of accident and health insurance, plus group life insurance marketed
through group brokers and third party marketing organizations.
CREDIT INSURANCE DIVISION -- This segment derives its revenues
principally from the sale of credit life and credit accident and health
insurance.
SENIOR AGE MARKETING -- This segment derives its revenues primarily from
the sale of Medicare supplement plans, individual life, annuities, and accident
and health insurance marketed through Standard Life and Accident Insurance
Company.
DIRECT MARKETING -- This segment derives its revenues principally from
the sale of individual life insurance, marketed through Garden State Life
Insurance Company, using direct selling methods.
CAPITAL AND SURPLUS -- This segment derives its revenues principally
from investment instruments.
ALL OTHER -- This category comprises segments that are too small to show
individually. This category includes non-insurance, reinsurance assumed, and
retirement benefits.
All income and expense amounts specifically attributable to policy
transactions are recorded directly to the appropriate line of business within
each segment. Income and expenses, which are not specifically attributable to
policy transactions, are allocated to the lines within each segment as follows:
Net investment income from fixed income assets (bonds and mortgage loans
on real estate) is allocated based on the funds generated by each line at the
average yield available from these fixed income assets at the time such funds
become available. Net investment income from all other assets is allocated to
capital and surplus to arrive at an underwriting gain from operations. A portion
of the income allocated to capital and surplus is then reallocated to the other
segments in accordance with the amount of equity invested in each segment.
Expenses are allocated to the lines based upon various factors,
including premium and commission ratios within the respective operating
segments.
79
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Gain or loss on the sale of investments and equity in earnings of
unconsolidated affiliates is allocated to capital and surplus.
Federal income taxes have been applied to the net earnings of each
segment, based on a fixed tax rate. Any difference between the amount allocated
to the segments and the total federal income tax amount is allocated to capital
and surplus.
The following tables summarize net income and various components of net
income by operating segment for the years ended December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
OPERATIONS
GAIN FROM INVESTMENT BEFORE FEDERAL
PREMIUM EXPENSES INCOME EQUITY IN FEDERAL INCOME TAX
AND OTHER INTEREST AND GAIN FROM ON UNCONSOLIDATED INCOME EXPENSES
REVENUE REVENUE BENEFITS OPERATIONS EQUITY AFFILIATES TAXES (BENEFIT) NET INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Multiple Line Marketing $ 452,146 $ 72,110 $ 488,842 $ 35,414 $ 22,953 $ -- $ 58,367 $ 19,261 $ 39,106
Home Service 203,975 88,759 252,445 40,289 33,429 -- 73,718 24,327 49,391
Independent Marketing 69,714 109,604 184,655 (5,337) 12,675 -- 7,338 2,422 4,916
Health 211,249 3,175 240,194 (25,770) 4,674 -- (21,096) (6,962) (14,134)
Credit Insurance 57,727 5,743 61,181 2,289 9,472 -- 11,761 3,881 7,880
Senior Age Marketing 162,161 10,132 169,929 2,364 7,628 -- 9,992 3,297 6,695
Direct Marketing 26,619 3,050 24,035 5,634 539 -- 6,173 2,037 4,136
Capital and Surplus 81,471 123,520 761 204,230 (96,272) 8,048 116,006 24,390 91,616
All other 38,851 24,659 56,782 6,728 4,902 -- 11,630 3,838 7,792
- ------------------------------------------------------------------------------------------------------------------------------------
$1,303,913 $440,752 $1,478,824 $265,841 $ -- $8,048 $273,889 $ 76,491 $197,398
====================================================================================================================================
1997
Multiple Line Marketing $ 408,184 $ 72,259 $ 427,132 $ 53,311 $ 21,229 $ -- $ 74,540 $ 24,598 $ 49,942
Home Service 209,082 89,638 249,127 49,593 33,064 -- 82,657 27,277 55,380
Independent Marketing 70,590 112,032 178,419 4,203 13,604 -- 17,807 5,876 11,931
Health 185,057 3,088 200,797 (12,652) 3,966 -- (8,686) (2,866) (5,820)
Credit Insurance 54,363 5,677 57,847 2,193 8,895 -- 11,088 3,659 7,429
Senior Age Marketing 168,685 15,030 182,914 801 8,298 -- 9,099 3,003 6,096
Direct Marketing 26,615 2,972 26,712 2,875 542 -- 3,417 1,128 2,289
Capital and Surplus 145,403 109,104 3,430 251,077 (94,679) 9,333 165,731 56,258 109,473
All other 36,859 25,266 49,837 12,288 5,081 -- 17,369 5,732 11,637
- ------------------------------------------------------------------------------------------------------------------------------------
$1,304,838 $435,066 $1,376,215 $363,689 $ -- $9,333 $373,022 $124,665 $248,357
====================================================================================================================================
</TABLE>
80
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
There were no significant non-cash items to report. Substantially all of
the Company's revenues are derived in the U.S.
