<PAGE>
REGISTRATION NUMBERS: 333-10581
811-07600
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. 1 [X]
Post-Effective Amendment No. [ ]
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 8 [X]
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
(Address of Depositor's Principal Executive Offices)
(409) 763-4661
(Depositor's Telephone Number, including Area Code)
REX HEMME JERRY L. ADAMS
VICE PRESIDENT, ACTUARY GREER, HERZ & ADAMS, L.L.P.
AMERICAN NATIONAL WITH COPY TO: ONE MOODY PLAZA
INSURANCE COMPANY GALVESTON, TEXAS 77550
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
(Name and Address of Agent for Service)
================================================================================
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of the Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, the Registrant
has elected to register an indefinite amount of the securities being offered.
The filing fee of $500.00 that was at the time of filing required by Rule 24f-2
was paid with the initial filing.
================================================================================
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
1
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AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
CROSS REFERENCE SHEETS
----------------------
Cross reference sheet pursuant to Rule 495(a) of the Securities Act of
1933 showing location in the prospectuses and Statement of Additional
Information of items required by the Form N-4.
PART A ITEM CAPTION IN PROSPECTUS
- ----------- ---------------------
1. Cover Page
(a) (i) Cover Page
(a) (ii) Cover Page
(a) (iii) Cover Page
(a) (iv) Not Applicable
(a) (v)(A) Cover Page
(a) (v)(B) Cover Page
(a) (v)(C) Cover Page
(a) (vi) Cover Page
(a) (vii) Cover Page
(a) (viii) Cover Page
(a) (ix) Not Applicable
(b) Not Applicable
2. Definitions GLOSSARY OF TERMS
3. Synopsis
(a) SUMMARY OF EXPENSES--
Expenses during the
Accumulation Period
(b) SUMMARY OF THE CONTRACTS
(c) SUMMARY OF THE CONTRACTS
(d) Not Applicable
4. Condensed Financial Information
(a) Not Applicable
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(b) PERFORMANCE
(c) FINANCIAL STATEMENTS
5. General Description of Registrant, Depositor, and Portfolio Companies
(a) (i) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT -
American National
Insurance Company
(a) (ii) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT -
American National
Insurance Company
(a) (iii) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT -
American National
Insurance Company
(b) (i) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Separate Account
(b) (ii) (A) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Separate Account
(b) (ii) (B) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Separate Account
(b) (ii) (C) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Separate Account
(b) (iii) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Separate Account
(c) (i) Cover Page; AMERICAN
NATIONAL INSURANCE
COMPANY AND THE SEPARATE
ACCOUNT - The American
National Fund; AMERICAN
NATIONAL INSURANCE
ii
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COMPANY AND THE SEPARATE
ACCOUNT - The Fidelity
Funds
(c) (ii) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
American National Fund;
AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Fidelity Funds
(c) (iii) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
American National Fund;
AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT - The
Fidelity Funds
(d) Cover Page; AMERICAN
NATIONAL INSURANCE
COMPANY AND THE SEPARATE
ACCOUNT - The American
National Fund; AMERICAN
NATIONAL INSURANCE
COMPANY AND THE SEPARATE
ACCOUNT - The Fidelity
Funds
(e) VOTING RIGHTS
(f) DISTRIBUTOR OF THE
CONTRACTS
6. Deductions
(a) SUMMARY OF EXPENSES
Expenses During the
Accumulation Period;
AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT; CHARGES
AND DEDUCTIONS DURING THE
ACCUMULATION PERIOD
(b) SUMMARY OF EXPENSES -
Expenses During the
Accumulation Period;
CHARGES AND DEDUCTIONS
DURING THE ACCUMULATION
PERIOD
(c) CHARGES AND DEDUCTIONS
iii
<PAGE>
DURING THE ACCUMULATION
PERIOD - Exceptions to
Charges
(d) DISTRIBUTOR OF THE CONTRACTS
(e) SUMMARY OF EXPENSES
(f) SUMMARY OF EXPENSES
7. General Description of Variable Annuity Contracts
(a) DISTRIBUTIONS UNDER THE
CONTRACT - ACCUMULATION
PERIOD - Full and Partial
Surrenders; DISTRIBUTIONS
UNDER THE CONTRACT -
Accumulation Period -
Death Benefit During
Accumulation Period;
ANNUITY PERIOD
(b) (i) CONTRACTS - Contract
Application and Purchase
Payments; CONTRACTS -
Allocation of Purchase
Payments
(b) (ii) CONTRACTS - Contract
Application and Purchase
Payments; CONTRACTS -
Allocation of Purchase
Payments; CONTRACTS -
Transfers Prior to
Annuity Date
(b) (iii) Not Applicable
(c) (i) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT -
Addition, Deletion or
Substitution of
Investments; CONTRACTS -
Purpose of the Contracts
(c) (ii) AMERICAN NATIONAL
INSURANCE COMPANY AND THE
SEPARATE ACCOUNT -
Addition, Deletion or
Substitution of
Investments; CONTRACTS -
Purpose of the Contracts
(c) (iii) AMERICAN NATIONAL
iv
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INSURANCE COMPANY AND THE SEPARATE
ACCOUNT - Addition, Deletion or
Substitution of Investments; CONTRACTS -
Purpose of the Contracts
(d) CONTRACTS - Contractowner Inquiries
8. Annuity Period
(a) ANNUITY PERIOD - Annuity Provisions
(b) ANNUITY PERIOD - Election of Annuity Date
and Form of Annuity
(c) ANNUITY PERIOD - Annuity Options
(d) ANNUITY PERIOD - Value of Variable Annuity
Payments: Assumed Investment Rates
(e) CONTRACTS - Contract Application and
Purchase Payments; ANNUITY PERIOD
(f) ANNUITY PERIOD - Election of Annuity Date
and Form of Annuity; ANNUITY PERIOD -
Annuity Options
9. Death Benefit
(a) SUMMARY OF THE CONTRACTS - How the Death
Benefit Varies; DISTRIBUTIONS UNDER THE
CONTRACT - Death Benefit During
Accumulation Period; ANNUITY PERIOD -
Annuity Options
(b) DISTRIBUTIONS UNDER THE CONTRACT - Death
Benefit During Accumulation Period
v
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10. Purchases and Contract Value
(a) (i) CONTRACTS - Contract Application and
Purchase Payments
(a) (ii) CONTRACTS - Contract Application and
Purchase Payments; CONTRACTS -Allocation
of Purchase Payments; CONTRACTS -Crediting
of Accumulation Units
(a) (iii) (A) CONTRACTS - Crediting of Accumulation
Units
(a) (iii) (B) CONTRACTS - Determining the Accumulation
Unit Values
(a) (iii) (C) CONTRACTS - Crediting of Accumulation
Units; CONTRACTS - Determining the
Accumulation Unit Values
(b) CONTRACTS - Determining the Accumulation
Unit Values
(c) CONTRACTS - Crediting of Accumulation
Units; CONTRACTS - Determining the
Accumulation Unit Values
(d) DISTRIBUTOR OF THE CONTRACTS
11. Redemptions
(a) DISTRIBUTIONS UNDER THE CONTRACT -
Accumulation Period - Full and Partial
Surrenders; ANNUITY PERIOD
(b) Not Applicable
(c) Not Applicable
(d) DISTRIBUTIONS UNDER THE CONTRACT -
Accumulation
vi
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Period - Full and Partial Surrenders;
ANNUITY PERIOD
(e) Cover Page; CONTRACTS -Contract
Application and Purchase Payments
12. Taxes
(a) FEDERAL TAX MATTERS
(b) FEDERAL TAX MATTERS - Qualified Contracts
(c) CHARGES AND DEDUCTIONS DURING THE
ACCUMULATION PERIOD - Charges for Taxes
13. Legal Proceedings LEGAL PROCEEDINGS
14. Table of Contents of the Statement of Additional Information
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL
INFORMATION
Location in the Statement of Additional Information of information required by
Items of Form N-4.
CAPTION IN STATEMENT OF
PART B ITEM ADDITIONAL INFORMATION
- ----------- -----------------------
15. Cover Page
(a) (i) Cover Page
(a) (ii) Cover Page
(a) (iii) (A) Cover Page
(a) (iii) (B) Cover Page
(a) (iii) (C) Cover Page
(a) (iv) Cover Page
(a) (v) Cover Page
(b) Not Applicable
16. Table of Contents TABLE OF CONTENTS
17. General Information and History
vii
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(a) Not Applicable
(b) Not Applicable
(c) See Prospectus (AMERICAN NATIONAL
INSURANCE COMPANY AND THE SEPARATE
ACCOUNT - American National Insurance
Company)
18. Services
(a) Not Applicable
(b) See Prospectus (DISTRIBUTOR OF THE
CONTRACTS)
(c) Cover Page; Experts; Distribution of the
Contracts - Safekeeping of the Separate
Account Assets
(d) Not Applicable
(e) Not Applicable
(f) Not Applicable
19. Purchase of Securities Being Offered
(a) See Prospectus (CONTRACTS - Contract
Application and Purchase Payments; CHARGES
AND DEDUCTIONS DURING THE ACCUMULATION
PERIOD - Exceptions to Charges)
(b) See Prospectus (SUMMARY OF EXPENSES -
Expenses during the Accumulation Period;
CHARGES AND DEDUCTIONS DURING THE
ACCUMULATION PERIOD - Surrender Charge)
20. Underwriters
(a) See Prospectus (DISTRIBUTOR OF THE
CONTRACTS)
(b) DISTRIBUTION OF THE
viii
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CONTRACTS
(c) Not Applicable
(d) (i) Not Applicable
(d) (ii) Not Applicable
(d) (iii) Not Applicable
(d) (iv) Not Applicable
21. Calculation of Performance Data
(a) (i) RECORDS AND REPORTS
(a) (ii) RECORDS AND REPORTS
(a) (iii) RECORDS AND REPORTS
(a) (iv) RECORDS AND REPORTS
(b) (i) (A) RECORDS AND REPORTS
(b) (i) (B) RECORDS AND REPORTS
(b) (i) (C) RECORDS AND REPORTS
(b) (ii) (A) RECORDS AND REPORTS
(b) (ii) (B) RECORDS AND REPORTS
(b) (ii) (C) RECORDS AND REPORTS
(b) (iii) (A) RECORDS AND REPORTS
(b) (iii) (B) RECORDS AND REPORTS
(b) (iii) (C) RECORDS AND REPORTS
22. Annuity Payments THE CONTRACT -
Computation of Variable
Annuity Payments
23. Financial Statements
(a) Not Applicable
(b) FINANCIAL STATEMENTS
Part C Other Information
- ------------------------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
ix
<PAGE>
AMERICAN NATIONAL
VARIABLE
ANNUITY II
PROSPECTUS
FOR
VARIABLE ANNUITY CONTRACTS II
ISSUED BY
AMERICAN NATIONAL INSURANCE COMPANY
AMERICAN NATIONAL INSURANCE COMPANY
<PAGE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE.
NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR
MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON.
<PAGE>
VARIABLE ANNUITY CONTRACTS II
ISSUED BY
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
(409) 763-4661
This Prospectus describes the individual deferred Variable Annuity Contracts
II (the "Contracts") offered by American National Insurance Company ("American
National"). The Contracts are designed to provide an investment vehicle for the
accumulation of capital on a tax-deferred basis for retirement or other long-
term purposes. The Contracts provide for annuity payments commencing at some
later date specified by the Contractowner.
Unlike traditional guaranteed annuities, the Contracts provide for
Accumulation Values and annuity payment amounts which are based on and vary with
the investment performance of Subaccounts of the American National Variable
Annuity Separate Account (the "Separate Account") and/or the American National
Fixed Account. The assets of the Subaccounts are invested in the portfolios of
American National Investments Accounts, Inc.(the American National Fund),
Fidelity Variable Insurance Products Fund, Fidelity Variable Insurance Products
Fund II(the Fidelity Funds), MFS Variable Insurance Trust, T. Rowe Price
International Series, Inc., T. Rowe Price Equity Series, Inc., T. Rowe Price
Fixed Income Series, Inc., Van Eck Worldwide Insurance Trust, Federated
Insurance Series and Lazard Retirement Series, Inc. The portfolios that are
available for investment will sometimes be referred to, individually, as an
"Eligible Portfolio" and, collectively, as the "Eligible Portfolios".
The Separate Account is registered with the Securities and Exchange Commission
(the "SEC") under the Investment Company Act of 1940 (the "1940 Act") as a unit
investment trust, which is a type of investment company. The Separate Account
currently has twenty-six separate Subaccounts: American National Growth,
American National Balanced, American National Managed, American National Money
Market, Fidelity Asset Manager, Fidelity Index 500, Fidelity Growth
Opportunities, Fidelity Contrafund, Fidelity Asset Manager Growth, T. Rowe Price
Equity Income, T. Rowe Price International, T. Rowe Price Mid-Cap Growth, T.
Rowe Price Limited-Term Bond, MFS Value Series, MFS Emerging Growth Series, MFS
Research Series, MFS Growth With Income Series, Van Eck Gold and Natural
Resources, Van Eck Worldwide Emerging Markets, Federated Utility Fund II,
Federated Growth Strategies Fund II, Federated Fund for U.S. Government
Securities II, Federated High Income Bond Fund II, Federated Equity Income Fund
II, Lazard Retirement Emerging Markets, and Lazard Retirement Small Cap. The
assets of such Subaccounts are invested in shares of a corresponding Eligible
Portfolio. The accompanying prospectuses describe the investment objectives,
policies and the risks of each of the Eligible Portfolios.
The Fixed Account is funded by the general assets of American National.
Although the contracts are designed primarily to offer benefits based on
investment performance, all or a portion of the annuity payments can be in the
form of a traditional guaranteed annuity.
The Contractowner has the right to examine a Contract and return it to
American National during what is generally known as the "free look" period.
American National will then refund the greater of all Purchase Payments made by
the Contractowner or the Accumulation Value plus the amount of any charges for
state premium taxes, mortality and expense risk and advisory fees. The "free
look" period is established by state law and generally runs ten days after the
Contractowner receives the Contract.
This Prospectus sets forth the information that a prospective investor should
know before investing. A Statement of Additional Information about the Contract
is free and may be obtained by writing American National at the address above.
The Statement of Additional Information which has the same date as this
Prospectus, has been filed with the Securities and Exchange Commission. The
Table of Contents of such Statement of Additional Information is set forth in
this Prospectus on page 30.
This Prospectus must be accompanied by a
Current Prospectus for each Eligible Portfolio.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION, PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
An interest in the Contract is not a deposit or obligation of, or guaranteed or
endorsed by any bank, nor is the Contract federally insured by the Federal
Deposit Insurance Corporation, the Federal Reserve Board, or any other agency.
The Contract involves investment risk, including possible loss of principal.
Please Read This Prospectus Carefully And Retain It For Future Reference.
The Date of This Prospectus is __________________, 19___ .
1
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
PAGE PAGE
Glossary of Terms.................................... 4 Contract Application and Purchase Payments.......... 16
Summary of the Contracts............................. 6 Allocation of Purchase Payments..................... 17
Purpose of the Contracts............................ 6 Crediting of Accumulation Units..................... 17
Investment Options.................................. 6 Transfers Prior to Annuity Date..................... 17
Purchasing a Variable Annuity Contract.............. 6 Dollar Cost Averaging............................... 17
Allocations and Transfers........................... 6 Asset Allocation Program............................ 18
How the Death Benefit Varies........................ 6 Contractowner Inquiries.............................. 18
Surrenders from the Contract prior to Annuity Date.. 6 Charges and Deductions During
How Annuity Payments are Determined................. 6 the Accumulation Period............................. 19
Your Right to Cancel the Variable Annuity Contract... 6 Surrender Charge.................................... 19
Other Charges....................................... 19
Summary of Expenses.................................. 7 (a) Administrative Charges......................... 19
(b) State Premium Taxes............................ 19
Expenses During the Accumulation Period............. 7 (c) Mortality and Expense Risk Fee................. 19
Expenses During the Annuity Period.................. 10 (d) Charges for Taxes.............................. 19
(e) Exchange Fee................................... 19
American National Insurance Company Deduction of Fees................................... 19
and the Separate Account............................ 11 Exceptions to Charges............................... 19
Distributions Under the Contract
American National Insurance Company................. 11 Accumulation Period................................. 20
The Separate Account................................ 11 Full and Partial Surrenders......................... 20
The American National Fund.......................... 11 Systematic Withdrawals.............................. 20
The Fidelity Funds.................................. 12 Waiver of Surrender Charges......................... 20
T. Rowe Price Series................................ 13 (a) Nursing Home Waiver............................ 20
MFS Variable Insurance Trust........................ 13 (b) Disability Waiver.............................. 21
Van Eck Worldwide Insurance Trust................... 14 (c) Involuntary Unemployment Waiver................ 21
Insurance Management Series......................... 14 (d) Terminal Illness Waiver........................ 21
Lazard Retirement Series............................ 14 Death Benefit During Accumulation Period............ 21
Addition, Deletion or Substitution of Investments... 15 Annuity Period....................................... 22
Election of Annuity Date and Form of Annuity........ 22
Resolving Material Conflicts......................... 15
Fixed Account........................................ 16
Contracts............................................ 16
Purpose of the Contracts............................ 16
Type of Contracts................................... 16
</TABLE>
2
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
PAGE PAGE
Allocation of Benefits.............................. 22 Possible Charge for American National's Taxes........ 26
Annuity Options..................................... 22 Other Tax Consequences............................... 27
Value of Variable Annuity Payments: Performance.......................................... 27
Assumed Investment Rates........................... 23 Distributor of the Contracts......................... 27
Annuity Provisions................................. 23 Safekeeping of the Separate Account's Assets......... 28
Federal Tax Considerations........................... 23 Voting Rights........................................ 28
Introduction........................................ 23 State Regulation of American National................ 29
Tax Status of the Contract.......................... 24 Legal Matters........................................ 29
Taxation of Annuities............................... 24 Legal Proceedings.................................... 29
Transfers, Assignments or Exchanges Experts.............................................. 29
of a Contract...................................... 26 Additional Information............................... 29
Withholding.......................................... 26 Financial Statements................................. 29
Multiple Contracts................................... 26 Table of Contents of
Qualified Plans...................................... 26 Statement of Additional Information................. 30
</TABLE>
3
<PAGE>
GLOSSARY OF TERMS
The following definitions may be useful in reading this Prospectus. Certain
additional terms are defined in the text.
ACCUMULATION PERIOD - The period from the date Accumulation Units are first
purchased under a Contract to the earliest of the Annuity Date, the date the
Contract is surrendered for its then current value or the date due proof of the
Annuitant's death is received at American National's Home Office.
ACCUMULATION UNIT - A standard of measurement used with respect to each
Subaccount to calculate the value of a Contract during the Accumulation Period.
The value of an Accumulation Unit fluctuates with the value of the shares of the
corresponding Eligible Portfolio owned by each Subaccount less any applicable
deductions (see "Charges and Deductions," page 19).
ACCUMULATION UNIT VALUE - The value of an Accumulation Unit.
ACCUMULATION VALUE - The Accumulation Value of a Contract is the sum of: (i)
the total Accumulation Units in Subaccounts attributable to the Contract times
the respective Accumulation Unit Value of such Subaccounts, and (ii) the
Contractowner's value in the Fixed Account.
ANNUITANT - The person upon whose life expectancy the Contract is written. The
Annuitant may also be the Contractowner.
ANNUITY DATE - The date on which the Accumulation Period changes to the
Annuity Period. The Annuity Date must be at least five years after the Date of
Issue.
ANNUITY PERIOD - The period of time during which annuity payments are being
made.
ANNUITY UNIT - A standard of measurement used with respect to each Subaccount
to calculate the dollar amount of variable annuity payments during the Annuity
Period. The value of an Annuity Unit fluctuates with the value of shares of the
corresponding Eligible Portfolio owned by each Subaccount less any applicable
deductions. (See "Charges and Deductions," page 19).
CONTRACT - A Variable Annuity Contract issued pursuant to this Prospectus
which sets forth the obligations and contractual promises which American
National makes to the Contractowner.
CONTRACTOWNER - The person or entity entitled to exercise rights of ownership
in a Contract prior to the Annuity Date or termination of the Contract. The
Contractowner and the Annuitant need not be the same.
CONTRACT YEAR - The period from the date the first Purchase Payment is
credited to the Contract until the immediately preceding day of the succeeding
year. (February 29 will be treated as February 28 for the purpose of this
definition).
DATE OF ISSUE - The date as of which a Contract is issued and the initial Net
Purchase Payment is credited to the Contract.
DEFERRED ANNUITY CONTRACT - A Contract in which annuity payments commence at
some future date specified by the Contractowner.
ELIGIBLE PORTFOLIO - A Portfolio which corresponds to and in which a
Subaccount can be invested.
FIXED ACCOUNT - An account that is a part of American National's General
Account to which all or a portion of Net Purchase Payments and transfers may be
allocated for accumulation at fixed rates of interest.
GENERAL ACCOUNT - The General Account of American National which includes all
of American National's assets except those assets segregated into its separate
accounts.
GUARANTEED ANNUITY - An annuity under which the amount of each annuity payment
is guaranteed by American National during the Annuity Period.
HOME OFFICE - American National's Home Office is located at One Moody Plaza,
Galveston, Texas 77550-7999.
MINIMUM GUARANTEED DEATH BENEFIT - For all dates up to and including the first
Six-Year Anniversary Date, the Minimum Guaranteed Death Benefit will equal
Purchase Payments less Partial Surrender Reductions made on or before such date.
For all subsequent Six-Year Anniversary Dates, the Minimum Guaranteed Death
Benefit will equal the greater of: (i) the Accumulation Value on such Six-Year
Anniversary Date, or (ii) the Minimum Guaranteed Death Benefit for the
immediately preceding Six-Year Anniversary Date, plus Purchase Payments and less
Partial Surrender Reductions made since such immediately preceding Six-Year
Anniversary Date. For all other dates, the Minimum Guaranteed Death Benefit will
equal the Minimum Guaranteed Death Benefit for the immediately preceding Six-
Year Anniversary Date plus Purchase Payments and less Partial Surrender
Reductions made since such immediately preceding Six-Year Anniversary Date.
MORTALITY AND EXPENSE RISK FEE - The amount payable to American National for
accepting mortality and expense risks.
NET PURCHASE PAYMENT - The Purchase Payment less any government entity premium
tax charge.
NON-QUALIFIED CONTRACT - A Contract issued in connection with a retirement
plan that does not receive favorable tax treatment under the Internal Revenue
Code.
PARTIAL SURRENDER REDUCTION - An amount equal to (i) the amount of a
surrender, multiplied by (ii) the Minimum Guaranteed Death Benefit on the date
immediately prior to a surrender, divided by (iii) the Accumulation Value on the
date immediately prior to the surrender.
PORTFOLIO - A separate series of capital securities designed to meet specified
investment objectives. Currently there are twenty-six portfolios, all of which
are Eligible Portfolios.
PURCHASE PAYMENT - A payment made into a Contract during the Accumulation
Period.
QUALIFIED CONTRACT - A Contract issued in connection with a Plan that receives
favorable tax treatment under the Internal Revenue Code of 1986.
4
<PAGE>
SIX-YEAR ANNIVERSARY DATE - The last day of each Contract Year prior to the
Annuitant's 75th birthday which is evenly divisible by six.
SUBACCOUNT - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a corresponding Eligible Portfolio.
VALUATION DATE - A valuation date is each day on which the New York Stock
Exchange ("NYSE") and American National are open for trading. American National
will be closed on each national holiday on which the NYSE is closed, and will
also be closed on Wednesday, December 24, 1997 and Friday, December 26, 1997.
VALUATION PERIOD - The period commencing at the close of regular trading on
the NYSE on one Valuation Date and ending at the close of regular trading on the
NYSE on the next succeeding Valuation Date.
VARIABLE ANNUITY - An annuity providing payments which vary in dollar amount
depending on the investment results of the Portfolios selected.
5
<PAGE>
SUMMARY OF THE CONTRACTS
PURPOSE OF THE CONTRACTS
The Contract is a flexible premium deferred fixed and variable annuity
contract offered by American National Insurance Company. The Contract is
designed to aid in long-term financial planning and provides for accumulation of
capital on a tax deferred basis for retirement or other long-term purposes. The
Contract may be sold to or in connection with retirement plans, including plans
that qualify for special federal tax treatment under the Internal Revenue Code.
The Contractowner may allocate Net Purchase Payments to one or more of the
Subaccounts of the Separate Account. Each Subaccount, in turn, invests in a
corresponding Eligible Portfolio. Each Eligible Portfolio has its own investment
objective. There is no assurance that a Subaccount will obtain its investment
objective. Because a Variable Annuity's value is based on the investment
performance of Eligible Portfolios and is not guaranteed, a Variable Annuity
Contract entails more investment risk than a traditional Guaranteed Annuity.
There is also American National's Fixed Account option for Contractowners who
prefer more conservative investments. (See Fixed Account, page 16.)
INVESTMENT OPTIONS
Net Purchase Payments may be invested in the Subaccounts and/or in American
National's Fixed Account. The twenty-six Subaccounts are: the American National
Growth, the American National Balanced, the American National Managed, the
American National Money Market, the Fidelity Asset Manager, the Fidelity Index
500, the Fidelity Growth Opportunities, the Fidelity Contrafund, the Fidelity
Asset Manager Growth, the T. Rowe Price Equity Income, the T. Rowe Price
International, the T. Rowe Price Mid-Cap Growth, the T. Rowe Price Limited-Term
Bond, the MFS Value Series, the MFS Emerging Growth Series, the MFS Research
Series, the MFS Growth With Income Series, the Van Eck Gold and Natural
Resources, the Van Eck Worldwide Emerging Markets, the Federated Utility Fund
II, the Federated Growth Strategies Fund II, the Federated Fund for U.S.
Government Securities II, the Federated High Income Bond Fund II, Federated
Equity Income Fund II, Lazard Retirement Emerging Markets, and the Lazard
Retirement Small Cap. Each of the Subaccounts invests exclusively in the shares
of a corresponding Eligible Portfolio. Each such Subaccount and corresponding
Eligible Portfolio has its own investment objective. Some of the Portfolios have
similar investment objectives. The prospectuses for each of the Portfolios
should be read carefully before investing. (See the "Funds" beginning on page
11.)
PURCHASING A VARIABLE ANNUITY CONTRACT
Individuals wishing to purchase a Variable Annuity Contract must complete an
application and pay the minimum initial Purchase Payment to American National's
Home Office. For information on the minimum and maximum amounts of Purchase
Payments, see "Contract Application and Purchase Payments," page 16.
ALLOCATION AND TRANSFERS
Net Purchase Payments will be initially allocated to each Subaccount and/or
the Fixed Account as instructed in the application. Thereafter, the allocation
may be changed by the Contractowner. All allocations must be at least 1% of the
Net Purchase Payment. The minimum initial deposit in any subaccount and/or the
Fixed Account is $500.
During the Accumulation Period, transfers can be made between Subaccounts and
American National's Fixed Account. American National allows twelve free
transfers per Contract Year. Any additional transfer will be subject to a $10.00
exchange fee. Transfers out of the Fixed Account are limited as described in the
section "Transfers Prior to Annuity Date" on page 17. Unused transfers do not
carry over from a Contract Year to the next Contract Year.
Transfers and allocation changes can be made by either writing to American
National's Home Office or by telephone instructions. A Telephone Transfer
Authorization Form must be on file at American National's Home Office before
telephone instructions will be allowed.
HOW THE DEATH BENEFIT VARIES
In the event of the Annuitant's death prior to the Annuity Date, the death
benefit for the Contracts will equal the greater of: (i) Accumulation Value on
the date that due proof of death is received by American National at its Home
Office, or (ii) the Minimum Guaranteed Death Benefit calculated as of the date
that due proof of death is received by American National at its Home Office.
During the Annuity Period, death benefits, if any, depend upon the annuity
option selected. (See Annuity Options at page 22).
SURRENDERS FROM THE CONTRACT PRIOR TO ANNUITY DATE
Prior to the Annuity Date, all or part of a Variable Annuity's Accumulation
Value may be surrendered upon the Contractowner's written request. A surrender
may be subject to a Surrender Charge, an IRS penalty tax for early withdrawal
and potentially an income tax. Surrenders from Contracts qualified under Section
403(b) of the Code may be restricted. (See "Taxation of Qualified Plans" under
"Federal Tax Considerations" at page 26). The sum of surrender charges will
never be more than 8.5% of total Purchase Payments paid.
HOW ANNUITY PAYMENTS ARE DETERMINED
There are a number of ways to receive annuity payments. They include monthly
payments for a specified number of years, payments for life guaranteed for 10 or
20 years, or payments made jointly. (See Annuity Options, page 22) Payments may
also be received on a fixed basis and/or on a variable basis. Variable Annuity
payments will increase or decrease according to the investment experience of the
Eligible Portfolios and the declared rate paid by American National on the Fixed
Account.
YOUR RIGHT TO CANCEL THE VARIABLE ANNUITY CONTRACT - THE "FREE LOOK" PERIOD
State law requires that Contractowners be given a "free look" period,
generally running ten days after the Contractowner receives the Contract, within
which a Contractowner may return the Contract to American National's Home
Office. In such cases, American National will then refund the greater of all
Purchase Payments made by the Contractowner or the Accumulation Value plus the
amount of any charges for state premium taxes, mortality and expense risk and
administrative asset fee. (See "Contract Application and Purchase Payments,"
page 16.
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SUMMARY OF EXPENSES
EXPENSES DURING THE ACCUMULATION PERIOD
The purpose of the following table is to illustrate the costs and expenses
that are borne, directly and indirectly, by Contractowners during the
Accumulation Period. The information set forth should be considered together
with the narrative provided under the heading "Charges and Deductions" in this
Prospectus. In addition to the expenses listed below, premium taxes may also be
applicable. For information concerning the fees and expenses assessed during the
Annuity Period, see "Expenses During the Annuity Period", page 10.
CONTRACTOWNER TRANSACTION EXPENSES
SALES LOAD AS A PERCENTAGE OF PURCHASE PAYMENTS 0%
DEFERRED SALES LOAD ("SURRENDER CHARGE")
An amount of Accumulation Value equal to the greater of (i) 10% of
Accumulation Value in a Contract Year, or (ii) Accumulation Value on the date of
receipt of the request less total Purchase Payments made, may be withdrawn
without Surrender Charge. The 10% annual free withdrawal amount is determined as
follows. Each time a withdrawal is made, the amount of the withdrawal is
divided by the Accumulation Value at the time of the withdrawal. The resulting
percentage then applies toward the 10% annual free withdrawal amount.
On surrenders of that portion of Accumulation Value in excess of the above
described free surrender amount, a Surrender Charge is imposed based upon the
number of Contract Years since the Contract Year in which the Purchase Payments
withdrawn were paid, on a first paid, first withdrawn basis. The Surrender
Charge is deducted from the remaining Accumulation Value, or, if the remaining
Accumulation Value is insufficient to cover the Surrender Charge, part or all of
the Surrender Charge will be deducted from the withdrawal amount. Such Surrender
Charge will be a percentage of each Purchase Payment or portion thereof
withdrawn as illustrated in the following table:
APPLICABLE SURRENDER CHARGE
AS A PERCENTAGE
CONTRACT YEARS SINCE OF EACH PURCHASE
PURCHASE PAYMENT PAYMENT OR PORTION
MADE THEREOF WITHDRAWN
1 7.0
2 7.0
3 6.0
4 5.0
5 4.0
6 3.0
7 2.0
8 and thereafter 0.0
EXCHANGE FEE $ 10
(THERE IS NO EXCHANGE FEE FOR
THE FIRST 12 TRANSFERS IN EACH CONTRACT YEAR)
ANNUAL CONTRACT FEE $ 35
SEPARATE ACCOUNT ANNUAL EXPENSES
As a percentage of average net assets:
Mortality Risk Fees 0.80%
Expense Risk Fees 0.35%
Administrative Asset Fee 0.10%
Total Separate Account
Annual Expenses* 1.25%
* Does not include $35 Annual Contract Fee
PORTFOLIO COMPANY ANNUAL EXPENSES
AMERICAN NATIONAL GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.37%
Other Expenses 0.50%
Total Portfolio
Annual Expenses 0.87%
* Without reimbursement, management fees would have been 0.75% and the total
portfolio annual expense would have been 1.25%.
AMERICAN NATIONAL BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.17%
Other Expenses 0.73%
Total Portfolio
Annual Expenses 0.90%
* Without reimbursement, management fees would have been 0.75% and the total
portfolio annual expense would have been 1.48%.
AMERICAN NATIONAL MANAGED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.54%
Other Expenses 0.39%
Total Managed Portfolio
Annual Expenses 0.93%
* Without reimbursement, management fees would have been 0.75% and the total
portfolio annual expense would have been 1.14%.
AMERICAN NATIONAL MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.40%
Other Expenses 0.47%
Total Money Market Portfolio
Annual Expenses 0.87%
* Without reimbursement, management fees would have been 0.75% and the total
portfolio annual expense would have been 1.22%.
** Under its Administrative Service Agreement with the Fund, Securities
Management and Research, Inc. ("SM&R"), the Fund's Investment
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Adviser and Manager, has agreed to pay (or to reimburse each Portfolio for) each
Portfolio's expenses (including the advisory fee and administrative service fee
paid to SM&R, but exclusive of interest, commissions and other expenses
incidental to portfolio transactions) in excess of 1.50% per year of such
Portfolio's average daily net assets. In addition, SM&R has entered into a
separate undertaking with the Fund effective May 1, 1994 until April 30, 1998,
pursuant to which SM&R has agreed to reimburse the Money Market Portfolio and
the Growth Portfolio for expenses in excess of .87%; the Balanced Portfolio for
expenses in excess of .90%; and the Managed Portfolio for expenses in excess of
.93%, of each of such Portfolios' 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.
FIDELITY ASSET MANAGER PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.64%
Other Expenses 0.10%
Total Portfolio
Annual Expenses** 0.74%
FIDELITY INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.14%
Other Expenses 0.14%
Total Portfolio
Annual Expenses* 0.28%
* 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 0.28%, 0.15% and.0.43%, respectively.
FIDELITY CONTRAFUND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.61%
Other Expenses 0.13%
Total Portfolio
Annual Expenses** 0.74%
FIDELITY ASSET MANAGER: GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.65%
Other Expenses 0.22%
Total Portfolio
Annual Expenses** 0.87%
FIDELITY GROWTH OPPORTUNITIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.61%
Other Expenses 0.16%
Total Portfolio Annual Expenses** 0.77%
* A portion of the brokerage commisions that certain funds pay was used to
reduce funds expenses. In addition, certain funds have entered into
arrangements with their custodian and transfer agent whereby interest earned on
uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented in
the table would have been .73% for Asset Manager Portfolio, .71% for Contrafund
Portfolio, .85% for Asset Manager; Growth Portfolio and .76% for Growth
Opportunities Portfolio.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* 0.00%
Other Expenses 1.05%
Total Portfolio Annual Expenses 1.05%
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* 0.00%
Other Expenses 0.70%
Total Portfolio Annual Expenses 0.70%
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* 0.00%
Other Expenses 0.85%
Total Portfolio Annual Expenses 0.85%
T. ROWE PRICE LIMITED - TERM BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* 0.00%
Other Expenses 0.85%
Total Portfolio Annual Expenses 0.85%
* T. Rowe Price Funds do not itemize management fees and other expenses.
MFS VALUE SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.25%
Total Portfolio Annual Expenses* 1.00%
* 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 0.75%, 1.00%, and 1.75%.
MFS EMERGING GROWTH SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.25%
Total Portfolio Annual Expenses* 1.00%
* 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 0.75%, 2.16%, and 2.91%.
MFS RESEARCH SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.25%
Total Portfolio Annual Expenses* 1.00%
* 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 0.75%, 3.15%, and 3.90%.
MFS GROWTH WITH INCOME SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.25%
Total Portfolio Annual Expenses* 1.00%
* 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 0.75%, 20.69%, and 21.44%.
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VAN ECK GOLD AND NATURAL RESOURCES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
Other Expenses 0.25%
Total Portfolio Annual Expenses 1.25%
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees 1.00%
Other Expenses 0.25%
Total Portfolio Annual Expenses 1.25%
FEDERATED UTILITY FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.15%
Total Portfolio Annual Expenses 0.90%
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.15%
Total Portfolio Annual Expenses 0.90%
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Other Expenses 0.15%
Total Portfolio Annual Expenses 0.75%
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Other Expenses 0.15%
Total Portfolio Annual Expenses 0.75%
FEDERATED EQUITY INCOME FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.15%
Total Portfolio Annual Expenses 0.90%
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
Other Expenses 0.25%
Total Portfolio Annual Expenses 1.25%
LAZARD RETIREMENT SMALL CAP PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.25%
Total Portfolio Annual Expenses 1.00%
EXAMPLE: DEFERRED CONTRACT
If you surrender your Contract at the end of the applicable time period: You
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets: (regardless of whether the surrender proceeds are paid to the
Contract owner applied under the Systematic Withdrawal Program, or applied under
an annuity option)
FUND 1 3
YEAR YEARS
American National Growth Portfolio $ 86 $ 125
American National Balanced Portfolio $ 87 $ 126
American National Managed Portfolio $ 87 $ 127
American National Money Market Portfolio $ 86 $ 125
Fidelity Asset Manager Portfolio $ 85 $ 121
Fidelity Index 500 Portfolio $ 81 $ 108
Fidelity Contrafund Portfolio $ 85 $ 121
Fidelity Asset Manager: Growth Portfolio $ 85 $ 121
Fidelity Growth Opportunities Portfolio $ 85 $ 122
T. Rowe Price Equity Income Portfolio $ 88 $ 130
T. Rowe Price International Stock Portfolio $ 85 $ 120
T. Rowe Price Mid-Cap Growth Portfolio $ 86 $ 125
T. Rowe Price Limited - Term Bond Portfolio $ 86 $ 125
MFS Value Series Portfolio $ 88 $ 129
MFS Emerging Growth Series Portfolio $ 88 $ 129
MFS Research Series Portfolio $ 88 $ 129
MFS Growth With Income Series Portfolio $ 88 $ 129
Van Eck Gold and National Resources Portfolio $ 90 $ 136
Van Eck World Wide Emerging Growth Portfolio $ 90 $ 136
Federated Utility Fund II Portfolio $ 87 $ 126
Federated Growth Strategies Fund II Portfolio $ 87 $ 126
Federated Fund for U.S. Government Securities II Portfolio $ 85 $ 122
Federated High Income Bond Fund II Portfolio $ 85 $ 122
Federated Equity Income Fund II Portfolio $ 87 $ 126
Lazard Retirement Emerging Markets Portfolio $ 90 $ 136
Lazard Retirement Small Cap Portfolio $ 88 $ 129
If you do not surrender your Contract: You would pay the following expenses on
a $1,000 investment, assuming 5% annual return on assets:
FUND 1 3
YEAR YEARS
American National Growth Portfolio $ 22 $ 66
American National Balanced Portfolio $ 22 $ 67
American National Managed Portfolio $ 22 $ 68
American National Money Market Portfolio $ 22 $ 66
Fidelity Asset Manager Portfolio $ 20 $ 62
Fidelity Index 500 Portfolio $ 16 $ 48
Fidelity Contrafund Portfolio $ 20 $ 62
Fidelity Asset Manager: Growth Portfolio $ 20 $ 62
Fidelity Growth Opportunities Portfolio $ 21 $ 63
T. Rowe Price Equity Income Portfolio $ 23 $ 72
T. Rowe Price International Stock Portfolio $ 20 $ 61
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T. Rowe Price Mid-Cap Growth Portfolio $ 21 $ 66
T. Rowe Price Limited - Term Bond Portfolio $ 23 $ 70
MFS Value Series Portfolio $ 23 $ 70
MFS Emerging Growth Series Portfolio $ 23 $ 70
MFS Research Series Portfolio $ 23 $ 70
MFS Growth With Income Series Portfolio $ 23 $ 70
Van Eck Gold and National Resources Portfolio $ 25 $ 78
Van Eck World Wide Emerging Growth Portfolio $ 25 $ 78
Federated Utility Fund II Portfolio $ 22 $ 67
Federated Growth Strategies Fund II Portfolio $ 22 $ 67
Federated Fund for U.S. Government Securities II Portfolio $ 20 $ 63
Federated High Income Bond Portfolio $ 20 $ 63
Federated Equity Income Fund II Portfolio $ 22 $ 67
Lazard Retirement Emerging Markets Portfolio $ 25 $ 78
Lazard Retirement Small Cap Portfolio $ 23 $ 70
The examples should not be considered to be a representation of past
or future expenses, and the examples do not include the deduction of state
premium taxes which may be assessed by a number of states.