The majority of the operating segments provide essentially the same
types of products. The following tables provide revenues within each segment by
line of business for the years ended December 31, 1998 and 1997 (in thousands):
TOTAL REVENUES (INCLUDING INTEREST INCOME)
<TABLE>
<CAPTION>
ACCIDENT & PROPERTY & ALL TOTAL
LIFE ANNUITY HEALTH CASUALTY CREDIT OTHER REVENUES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Multiple Line Marketing $121,829 $ 16,826 $ 20,232 $365,369 $ -- $ -- $ 524,256
Home Service 279,531 4,410 8,793 -- -- -- 292,734
Independent Marketing 5,328 173,990 -- -- -- -- 179,318
Health Insurance 3,802 -- 210,622 -- -- -- 214,424
Credit Insurance -- -- -- -- 63,470 -- 63,470
Senior Age Marketing 32,821 1,583 137,889 -- -- -- 172,293
Direct Marketing 29,042 165 462 -- -- -- 29,669
Capital and Surplus -- -- -- -- -- 204,991 204,991
All other 31,996 18,962 1,977 -- -- 10,575 63,510
- ------------------------------------------------------------------------------------------------------------------------------------
$504,349 $215,936 $379,975 $365,369 $63,470 $215,566 $1,744,665
====================================================================================================================================
1997
Multiple Line Marketing $120,083 $ 16,728 $ 20,008 $323,624 $ -- $ -- $ 480,443
Home Service 284,698 4,675 9,347 -- -- -- 298,720
Independent Marketing 3,525 179,097 -- -- -- -- 182,622
Health Insurance 3,224 -- 184,920 -- -- -- 188,144
Credit Insurance -- -- -- -- 60,040 -- 60,040
Senior Age Marketing 34,583 1,549 147,583 -- -- -- 183,715
Direct Marketing 28,901 176 510 -- -- -- 29,587
Capital and Surplus -- -- -- -- -- 254,507 254,507
All other 33,331 17,684 2,791 -- -- 8,319 62,125
- ------------------------------------------------------------------------------------------------------------------------------------
$508,345 $219,909 $365,159 $323,624 $60,040 $262,826 $1,739,903
====================================================================================================================================
</TABLE>
Within all operating segments, to the extent required for reserves,
fixed income assets and policy loans have been directly assigned to the
insurance lines. Equity type assets, such as stocks, real estate and other
invested assets, have been allocated to the segments, based on the equity
invested in each. Assets of the non-insurance companies are specifically
associated with those companies in the "All other" segment. Any assets not
allocated are assigned to Capital and Surplus.
81
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The following table summarizes assets by operating segment for the years
ended December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Multiple Line Marketing $1,513,396 $1,425,919
Home Service 1,760,415 1,741,155
Independent Marketing 1,761,832 1,874,000
Health 170,301 140,179
Credit Insurance 372,787 355,789
Senior Age Marketing 330,631 326,235
Direct Marketing 83,759 76,939
Capital and surplus 2,232,612 2,066,779
All other 589,919 476,781
- --------------------------------------------------------------------------------
Total assets $8,815,652 $8,483,776
================================================================================
</TABLE>
The net assets of the Capital and Surplus segment include investments in
unconsolidated affiliates. Substantially all of the company's assets are located
in the U.S.
The amount of each segment item reported is the measure reported to the
chief operating decision maker for purposes of making decisions about allocating
resources to the segment and assessing its performance. Adjustments and
eliminations made in preparing the financial statements and allocations of
revenues, expenses and gains or losses have been included in determining
reported segment profit or loss.
The reported measures are determined in accordance with the measurement
principles most consistent with those used in measuring the corresponding
amounts in the consolidated financial statements.
The results of the operating segments of the business are affected by
economic conditions and customer demands. A significant portion of American
National's insurance business is written through one third-party marketing
organization. During 1998, approximately 11% of the total premium revenues and
policy account deposits were written through that organization, which is
included in the Independent Marketing operating segment. This compares with 18%
in 1997. Of the total business written by this one organization, the majority
was annuities.
(14) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from those used to prepare financial statements on the basis of generally
accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as
determined using statutory accounting principles, to the amounts included in the
accompanying consolidated financial statements, as of and for the years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Statutory net income of insurance companies $ 155,368 $ 207,998
Net gain of non-insurance companies 15,240 2,592
- --------------------------------------------------------------------------------
Combined net income 170,608 210,590
Increases/(decreases):
Deferred policy acquisition costs (9,795) 12,267
Policyholder funds 18,702 7,963
Deferred federal income tax benefit 1,216 9,606
Premiums deferred and other receivables (84) 602
Gain (loss) on sale of investments (292) 79
Change in interest maintenance reserve 2,773 1,532
Asset valuation allowances 11,492 3,524
Other adjustments, net 2,854 2,218
Consolidating eliminations and adjustments (76) (24)
- --------------------------------------------------------------------------------
Net income reported herein $ 197,398 $ 248,357
================================================================================
1998 1997
- --------------------------------------------------------------------------------
Statutory capital and surplus of insurance
companies $2,163,593 $2,011,016
Stockholders equity of non-insurance companies 305,920 77,725
- --------------------------------------------------------------------------------
Combined capital and surplus 2,469,513 2,088,741
Increases/(decreases):
Deferred policy acquisition costs 731,703 748,341
Policyholder funds 154,445 135,262
Deferred federal income taxes (259,243) (215,606)
Premiums deferred and other receivables (78,139) (77,629)
Reinsurance in "unauthorized companies" 38,748 34,010
Statutory asset valuation reserve 344,926 370,102
Statutory interest maintenance reserve 10,762 7,989
Asset valuation allowances (28,489) (44,899)
Investment market value adjustments 48,656 39,050
Non-admitted assets and other adjustments, net 173,877 135,680
Consolidating eliminations and adjustments (692,147) (515,624)
- --------------------------------------------------------------------------------
Stockholders' equity reported herein $2,914,612 $2,705,417
================================================================================
</TABLE>
In accordance with various government and state regulations, American
National and its insurance subsidiaries had bonds with an amortized value of
$74,021,000 on deposit with appropriate regulatory authorities.
(15) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension
plan, which has three separate programs. One of the programs is contributory and
covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home office clerical employees subject to a collective bargaining
agreement. The program covering salaried and management employees provides
pension benefits that are based
82
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
on years of service and the employee's compensation during the five years before
retirement. The programs covering hourly employees and agents generally provide
benefits that are based on the employee's career average earnings and years of
service. American National also sponsors two non-tax-qualified pension plans for
key executives. These plans restore benefits that would otherwise be curtailed
by statutory limits on qualified plan benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense (before income taxes) produced
a pension debit of $3,051,000 for 1998 and $2,474,000 for 1997.
The pension debit is made up of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost--benefits earned during period $ 5,629 $ 5,402
Interest cost on projected benefit obligation 7,661 7,221
Expected return on plan assets (8,887) (8,795)
Amortization of past service cost 473 490
Amortization of transition asset (2,619) (2,619)
Amortization of actuarial loss 794 775
- --------------------------------------------------------------------------------
Total pension debit $ 3,051 $ 2,474
================================================================================
</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>
1998 1997
- --------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $ (76,916) $ (19,136) $ (71,811) $ (22,468)
================================================================================
Accumulated benefit
obligation $ (79,405) $ (19,136) $(75,492) $ (22,468)
================================================================================
Projected benefit obligation $ (96,812) $ (26,340) $(92,422) $ (22,616)
Plan assets at fair value
(long-term securities) 137,543 -- 129,380 --
- --------------------------------------------------------------------------------
Funded status:
Plan assets in excess of
projected benefit obligation 40,731 (26,340) 36,958 (22,616)
Unrecognized net loss 2,341 3,729 8,305 2,614
Prior service cost not yet
recognized in periodic
pension cost -- 1,028 -- 1,505
Unrecognized net transition
asset at January 1 being
recognized over 15 years (7,858) -- (10,477) --
- --------------------------------------------------------------------------------
Prepaid pension cost
included in other assets
or other liabilities $ 35,214 $ (21,583) $ 34,786 $ (18,497)
================================================================================
</TABLE>
Assumptions used at December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate on benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.80%
Expected long-term rate of return on plan assets 7.00% 7.00%
</TABLE>
OTHER BENEFITS
Under American National and its subsidiaries' various group benefit
plans for active employees, a $2,500 paid-up life insurance certificate is
provided upon retirement for eligible participants who meet certain age and
length of service requirements.
American National has one retiree health benefit plan for retirees of
all companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan. Participation in either of these plans is limited
to current retirees and their dependents and those employees and their
dependents who met certain age and length of service requirements as of December
31, 1993. No new participants will be added to these plans in the future.
83
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The retiree health benefit plans provide major medical benefits for
participants under the age of 65 and Medicare supplemental benefits for those
over 65. Prescription drug benefits are provided to both age groups. The plans
are contributory, with the company's contribution limited to $80 per month for
retirees and spouses under the age of 65, and $40 per month for retirees and
spouses over the age of 65. All additional contributions necessary, over the
amount to be contributed by the companies, are to be contributed by the
retirees.
The accrued post-retirement benefit obligation, included in other
liabilities, was $12,989,000 and $12,970,000 at December 31, 1998 and 1997,
respectively. These amounts were approximately equal to the unfunded accumulated
post-retirement benefit obligation. Since the companies' contributions to the
cost of the retiree benefit plans are fixed, the health care cost trend rate
will have no effect on the future expense or the accumulated post-retirement
benefit obligation.