The purpose of the preceding table is to assist Contractowners in
understanding the various costs and expenses that a Contractowner will bear
directly or indirectly and, thus, the table reflects expenses of both the
Separate Account and the Eligible Portfolios. Actual expenses may be greater or
lesser than those shown. The example assumes a 5% annual rate of return pursuant
to the requirements of the SEC. This hypothetical rate of return is not intended
to be representative of past or future performance of an Eligible Portfolio. The
annual contract fees are deducted pro rata from each Subaccount and are based on
the assumption that the average Contract size is $10,000 and that the annual
contract fee is therefore 0.35%. For a more complete description of the various
costs and expenses of the American National Fund, the Fidelity Funds, the MFS
Variable Insurance Trust, the T. Rowe Price International Series, Inc., the T.
Rowe Price Equity Series, Inc., the T. Rowe Price Fixed Income Series, the Van
Eck Worldwide Insurance Trust, the Federated Insurance Series and the Lazard
Retirement Series, Inc., see their Prospectuses.
EXPENSES DURING THE ANNUITY PERIOD
The Separate Account will be assessed a mortality and expense risk fee at an
annual rate of 1.15% during the Annuity Period. The Separate Account will also
be charged during the Annuity Period with the expenses of the Eligible
Portfolios in which the Contractowner has invested. No other fees or expenses
are charged against the Contracts during the Annuity Period.
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AMERICAN NATIONAL INSURANCE COMPANY
AND THE SEPARATE ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
American National is a stock life insurance company chartered in 1905 in the
State of Texas. It is licensed to do life insurance business in 49 states, the
District of Columbia, Puerto Rico, Guam, and American Samoa. American National's
home office is located at the American National Insurance Building, One Moody
Plaza, Galveston, Texas 77550-7999. The Moody Foundation (the "Foundation"), a
charitable foundation established for charitable and educational purposes, owns
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owns approximately 37.6% of such shares. Robert L. Moody
("RLM"), Chairman of the Board and a Director of American National, RLM's son,
Ross R. Moody, and Frances Moody Newman, RLM's mother, are trustees of the
Foundation.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie S.
Moody Trust. RLM is Chairman of the Board and Chief Executive Officer of the
Bank and of Moody Bank Holding Company, Inc. ("MBHC"), the Bank's controlling
stockholder. RLM is also Chairman of the Board and President of Moody
Bancshares, Inc. ("Bancshares"), MBHC's sole shareholder. The Three R Trusts,
trusts established by RLM for the benefit of his children, own 100% of
Bancshares' Class B stock (which elects a majority of Bancshares' directors) and
47.5% of its Class A Stock. The trustee of the Three R Trusts is Irwin M. Herz,
Jr., a partner in Greer, Herz & Adams, L.L.P., 18th Floor, One Moody Plaza,
Galveston, Texas, General Counsel to American National, the Bank, Bancshares,
MBHC, the American National Fund and Securities Management and Research, Inc.
(SM&R).
American National's total assets on December 31, 1996 were $ 6,529,775,092 on
a statutory basis.
American National writes life, health and accident insurance and annuities.
THE SEPARATE ACCOUNT
The Separate Account was established by American National on July 30, 1991
pursuant to the insurance laws of the State of Texas. American National is the
depositor of the Separate Account. Under Texas law, the assets of the Separate
Account are held exclusively for the benefit of Contractowners and persons
entitled to payments under the Contracts, as well as for the benefit of other
variable annuity contract owners and persons entitled to payments under these
contracts. The Separate Account is used to support variable annuity contracts,
issued by American National. American National is the legal holder of the assets
in the Separate Account and will at all times maintain assets in the Separate
Account with a total market value at least equal to the reserve and other
contract liabilities for the Separate Account. The assets of the Separate
Account attributable to the Contracts are not chargeable with liabilities
arising out of any other business which American National may conduct. Income,
as well as both realized and unrealized gains or losses from the assets of the
Separate Account, is credited to or charged against the Separate Account without
regard to income, gains or losses arising out of other business that American
National conducts. Nevertheless, these assets shall be available to cover the
liabilities of American National's General Account, but only to the extent that
the Separate Account's assets exceed its liabilities arising under the Contracts
and other variable annuity contracts participating in the Separate Account. In
addition to these assets, the Separate Account assets may include accumulations
of the charges American National makes against Contracts and other variable
annuity contracts participating in the Separate Account. From time to time, any
such assets due American National may be transferred in cash to American
National's General Account. Obligations under the Contracts are obligations of
American National.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") under the Investment Company Act of 1940 ("1940 Act") as a unit
investment trust, which is a type of investment company. Such registration does
not involve any SEC supervision of the management or investment policies or
practices of the Separate Account. For state law purposes, the Separate Account
is treated as a division of American National. There are currently twenty-six
Subaccounts within the Separate Account available to Contractowners and each
invests only in a corresponding Eligible Portfolio.
THE AMERICAN NATIONAL FUND
Four of the Subaccounts of the Separate Account invest in the shares of a
corresponding portfolio of the American National Fund. The American National
Fund is registered with the SEC under the 1940 Act as an open-end diversified,
series management investment company.
The Separate Account will purchase and redeem shares from the American
National Fund at net asset value.
The investment objectives and policies of each portfolio of the American
National Fund are summarized below. There is no assurance that any of the
portfolios will achieve their stated objectives. More detailed information,
including a description of investment objectives, policies, restrictions,
expenses and risks, is in the prospectus for the American National Fund, which
must accompany this Prospectus and which should be read carefully together with
this Prospectus and retained.
The American National Fund currently has a Growth Portfolio, a Balanced
Portfolio, a Managed Portfolio and a Money Market Portfolio.
AMERICAN NATIONAL GROWTH PORTFOLIO ... seeks to achieve capital appreciation,
normally through the purchase of common stocks (although such Portfolio
investments are not restricted to any one type of security). Capital
appreciation may also be sought in other types of securities, including bonds
and preferred stocks.
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AMERICAN NATIONAL BALANCED PORTFOLIO ... seeks to provide conservation of
principal, reasonable current income and long-term capital appreciation by
investing in a balanced portfolio of fixed-income securities such as bonds,
preferred stock and short-term obligations combined with common stocks and
securities convertible into common stocks.
AMERICAN NATIONAL MANAGED PORTFOLIO ... seeks to achieve growth of capital
and/or current income by investing in a diversified portfolio consisting of, at
the American National Fund's investment adviser's discretion, money market
instruments, debt securities, stock or a combination thereof. It is anticipated
that over longer periods a larger portion of the Managed Portfolio will consist
of equity securities.
AMERICAN NATIONAL MONEY MARKET PORTFOLIO ... seeks to obtain as high a level
of current income as is consistent with preserving capital and providing
liquidity. The Money Market Portfolio will invest only in money market
instruments of high quality determined by the American National Fund's
investment advisor.
SM&R is the investment adviser and manager of the American National Fund. It
also provides investment advisory and portfolio management services to American
National and other clients. It maintains a staff of experienced investment
personnel and related support facilities. Detailed information about the
American National Fund Management Fees is contained in the American National
Fund Prospectus. Such fees exceed the industry average for advisory and
administrative fees.
THE FIDELITY FUNDS
Pursuant to a Participation Agreement between American National, Fidelity
Distributors Corporation and the Fidelity Funds, five of the Subaccounts of the
Separate Account invest in the shares of five corresponding portfolios of the
Fidelity Funds. The Fidelity Funds are registered with the SEC under the 1940
Act as open-end diversified, series management investment companies organized as
Massachusetts business trusts.
Fidelity Management & Research Company ("FMR"), the Fidelity Funds' investment
adviser, was founded in 1946. FMR provides a number of mutual funds and other
clients with investment research and portfolio management services. It maintains
a large staff of experienced investment personnel and a full compliment of
related support facilities. Fidelity Management & Research (U.K.) Inc. ("FMR
U.K.") and Fidelity Management and Research (Far East) Inc. ("FMR Far East")
are wholly owned subsidiaries of FMR that provide research with respect to
foreign securities. FMR U.K. and FMR Far East maintain their principal business
offices in London and Tokyo, respectively. As of December 31, 1996, FMR advised
funds having more than 29 million shareholder accounts with a total value of
more than $432 billion. Fidelity Distributors Corporation distributes shares for
the Fidelity funds. FMR Corp. is the holding company for the Fidelity companies.
Through ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Fidelity Funds, and various trusts for the benefit of Johnson
family members form a controlling group with respect to FMR Corp.
The Management, Distribution and Service Fees for the Fidelity Funds are
explained in the Fidelity Funds' Prospectuses.
The Separate Account will purchase and redeem shares from the Fidelity Funds
at net asset value.
The investment objectives and policies of each portfolio of the Fidelity Funds
are summarized below. There is no assurance that any of the portfolios will
achieve their stated objectives. More detailed information, including a
description of investment objectives, policies, restrictions, expenses and
risks, is in the prospectus for each of the Fidelity Funds which must accompany
this Prospectus and which should be read carefully together with this Prospectus
and retained.
FIDELITY ASSET MANAGER PORTFOLIO ... seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
FIDELITY INDEX 500 PORTFOLIO ... seeks to provide investment results that
correspond to the total return (i.e., the combination of capital charges and
income) of common stocks publicly traded in the United States. In seeking this
objective, the Fidelity Index 500 Portfolio attempts to duplicate the
composition and total return of the Standard & Poor's 500 Composite Stock Price
Index while keeping transaction costs and other expenses low. The Fidelity Index
500 Portfolio is designed as a long-term investment option.
FIDELITY CONTRAFUND PORTFOLIO ... seeks capital appreciation by investing in
companies FMR believes to be undervalued due to an overly pessimistic appraisal
by the public. In pursuit of the fund's goal, FMR looks for companies with the
following characteristics: (i) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an improved
balance sheet, (ii) recently popular, but temporarily out of favor due to short-
term or one-time factors, or (iii) undervalued compared to other companies in
the same industry.
FIDELITY ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total return
over the long term by allocating its assets among stocks, bonds, and short-term
instruments. Allocating among different types of investments allows the fund to
take advantage of opportunities wherever they may occur, but also subjects the
fund to the risks of a given investment type.
FIDELITY GROWTH OPPORTUNITIES PORTFOLIO ... seeks to ride out stock market
functions in pursuit of potentially high long-term returns. The fund is designed
for investors who want to be invested in the stock market for its long term
growth potential. The fund invests for growth and does not pursue income.
T. ROWE PRICE SERIES
Pursuant to a Participation Agreement between American National, T. Rowe Price
Associate's, Inc. and Robert Fleming Holdings Limited, four of the Subaccounts
of the Separate Account
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invest in the shares of four corresponding portfolio, of the T. Rowe Price
Series. T. Rowe Price Associates, Inc. is responsible for selection and
management of the portfolio investments of T. Rowe Price Equity Series and T.
Rowe Price Fixed Income Series. Rowe Price-Fleming International, Inc.,
incorporated in 1979 as a joint venture between T. Rowe Price Associates, Inc.
and Robert Fleming Holdings Limited, is responsible for selection and management
of the portfolio investments of T. Rowe Price International Series. The
investment objectives and policies of each Portfolio of T. Rowe Price
Associates, Inc. are summarized below. There is no assurance that any of the
Portfolios will achieve their stated objectives. More detailed information,
including a description of investment objectives, policies, restrictions,
expenses and risks, is in the prospectus for each of the T. Rowe Price Series
which must accompany this Prospectus and which should be read carefully together
with this Prospectus and retained.
T. ROWE PRICE EQUITY SERIES, INC.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ... seeks to provide substantial
dividend income and also capital appreciation by investing primarily in
dividend-paying common stocks particularly of established companies with
favorable prospects for both increasing dividends and capital appreciation.
T. ROWE PRICE INTERNATIONAL SERIES, INC.
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ... seeks a total return on its
assets from long-term growth of capital and income, by investing substantially
all of its assets in common stocks of established non-U.S. companies. The
Portfolio will not purchase any debt security which at the time of purchase is
rated below investment grade. This would not prevent the Portfolio from
retaining a security downgraded to below investment grade after purchase.
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ... seeks to provide long term capital
appreciation by investing primarily in common stocks of medium-sized (mid-cap)
growth companies. The fund will focus on companies with superior earnings growth
potential that are no longer considered new or emerging, but are not yet well
established. Mid-cap growth company stocks are generally more volatile than
stocks of large, well-established companies, but they offer the possibility of
more rapid growth.
T. ROWE PRICE FIXED INCOME SERIES, INC.
T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO ... seeks a high level of income
consistent with modest price fluctuation by investing primarily in investment
grade debt securities.
MFS VARIABLE INSURANCE TRUST
Pursuant to a Participation Agreement between American National, Massachusetts
Financial Services Company and the MFS Variable Insurance Trust, four of the
Subaccounts of the Separate Account invest in the shares of four corresponding
portfolios of the MFS Variable Insurance Trust. Massachusetts Financial Services
Company is responsible for the management of the assets of the MFS Variable
Insurance Trust. The investment objectives and policies of each Portfolio of the
MFS Variable Insurance Trust are summarized below. There is no assurance that
any of the Portfolios will achieve their stated objectives. More detailed
information, including a description of investment objectives, policies,
restrictions, expenses and risks, is in the prospectus for the MFS Variable
Insurance Trust which must accompany this Prospectus and which should be read
carefully together with this Prospectus and retained.
MFS VALUE SERIES PORTFOLIO ... seeks capital appreciation. Dividend income, if
any, is a consideration incidental to the Series' objective of capital
appreciation. While the Series' policy is to invest primarily in common stocks,
it may seek appreciation in other types of securities such as fixed income
securities(which may be unrated), convertible bonds, convertible preferred
stocks and warrants when relative values make such purchases appear attractive
either as individual issues or as types of securities in certain economic
environments. The Series may invest in lower rated fixed income securities or
comparable unrated securities.
MFS EMERGING GROWTH SERIES PORTFOLIO ... seeks to provide long-term growth of
capital through investing primarily in common stocks of emerging growth
companies, which involves greater risk than is customarily associated with
investments in more established companies. The Series may invest in a limited
extent in lower rated fixed income securities or comparable unrated securities.
MFS RESEARCH SERIES PORTFOLIO ... seeks to provide long-term growth of capital
and future income by investing a substantial proportion of its assets in the
common stocks or securities convertible into common stocks of companies believed
to possess better than average prospects for long-term growth. No more than 5%
of the Portfolio's convertible securities, if any, will consist of securities in
lower rated categories or securities believed to be of similar quality to lower
rated securities. The Portfolio may invest in a limited extent in lower rated
fixed income securities or comparable unrated securities.
MFS GROWTH WITH INCOME SERIES PORTFOLIO ... seeks to provide reasonable
current income and long-term growth and income. Under normal market conditions,
the Series will invest at least 65% of its assets in common stocks or securities
convertible into common stocks that are believed to have long-term prospects for
growth and income. The Series may also invest up to 75% of its net assets in
foreign securities which are not traded on a U.S. exchange.
Massachusetts Financial Service Company is the investment advisor to each
series and manages the series portfolios in accordance with the investment
objectives and policies of each series.
VAN ECK WORLDWIDE INSURANCE TRUST
Pursuant to a Participation Agreement between American National and Van Eck
Worldwide Insurance Trust, two Subaccounts of the Separate Account invest in the
shares of two corresponding Portfolios of the Van Eck Worldwide Insurance Trust.
The investment objectives and policies of each Portfolio of the Van Eck
Worldwide Insurance Trust are summarized below. There is no assurance that any
of the Portfolios will achieve their
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stated objectives. More detailed information, including a description of
investment objectives, policies, restrictions, expenses and risks, is in the
prospectus for each of the Van Eck Worldwide Insurance Trust which must
accompany this Prospectus and which should be read carefully together with this
Prospectus and retained.
VAN ECK GOLD AND NATURAL RESOURCES PORTFOLIO ... seeks long-term capital
appreciation by investing in equity and debt securities of companies engaged in
the exploration, development, production and distribution of gold and other
natural resources, such as strategic and other metals, minerals, forest
products, oil, natural gas and coal. Current income is not an investment
objective.
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ... seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Associates Corporation serves as investment advisor and manages the
investment operations of the Van Eck Portfolios and furnishes the Portfolios
with a continuous investment program which includes determining which securities
should be bought, sold or held.
INSURANCE MANAGEMENT SERIES
Pursuant to a Participation Agreement between American National, Federated
Advisors and the Insurance Management Series, five of the Subaccounts of the
Separate Account invest in the shares of five corresponding Portfolios of the
Insurance Management Series. Federated Advisors is responsible for the portfolio
investment decisions of the Insurance Management Series, subject to direction by
the Insurance Management Series Trustees. The investment objectives and policies
of each portfolio of the Insurance Management Series are summarized below. There
is no assurance that any of the Portfolios will achieve their stated objectives.
More detailed information, including a description of investment objectives,
policies, restrictions, expenses and risks, is in the prospectus for each of the
Insurance Management Series which must accompany this Prospectus and which
should be read carefully together with this Prospectus and retained.
FEDERATED UTILITY FUND II PORTFOLIO ... seeks to achieve high current income
and moderate capital appreciation. The Portfolio invests primarily in equity and
debt securities of utility companies.
FEDERATED GROWTH STRATEGIES PORTFOLIO ... seeks capital appreciation. The
Portfolio invests at least 65% of its assets in equity securities of companies
with prospects for above average growth in earnings and dividends.
FEDERATED U.S. GOVERNMENT BOND PORTFOLIO ... seeks current income by investing
in a diversified portfolio limited to U.S. government securities.
FEDERATED HIGH INCOME BOND PORTFOLIO ... seeks high current income. The
Portfolio invests in fixed income securities which are lower rated corporate
debt obligations, which are commonly referred to as "junk bonds." The risk in
investing in junk bonds is described in the prospectus for the Insurance
Management Series, which should be read carefully before investing.
FEDERATED EQUITY INCOME FUND II PORTFOLIO ... seeks to provide above average
income and capital appreciation by investing in income producing equity
securities including common stocks, preferred stocks, and debt securities that
are convertible into common stocks, in cash and cash items during times of
unusual conditions to maintain liquidity. Cash items may include commercial
paper, Europaper, certificates of deposit, obligations of the U. S. Government,
repurchase agreements and other short-term instruments.
Federated Advisors makes all investment decisions for the Insurance Management
Series, subject to direction by the Insurance Management Series trustees.
LAZARD RETIREMENT SERIES, INC.
Pursuant to a Participation Agreement between American National, Lazard Freres
Asset Management and the Lazard Retirement Series, Inc., two of the Subaccounts
of the Separated Account invest in the shares of two corresponding Portfolios of
the Lazard Retirement Series, Inc. The investment objectives and policies of
each Portfolio of the Lazard Retirement Series, Inc. are summarized below. There
is no assurance that any of the Portfolios will achieve their stated objectives.
More detained information, including a description of investment objective,
policies, restrictions, expenses and risks, is in the prospectus of each of the
Lazard Retirement Series, Inc. which must accompany this Prospectus and which
should be read carefully together with this Prospectus and retained.
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ... seeks capital appreciation.
This Portfolio invests primarily in equity securities of non-United States
issuers located, or doing significant business, in emerging market countries
that the Investment Manager considers inexpensively priced relative to the
return on total capital or equity.
LAZARD RETIREMENT SMALL CAP PORTFOLIO ... seeks capital appreciation. This
Portfolio invests primarily in equity securities of companies with market
capitalization under $1 billion that the Investment Manager considers
inexpensively priced relative to the return on total capital or equity.
Lazard Freres Asset Management serves as investment advisor and continually
furnishes an investment program for each Portfolio consistant with its
investment objectives and policies, including the purchase, retention and
disposition of securities.
American National has entered into arrangements with either the investment
advisor or distributor for certain of the Portfolios pursuant to which the
advisor or distributor pays American National a fee based upon an annual
percentage of the average aggregate net amount invested by American National on
behalf of the Portfolio. These percentages differ, and American National is paid
a greater percentage by some investment advisors or distributors than other
advisors or distributors. These agreements reflect administrative and other
services provided by American National.
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ADDITION, DELETION OR SUBSTITUTION OF INVESTMENTS
American National reserves the right, subject to applicable law, to make
additions to, deletions from, or substitutions for the shares that are held in
the Separate Account or that the Separate Account may purchase. If the shares of
an Eligible Portfolio are no longer available for investment or if in American
National's judgment further investment in any Eligible Portfolio should become
inappropriate in view of the purposes of the Separate Account, American National
may redeem the shares, if any, of that Eligible Portfolio, and substitute shares
of another registered open-end management company. American National will not
substitute any shares attributable to a Contractowner's interest in a Subaccount
of the Separate Account without notice and prior approval of the SEC and
possibly state insurance authorities, to the extent required by the 1940 Act or
other applicable law. The Separate Account may, to the extent permitted by law,
purchase other securities for other contracts or permit a conversion between
contracts upon request by the Contractowners.
American National also reserves the right to establish additional Subaccounts
of the Separate Account, each of which would invest in shares corresponding to a
new portfolio of the American National Fund or in shares of another investment
company having a corresponding investment objective. American National may
eliminate one or more Subaccounts with SEC approval if marketing needs, tax
considerations or investment conditions warrant. Any new Subaccounts may be made
available to existing Contractowners on a basis to be determined by American
National.
If any of these substitutions or changes are made, American National may by
appropriate endorsement change the Contract to reflect the substitution or
change. If American National deems it to be in the best interest of
Contractowners, and subject to any approvals that may be required under
applicable law, the Separate Account may be operated as a management company
under the 1940 Act, it may be registered under that Act if registration is no
longer required, or it may be combined with other American National Separate
Accounts. In addition, American National may, when permitted by law, restrict or
eliminate any voting rights as to the Separate Account.
The Contractowner will be notified of any material change in the investment
policy of any Eligible Portfolio in which the Contractowner has an interest.
Unless Contractowners have directed a different allocation, shares of the
Eligible Portfolios will be redeemed, pro rata, to the extent necessary for
American National to collect charges under the Contract, to pay the surrender
value upon full or partial surrenders of the Contracts, to provide benefits
under the Contract, or to 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.
Each Contractowner should periodically consider the allocation among the
Subaccounts and the Fixed Account in light of current market conditions and the
investment risks attendant to investing in the Eligible Portfolios.
RESOLVING MATERIAL CONFLICTS
The Eligible Portfolios presently serve as the investment medium for the
Contracts. In addition, the Eligible Portfolios (other than the portfolios of
the American National Fund) are available to registered separate accounts of
insurance companies, other than American National, offering variable annuity and
variable life insurance contracts.
We do not currently foresee any disadvantages to you resulting from the
Eligible Portfolios selling shares to fund products other than the Contracts.
However, there is a possibility that a material conflict of interest may arise
between Contractowners whose Accumulation Value is allocated to the Separate
Account and the owners of variable life insurance policies and variable annuity
contracts issued by other companies whose values are allocated to one or more
other separate accounts investing in any one of the Eligible Portfolios. Shares
of certain Eligible Portfolios may also be sold to certain qualified pension and
retirement plans. As a result, there is a possibility that a material conflict
may arise between the interests of Contractowners or owners of other contracts
(including contracts issued by other companies), and such retirement plans or
participants in such retirement plans. In the event of a material conflict,
American National will take any necessary steps, including removing the Separate
Account from that Eligible Portfolio, to resolve the matter. The Board of
Directors of each Eligible Portfolio will monitor events in order to identify
any material conflicts that may arise and determine what action, if any, should
be taken in response to those events or conflicts. See the accompanying
prospectuses for the Eligible Portfolios for more information.
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FIXED ACCOUNT
During the Accumulation Period, Contractowners may elect to allocate all or a
portion of their Net Purchase Payment to the Fixed Account and, subject to
certain limitations, they may also transfer Accumulation Value from the
Subaccounts to the Fixed Account. Transfers from the Fixed Account to the
Subaccount are restricted. (See Transfers Prior to Annuity Date, page 17.)
Net Purchase Payments allocated to the Fixed Account and transfers from a
Subaccount to the Fixed Account are placed in the General Account of American
National. The General Account includes all of American National's assets except
those segregated in its separate accounts. American National has the sole
discretion to invest the assets of its General Account, subject to applicable
law. American National bears an investment risk for all amounts allocated or
transferred to the Fixed Account and interest credited thereto, less any
deduction for charges and expenses, whereas the Contract owner bears the
investment risk that the declared rate will fall to a lower rate after the
expiration of a declared rate period. Because of exemptive and exclusionary
provisions, interests in the General Account have not been registered under the
Securities Act (the "1933 Act"), nor is the General Account registered as an
investment company under the 1940 Act. Accordingly, neither the General Account
nor any interest therein is generally subject to the provisions of the 1933 or
1940 Act. American National understands that the staff of the SEC has not
reviewed the disclosures in this Prospectus relating to the Fixed Account
portion of the Contract; however, disclosures regarding the Fixed Account
portion of the Contract may be subject to generally applicable provisions of the
federal securities laws regarding the accuracy and completeness of statements
made in prospectuses.
American National guarantees that it will credit interest to the Fixed Account
at an effective annual rate of at least 3.0% compounded daily. American National
may, at its discretion, declare higher interest rate(s) for amounts allocated or
transferred to the Fixed Account.
CONTRACTS
PURPOSE OF THE CONTRACTS
The Contracts described in this Prospectus may be issued for use with
retirement plans and trusts qualified under the Internal Revenue Code of 1986,
as amended (the "Code"), for favorable tax treatment ("Qualified Contracts") and
for use with plans and trusts which are not so qualified ("Non-Qualified
Contracts"). See section entitled "Federal Tax Considerations-Taxation of
Qualified Plans," page 26 for further details.
The terms of the Contracts may only be changed by mutual agreement between
American National and each Contractowner, except as described in "Substitution
of Investments,"on page 15; for changes required to make the Contracts comply
with any law or regulation issued by a governmental agency to which American
National or the Contracts are subject; and for changes necessary to assure
continued qualification of the Contracts under the Internal Revenue Code.
TYPE OF CONTRACTS
This Prospectus offers a Deferred Annuity Contract:
DEFERRED ANNUITY CONTRACT
This type of Contract allows an individual to vary the Purchase Payments or
pay a single Purchase Payment. There are two types of Flexible or Single
Purchase Payment Deferred Annuities: Non-qualified and Qualified. Annuity
payments will commence at a later date.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
Individuals wishing to purchase a Contract must complete an application and
provide the required initial Purchase Payment which will be sent to American
National's Home Office. (See page 17, Allocation of Purchase Payments.) If an
incomplete application cannot be completed within five days of its receipt, the
applicant will be notified of the reasons for the delay and any payment received
will be returned immediately unless the applicant specifically consents to have
American National retain the payment pending completion of the application.
Initial Net Purchase Payments will be credited to the Contract within two
business days after a complete application is received at American National's
Home Office.
As indicated earlier, Contractowners have a "free look" period, generally ten
days, within which a Contractowner can return the Contract to American
National's Home Office and American National will then refund the greater of all
Purchase Payments made by the Contractowner or the Accumulation Value determined
as of the date the Contract is returned to American National's Home Office or to
one of American National's authorized agents, plus any premium taxes, mortality
and expense risk fees, administrative charges and advisory fees deducted. The
"free look" period is established by state law and generally runs ten days after
the Contractowner receives the Contract. American National requires that all Net
Purchase Payments received by American National during the 15-day period after
the Date of Issue be allocated to the Subaccount of the American National Money
Market Portfolio. Thereafter, such amounts allocated to the Subaccount of the
American National Money Market Portfolio and Net Purchase Payments paid are
allocated as directed by the Contractowner.
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No surrender charges are assessed on premiums returned during this "free look"
period.
Contracts require a minimum initial payment of $5,000. The maximum Purchase
Payment under any Deferred Annuity Contract is $1,000,000 without the prior
approval of American National.
The minimum subsequent payments are $1,000. These amounts may be changed at
the sole discretion of American National. In addition, American National
reserves the right to terminate any Contract for certain specified reasons,
including failure of the Accumulation Value to meet certain specified minimums.
ALLOCATION OF PURCHASE PAYMENTS
After the "free look" period, Net Purchase Payments will be allocated to each
Subaccount in accordance with the written instructions contained in the
application. The Contractowner indicates in the application one or more
Subaccounts and/or the Fixed Account to which a specified portion or portions of
the Net Purchase Payment should be applied, except that no allocation will be
permitted which would result in less than 1% of the Net Purchase Payment being
allocated to any one Subaccount and/or the Fixed Account. The minimum initial
deposit in any Subaccount and/or the Fixed Account is $500. Changes in
allocation of future Net Purchase Payments (with the same 1% minimum) may be
made at any time by written instruction to the Home Office or by telephone
instruction, provided that a properly completed Telephone Transfer Authorization
Form is on file with American National.
CREDITING OF ACCUMULATION UNITS
During the Accumulation Period, all Net Purchase Payments received will
purchase Accumulation Units in the Subaccount selected and/or will be allocated
to the Fixed Account. The number of Accumulation Units purchased is determined
by dividing the dollar amount of the Net Purchase Payment allocated to the
Subaccount by the Accumulation Unit Value for that Subaccount next computed
following allocation of the Net Purchase Payment to such Subaccount.
DETERMINING THE ACCUMULATION UNIT VALUES
The Accumulation Unit Value of each Subaccount reflects the investment
performance of that Subaccount. The Accumulation Unit Value of each Subaccount
shall be calculated by: (i) multiplying the per share net asset value of the
corresponding Eligible Portfolio on the Valuation Date times the number of
shares held by the Subaccount, after the purchase or redemption of any shares on
that date; (ii) subtracting therefrom a charge for the administrative fee and
the mortality and expense risk fee for that Subaccount and (iii) dividing the
result by the total number of units held in the Subaccount on the Valuation
Date, before the purchase or redemption of any units on that date. The
Accumulation Unit Value for each Subaccount shall be calculated at the end of
each Valuation Period. Investment performance of the portfolio companies,
portfolio company expenses, and the deduction of certain charges affect the
Accumulation Unit Value for each Subaccount.
TRANSFERS PRIOR TO ANNUITY DATE
Accumulation Value may be transferred among the Subaccounts and/or the Fixed
Account subject to the following limits. The transfers may be requested in
person, by mail, or by telephone. A Telephone Transfer Authorization Form must
be on file at American National's Home Office before any telephone instructions
will be allowed. The total amount transferred from each Subaccount must be at
least $250, or the balance of the Subaccount, if less. The minimum amount that
may remain in a Subaccount after a transfer is $100. American National will
effectuate transfers and determine all values in connection with transfers on
the later of the date designated in the request or at the end of the Valuation
Period during which the transfer request is received. Transfers from the Fixed
Account to the Subaccounts are allowed subject to the following limits. The
maximum amount which may be transferred from the Fixed Account to the
Subaccounts is the greater of (a) ten percent of the amount in the Fixed
Account, or (b) $1,000.
The first twelve transfers per Contract Year will be permitted free of charge.
Any additional transfers will be charged a $10.00 fee at the time of the
transfer and will be deducted from the amount transferred. (See Exchange Fee,
page 19). American National may at any time revoke or modify the transfer
privilege, including the number and minimum amount transferable. For a
discussion of transfers after the Annuity Date, see "Allocation of Benefits" at
page 22).
American National will employ reasonable procedures to confirm that the
transfer instructions communicated by telephone are genuine, and if American
National follows those procedures it will not be liable for any losses due to
unauthorized or fraudulent instructions. American National may be liable for
such losses if it does not follow those reasonable procedures. The procedures
American National will follow for telephone transfers include some form of
personal identification prior to acting on instructions received by telephone,
providing written confirmation of the transaction, and making a tape recording
of the instructions givin by telephone.
DOLLAR COST AVERAGING
Under the dollar cost averaging program, the Contractowner can instruct
American National to automatically transfer, on a periodic basis, a
predetermined amount or percentage specified by the Contractowner 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, and
the amount transferred each time must be at least $1,000 in total. The minimum
transfer to each Subaccount must be at least $100. At the time the program
begins, there must be at least $10,000 of Accumulation Value in the Contract.
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Dollar cost averaging results in the purchase of more Accumulation Units when
the Accumulation Unit Value is low, and fewer units when the Accumulation Unit
value is high. However, there is no guarantee that the dollar cost averaging
program will result in higher Accumulation Value or otherwise be successful.
The Contractowner can request participation in the dollar cost averaging
program when purchasing the Contract or at a later date. Transfers will begin as
specified by the Contractowner(or if not a Valuation Period, the next following
Valuation Period). The Contractowner can specify that only a certain number of
transfers will be made, in which case the program will terminate when that
number of transfers has been made. Otherwise, the program will terminate, if on
a transfer date, the Accumulation Value is less than $5,000.
The Contractowner can increase or decrease the amount of the transfers or
discontinue the program by sending written notice to American National or by
telephone, if a telephone transfer authorization form is on file. There is no
charge for participation in this program.
ASSET ALLOCATION PROGRAM
Under the Asset Allocation Program, the Contractowner can instruct American
National to allocate Purchase Payments and Accumulation Value among the
Subaccounts and the Fixed Account in accordance with allocation instructions
specified by the Contractowner or allocation instructions recommended by
American National and approved by the Contractowner. American National will
rebalance a Contractowner's investment by allocation Purchase Payments and
transferring Accumulation Value among the Subaccounts and the Fixed Account to
ensure conformity with current allocation instructions. Rebalancing will be
performed on a calendar quarterly, semi-annual or annual basis as specified by
the Contractowner. Transfers of Accumulation Value made pursuant to this program
will not be counted in determining whether the Exchange Fee applies. At the time
the program begins, there must be at least $10,000 of Accumulation Value under
the Contract. The Program will be discontinued if, on a rebalancing date, the
Accumulation Value is less than $5,000.
The Contractowner can request participation in the Asset Allocation Program when
purchasing the Contract or at a later date. The Contractowner can change his
allocation percentage or discontinue the program by sending written notice or
calling American National by telephone. There is no charge for participation in
this program.
CONTRACTOWNER INQUIRIES
Contractowner inquiries should be addressed to American National Insurance
Company, One Moody Plaza, Galveston, Texas 77550-7999, or made by calling (409)
763-4661.
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CHARGES AND DEDUCTIONS DURING THE ACCUMULATION PERIOD
SURRENDER CHARGE
Since no deduction for a sales charge is made from Purchase Payments, a
contingent deferred sales charge (a "Surrender Charge") is imposed on certain
partial and full withdrawals to cover certain expenses relating to the
distribution of the Contracts. An amount of the Accumulation Value equal to the
greater of (i) Accumulation Value less total Purchase Payments made, or (ii) 10%
of the Accumulation Value in a Contract Year, may be withdrawn without a
Surrender Charge. The 10% annual free withdrawal amount is determined as
follows. Each time a withdrawal is made, the amount of the withdrawal is divided
by the Accumulation Value at the time of the withdrawal. The resulting
percentage then applies towards the 10% annual free withdrawal amount. On
withdrawals of that portion of the Accumulation Value representing Purchase
Payments, a Surrender Charge is imposed based upon the number of Contract Years
since the Contract Year in which the Purchase Payments withdrawn were paid, on a
first paid, first withdrawn basis. The Surrender Charge is a maximum of 7% of
the Purchase Payment withdrawn and grades down to zero in the eighth Contract
Year after the Purchase Payment being withdrawn was made .
In no event will the sum of all surrender charges assessed exceed 8.5% of
total Purchase Payments paid. (See the chart under "Contractowners Transaction
Expenses" at Page 7)
OTHER CHARGES
(a) Administrative Charges
American National's administrative charges consist of an annual contract
fee and a daily administrative asset fee. These administrative charges are
to cover all fixed and varying costs of administering the Contract.
In order to cover American National's fixed cost of administration of the
contract, the annual contract fee of $35.00 is charged at the end of each
Contract Year against any funds held in the Separate Account. If all of the
funds are in the Fixed Account, no annual contract fee is charged. If the
Accumulation Value is greater than $50,000 on the last day of a Contract
Year, no annual contract fee is charged.
An administrative asset fee is charged daily at an annual rate of 0.10% to
each Subaccount to cover the varying costs of a Deferred Annuity Contract.
(b) State Premium Taxes
An amount for state premium taxes (which presently range from 0% to 3.5%)
will be deducted if assessed by a given state. American National's current
practice is to deduct any state premium tax imposed by a State upon
annuitization of the Contracts. In some states, however, premium taxes must
be deducted from Purchase Payments made under the Contracts when the
payments are received by American National.
(c) Mortality and Expense Risk Fee
American National assumes a number of risks under the Contracts. While
annuity payments will vary in accordance with the investment performance of
the selected Subaccounts, the amount of such payments will not be decreased
because of adverse mortality experiences of Annuitants as a class or
because of an increase in actual expenses of American National over the
expense charges provided for in the Contracts. American National assumes
the risk that Annuitants as a class may live longer than expected
(necessitating a greater number of annuity payments) and that fees deducted
may not prove sufficient to cover its actual costs. In assuming these
risks, American National agrees to continue annuity payments under life-
contingent annuity options determined in accordance with the annuity tables
and other provisions of the Contracts to the Annuitant or other payee for
as long as he or she may live. In addition, American National is at risk
for the death benefits payable under the Contracts to the extent that the
death benefit in such cases exceeds the Accumulation Value.
For American National's contractual promises to accept these risks, a 0.80%
per annum Mortality Risk Fee and a 0.35% per annum Expense Risk Fee will be
assessed daily against the Separate Account based on the value of its net
assets. This fee is assessed during the Accumulation Period and during the
Annuity Period.
(d) Charges for Taxes
Currently, no charge will be made against the Separate Account for federal,
state or local income taxes. American National may, however, make such a
charge in the future if income or gains within the Separate Account will
incur any federal, or any significant state or local tax treatment or if
tax treatment of American National changes. Charges for such taxes, if any,
would be deducted from the Separate Account and/or the Fixed Account.
American National would not realize a profit on such taxes with respect to
the Contracts.
(e) Exchange Fee
An exchange fee of $10.00 will be imposed for each additional transfer
among the Subaccounts and Fixed Account after twelve transfers per Contract
Year to compensate American National for the costs of effecting the
transfer. Since the fee reimburses American National for the cost of
effecting the transfer only, American National does not expect to make any
profit from the exchange fee. This fee will be deducted from the amount
transferred. The amount of the transfer charge will not be increased.
DEDUCTION OF FEES
When annual contract fees are deducted from the Accumulation Value of a
Contract, the deductions shall be allocated among the Subaccounts in the same
proportion as the Accumulation Value in each Subaccount bears to the total
Accumulation Value on that date.
EXCEPTIONS TO CHARGES
The surrender charges, mortality and expense risk fees and
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administrative charges may be reduced for sales of Contracts to a trustee,
employer, or similar entity representing a group where American National
determines that such sales result in savings of sales or administrative
expenses. In addition, directors, officers and bona fide full-time employees
(and their spouses and minor children) of SM&R and American National are
permitted to purchase Contracts with substantial reduction of the surrender
charges, mortality and expense risk fees, or administrative charges.
The Contracts may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of American
National and its affiliated companies, and spouses and immediate family members
(i.e., children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contracts, and spouses and immediate family
members of the foregoing. If sold under these circumstances, a Contract may be
credited with an amount that reflects in part or in whole any cost savings
resulting from the Contract being sold directly, rather than through an agent
with an associated commission, but only if such credit will not be unfairly
discriminatory to any person.
DISTRIBUTIONS UNDER THE CONTRACT
ACCUMULATION PERIOD
FULL AND PARTIAL SURRENDERS
Any Contract may be surrendered in full or partially during the Accumulation
Period, subject to the limitations discussed herein. If a partial surrender
would leave less than $1,000 total Accumulation Value in the Contract, then the
Contract will be fully surrendered. A request for a partial surrender should
specify the allocation of that surrender, as applicable, from the Fixed Account
and each Subaccount. In the absence of specification, American National will
take amounts in the same proportion as needed to satisfy the surrender in the
manner set forth in "Deduction of Fees," on page 19. Upon a partial surrender,
the amount of the partial surrender and any surrender charges will be deducted
from the Accumulation Value.
Upon receipt of an application for a partial or full surrender of a Contract
signed by the Contractowner, the applicable Accumulation Unit Value will be that
next determined after such application is received in American National's Home
Office. The Accumulation Value of a Contract which is available for full
surrender may be determined by multiplying the number of Accumulation Units for
each Subaccount times the Accumulation Unit Value at that time, adding any
Accumulation Value in the Fixed Account and deducting any surrender charge.
Partial or full surrenders will be paid within seven days of receipt of the
written request in proper form, except as described below.
If at the time the Contractowner makes a surrender request, he or she has not
provided American National with a written election not to have federal and state
income taxes withheld, American National is required by law to withhold such
taxes from the taxable portion of any surrender, and to remit that amount to the
federal and/or state government.
SYSTEMATIC WITHDRAWAL PROGRAM
Under the Systematic Withdrawal Program, the Contractowner can instruct
American National to make automatic payments of a predetermined dollar amount of
Accumulation Value on a monthly, quarterly, semi-annually or annually from a
specified Subaccount. The minimum systematic withdrawal payment is $100. The
minimum systematic withdrawal from each Subaccount is $50. Systematic
withdrawals can be started at issue or at some date in the future. American
National must receive written notification from the Contractowner specifying the
dollar amount and the mode of payment. The Contractowner may specify the
Subaccount from which systematic withdrawals will be made. If the Contractowner
does not specify the Subaccounts from which systematic withdrawals are to be
taken, systematic withdrawals will be taken from each Subaccount in the
proportion that the Accumulation Value in each Subaccount bears to the total
Accumulation Value of the Policy. Surrender Charges will apply in accordance
with its terms.
A qualified tax adviser should be consulted before a systematic withdrawal is
requested since distributions may be taxable and subject to a penalty tax. See
Federal Tax Considerations, on page 23.
Under the Systematic Withdrawal Program, the Contractowner can elect to
participate in the Minimum Distributions Program by instructing American
National to calculate and make minimum distributions that may be required if the
Contract is used with a qualified plan. (See "Taxation of Qualified Plans," page
26.) American National will determine the amount that is required to be
distributed from the Contract based on the information the Contractowner
provides and various choices the Contractowner makes. In order to participate in
the Minimum Distributions Program, the Contractowner must notify American
National of such election in writing in the calendar year during which the
Contractowner attains age 70 1/2. The Minimum Distributions Program is subject
to all the rules applicable to the Systematic Withdrawal Program. In addition,
certain rules apply only to the Minimum Distributions Program. For a description
of the requirements applicable to the Minimum Distributions Program, see
"Minimum Distributions Program" in the Statement of Additional Information, page
4. Numerous special tax rules apply to Contracowners whose Contracts are used
with a qualified plan. Contractowners should consult a tax advisor before
electing to participate in the Minimum Distributions Program.
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WAIVER OF SURRENDER CHARGES
American National will waive the Surrender Charge upon Partial Surrenders,
systematic withdrawals and Full Surrenders in the event the Contractowner
becomes confined to a hospital, hospice facility or convalescent care facility,
disabled, diagnosed with a terminal illness or involuntarily unemployed. Those
waivers and any restrictions associated with such waivers are set forth below:
A. NURSING HOME WAIVER
The Surrender Charge will not be imposed as a result of any withdrawal made
pursuant to the Contractowner's confinement, upon the written proof from a
licensed physician, to the following facilities for 60 or more consecutive days:
(a) a hospital licensed or recognized as a general hospital by the state in
which it is located and is engaged in providing or operating diagnostic and
major surgery facilities for the medical care and treatment of injured and sick
persons on an inpatient basis for which a charge is made and provides 24-hour
nursing service by or under the supervision of a graduate registered
nurse(R.N.); (b)convalescent care facility licensed by the state as a
convalescent nursing facility, a skilled nursing facility, a convalescent
hospital, a convalescent unit of a hospital, an intermediate care facility, or a
custodial care facility and provides continuous nursing service by or under the
supervision of a physician or a graduate registered nurse(R.N.) and maintains a
daily record of each patient which is available for review by American National
and administers a planned program of observation and treatment by a physician
which is in accordance with existing standards of medical practice for the
injury or sickness causing the confinement; and (c) hospice facility which
provides a formal program of care for terminally ill patients whose life
expectancy is less than 6 months, provided on an inpatient basis and directed by
a physician and is licensed, certified or registered in accordance with state
law. Proof of confinement must be provided. This waiver only applies to
surrenders and withdrawals requested no later than 90 days of the last day of
confinement to such facility. The nursing home waiver is not available if any
Contractowner is confined to a hospital, nursing home or hospice facility on the
Date of Issue and if the application is signed by power of attorney. The
Contractowner must be age 80 or younger on the Date of Issue and must have
entered the hospital, convalescent care facility or hospice facility after 90
days from the Date of Issue.
B. DISABILITY WAIVER
The Surrender Charge will not be imposed upon any withdrawal where either
Contractowner is physically disabled. American National requires proof of such
disability, including written confirmation of receipt and approval of any claim
for Social Security Disability Benefits. Proof of continued disability may be
required through the date of any partial surrender or systematic withdrawal.
American National reserves the right to have any Contractowner claiming such
disability examined by a licensed physician. American National will not accept
any additional Purchase Payments under a Contract once the disability waiver has
been elected. The disability waiver is not available if any Contractowner is
receiving Social Security Disability Benefits on the Date of Issue or is age 65
or older. The disability waiver may not be available in all states.
C. INVOLUNTARY UNEMPLOYMENT WAIVER
American National will waive the Surrender Charge for any partial surrender or
systematic withdrawal in the event the Contractowner becomes unemployed. The
involuntary unemployment waiver is available upon submission of a letter from a
state Department of Labor indicating the Contractowner was employed at least 60
days prior to the election of such waiver. The involuntary unemployment waiver
may be exercised only once and is not available if any Contractowner or
Annuitant is receiving unemployment benefits on the Date of Issue. The
involuntary unemployment waiver may not be available in all states.
D. TERMINAL ILLNESS WAIVER
American National will waive the Surrender Charge for any surrenders or
withdrawals where the Contractowner is diagnosed with a terminal illness.
American National will require proof of such illness including written
confirmation from a licensed physician. American National reserves the right to
have a Contractowner diagnosed with such illness examined by a licensed
physician. American National will not accept any additional Purchase Payments
under a Contract once the terminal illness waiver has been elected. The terminal
illness waiver is not available if any Contractowner is diagnosed with a
terminal illness prior to or on the Date of Issue. The terminal illness waiver
may not be available in all states.
DEATH BENEFIT DURING ACCUMULATION PERIOD
In the event of Annuitant's death prior to the Annuity Date, a death benefit
will be payable equal to the greater of: (i) Accumulation Value on the date due
proof of death is received by American National at its Home Office, or (ii) the
Minimum Guaranteed Death Benefit on the Contract. The death benefit will be paid
in a lump sum to the beneficiary named in the contract within seven business
days of receipt of proof of death in proper form.
In lieu of payment in one lump sum, the Contractowner may elect that the death
benefit be applied under any one of the annuity options described on page 22. If
the Contractowner did not make such an election, the beneficiary may do so. The
person selecting the annuity option settlement may also designate contingent
beneficiaries to receive any further amounts due, should the first beneficiary
die before completion of the specified payments. The manner in which annuity
payments to the beneficiary are determined and in which they may vary from month
to month are described under "Annuity Period," on page 22.
Other rules relating to distributions at death apply to Qualified Contracts.
You should consult your legal counsel and tax adviser regarding these rules and
their impact on Qualified Contracts. (See "Qualified Plans," on page 26.)
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ANNUITY PERIOD
All or a part of any amount payable at the Annuity Date may be applied to any
of the Annuity Options. American National will discharge in a single sum any
liability under an assignment of the Contract and any applicable federal, state,
municipal or other governmental authority taxes, fees or assessments based on or
predicated on the purchase payments of this contract which have not otherwise
been deducted or offset. The remaining amount is the net sum payable. The
minimum amount that American National will apply to an Annuity Option is $5,000.
American National's consent is required for any payment to a corporation,
association, partnership, or trustee.
ELECTION OF ANNUITY DATE AND FORM OF ANNUITY
(a) Non-Qualified Contracts
The date on which annuity payments are to begin and the form of annuity are
elected in the application. A Contract may not be purchased after age 85
and annuity payments must begin no later than age 95.
(b) Qualified Contracts
The date on which annuity payments are to begin and the form of annuity are
elected in the application. A Contract may not be purchased after age 85
and under the Internal Revenue Code annuity payments must begin no later
than age 95, or in some cases, the later of April 1st of the calendar year
in which the Annuitant reaches age 70-1/2 or retires.
If no election of an Annuity Date is made under a Contract, American
National reserves the right to automatically begin payments at age 95 under
Option 2, Life Annuity with 120 monthly payments certain. Once an Annuity
Payment is made, the Annuity Option can not be changed to another Annuity
Option. (See "Federal Tax Considerations" on page 23.)
ALLOCATION OF BENEFITS
If no election is made to the contrary, the Accumulation Units of each
Subaccount will be changed into Annuity Units and applied to provide a Variable
Annuity based on that Subaccount.
In lieu of this automatic allocation of annuity benefits the Contractowner may
elect to transfer his or her Accumulation Units to any other Eligible Portfolio.
After the Annuity Date, transfers among Subaccounts may be made twelve times
each Contract Year. Each Contractowner may transfer Annuity Units of one
Subaccount into Annuity Units of another Subaccount and/or the Fixed Account as
discussed above at any time other than during the five-day interval prior to and
including any annuity payment date. There are no transfers allowed during the
Annuity Period from the Fixed Account to the Separate Account.
No election may be made for any individual unless such election would produce
an initial annuity payment of at least $100.
ANNUITY OPTIONS
The following annuity options are available.
Option 1 - Life Annuity - Annuity payment payable monthly during the lifetime
of an individual, ceasing with the last annuity payment due prior to the death
of the individual. This option offers the maximum level of monthly annuity
payments since there is no provision for a minimum number of annuity payments or
a death benefit for beneficiaries. It would be possible under this option for an
individual to receive only one annuity payment if death occurred prior to the
due date of the second annuity payment, two if death occurred before the third
annuity payment date, etc.
Option 2 - Life Annuity with 10 or 20 Years Certain - An annuity payable
monthly during the lifetime of an individual with payments made for a period
certain of not less than 10 or 20 years, as elected. The annuity payments will
be continued to a designated beneficiary until the end of the period certain.
Option 3 - Unit Refund Life Annuity - An annuity payable monthly during the
lifetime of an individual with annuity payments made for a period certain not
less than the number of months determined by dividing the amount applied under
this option by the amount of the first monthly annuity payment. This option
guarantees that the annuity units but not the dollar value applied under a
Variable Annuity payout will be repaid to the Annuitant or his beneficiary.
Option 4 - Joint and Survivor Annuity - An annuity payable monthly during the
joint lifetime of an individual and another named individual and thereafter
during the lifetime of the survivor, ceasing with the last annuity payment due
prior to the death of the survivor. It would be possible under this option, for
only one annuity payment to be made if both individuals under the option died
prior to the second annuity payment date, or only two annuity payments if both
died prior to the third annuity payment date, etc.
Option 5 - Installment Payments, Fixed Period - An amount payable monthly for
any specified number of years of at least 5, but not exceeding 30. The amount of
each Variable Annuity payment will be determined by multiplying (a) and (b)
where (a) is the Annuity Unit Value on the day the annuity payment is made and
(b) is the number of Annuity Units applied under this Option divided by the
number of remaining monthly annuity payments.
Option 6 - Equal Installment Payments, Fixed Amount- An amount payable in
equal monthly installments (not less than $6.25 per $1,000 applied) until the
amount applied, adjusted daily by the investment results, is exhausted. The
final annuity payment will be the remaining sum left with American National.
Option 7 - Deposit Option - The amount due may be left on deposit with
American National for placement in its Fixed Account with interest at the rate
of not less than 3.0% per year. Interest will be paid annually, semiannually,
quarterly or monthly as elected. This option may not be available under certain
Qualified Contracts.
At any time, any amount remaining under Option 5, 6 or 7 may be withdrawn as a
lump sum or, if that amount is at least
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$5,000, may be applied under any one of the first four Options. The lump sum
payment requested will be paid within seven days of receipt of the request at
the Home Office based on the value next computed after receipt of the request.
Other Annuity Forms - Provision may be made for annuity payments in any
reasonable arrangement mutually agreed upon.
If the beneficiary dies while receiving annuity payments certain under Option
2, 3, 5, or 6 above, the present value will be paid in a lump sum to the estate
of the beneficiary.
VALUE OF VARIABLE ANNUITY PAYMENTS:
ASSUMED INVESTMENT RATES
The annuity tables in the Contract which are used to calculate the annuity
payments are based on an "assumed investment rate" of 3.0%. If the actual
investment performance of the particular Subaccount selected is such that the
net investment return to the Contract is 3.0% per annum, the annuity payments
will remain constant. If the net investment return exceeds 3.0%, the annuity
payments will increase and if the return is less than 3.0%, the annuity payments
will decline.
The annuity payment will be greater for shorter guaranteed periods than for
longer guaranteed periods, and greater for life annuities than for joint and
survivor annuities, because the life annuities are expected to be made for a
shorter period.
ANNUITY PROVISIONS
Non-qualified life contingent annuity payments are determined on the basis of
the mortality table [1983 Table "a" with Projection Scale G, and 3.0% interest]
which generally reflects the age and sex of the Annuitant and the type of
annuity option selected, and varies with the investment performance of the
Eligible Portfolios in which the Contractowner has invested. The attained age
at settlement will be adjusted downward by one year for each full five-year
period that has lapsed since January 1, 1993.
Qualified life contingent annuity payments are determined on the basis of the
mortality table [1983 Table "a" (female) with Projection Scale G, and 3.0%
interest] which generally reflects the age of the Annuitant and type of annuity
option selected and varies with the investment performance of the Eligible
Portfolios in which the Contractowner has invested. The attained age at
settlement will be adjusted downward by one year for each full five-year period
that has lapsed since January 1, 1993.
Payment of any amount upon surrender, benefits payable in connection with
death, annuity payments, and transfers may be postponed whenever: (i) the New
York Stock Exchange is closed other than customary week-end and holiday
closings, or trading on the New York Stock Exchange is restricted as determined
by the Securities and Exchange Commission ("Commission"); (ii) the Commission by
order permits postponement for the protection of the Contractowners; or (iii) an
emergency exists, as determined by the Commission, as a result of which disposal
of securities is not reasonably practicable or it is not reasonably practicable
to determine the value of the Separate Account's net assets.
FEDERAL TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION IS GENERAL AND
IS NOT INTENDED AS TAX ADVICE
INTRODUCTION
This discussion is not intended to address the tax consequences resulting from
all of the situations in which a person may be entitled to or may receive a
distribution under the annuity contract issued by American National. Any person
concerned about these tax implications should consult a competent tax advisor
before initiating any transaction. This discussion is based upon American
National's understanding of the present federal income tax laws, as they are
currently interpreted by the Internal Revenue Service ("IRS"). No representation
is made as to the likelihood of the continuation of the present federal income
tax laws or of the current interpretation by the IRS. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-qualified basis or purchased and used
in connection with plans qualifying for favorable tax treatment. The Qualified
Contract is designed for use by individuals whose Purchase Payments are
comprised solely of proceeds from and/or contributions under retirement plans
which are intended to qualify as plans entitled to special income tax treatment
under sections 401(a), 403(b), 408, or 457 of the Code. The ultimate effect of
federal income taxes on the amounts held under a Contract, or annuity payments,
and on the economic benefit to the owner, the annuitant, or the beneficiary
depends on the type of retirement plan, on the tax and employment status of the
individual concerned, and on American National's tax status. In addition,
certain requirements must be satisfied in purchasing a Qualified Contract with
proceeds from a tax-qualified plan and receiving distributions from a Qualified
Contract in order to continue receiving favorable tax treatment. Therefore,
purchasers of Qualified Contracts should seek competent legal and tax advice
regarding the suitability of a Contract for their situation, the
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applicable requirements, and the tax treatment of the rights and benefits of a
Contract. The following discussion assumes that Qualified Contracts are
purchased with proceeds from and/or contributions under retirement plans that
qualify for the intended special federal income tax treatment.
TAX STATUS OF THE CONTRACT
Diversification Requirements. Section 817(h) of the Code provides that
separate account investment underlying a contract must be "adequately
diversified" in accordance with Treasury regulations in order for the contract
to qualify as an annuity contract under Section 72 of the Code. The Separate
Account, through each underlying fund, intends to comply with the
diversification requirements prescribed in regulations under Section 817(h) of
the Code, which affect how the assets in the various subaccounts may be
invested. Although American National does not have direct control over the funds
in which the Separate Account invests, we believe that each fund in which the
Separate Account owns shares will meet the diversification requirements, and
therefore, the Contract will be treated as an annuity contract under the Code.
In certain circumstances, owners of variable annuity contracts may be
considered the owners, for federal income tax purposes, of the assets of the
separate account used to support their contracts. In those circumstances, income
and gains from the separate account assets would be includible in the variable
annuity contract owner's gross income. The IRS has stated in published rulings
that a variable contract owner will be considered the owner of separate account
assets if the contract owner possesses incidents of ownership in those assets,
such as the ability to exercise investment control over the assets. The Treasury
Department has also announced, in connection with the issuance of regulations
concerning investment diversification, that those regulations "do not provide
guidance concerning the circumstances in which investor control of the
investments of a segregated asset account may cause the investor (i.e., the
contract owner), rather than the insurance company, to be treated as the owner
of the assets in the account." This announcement also states that guidance
would be issued by way of regulations or rulings on the "extent to which
policyholders may direct their investments to particular subaccounts without
being treated as owners of the underlying assets."
The ownership rights under the Contracts are similar to, but different in
certain respects from, those described by the IRS in rulings in which it was
determined that contract owners were not owners of separate account assets. For
example, the owner of a Contract has the choice of several subaccounts in which
to allocate net purchase payments and Contract values, and may be able to
transfer among subaccounts more frequently than in such rulings. These
differences could result in an owner being treated as the owner of the assets of
the Separate Account. In addition, American National does not know what
standards will be set forth, if any, in the regulations or rulings which the
Treasury Department has stated it expects to issue. American National therefore
reserves the right to modify the Contract as necessary to attempt to prevent the
contract owner from being considered the owner of the assets of the Separate
Account.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, section 72(s) of the Code requires any Non-
Qualified Contract to provide that: (a) if any owner dies on or after the
annuity date but prior to the time the entire interest in the contract has been
distributed, the remaining portion of such interest will be distributed at least
as rapidly as under the method of distribution being used as of the date of that
owner's death; and (b) if any owner dies prior to the annuity date, the entire
interest in the Contract will be distributed within five years after the date of
the owner's death. These requirements will be considered satisfied as to any
portion of the owner's interest which is payable to or for the benefit of a
"designated beneficiary" and which is distributed over the life of such
beneficiary or over a period not extending beyond the life expectancy of that
beneficiary, provided that such distributions begin within one year of that
owner's death. The owner's "designated beneficiary" is the person designated by
such owner as a beneficiary and to whom ownership of the contract passes by
reason of death and must be a natural person. However, if the owner's
"designated beneficiary" is the surviving spouse of the owner, the Contract may
be continued with the surviving spouse as the new owner.
The Non-Qualified Contracts contain provisions which are intended to comply
with the requirements of section 72(s) of the Code, although no regulations
interpreting these requirements have yet been issued. American National intends
to review such provisions and modify them if necessary to assure that they
comply with the requirements of Code section 72(s) when clarified by regulation
or otherwise.
Other rules may apply to Qualified Contracts.
The following discussion assumes that the Contracts will qualify as annuity
contracts for federal income tax purposes.
TAXATION OF ANNUITIES
In General. Section 72 of the Code governs taxation of annuities in general.
American National believes that an owner who is a natural person is not taxed on
increases in the value of a Contract until distribution occurs by withdrawing
all or part of the Accumulation Value (e.g., partial withdrawals and surrenders)
or as annuity payments under the payment option elected. For this purpose, the
assignment, pledge, or agreement to assign or pledge any portion of the
Accumulation Value (and in the case of a Qualified Contract, any portion of an
interest in the qualified plan) generally will be treated as a distribution. The
taxable portion of a distribution (in the form of a single sum payment or
payment option) is taxable as ordinary income.
The owner of any annuity contract who is not a natural person generally must
include in income any increase in the excess of the contract value over the
"investment in the contract" during the taxable year. There are some exceptions
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to this rule, and a prospective owner that is not a natural person may wish to
discuss these with a competent tax advisor.
The following discussion generally applies to Contracts owned by natural
persons.
Partial Withdrawals. In the case of a partial withdrawal from a Qualified
Contract, under section 72(e) of the Code, a ratable portion of the amount
received is taxable, generally based on the ratio of the "investment in the
contract" to the participant's total accrued benefit or balance under the
retirement plan. The "investment in the contract" generally equals the portion,
if any, of any purchase payments paid by or on behalf of the individual under a
Contract which was not excluded from the individual's gross income. For
Contracts issued in connection with qualified plans, the "investment in the
contract" can be zero. Special tax rules may be available for certain
distributions from Qualified Contracts.
In the case of a partial withdrawal (including Systematic Withdrawals) from a
Non-Qualified Contract, under section 72(e), any amounts received are generally
first treated as taxable income to the extent that the Accumulation Value
immediately before the partial withdrawal exceeds the "investment in the
contract" at that time. Any additional amount withdrawn is not taxable.
In the case of a full surrender under a Qualified or Non-Qualified Contract,
the amount received generally will be taxable only to the extent it exceeds the
"investment in the contract."
Section 1035 of the Code generally provides that no gain or loss shall be
recognized on the exchange of one annuity contract for another. If the
surrendered contract was issued prior to August 14, 1982, the tax rules formerly
provided that the surrender was taxable only to the extent the amount received
exceeds the owner's investment in the contract will continue to apply to amounts
allocable to investments in that contract prior to August 14, 1982. In contrast,
contracts issued after January 19, 1985 in a Code section 1035 exchange are
treated as new contracts for purposes for purposes of the penalty and
distribution-at-death rules. Special rules and procedures apply to section 1035
transactions. Prospective owners wishing to take advantage of section 1035
should consult their tax adviser.
Annuity Payments. Although tax consequences may vary depending on the payment
option elected under an annuity contract, under Code section 72(b), generally
(prior to recovery of the investment in the contract) gross income does not
include that part of any amount received as an annuity under an annuity contract
that bears the same ratio to such amount as the investment in the contract bears
to the expected return at the annuity starting date. For variable annuity
payments, the taxable portion is generally determined by an equation that
establishes a specific dollar amount of each payment that is not taxed. The
dollar amount is determined by dividing the "investment in the contract" by the
total number of expected periodic payments. However, the entire distribution
will be taxable once the recipient has recovered the dollar amount of his or her
"investment in the contract." For fixed annuity payments, in general, there is
no tax on the portion of each payment which represents the same ratio that the
"investment in the contract" bears to the total expected value of the annuity
payments for the term of the payments; however, the remainder of each annuity
payment is taxable until the recovery of the investment in the contract, and
thereafter the full amount or each annuity payment is taxable. If death occurs
before full recovery of the investment in the contract, the unrecovered amount
may be deducted on the annuitant's final tax return.
Taxation of Death Benefit Proceeds. Amounts may be distributed from a Contract
because of the death of an owner. Generally, such amounts are includible in the
income of the recipient as follows: (i) if distributed in a lump sum, they are
taxed in the same manner as a full surrender of the contract or (ii) if
distributed under a payment option, they are taxed in the same way as annuity
payments.
Penalty Tax on Certain Withdrawals. In the case of a distribution pursuant to
a Non-Qualified Contract, there may be imposed a federal penalty tax equal to
10% of the amount treated as taxable income. In general, however, there is no
penalty on distributions:
1. made on or after the taxpayer reaches age 59 1/2;
2. made on or after the death of the holder (or if the holder is not an
individual, the death of the primary annuitant);
3. attributable to the taxpayer's becoming disabled;
4. a part of a series of substantially equal periodic payments (not less
frequently than annually) for the life (or life expectancy) of the taxpayer
or the joint lives (or joint life expectancies) of the taxpayer and his or
her designated beneficiary;
5. made under certain annuities issued in connection with structured settlement
agreements; and
6. made under an annuity contract that is purchased with a single purchase
payment when the annuity date is no later than a year from purchase of the
annuity and substantially equal periodic payments are made, not less
frequently than annually, during the annuity payment period.
Other tax penalties may apply to certain distributions under a Qualified
Contract.
Possible Changes in Taxation. In past years, legislation has been proposed
that would have adversely modified the federal taxation of certain annuities.
For example, one such proposal would have changed the tax treatment of non-
qualified annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity. Although as of the date of this
prospectus Congress is not considering any legislation regarding taxation of
annuities, there is always the possibility that the tax treatment of annuities
could change by legislation or other means (such as IRS regulations, revenue
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rulings, judicial decisions, etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date of the
change).
TRANSFERS, ASSIGNMENTS OR EXCHANGES OF A CONTRACT
A transfer of ownership of a Contract, the designation of an annuitant, payee
or other beneficiary who is not also the owner, the selection of certain annuity
dates or the exchange of a Contract may result in certain tax consequences to
the owner that are not discussed herein. An owner contemplating any such
transfer, assignment, or exchange of a Contract should contact a competent tax
advisor with respect to the potential tax effects of such a transaction.
WITHHOLDING
Pension and annuity distributions generally are subject to withholding for the
recipient's federal income tax liability at rates that vary according to the
type of distribution and the recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax withheld from
distributions. Effective January 1, 1993, distributions from certain qualified
plans are generally subject to mandatory withholding. Certain states also
require withholding of state income tax whenever federal income tax is withheld.
MULTIPLE CONTRACTS
All non-qualified deferred annuity contracts that are issued by American
National (or its affiliates) to the same owner during any calendar year are
treated as one annuity contract for purposes of determining the amount
includible in gross income under section 72(e) of the Code. The effects of this
rule are not yet clear; however, it could affect the time when income is taxable
and the amount that might be subject to the 10% penalty tax described above. In
addition, the Treasury Department has specific authority to issue regulations
that prevent the avoidance of section 72(e) of the Code through the serial
purchase of annuity contracts or otherwise. There may also be other situations
in which the Treasury Department may conclude that it would be appropriate to
aggregate two or more annuity contracts purchased by the same owner.
Accordingly, a Contract owner should consult a competent tax advisor before
purchasing more than one annuity contract.
QUALIFIED PLANS
The Contracts are designed for use with several types of qualified plans. The
tax rules applicable to participants in these qualified plans vary according to
the type of plan and the terms and conditions of the plan itself. Special
favorable tax treatment may be available for certain types of contributions and
distributions. Adverse tax consequences may result from contributions in excess
of specified limits; distributions prior to age 59 1/2 (subject to certain
exceptions); distributions that do not conform to specified commencement and
minimum distribution rules; aggregate distributions in excess of a specified
annual amount; and in other specified circumstances. Therefore, no attempt is
made to provide more than general information about the use of the Contracts
with the various types of qualified retirement plans. Contract owners, the
annuitants, and Beneficiaries are cautioned that the rights of any person to any
benefits under these qualified retirement plans may be subject to the terms and
conditions of the plans themselves, regardless of the terms and conditions of
the Contract, but American National shall not be bound by the terms and
conditions of such plans to the extent such terms contradict the Contract,
unless American National consents. American National will amend the Contract as
necessary to conform it to the requirements of such plan. Employers intending to
use the Contract with such plans should seek competent advice. Brief
descriptions follow of the various types of qualified retirement plans in
connection with a Contract.
Corporate Pension and Profit Sharing Plans and H.R. 10 Plans. Section 401(a)
of the Code permits corporate employers to establish various types of retirement
plans for employees, and permits self-employed individuals to establish these
plans for themselves and their employees. Such retirement plans may permit the
purchase of the Contract to provide benefits under the plans. Adverse or other
legal consequences to the plan, to the participant, or to both may result if
this Contract is assigned or transferred to any individual as a means to provide
benefit payments.
Individual Retirement Annuities. Section 408 of the Code permits eligible
individuals to contribute to an individual retirement program known as an
"Individual Retirement Annuity" or "IRA". These IRAs are subject to limits on
the amount that may be contributed, the persons who may be eligible, and on the
time when distributions may commence. Also, distributions from certain other
types of qualified retirement plans may be "rolled over" on a tax-deferred basis
into an IRA. Sales of the Contract for use with IRAs may be subject to special
requirements of the Internal Revenue Service. Employers may establish Simplified
Employee Pension (SEP) Plans to provide IRA contributions on behalf of their
employees. SIMPLE Individual Retirement Annuities. Beginning January 1, 1997,
certain small employers may establish SIMPLE plans as provided by section 408(p)
of the Code, under which employees may elect to defer a percentage of
compensation of up to $6,000 (as increased for cost of living adjustments). The
sponsoring employer is required to make a matching contribution on behalf of
contributing employees. Distributions from a SIMPLE plan are subject to the same
restrictions that apply to IRA distributions and are taxed as ordinary income.
Subject to certain exceptions, premature distributions prior to age 59 1/2 are
subject to a 10% penalty tax, which is increased to 25% if the distribution
occurs within the first two years after the commencement of the employee's
participation in the plan. The failure of the SIMPLE plan to meet Code
requirements may result in adverse tax consequences.
Tax Sheltered Annuities. Section 403(b) of the Code allows employees of
certain section 501(c)(3) organizations and public schools to exclude from their
gross income the purchase payments paid, within certain limits, on a Contract
that will provide an annuity for the employee's retirement. These purchase
payments may be subject to FICA (social security) tax. Additionally, in
accordance with the requirements of the Code, distribution is not permitted for
(i) elective contributions made in year beginning after December 31, 1988, (ii)
earnings on those contributions, and (iii) earnings on amounts attributed to
elective contributions held as of the end of the last year beginning before
January 1, 1989. Distributions of such amounts will be allowed only upon the
death of the employee, the attainment of age 59 1/2, separation from service,
disability, or financial hardship, except that income attributable to elective
contributions may not be distributed in the case of hardship.
Deferred Compensation Plans. Section 457 of the Code provides for certain
deferred compensation plans. These plans may be offered with respect to service
for state governments, local governments, political subdivisions, agencies,
instrumentalities, certain affiliates of such entities, and tax exempt
organizations. The plans may permit participants to specify the form of
investment for their deferred compensation account. With respect to non-
governmental plans, all investments are owned by the sponsoring employer and are
subject to the claims of the general creditors of the employer. Depending on the
terms of the plan, a non-governmental employer may be entitled to draw on
deferred amounts for purposes unrelated to its section 457 plan obligations. In
general, all amounts received under a section 457 plan are taxable and are
subject to federal income tax withholding as wages.
Distributions from Qualified Plans. Under the tax qualification rules of
section 401(a), 403(b), 408, and 457 plans, distributions generally must
commence no later than the later of April 1 of the calendar year following the
calendar year in which the owner (or plan participant) (i) reaches age 70 1/2 or
(ii) retires, and must be made in a specified form and manner. If the plan
participant is a "five percent owner" (as defined in the Code), distributions
generally must begin no later than the date described in (i). Special rules or
other restrictions may apply depending on the type of plan and the particular
circumstance. Each owner is responsible for requesting distributions under the
Contract that satisfy the applicable rules and should consult a qualified tax
advisor when appropriate.
POSSIBLE CHARGE FOR AMERICAN NATIONAL'S TAXES
At the present time, American National makes no charge to the subaccounts for
any Federal, state, or local taxes that American National incurs which may be
attributable to such
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subaccounts or the Contracts. American National, however, reserves the right in
the future to make a charge for any such tax or other economic burden resulting
from the application of the tax laws that it determines to be properly
attributable to the subaccounts or to the Contracts.
OTHER TAX CONSEQUENCES
As noted above, the foregoing comments about the Federal tax consequences
under these Contracts are not exhaustive, and special rules are provided with
respect to other tax situations not discussed in the Prospectus. Further, the
Federal income tax consequences discussed herein reflect American National's
understanding of current law and the law may change. Federal estate and state
and local estate, inheritance and other tax consequences of ownership or receipt
of distributions under a Contract depend on the individual circumstances of each
owner or recipient of the distribution. A competent tax advisor should be
consulted for further information.
PERFORMANCE
Performance information for the Subaccounts may appear in advertising or sales
literature to Contractowners or to prospective investors. THE PERFORMANCE
INFORMATION IS BASED ON HISTORICAL INVESTMENT EXPERIENCE OF THE SUBACCOUNTS AND
THE FUNDS AND DOES NOT INDICATE OR REPRESENT FUTURE PERFORMANCE. For more
information about the performance data calculations described below, see the
Statement of Additional Information.
Total returns are based on the overall dollar or percentage change in value of
a hypothetical investment. Total return quotations reflect changes in Fund share
price, the automatic reinvestment by the separate account of all distributions
and the deduction of applicable annuity charges (including any contingent
deferred sales charges that would apply if a Contractowner surrendered the
Contract at the end of the period indicated). Quotations of total return may
also be shown that do not take into account certain contractual charges such as
a contingent deferred sales load. The total return percentage will be higher
under this method than under the standard method described above.
A cumulative total return reflects performance over a stated period of time.
An average annual total return reflects the hypothetical annually compounded
return that would have produced the same cumulative total return if the
performance had been constant over the entire period. Because average annual
total returns tend to smooth out variations in a Subaccount's returns, you
should recognize that they are not the same as actual year-by-year results.
Some Subaccounts may also advertise yield. These measures reflect the income
generated by an investment in the Subaccount over a specified period of time.
This income is annualized and shown as a percentage. Yields do not take into
account capital gains or losses or the contingent deferred sales load.
The American National Money Market Subaccount may advertise their current and
effective yield. Current yield reflects the income generated by an investment
in the Subaccount over a 7-day period. Effective yield is calculated in a
similiar manner except that income earned is assumed to be reinvested.
DISTRIBUTOR OF THE CONTRACTS
SM&R, One Moody Plaza, Galveston, Texas 77550-7999, a wholly-owned subsidiary
of American National will act as the principal underwriter of the Contracts
pursuant to a Distribution and Administrative Services Agreement between itself
and American National. SM&R was organized under the laws of the State of Florida
in 1964, and is a registered broker/dealer pursuant to the Securities Exchange
Act of 1934 and a member of the National Association of Securities Dealers. (See
the American National Funds', Prospectus.)
Registered representatives of SM&R who sell Variable Annuities will receive
commissions from SM&R based upon a commission schedule. After issuance of the
Contract, broker-dealers will receive sales commissions aggregating no more than
8.0% of the Purchase Payments. In addition to such sales commissions, after the
first Contract year, broker-dealers who have entered into distribution
agreements with American National may receive an annual override commission of
no more than 0.25% of the Contract's Accumulation Value. SM&R and American
National may authorize other registered broker/dealers and their Registered
Representatives to sell the Contracts subject to applicable law.
27
<PAGE>
SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
American National holds the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from the General Account
assets, except for the Fixed Account. American National maintains records of all
purchases and redemptions of shares of Eligible Portfolios by each of the
Subaccounts.
VOTING RIGHTS
All of the assets held in the Subaccounts of the Separate Account will be
invested in shares of the corresponding Eligible Portfolios. American National
is the legal holder of those shares and as such has the right to vote to elect
the Board of Directors of the American National Fund and the Fidelity Funds, to
vote upon certain matters that are required by the 1940 Act to be approved or
ratified by the shareholders of a mutual fund, and to vote upon any other matter
that may be voted upon at a shareholders' meeting. To the extent required by
law, American National will vote all shares of Eligible Portfolios held in the
Separate Account at regular and special shareholder meetings in accordance with
instructions received from Contractowners. The number of votes for which each
Contractowner has the right to provide instructions will be determined as of the
record date selected by the Board of Directors of the American National Fund or
the Fidelity Funds, as the case may be. American National will furnish
Contractowners with the proper forms, materials and reports to enable them to
give it these instructions.
The number of shares of an Eligible Portfolio in a Subaccount for which
instructions may be given by a Contractowner is determined by dividing the
Accumulation Value held in that Subaccount by the net asset value of one share
in the corresponding Eligible Portfolio. Fractional shares will be counted.
Shares of an Eligible Portfolio held in each Subaccount for which no timely
instructions from Contractowners are received and shares of an Eligible
Portfolio held in each Subaccount which do not support Contractowner interests
will be voted by American National in the same proportion as those shares in
that Subaccount for which timely instructions are received. Voting instructions
to abstain on any item to be voted will be applied on a pro rata basis to reduce
the votes eligible to be cast. Should applicable federal securities laws or
regulations permit, American National may elect to vote shares of the Eligible
Portfolios in its own right.
Matters on which Contractowners may give voting instructions include the
following: (1) election of the Board of Directors of the American National Fund
or the Fidelity Funds (2) ratification of the independent accountant of the
American National Fund or the Fidelity Funds; (3) approval of the Investment
Advisory Agreement for the Eligible Portfolio(s) corresponding to the
Contractowner's selected Subaccount; (4) any change in the fundamental
investment Policies of the Eligible Portfolio(s) corresponding to the
Contractowner's selected Subaccount(s); and (5) any other matter requiring a
vote of the shareholders of the American National Fund or the Fidelity Funds
under the 1940 Act.