(16) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various
cities for their insurance sales offices. The long-term lease commitments at
December 31, 1998 were approximately $5,620,000.
In the ordinary course of their operations, the companies also had
commitments outstanding at December 31, 1998 to purchase, expand or improve real
estate, and to fund mortgage loans aggregating $120,922,000, all of which are
expected to be funded in 1999. As of December 13, 1998, all of the mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged
failure to honor certain loan commitments, alleged breach of certain agency and
real estate contracts, various employment matters, allegedly deceptive insurance
sales and marketing practices, and other litigation arising in the ordinary
course of operations. Certain of these lawsuits include claims for compensatory
and punitive damages. Management is of the opinion, after reviewing the above
matters with legal counsel, that the ultimate liability, if any, resulting from
any of or all of the above matters would not have a material adverse effect on
the companies' consolidated financial position or results of operations.
However, these lawsuits are in various stages of development, and future facts
and circumstances could result in management changing its conclusions.
84
<PAGE>
APPENDIX
ILLUSTRATIONS OF DEATH BENEFITS, ACCUMULATION VALUES AND
SURRENDER VALUES
The tables on pages 89 through 92 illustrate how Accumulation Value, Surrender
Value and Death Benefit of a Policy may change with the investment performance
of the Eligible Portfolios. These illustrations are hypothetical and may not
be used to project or predict investment results. The illustrations assume:
. a gross annual investment rate of return (i.e. investment income and capital
gains and losses) of 0%, 6% or 12%,
. a $100,000 Specified Amount,
. the Insured is a male, age 45,
. the Policy is issued under a preferred tobacco non-user underwriting risk
classification,
. the premium is paid at the beginning of each Policy Year,
. all Accumulation Value is allocated to the Separate Account,
. no Policy Loans are made,
. no changes in the Specified Amount,
. no partial surrenders
. no riders
. no transfers to the Fixed Account,
. no more than twelve transfers among Subaccounts, and
. fees and expenses for the Eligible Portfolios at a hypothetical annual rate of
0.72% of net assets (the rate is a simple average, for all Eligible
Portfolios, of the "Management Fees" and "Other Expenses", indicated for each
Eligible Portfolio in the Eligible Portfolio Annual Expenses table. Certain
fee waiver and expense reimbursement arrangements exist and are reflected in
this average. Excluding the effect of these arrangements, the simple average
of the "Management Fees" and "Other Expenses" would be 0.83%).
The Accumulation Value, Surrender Value and Death Benefit shown in the
illustrations may be different if any of the above assumptions changed.
The second column of the tables shows the value of the premiums paid accumulated
at a 5% annual interest rate.
The tables on pages 87 and 89 are based on the current schedule of Monthly
Deductions. We may, however, change the current schedule of Monthly Deductions
at any time and for any reason. Accordingly, you should not construe the
tables as guarantees or estimates of amounts to be paid in the future.
85
<PAGE>
The tables on pages 88 and 90 are based on the assumption that the maximum
allowable Monthly Deductions are made throughout the life of the Policy.
The tables show that the net investment return of each subaccount is lower than
the gross return of the assets held in its corresponding Eligible Portfolio
because of the charges against the subaccounts.
Illustrations also reflect the Daily Asset Charge, which is levied against each
Subaccount at an annual rate of 1.25% of average daily Accumulation Value.
After adjustment to reflect the Daily Asset Charge and the average Eligible
Portfolio Annual Expenses, the illustrated hypothetical gross annual investment
rates of return of 0%, 6% and 12% correspond to approximate hypothetical net
annual rates of 1.97%, 4.03% and 10.03%.
The illustrations do not reflect any charges for federal income tax burden
attributable to the Separate Account, since we are not currently making such
charges. However, such charges may be made in the future, and, in that event,
the gross annual investment rate of return would have to exceed 0%, 6% or 12% by
an amount sufficient to cover the tax charges in order to produce the values
illustrated. (See "Federal Income Tax Considerations," page 35.)
If a Policy Loan is made, both Surrender Value and Death Benefit Proceeds will
be reduced by the amount of outstanding Policy Debt. Even if repaid, Policy Debt
may permanently affect the Policy's values. The effect could be favorable or
unfavorable depending on whether the investment performance of the
subaccount(s)/Fixed Account you selected is less than or greater than the
interest rate credited to the Accumulation Value held to secure the loan.
If a partial surrender is made, the surrender will immediately reduce the values
by the amount of the partial surrender, a $25 fee for each partial surrender and
any applicable surrender charge. If the Policy is surrendered, a surrender
charge may be imposed and the Policyowner may receive less than the total
premium paid. In the illustrations, the difference between the Accumulation
Value and the Surrender Value in any year is the surrender charge.