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STATE REGULATION OF AMERICAN NATIONAL
American National, a stock life insurance company organized under the laws of
Texas, is subject to regulation by the Texas Department of Insurance. On or
before March 1 of each year a National Association of Insurance Commissioners
convention blank covering the operations and reporting on the financial
condition of American National and the Separate Account as of December 31 of the
preceding year must be filed with the Texas Department of Insurance.
Periodically, the Texas Department of Insurance examines the liabilities and
reserves of American National and the Separate Account and certifies their
adequacy. A full examination of American National's operations is also conducted
periodically by the National Association of Insurance Commissioners.
In addition, American National is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. The Contracts offered by the Prospectus are available in the various
states as approved. Generally, the Insurance Department of any other state
applies the laws of the state of domicile in determining permissible
investments. However, differences in state laws may require American National to
offer a Contract in one or more states which are more favorable to a
Contractowner than provisions in a Contract offered in other states.
LEGAL MATTERS
All matters of Texas law pertaining to the Contract, including the validity of
the Contract and American National's right to issue the Contract under Texas
Insurance Law, have been passed upon by Greer, Herz and Adams, L.L.P., General
Counsel.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. American National is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1996 and December 31, 1995 and for the year
then ended, included 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 report.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Contracts offered hereby. This Prospectus does not contain all the information
set forth in the registration statement. The omitted information may be obtained
at the SEC's principal office in Washington, D.C. by paying the SEC's prescribed
fees. Statements contained in this Prospectus as to the contents of the Contract
and other legal instruments are summaries. For a complete statement of the terms
thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of American National should be considered only as
bearing on the ability of American National to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account. The financial statements
can be found in the Statement of Additional Information. No financial statements
of the Separate Account have been included in this Prospectus or Statement of
Additional Information because, as of the date of this Prospectus, the
Subaccounts funding the Contracts had no assets or liabilities.
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TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
The Contract..................................... 3 Records and Reports................................. 6
Valuation of Accumulation Units.................. 3 Performance......................................... 6
Computation of Variable Annuity Payments......... 3 Total Return........................................ 6
Annuity Unit Value............................... 3 Other Total Returns................................. 6
Summary.......................................... 4 Yields.............................................. 6
Exceptions to Charges............................ 4 Legal Matters....................................... 7
Assignment....................................... 4 Legal Proceedings................................... 7
Minimum Distributions Program.................... 4 Experts............................................. 7
Distribution of the Contracts.................... 5 Additional Information.............................. 7
Safekeeping of Separate Account Assets........... 5 Financial Statements................................ 7
State Regulation of American National............ 5 Financials.......................................... 8
</TABLE>
30
<PAGE>
CUSTODIAN
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
INSURER
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
DISTRIBUTOR
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550-7999
[LOGO OF AMERICAN NATIONAL APPEARS HERE]
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
AMERICAN NATIONAL
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ADDITIONAL INFORMATION
Date
Relating to the Prospectuses dated
(409) 763-4661
CUSTODIAN INDEPENDENT AUDITORS
American National Insurance Company Arthur Andersen LLP
One Moody Plaza 711 Louisiana, Suite 1300
Galveston, Texas 77550-7999 Houston, Texas 77002-2786
UNDERWRITER
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550-7999
1
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY
One Moody Plaza
Galveston, Texas 77550-7999
AMERICAN NATIONAL
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF
ADDITIONAL INFORMATION
----------------------------
DATE
This Statement of Additional Information expands upon subjects discussed in
the current Prospectus for the Variable Annuity Contracts II("the Contracts")
offered by American National Insurance Company ("American National"). You may
obtain a copy of the Prospectus dated, by calling (409) 763-4661, or writing to
American National Insurance Company, One Moody Plaza, Galveston, Texas 77550-
7999. Terms used in the current Prospectuses for the Contract are incorporated
in this Statement.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
<S> <C> <C> <C>
The Contract.............................. 3 Records and Reports....................... 6
Valuation of Accumulation Units........... 3 Performance............................... 6
Computation of Variable Annuity Payments.. 3 Total Return.............................. 6
Annuity Unit Value........................ 3 Other Total Returns....................... 6
Summary................................... 4 Yields.................................... 6
Exceptions to Charges..................... 4 Legal Matters............................. 7
Assignment................................ 4 Legal Proceedings......................... 7
Minimum Distributions Program............. 4 Experts................................... 7
Distribution of the Contracts............. 5 Additional Information.................... 7
Safekeeping of Separate Account Assets.... 5 Financial Statements...................... 7
State Regulation of American National..... 5 Financials................................ 8
</TABLE>
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THE CONTRACT
The following provides additional information about the contracts which
supplements the description in the Prospectus and which may be of interest to
some Contractowners.
VALUATION OF ACCUMULATION UNITS
The Accumulation Unit Value for a Subaccount on any day is equal to (a)
divided by (b), where (a) is the net asset value of the corresponding Eligible
Portfolio of the underlying fund owned by each Subaccount less any applicable
deductions and (b) is the number of Accumulation Units of that Subaccount at the
beginning of that day.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS
The amount of the first variable annuity payment to the annuitant will depend
on the amount of his/her accumulation value applied to effect the variable
annuity as of the tenth day immediately preceding the date annuity payments
commence, the amount of any premium tax owed (if applicable), the annuity option
selected, and the age of the annuitant. The contracts contain tables indicating
the dollar amount of the first annuity payment under annuity options 1, 2, 3,
and 4 for each $1,000 of accumulation value at various ages. These tables are
based upon the 1983 Table "a" (promulgated by the Society of Actuaries) and an
Assumed Investment Rate (the AIR) of 3.0% per annum.
In any subsequent month, the dollar amount of the variable annuity payment is
determined by multiplying the number of annuity units in the applicable
division(s) by the value of such annuity unit on the tenth day preceding the due
date of such payment. The annuity unit value will increase or decrease in
proportion to the net investment return of the division(s) underlying the
variable annuity since the date of the previous annuity payment, less an
adjustment to neutralize the 3.0% or other AIR referred to above.
Therefore, the dollar amount of variable annuity payments after the first will
vary with the amount by which the net investment return is greater or less than
the 3.0% (or other AIR) per annum. For example, assuming a 3.5% AIR, if an
Eligible Portfolio has a cumulative net investment return of 5% over a one year
period, the first annuity payment in the next year will be approximately 1.5
percentage points greater than the payment on the same date in the preceding
year, and subsequent payments will continue to vary with the investment
experience of the Eligible Portfolio.
If such net investment return is 1% over a one year period, the first annuity
payment in the next year will be approximately 2.5 percentage points less than
the payment on the same date in the preceding year, and subsequent payments will
continue to vary with the investment experience of the applicable division.
ANNUITY UNIT VALUE
The value of an annuity unit is calculated at the same time that the value of
an accumulation unit is calculated and is based on the same values for shares of
Eligible Portfolios and other assets and liabilities. The following
illustrations show, by use of hypothetical examples, the method of determining
the annuity unit value and the amount of variable annuity payments.
ILLUSTRATION: CALCULATION OF ANNUITY UNIT VALUE
Annuity at age 65: Life with 120 payments certain
1. Annuity unit value, beginning of period $ .980000
2. Net investment factor for Period 1.001046
3. Daily adjustment for
3.0% Assumed Investment Rate .999919
4. (2) x (3) 1.000965
5. Annuity unit value, end of
period (1) x (4) $ .980946
ILLUSTRATION: ANNUITY PAYMENTS
Annuity at age 65: Life with 120 payments certain
1. Number of accumulation units at annuity date 10,000.00
2. Accumulation Unit value
(10 days prior to date of first monthly payment) $ 1.800000
3. Accumulation Value of Contract (1) x (2) $ 18,000.00
4. First monthly annuity payment per
$1,000 of Accumulation Value $ 5.63
5. First monthly annuity payment (3) x (4) / 1,000 $ 101.34
6. Annuity Unit value
(10 days prior to date of first monthly payment) $ .980000
7. Number of annuity units (5) / (6) 103.408
8. Assume annuity unit value for second month equal to $ .997000
9. Second monthly annuity payment (7) x (8) $ 103.10
10. Assume annuity unit value for third month equal to $ .953000
11. Third monthly annuity payment (7) x (10) $ 98.55
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SUMMARY
In conclusion, for a variable annuity the key element to pricing the annuity
is unknown; there is no interest rate guarantee made and interest credited will
depend upon actual future results. The technique used to overcome this obstacle
is the calculation of the premium for the annuity using an AIR. The initial
variable annuity payment is based upon this premium; subsequent payments will
increase or decrease depending upon the relationship between the AIR and the
actual investment performance of Eligible Portfolios to be passed to the
annuitant. Suppose an Eligible Portfolio showed a monthly return of 1% after the
first month, the participant's second monthly payment would be (assuming 30 days
between payments):
$100 X 1.01 = $100.75
------
(1.03)/30/365/
Hence, we have shown that the AIR methodology means that at each payment date
the value in a participant's annuity is updated to reflect actual investment
results to date, but continued assumption of the AIR for the remainder of the
annuity period.
EXCEPTIONS TO CHARGES
The surrender charges, mortality and expense risks or other administration
charges may be reduced for sales of contracts to a trustee, employer or similar
entity representing a group where such sales result in savings of sales or
administrative expenses. The entitlement to such a reduction in surrender
charges or other charges or deductions will be determined by American National
based on the following factors: (1) the size of the group; (2) the total amount
of purchase payments to be received from a group; (3) the purpose for which the
contracts are being purchased; (4) the nature of the group for which the
contracts are being purchased; and (5) any other circumstances of which American
National is not presently aware but that could result in reduced sales or
administrative expenses.
Directors, officers and bona fide full-time employees (and their spouses and
minor children) of Securities Management and Research, Inc. and American
National are permitted to purchase contracts with substantial reduction of
surrender charges, mortality expense risks or other administrative charges. No
sales commission will be paid on such contracts.
ASSIGNMENT
The Contracts may be assigned by the Contractowner except when issued to plans
or trusts qualified under Section 403(b) or 408 of the Internal Revenue Code.
401(k) Contracts are not assignable.
MINIMUM DISTRIBUTIONS PROGRAM
Under the Systematic Withdrawal Program, the Contractowner can elect to
participate in the "Minimum Distributions Program" by instructing American
National to calculate and make minimum distributions that may be required if the
Contract is used with a qualified plan. American National calculates such
amounts assuming the minimum distribution amount is based solely on the value of
the Contractowner's Contract. However, the required minimum distribution amounts
applicable to the Contractowner's particular situation may depend on other
annuities, savings, or investments of which American National is not aware, so
that the required amount may be greater than the minimum distribution amount
American National calculates based on the Contractowners Contract. The Minimum
Distributions Program is subject to all the rules applicable to the Systematic
Withdrawal Program. In addition, certain rules apply only to the Minimum
Distributions Program. These rules are described below.
In order to participate in the Minimum Distributions Program, the
Contractowner must notify American National of such election in writing in the
calendar year in which the Contractowner attains age 70-1/2. If the
Contractowner is taking payments under the Systematic Withdrawal Program when
the Minimum Distributions Program is elected, the existing Systematic Withdrawal
Program will be discontinued.
American National will determine the amount that is required to be distributed
from a Contract each year based on the information provided by the Contractowner
and elections made by the Contractowner. The Contractowner specifies whether the
withdrawal amount will be based on a life expectancy calculated on a single life
basis, or on a joint life basis. American National calculates a required
distribution amount each year based on the Internal Revenue Code's minimum
distribution rules.
Minimum Distributions Program is based on American National's understanding of
the present federal income tax laws, as they are currently interpreted by the
IRS. Numerous special tax rules apply to Contractowners whose Contracts are used
with qualified plans. Contractowners should consult a tax advisor before
electing to participate in the Minimum Distributions Program.
4
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DISTRIBUTION OF THE CONTRACTS
Subject to arrangements with American National, the Contracts are sold as part
of a continuous offering by independent broker-dealers who are members of the
National Association of Security Dealers, Inc., and who become licensed to sell
life insurance and variable annuities for American National. Pursuant to a
Distribution and Administrative Services Agreement, Securities Management and
Research, Inc. ("SM&R") acts as the principal underwriter on behalf of American
National for distribution of the Contracts. Under the Agreement, SM&R is to use
commercially reasonable efforts to sell the Contracts through registered
representatives. In connection with these sales activities SM&R is responsible
for (i) compliance with the requirements of any applicable state broker-dealer
regulations and the Securities Exchange Act of 1934, (ii) keeping correct
records and books of account in accordance with Rules 17a-3 and 17a-4 of the
Securities Exchange Act, (iii) training agents of American National for the sale
of Contracts, and (iv) forwarding all purchase payments under the Contracts
directly to American National. SM&R is not entitled to any renumeration for its
services as underwriter under the Distribution and Administrative Services
Agreement, however SM&R is entitled to reimbursement for all reasonable expenses
incurred in connection with its duties as underwriter.
SAFEKEEPING OF THE SEPARATE ACCOUNT ASSETS
All assets of the Separate Account are held in the custody and safekeeping of
American National. The assets are kept physically segregated and held separate
and apart from the General Account assets. American National maintains records
of all purchases and redemptions of shares of the Eligible Portfolios by each of
the Subaccounts.
STATE REGULATION OF AMERICAN NATIONAL
American National, a stock life insurance company organized under the laws of
Texas, is subject to regulation by the Texas Department of Insurance. On or
before March 1 of each year an NAIC convention blank covering the operations and
reporting on the financial condition of American National and the Separate
Account as of December 31 of the preceding year must be filed with the Texas
Department of Insurance. Periodically, the Texas Department of Insurance
examines the liabilities and reserves of American National and the Separate
Account and certifies their adequacy. A full examination of American National's
operations is also conducted periodically by the National Association of
Insurance Commissioners.
In addition, American National is subject to the insurance laws and
regulations of other states within which it is licensed or may become licensed
to operate. The Policies offered by the Prospectus are available in the various
states as approved. Generally, the Insurance Department of any other state
applies the laws of the state of domicile in determining permissible investment.
However, differences in state laws may require American National to offer a
Contract in one or more states which has suicide, incontestability and refund
provisions which are more favorable to a Contractowner than provisions in a
Contract offered in other states.
5
<PAGE>
RECORDS AND REPORTS
Reports concerning each Contract will be sent annually to each Contractowner.
Contractowners will additionally receive annual and semiannual reports
concerning the underlying funds and annual reports concerning the Separate
Account. Contractowners will also receive confirmations of receipt of purchase
payments, changes in allocation of purchase payments and transfer of
Accumulation Units and Annuity Units.
PERFORMANCE
Performance information for any Subaccount may be compared, in reports and
advertising to: (1) the Standard & Poor's 500 Composite Stock Price Index ("S &
P 500"), Dow Jones Industrial Average ("DJIA"), Donoghue's Money Market
Institutional Averages; (2) other variable annuity separate accounts or other
investment products tracked by Lipper Analytical Services, Lehman-Brothers,
Morningstar, or the Variable Annuity Research and Data Service, widely used
independent research firms which rank mutual funds and other investment
companies by overall performance, investment objectives, and assets; and (3) the
Consumer Price Index (measure for inflation) to assess the real rate of return
from an investment in a contact. Unmanaged indices may assume the reinvestment
of dividends but generally do not reflect deductions for annuity charges and
investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including (i) the ranking of any
subaccount derived from rankings of variable annuity separate accounts or other
investment products tracked by Lipper Analytical Series or by rating services,
companies, publications or other persons who rank separate accounts or other
investment products on overall performance or other criteria, and (ii) the
effect of tax deferred compounding on a subaccount's investment returns, or
returns in general, which may be illustrated by graphs, charts, or otherwise,
and which may include a comparison, at various points in time, of the return
from an investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
TOTAL RETURN
Total Return quoted in advertising reflects all aspects of a Subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the Subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady rate
that would equal 100% growth on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
Average annual total returns are computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula: P(1+T)/n/ = ERV where P is a hypothetical investment payment of
$1,000, T is the average annual total return, n is the number of years, and ERV
is the withdrawal value at the end of the periods shown. Since the Contract is
intended as a long-term product, the average annual total returns assume that no
money was withdrawn from the Contract prior to the end of the period.
In addition to average annual returns, the Subaccounts may advertise
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period.
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Separate Account
commenced operations. Such performance information for the Subaccounts will be
calculated based on the performance of the Eligible Portfolios and the
assumption that the Subaccounts were in existence for the same periods as those
indicated for the Eligible Portfolios, with the level of Contract charges
currently in effect.
OTHER TOTAL RETURN
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as the average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered. Sales literature or
advertisements may also quote average annual total returns for periods prior to
the date the Separate Account commenced operations, calculated based on the
performance of the Eligible Portfolios and the assumption that the Subaccounts
were in existence for the same periods as those indicated for the Eligible
Portfolios, with the level of Contract charges currently in effect except for
the Surrender Charge.
YIELDS
Some Subaccounts may also advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the Subaccount over
a stated period of time, not taking into account capital gains or losses. Yields
are annualized and stated as a percentage. Yields do not reflect the impact of
any contingent deferred sales load. Yields quoted in advertising may be based on
historical seven day periods. Current yield for the American National Money
Market Subaccount will reflect the income generated by a Subaccount over a
7-day period. Current yield is calculated by determining the net change,
exclusive of capital changes, in the value of a hypothetical account having one
Accumulation Unit at the beginning of the period and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and multiplying the
6
<PAGE>
base period return by (365/7). The resulting yield figure will be carried to the
nearest hundredth of a percent. Effective yield for the American National Money
Market Subaccount is calculated in a similar manner to current yield except that
investment income is assumed to be reinvested throughout the year at the 7-day
rate. Effective yield is obtained by taking the base period returns as computed
above, and then compounding the base period return by adding 1, raising the sum
to a power equal to (365/7) and subtracting one from the result, according to
the formula Effective Yield = [(Base Period Return +1)/365/7/] - 1. Since the
reinvestment of income is assumed in the calculation of effective yield, it will
generally be higher than current yield.
A 30-day yield for bond subaccounts will reflect the income generated by a
Subaccount over a 30-day period. Yield will be computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Accumulation Unit on the last day of the period, according to
the following formula: Yield = 2[((a - b)/cd + 1)/6/-1] where a = net investment
income earned by the applicable portfolio, b = expenses for the period including
expenses charged to the contract owner accounts, c = the average daily number of
Accumulation Units outstanding during the period, and d = the maximum offering
price per Accumulation Unit on the last day of the period.
LEGAL MATTERS
All matters of Texas law pertaining to the Contract, including the validity of
the Contract and American National's right to issue the Contract under Texas
Insurance Law, have been passed upon by Greer, Herz and Adams, L.L.P., General
Counsel.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. American National is not
involved in any litigation that is of material importance in relation to its
total assets or that relates to the Separate Account.
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1996 and December 31, 1995 for the years
then ended, included 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 report.
ADDITIONAL INFORMATION
A registration statement has been filed with the Securities and Exchange
Commission, under the Securities Act of 1933, as amended, with respect to the
Contract offered hereby. This Statement of Additional Information does not
contain all the information set forth in the registration statement and the
amendments and exhibits to the registration statement, to all of which reference
is made for further information concerning the Separate Account, American
National and the Contracts offered hereby. For a complete statement of the terms
thereof reference is made to such instruments as filed.
FINANCIAL STATEMENTS
The financial statements of American National should be considered only as
bearing on the ability of American National to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account. No financial statements
of the Separate Account have been included in the Statement of Additional
Information because, as of the date of this Statement of Additional Information,
the Subaccounts funding the Contracts had no assets or liabilities.
7
<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, 1996 and 1995, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for the years then ended. These
consolidated financial statements (pages 8 through 24) 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, 1996 and 1995,
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 17, 1997
8
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
1996 1995
---------- -----------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 329,937 $ 308,949
Accident and health premiums 364,198 360,420
Property and casualty premiums 257,845 233,512
Other policy revenues 82,911 78,260
Net investment income 439,611 386,910
Gain from sale of investments 58,001 76,335
Other income 29,011 26,576
---------- -----------
$1,561,514 $ 1,470,962
---------- -----------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity $ 363,035 $ 312,018
Accident and health 261,942 243,560
Property and casualty 206,120 193,453
Increase /(decrease) in liability for future policy benefits:
Life and annuity 37,988 32,582
Accident and health (1,570) (2,558)
Commissions for acquiring and servicing policies 267,305 287,506
Other operating costs and expenses 167,490 159,185
Increase in deferred policy acquisition costs, net of amortization (73,880) (98,285)
Taxes, licenses and fees 38,387 39,394
---------- -----------
$1,266,817 $ 1,166,855
---------- -----------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES $ 294,697 $ 304,107
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 10,764 2,170
---------- -----------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES $ 305,461 $ 306,277
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 90,103 109,471
Deferred (237) (9,558)
---------- -----------
NET INCOME $ 215,595 $ 206,364
========== ===========
NET INCOME PER SHARE $ 8.14 $ 7.79
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $ 3,430,726 $ 2,966,939
Bonds available-for-sale, at market 528,306 482,687
Marketable equity securities, at market:
Preferred stocks 51,625 53,983
Common stocks 754,039 710,717
Mortgage loans on real estate 1,098,583 925,581
Policy loans 303,336 301,589
Investment real estate, net of accumulated depreciation of $108,974 and $105,082 330,729 330,684
Short-term investments 5,470 15,066
Other invested assets 70,064 33,739
----------- -----------
$ 6,572,878 $ 5,820,985
Cash 13,545 13,945
Investments in unconsolidated affiliates 95,836 98,790
Accrued investment income 97,883 82,541
Reinsurance ceded receivables 42,695 38,436
Prepaid reinsurance premiums 109,965 84,648
Premiums due and other receivables 70,922 74,015
Deferred policy acquisition costs 739,023 675,656
Property and equipment 26,455 31,357
Other assets 66,810 77,052
Separate account assets 152,533 142,608
----------- -----------
TOTAL ASSETS $ 7,988,545 $ 7,140,033
=========== ===========
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $ 1,939,926 $ 1,905,547
Accident and health 106,555 108,128
Policy account balances 2,353,245 1,775,641
Policy and contract claims 289,846 278,228
Other policyholder funds 356,456 296,934
----------- -----------
$ 5,046,028 $ 4,364,478
Current federal income taxes 17,810 11,808
Deferred federal income taxes 196,712 194,412
Other liabilities 101,556 105,614
Separate account liabilities 152,533 142,608
----------- -----------
TOTAL LIABILITIES $ 5,514,639 $ 4,818,920
=========== ===========
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Net unrealized gains on securities 163,352 158,898
Retained earnings 2,382,238 2,233,899
Treasury stock, at cost (102,727) (102,727)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY $ 2,473,906 $ 2,321,113
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,988,545 $ 7,140,033
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
<TABLE>
<CAPTION>
NET
ADDITIONAL UNREALIZED TOTAL
CAPITAL PAID-IN GAINS ON RETAINED TREASURY STOCKHOLDERS'
STOCK CAPITAL SECURITIES EARNINGS STOCK EQUITY
-------- ----------- ----------- ---------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1994 $ 30,832 $ 211 $ 52,907 $ 2,091,085 $ (102,727) $ 2,072,308
Net income 206,364 206,364
Dividends to stockholders
($2.40 per share) (63,550) (63,550)
Increase in unrealized gains on
marketable securities, net
of applicable federal
income taxes 105,991 105,991
-------- ------ -------- ----------- --------- -----------
BALANCE DECEMBER 31, 1995 $ 30,832 $ 211 $158,898 $ 2,233,899 $ (102,727) $ 2,321,113
Net income 215,595 215,595
Dividends to stockholders
($2.54 per share) (67,256) (67,256)
Increase in unrealized gains on
marketable securities, net
of applicable federal
income taxes 4,454 4,454
-------- ------ -------- ----------- --------- -----------
BALANCE DECEMBER 31, 1996 $ 30,832 $ 211 $163,352 $ 2,382,238 $(102,727) $ 2,473,906
======== ====== ======== =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
1996 1995
--------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 215,595 $ 206,364
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 103,946 85,054
Charges to policy account balances (81,651) (61,454)
Interest credited to policy account balances 121,689 86,051
Deferral of policy acquisition costs (182,124) (195,253)
Amortization of deferred policy acquisition costs 108,017 96,398
Deferred federal income tax benefit (237) (9,558)
Depreciation 20,104 19,378
Accrual and amortization of discounts and premiums (7,959) (6,713)
Gain from sale of investments (58,001) (76,335)
Equity in earnings of unconsolidated affiliates (10,764) (2,170)
Decrease (increase) in premiums receivable 3,093 (863)
Increase in accrued investment income (15,342) (11,534)
Capitalization of interest on policy and mortgage loans (14,338) (14,335)
Other changes, net (36,969) (22,101)
--------- -----------
Net cash provided by operating activities $ 165,059 $ 92,929
--------- -----------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds $ 201,485 $ 269,704
Stocks 191,284 215,684
Real estate 26,528 12,556
Other invested assets 1,112 12,456
Principal payments received on:
Mortgage loans 56,352 137,545
Policy loans 37,645 37,296
Purchases of investments:
Bonds (725,070) $(1,087,283)
Stocks (120,441) (120,699)
Real estate (7,696) (25,187)
Mortgage loans (218,019) (152,856)
Policy loans (25,137) (24,615)
Other invested assets (74,259) (28,776)
Decrease (increase) in short-term investments, net 9,596 (2,446)
Decrease in investments in unconsolidated affiliates, net 13,718 7,050
Increase in property and equipment, net (2,867) (3,706)
--------- -----------
Net cash used in investing activities $(635,769) $ (753,277)
--------- -----------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances $ 756,727 $ 867,077
Policyholders' withdrawals from policy account balances (219,161) (132,091)
Dividends to stockholders (67,256) (63,550)
--------- -----------
Net cash provided by financing activities $ 470,310 $ 671,436
--------- -----------
NET INCREASE (DECREASE) IN CASH $ (400) $ 11,088
Cash:
Beginning of the year 13,945 2,857
--------- -----------
End of the year $ 13,545 $ 13,945
========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiline
insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues are generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiline ordinary, group
brokerage, credit and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas, Garden State Life Insurance Company, Standard Life
and Accident Insurance Company, American National Property and Casualty Company
and American National General Insurance Company. The major non-insurance
subsidiaries are Securities Management & Research, Inc. and ANREM Corporation.
As part of its investment portfolio, American National also owns interests in
unconsolidated affiliates, primarily several real estate joint ventures and
partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--The consolidated
financial statements include the accounts of American National Insurance Company
and its wholly-owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. Investments in unconsolidated affiliates
are shown at cost plus equity in undistributed earnings since the dates of
acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance subsidiaries,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 12.)
MANAGEMENT'S ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect:
1) The reported amounts of assets and liabilities
2) The disclosure of contingent assets and liabilities at the date of the
financial statements
3) The reported amounts of revenues and expenses during the reporting period
Actual results could differ from those estimates. Future events, which could
impact the estimates used in these financial statements, include changes in the
levels of mortality, morbidity, persistency and interest rates.
INVESTMENTS
DEBT SECURITIES--Bonds which are intended to be held-to-maturity are carried
at amortized cost. The carrying value of these debt securities is expected to be
realized due to American National's ability and intent to hold these securities
until maturity.
Bonds held as available-for-sale are carried at market.
Bonds with an amortized value of $71,829,000 at December 31, 1996 were on
deposit with various state insurance departments, as required by law.
PREFERRED STOCKS--All preferred stocks are classified as available-for-sale
and are carried at market.
COMMON STOCKS--All common stocks are classified as available-for-sale and are
carried at market.
UNREALIZED GAINS--For all investments carried at market, the unrealized gains
or losses (differences between amortized cost and market), net of applicable
federal income taxes, are reflected in stockholders' equity.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized cost,
less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of loan
and property information such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation allowances are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
Effective January 1, 1995, American National adopted FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan" and the statement which
amended it, FASB Statement No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures." These two statements require that
impaired loans be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. When the measure of the impaired loan is less than the recorded
investment, the impairment is recorded as a valuation allowance. As American
National utilized similar methods to calculate valuation allowances in prior
years, the adoption of these standards did not have a material effect on
American National's consolidated financial position or results of operations.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowances for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years) using
straight-line and accelerated methods.
Effective January 1, 1996, American National adopted FASB Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To
Be Disposed Of." This statement requires that long-lived assets be reviewed for
impairment whenever circumstances indicate that the carrying
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
value may not be recoverable. The review must be done by estimating future
undiscounted cash flows to be received. If the sum of the expected future
undiscounted cash flows is less than the carrying value, an analysis of the
investment's fair value compared with its carrying value is performed. If the
fair value is less than the carrying value, an impairment loss is recognized as
a charge to current earnings. This statement also requires that long-lived
assets to be disposed of be carried at the lower of book value or the expected
amount to be received on sale, less the cost to sell.
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 if 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. As American National used similar methods to calculate
valuation reserves on investment real estate in prior years, the adoption of
this new standard did not have a material effect on American National's
consolidated financial position or results of operations.
Prior to January 1, 1996, American National's real estate acquired in
satisfaction of debt (foreclosed real estate) was carried at cost less
accumulated depreciation and reserves for possible losses. Upon the adoption of
FASB Statement No. 121, American National determined that all of its foreclosed
real estate was held for sale and should therefore be held at the lower of book
value or the expected amount to be received on sale, less the cost to sell,
without any further allowance for depreciation. Since all of the book values for
foreclosed real estate were below the expected amount to be received on sale,
less the cost to sell, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations.
SHORT-TERM INVESTMENTS--Short-term investments are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures as used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for other than temporary impairments of mortgage
loans, real estate and other assets in accordance with the policies established
for each class of invested asset. The increase in the valuation allowances is
reflected in current period income as a realized losS.
Management believes that the valuation allowances are adequate. However, it is
reasonably possible that a significant change in economic conditions in the near
term could result in losses exceeding the amounts established.
CASH--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 which 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 at the balance sheet date. It is
reasonably 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 the net level premium method based on
estimated investment yields, withdrawals, mortality and other assumptions which
were appropriate at the time the policies were issued. Estimates used are based
14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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 actual experience differs significantly
from the assumed, the estimates are revised for current and future issues.
Investment contracts are defined as long-duration contracts which do not
subject the company to risks arising from policyholder mortality or morbidity.
Future policy benefits for universal life and investment-type contracts reflect
the current account value before applicable surrender charges. It is possible
that a change in interest rates could have a significant impact on the values
calculated for these contracts.
RECOGNITION OF PREMIUM REVENUE AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH--Life and accident and health premium is
recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
ANNUITIES--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in the
case of variable annuities, administrative fees. Policy account balances for
annuities represent the premiums received plus accumulated interest less
applicable accumulated administrative fees. it is possible that a change in
interest rates could have a significant impact on the values calculated for
these contracts.
UNIVERSAL LIFE AND SINGLE PREMIUM WHOLE LIFE--Revenues from universal life
policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges actually paid, and earned policy service fees. Policyholder
account balances consist of the premiums received plus credited interest, less
accumulated policyholder assessments. Amounts included in expense represent
benefits in excess of account balances returned to policyholders.
PROPERTY AND CASUALTY--Property and casualty premiums are recognized as
revenue proportionately over the contract period. policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case-basis estimates for reported losses and experience for claims
incurred but not reported. These loss reserves are reported net of an allowance
for salvage and subrogation. Management believes that American National's
reserves have been appropriately calculated based on available information as of
December 31, 1996. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to participating
policyowners is based upon a comparison of experience rates of mortality,
interest and expense, as determined periodically for representative plans of
insurance, issue ages and policy durations, with the corresponding rates assumed
in the calculation of premiums. Participating business comprised approximately
2.6% of the life insurance in force at December 31, 1996, and 4.5% of life
premiums in 1996.
FEDERAL INCOME TAXES--American National and its subsidiaries file a
consolidated life/non-life federal income tax return. Garden State Life
Insurance Company files a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Realization of the deferred tax assets is dependent upon generating sufficient
taxable income in the future. Management believes that it is more likely than
not that sufficient income will be generated to realize the net deferred tax
assets.
SEPARATE ACCOUNT ASSETS AND LIABILITIES--The separate account assets and
liabilities reflected in the consolidated financial statements represent funds
that are separately administered. American National maintains three separate
accounts. The first administers assets primarily for certain of the company's
own employee benefit plans. The second administers assets deposited by contract
holders of American National's variable universal life policies. The third
administers assets deposited by contract holders of American National's variable
annuity policies.
The investment income and investment gains and losses from these separate
funds accrue directly to, and investment risk is borne by, the contract holders
of the policies supported by the separate accounts. 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 SHARE--Net income per share is based on the weighted average
number of shares outstanding (26,479,165 shares for 1996 and 1995).
RECLASSIFICATIONS--Certain items in the 1995 consolidated financial statements
have been reclassified to conform with the 1996 presentation.
15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(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, 1996
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 174,399 $ 3,911 $ (506) $ 177,804
States and political subdivisions 14,185 216 (39) 14,362
Foreign governments 107,573 4,257 (133) 111,697
Public utilities 1,142,072 19,654 (22,213) 1,139,513
All other corporate bonds 1,698,451 46,039 (17,584) 1,726,906
Mortgage-backed securities 294,046 13,527 (11) 307,562
---------- -------- -------- ----------
Total bonds held-to-maturity $3,430,726 $ 87,604 $(40,486) $3,477,844
---------- -------- -------- ----------
Bonds available-for-sale:
U. S. government and agencies $ 26,062 $ 559 (75) $ 26,546
Foreign governments 41,594 2,961 (10) 44,545
Public utilities 184,677 7,267 (222) 191,722
All other corporate bonds 252,053 13,826 (386) 265,493
---------- -------- -------- ----------
Total bonds available-for-sale $ 504,386 $ 24,613 $ (693) $ 528,306
---------- -------- -------- ----------
Total debt securities $3,935,112 $112,217 $(41,179) $4,006,150
---------- -------- -------- ----------
Marketable equity securities:
Preferred stocks $ 50,546 $ 1,563 $ (484) $ 51,625
Common stocks 517,385 249,796 (13,142) 754,039
---------- -------- -------- ----------
Total marketable equity securities $ 567,931 $251,359 $(13,626) $ 805,664
---------- -------- -------- ----------
Total investments in securities $4,503,043 $363,576 $(54,805) $4,811,814
========== ======== ======== ==========
DECEMBER 31, 1995
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 176,345 $ 10,317 $ (33) $ 186,629
States and political subdivisions 22,542 1,293 (75) 23,760
Foreign governments 94,727 8,178 -- 102,905
Public utilities 1,001,988 45,204 (1,956) 1,045,236
All other corporate bonds 1,258,303 90,154 (808) 1,347,649
Mortgage-backed securities 413,034 24,526 (85) 437,475
---------- -------- -------- ----------
Total bonds held-to-maturity $2,966,939 $179,672 $ (2,957) $3,143,654
---------- -------- -------- ----------
Bonds available-for-sale:
U. S. government and agencies $ 21,568 $ 1,512 $ -- $ 23,080
Foreign governments 42,839 5,089 -- 47,928
Public utilities 168,890 15,526 -- 184,416
All other corporate bonds 202,745 24,518 -- 227,263
---------- -------- -------- ----------
Total bonds available-for-sale $ 436,042 $ 46,645 $ -- $ 482,687
---------- -------- -------- ----------
Total debt securities $3,402,981 $226,317 $ (2,957) $3,626,341
---------- -------- -------- ----------
Marketable equity securities:
Preferred stocks $ 52,642 $ 1,716 $ (375) $ 53,983
Common stocks 514,781 217,092 (21,156) 710,717
---------- -------- -------- ----------
Total marketable equity securities $ 567,423 $218,808 $(21,531) $ 764,700
---------- -------- -------- ----------
Total investments in securities $3,970,404 $445,125 $(24,488) $4,391,041
========== ======== ======== ==========
</TABLE>
16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
DEBT SECURITIES:
The amortized cost and estimated market value of debt securities at December
31, 1996, by contractual maturity, 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 $ 99,681 $ 100,545 $ -- $ --
Due after one year
through five years 235,585 247,131 78,917 83,558
Due after five years
through ten years 2,704,384 2,721,356 409,652 427,632
Due after ten years 97,030 101,249 15,817 17,116
---------- ---------- -------- --------
$3,136,680 $3,170,281 $504,386 $528,306
Without single
maturity date 294,046 307,563 -- --
---------- ---------- -------- --------
$3,430,726 $3,477,844 $504,386 $528,306
========== ========== ======== ========
</TABLE>
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $190,636,000 for 1996. Gross gains of $71,768,000
and gross losses of $227,000 were realized on those sales. Bonds were called by
the issuers during 1996, which resulted in proceeds from the disposal of
$40,126,000. Gross gains of $54,000 were realized on those disposals.
Proceeds from sales of investments in securities classified as available for
sale (bonds and stocks) were $251,800,000 for 1995. Gross gains of $89,912,000
and gross losses of $7,155,000 were realized on those sales. Bonds were called
by the issuers during 1995, which resulted in proceeds from the disposal of
$105,489,000. Gross gains of $1,575,000 and gross losses of $4,000 were realized
on those disposals.
All gains and losses were determined using specific identification of the
securities sold.
As of November 30, 1995, management determined that it would be advantageous
to have a larger percentage of the bond portfolio classified as available-for-
sale. As a result, bonds with an amortized cost of $340,171,000 were
reclassified from held-to-maturity to available-for-sale. Unrealized gains of
$29,576,000 and unrealized losses of $2,703,000 were recognized in stockholders'
equity at the time of the transfer. This transfer was done in conjunction with
the one-time reassessment allowed by the FASB Special Report "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities."
UNREALIZED GAINS ON SECURITIES:
Unrealized gains on marketable equity securities and bonds available-for-sale,
presented in the stockholder's equity section of the consolidated statements of
financial position, are net of deferred tax liabilities of $87,561,000 and
$85,024,000 for 1996 and 1995, respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Bonds available-for-sale $ (22,725) $ 50,288
Preferred stocks (262) 5,792
Common stocks 40,718 107,380
Amortization of deferred
policy acquisition costs (10,740) --
----------- ---------
$ 6,991 $ 163,460
Provision for federal
income taxes (2,537) (57,469)
----------- ---------
$ 4,454 $ 105,991
========== =========
</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, 1996, mortgage loans have both fixed rates from 5.25% to 13% and
variable rates from 6% to 10.24%. The majority of the mortgage loan contracts
require periodic payments of both principal and interest and have amortization
periods of two to 31 years.
American National has investments in first-lien mortgage loans on real estate
with carrying values of $1,098,583,000 and $925,581,000 at December 31, 1996 and
1995, respectively. Problem loans, on which impairment allowances were
established, totaled $14,602,000 and $7,950,000 at December 31, 1996 and 1995,
respectively.
POLICY LOANS:
Policy loans have interest rates ranging from 2.5% to 12%. Approximately 98%
of the policy loan portfolio carried interest rates of 5% to 8% at December 31,
1996.