Upon request, we will provide a comparable illustration based upon the proposed
Insured's age, sex and underwriting classification, the Specified Amount, the
Death Benefit option, and Planned Periodic Premium schedule and any available
riders requested.
86
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 775507999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION A; SPECIFIED AMOUNT $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NONUSER
CURRENT SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,542 0 100,000 1,641 0 100,000 1,741 0 100,000
2 3,875 3,043 0 100,000 3,337 212 100,000 3,644 519 100,000
3 5,958 4,504 1,379 100,000 5,090 1,965 100,000 5,724 2,599 100,000
4 8,146 5,924 2,799 100,000 6,900 3,775 100,000 7,998 4,873 100,000
5 10,443 7,303 4,178 100,000 8,768 5,643 100,000 10,484 7,359 100,000
6 12,856 8,640 5,827 100,000 10,696 7,883 100,000 13,204 10,391 100,000
7 15,388 9,932 7,432 100,000 12,685 10,185 100,000 16,178 13,678 100,000
8 18,048 11,179 8,991 100,000 14,733 12,545 100,000 19,430 17,242 100,000
9 20,840 12,379 10,504 100,000 16,842 14,967 100,000 22,988 21,113 100,000
10 23,772 13,528 11,965 100,000 19,012 17,449 100,000 26,881 25,318 100,000
15 40,783 18,537 18,537 100,000 30,885 30,885 100,000 52,798 52,798 100,000
20 62,495 22,159 22,159 100,000 44,707 44,707 100,000 94,659 94,659 113,591
25 90,204 23,866 23,866 100,000 60,898 60,898 100,000 161,419 161,419 185,632
30 125,569 22,627 22,627 100,000 80,489 80,489 100,000 267,372 267,372 280,741
AGE 65 62,495 22,159 22,159 100,000 44,707 44,707 100,000 94,659 94,659 113,591
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option A the Death Benefit is the current
Specified Amount of the Policy or, if greater, the applicable corridor
percentage of Accumulation Value at the end of the Valuation Period that
includes the date of the Insured's death. Corridor percentages are specified in
the Policy. The Death Benefit at age 95 and thereafter equals the Accumulation
Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
87
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION A; SPECIFIED AMOUNT - $100,000
GUARANTEED SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,167 0 100,000 1,254 0 100,000 1,342 0 100,000
2 3,875 2,288 0 100,000 2,535 0 100,000 2,793 0 100,000
3 5,958 3,362 237 100,000 3,842 717 100,000 4,364 1,239 100,000
4 8,146 4,388 1,263 100,000 5,174 2,049 100,000 6,064 2,939 100,000
5 10,443 5,365 2,240 100,000 6,531 3,406 100,000 7,905 4,780 100,000
6 12,856 6,289 3,476 100,000 7,909 5,096 100,000 9,899 7,086 100,000
7 15,388 7,157 4,657 100,000 9,306 6,806 100,000 12,058 9,558 100,000
8 18,048 7,963 5,775 100,000 10,717 8,529 100,000 14,394 12,206 100,000
9 20,840 8,701 6,826 100,000 12,137 10,262 100,000 16,923 15,048 100,000
10 23,772 9,369 7,806 100,000 13,562 11,999 100,000 19,661 18,098 100,000
15 40,783 11,456 11,456 100,000 20,613 20,613 100,000 37,339 37,339 100,000
20 62,495 10,645 10,645 100,000 26,875 26,875 100,000 65,084 65,084 100,000
25 90,204 4,784 4,784 100,000 30,657 30,657 100,000 111,104 111,104 127,770
30 125,569 0 0 0 28,295 28,295 100,000 183,965 183,965 193,164
AGE 65 62,495 10,645 10,645 100,000 26,875 26,875 100,000 65,084 65,084 100,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option A the Death Benefit is the current
Specified Amount of the Policy or, if greater, the applicable corridor
percentage of Accumulation Value at the end of the Valuation Period that
includes the date of the Insured's death. Corridor percentages are specified in
the Policy. The Death Benefit at age 95 and thereafter equals the Accumulation
Value .