INVESTMENT INCOME AND REALIZED GAINS (LOSSES):
Investment income and realized gains (losses) from disposals of investments,
before federal income taxes, for the years ended December 31 are summarized as
follows (in thousands):
GAINS (LOSSES) FROM
INVESTMENT INCOME DISPOSALS OF INVESTMENT
---------------------- -----------------------
1996 1995 1996 1995
--------- --------- ------- -------
Bonds $ 281,780 $ 238,262 $ 172 $ (900)
Preferred stocks 3,372 3,419 13 23
Common stocks 17,649 18,737 74,410 85,205
Mortgage loans 94,851 89,152 (4,212) 1,301
Real estate 79,045 73,304 (7,249) 648
Other invested assets 27,348 27,566 (93) 2,153
Investment in
unconsolidated
affiliates -- -- 864 (1,236)
--------- --------- ------- --------
$ 504,045 $ 450,440 $60,905 $ 87,194
Investment expenses (64,434) (63,530) -- --
Increase in valuation
allowances -- -- (2,904) (10,859)
--------- --------- ------- --------
$ 439,611 $ 386,910 $58,001 $ 76,335
========= ========= ======= ========
17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(4) OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest return
possible commensurate with sound and prudent underwriting practices to ensure a
well diversified investment portfolio.
BONDS:
American National's bond portfolio is of high investment quality and is well
diversified. The bond portfolio distributed by quality rating at December 31 is
summarized as follows:
1996 1995
------ ------
AAA 14% 15%
AA 6% 11%
A 54% 51%
BBB & below 26% 18%
Not rated -- 5%
------ ------
100% 100%
====== ======
COMMON STOCK:
American National's stock portfolio by market sector distribution at December
31 is summarized as follows:
1996 1995
------ ------
Basic materials 8% 7%
Capital goods 9% 19%
Consumer goods 20% 24%
Energy 7% 6%
Finance 6% 4%
Technology 13% 8%
Health care 21% 15%
Miscellaneous 16% 17%
------ ------
100% 100%
====== ======
MORTGAGE LOANS AND INVESTMENT REAL ESTATE:
American National invests primarily in the commercial sector in areas that
offer the potential for property value appreciation. Generally, mortgage loans
are secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution at
December 31 are summarized as follows:
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
--------------- -------------
1996 1995 1996 1995
------ ------ ------ ------
Office buildings 21% 25% 30% 31%
Shopping centers 56% 52% 30% 26%
Commercial 4% 5% 16% 15%
Apartments 1% 1% 2% 6%
Hotels/motels 3% 3% 13% 12%
Industrial 12% 12% 4% 4%
Residential 1% 1% -- --
Other 2% 1% 5% 6%
------ ------ ------ ------
100% 100% 100% 100%
====== ====== ====== ======
Although American National has a diversified portfolio, a substantial portion
of its mortgage loan and real estate properties are dependent upon the economic
conditions in Texas and California. Mortgage loans and real estate investments
by geographic distribution at December 31 are as follows:
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
--------------- -------------
1996 1995 1996 1995
------ ------ ------ ------
Texas 15% 18% 53% 55%
South Central, except Texas 2% 3% -- 2%
California 14% 17% 10% 10%
Western, except California 6% 6% 4% 4%
Southeastern U.S. 13% 11% 16% 13%
North Central U.S. 10% 8% 11% 10%
North Eastern U.S. 40% 37% 6% 6%
------ ------ ------ ------
100% 100% 100% 100%
====== ====== ====== ======
For discussion of other off-balance sheet risks, see Note 15.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in developing the estimates of fair value.
Accordingly, these estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange or the amounts that may
ultimately be realized. The use of different market assumptions or estimating
methodologies may have a material effect on the estimated market values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values from
published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
MORTGAGE LOANS ON REAL ESTATE:
The market value for mortgage loans on real estate is estimated using
discounted cash flow analyses based on interest rates currently being offered
for comparable loans. Loans with similar characteristics are aggregated for
purposes of the analyses.
POLICY LOANS:
The carrying amount for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amount for short-term investments approximates their market value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration, and
the market value is not significant at December 31, 1996 or 1995.
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
1996 1995
---------------------- -----------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
Financial assets:
Bonds:
Held-to-maturity $3,430,726 $3,477,844 $2,966,939 $3,143,654
Available-for-sale 528,306 528,306 482,687 482,687
Preferred stock 51,625 51,625 53,983 53,983
Common stock 754,039 754,039 710,717 710,717
Mortgage loans on
real estate 1,098,583 1,195,053 925,581 1,084,442
Policy loans 303,336 303,336 301,589 301,589
Short-term
investments 5,470 5,470 15,066 15,066
Financial liabilities:
Investment contracts 1,821,715 1,821,715 1,271,041 1,271,041
---------- ---------- ---------- ----------
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December
31, 1996 and 1995 are summarized as follows (in thousands):
LIFE ACCIDENT ROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
--------- --------- --------- ---------
Balance at
December 31, 1994 $ 465,028 $ 106,332 $ 5,441 $ 576,801
--------- --------- --------- ---------
Additions $ 154,688 $ 20,052 $ 19,943 $ 194,683
Amortization (57,774) (19,976) (18,648) (96,398)
--------- --------- --------- ---------
Net change $ 96,914 $ 76 $ 1,295 $ 98,285
Acquisitions $ 451 $ 120 $ (1) $ 570
--------- --------- --------- ---------
Balance at
December 31, 1995 $ 562,393 $ 106,528 $ 6,735 $ 675,656
--------- --------- --------- ---------
Additions $ 143,046 $ 17,847 $ 21,004 $ 181,897
Amortization (70,786) (17,311) (19,920) (108,017)
Effect of change in
unrealized gains on
available-for-sale
securities (10,740) (10,740)
--------- --------- --------- ---------
Net change $ 61,520 $ 536 $ 1,084 $ 63,140
Acquisitions $ 99 $ 128 $ -- $ 227
--------- --------- --------- ---------
Balance at
December 31, 1996 $ 624,012 $ 107,192 $ 7,819 $ 739,023
========= ========= ========= =========
1996 premiums $ 329,937 $ 364,198 $ 257,845 $ 951,980
========= ========= ========= =========
1995 premiums $ 308,949 $ 360,420 $ 233,512 $ 902,881
========= ========= ========= =========
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios under
assumption reinsurance agreements.
(7) FUTURE POLICY BENEFITS
LIFE INSURANCE:
Interest assumptions used in the calculation of future policy benefits for
life policies are as follows:
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- ------------------------------------------------------------------------------
ORDINARY--
1996 7.5% for years 1 through 5, graded to 5.5% at the
end of year 25, and level thereafter .................. 1%
1981-1995 8% for years 1 through 5, graded to 6% at the
end of year 25, and level thereafter .................. 17%
1976-1981 7% for years 1 through 5, graded to 5% at the
end of year 25, and level thereafter .................. 22%
1972-1975 6% for years 1 through 5, graded to 4% at the
end of year 25, and level thereafter .................. 9%
1969-1971 6% for years 1 through 5, graded to 3.5% at the
end of year 30, and level thereafter .................. 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5% at the
end of year 15, and level thereafter .................. 14%
1948-1961 4% for years 1 through 5, graded to 3.5% at the
end of year 10, and level thereafter .................. 14%
1947 and prior Statutory rates of 3% or 3.5% ......................... 2%
INDUSTRIAL--
1948-1967 4% for years 1 through 5, graded to 3.5% at the
end of year 10, and level thereafter .................. 8%
1947 and prior Statutory rates of 3% ................................. 6%
- ------------------------------------------------------------------------------
100%
==============================================================================
Future policy benefits for universal life are calculated from the current
account value.
Future policy benefits for other policies have been calculated using level
interest rates principally as follows: annuities at 6% and group at 4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(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):
1996 1995
--------- ---------
Balance at January 1 $ 214,599 $ 213,406
Less reinsurance recoverables 1,346 1,741
--------- ---------
Net balance at January 1 $ 213,253 $ 211,665
--------- ---------
Incurred related to:
Current year $ 482,988 $ 456,721
Prior years (13,820) (19,587)
--------- ---------
Total incurred $ 469,168 $ 437,134
--------- ---------
Paid related to:
Current year $ 332,305 $ 337,421
Prior years 129,559 98,125
--------- ---------
Total paid $ 461,864 $ 435,546
--------- ---------
Net balance at December 31 $ 220,557 $ 213,253
Plus reinsurance recoverables 2,439 1,346
--------- ---------
Balance at December 31 $ 222,996 $ 214,599
========= =========
The balances at December 31 are included in policy and contract claims on the
consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure portions of
certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance ceded
and would become actually liable if the assuming companies were unable to meet
their obligations under any reinsurance treaties.
The company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. At December 31,
1996, amounts recoverable from reinsurers with a carrying value of $80,244,000
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. The company
holds collateral related to these credit reinsurers totaling $63,068,000. This
collateral is in the form of custodial accounts controlled by the company, which
can be drawn on for amounts that remain unpaid for more than 120 days. American
National believes that the failure of any single reinsurer to meet its
obligations would not have a significant effect on its financial position or
results of operations.
Premiums, premium-related reinsurance amounts and reinsurance recoveries for
the years ended December 31 are summarized as follows (in thousands):
1996 1995
----------- -----------
Direct premiums $ 1,032,072 $ 962,190
Reinsurance premiums assumed
from other companies 20,052 24,109
Reinsurance premiums ceded
to other companies (100,144) (83,418)
----------- -----------
Net premiums $ 951,980 $ 902,881
=========== ===========
Reinsurance recoveries $ 54,871 $ 53,849
=========== ===========
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
1996 1995
----------- -----------
Direct life insurance in force $41,945,640 $40,940,321
Reinsurance risks assumed
from other companies 583,853 549,337
----------- -----------
Total life insurance in force $42,529,493 $41,489,658
Reinsurance risks ceded to
other companies (6,007,905) (5,359,378)
----------- -----------
Net life insurance in force $36,521,588 $36,130,280
=========== ===========
20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(10) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business and operate primarily in six segments (lines of business)
within the insurance industry.
The following table summarizes the premiums and other revenue, gain (loss)
from operations before equity in earnings of unconsolidated affiliates and
federal income taxes, and assets by line of business for the years ended
December 31, 1996 and 1995 (in thousands):
GAIN (LOSS)
BEFORE
APPLICABLE
FEDERAL
PREMIUMS INCOME TAXES
AND OTHER AND OTHER
LINE OF BUSINESS: REVENUE ITEMS ASSETS
- ----------------- ---------- ------------- -----------
1996
Individual life insurance $ 496,571 $ 79,076 $2,564,102
Individual accident and
health insurance 199,982 (4,943) 108,922
Annuities 167,226 5,783 1,870,659
Group life and health insurance 159,004 811 42,844
Credit insurance 53,411 1,978 123,508
Property and casualty insurance 269,519 15,052 292,113
---------- -------- -----------
Total insurance lines $1,345,713 $ 97,757 $ 5,002,148
Capital and surplus 137,573 138,781 2,912,340
Non-insurance 20,227 158 74,057
---------- -------- -----------
$1,503,513 $236,696 $ 7,988,545
Gain from sale of investments 58,001 58,001 --
---------- -------- -----------
$1,561,514 $294,697 $ 7,988,545
========== ======== ===========
1995
Individual life insurance $ 502,160 $ 77,817 $ 2,523,463
Individual accident and
health insurance 212,062 3,642 111,862
Annuities 96,716 627 1,309,626
Group life and health insurance 146,579 8,011 38,344
Credit insurance 48,616 1,679 103,382
Property and casualty insurance 243,933 10,361 258,346
---------- -------- -----------
Total insurance lines $1,250,066 $102,137 $ 4,345,023
Capital and surplus 124,403 125,899 2,709,441
Non-insurance 20,158 (264) 85,569
---------- -------- -----------
$1,394,627 $227,772 $ 7,140,033
Gain from sale of investments 76,335 76,335 --
---------- -------- -----------
$1,470,962 $304,107 $ 7,140,033
========== ======== ===========
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines based on the funds generated by
each line at the average yield available from these fixed income assets at the
time such funds become available. Net investment income from policy loans is
allocated to the insurance lines according to the amount of loans made by each
line. Net investment income from all other assets is allocated to capital and
surplus.
Identifiable commissions and expenses are charged directly to the appropriate
line of business. The remaining expenses are allocated to the lines based upon
various factors including premium and commission ratios within the respective
lines.
Fixed income assets and policy loans have been directly assigned to the
insurance lines to the extent required for reserves. Equity type assets, such as
stocks and real estate and all other assets not required for reserves for the
insurance lines, have been assigned to capital and surplus.
Policy account deposits totaled $756,727,000 in 1996 and $867,077,000 in 1995.
The majority of these deposits were in the annuity line, which totaled
$648,234,000 and $763,049,000 in 1996 and 1995, respectively. The significant
increase in assets for the annuity line of business is directly attributable to
the volume of deposits received.
A significant portion of American National's insurance business is written
through one third-party marketing organization. Approximately 35% of the total
premium revenues and policy account deposits for both 1996 and 1995 were written
through that organization. Of the total business written by this one
organization, the majority was annuities.
(11) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when applying
the statutory federal income tax rate. A reconciliation of the effective tax
rate of the companies to the statutory federal income tax rate follows (in
thousands, except percentages):
1996 1995
------------------ -------------------
AMOUNT RATE AMOUNT RATE
-------- ------- --------- -------
Income tax on pre-tax income $106,911 35.00 % $ 107,197 35.00 %
Tax-exempt investment income (384) (0.13)% (465) (0.15)%
Dividend exclusion (3,303) (1.08)% (4,031) (1.32)%
Tax refund (7,360) (2.41)% (2,225) (0.73)%
Prior year reserve method change (3,994) (1.31)% -- -- %
Miscellaneous tax credits, net (1,350) (0.44)% -- -- %
Other items, net (654) (0.21)% (563) (0.18)%
-------- ------- --------- -------
$ 89,866 29.42 % $ 99,913 32.62 %
======== ======= ========= =======
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1996 and December 31, 1995 are as follows (in thousands):
1996 1995
--------- ---------
Deferred tax assets:
Investment in bonds, real estate and
other invested assets, principally due to
investment valuation allowances $ 12,943 $ 18,066
Policyowner funds, principally
due to policy reserve discount 91,746 73,361
Policyowner funds, principally
due to unearned premium reserve 7,294 6,794
Other assets 9,491 6,225
--------- ---------
Total gross deferred tax assets $ 121,474 $ 104,446
Less valuation allowance (3,000) (3,000)
--------- ---------
Net deferred tax assets $ 118,474 $ 101,446
--------- ---------
Deferred tax liabilities:
Marketable equity securities, principally
due to net unrealized gains on stock $ (90,526) $ (85,025)
Investment in bonds, principally
due to accrual of discount on bonds (14,283) (12,223)
Deferred policy acquisition costs, due to
difference between GAAP and tax (188,725) (175,250)
Property, plant and equipment, principally
due to difference between GAAP
and tax depreciation methods (12,445) (14,329)
Prepaid pensions, principally due to
difference between GAAP and tax (7,091) (7,038)
Other liabilities (2,116) (1,993)
--------- ---------
Net deferred tax liabilities $(315,186) $(295,858)
--------- ---------
Total deferred tax $(196,712) $(194,412)
========= =========
Management believes that a sufficient level of taxable income will be achieved
to utilize the net deferred tax assets.
Through 1983, under the provision of the Life Insurance Company Income Tax Act
of 1959, life insurance companies were permitted to defer from taxation a
portion of their income (within certain limitations) until and unless it was
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, 1995 and December 31, 1996. The
cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $83,475,000 and $101,243,000 were
paid to the Internal Revenue Service in 1996 and 1995, respectively. The statute
of limitations has expired for the examination of federal income tax returns for
American National and its subsidiaries by the Internal Revenue Service, through
1992. All prior-year deficiencies have been paid or provided for, and American
National has filed appropriate claims for refunds through 1994. In the opinion
of management, adequate provision has been made for any tax deficiencies that
may be sustained.
(12) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare such 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):
1996 1995
----------- ----------
Statutory net income of insurance companies $ 146,100 $ 131,866
Net gain (loss) of non-insurance companies 750 (4,455)
----------- ----------
Combined net income $ 146,850 $ 127,411
Increases/(decreases):
Deferred policy acquisition costs 73,880 98,285
Policyholder funds (16,323) (33,461)
Deferred federal income tax benefit 237 9,558
Premiums deferred and other receivables 5,549 (1,444)
Gain on sale of investments 1,102 2,886
Change in interest maintenance reserve (463) 291
Asset valuation allowances (2,904) (4,764)
Dividend income from subsidiaries -- (1,577)
Other adjustments, net 7,711 6,979
Consolidating eliminations and adjustments (44) 2,200
Net income reported herein $ 215,595 $ 206,364
=========== ==========
1996 1995
----------- ----------
Statutory capital and
surplus of insurance companies $ 1,784,692 $1,639,304
Stockholders' equity
of non-insurance companies 79,316 89,856
----------- ----------
Combined capital and surplus $ 1,864,008 $1,729,160
Increases/(decreases):
Deferred policy acquisition costs 739,023 675,656
Policyholder funds 126,925 142,991
Deferred federal income taxes (196,712) (194,412)
Premiums deferred and other receivables (78,231) (83,781)
Reinsurance in "unauthorized companies" 30,506 16,542
Statutory asset valuation reserve 326,336 305,655
Statutory interest maintenance reserve 6,457 6,922
Asset valuation allowances (47,518) (44,668)
Non-admitted assets and
other adjustments, net 283,031 320,301
Consolidating eliminations and adjustments (579,919) (553,253)
----------- ----------
Stockholders' equity reported herein $ 2,473,906 $2,321,113
=========== ==========
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
(13) STOCKHOLDERS' EQUITY
At December 31, 1996 and 1995, American National had 50,000,000 authorized
shares of $1.00 par value common stock. At December 31, 1996 and 1995, 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 which can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1996, approximately $506,941,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(14) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. Two of the programs are contributory and
cover substantially all hourly employees and home service agents. The third
program is noncontributory, and covers salaried and management employees. The
program covering salaried and management employees provides pension benefits
that are based on years of service and the employee's compensation during the
five years before retirement. The programs covering hourly employees and agents
generally provide benefits that are based on the employee's average monthly
compensation during the five highest compensated years within the last ten years
before retirement, or career average earnings, as applicable, and years of
service. American National also sponsors two non-tax-qualified pension plans for
key executives that restore benefits that would otherwise be curtailed by
statutory limits on qualified plan benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense (before income taxes) produced a
pension debit of $902,000 for 1996 and $15,000 for 1995.
The pension debit is made up of the following (in thousands):
1996 1995
-------- --------
Service cost--benefits earned during period $ 5,040 $ 4,515
Interest cost on projected benefit obligation 6,735 6,168
Actual return on plan assets (6,542) (14,988)
Net amortization and deferral (4,331) 4,320
-------- --------
Total pension debit $ 902 $ 15
======== ========
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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>
1996 1995
------------------------ -------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Vested benefit obligation $(66,688) $(16,029) $(64,517) $(13,581)
======== ======== ======== ========
Accumulated benefit
obligation $(70,303) $(16,029) $(68,437) $(13,581)
======== ======== ======== ========
Projected benefit obligation $(85,891) $(20,975) $(82,891) $(17,545)
Plan assets at fair value
(long-term securities) 125,068 -- 126,591 --
-------- -------- -------- --------
Plan assets in excess of
projected benefit
obligation $ 39,177 $(20,975) $ 43,700 $(17,545)
Unrecognized net loss 7,842 3,519 3,519 2,918
Prior service cost not yet
recognized in periodic
pension cost 18 1,902 113 2,299
Unrecognized net transition
asset at January 1 being
recognized over 15 years (13,097) -- (15,716) --
Adjustment required to
recognize additional
liability -- (513) -- (1,279)
-------- -------- -------- --------
Prepaid pension cost
included in other assets $ 33,940 $(16,067) $ 31,616 $(13,607)
======== ======== ======== ========
</TABLE>
Assumptions used at December 31:
1996 1995
------ ------
Weighted-average discount rate
on benefit obligation 6.50% 6.40%
Rate of increase in compensation levels 4.50% 4.80%
Expected long-term rate of return on plan assets 8.00% 8.00%
Under American National and its subsidiaries' various group benefit plans for
active employees, a $2,500 paid-up life insurance certificate is provided upon
retirement for eligible participants who meet certain age and length of service
requirements.
American National has one retiree health benefit plan for retirees of all
companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan. Participation in either of these plans is limited
to current retirees and their dependents and those employees and their
dependents who met certain age and length of service requirements as of December
31, 1993. No new participants will be added to these plans in the future.
The retiree health benefit plans provide major medical benefits for
participants under the age of 65 and Medicare supplemental benefits for those
over 65. Prescription drug benefits are provided to both age groups. The plans
are contributory, with the company's contribution limited to $80 per month for
retirees and spouses under the age of 65 and $40 per month for retirees and
spouses over the age of 65. All additional contributions necessary, over the
amount to be contributed by the companies, are to be contributed by the
retirees.
The accrued post-retirement benefit obligation, included in other liabilities,
was $13,007,000 and $13,105,000 at December 31, 1996 and 1995 respectively.
These amounts were approximately equal to the unfunded accumulated post-
retirement benefit obligation. Since the companies' contributions to the cost of
the retiree benefit plans are fixed, the health care cost trend rate will have
no effect on the future expense or the accumulated post-retirement benefit
obligation.
(15) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various cities
for their insurance sales offices. The long-term lease commitments at December
31, 1996 were approximately $5,796,000.
In the ordinary course of their operations, the companies also had commitments
outstanding at December 31, 1996 to purchase, expand or improve real estate and
to fund mortgage loans aggregating $139,217,000, all of which is expected to be
funded in 1997. Of the commitment amount, $83,275,000 of mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged failure to
honor certain loan commitments, alleged breach of certain agency and real estate
contracts, various employment matters, allegedly deceptive insurance sales and
marketing practices and other litigation arising in the ordinary course of
operations. Certain of these lawsuits include claims for compensatory and
punitive damages. Management is of the opinion, after reviewing the above
matters with legal counsel, that the ultimate liability, if any, resulting from
any of or all of the above matters would not have a material adverse effect on
the companies' consolidated financial position or results of operations.
However, these lawsuits are in various stages of development and future facts
and circumstances could result in management changing its conclusions.
In 1995, a series of fires occurred at a warehouse located in Houston, Texas,
which American National owns. American National leased the warehouse to a
company that, in turn, rented out space to various other parties to store
materials. As a result of these fires, some of the materials stored in the
warehouse caused damage at the warehouse site. As the owner of the warehouse,
American National is now named as a defendant in several lawsuits concerning
alleged damages related to the fires. After reviewing this situation with legal
counsel, management believes that American National has meritorious defenses
against these lawsuits. The company also has meritorious grounds to recover any
damages from the third parties who actually owned the materials that caused the
fires. Therefore, no specific reserves for this matter have been recorded in the
consolidated financial statements. However, if the defenses and recoveries are
not resolved in the manner that management anticipates, it is possible that the
resulting liability could have a material impact on the consolidated financial
results.
24
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company:
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of American
National Insurance Company and subsidiaries included in this
registration statement and have issued our report thereon dated
February 17, 1997. Our audit was made for the purpose of
forming an opinion on the basic consolidated financial
statements taken as a whole. The accompanying schedules are the
responsibility of the Company's management and are presented
for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic
consolidated financial statements. These schedules have been
subjected to the auditing procedures applied in our audit of
the basic consolidated financial statements and, in our
opinion, are fairly stated in all material respects in relation
to the basic consolidated financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 17, 1997
25
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1996
(In Thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (A) VALUE BALANCE SHEET
---------- ---------- -------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds Held-to-Maturity:
United States Government and government agencies
and authorities $ 174,399 $ 177,804 $ 174,399
States, municipalities and political subdivisions 14,185 14,362 14,185
Foreign governments 107,573 111,697 107,573
Public utilities 1,142,072 1,139,513 1,142,072
All other corporate bonds 1,992,497 2,034,468 1,992,497
Bonds Available-for-Sale:
United States Government and government agencies
and authorities 26,062 26,546 26,546
Foreign governments 41,594 44,545 44,545
Public utilities 184,677 191,722 191,722
All other corporate bonds 252,053 265,493 265,493
Redeemable preferred stock 50,546 51,625 51,625
---------- ---------- ----------
Total fixed maturities $3,985,658 $4,057,775 $4,010,657
---------- ---------- ----------
Equity Securities:
Common stocks:
Public utilities $ 41,606 $ 50,288 $ 50,288
Banks, trust and insurance companies 22,978 35,332 35,332
Industrial, miscellaneous and all other 452,801 668,419 668,419
---------- ---------- ----------
Total equity securities $ 517,385 $ 754,039 $ 754,039
---------- ---------- ----------
Mortgage loans on real estate $1,098,583 XXXXXX $1,098,583
Investment real estate 268,632 XXXXXX 268,632
Real estate acquired in satisfaction of debt 62,097 XXXXXX 62,097
Policy loans 303,336 XXXXXX 303,336
Other long-term investments 70,064 XXXXXX 70,064
Short-term investments 5,470 XXXXXX 5,470
---------- ---------- ----------
Total investments $6,311,225 XXXXXX $6,572,878
========== ========== ==========
</TABLE>
(a) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and valuation write-downs and adjusted for
amortization of premiums or accrual of discounts.
26
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I
FUTURE POLICY BENEFITS AMORTIZATION
DEFERRED BENEFITS, OTHER POLICY CLAIMS, LOSSES OF DEFERRED
POLICY LOSSES, CLAIMS CLAIMS AND NET AND POLICY
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT ACQUISITION
SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME (A) EXPENSES COSTS
----------- -------------- -------- ------------ ------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1996
Individual life insurance $426,277 $2,329,606 $ 6,518 $ 54,793 $271,715 $151,323 $236,716 $ 47,715
Individual accident and
health insurance 57,183 95,424 4,316 64,641 192,450 7,471 142,628 4,429
Annuities 172,502 1,936,717 -- 8,729 35,610 115,726 115,422 15,339
Group life and A & H
insurance 19,830 37,979 3,509 39,230 152,420 4,600 109,543 4,712
Credit insurance 55,412 -- 205,213 37,499 41,940 5,213 20,668 15,902
Property and casualty
insurance 7,819 -- 111,011 110,843 257,845 11,733 206,120 19,920
Capital and surplus -- -- -- -- -- 137,264 -- --
Non-insurance -- -- -- -- -- 6,281 -- --
-------- ---------- -------- -------- -------- -------- -------- --------
Total $739,023 $4,399,726 $330,567 $315,735 $951,980 $439,611 $831,097 $108,017
======== ========== ======== ======== ======== ======== ======== ========
1995
Individual life insurance $420,737 $2,299,547 $ 5,610 $ 56,267 $271,387 $154,740 $229,989 $ 49,009
Individual accident and
health insurance 60,260 95,966 4,634 65,581 204,187 7,797 143,034 6,176
Annuities 123,788 1,359,143 4 5,857 13,348 74,275 71,748 2,182
Group life and A & H
insurance 17,803 34,660 3,881 35,567 141,374 3,940 93,351 7,683
Credit insurance 46,333 -- 175,538 29,428 39,073 4,291 17,456 12,700
Property and casualty
insurance 6,735 -- 85,442 107,353 233,512 10,864 193,453 18,648
Capital and surplus -- -- -- -- -- 123,948 -- --
Non-insurance -- -- -- -- -- 7,055 -- --
-------- ---------- -------- -------- -------- -------- -------- --------
Total $675,656 $3,789,316 $275,109 $300,053 $902,881 $386,910 $749,031 $ 96,398
======== ========== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
COLUMN J COLUMN K
OTHER
OPERATING PREMIUMS
SEGMENT EXPENSES (B) WRITTEN
------------ ---------
<S> <C> <C>
1996
Individual life insurance $122,548 $ --
Individual accident and
health insurance 58,343 --
Annuities 2,548 --
Group life and A & H
insurance 45,694 --
Credit insurance 14,863 --
Property and casualty
insurance 28,427 271,061
Capital and surplus (1,208) --
Non-insurance 20,069 --
-------- --------
Total $291,284 $271,061
======== ========
1995
Individual life insurance $124,599 $ --
Individual accident and
health insurance 61,511 --
Annuities 10,253 --
Group life and A & H
insurance 37,814 --
Credit insurance 16,828 --
Property and casualty
insurance 21,471 245,527
Capital and surplus (1,496) --
Non-insurance 20,422 --
-------- --------
Total $291,402 $245,527
======== ========
</TABLE>
(a) Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines based on the funds generated
by each line at the average yield available from these fixed income assets
at the time such funds become available. Net investment income from policy
loans is allocated to the insurance lines according to the amount of loans
made by each line. Net investment income from all other assets is allocated
to capital and surplus.
(b) Identifiable commissions and expenses are charged directly to the
appropriate line of business. The remaining expenses are allocated to the
lines based upon various factors including premium and commission ratios
within the respective lines.
27
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
(In thousands except percentages)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER NET AMOUNT ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
-------- ---------- ----------- -------- --------------
<S> <C> <C> <C> <C> <C>
1996
Life insurance in force $ 41,945,640 $ 6,007,905 $ 583,853 $ 36,521,588 1.6%
============ =========== ========= ============ =======
Premiums:
Life insurance 368,984 45,955 6,908 329,937 2.1%
Accident and health insurance 398,500 41,995 7,693 364,198 2.1%
Property and liability insurance 264,588 12,194 5,451 257,845 2.1%
------------ ----------- --------- ------------ -------
Total premiums $ 1,032,072 $ 100,144 $ 20,052 $ 951,980 2.1%
============ =========== ========= ============ =======
1995
Life insurance in force $ 40,940,321 $ 5,359,378 $ 549,337 $ 36,130,280 1.5%
============ =========== ========= ============ =======
Premiums:
Life insurance 341,766 40,501 7,684 308,949 2.5%
Accident and health insurance 387,976 36,309 8,753 360,420 2.4%
Property and liability insurance 232,448 6,608 7,672 233,512 3.3%
------------ ----------- --------- ------------ -------
Total premiums $ 962,190 $ 83,418 $ 24,109 $ 902,881 2.7%
============ =========== ========= ============ =======
</TABLE>
28
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
(In Thousands)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DEDUCTIONS - DESCRIBE
----------------------------
BALANCE AT ADDITIONS AMOUNTS BALANCE AT
BEGINNING OF CHARGED TO WRITTEN OFF DUE AMOUNTS END OF
DESCRIPTION PERIOD EXPENSE TO DISPOSAL (A) COMMUTED (B) PERIOD
------------ ------------ --------------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1996
Investment valuation allowances:
Mortgage loans on real estate $ 12,824 $ 3,037 $ -- $ 1,015 $14,846
Investment real estate 38,793 4,803 10,652 4,383 28,561
Investment in unconsolidated affiliates 1,113 1,214 -- -- 2,327
Other assets 2,000 3,447 (6,453) -- 11,900
-------- ------- ------- -------- -------
Total $ 54,730 $12,501 $ 4,199 $ 5,398 $57,634
======== ======= ======= ======== =======
1995
Investment valuation reserves:
Mortgage loans on real estate $ 9,287 $ 4,526 $ 981 $ 8 $12,824
Investment real estate 32,888 9,973 1,608 2,460 38,793
Investment in unconsolidated affiliates 1,696 -- -- 583 1,113
Other assets -- 2,000 -- -- 2,000
-------- ------- ------- -------- -------
Total $ 43,871 $16,499 $ 2,589 $ 3,051 $54,730
======== ======= ======= ======== =======
</TABLE>
(a) Amounts written off due to disposal represent reductions or (additions) in
the balance due to sales, transfers or other disposals of the asset with
which the allowance is associated.
(b) Amounts commuted represent reductions in the allowance balance due to
changes in requirements or investment conditions.
29
<PAGE>
PART C ITEM AND CAPTION
Items 24. Financial Statements and Exhibits.
(a) Financial Statements All required financial statements are included
in the Statement of Additional Information
(b) Exhibits
Exhibit "1" - Copy of the resolutions of the board of
directors of the depositor authorizing the
establishment of the Registrant /1/
Exhibit "2" - Not Applicable
Exhibit "3" - Distribution and Administrative Services
Agreement /1/
Exhibit "4" - Form of each variable annuity contract
Exhibit "5" - Form of application used with any variable
annuity contract
Exhibit "6a" - Copy of the articles of incorporation of the
depositor /1/
Exhibit "6b" - Copy of the by-laws of the depositor /1/
Exhibit "7" - Not Applicable
Exhibit "8a" American National Investment Account, Inc.
Participation Agreement /1/
Exhibit "8b" Fidelity Investments' Variable Insurance
Products Fund Participation Agreement /1/
Exhibit "8c" Variable Insurance Products Fund II
Participation Agreement /1/
Exhibit "8d" Form of Lazard Retirement Series, Inc. Fund
Participation Agreement
Exhibit "8e" Form of Van Eck Worldwide Insurance
i
<PAGE>
Trust Participation Agreement
Exhibit "8f" Form of T. Rowe Price International Series,
Inc., T. Rowe Price Equity Series, Inc., and T.
Rowe Price Fixed Income Series, Inc.
Participation Agreement
Exhibit "8g" Form of MFS Variable Insurance Trust
Participation Agreement
Exhibit "8h" Form of Federated Insurance Series Fund
Participation Agreement
Exhibit "9" Opinion and Consent of Counsel
Exhibit "10" - Consent of independent accountants
Exhibit "11" - Not Applicable
Exhibit "12" - Not Applicable
Exhibit "13" - Not Applicable
Exhibit "14" - No financial data schedule has been included in
this Pre-effective Amendment because, as of the
date of filing the amendment, the Contracts had
no assets or liabilities
/1/ Incorporated herein by reference to the Registrant's initial registration
statement filed with the Securities and Exchange Commission on August 21, 1996
File No. 333-10581) (Accession No. 0000899243-96-01133).
Item 25. Directors and Officers of the Depositor.
Directors
---------
Name Business Address
---- ----------------
G.Richard Ferdinandtsen One Moody Plaza
Galveston, Texas 77550
Irwin M. Herz, Jr. Greer, Herz & Adams, L.L.P.
One Moody Plaza, 18th Floor
Galveston, Texas 77550
R. Eugene Lucas Gal-Tex Hotel Corporation
2302 Postoffice, Suite 504
ii
<PAGE>
Galveston, Texas 77550
E. Douglas McLeod The Moody Foundation
2302 Postoffice, Suite 704
Galveston, Texas 77550
Frances Anne Moody 7031 Inwood
Dallas, Texas 75209
Robert L. Moody 2302 Postoffice, Suite 702
Galveston, Texas 77550
Russell S. Moody 6016 Mount Bonnell Hollow
Austin, Texas 78731
W.L. Moody, IV 2302 Postoffice, Suite 502
Galveston, Texas 77550
Joe Max Taylor Galveston County Sheriff's Department
715 19th Street
Galveston, Texas 77550
Officers
- --------
The principal business address of the officers, unless otherwise
indicated in the "Directors" section, is American National Insurance Company,
One Moody Plaza, Galveston, Texas 77550.
Name Office
- ---- ------
R.L. Moody Chairman of the Board, President and Chief
Executive Officer
G.R. Ferdinandtsen Senior Executive Vice President, Chief
Operating Officer
R.A Fruend Executive Vice President, Director of
Ordinary Agencies
B.J. Garrison Executive Vice President, Director of Home
Service Division
M.W. McCroskey Executive Vice President, Investments
J.E. Pozzi Executive Vice President, Independent
Marketing
R.J. Welch Executive Vice President & Chief Actuary
C.H. Addison Senior Vice President, Systems Planning and
Computing
iii
<PAGE>
A.L. Amato, Jr. Senior Vice President, Life Policy
Administration
G.C. Langley Senior Vice President, Human Resources
G.L. Noelle Senior Vice President, Health Insurance
Operations
S.E. Pavlicek Senior Vice President & Controller
J.R. Thomason Senior Vice President, Credit Insurance
Services
G.W. Tolman Senior Vice President, Corporate Affairs
V.E. Soler, Jr. Vice President, Secretary & Treasurer
J.J. Antkowiak Vice President, Director of Computing
Services
D.M. Azur Vice President, Claims
D.D. Brichler Vice President, Mortgage Loan Production
F.V. Broll, Jr. Vice President & Actuary
G.C. Crume Vice President, Independent Marketing
D.A. Culp Vice President, Independent Marketing
A.C. Deetjen Vice President, Director of Marketing &
Product Services
G.D. Dixon Vice President, Stocks
J.F. Grant, Jr. Vice President, Group Actuary
R.D. Hemme Vice President & Actuary
M.E. Hogan Vice President, Credit Insurance Operations
C.J. Jones Vice President, Health Underwriting & New
Business
D.D. Judy Vice Presldent, Financial Marketing
Dr. H.B. Kelso, Jr. Vice President & Medical Director
G.G. Kirk Vice President, Pension & Payroll Deduction
Marketing
D.D. Lagrone Vice President, Home Office Services
G.A. Macke Vice President, General Auditor
iv
<PAGE>
G.W. Marchand Vice President, Life Underwriting
R.G. McCrary Vice President, Application Development
Division
D.N. McDaniel Vice President, Home Service Administration
E.B. Pavelka Vice President, Life Premium Accounting &
Policy Service
W.T. Porter Vice President, Chief Marketing Officer,
Health Operations
W.H. Watson III Vice President, Health Actuary
G.W. Williamson Vice President, Asst. Director, Home Service
Division
P. Barber Asst. Vice President, Human Resources
W.R. Berger Asst. Vice President, Investments
S.F. Brast Asst. Vice President, Real Estate Manager
W.F. Carlton Asst. Vice President, Financial Reports
J.R. Cramer Asst. Vice President, Health Claims
R.T. Crawford Asst. Vice President, General Accounting
J.D. Ferguson Asst. Vice President, Director of Marketing
Services
J.M. Flippin Asst. Vice President, Director of Life
Marketing
D.S. Fuentes Asst. Vice President, Director of Group
Claims
K.E. Johnston Asst. Vice President, Asst. Director of
Financial Marketing
P.E. Kennedy Asst. Vice President, Personnel
G.W. Kirkman Asst. Vice President, Director of Planning
& Support
D. Knowles Asst. Vice President, Director of
Marketing/Agency Support
C.H. Lee Asst. Vice President and Actuary
v
<PAGE>
D.L. Leining Asst. Vice President, Life Underwriting
M.S. Nimmons Asst. Vice President, Associate General
Auditor, Home Office
R.J. Ostermayer Asst. Vice President, Director of Group
Quality Assurance
R.A. Price Asst. Vice President, Director of Training
& Marketing Development
J.J. Rooney Asst. Vice President, Group Legal/Audit
G.A. Schillaci Asst. Vice President & Actuary
M.J. Soler Asst. Vice President, Group Administration
G.A. Sparks, Sr. Asst. Vice President, Director of
Field Services
J.L. Towson Asst. Vice President, Director of Group
Underwriting
M.A. Trevino Asst. Vice President, Life Systems,
Training & New Business
M.L. Waugh, Jr. Asst. Vice President, Claims
V.M. Young Asst. Vice President, Securities Investments
J.N. Bell Assistant Secretary
Item 26. Persons Controlled by or Under Common Control with Depositor of
Registrant.
Exhibit "14" - control chart of depositor is hereby incorporated herein by
reference to the Registrant's initial registration statement filed with the
Securities and Exchange Commission on August 21, 1996 (File No. 333-10581)
(Accession No. 0000899243-96-001133).
Item 27. Number of Contractowners.
None.
Item 28. Indemnification.
The following provision is in the Distribution and Administrative Services
Agreement:
"American National agrees to indemnify SM&R for any liability that
SM&R may incur to a Contractowner or
vi
<PAGE>
party-in-interest under a Contract (i) arising out of any act or
omission in the course of, or in connection with, rendering services
under this Agreement, or (ii) arising out of the purchase, retention
or surrender of a Contract; provided, however, that American National
will not indemnify SM&R for any such liability that results from the
willful misfeasance, bad faith or gross negligence of SM&R, or from
the reckless disregard, by SM&R, of its duties and obligations arising
under this Agreement."
The officers and directors of American National are indemnified by American
National in the American National By-Laws for liability incurred by reason of
the officer and directors serving in such capacity. This indemnification would
cover liability arising out of the variable annuity sales of American National.
Insofar as indemnification for liability arising under the Securities Act
of 1933 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,
therefor, 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 of 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.
Item 29. Principal Underwriters.
(a) Securities Management and Research, Inc., the principal underwriter for
the contracts described herein, also acts as the principal underwriter for the
American National Funds Group consisting of American National Growth Fund, Inc.,
American National Income Fund, Inc. and American National Triflex Fund, Inc.;
SM&R Capital Funds, Inc. consisting of American National Government Income Fund
Series, American National Primary Fund Series and American National Tax Free
Fund Series; American National Investment Accounts, Inc.
(b) The following are the officers and directors of Securities Management
and Research, Inc.
vii
<PAGE>
<TABLE>
<CAPTION>
Principal Business
Name Position Address
---- -------- ------------------
<S> <C> <C>
Robert A. Fruend, C.L.U. Director American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
R. Eugene Lucas Director Ga1-Tenn Hote1 Corporation
504 Moody National Bank Tower
Galveston, Texas 77550
Michael W. McCroskey Director, President and Chief Securities Management and Research Inc.
Executive Officer One Moody Plaza
Galveston, Texas 77550
Gordon D. Dixon Director, Senior Vice President and Securities Management and Research Inc.
Chief Investment Officer One Moody Plaza
Galveston, Texas 77550
Ronald J. Welch Director American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Vera M. Young Vice President American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Emerson V. Unger, C.L.U. Vice President Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
Brenda T. Koelemay Vice President and Treasurer Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
Teresa E. Axelson Vice President and Secretary Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
</TABLE>
viii
<PAGE>
(c) Not Applicable
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained at the offices of American National Insurance
Company, One Moody Plaza, Galveston, Texas 77550.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include as part of any application to purchase
a contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) The Registrant hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. 1P-6-88) and that the following provisions have been complied
with:
(i) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b) (11) in each
registration statement, including the prospectus, used in
connection with the offer of the contract;
(ii) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b) (11) in any sales
literature used in connection with the offer of the contract;
(iii) Instruct sales representatives who solicit participants to
purchase the contract specifically to bring the redemption
restrictions imposed by Section 403(b) (11) to the attention of
the potential participants;
(e) American National Insurance Company represents that the fee and charges
under the Contracts, in the aggregate, are reasonable in relation to the
services rendered, the expenses expected to be incurred, and the risks assumed
by American National.
ix
<PAGE>
(iv) Obtain from each plan participant who purchases a Section 403
(b) annuity contract, prior to or at the time of such purchase,
a signed statement acknowledging the participant's
understanding of (1) the restrictions on redemption imposed by
Section 403 (b) (11), and (2) other investment alternatives
available under the employer's Section 403 (b) arrangement to
which the participant may elect to transfer his contract value.
x
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this Pre-effective Amendment Number One to the
Registration Statement to be signed on its behalf, in the City of Galveston, and
the State of Texas on the 2nd day of July, 1997.
AMERICAN NATIONAL VARIABLE ANNUITY
SEPARATE ACCOUNT
(Registrant)
By: AMERICAN NATIONAL INSURANCE COMPANY
By: /s/ Robert L. Moody
-----------------------------------
Robert L. Moody, Chairman of the
Board, President and Chief
Executive Officer
AMERICAN NATIONAL INSURANCE COMPANY
(Depositor)
By: /s/ Robert L. Moody
-----------------------------------
Robert L. Moody, Chairman of the
Board, President and Chief
Executive Officer
ATTEST:
/s/ Vincent E. Soler, Jr.
- ----------------------------------
Vincent E. Soler, Jr., Vice
President, Secretary and Treasurer
As required by the Securities Act of 1933, this Registration Statement has
been signed by the following persons in their capacities and on the dates
indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael W. McCroskey July 2, 1997
- ---------------------------- Executive Vice President - -------------
Michael W. McCroskey Investments (Principal
Financial Officer)
/s/ Stephen E. Pavlicek July 2, 1997
- ---------------------------- Vice President and Controller -------------
Stephen E. Pavlicek (Principal Accounting Officer)
xi
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody July 2, 1997
- ---------------------------- Chairman of the Board, Director, -------------
Robert L. Moody President and Chief Executive
Officer (Principal Executive
Officer)
/s/ G. Richard Ferdinandtsen July 2, 1997
- ---------------------------- Director, Senior Executive -------------
G. Richard Ferdinandtsen vice President and Chief
Operating Officer
/s/ Irwin M. Herz, Jr. July 2, 1997
- ---------------------------- Director -------------
Irwin M. Herz, Jr.
- ---------------------------- Director -------------
R. Eugene Lucas
/s/ E. Douglas McLeod July 2, 1997
- ---------------------------- Director -------------
E. Douglas McLeod
- ---------------------------- Director -------------
Frances Anne Moody
- ---------------------------- Director -------------
Russell S. Moody
/s/ W.L. Moody IV July 2, 1997
- ---------------------------- Director -------------
W.L. Moody IV
/s/ Joe Max Taylor July 2, 1997
- ---------------------------- Director -------------
Joe Max Taylor
xii
<PAGE>
EXHIBIT 99.B4
[LOGO OF AMERICAN NATIONAL APPEARS HERE]
AMERICAN NATIONAL INSURANCE COMPANY
A STOCK LIFE INSURANCE COMPANY
Annuitant JOHN DOE JULY 1, 1997 Date of Issue
Policy Number VA123456 JULY 1, 2027 Annuity Date
Home Office: One Moody Plaza
Galveston, Texas 77550
AMERICAN NATIONAL INSURANCE COMPANY ("We, Us, Our") will pay an annuity payment
to the Annuitant at its home office in Galveston, Texas, subject to the
provisions of this Policy. The annuity payment will begin on the Annuity Date
if the Annuitant is then living. The annuity payment will be payable according
to the annuity option selected by the Owner ("You, Your"). The amount of the
annuity payment will be based on the Accumulation Value on the Annuity Date.
Prior to the Annuity Date, You may elect to have the Policy surrendered and the
Surrender Value paid in a single sum or, with Our consent, under an annuity
option as designated in this Policy. Such payment will be in lieu of the annuity
payment on the Annuity Date.
If the Annuitant dies before the Annuity Date, this Policy will be terminated.
We will pay to the beneficiary a death benefit, subject to the Provisions of
the Policy.
This Policy is issued in consideration of the application and receipt of the
first Purchase Payment by Us. Your Policy is a legal contract that You have
entered in to with Us. READ YOUR POLICY CAREFULLY.
RIGHT TO CANCEL POLICY. You may cancel this Policy by returning it to Us or Our
agent within ten days after You receive it, and We will refund the greater of
all Purchase Payments made or the Accumulation Value determined as of the date
the Policy is returned to Us or Our agent plus the amount for any charges for
state premium taxes and Separate Account Expenses deducted prior to and on the
date the Policy is returned.
THE ACCUMULATION VALUE IN AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
IS BASED ON THE INVESTMENT EXPERIENCE OF THAT SEPARATE ACCOUNT AND MAY INCREASE
OR DECREASE DAILY. THE ACCUMULATION VALUE IS NOT GUARANTEED.
Signed for Us at Galveston, Texas, on the date of issue.
/S/ [SIGNATURE APPEARS HERE] /S/ [SIGNATURE APPEARS HERE]
---------------------------- ----------------------------
SECRETARY PRESIDENT
NONPARTICIPATING FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY.
NO DIVIDENDS. ANNUITY BENEFITS PAYABLE AT THE ANNUITY DATE.
DEATH BENEFIT PAYABLE IN EVENT OF DEATH OF ANNUITANT PRIOR TO ANNUITY DATE.
<PAGE>
POLICY PROVISIONS
PAGE
1. DEFINITIONS OF POLICY TERMS.................................... 2,3
2. NONPARTICIPATING POLICY........................................ 3
3. PURCHASE PAYMENTS.............................................. 3
4. OWNERSHIP AND BENEFICIARY...................................... 3
5. POLICY ACCOUNTS................................................ 4,5
6. NONFORFEITURE BENEFITS......................................... 6-8
7. DEATH BENEFIT.................................................. 9
8. ANNUITY OPTIONS................................................ 9,10
9. GENERAL PROVISIONS............................................. 12
See the last page for an Alphabetic Guide to this Policy.
SECTION 1 DEFINITIONS OF POLICY TERMS
ACCUMULATION PERIOD - The period from the date Accumulation Units are first
purchased under the Policy to the earliest of the Annuity Date, the date the
Policy is surrendered for its then current value or the date due proof of the
Annuitant's death is received at Our home office.
ACCUMULATION UNIT - A standard of measurement used with respect to each
Subaccount to calculate the value of the Policy during the Accumulation Period.
The value of an Accumulation Unit fluctuates with the value of the shares of the
corresponding Portfolio owned by each Subaccount less any applicable deductions.
ACCUMULATION UNIT VALUE - The value of an Accumulation Unit.
ACCUMULATION VALUE - The Accumulation Value of the Policy is the sum of the
total Accumulation Units in Subaccounts attributable to Your Policy times the
respective Accumulation Unit Value of such Subaccounts and Your value in the
Fixed Account.
ANNUITANT - The person on whose life the Policy is written. The Annuitant may
also be the Owner.
ANNUITY DATE - The date on which the Accumulation Period changes to the Annuity
Period. The Annuity Date must be at least five years after the date of issue.
The latest Annuity Date is the Annuitant's age 95.
ANNUITY PERIOD - The period of time during which annuity payments are being
made.
ANNUITY UNIT - A standard of measurement used with respect to each Subaccount to
calculate the dollar amount of variable annuity payments during the Annuity
Period. The value of an Annuity Unit fluctuates with the value of shares of the
corresponding Portfolio owned by each Subaccount less any applicable deductions.
DATE OF ISSUE - The date as of which a Policy is issued and the initial net
Purchase Payment is credited to the Policy.
FIXED ACCOUNT - An account that is a part of Our General Account to which all or
a portion of Net Purchase Payments and transfers may be allocated for
accumulation at fixed rates of interest.
GENERAL ACCOUNT - The General Account includes all of Our assets except those
assets segregated into Our separate accounts.
NET PURCHASE PAYMENT - The Purchase Payment less any government entity premium
tax charge.
NON-QUALIFIED CONTRACT - A Policy issued in connection with a retirement plan
that does not receive favorable tax treatment under the Internal Revenue Code.
OWNER ("YOU, YOUR") - The person or entity entitled to exercise all legal rights
of ownership in the Policy prior to the Annuity Date or termination of the
Policy. You and the Annuitant need not be the same.
POLICY - A Variable Annuity issued pursuant to the Prospectus which sets forth
the obligations and contractual promises which We make to You.
POLICY YEAR - The period from the date the first Purchase Payment is credited to
the Policy until the immediately preceding day of the succeeding year.
2
<PAGE>
PORTFOLIO - A separate series of capital securities designed to meet specified
investment objectives.
PURCHASE PAYMENT - A payment made into the Policy during the Accumulation
Period.
SEPARATE ACCOUNT EXPENSES - A daily charge deducted from the Accumulation Value
in each Subaccount. These expenses reimburse Us for accepting mortality and
expense risks and administrative expenses. Also, an annual fee is deducted from
Your Accumulation Value in each Subaccount on the last day of each Policy Year.
The annual fee will be waived if the Accumulation Value is greater than
$50,000 on the last day of each Policy Year.
SIX-YEAR ANNIVERSARY DATE - The last day of each Policy Year prior to the
Annuitant's 75th birthday which is evenly divisible by six.
SUBACCOUNT - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a corresponding Portfolio.
SURRENDER VALUE - The Accumulation Value on the date of surrender less any
surrender charge.
VALUATION DATE - A Valuation Date is any day on which the New York Stock
Exchange ("NYSE") is open for trading.
VALUATION PERIOD - The period commencing at the close of regular trading on the
NYSE on one Valuation Date and ending at the close of regular trading on the
NYSE on the next succeeding Valuation Date.
VARIABLE ANNUITY - An annuity providing payments which vary in dollar amount
depending on the investment results of the Portfolios.
SECTION 2 NONPARTICIPATING POLICY
This Policy is nonparticipating. It does not share in Our profits or surplus.
SECTION 3 PURCHASE PAYMENTS
FLEXIBILITY. This Policy is a Flexible Purchase Payment Annuity. After the
first Purchase Payment, You can choose:
(1) the amount of Purchase Payment to pay; and
(2) how often Purchase Payments will be paid.
The amount of additional Purchase Payments may not be less than the minimum
additional Purchase Payment specified on the data page.
PURCHASE PAYMENTS. You may pay Purchase Payments on this Policy until:
(1) the Annuity Date; or
(2) the date of the Annuitant's death, whichever comes first. .
Purchase Payments may be paid:
(1) at the home office; or
(2) to Our authorized agent in exchange for an official signed receipt.
MINIMUM ACCUMULATION VALUE. If the Accumulation Value is less than $1,000, We
may terminate this Policy by payment of the Surrender Value to You.
DATE OF CREDITING. The amount of the initial Purchase Payment is shown on the
data page. The initial Purchase Payment will be credited as of the date of
issue. All additional Purchase Payments will be credited on the date the
additional Purchase Payment is received at the home office.
SECTION 4 OWNERSHIP AND BENEFICIARY
OWNERSHIP. The Owner is shown on the data page. You may exercise all rights of
ownership before the Annuity Date or the Annuitant's death.
Your rights are subject to the rights of:
(1) any assignee of record; or
(2) any irrevocable beneficiary.
WHEN OWNER IS A MINOR. So long as You are a minor, first the Annuitant, then the
beneficiary, if living
and competent, has the right to:
(1) ask for and receive all Surrender Values and other benefits;
(2) assign this Policy;
(3) exercise all rights and options in this Policy; and
(4) agree with Us to any Policy changes or release.
All rights of the Annuitant and the beneficiary are subject to the rights of:
(1) any assignee of record; and
(2) any irrevocable beneficiary.
3
<PAGE>
SECTION 4 OWNERSHIP AND BENEFICIARY. continued.
DEATH OF OWNER. If you die before the annuity date the Policy will end and the
death benefit will be paid to the beneficiary. If there are joint owners, the
beneficiary is the surviving joint owner. If both joint owners die
simultaneously, the death benefit will be paid to the beneficiary. If an owner
of this Policy is a corporation or other nonindividual , the annuitant will be
treated as an owner of this Policy. The "annuitant" is that individual whose
life affects the timing or the amount of the payout under this Policy. A
change in the annuitant will be treated as the death of an owner.
If the beneficiary is the surviving spouse, the spouse may either receive the
death benefit and the Policy will end, or the spouse may continue the Policy in
force. If you die on or after the annuity date and before all proceeds have
been paid, any remaining proceeds will be paid at least as rapidly as under the
option in effect at the time of your death.
Generally, any death benefit must be paid within five years after the date of
death. The five year rule does not apply to that portion of the proceeds which:
(1) is payable to or for the benefit of an individual named beneficiary; and
(2) will be paid over the lifetime on the life expectancy of that named
beneficiary as long as payments begin not later than one year after your
date of death.
BENEFICIARY INTEREST. The beneficiary will be as shown in this Policy's
application. The beneficiary will receive the death benefit. Any relationship
shown is to the Annuitant. Unless changed by endorsement or written request
filed at Our home office:
(1) all class members will share proceeds equally;
(2) surviving class members will share equally that portion of the death benefit
to which a deceased beneficiary would have been entitled; and
(3) if no beneficiary survives the Annuitant, the death benefit will be paid to
the Annuitant's estate.
A beneficiary will not share in the death benefit if the beneficiary dies within
6 days after the Annuitant's death. If any beneficiary dies within 6 days after
the Annuitant's death and if there are no surviving beneficiary class members,
the proceeds will be paid to the estate of the Annuitant.
If the beneficiary is not a natural person, the beneficiary must still exist at
the time of the Annuitant's death. All beneficiaries interests are subject to
any assignment on record at the home office.
CHANGE OF BENEFICIARY. You may change a beneficiary if:
(1) the Annuitant is living; and
(2) written request in a form acceptable by Us is filed at the home office.
The change will not take effect until it is recorded at Our home office.
However, once such change is recorded the change is effective as of the date the
request was signed. The change is subject to:
(1) the rights of an assignee of record; and
(2) the rights of an irrevocable beneficiary.
SECTION 5 POLICY ACCOUNTS
AMERICAN NATIONAL FIXED ACCOUNT. You may elect to allocate Purchase Payments or
transfer all or a part of the amount credited under the Policy to a Fixed
Account. Such amounts allocated or transferred become part of American
Nationals General Account.
Subject to applicable law, We have sole discretion over the investment of the
assets of the Fixed Account and You do not share in the investment experience of
those assets. Instead, We guarantee that the part of the Accumulation Value in
the Fixed Account will accrue interest daily at an annual interest rate that We
will declare periodically. The declared rate will not be less than 3% per year,
compounded daily.
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT. The variable benefits under
this Policy are provided through investments in the American National Variable
Annuity Separate Account. We established the American National Variable Annuity
Separate Account as a separate investment account to support Variable Annuity
contracts.
We own the assets of the American National Variable Annuity Separate Account.
Assets equal to the reserves and other liabilities of the American National
Variable Annuity Separate Account will not be charged with liabilities that
arise from any other business We conduct. We may transfer to American Nationals
General Account any assets
4
<PAGE>
which exceed the reserves and other liabilities of the American National
Variable Annuity Separate Account. American National Variable Annuity Separate
Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. It is also subject
to the laws of the state of Texas.
SUBACCOUNTS. The American National Variable Annuity Separate Account has
multiple Sub- accounts. Each Subaccount invests exclusively in shares of a
corresponding Portfolio. Each Portfolio is a separate series of capital
securities designed to meet specified investment objectives. All Subaccounts of
the American National Variable Annuity Separate Account are shown on the copy of
the attached application.
You will share only in the income, gains and losses of the particular
Subaccounts to which Net Purchase Payments have been allocated. We will value
the assets of each Subaccount of the American National Variable Annuity
Separate Account at the end of each Valuation Period.
TRANSFERS DURING THE ACCUMULATION PERIOD .At any time that this Policy is in the
Accumulation Period, You may transfer all or a portion of the amounts from one
Subaccount to another Subaccount, or to the Fixed Account.
The minimum amount that may be transferred is $250, or the balance of the
Subaccount, if less. The minimum amount which may remain in a Subaccount after
a transfer is $100. You may make 12 transfers each Policy Year without charge.
The exchange fee for each additional transfer during the Policy Year is $10.
Unused transfers do not carry over from a Policy Year to the next Policy Year.
Transfers from the Fixed Account to the Subaccounts have restrictions. The
maximum amount which may be transferred out of the Fixed Account each year is
the greater of: (a) 10% of the amount in the Fixed Account, or (b) $1,000. This
transfer is without charge.
TRANSFERS DURING THE ANNUITY PERIOD. Transfers from the Fixed Account to the
Sub- accounts are not permitted during the Annuity Period. Transfers among
Subaccounts may be made 12 times each Policy Year. You may transfer Annuity
Units of one Subaccount into Annuity Units of another Subaccount and/or the
Fixed Account except during the five day period prior to an annuity payment
date.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS. We have the right, subject
to compliance with applicable law, to make additions to, deletions from, or
substitutions for the shares of a Subaccount that are held by the American
National Variable Annuity Separate Account or that the American National
Variable Annuity Separate Account may purchase. We reserve the right to
eliminate the shares of any Portfolio and to substitute shares of another
Portfolio of another open-end management investment company if the shares of the
Portfolio are no longer available for investment or if, in Our judgment, further
investment in the Portfolio should become inappropriate in view of the purposes
of American National Variable Annuity Separate Account.
We will not substitute any shares attributable to Your interest in a Subaccount
of the American National Variable Annuity Separate Account without notice to You
and prior approval of the of the Securities and Exchange Commission, to the
extent required by the Investment Company Act of 1940.
We have the right to establish additional Sub- accounts of the American National
Variable Annuity Separate Account, each of which would invest only in a new and
corresponding Portfolio or in shares of another open-end management investment
company. We also have the right to eliminate existing Subaccounts of the
American National Variable Annuity Separate Account. In the event of any
substitution or change, We may, by appropriate endorsement, make such changes in
this Policy as may be necessary or appropriate. The investment objectives will
not be changed without the approval of the Insurance Commissioner of the State
of Texas.
We also have the right, where permitted by law:
(1) to operate the American National Variable Annuity Separate Account as a
management company under the Investment Company Act of 1940;
(2) to deregister the American National Variable Annuity Separate Account under
the Act if registration is no longer required; and
(3) to combine the American National Variable Annuity Separate Account with
other separate accounts.
5
<PAGE>
SECTION 6 NONFORFEITURE BENEFITS
ACCUMULATION VALUE. The Accumulation Value is the sum of the total Accumulation
Units in the Subaccounts times the respective Accumulation Unit Values of such
Subaccounts and the value in the Fixed Account. Net Purchase Payments will be
added to the Accumulation Value the same day as the Purchase Payment is
credited. Partial surrenders and systematic withdrawals and any surrender
charges applicable to such partial surrenders and systematic withdrawals will
be deducted from the Accumulation Value as of the date of each partial surrender
and systematic withdrawal.
SEPARATE ACCOUNT ACCUMULATION VALUE. The Separate Account Accumulation Value
attributable to this Policy is the sum of the values of the Subaccounts of the
American National Variable Annuity Separate Account that are attributable to
this Policy. The Separate Account Accumulation Value will vary daily with the
performance of the Subaccounts in which You have an Accumulation Value, any Net
Purchase Payments received, transfers, partial surrenders, systematic
withdrawals and charges assessed. There is no guaranteed minimum Surrender
Value on these separate account Accumulation Values.
On each Valuation Date, the Accumulation Value in a Subaccount is:
(1) the Accumulation Units times the Accumulation Unit Value on the Valuation
Date, plus;
(2) any Net Purchase Payment received and allocated to the Subaccount during the
current Valuation Period, plus;
(3) any Accumulation Value transferred to the Subaccount during the current
Valuation Period, minus;
(4) any Accumulation Value transferred from the Subaccount during the current
Valuation Period, minus;
(5) any partial surrenders or systematic withdrawals plus applicable surrender
charges from the Subaccount during the current Valuation Period, minus;
(6) the Separate Account Expenses as listed on the data page.
FIXED ACCOUNT ACCUMULATION VALUE. The Fixed Account Accumulation Value on any
date shall be the sum of (a), (b), (c), and (d), less the sum of (e) and (f),
where:
(a) is the Fixed Account Accumulation Value on the immediately preceding date;
(b) is accumulated interest on (a);
(c) is all Net Purchase Payments received and allocated to the Fixed Account and
any Accumulation Value transferred into the Fixed Account since the
immediately preceding date;
(d) is interest accumulated on (c) from the date of receipt of the Net Purchase
Payment allocated to the Fixed Account or the date any Accumulation Value
was transferred into the Fixed Account;
(e) is the sum of any partial surrenders or systematic withdrawals from the
Fixed Account since the immediately preceding date, and applicable surrender
charges; and
(f) is any Accumulation Value transferred out of the Fixed Account since the
last date.
The guaranteed interest rate applied in the calculation of the Fixed Account
Accumulation Value is 3% per year, compounded daily, on all Fixed Account
Accumulation Values. Fixed Account Accumulation Values may earn interest at a
higher rate.
FULL SURRENDER. You may surrender this Policy for its Surrender Value at any
time during the lifetime of the Annuitant and before the Annuity Date. The
request for a full surrender must be in writing and accompanied by this Policy.
We will pay the Surrender Value to You generally within 7 days after We receive
Your written request. We reserve the right to defer payment of any Surrender
Value taken from the Fixed Account for up to 6 months from the date of receipt
of the request.
The Surrender Value of the Policy will be the Accumulation Value as of the date
of surrender less any surrender charges. An amount of Accumulation Value equal
to the greater of:
(1) 10% of the Accumulation Value in a Policy Year; or
(2) Accumulation Value lon the date of receipt of request less total Purchase
Payments made,
can be withdrawn without the deduction of surrender charges. The 10% limit is
the sum of percentages equal to the withdrawal divided by the Accumulation Value
at the time of each respective withdrawal in a policy year. If less than 10% of
the Accumulation Value of the Policy is withdrawn in a Policy Year, the
remainder of the 10% does not carry over to the next Policy Year. On withdrawals
of that portion of Accumulation Value
6
<PAGE>
in excess of the amount available without surrender charges a surrender charge
will be assessed. This surrender charge will be a percentage of the Purchase
Payments made in each Policy Year
Policy Year Applicable
Since Each Purchase Surrender Charge
Payment Made Percentage
1 7%
2 7
3 7
4 6
5 5
6 4
7 3
8 2
9 and thereafter 0
PARTIAL SURRENDERS AND SYSTEMATIC WITHDRAWALS. You may surrender a part of the
Accumulation Value at any time during the lifetime of the Annuitant and before
the Annuity Date. This Policy will remain in force after a partial surrender or
systematic withdrawal. The request for a partial surrender or systematic
withdrawal must be:
(1) in writing; and
(2) for the amount to be paid to You.
We will pay the partial surrender amount to You generally within 7 days after We
receive the written request. We reserve the right to defer payment of any
partial surrender amount taken from the Fixed Account for up to 6 months from
the date of receipt of the request.
We will grant the partial surrender if:
(1) the request is for at least $250.00; and
(2) an Accumulation Value of at least $1,000.00 will remain after deduction of
the amount of the partial surrender and its surrender charge if any.
Unless You request otherwise, We will allocate partial surrenders to the Fixed
Account and Subaccounts in proportion to the Accumulation Value in the Fixed
Account and in each Subaccount on the date the partial surrender is made.
Under systematic withdrawals, You can instruct us to make automatic payments of
a predetermined dollar amount on a monthly, quarterly, semi-annual or annual
basis from a specified Subaccount. The minimum systematic withdrawal payment
is $100. Systematic withdrawals can be started on the date of issue or at some
later date in the future.
We will grant the systematic withdrawal upon receipt of written notification
from you which includes the following:
(1) the dollar amount being withdrawn;
(2) whether the systematic withdrawals will be made monthly, quarterly, semi-
annually or annually; and
(3) the Subaccounts from which the systematic withdrawals are to be taken.
If You do not specify the Subaccounts from which systematic withdrawals are to
be taken, then the systematic withdrawals will be taken from each Subaccount
proportionately.
An amount of Accumulation Value equal to the greater of:
(1) 10% of the Accumulation Value in a Policy Year; or
(2) Accumulation Value on the date of receipt of the request less total
Purchase Payments made,
can be withdrawn without the deduction of surrender charges. The 10% limit is
the sum of percentages equal to the withdrawal divided by the Accumulation Value
at the time of each respective withdrawal in a Policy Year.
On partial surrenders and systematic withdrawals of Accumulation Value in excess
of the amount available without surrender charges , a surrender charge, if any,
is imposed based upon the number of Policy Years since the Policy Year in which
the Purchase Payments surrendered were received, on a first received, first
surrendered basis. The surrender charge will be a percentage of each Purchase
Payment or portion thereof surrendered.
See the surrender charge schedule in the Full Surrender provision for the
appropriate percentage. The amount of the partial surrender and the amount of
the surrender charge, if any, will be deducted from the Accumulation Value
remaining after the amount requested is paid.
WAIVER OF SURRENDER CHARGES. We will waive the surrender charge upon partial
surrenders, systematic withdrawals and full surrenders in the event You become
confined to a hospital, hospice facility or convalescent care facility,
disabled, diagnosed with a terminal illness or involuntarily unemployed. Those
waivers and any restrictions associated with such waivers are set forth below:
(1) Nursing Home Waiver - The surrender charge will not be imposed as a result
of any full or partial surrender or systematic withdrawal made while You are
confined, upon written proof from a licensed physician, to the following
facilities for 60 or more consecutive days:
7
<PAGE>
(a) a hospital licensed or recognized as a general hospital by the state in
which it is located and is engaged in providing or operating diagnostic and
major surgery facilities for the medical care and treatment of injured and
sick persons on an inpatient basis for which a charge is made and provides
24-hour nursing service by or under the supervision of a graduate registered
nurse (R.N.);
(b) convalescent care facility licensed by the state as a convalescent nursing
facility, a skilled nursing facility, or a custodial care facility and
provides continuous nursing service by or under the supervision of a
physician or a graduate registered (R.N.) and maintains a daily record of
each patient which is available for review by American National and
administers a planned program of observation and treatment by a physician
which is in accordance with existing standards of medical practice for the
injury or sickness causing the confinement; and
(c) hospice facility which provides a formal program of care for terminally ill
patients whose life expectancy is less than 6 months, provided on an
inpatient basis and directed by a physician and is licensed, certified or
registered in accordance with state law.
Proof of confinement must be provided. This waiver applies to surrenders and
withdrawals requested no later than 90 days of the last day of confinement to
such facility. The nursing home waiver is not available if You are confined to a
hospital, nursing home or hospice facility on the date of issue and if the
application is signed by power of attorney. You must be age 80 or younger on the
date of issue and must have entered the hospital, convalescent care facility or
hospice facility after 90 days from the date of issue.
(2) Disability Waiver - The surrender charge will not be imposed upon any full
or partial surrender or systematic withdrawal when You are physically
disabled. We require proof of such disability, including written
confirmation of receipt and approval of any claim for Social Security
Disability Benefits. Proof of continued disability may be required through
the date of any partial surrender or systematic withdrawal.
We reserve the right to have You examined by a licensed physician at Our
expense. We will not accept any additional Purchase Payments under the Policy
once the disability waiver has been elected. The disability waiver is not
available if You are receiving Social Security Disability Benefits on the date
of issue or You are age 65 or older.
(3) Involuntary Unemployment Waiver -We will waive the surrender charge for any
full or partial surrender or systematic withdrawal in the event You become
unemployed. The involuntary unemployment waiver is available upon submission
of a letter from a state Department of Labor indicating You were employed at
least 60 days prior to the election of such waiver. The involuntary
unemployment waiver may be exercised only once and is not available if You
or the Annuitant is receiving unemployment benefits on the date of issue.
(4) Terminal Illness Waiver - We will waive the surrender charge for any full or
partial surrender or systematic withdrawal when You are diagnosed with a
terminal illness. We reserve the right to have You examined by a licensed
physician at our expense. We will not accept any additional Purchase
Payments under the Policy once the terminal illness waiver has been elected.
The terminal illness waiver is not available if You are diagnosed with a
terminal illness prior to or on the date of issue.
BASIS OF VALUES. All Surrender Values of this Policy are not less than the
minimum required by the laws of the state where this Policy is delivered.
TRANSFERS FROM OTHER POLICIES. With Our consent, values from other policies on
the life of the Annuitant may be transferred to this Policy and added to the
Accumulation Value. This transfer will be subject to the terms, conditions and
charges We stipulate on the date the transfer occurs.
DEFERMENT OF PAYMENTS AND EMERGENCY PROCEDURE. We may suspend or delay all
procedures which require valuation of a Subaccount if the New York Stock
Exchange is closed (except for holidays or weekends) or trading is restricted
due to an existing emergency as defined by the Securities and Exchange
Commission so that We cannot value the Subaccounts. Any provision of this
Policy which specified a Valuation Date will be superseded by this emergency
procedure.
8
<PAGE>
SECTION 7 DEATH BENEFIT
DEATH BENEFIT. In the event of Annuitant's death prior to the Annuity Date, a
death benefit will be payable equal to the greater of:
(1) Accumulation Value on the date due proof of death is received by Us at Our
home office; or
(2) the minimum guaranteed death benefit on the Policy calculated as of the date
that due proof of death is received by Us at Our home office.
The death benefit may be paid in a lump sum to the beneficiary named in the
Policy usually within seven days of receipt of proof of death in proper form.
MINIMUM GUARANTEED DEATH BENEFIT. For all dates up to and including the first
Six-Year Anniversary Date, the minimum guaranteed death benefit will equal
Purchase Payments less partial surrender reductions (as such "partial
surrender reductions" are calculated in accordance with this Section 7) made on
or before such date. For all subsequent Six-Year Anniversary Dates, the minimum
guaranteed death benefit will equal the greater of:
(1) the Accumulation Value on such Six-Year Anniversary date, or
(2) the minimum guaranteed death benefit for the immediately preceding Six-Year
Anniversary Date, plus Purchase Payments and less partial surrender
reductions (as such "partial surrender reductions" are calculated in
accordance with this Section 7) made since such immediately preceding Six-
Year Anniversary Date.
For all other dates, the minimum guaranteed death benefit will equal the minimum
guaranteed death benefit for the immediately preceding Six-Year Anniversary Date
plus purchase payments and less partial surrender reductions (as such "partial
surrender reductions" are calculated in accordance with this Section 7) made
since such immediately preceding Six-Year Anniversary Date.
PARTIAL SURRENDER REDUCTION. An amount equal to (i) the amount of a surrender,
multiplied by (ii) the minimum guaranteed death benefit on the date immediately
prior to the surrender, divided by (iii) the Accumulation Value on the date
immediately prior to the surrender.
SECTION 8 ANNUITY OPTIONS
AVAILABILITY. All or a part of any amount payable in settlement of this Policy
may be applied to any of the following annuity options, subject to the
distribution rules set forth in the "Ownership and Beneficiary" section of this
Policy and applicable requirements of law. We will first discharge in a single
sum any liability under an assignment of the Policy and any applicable federal
or state taxes, fees or assessments which have not otherwise been deducted or
offset and which are based or predicated on the Purchase Payments payable on
this Policy. The remaining amount is the net sum payable. Other annuity
options can be used if agreed to by Us. If you have not elected an annuity
option before the Annuitant's death, the beneficiary can choose one. The minimum
amount that We will apply to any annuity option is $5,000.00. Any election or
change must be written in a form that satisfies Us. Our consent is required
for:
(1) any payment to any entity other than a natural person; or
(2) any change in an elected annuity option.
HOW ANNUITY PAYMENTS ARE DETERMINED. There are a number of ways to receive
annuity payments. Annuity payments may be received on a fixed basis and/or on a
variable basis. All or a portion of the net sum payable may be allocated to any
Subaccount. Annuity payments will increase or decrease according to the
investment experience of the Subaccount. All or a portion of the net sum
payable may be allocated to the Fixed Account. Annuity payments from the Fixed
Account will remain the same.
EXPENSES DURING THE ANNUITY PERIOD. The Separate Account will be assessed a
daily Separate Account Expense of 0.0031%, reflecting mortality and expense
charges.
ANNUITY OPTIONS. The following annuity options are available:
Option 1. Life Annuity. Annuity payment payable monthly during the lifetime of
the Annuitant, ceasing with the last annuity payment due prior to the death of
the Annuitant. This option offers the maximum level of monthly annuity
payments since there is no provision for a minimum number of annuity
9
<PAGE>
payments or a death benefit for beneficiaries. It would be possible under this
option for the Annuitant to receive only one annuity payment if death occurred
prior to the due date of the second annuity payment, two if death occurred
before the third annuity payment, etc.
Option 2. Life Annuity with 10 or 20 Years Certain and Life Thereafter. An
annuity payable monthly during the lifetime of the Annuitant with payments
made for a period certain of not less than 10 or 20 years, as elected. The
annuity payments will be continued to a designated beneficiary until the end
of the period certain upon the death of the Annuitant.
Option 3. Unit Refund Life Annuity. Available on Variable Annuity payments
only. An Annuity payable monthly during the lifetime of the Annuitant with
annuity payments made for a period certain not less than the number of months
determined by dividing the amount applied under this option by the amount of
the first monthly annuity payment. This option guarantees that the Annuity
Units but not the dollar value applied under a Variable Annuity payout will be
repaid to the Annuitant or his beneficiary.
Option 4. Joint and Survivor Annuity. An annuity payable monthly during the
joint lifetime of the Annuitant and another named individual and thereafter
during the lifetime of the survivor, ceasing with the last annuity payment due
prior to the death of the survivor. It would be possible under this option,
for only one annuity payment to be made if both individuals under the option
died prior to the second annuity payment date, or only two annuity payments if
both died prior to the third annuity payment date, etc.
Option 5. Installment Payments, Fixed Period. An amount payable monthly for at
least 5 years, but not exceeding 30. The amount of each Variable Annuity
payment will be determined by multiplying (a) and (b) where (a) is the Unit
Value on the day the annuity payment is made and (b) is the number of Annuity
Units applied under this option divided by the number of remaining monthly
annuity payments.
Option 6. Equal Installment Payments, Fixed Amount. An amount payable in equal
monthly installments (not less than $6.25 per $1,000 applied) until the amount
applied, adjusted daily by the investment results, is exhausted. The final
annuity payment will be the remaining sum left
with Us.
Option 7. Deposit Option. The amount due may be left on deposit with Us for
placement in its Fixed Account with interest at the rate of not less than 3%
per year. Interest will be paid annually, semiannually, quarterly or monthly
as elected. This option may not be available under certain Qualified
Contracts.
At any time, any amount remaining under Option 5, 6 or 7 may be withdrawn as a
full or partial surrender or, if that amount is at least $5,000, may be applied
under any one of the first four options. The lump sum payment requested will be
paid within seven days of receipt of the request at the Home Office based on the
value next computed after receipt of the request. Other annuity options may be
made for annuity payments in any reasonable arrangement mutually agreed upon by
Us. If the beneficiary dies while receiving annuity payments certain under
option 2, 3, 5 or 6 above, the present value will be paid in a lump sum to the
estate of the beneficiary.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INVESTMENT RATES. The annuity tables
in the Policy which are used to calculate the annuity payments are based on an
"assumed investment rate" of 3%. If the net investment return of the particular
Subaccount selected is such that the net investment return to the Contract is 3%
per annum, the annuity payments will remain constant. If the net investment
return exceeds 3%, the annuity payments will increase and if the return is less
than 3%, the annuity payments will decrease.
The annuity payment will be greater for shorter guaranteed periods than for
longer guaranteed periods, and greater for life annuities than for joint and
survivor annuities, because the life annuities are expected to be made for a
shorter period.
ANNUITY PROVISIONS. The payment amounts illustrated in the annuity option tables
are based on the 1983 Table "a", with Projection Scale G, from 1983 to 1993 and
3% interest. The attained age at annuitization will be adjusted downward by one
year for each full five year period that has elapsed since January 1, 1993.
10
<PAGE>
ANNUITY OPTION TABLES FOR ANNUITY PAYMENTS ON A FIXED BASIS
OPTION 5
MONTHLY ANNUITY PAYMENTS FOR EACH $1,000.00 OF THE NET SUM PAYABLE.
Multiply the monthly annuity payment by 2.993 to obtain the quarterly payment,
by 5.963 to obtain the semi-annual payment, and by 11.840 to obtain the annual
payment.