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED . ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
88
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION B; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
CURRENT SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,540 0 101,540 1,639 0 101,639 1,739 0 101,739
2 3,875 3,038 0 103,038 3,331 206 103,331 3,637 512 103,637
3 5,958 4,493 1,368 104,493 5,077 1,952 105,077 5,709 2,584 105,709
4 8,146 5,904 2,279 105,904 6,875 3,750 106,875 7,969 4,844 107,969
5 10,443 7,271 4,146 107,271 8,728 5,603 108,728 10,435 7,310 110,435
6 12,856 8,592 5,779 108,592 10,635 7,822 110,635 13,125 10,312 113,125
7 15,388 9,864 7,364 109,864 12,594 10,094 112,594 16,057 13,557 116,057
8 18,048 11,086 8,898 111,086 14,604 12,416 114,604 19,252 17,064 119,252
9 20,840 12,254 10,379 112,254 16,663 14,788 116,663 22,730 20,855 122,730
10 23,772 13,365 11,802 113,365 18,768 17,205 118,768 26,517 24,954 126,517
15 40,783 18,047 18,047 118,047 29,999 29,999 129,999 51,182 51,182 151,182
20 62,495 21,012 21,012 121,012 42,180 42,180 142,180 89,045 89,045 189,045
25 90,204 21,509 21,509 121,509 54,462 54,462 154,462 146,849 146,849 246,849
30 125,569 18,251 18,251 118,251 65,139 65,139 165,139 234,654 234,654 334,654
AGE 65 62,495 21,012 21,012 121,012 42,180 42,180 142,180 89,045 89,045 189,045
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option B the Death Benefit is the current
Specified Amount plus the Accumulation Value of the Policy or, if greater, the
applicable corridor percentage of Accumulation Value at the end of the Valuation
Period that includes the date of the Insured's death. Corridor percentages are
specified in the Policy. The Death Benefit at age 95 and thereafter equals the
Accumulation Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED . ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
89
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
VARIABLE UNIVERSAL LIFE INSURANCE II
DEATH BENEFIT OPTION B; SPECIFIED AMOUNT - $100,000
PREFERRED MALE ISSUE AGE 45
TOBACCO NON-USER
GUARANTEED SCHEDULE OF CHARGES
PLANNED PERIODIC PREMIUM OF $1,800 PAID AT THE BEGINNING OF EACH POLICY YEAR
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
VALUES BASED ON ASSUMED HYPOTHETICAL GROSS
ANNUAL INVESTMENT RATES OF RETURN OF
- ------------------------------------------------------------------------------------------------------------------------------------
0% 6% 12%
- ------------------------------------------------------------------------------------------------------------------------------------
END OF PREMIUMS
POLICY ACCUMULATED ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH ACCUMULATION SURRENDER DEATH
YEAR AT 5% VALUE VALUE BENEFIT VALUE VALUE BENEFIT VALUE VALUE BENEFIT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 1,890 1,162 0 101,162 1,249 0 101,249 1,336 0 101,336
2 3,875 2,273 0 102,273 2,519 0 102,519 2,775 0 102,775
3 5,958 3,332 207 103,332 3,808 683 103,808 4,325 1,200 104,325
4 8,146 4,339 1,214 104,339 5,115 1,990 105,115 5,993 2,868 105,993
5 10,443 5,289 2,164 105,289 6,436 3,311 106,436 7,788 4,663 107,788
6 12,856 6,181 3,368 106,181 7,768 4,955 107,768 9,718 6,905 109,718
7 15,388 7,008 4,508 107,008 9,105 6,605 109,105 11,789 9,289 111,789
8 18,048 7,765 5,577 107,765 10,439 8,251 110,439 14,007 11,819 114,007
9 20,840 8,446 6,571 108,446 11,763 9,888 111,763 16,379 14,504 116,379
10 23,772 9,044 7,481 109,044 13,068 11,505 113,068 18,913 17,350 118,913
15 40,783 10,602 10,602 110,602 19,007 19,007 119,007 34,315 34,315 134,315
20 62,495 8,897 8,897 108,897 22,650 22,650 122,650 54,914 54,914 154,914
25 90,204 2,010 2,010 102,010 20,935 20,935 120,935 80,883 80,883 180,883
30 125,569 0 0 0 8,494 8,494 108,494 110,660 110,660 210,660
AGE 65 62,495 8,897 8,897 108,897 22,650 22,650 122,650 54,914 54,914 154,914
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* GUARANTEED COVERAGE PREMIUM $1,260
Until age 95, under Death Benefit Option B the Death Benefit is the current
Specified Amount plus the Accumulation Value of the Policy or, if greater, the
applicable corridor percentage of Accumulation Value at the end of the Valuation
Period that includes the date of the Insured's death. Corridor percentages are
specified in the Policy. The Death Benefit at age 95 and thereafter equals the
Accumulation Value.
American National agrees to keep the Policy in force for the period stipulated
under the Guaranteed Coverage Benefit so long as the Guaranteed Coverage Premium
is paid and other Policy provisions are met even though, in certain instances,
the minimum payment allowed by the Policy will not, after the payment of Monthly
Deductions, generate positive Surrender Value at one or more points during such
period.
Accumulation Value, Surrender Value and Death Benefit may be different if
premiums are paid with a different frequency or timing or if of different
amounts. Illustration assumes no Policy loan or partial surrender has been made.
Zero values in the Death Benefit column indicate Policy lapse in the absence of
sufficient additional premium payment.
THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE ARE ILLUSTRATIVE ONLY
AND SHOULD NOT BE DEEMED A REPRESENTATION OF PAST OR FUTURE INVESTMENT RATES OF
RETURN NOR A SUGGESTION THAT SUCH RESULTS WILL BE ACHIEVED . ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE SHOWN AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS MADE BY A POLICYOWNER, DIFFERENT
RETURNS OF ELIGIBLE PORTFOLIOS, PREVAILING INTEREST RATES AND RATES OF
INFLATION. NO REPRESENTATIONS CAN BE MADE BY AMERICAN NATIONAL THAT THESE
HYPOTHETICAL RATES OF RETURN CAN BE ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER
ANY PERIOD OF TIME. ALTHOUGH THE ACTUAL RATES OF RETURN MAY AVERAGE 0%, 6%, or
12% OVER A PERIOD OF YEARS, IF THEY HAVE FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL POLICY YEARS THE ACCUMULATION VALUE, DEATH BENEFIT AND
SURRENDER VALUE WOULD BE DIFFERENT FROM THOSE SHOWN ABOVE.
90
<PAGE>
[Logo of American National Appears Here]
Form 7992 5-99
<PAGE>
UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned Registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
RULE 484 UNDERTAKING
Insofar as indemnification for liability arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
REPRESENTATION PURSUANT TO SECTION 26(e)(2)(A)
American National Insurance Company hereby represents that the fees and
charges deducted under the contracts described in this pre-effective amendment
are, in the aggregate, reasonable in relationship to the services rendered, the
expenses expected to be incurred, and the risks assumed by American National
Insurance Company.
CONTENTS OF REGISTRATION STATEMENT
This Registration Statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 90 pages.
Undertaking to file reports.
Rule 484 undertaking.
Representation pursuant to Section 26(e)(2)(A).
Signatures.
Written Consents
The following exhibits, corresponding to those required by the instructions
as to exhibits in Form N-8B-2:
II-1
<PAGE>
Exhibit 1 Resolution of the Board of Directors of American National
Insurance Company authorizing establishment of American National
Variable Life Separate Account (previously filed on March 4,
1998)
Exhibit 2 Not Applicable
Exhibit 3(a) Distribution and Administrative Services Agreement
(previously filed on March 4, 1998)
Exhibit 3(b) Not Applicable
Exhibit 3(c) Schedule of Sales Commissions (previously filed on March 4,
1998)
Exhibit 4 Not Applicable
Exhibit 5 Flexible Premium Variable Life Insurance Policy (previously
filed on March 4, 1998)
Exhibit 6(1) Articles of Incorporation of American National Insurance
Company (previously filed on March 4, 1998)
Exhibit 6(2) By-laws of American National Insurance Company (previously
filed on March 4, 1998)
Exhibit 7 Not Applicable
Exhibit 8(1) Form of American National Investment Accounts, Inc. Fund
Participation Agreement (previously filed on March 4, 1998)
Exhibit 8(2) Form of Variable Insurance Products Fund Fund Participation
Agreement (previously filed on March 4, 1998)
Exhibit 8(3) Form of Variable Insurance Products Fund II Fund
Participation Agreement (previously filed on March 4, 1998)
Exhibit 8(4) Form of Variable Insurance Products Fund III Fund
Participation Agreement (previously filed on March 4, 1998)
Exhibit 8(5) Form of T. Rowe Price Fund Participation Agreement
(previously filed on March 4, 1998)
Exhibit 9 Not Applicable
II-2
<PAGE>
Exhibit 10 Application Form (previously filed on March 4, 1998)
Exhibit 11 Independent Auditors' Consent
Exhibit 12 Opinion of Counsel
Exhibit 13 Consent of Counsel (included in Exhibit 12)
Exhibit 14 Actuarial Opinion
Exhibit 15 Actuarial Basis of Payment and Cash Value Adjustment Pursuant to
Rule 6e-3(T)(b)(V)(B) (previously filed on March 4, 1998)
Exhibit 16 Procedures Memorandum Pursuant to Rule 6e-3(T)(b)(12)(iii)
(previously filed on March 4, 1998)
Exhibit 27 Financial Data Schedule
II-3
<PAGE>
As required by the Securities Act of 1933, the Registrant certifies that it
meets all of the requirements of Securities Act Rule 485(b) for effectiveness of
this Post-Effective Amendment and has caused this amended registration statement
to be signed on its behalf, in the City of Galveston, and the State of Texas on
the 30/th/ day of April, 1999.
American National Variable Life Separate Account
(Registrant)
By: American National Insurance Company
By: /s/ Robert L. Moody
--------------------------------------
Robert L. Moody, Chairman of the Board,
President and Chief Executive Officer
American National Insurance Company
(Depositor)
By: /s/ Robert L. Moody
---------------------------------------------
Robert L. Moody, Chairman of the Board,
President and Chief Executive Officer
attest:
/s/ Vincent E. Soler, Jr.