<TABLE>
<CAPTION>
Years Amount Years Amount Years Amount Years Amount Years Amount
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
5 $17.91 11 $8.86 16 $6.53 21 $5.32 26 $4.59
6 15.14 12 8.24 17 6.23 22 5.15 27 4.47
7 13.16 13 7.71 18 5.96 23 4.99 28 4.37
8 11.68 14 7.26 19 5.72 24 4.84 29 4.27
9 10.53 15 6.87 20 5.51 25 4.71 30 4.19
10 9.61
- ---------------------------------------------------------------------------
</TABLE>
MONTHLY ANNUITY PAYMENT FOR LIFE FOR EACH $1,000.00 OF THE NET SUM PAYABLE
Age in years means age of payee on birthday prior to the due date of the first
payment. Amounts for annuity payments other than monthly are available on
request. Amounts for ages 0 - 45 for all tables are available on request.
<TABLE>
<CAPTION>
OPTION 2 OPTION 2 OPTION 2 AGE OPTION 2 OPTION 2 OPTION 2
AGE Guaranteed Guaranteed Guaranteed IN Guaranteed Guaranteed Guaranteed
IN Period Period Period YEARS Period Period Period
YEARS 10 Years 10 Years 10 Years 10 Years 10 Years 10 Years
- ----------------------------------------------------------------------------------------------
Male Amount Amount Amount Female Amount Amount Amount
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
46 $3.79 $3.70 $3.85 46 $3.50 $3.44 $3.54
47 3.85 3.74 3.91 47 3.54 3.48 3.58
48 3.90 3.79 3.97 48 3.58 3.52 3.63
49 3.96 3.84 4.04 49 3.63 3.56 3.68
50 4.02 3.89 4.10 50 3.68 3.60 3.73
51 4.09 3.94 4.17 51 3.73 3.64 3.79
52 4.16 3.99 4.24 52 3.78 3.69 3.83
53 4.23 4.05 4.32 53 3.83 3.74 3.89
54 4.30 4.10 4.40 54 3.89 3.79 3.95
55 4.39 4.16 4.49 55 3.95 3.83 4.02
56 4.46 4.22 4.58 56 4.01 3.89 4.08
57 4.55 4.28 4.68 57 4.08 3.94 4.16
58 4.64 4.34 4.78 58 4.15 3.99 4.23
59 4.73 4.40 4.89 59 4.22 4.05 4.31
60 4.84 4.46 5.00 60 4.30 4.11 4.40
61 4.94 4.53 5.13 61 4.38 4.17 4.49
62 5.05 4.59 5.26 62 4.47 4.22 4.58
63 5.17 4.65 5.40 63 4.56 4.28 4.68
64 5.29 4.71 5.55 64 4.65 4.34 4.79
65 5.42 4.77 5.71 65 4.75 4.40 4.90
66 5.55 4.83 5.88 66 4.85 4.46 5.02
67 5.69 4.89 6.06 67 4.96 4.52 5.15
68 5.84 4.94 6.26 68 5.07 4.57 5.28
69 5.98 4.99 6.47 69 5.19 4.63 5.42
70 6.14 5.04 6.69 70 5.31 4.68 5.58
71 6.29 5.08 6.92 71 5.44 4.72 5.74
72 6.45 5.12 7.18 72 5.57 4.76 5.91
73 6.62 5.16 7.44 73 5.70 4.80 6.10
74 6.78 5.19 7.73 74 5.84 4.83 6.30
75 6.95 5.22 8.04 75 5.98 4.86 6.50
76 7.12 5.25 8.37 76 6.12 4.88 6.72
77 7.29 5.27 8.72 77 6.27 4.90 6.96
78 7.45 5.29 9.09 78 6.39 4.92 7.20
79 7.61 5.31 9.49 79 6.52 4.94 7.46
80** 7.77 5.32 9.92 80** 6.64 4.96 7.72
- ----------------------------------------------------------------------------------------------
** and over
</TABLE>
11
<PAGE>
OPTION 4
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENT FOR EACH $1,000.00 OF NET SUM
PAYABLE
Age in years means age of the payee on the birthday prior to the due date of
the first payment. Monthly annuity payment to the Annuitant with annuity
payment to the surviving spouse based on the elected Specified Amount Payment.
<TABLE>
<CAPTION>
Specific Specific Specific Specific Specific Specific
Age Amount Amount Amount Age Amount Amount Amount
in One-Half Two-Thirds Full in One-Half Two-Thirds Full
Years Payment Payment Payment Years Payment Payment Payment
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
55 $4.38 $4.22 $3.94 63 $5.06 $4.83 $4.43
56 4.44 4.28 3.99 64 5.17 4.93 4.51
57 4.52 4.35 4.04 65 5.29 5.03 4.59
58 4.59 4.42 4.10 66 5.42 5.15 4.68
59 4.68 4.49 4.16 67 5.55 5.27 4.77
60 4.76 4.57 4.22 68 5.69 5.39 4.88
61 4.86 4.65 4.28 69 5.85 5.53 4.98
62 4.95 4.74 4.35 70 6.01 5.67 5.10
- ------------------------------------------------------------------------------
</TABLE>
Amounts shown apply if both payees are the same age. Amounts for annuity
payments other than monthly and for other ages are available on request.
SECTION 9 GENERAL PROVISIONS
CONTRACT AND REPRESENTATIONS. This Policy and the attached copy of the
application forms the entire contract. All statements in the application will
be deemed representations and not warranties. Only statements in the
application will be used to defend a claim or to contest the contract.
MODIFICATION OF CONTRACT. Only Our president, a vice-president, or secretary
has the power to change this Policy. Any change must be in writing signed by
one of the above-named officers.
EFFECTIVE DATE. This Policy takes effect on the date of issue shown on the
data page upon:
(1) payment of the first Purchase Payment; and
(2) Policy delivery during the Annuitant's lifetime.
Policy Years, months, and anniversaries are measured from the date of issue.
INCONTESTABILITY. This Policy will not be contested after it has been in force
during the lifetime of the Annuitant for 2 years from the date of issue.
ASSIGNMENT. No assignment will bind Us until recorded at Our home office. We are
not obliged to see that an assignment is valid or sufficient. Any claim by an
assignee is subject to proof of the validity and extent of the assignees
interest in the Policy.
CONTRACT SETTLEMENT. All amounts due under this Policy are payable at Our home
office. We must be given:
(1) this Policy for inspection or surrender for final settlement; plus
(2) proof that the Annuitant is living or proof of death in the event of claim
by death.
ANNUAL REPORT. While this Policy is in force prior to the Annuity Date, We will
provide You with an annual report of the Accumulation Value.
MISSTATEMENT OF AGE AND SEX. If age or sex, of the Annuitant is misstated, any
benefits or amounts payable will be changed to what the Accumulation Value would
have bought for the correct age and sex. In the event We made any underpayments
on account of such misstatement, the total amount of underpayment due to the
payees shall be paid immediately in one sum. Any overpayments by us shall be
deducted from any succeeding payments due under this Policy.
12
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NONPARTICIPATING FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY.
NO DIVIDENDS. ANNUITY BENEFITS PAYABLE AT THE ANNUITY DATE.
DEATH BENEFIT PAYABLE IN EVENT OF DEATH OF ANNUITANT PRIOR TO ANNUITY DATE.
ALPHABETIC GUIDE
<TABLE>
<CAPTION>
PAGE
<S> <C>
Accumulation Value.............................................. 6
Addition, Deletion or Substitution of
Investments..................................................... 5
Age at Issue.................................................... Data Page
American National Fixed Account................................. 4
American National Variable Annuity Separate Account............ 4,5
Annual Report................................................... 12
Annuity Date.................................................... Data Page
Annuity Options................................................. 9,10
Annuity Option Tables for Annuity Payments on a Fixed Basis.... 11,12
Annuity Provisions.............................................. 10
Assignment...................................................... 12
Availability.................................................... 9
Basis of Values................................................. 8
Beneficiary Interest............................................ 4
Change of Beneficiary........................................... 4
Contract and Representations.................................... 12
Contract Settlement............................................. 12
Date of Crediting............................................... 3
Date of Issue................................................... Data Page
Death Benefit................................................... 9
Death of Owner.................................................. 4
Deferment of Payments and Emergency Procedure.................. 8
Effective Date.................................................. 12
Expenses During The Annuity Period.............................. 9
Fixed Account Accumulation Value................................ 6
Flexibility..................................................... 3
Full Surrender.................................................. 6,7
How Annuity Payments Are Determined............................. 9
Incontestability................................................ 12
Minimum Guaranteed Death Benefit............................... 9
Minimum Accumulation Value...................................... 3
Misstatement of Age and Sex..................................... 12
Modification of Contract........................................ 12
Ownership....................................................... 4
Partial Surrender Reduction.................................... 9
Partial Surrenders and Systematic Withdrawals.................. 7
Policy Data..................................................... Data Page
Purchase Payments............................................... 3
Separate Account Accumulation Value............................ 6
Subaccounts..................................................... 5
Transfers....................................................... 5
Transfers During The Annuity Period............................. 5
Transfers From Other Policies................................... 8
Value of Variable Annuity Payments: Assumed Investment Rates... 10
Waiver of Surrender Charges..................................... 7,8
When Owner Is a Minor........................................... 4
</TABLE>
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AMERICAN NATIONAL INSURANCE COMPANY
A STOCK LIFE INSURANCE COMPANY
Annuitant JOHN DOE JULY 1, 1997 Date of Issue
Policy Number VA123456 JULY 1, 2027 Annuity Date
Home Office: One Moody Plaza
Galveston, Texas 77550
AMERICAN NATIONAL INSURANCE COMPANY ("We, Us, Our") will pay an annuity payment
to the Annuitant at its home office in Galveston, Texas, subject to the
provisions of this Policy. The annuity payment will begin on the Annuity Date if
the Annuitant is then living. The annuity payment will be payable according to
the annuity option selected by the Owner ("You, Your"). The amount of the
annuity payment will be based on the Accumulation Value on the Annuity Date.
Prior to the Annuity Date, You may elect to have the Policy surrendered and the
Surrender Value paid in a single sum or, with Our consent, under an annuity
option as designated in this Policy. Such payment will be in lieu of the annuity
payment on the Annuity Date.
If the Annuitant dies before the Annuity Date, this Policy will be terminated.
We will pay to the beneficiary a death benefit, subject to the Provisions of the
Policy.
This Policy is issued in consideration of the application and receipt of the
first Purchase Payment by Us. Your Policy is a legal contract that You have
entered in to with Us. READ YOUR POLICY CAREFULLY.
RIGHT TO CANCEL POLICY. You may cancel this Policy by returning it to Us or Our
agent within ten days after You receive it, and We will refund the greater of
all Purchase Payments made or the Accumulation Value determined as of the date
the Policy is returned to Us or Our agent plus the amount for any charges for
state premium taxes and Separate Account Expenses deducted prior to and on the
date the Policy is returned.
THE ACCUMULATION VALUE IN AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT IS
BASED ON THE INVESTMENT EXPERIENCE OF THAT SEPARATE ACCOUNT AND MAY INCREASE OR
DECREASE DAILY. THE ACCUMULATION VALUE IS NOT GUARANTEED.
Signed for Us at Galveston, Texas, on the date of issue.
[SIGNATURE APPEARS HERE] [SIGNATURE APPEARS HERE]
SECRETARY PRESIDENT
NONPARTICIPATING FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY.
NO DIVIDENDS. ANNUITY BENEFITS PAYABLE AT THE ANNUITY DATE.
DEATH BENEFIT PAYABLE IN EVENT OF DEATH OF ANNUITANT PRIOR TO ANNUITY DATE.
<PAGE>
POLICY PROVISIONS
PAGE
1. DEFINITIONS OF POLICY TERMS................................... 2,3
2. NONPARTICIPATING POLICY....................................... 3
3. PURCHASE PAYMENTS............................................. 3
4. OWNERSHIP AND BENEFICIARY..................................... 3
5. POLICY ACCOUNTS............................................... 4,5
6. NONFORFEITURE BENEFITS........................................ 6-8
7. DEATH BENEFIT................................................. 9
8. ANNUITY OPTIONS............................................... 9,10
9. GENERAL PROVISIONS............................................ 12
See the last page for an Alphabetic Guide to this Policy.
SECTION 1 DEFINITIONS OF POLICY TERMS
ACCUMULATION PERIOD - The period from the date Accumulation Units are first
purchased under the Policy to the earliest of the Annuity Date, the date the
Policy is surrendered for its then current value or the date due proof of the
Annuitant's death is received at Our home office.
ACCUMULATION UNIT - A standard of measurement used with respect to each
Subaccount to calculate the value of the Policy during the Accumulation Period.
The value of an Accumulation Unit fluctuates with the value of the shares of the
corresponding Portfolio owned by each Subaccount less any applicable deductions.
ACCUMULATION UNIT VALUE - The value of an Accumulation Unit.
ACCUMULATION VALUE - The Accumulation Value of the Policy is the sum of the
total Accumulation Units in Subaccounts attributable to Your Policy times the
respective Accumulation Unit Value of such Subaccounts and Your value in the
Fixed Account.
ANNUITANT - The person on whose life the Policy is written. The Annuitant may
also be the Owner.
ANNUITY DATE - The date on which the Accumulation Period changes to the Annuity
Period. The Annuity Date must be at least five years after the date of issue.
The latest Annuity Date is the Annuitant's age 95.
ANNUITY PERIOD - The period of time during which annuity payments are being
made.
ANNUITY UNIT - A standard of measurement used with respect to each Subaccount to
calculate the dollar amount of variable annuity payments during the Annuity
Period. The value of an Annuity Unit fluctuates with the value of shares of the
corresponding Portfolio owned by each Subaccount less any applicable deductions.
DATE OF ISSUE - The date as of which a Policy is issued and the initial Net
Purchase Payment is credited to the Policy.
FIXED ACCOUNT - An account that is a part of Our General Account to which all or
a portion of Net Purchase Payments and transfers may be allocated for
accumulation at fixed rates of interest.
GENERAL ACCOUNT - The General Account includes all of Our assets except those
assets segregated into Our separate accounts.
NET PURCHASE PAYMENT - The Purchase Payment less any government entity premium
tax charge.
NON-QUALIFIED CONTRACT - A Policy issued in connection with a retirement plan
that does not receive favorable tax treatment under the Internal Revenue Code.
OWNER ("YOU, YOUR") - The person or entity entitled to exercise all legal rights
of ownership in the Policy prior to the Annuity Date or termination of the
Policy. You and the Annuitant need not be the same.
POLICY - A Variable Annuity issued pursuant to the Prospectus which sets forth
the obligations and contractual promises which We make to You.
POLICY YEAR - The period from the date the first Purchase Payment is credited to
the Policy until the immediately preceding day of the succeeding year.
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PORTFOLIO - A separate series of capital securities designed to meet specified
investment objectives.
PURCHASE PAYMENT - A payment made into the Policy during the Accumulation
Period.
SEPARATE ACCOUNT EXPENSES - A daily charge deducted from the Accumulation Value
in each Subaccount. These expenses reimburse Us for accepting mortality and
expense risks and administrative expenses. Also, an annual fee is deducted from
Your Accumulation Value in each Subaccount on the last day of each Policy Year.
The annual fee will be waived if the Accumulation Value is greater than $50,000
on the last day of each Policy Year.
SIX-YEAR ANNIVERSARY DATE - The last day of each Policy Year prior to the
Annuitant's 75th birthday which is evenly divisible by six.
SUBACCOUNT - A subdivision of the Separate Account. Each Subaccount invests
exclusively in the shares of a corresponding Portfolio.
SURRENDER VALUE - The Accumulation Value on the date of surrender less any
surrender charge.
VALUATION DATE - A Valuation Date is any day on which the New York Stock
Exchange ("NYSE") is open for trading.
VALUATION PERIOD - The period commencing at the close of regular trading on the
NYSE on one Valuation Date and ending at the close of regular trading on the
NYSE on the next succeeding Valuation Date.
VARIABLE ANNUITY - An annuity providing payments which vary in dollar amount
depending on the investment results of the Portfolios.
SECTION 2 NONPARTICIPATING POLICY
This Policy is nonparticipating. It does not share in Our profits or surplus.
SECTION 3 PURCHASE PAYMENTS
FLEXIBILITY. This Policy is a Flexible Purchase Payment Annuity. After the
first Purchase Payment, You can choose:
(1) the amount of Purchase Payment to pay; and
(2) how often Purchase Payments will be paid.
The amount of additional Purchase Payments may not be less than the minimum
additional Purchase Payment specified on the data page.
PURCHASE PAYMENTS. You may pay Purchase Payments on this Policy until:
(1) the Annuity Date; or
(2) the date of the Annuitant's death, whichever comes first. .
Purchase Payments may be paid:
(1) at the home office; or
(2) to Our authorized agent in exchange for an official signed receipt.
MINIMUM ACCUMULATION VALUE. If the Accumulation Value is less than $1,000, We
may terminate this Policy by payment of the Surrender Value to You.
DATE OF CREDITING. The amount of the initial Purchase Payment is shown on the
data page. The initial Purchase Payment will be credited as of the date of
issue. All additional Purchase Payments will be credited on the date the
additional Purchase Payment is received at the home office.
SECTION 4 OWNERSHIP AND BENEFICIARY
OWNERSHIP. The Owner is shown on the data page. You may exercise all rights of
ownership before the Annuity Date or the Annuitant's death.
Your rights are subject to the rights of:
(1) any assignee of record; or
(2) any irrevocable beneficiary.
WHEN OWNER IS A MINOR. So long as You are a minor, first the Annuitant, then the
beneficiary, if living and competent, has the right to:
(1) ask for and receive all Surrender Values and other benefits;
(2) assign this Policy;
(3) exercise all rights and options in this Policy; and
(4) agree with Us to any Policy changes or release.
All rights of the Annuitant and the beneficiary are subject to the rights of:
(1) any assignee of record; and
(2) any irrevocable beneficiary.
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SECTION 4 OWNERSHIP AND BENEFICIARY. continued.
DEATH OF OWNER. If you die before the annuity date the Policy will end and the
death benefit will be paid to the beneficiary. If there are joint owners, the
beneficiary is the surviving joint owner. If both joint owners die
simultaneously, the death benefit will be paid to the beneficiary. If an owner
of this Policy is a corporation or other nonindividual , the annuitant will be
treated as an owner of this Policy. The "annuitant" is that individual whose
life affects the timing or the amount of the payout under this Policy. A change
in the annuitant will be treated as the death of an owner.
If the beneficiary is the surviving spouse, the spouse may either receive the
death benefit and the Policy will end, or the spouse may continue the Policy in
force. If you die on or after the annuity date and before all proceeds have been
paid, any remaining proceeds will be paid at least as rapidly as under the
option in effect at the time of your death.
Generally, any death benefit must be paid within five years after the date of
death. The five year rule does not apply to that portion of the proceeds which:
(1) is payable to or for the benefit of an individual named beneficiary; and
(2) will be paid over the lifetime on the life expectancy of that named
beneficiary as long as payments begin not later than one year after your
date of death.
BENEFICIARY INTEREST. The beneficiary will be as shown in this Policy's
application. The beneficiary will receive the death benefit. Any relationship
shown is to the Annuitant. Unless changed by endorsement or written request
filed at Our home office:
(1) all class members will share proceeds equally;
(2) surviving class members will share equally that portion of the death
benefit to which a deceased beneficiary would have been entitled; and
(3) if no beneficiary survives the Annuitant, the death benefit will be paid to
the Annuitant's estate.
A beneficiary will not share in the death benefit if the beneficiary dies within
6 days after the Annuitant's death. If any beneficiary dies within 6 days after
the Annuitant's death and if there are no surviving beneficiary class members,
the proceeds will be paid to the estate of the Annuitant.
If the beneficiary is not a natural person, the beneficiary must still exist at
the time of the Annuitant's death. All beneficiaries interests are subject to
any assignment on record at the home office.
CHANGE OF BENEFICIARY. You may change a beneficiary if:
(1) the Annuitant is living; and
(2) written request in a form acceptable by Us is filed at the home office.
The change will not take effect until it is recorded at Our home office.
However, once such change is recorded the change is effective as of the date the
request was signed. The change is subject to:
(1) the rights of an assignee of record; and
(2) the rights of an irrevocable beneficiary.
SECTION 5 POLICY ACCOUNTS
AMERICAN NATIONAL FIXED ACCOUNT. You may elect to allocate Purchase Payments or
transfer all or a part of the amount credited under the Policy to a Fixed
Account. Such amounts allocated or transferred become part of American Nationals
General Account.
Subject to applicable law, We have sole discretion over the investment of the
assets of the Fixed Account and You do not share in the investment experience of
those assets. Instead, We guarantee that the part of the Accumulation Value in
the Fixed Account will accrue interest daily at an annual interest rate that We
will declare periodically. The declared rate will not be less than 3% per year,
compounded daily.
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT. The variable benefits under
this Policy are provided through investments in the American National Variable
Annuity Separate Account. We established the American National Variable Annuity
Separate Account as a separate investment account to support Variable Annuity
contracts.
We own the assets of the American National Variable Annuity Separate Account.
Assets equal to the reserves and other liabilities of the American National
Variable Annuity Separate Account will not be charged with liabilities that
arise from any other business We conduct. We may transfer to American Nationals
General Account any assets
4
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which exceed the reserves and other liabilities of the American National
Variable Annuity Separate Account. American National Variable Annuity Separate
Account is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. It is also subject to
the laws of the state of Texas.
SUBACCOUNTS. The American National Variable Annuity Separate Account has
multiple Sub- accounts. Each Subaccount invests exclusively in shares of a
corresponding Portfolio. Each Portfolio is a separate series of capital
securities designed to meet specified investment objectives. All Subaccounts of
the American National Variable Annuity Separate Account are shown on the copy of
the attached application.
You will share only in the income, gains and losses of the particular
Subaccounts to which Net Purchase Payments have been allocated. We will value
the assets of each Subaccount of the American National Variable Annuity Separate
Account at the end of each Valuation Period.
TRANSFERS DURING THE ACCUMULATION PERIOD .At any time that this Policy is in the
Accumulation Period, You may transfer all or a portion of the amounts from one
Subaccount to another Subaccount, or to the Fixed Account.
The minimum amount that may be transferred is $250, or the balance of the
Subaccount, if less. The minimum amount which may remain in a Subaccount after a
transfer is $100. You may make 12 transfers each Policy Year without charge. The
exchange fee for each additional transfer during the Policy Year is $10. Unused
transfers do not carry over from a Policy Year to the next Policy Year.
Transfers from the Fixed Account to the Subaccounts have restrictions. The
maximum amount which may be transferred out of the Fixed Account each year is
the greater of: (a) 10% of the amount in the Fixed Account, or (b) $1,000. This
transfer is without charge.
TRANSFERS DURING THE ANNUITY PERIOD. Transfers from the Fixed Account to the
Sub-accounts are not permitted during the Annuity Period. Transfers among
Subaccounts may be made 12 times each Policy Year. You may transfer Annuity
Units of one Subaccount into Annuity Units of another Subaccount and/or the
Fixed Account except during the five day period prior to an annuity payment
date.
ADDITION, DELETION, OR SUBSTITUTION OF INVESTMENTS. We have the right, subject
to compliance with applicable law, to make additions to, deletions from, or
substitutions for the shares of a Subaccount that are held by the American
National Variable Annuity Separate Account or that the American National
Variable Annuity Separate Account may purchase. We reserve the right to
eliminate the shares of any Portfolio and to substitute shares of another
Portfolio of another open-end management investment company if the shares of the
Portfolio are no longer available for investment or if, in Our judgment, further
investment in the Portfolio should become inappropriate in view of the purposes
of American National Variable Annuity Separate Account.
We will not substitute any shares attributable to Your interest in a Subaccount
of the American National Variable Annuity Separate Account without notice to You
and prior approval of the of the Securities and Exchange Commission, to the
extent required by the Investment Company Act of 1940.
We have the right to establish additional Sub- accounts of the American National
Variable Annuity Separate Account, each of which would invest only in a new and
corresponding Portfolio or in shares of another open-end management investment
company. We also have the right to eliminate existing Subaccounts of the
American National Variable Annuity Separate Account. In the event of any
substitution or change, We may, by appropriate endorsement, make such changes in
this Policy as may be necessary or appropriate. The investment objectives will
not be changed without the approval of the Insurance Commissioner of the State
of Texas.
We also have the right, where permitted by law:
(1) to operate the American National Variable Annuity Separate Account as a
management company under the Investment Company Act of 1940;
(2) to deregister the American National Variable Annuity Separate Account under
the Act if registration is no longer required; and
(3) to combine the American National Variable Annuity Separate Account with
other separate accounts.
5
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SECTION 6 NONFORFEITURE BENEFITS
ACCUMULATION VALUE. The Accumulation Value is the sum of the total Accumulation
Units in the Subaccounts times the respective Accumulation Unit Values of such
Subaccounts and the value in the Fixed Account. Net Purchase Payments will be
added to the Accumulation Value the same day as the Purchase Payment is
credited. Partial surrenders and systematic withdrawals and any surrender
charges applicable to such partial surrenders and systematic withdrawals will be
deducted from the Accumulation Value as of the date of each partial surrender
and systematic withdrawal.
SEPARATE ACCOUNT ACCUMULATION VALUE. The Separate Account Accumulation Value
attributable to this Policy is the sum of the values of the Subaccounts of the
American National Variable Annuity Separate Account that are attributable to
this Policy. The Separate Account Accumulation Value will vary daily with the
performance of the Subaccounts in which You have an Accumulation Value, any Net
Purchase Payments received, transfers, partial surrenders, systematic
withdrawals and charges assessed. There is no guaranteed minimum Surrender Value
on these separate account Accumulation Values.
On each Valuation Date, the Accumulation Value in a Subaccount is:
(1) the Accumulation Units times the Accumulation Unit Value on the Valuation
Date, plus;
(2) any Net Purchase Payment received and allocated to the Subaccount during
the current Valuation Period, plus;
(3) any Accumulation Value transferred to the Subaccount during the current
Valuation Period, minus;
(4) any Accumulation Value transferred from the Subaccount during the current
Valuation Period, minus;
(5) any partial surrenders or systematic withdrawals plus applicable surrender
charges from the Subaccount during the current Valuation Period, minus;
(6) the Separate Account Expenses as listed on the data page.
FIXED ACCOUNT ACCUMULATION VALUE. The Fixed Account Accumulation Value on any
date shall be the sum of (a), (b), (c), and (d), less the sum of (e) and (f),
where:
(a) is the Fixed Account Accumulation Value on the immediately preceding date;
(b) is accumulated interest on (a);
(c) is all Net Purchase Payments received and allocated to the Fixed Account
and any Accumulation Value transferred into the Fixed Account since the
immediately preceding date;
(d) is interest accumulated on (c) from the date of receipt of the Net Purchase
Payment allocated to the Fixed Account or the date any Accumulation Value
was transferred into the Fixed Account;
(e) is the sum of any partial surrenders or systematic withdrawals from the
Fixed Account since the immediately preceding date, and applicable
surrender charges; and
(f) is any Accumulation Value transferred out of the Fixed Account since the
last date.
The guaranteed interest rate applied in the calculation of the Fixed Account
Accumulation Value is 3% per year, compounded daily, on all Fixed Account
Accumulation Values. Fixed Account Accumulation Values may earn interest at a
higher rate.
FULL SURRENDER. You may surrender this Policy for its Surrender Value at any
time during the lifetime of the Annuitant and before the Annuity Date. The
request for a full surrender must be in writing and accompanied by this Policy.
We will pay the Surrender Value to You generally within 7 days after We receive
Your written request. We reserve the right to defer payment of any Surrender
Value taken from the Fixed Account for up to 6 months from the date of receipt
of the request.
The Surrender Value of the Policy will be the Accumulation Value as of the date
of surrender less any surrender charges. An amount of Accumulation Value equal
to the greater of:
(1) 10% of the Accumulation Value in a Policy Year; or
(2) Accumulation Value on the date of receipt of request less total Purchase
Payments made,
can be withdrawn without the deduction of surrender charges. The 10% limit is
the sum of percentages equal to the withdrawal divided by the Accumulation Value
at the time of each respective withdrawal in a policy year. If less than 10% of
the Accumulation Value of the Policy is withdrawn in a Policy Year, the
remainder of the 10% does not carry over to the next Policy Year. On withdrawals
of that portion of Accumulation Value in excess of
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the amount available without surrender charges a surrender charge will be
assessed. This surrender charge will be a percentage of the Purchase Payments
made in each Policy Year
Policy Year Applicable
Since Each Purchase Surrender Charge
Payment Made Percentage
1 7%
2 7
3 7
4 6
5 5
6 4
7 3
8 2
9 and thereafter 0
PARTIAL SURRENDERS AND SYSTEMATIC WITHDRAWALS. You may surrender a part of the
Accumulation Value at any time during the lifetime of the Annuitant and before
the Annuity Date. This Policy will remain in force after a partial surrender or
systematic withdrawal. The request for a partial surrender or systematic
withdrawal must be:
(1) in writing; and
(2) for the amount to be paid to You.
We will pay the partial surrender amount to You generally within 7 days after We
receive the written request. We reserve the right to defer payment of any
partial surrender amount taken from the Fixed Account for up to 6 months from
the date of receipt of the request.
We will grant the partial surrender if:
(1) the request is for at least $250.00; and
(2) an Accumulation Value of at least $1,000.00 will remain after deduction of
the amount of the partial surrender and its surrender charge if any.
Unless You request otherwise, We will allocate partial surrenders to the Fixed
Account and Subaccounts in proportion to the Accumulation Value in the Fixed
Account and in each Subaccount on the date the partial surrender is made.
Under systematic withdrawals, You can instruct us to make automatic payments of
a predetermined dollar amount on a monthly, quarterly, semi-annual or annual
basis from a specified Subaccount. The minimum systematic withdrawal payment is
$100. Systematic withdrawals can be started on the date of issue or at some
later date in the future.
We will grant the systematic withdrawal upon receipt of written notification
from you which includes the following:
(1) the dollar amount being withdrawn;
(2) whether the systematic withdrawals will be made monthly, quarterly, semi-
annually or annually; and
(3) the Subaccounts from which the systematic withdrawals are to be taken.
If You do not specify the Subaccounts from which systematic withdrawals are to
be taken, then the systematic withdrawals will be taken from each Subaccount
proportionately.
An amount of Accumulation Value equal to the greater of:
(1) 10% of the Accumulation Value in a Policy Year; or
(2) Accumulation Value on the date of receipt of the request less total
Purchase Payments made,
can be withdrawn without the deduction of surrender charges. The 10% limit is
the sum of percentages equal to the withdrawal divided by the Accumulation Value
at the time of each respective withdrawal in Policy Year.
On partial surrenders and systematic withdrawals of Accumulation Value in excess
of the amount available without surrender charges, a surrender charge, if any,
is imposed based upon the number of Policy Years since the Policy Year in which
the Purchase Payments surrendered were received, on a first received, first
surrendered basis. The surrender charge will be a percentage of each Purchase
Payment or portion thereof surrendered.
See the surrender charge schedule in the Full Surrender provision for the
appropriate percentage. The amount of the partial surrender and the amount of
the surrender charge, if any, will be deducted from the Accumulation Value
remaining after the amount requested is paid.
WAIVER OF SURRENDER CHARGES. We will waive the surrender charge upon partial
surrenders, systematic withdrawals and full surrenders in the event You become
confined to a hospital, hospice facility or convalescent care facility,
disabled, diagnosed with a terminal illness or involuntarily unemployed. Those
waivers and any restrictions associated with such waivers are set forth below:
(1) Nursing Home Waiver - The surrender charge will not be imposed as a result
of any full or partial surrender or systematic withdrawal made while You
are confined, upon written proof from a licensed physician, to the
following facilities for 60 or more consecutive days:
7
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(a) a hospital licensed or recognized as a general hospital by the state in
which it is located and is engaged in providing or operating diagnostic and
major surgery facilities for the medical care and treatment of injured and
sick persons on an inpatient basis for which a charge is made and provides
24-hour nursing service by or under the supervision of a graduate
registered nurse (R.N.);
(b) convalescent care facility licensed by the state as a convalescent nursing
facility, a skilled nursing facility, or a custodial care facility and
provides continuous nursing service by or under the supervision of a
physician or a graduate registered (R.N.) and maintains a daily record of
each patient which is available for review by American National and
administers a planned program of observation and treatment by a physician
which is in accordance with existing standards of medical practice for the
injury or sickness causing the confinement; and
(c) hospice facility which provides a formal program of care for terminally ill
patients whose life expectancy is less than 6 months, provided on an
inpatient basis and directed by a physician and is licensed, certified or
registered in accordance with state law.
Proof of confinement must be provided. This waiver applies to surrenders and
withdrawals requested no later than 90 days of the last day of confinement to
such facility. The nursing home waiver is not available if You are confined to a
hospital, nursing home or hospice facility on the date of issue and if the
application is signed by power of attorney. You must be age 80 or younger on the
date of issue and must have entered the hospital, convalescent care facility or
hospice facility after 90 days from the date of issue.
(2) Disability Waiver - The surrender charge will not be imposed upon any full
or partial surrender or systematic withdrawal when You are physically
disabled. We require proof of such disability, including written
confirmation of receipt and approval of any claim for Social Security
Disability Benefits. Proof of continued disability may be required through
the date of any partial surrender or systematic withdrawal.
We reserve the right to have You examined by a licensed physician at Our
expense. We will not accept any additional Purchase Payments under the Policy
once the disability waiver has been elected. The disability waiver is not
available if You are receiving Social Security Disability Benefits on the date
of issue or You are age 65 or older.
(3) Involuntary Unemployment Waiver - We will waive the surrender charge for
any full or partial surrender or systematic withdrawal in the event You
become unemployed. The involuntary unemployment waiver is available upon
submission of a letter from a state Department of Labor indicating You were
employed at least 60 days prior to the election of such waiver. The
involuntary unemployment waiver may be exercised only once and is not
available if You or the Annuitant is receiving unemployment benefits on the
date of issue.
(4) Terminal Illness Waiver - We will waive the surrender charge for any full
or partial surrender or systematic withdrawal when You are diagnosed with a
terminal illness. We reserve the right to have You examined by a licensed
physician at our expense. We will not accept any additional Purchase
Payments under the Policy once the terminal illness waiver has been
elected. The terminal illness waiver is not available if You are diagnosed
with a terminal illness prior to or on the date of issue.
BASIS OF VALUES. All Surrender Values of this Policy are not less than the
minimum required by the laws of the state where this Policy is delivered.
TRANSFERS FROM OTHER POLICIES. With Our consent, values from other policies on
the life of the Annuitant may be transferred to this Policy and added to the
Accumulation Value. This transfer will be subject to the terms, conditions and
charges We stipulate on the date the transfer occurs.
DEFERMENT OF PAYMENTS AND EMERGENCY PROCEDURE. We may suspend or delay all
procedures which require valuation of a Subaccount if the New York Stock
Exchange is closed (except for holidays or weekends) or trading is restricted
due to an existing emergency as defined by the Securities and Exchange
Commission so that We cannot value the Subaccounts. Any provision of this Policy
which specified a Valuation Date will be superseded by this emergency procedure.
8
<PAGE>
SECTION 7 DEATH BENEFIT
DEATH BENEFIT. In the event of Annuitant's death prior to the Annuity Date, a
death benefit will be payable equal to the greater of:
(1) Accumulation Value on the date due proof of death is received by Us at Our
home office; or
(2) the minimum guaranteed death benefit on the Policy calculated as of the
date that due proof of death is received by Us at Our home office.
The death benefit may be paid in a lump sum to the beneficiary named in the
Policy usually within seven days of receipt of proof of death in proper form.
MINIMUM GUARANTEED DEATH BENEFIT. For all dates up to and including the first
Six-Year Anniversary Date, the minimum guaranteed death benefit will equal
Purchase Payments less partial surrender reductions (as such "partial surrender
reductions" are calculated in accordance with this Section 7) made on or before
such date. For all subsequent Six-Year Anniversary Dates, the minimum guaranteed
death benefit will equal the greater of:
(1) the Accumulation Value on such Six-Year Anniversary date, or
(2) the minimum guaranteed death benefit for the immediately preceding Six-Year
Anniversary Date, plus Purchase Payments and less partial surrender
reductions (as such "partial surrender reductions" are calculated in
accordance with this Section 7) made since such immediately preceding Six-
Year Anniversary Date.
For all other dates, the minimum guaranteed death benefit will equal the minimum
guaranteed death benefit for the immediately preceding Six-Year Anniversary Date
plus purchase payments and less partial surrender reductions (as such "partial
surrender reductions" are calculated in accordance with this Section 7) made
since such immediately preceding Six-Year Anniversary Date.
PARTIAL SURRENDER REDUCTION. An amount equal to (i) the amount of a surrender,
multiplied by (ii) the minimum guaranteed death benefit on the date immediately
prior to the surrender, divided by (iii) the Accumulation Value on the date
immediately prior to the surrender.
SECTION 8 ANNUITY OPTIONS
AVAILABILITY. All or a part of any amount payable in settlement of this Policy
may be applied to any of the following annuity options, subject to the
distribution rules set forth in the :Ownership and Beneficiary" section of this
Policy and applicable requirements of law. We will first discharge in a single
sum any liability under an assignment of the Policy and any applicable federal
or state taxes, fees or assessments which have not otherwise been deducted or
offset and which are based or predicated on the Purchase Payments payable on
this Policy. The remaining amount is the net sum payable. Other annuity options
can be used if agreed to by Us. If you have not elected an annuity option before
the Annuitant's death, the beneficiary can choose one. The minimum amount that
We will apply to any annuity option is $5,000.00. Any election or change must be
written in a form that satisfies Us. Our consent is required for:
(1) any payment to any entity other than a natural person; or
(2) any change in an elected annuity option.
HOW ANNUITY PAYMENTS ARE DETERMINED. There are a number of ways to receive
annuity payments. Annuity payments may be received on a fixed basis and/or on a
variable basis. All or a portion of the net sum payable may be allocated to any
Subaccount. Annuity payments will increase or decrease according to the
investment experience of the Subaccount. All or a portion of the net sum payable
may be allocated to the Fixed Account. Annuity payments from the Fixed Account
will remain the same.
EXPENSES DURING THE ANNUITY PERIOD. The Separate Account will be assessed a
daily Separate Account Expense of 0.0031%, reflecting mortality and expense
charges.
ANNUITY OPTIONS. The following annuity options are available:
Option 1. Life Annuity. Annuity payment payable monthly during the lifetime
of the Annuitant, ceasing with the last annuity payment due prior to the
death of the Annuitant. This option offers the maximum level of monthly
annuity payments since there is no provision for a minimum number of
annuity
9
<PAGE>
payments or a death benefit for beneficiaries. It would be possible under
this option for the Annuitant to receive only one annuity payment if death
occurred prior to the due date of the second annuity payment, two if death
occurred before the third annuity payment, etc.
Option 2. Life Annuity with 10 or 20 Years Certain and Life Thereafter. An
annuity payable monthly during the lifetime of the Annuitant with payments
made for a period certain of not less than 10 or 20 years, as elected. The
annuity payments will be continued to a designated beneficiary until the
end of the period certain upon the death of the Annuitant.
Option 3. Unit Refund Life Annuity. Available on Variable Annuity payments
only. An Annuity payable monthly during the lifetime of the Annuitant with
annuity payments made for a period certain not less than the number of
months determined by dividing the amount applied under this option by the
amount of the first monthly annuity payment. This option guarantees that
the Annuity Units but not the dollar value applied under a Variable Annuity
payout will be repaid to the Annuitant or his beneficiary.