- -----------------------------------
Vincent E. Soler, Jr.,
Vice President, Secretary and Treasurer
As required by the Securities Act of 1933, this amended registration
statement has been signed by the following persons in their capacities and on
the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael W. McCroskey
- ------------------------- Executive Vice President April 30, 1999
Michael W. McCroskey Investments (Principal
Financial Officer)
/s/ Stephen E. Pavlicek
- ----------------------- Senior Vice President and April 30, 1999
Stephen E. Pavlicek Controller
(Principal Accounting Officer)
II-4
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody
- ------------------------ Chairman of the Board, April 30, 1999
Robert L. Moody Director, President and Chief
Executive Officer
/s/ G. Richard Ferdinandtsen
- ------------------------ Director April 30, 1999
G. Richard Ferdinandtsen
/s/ Irwin M. Herz, Jr.
- ------------------------ Director April 30, 1999
Irwin M. Herz, Jr.
/s/ R. Eugene Lucas
- ------------------------ Director April 30, 1999
R. Eugene Lucas
- ------------------------ Director
E. Douglas McLeod
- ------------------------ Director
Frances Anne Moody
- ------------------------ Director
Russell S. Moody
- ------------------------ Director
W. L. Moody, IV
/s/ Joe Max Taylor
- ------------------------ Director April 30, 1999
Joe Max Taylor
II-5
<PAGE>
Exhibit 99.B11
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
April 30, 1999
<PAGE>
Exhibit 99.B12
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
Galveston, Texas 77550
Galveston (409) 765-5525
Houston (713) 480-5278
Telecopier (409) 766-6424
April 30, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judicial Plaza
Washington, D.C. 20549
RE: American National Variable Life Separate Account ("Separate Account")
Post-Effective Amendment No. 2 to Form S-6; File No. 333-47321;
Opinion and Consent of Counsel
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission ("Commission"). Accordingly, we are familiar
with the corporate records, certificates, and consents of officers of ANICO as
we have deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
<PAGE>
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
3. The Variable Life Insurance Contracts registered by this Registration
Statement under the Securities Act of 1933 (File No. 333-47321) will, upon
issuance thereof, be validly authorized and issued.
We hereby consent to the use of our opinion of counsel in the Post-
Effective Amendment No. 2 to Form S-6 Registration Statement (File No.
333-47321) filed on behalf of the Separate Account. We further consent to the
statements made regarding us and to the use of our name under the caption "Legal
Matters" in the prospectus constituting a part of such Post-Effective Amendment
No. 2 to such Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L.L.P.
/s/ Jerry L. Adams
--------------------------------
Jerry L. Adams
<PAGE>
Exhibit 99.B14
American National Insurance Company
REX D. HEMME, FSA, MAAA
Vice President and Actuary
Life Product Development
April 30, 1999
Securities and Exchange Commission
450 Fifth Street, N W
Washington, D.C. 20549
Dear Sir:
This opinion is furnished in connection with the filing of a Post-Effective
Amendment No. 2 to Registration Statement No. 333-47321 on Form S-6 Registration
Statement (the "Registration Statement"). The prospectus included in the
Registration Statement describes a certain Variable Universal Life II insurance
policy (the "Policy") that will be offered and sold by American National
Insurance Company. I am familiar with the Registration Statement, as amended,
and the exhibits thereto. In my opinion:
(1) The hypothetical illustrations of the Policy used in the Registration
Statement accurately reflect reasonable estimates of projected
performance of the Policy under the stipulated rates of investment
return, the contractual expense deductions and guaranteed cost-of-
insurance rates, and utilizing a reasonable estimation for expected
fund operating expenses.
(2) The rate structure of the Policy has not been designed so as to make
the relationship between premiums and benefits, as shown in the
illustrations referred to in (2) above, appear more favorable to a
prospective purchaser of a Policy meeting the criteria shown in the
illustrations, than to prospective purchasers of Policies for males at
other ages or underwriting classes or for females.
I hereby consent to the use of this opinion as an exhibit to the Registration
Statement and to the reference to my name under the heading "Experts" in the
prospectus included as a part of such Registration Statement.
Very truly yours,
Rex D. Hemme
- -------------------------------
Rex D. Hemme, FSA, MAAA
Vice President and Actuary Life Product Development
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
NATIONAL VARIABLE LIFE SEPARATE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> SEP-14-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,622
<INVESTMENTS-AT-VALUE> 1,705
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,705
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1,705
<DIVIDEND-INCOME> 1
<INTEREST-INCOME> 0
<OTHER-INCOME> 1
<EXPENSES-NET> 1
<NET-INVESTMENT-INCOME> 1
<REALIZED-GAINS-CURRENT> 7
<APPREC-INCREASE-CURRENT> 82
<NET-CHANGE-FROM-OPS> 90
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1,705
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