Option 4. Joint and Survivor Annuity. An annuity payable monthly during the
joint lifetime of the Annuitant and another named individual and thereafter
during the lifetime of the survivor, ceasing with the last annuity payment
due prior to the death of the survivor. It would be possible under this
option, for only one annuity payment to be made if both individuals under
the option died prior to the second annuity payment date, or only two
annuity payments if both died prior to the third annuity payment date, etc.
Option 5. Installment Payments, Fixed Period. An amount payable monthly for
at least 5 years, but not exceeding 30. The amount of each Variable Annuity
payment will be determined by multiplying (a) and (b) where (a) is the Unit
Value on the day the annuity payment is made and (b) is the number of
Annuity Units applied under this option divided by the number of remaining
monthly annuity payments.
Option 6. Equal Installment Payments, Fixed Amount. An amount payable in
equal monthly installments (not less than $6.25 per $1,000 applied) until
the amount applied, adjusted daily by the investment results, is exhausted.
The final annuity payment will be the remaining sum left with Us.
Option 7. Deposit Option. The amount due may be left on deposit with Us for
placement in its Fixed Account with interest at the rate of not less than
3% per year. Interest will be paid annually, semiannually, quarterly or
monthly as elected. This option may not be available under certain
Qualified Contracts.
At any time, any amount remaining under Option 5, 6 or 7 may be withdrawn as a
full or partial surrender or, if that amount is at least $5,000, may be applied
under any one of the first four options. The lump sum payment requested will be
paid within seven days of receipt of the request at the Home Office based on the
value next computed after receipt of the request. Other annuity options may be
made for annuity payments in any reasonable arrangement mutually agreed upon by
Us. If the beneficiary dies while receiving annuity payments certain under
option 2, 3, 5, or 6 above, the present value will be paid in a lump sum to the
estate of the beneficiary.
VALUE OF VARIABLE ANNUITY PAYMENTS: ASSUMED INVESTMENT RATES. The annuity tables
in the Policy which are used to calculate the annuity payments are based on an
"assumed investment rate" of 3%. If the net investment return of the particular
Subaccount selected is such that the net investment return to the Contract is 3%
per annum, the annuity payments will remain constant. If the net investment
return exceeds 3%, the annuity payments will increase and if the return is less
than 3%, the annuity payments will decrease.
The annuity payment will be greater for shorter guaranteed periods than for
longer guaranteed periods, and greater for life annuities than for joint and
survivor annuities, because the life annuities are expected to be made for a
shorter period.
ANNUITY PROVISIONS. The payment amounts illustrated in the annuity option tables
are based on the 1983 Table "a", with Projection Scale G, from 1983 to 1993 and
3% interest. The attained age at annuitization will be adjusted downward by one
year for each full five year period that has elapsed since January 1, 1993.
10
<PAGE>
ANNUITY OPTION TABLES FOR ANNUITY PAYMENTS ON A FIXED BASIS
OPTION 5
MONTHLY ANNUITY PAYMENTS FOR EACH $1,000.00 OF THE NET SUM PAYABLE.
Multiply the monthly annuity payment by 2.993 to obtain the quarterly payment,
by 5.963 to obtain the semi-annual payment, and by 11.840 to obtain the annual
payment.
-------------------------------------------------------------------------
Years Amount Years Amount Years Amount Years Amount Years Amount
-------------------------------------------------------------------------
5 $ 17.91 11 $ 8.86 16 $ 6.53 21 $ 5.32 26 $ 4.59
6 15.14 12 8.24 17 6.23 22 5.15 27 4.47
7 13.16 13 7.71 18 5.96 23 4.99 28 4.37
8 11.68 14 7.26 19 5.72 24 4.84 29 4.27
9 10.53 15 6.87 20 5.51 25 4.71 30 4.19
10 9.61
-------------------------------------------------------------------------
MONTHLY ANNUITY PAYMENT FOR LIFE FOR EACH $1,000.00 OF THE NET SUM PAYABLE
Age in years means age of payee on birthday prior to the due date of the first
payment. Amounts for annuity payments other than monthly are available on
request.
<TABLE>
<CAPTION>
OPTION 2 OPTION 2 OPTION 1 OPTION 2 OPTION 2 OPTION 1
AGE Guaranteed Guaranteed Life AGE Guaranteed Guaranteed Life
IN Period Period Only IN Period Period Only
YEARS 10 Years 20 Years YEARS 10 Years 20 Years
---------------------------------------------------------------------------------
Amount Amount Amount Amount Amount Amount
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
11 $ 2.75 $ 2.74 $ 2.76 46 $ 3.50 $ 3.44 $ 3.54
12 2.77 2.75 2.79 47 3.54 3.48 3.58
13 2.78 2.76 2.80 48 3.58 3.52 3.63
14 2.79 2.77 2.81 49 3.63 3.56 3.68
15 2.80 2.78 2.82 50 3.68 3.60 3.73
16 2.81 2.79 2.83 51 3.73 3.64 3.79
17 2.82 2.80 2.84 52 3.78 3.69 3.83
18 2.83 2.81 2.86 53 3.83 3.74 3.89
19 2.85 2.83 2.87 54 3.89 3.79 3.95
20 2.86 2.84 2.88 55 3.95 3.83 4.02
21 2.88 2.85 2.90 56 4.01 3.89 4.08
22 2.89 2.86 2.91 57 4.08 3.94 4.16
23 2.91 2.88 2.93 58 4.15 3.99 4.23
24 2.92 2.90 2.95 59 4.22 4.05 4.31
25 2.94 2.91 2.96 60 4.30 4.11 4.40
26 2.95 2.93 2.98 61 4.38 4.17 4.49
27 2.97 2.95 3.00 62 4.47 4.22 4.58
28 2.99 2.97 3.02 63 4.56 4.28 4.68
29 3.01 2.98 3.04 64 4.65 4.34 4.79
30 3.03 3.00 3.06 65 4.75 4.40 4.90
31 3.05 3.02 3.08 66 4.85 4.46 5.02
32 3.07 3.05 3.10 67 4.96 4.52 5.15
33 3.09 3.07 3.12 68 5.07 4.57 5.28
34 3.12 3.09 3.15 69 5.19 4.63 5.42
35 3.14 3.11 3.17 70 5.31 4.68 5.58
36 3.17 3.14 3.20 71 5.44 4.72 5.74
37 3.20 3.16 3.23 72 5.57 4.76 5.91
38 3.22 3.19 3.25 73 5.70 4.80 6.10
39 3.25 3.22 3.28 74 5.84 4.83 6.30
40 3.28 3.25 3.32 75 5.98 4.86 6.50
41 3.31 3.27 3.35 76 6.12 4.88 6.72
42 3.35 3.31 3.38 77 6.27 4.90 6.96
43 3.38 3.34 3.42 78 6.39 4.92 7.20
44 3.42 3.37 3.46 79 6.52 4.94 7.46
45** 3.46 3.41 3.50 80** 6.64 4.96 7.72
---------------------------------------------------------------------------------
** and over
</TABLE>
11
<PAGE>
OPTION 4
JOINT AND SURVIVOR MONTHLY ANNUITY PAYMENT FOR EACH $1,000.00 OF NET
SUM PAYABLE
Age in years means age of the payee on the birthday prior to the due date of the
first payment. Monthly annuity payment to the Annuitant with annuity payment to
the surviving spouse based on the elected Specified Amount Payment.
- --------------------------------------------------------------------------------
Age Specific Specific Specific Age Specific Specific Specific
in Amount Amount Amount in Amount Amount Amount
Years One-Half Two-Thirds Full Years One-Half Two-Thirds Full
Payment Payment Payment Payment Payment Payment
- --------------------------------------------------------------------------------
55 $ 4.38 $ 4.22 $ 3.94 63 $ 5.06 $ 4.83 $ 4.43
56 4.44 4.28 3.99 64 5.17 4.93 4.51
57 4.52 4.35 4.04 65 5.29 5.03 4.59
58 4.59 4.42 4.10 66 5.42 5.15 4.68
59 4.68 4.49 4.16 67 5.55 5.27 4.77
60 4.76 4.57 4.22 68 5.69 5.39 4.88
61 4.86 4.65 4.28 69 5.85 5.53 4.98
62 4.95 4.74 4.35 70 6.01 5.67 5.10
- --------------------------------------------------------------------------------
Amounts shown apply if both payees are the same age. Amounts for annuity
payments other than monthly and for other ages are available on request.
SECTION 9 GENERAL PROVISIONS
CONTRACT AND REPRESENTATIONS. This Policy and the attached copy of the
application forms the entire contract. All statements in the application will be
deemed representations and not warranties. Only statements in the application
will be used to defend a claim or to contest the contract.
MODIFICATION OF CONTRACT. Only Our president, a vice-president, or secretary has
the power to change this Policy. Any change must be in writing signed by one of
the above-named officers.
EFFECTIVE DATE. This Policy takes effect on the date of issue shown on the data
page upon:
(1) payment of the first Purchase Payment; and
(2) Policy delivery during the Annuitant's lifetime.
Policy Years, months, and anniversaries are measured from the date of issue.
INCONTESTABILITY. This Policy will not be contested after it has been in force
during the lifetime of the annuitant for 2 years from the date of issue.
ASSIGNMENT. No assignment will bind Us until recorded at Our home office. We are
not obliged to see that an assignment is valid or sufficient. Any claim by an
assignee is subject to proof of the validity and extent of the assignee's
interest in the Policy.
CONTRACT SETTLEMENT. All amounts due under this Policy are payable at Our home
office. We must be given:
(1) this Policy for inspection or surrender for final settlement; plus
(2) proof that the Annuitant is living or proof of death in the event of
claim by death.
ANNUAL REPORT. While this Policy is in force prior to the Annuity Date, We will
provide You with an annual report of the Accumulation Value.
MISSTATEMENT OF AGE . If age of the Annuitant is misstated, any benefits or
amounts payable will be changed to what the Accumulation Value would have bought
for the correct age. In the event We made any underpayments on account of such
misstatement, the total amount of underpayment due to the payees shall be paid
immediately in one sum. Any overpayments by us shall be deducted from any
succeeding payments due under this Policy.
12
<PAGE>
This page intentionally left blank.
13
<PAGE>
NONPARTICIPATING FLEXIBLE PURCHASE PAYMENT DEFERRED VARIABLE ANNUITY.
NO DIVIDENDS. ANNUITY BENEFITS PAYABLE AT THE ANNUITY DATE.
DEATH BENEFIT PAYABLE IN EVENT OF DEATH OF ANNUITANT PRIOR TO ANNUITY DATE.
ALPHABETIC GUIDE
PAGE
Accumulation Value............................................. 6
Addition, Deletion or Substitution of Investments.............. 5
Age at Issue................................................... Data Page
American National Fixed Account................................ 4
American National Variable Annuity Separate Account........... 4,5
Annual Report.................................................. 12
Annuity Date................................................... Data Page
Annuity Options................................................ 9,10
Annuity Option Tables for Annuity Payments on a Fixed Basis... 11,12
Annuity Provisions............................................. 10
Assignment..................................................... 12
Availability................................................... 9
Basis of Values................................................ 8
Beneficiary Interest........................................... 4
Change of Beneficiary.......................................... 4
Contract and Representations................................... 12
Contract Settlement............................................ 12
Date of Crediting.............................................. 3
Date of Issue.................................................. Data Page
Death Benefit.................................................. 9
Death of Owner................................................. 4
Deferment of Payments and Emergency Procedure................. 8
Effective Date................................................. 12
Expenses During The Annuity Period............................. 9
Fixed Account Accumulation Value............................... 6
Flexibility.................................................... 3
Full Surrender................................................. 6,7
How Annuity Payments Are Determined............................ 9
Incontestability............................................... 12
Minimum Guaranteed Death Benefit.............................. 9
Minimum Accumulation Value..................................... 3
Misstatement of Age and Sex.................................... 12
Modification of Contract....................................... 12
Ownership...................................................... 4
Partial Surrender Reduction................................... 9
Partial Surrenders and Systematic Withdrawals................. 7
Policy Data.................................................... Data Page
Purchase Payments.............................................. 3
Separate Account Accumulation Value........................... 6
Subaccounts.................................................... 5
Transfers...................................................... 5
Transfers During The Annuity Period............................ 5
Transfers From Other Policies.................................. 8
Value of Variable Annuity Payments: Assumed Investment Rates.. 10
Waiver of Surrender Charges.................................... 7,8
When Owner Is a Minor.......................................... 4
14
<PAGE>
EXHIBIT 99.B5
<TABLE>
<S> <C> <C>
[LOGO OF APPLICATION FOR VARIABLE ANNUITY II
AMERICAN AMERICAN NATIONAL INSURANCE COMPANY
NATIONAL] GALVESTON, TEXAS 1-800-306-2959
A1-0000001
- ---------------------------------------------------------------------------------------------------------------------------------
1. NAME OF ANNUITANT SEX DATE OF BIRTH AGE SOCIAL SECURITY NO.
[_] M Month-Day-Year
[_] F - -
- --------------------------------------------------------------------------------------------------------------------------------
2. ADDRESS OF ANNUITANT TEL. (____________) ___________-__________
STREET ADDRESS CITY, STATE, ZIP
- --------------------------------------------------------------------------------------------------------------------------------
3. OWNER IF OTHER THAN ANNUITANT
-----------------------------
(a) NAME_________________________________________________ (b) RELATIONSHIP TO ANNUITANT__________________________________
STREET APT#
(c) ADDRESS: ____________________________________________ (d) S.S.N. ___________-_____________-_____________
CITY, STATE, ZIP (e) TEL. ( ) - (f) AGE
================================================================================================================================
4. [_] JOINT OWNER WITH RIGHT OF SURVIVORSHIP UNLESS STATED OTHERWISE
[_] SUCCESSOR OWNER
(a) NAME_____________________________________________ (b) RELATIONSHIP TO ANNUITANT___________________________________
(c) ADDRESS__________________________________________ (d) S.S.N. ___-___-______
================================================================================================================================
5. BENEFICIARIES: (If multiple Beneficiaries, attach separate sheet)
Primary Beneficiary ______________________________________ Contingent Beneficiary _________________________________________
Relationship to Owner ____________________________________ Relationship to Owner __________________________________________
Social Security Number ___________________________________ Social Security Number _________________________________________
Date of Birth ____________________________________________ Date of Birth __________________________________________________
================================================================================================================================
6. TAX QUALIFIED STATUS: [_] IRA [_] SIMPLE [_] TAX SHELTERED ANNUITY PLAN (403(b))
[_] NON-QUALIFIED [_] SEP [_] PENSION OR PROFIT SHARING [_] OTHER:
- --------------------------------------------------------------------------------------------------------------------------------
7. PURCHASE PAYMENT AMOUNT MADE WITH APPLICATION ($5,000 Minimum): $______________________________________
8A. ALLOCATION OF PURCHASE PAYMENT(S)--Choose OPTION A or OPTION B.
OPTION A: [_] Allocate my purchase payment as follows --(Whole % Only. Total allocation must equal 100%)
FIXED ACCOUNT: % FIDELITY FUNDS: MFS FUNDS: FEDERATED FUNDS:
----------------------- ---------------- ---------- ----------------
AMERICAN NATL FUNDS: GROWTH OPP. ___% VALUE ___% GROWTH STRATEGIES ___%
BALANCED ___________% ASSET MANAGER ___% GROWTH AND INCOME ___% UTILITY ___%
MONEY MKT __________% INDEX 500 ___% EMERGING GROWTH ___% U.S. GOVT SECURITIES ___%
MANAGED ____________% CONTRAFUND ___% RESEARCH ___% HIGH INCOME BOND ___%
GROWTH ____________% ASSET MGR: GROWTH ___% EQUITY INCOME II ___%
T. ROWE PRICE FUNDS: LAZARD FUNDS: VAN ECK FUNDS:
-------------------- ------------- --------------
EQUITY INCOME __________% EMERGING MARKETS _______% GOLD AND NATURAL
INTERNATIONAL __________% SMALL CAP _______% RESOURCES ________%
MID-CAP GROWTH _________% WORLD WIDE ________%
LTD-TERM BOND __________% EMERGING MARKETS ________%
OPTION B: [_] Allocate my purchase payment to one of the following model portfolios:
---------
__________ Aggressive _________ Moderate _______ Conservative
8B. Rebalance my portfolio as indicated in Option A OR B: __________ YES _________ NO
IF YES, check how often you would like your portfolio rebalanced: ______ Quarterly ______ Semi-Annually ______ Annually
List any fund(s) you would like to EXCLUDE from rebalancing: ___________________________________________________________
- --------------------------------------------------------------------------------------------------------------------------------
9. HAVE YOU RECEIVED A PROSPECTUS FOR THE CONTRACT APPLIED FOR? [_] YES [_] NO
================================================================================================================================
10. MATURITY DATE ________________________________ (Must be at least five years from date of issue.)
If blank, Annuitant's 95th birthday. *If no settlement option is elected by the time minimum distributions must commence
(age 70.5), the Company will automatically pay the minimum required amount under the Systematic Withdrawal Option based
on a single life with no recalculation of life expectancy.
================================================================================================================================
11. WILL THE ANNUITY APPLIED FOR REPLACE OR USE CASH VALUES OF ANY EXISTING INSURANCE OR ANNUITY POLICY
ISSUED BY ANY COMPANY? [_] YES [_] NO
IF YES, Check all that apply: [_] 1035 EXCHANGE [_] CD TRANSFER [_] IRA TRANSFER [_] TSA TRANSFER [_] OTHER:
- --------------------------------------------------------------------------------------------------------------------------------
12. DOLLAR COST AVERAGING: (A minimum accumulation value of $10,000 (in all funds) is required at the time of election. No
more than 10% can be transferred from the Fixed Account at the time of election.)
** CANNOT CHOOSE BOTH DOLLAR COST AVERAGING AND ACCOUNT REBALANCING (Item 8b) AT THE SAME TIME**
START DATE: _______________________________________ END DATE: ______________________________________
FREQUENCY: [_] Monthly [_] Quarterly [_] Semi-Annually [_] Annually
PLEASE TRANSFER THE AMOUNTS INDICATED BELOW:
FROM: _____________________________ $_______ FROM: ______________________________ $_______
Fund Fund
TO: _____________________________ ________% TO: ______________________________ ________%
Fund Fund
_____________________________ ________% ______________________________ ________%
Fund Fund
================================================================================================================================
Each of the undersigned declares for themselves, and for all other interested parties, that all of the answers in this
application and any supplements to it are full, complete and true to the best of their knowledge and belief. They also agree that:
(1) these answers as written: (I) were given to induce the Company to issue an Annuity Policy; and (ii) shall form the basis for
and become a part of the Annuity Policy issued on this application; (2) the Company may issue an Annuity Policy different than
that Specified in this application; no change in: (I) type of Annuity; (ii) Payment Mode; (iii) Payment Amount; (iv) Annuity Income
Option, or; (v) Issue age, will be effective unless agreed to by the owner in writing; and (3) only an authorized Officer of the
Company has the authority to waive any of the Company rights or requirements or to waive or alter any of the provisions of:
(I) this application; or (ii) any Annuity Policy issued on this application.
DATED AT ______________________________________ THIS _________________________ DAY OF _____________________ , __________________
_______________________________________________ ___________________________________ ____________________________________________
SIGNATURE OF SOLICITING AGENT ANNUITANT OWNER,If other than Annuitant
_______________________________________________ ___________________________________ ___________________________________________
PRINT AGENT'S NAME STATE LICENSE NUMBER JOINT OWNER
Form 3897
- -------------------------------------------------------------------------------------------------------------------------------
Cut Here - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
CONDITIONAL RECEIPT A1-0000001
AMERICAN NATIONAL INSURANCE COMPANY [] ONE MOODY PLAZA [] GALVESTON, TEXAS 77550
Valid only for Annuity and for the payment amount shown in the application paid for an Annuity.
Received from _____________________________ this _________________________ day of ________________________,_____________________
the sum of ___________________________________________ as payment to an Annuity on the life of _________________________________
for which an application has been made to this Company, bearing the same number and date as this receipt. The Company accepts
payment by check or money order subject to its being honored upon presentation. Checks or Money Orders must be made payable to
AMERICAN NATIONAL INSURANCE CO. Do not leave payee blank or make check payable to agent. ______________________________(AGENT)
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SYSTEMATIC WITHDRAWAL REQUEST
**Cannot choose both systematic withdrawal and account rebalance (Item 8b) at the same time.**
I WOULD LIKE TO PARTICIPATE IN THE SYSTEMATIC WITHDRAWAL OPTION [_] YES [_] NO
If YES,
13. FREQUENCY: [_] Monthly [_] Quarterly [_] Semi-Annually [_] Annually
14. DATE OF FIRST PAYMENT:________________________________________
15. SPECIFY SUBACCOUNT(S) OR FIXED ACCOUNT:______________________________________________________
16. AMOUNT OF PAYMENT:___________________________
17. IRA/TSA MINIMUM REQUIRED DISTRIBUTION (This option not available until annuitant reaches age 70.5): [_] YES [_] NO
If YES, Form 3858 must be completed and filed with this application
18. SPECIAL INSTRUCTIONS:
================================================================================================================================
TELEPHONE TRANSFER PRIVILEGE IF YOU WOULD LIKE A STATEMENT OF ADDITIONAL
INFORMATION, PLEASE CHECK THIS BOX. [_]
I (We) hereby authorize and direct American National Insurance
Company to make transfers from fund to fund and/or
change the allocation of future investments based upon telephone
instruction. I (We) agree to hold harmless and indemnify American
National Insurance Company, its affiliates and employees and this
account for any claim, loss, liability or expense arising out of any
telephone transfer effected or any failure or overload of the telephone
system. Initial this box. _______________________
| |
_______________________
- --------------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------------
AGENTS' REPORT
- --------------
Has any insurance with American National on the life of the Annuitant been lapsed within the last six months; or is such action
now in process or planned? [_] Yes [_] No IF YES, give details: ___________________________________________________________
_______________________________________________________________________________________________________________________________
As agent, do you have knowledge or reason to believe that replacement of existing Insurance/Annuities may be involved?
[_] Yes [_] No IF YES, give details: __________________________________________________________________________________
_______________________________________________________________________________________________________________________________
As Agent, have you complied with State Replacement Regulations? [_] YES [_] NO If, as Agent, you included individualized
sales proposals in your presentation and the Annuitant replaces plan, then, comparative information forms for each policy to be
replaced and copies of all sales material must be included with this application and sent to the Home Office.
What OTHER Agent under contract (BESIDES YOURSELF) is entitled to any commission hereon and how much?
AGENT____________________________ TEL (_____) _____ - ____________ PERSONAL CODE ________________ _________%
AGENT____________________________ TEL (_____) _____ - ____________ PERSONAL CODE ________________ _________%
I certify that on the date of this application I asked the Annuitant(s) each question in the application, recorded the answers
given me, witnessed such person(s) signature and collected the premium shown in the application.
Dated at__________________________________________ this _______________________________ day of _________________,_______________
_____________________________________________________________ _______________________________________________________________
SOLICITING AGENT (PRINT) STATE LICENSE NUMBER
Field Office Code _________________________ Agent P.C. No. _______________________ Soc. Sec. No. _____________________________
FIELD OFFICE CHECK LIST:
Has the application been reviewed for omissions and errors? [_] Yes [_] No
By whom______________________________________
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</TABLE>
<PAGE>
DISTRIBUTION AND SERVICING PLAN AGREEMENT
LAZARD RETIREMENT SERIES, INC.
Lazard Freres & Co. LLC
30 Rockefeller Plaza
New York, New York 10020
Gentlemen:
We wish to enter into this Agreement with you for distribution and
certain other services with respect to the shares of each portfolio set forth on
Schedule 1 hereto, as such Schedule may be revised from time to time (each, a
"Portfolio"), of Lazard Retirement Series, Inc. (the "Fund") of which you are
the principal underwriter as defined in the Investment Company Act of 1940, as
amended (the "Act"), and the exclusive agent for the continuous distribution of
its shares.
The terms and conditions of this Agreement are as follows:
1. We agree to provide reasonable assistance in connection with the
sale of the Portfolios' shares, which assistance may include distributing sales
literature, marketing and advertising. If we are restricted or unable to
provide the services contemplated above, we agree not to perform such services
and not to accept fees thereafter. Our acceptance of any fees hereunder shall
constitute our representation (which shall survive any payment of such fees and
any termination of this Agreement and shall be reaffirmed each time we accept a
fee hereunder) that our receipt of such fee is lawful.
2. We agree to provide shareholder and administrative services for
our clients who own shares of any Portfolio ("clients"), which services may
include, without limitation, answering client inquiries about the Fund or any
Portfolio; assisting clients in changing dividend options, account designations
and addresses; performing sub-accounting; establishing and maintaining
shareholder accounts and records; processing purchase and redemption
transactions; investing client account cash balances automatically in Portfolio
shares; providing periodic statements showing a client's account balance and
integrating such statements with those of other transactions and balances in the
client's other accounts serviced by us; arranging for bank wires; and providing
such other information and services as the Fund reasonably may request, to the
extent we are permitted by applicable statute, rule or regulation. In this
<PAGE>
regard, you recognize that to the extent we are subject to the provisions of the
Glass-Steagall Act and other laws governing, among other things, the conduct of
activities we may undertake and for which we may be paid, we intend to perform
only those activities as are consistent with our statutory and regulatory
obligations. We shall provide to clients a schedule of the services and of any
fees that we may charge directly to them for such services.
3. We shall provide such office space and equipment, telephone
facilities and personnel (which may be all or any part of the space, equipment
and facilities currently used in our business, or all or any personnel employed
by us) as is necessary or beneficial in order to provide such services
contemplated hereunder.
4. We agree that neither we nor any of our employees or agents are
authorized to make any representation concerning the Portfolios' shares, except
those contained in the Fund's then-current Prospectus and Statement of
Additional Information, copies of which will be supplied by you to us, or in
such supplemental literature or advertising materials as may be authorized by
you in writing.
5. For all purposes of this Agreement, we will be deemed to be an
independent contractor, and will have no authority to act as agent for you or
the Fund in any matter or in any respect. We and our employees will, upon
request, be available during normal business hours to consult with you or your
designees concerning the performance of our responsibilities under this
Agreement.
6. In consideration of the services and facilities described herein,
we shall be entitled to receive from you, and you agree to pay to us with
respect to each Portfolio, the fees set forth opposite such Portfolio's name on
Schedule 1 hereto. We understand that the payment of these fees has been
authorized and will be paid pursuant to a Distribution and Servicing Plan
approved by the Fund's Board and shareholders, and any payments pursuant to this
Agreement shall be paid only so long as this Agreement and the Distribution and
Servicing Plan adopted by the Fund is in effect.
7. You reserve the right, at your discretion and without notice, to
suspend or withdraw the sale of any Portfolio's shares.
8. We acknowledge that this Agreement shall become effective, as to a
Portfolio, only when approved by vote of a majority of (i) the Fund's Board and
(ii) the Board members
-2-
<PAGE>
who are not "interested persons" (as defined in the Act) of the Fund and have no
direct or indirect financial interest in this Agreement, cast in person at a
meeting called for the purpose of voting on such approval.
9. As to each Portfolio, this Agreement shall continue until the last
day of the calendar year next following the date of execution, and thereafter
shall continue automatically for successive annual periods ending on the last
day of each calendar year, provided such continuance is approved specifically at
least annually by a vote of a majority of (i) the Fund's Board and (ii) the
Directors who are not "interested persons" (as defined in the Act) of the Fund
and have no direct or indirect financial interest in this Agreement, by vote
cast in person at a meeting called for the purpose of voting on such approval.
As to each Portfolio, this Agreement is terminable without penalty, at any time,
by vote of a majority of the Directors who are not "interested persons" (as
defined in the Act) and have no direct or indirect financial interest in this
Agreement or, on not more than 60 days' written notice, by vote of holders of a
majority of a Portfolio's outstanding shares, or, upon 15 days' notice, by you.
Notwithstanding anything contained herein, if the Distribution and Servicing
Plan adopted by the Fund is terminated by the Fund's Board, or the Distribution
and Servicing Plan, or any part thereof, is found invalid or is ordered
terminated by any regulatory or judicial authority, or we fail to perform the
distribution and servicing functions contemplated by the Fund or by you, this
Agreement shall be terminable effective upon receipt of notice thereof by us.
This Agreement also shall terminate automatically, as to the relevant Portfolio,
in the event of its assignment (as defined in the Act).
10. We understand that the Fund's Board will review, at least
quarterly, a written report of the amounts expended pursuant to this Agreement
and the purposes for which such expenditures were made. In connection with such
reviews, we will furnish you or your designees with such information as you or
they may reasonably request and will otherwise cooperate with you and your
designees (including, without limitation, any auditors designated by you), in
connection with the preparation of reports to the Fund's Board concerning this
Agreement and the monies paid or payable by you pursuant hereto, as well as any
other reports or filings that may be required by law.
11. All communications to you shall be sent to you at the address set
forth above. Any notice to us shall be duly given if mailed or telegraphed to
us at the address set forth below.
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<PAGE>
12. This Agreement shall be construed in accordance with the internal
laws of the State of New York, without giving effect to principles of conflict
of laws.
Very truly yours,
__________________________________________
(Please Print or Type Name of Entity)
__________________________________________
Address
__________________________________________
City State Zip Code
Date____________________ By:_______________________________________
Authorized Signature
NOTE: Please return both signed copies of this Agreement to Lazard Freres &
Co. LLC. Upon acceptance one countersigned copy will be returned for
your files.
Accepted:
LAZARD FRERES & CO. LLC
Date _________________________ By:____________________________
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<PAGE>
SCHEDULE 1
Distribution and Servicing Plan Agreement
between
LAZARD FRERES & CO. LLC
and
__________________________________
American National Insurance
Fee at an Annual Rate as a
Percentage of Average Daily
Net Asset Value of
Portfolio Shares Owned by
Clients*
--------
Name of Portfolio* Fee
- ------------------ ---
Lazard Retirement Bantam Value Portfolio .25
Lazard Retirement Emerging Markets Portfolio .25
Lazard Retirement Equity Portfolio .25
Lazard Retirement Global Equity Portfolio .25
Lazard Retirement International Equity Portfolio .25
Lazard Retirement International Fixed-Income Portfolio .25
Lazard Retirement International Small Cap Portfolio .25
Lazard Retirement Small Cap Portfolio .25
Lazard Retirement Strategic Yield Portfolio .25
Document2
Dated: June 30, 1997
______________
* For purposes of determining the fees payable hereunder, the average daily
net asset value of each Portfolio's shares shall be computed in the manner
specified in the Fund's charter documents and then-current Prospectus and
Statement of Additional Information.
-5-
<PAGE>
PARTICIPATION AGREEMENT
Among
VAN ECK WORLDWIDE INSURANCE TRUST,
VAN ECK SECURITIES CORPORATION,
VAN ECK ASSOCIATES CORPORATION
and
AMERICAN NATIONAL INSURANCE COMPANY
THIS AGREEMENT, made and entered into to be effective on
____________________, by and among AMERICAN NATIONAL INSURANCE COMPANY,
(hereinafter the "Company"), a __________________ corporation, on its own behalf
and on behalf of each segregated asset account of the Company set forth on
Schedule A hereto and incorporated herein by this reference, as such Schedule A
may from time to time be amended by mutual written agreement of the parties
hereto (each such account hereinafter referred to as the "Account"), and VAN ECK
WORLDWIDE INSURANCE TRUST, an unincorporated business trust organized under the
laws of the Commonwealth of Massachusetts (hereinafter the "Fund"),VAN ECK
SECURITIES CORPORATION (hereinafter the "Underwriter"), a Delaware corporation
and VAN ECK ASSOCIATES CORPORATION (hereinafter the "Adviser"), a Delaware
corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(hereafter referred to collectively as the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter the "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each representing the interest in a particular managed portfolio of
securities and other assets (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission (hereinafter the "SEC") (File No. 811-5083), granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the Investment Company Act of 1940, as amended, (hereinafter the "1940
Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated life insurance companies (hereinafter the "Shared Funding Order");
and
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<PAGE>
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, the Company has registered or will register certain variable life
insurance and variable annuity contracts under the 1933 Act, unless such
contracts are exempt from registration thereunder; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable life insurance and
variable annuity contracts; and
WHEREAS, the Company has registered or will register each Account as a unit
investment trust under the 1940 Act, unless such Account is exempt from
registration thereunder; and
WHEREAS, the Underwriter is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter the "NASD"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
Investment Advisers Act of 1940 and any applicable state securities law; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Underwriter and the Adviser agree as follows:
ARTICLE I
Sale of Fund Shares
-------------------
1.1. The Underwriter agrees to sell to the Company those shares of the
Portfolios (which are listed on Schedule B attached hereto and incorporated
herein by this reference, as such Schedule B may from time to time be amended by
mutual written agreement of the parties hereto) which each Account orders,
executing such orders on a daily basis at the net asset value per share next
computed after receipt by the Fund or its designee of the order for the shares
of the Portfolios subject to the terms and conditions of this Agreement. For
purposes of this Section 1.1, the Company shall be the designee of the Fund for
receipt of such orders from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
order by 9:00 a.m. Eastern time on the next following Business Day. "Business
Page 2
<PAGE>
Day" shall mean any day on which the New York Stock Exchange is open for
business and on which the Fund calculates the Portfolios' net asset values
pursuant to the rules of the SEC.
1.2. The Fund agrees to make Portfolio shares available for purchase at
the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates net asset values pursuant to the rules
of the SEC and the Fund shall use reasonable efforts to calculate such net asset
values on each day on which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter
the "Board") may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of shares of any Portfolio, if such action is
required by law or by regulatory authorities having jurisdiction, or if it is,
in the sole discretion of the Board, desirable or advisable, and in the best
interests of the shareholders of such Portfolio.
1.3. The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts or
other accounts (e.g., qualified retirement plans) as may be permitted so that
the Variable Insurance Products continue to qualify as a "life insurance,
annuity or variable contract" under Section 817(h) of the Internal Revenue Code
of 1986, as amended (hereinafter the "Code"). No shares of any Portfolio will
be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company, separate account or other account unless an agreement
containing provisions substantially the same as Article I, Section 2.5 of
Article II, Sections 3.4 and 3.5 of Article III, Article V and Article VII of
this Agreement is in effect to govern such sales.
1.5. Subject to its rights under Section 18(f) of the 1940 Act, the Fund
agrees to redeem for cash, on the Company's request, any full or fractional
shares of a Portfolio held by the Company, executing such requests on a daily
basis at the net asset value per share next computed after receipt by the Fund
or its designee of the request for redemption. For purposes of this Section 1.5,
the Company shall be the designee of the Fund for receipt of requests for
redemption from each Account and receipt by such designee shall constitute
receipt by the Fund; provided that the Fund receives notice of such request for
redemption by 9:00 a.m., Eastern Time, on the next following Business Day.
Payment of redemption proceeds for any whole or fractional shares shall be made
within seven days of actual receipt of the redemption request by the Fund, or
within such greater or lesser period as may be permitted by law or rule,
regulation, interpretive position or order of the SEC.
1.6. The Company agrees that purchases and redemptions of Portfolio shares
offered by the then-current prospectus of the Fund shall be made in accordance
with the provisions of such prospectus. The Company agrees that all net amounts
available in the Accounts which are listed in Schedule A attached hereto and
incorporated herein by this reference, as such Schedule A may from time to time
be amended by mutual written agreement of the parties hereto (the "Contracts"),
shall be invested in the Portfolios and in such other funds advised by the
Adviser as are listed in Schedule B, or in the Company's general account;
provided that such amounts may also be invested in an investment company other
than the Fund if (a) such other investment
Page 3
<PAGE>
company, or series thereof, has investment objectives or policies that are
substantially different from the investment objectives and policies of all the
Portfolios of the Fund; or (b) the Company gives the Fund and the Underwriter 45
days' written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other investment
company was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement (a list of such funds appearing on Schedule C to
this Agreement); or (d) the Fund or Underwriter consents in writing to the use
of such other investment company.
1.7. The Company shall pay for Portfolio shares on the next Business Day
after an order to purchase such shares is made in accordance with the provisions
of this Article I. Payment shall be in federal funds transmitted by wire. For
purposes of Sections 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income dividends or
capital gain distributions payable on the Portfolios' shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
1.10. The Fund shall make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably practical after
the net asset value per share is calculated (normally by 6:30 p.m., Eastern
Time) and shall use its best efforts to make such net asset value per share
available by 7:00 p.m., Eastern Time.
ARTICLE II
Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act or exempt therefrom; that the Contracts will be
issued and sold in compliance in all material respects with all applicable
federal and state laws and that the sale of the Contracts shall comply in all
material respects with state insurance suitability requirements. The Company
further represents and warrants that it is an insurance company duly organized
and in good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under the Insurance Code and Regulations of the State of
____________________, and has registered or, prior to any issuance or sale of
the Contracts, will, unless exempt from registration, register each Account as a
unit
Page 4
<PAGE>
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts.
2.2. The Company represents that the Contracts will be eligible for
treatment as life insurance or annuity contracts under applicable provisions of
the Code and that it will make every effort to maintain such treatment and that
it will notify the Fund and the Underwriter promptly upon having determined that
the Contracts may have ceased to be so treated or that they might not be so
treated in the future.
2.3. The Company represents and warrants that all of its
directors/trustees, employees, investment advisers and other
individuals/entities dealing with money and/or securities of the Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund, in an amount not less than $5 million. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. The Company shall notify the Fund, the
Underwriter and the Adviser in the event that such coverage no longer applies.
2.4. The Fund represents and warrants that Fund shares sold pursuant to
this Agreement are registered under the 1933 Act, duly authorized for issuance
and sale in compliance in all material respects with the terms of this Agreement
and all applicable federal and state securities laws, and that, while shares of
the Portfolios are being offered for sale, the Fund is and shall remain
registered under the 1940 Act. The Fund shall amend its Registration Statement
under the 1933 Act and the 1940 Act from time to time as required in order to
effect the continuous offering of Portfolio shares. The Fund shall register or
otherwise qualify the shares for sale in accordance with the laws of the various
states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.5. The Fund represents that each Portfolio is qualified as a Regulated
Investment Company under Subchapter M of the Code and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provision) and that it will notify the Company promptly upon having
determined that any Portfolio may have ceased to so qualify or that it might not
so qualify in the future.
2.6. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise,
although it may make such payments in the future. To the extent that it decides
to finance distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have a board of trustees, a majority of whom are not interested persons of the
Fund, formulate and approve any plan under Rule 12b-1 to finance distribution
expenses.
2.7. The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees, expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund has disclosed or made available,
in writing, all information requested by Company and represents and warrants
that such written information is true and accurate in all material respects as
of the
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<PAGE>
effective date of this Agreement. Without prior written notice to the Company,
the Fund will not make any changes in fundamental investment policies or
advisory fees, and shall at all times remain in compliance with federal
securities law as it applies to insurance products. The Company will use its
best efforts to provide the Fund with copies of amendments to provisions of
state insurance laws and regulations related to separate accounts and variable
products, which may affect Fund operations.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute Portfolio shares
to the Company in accordance with all applicable state and federal securities
laws, including, without limitation, the 1933 Act, the 1934 Act and the 1940
Act.
2.10. The Adviser represents and warrants that it is and shall remain duly
registered in all material respects under all applicable federal and state
securities laws and that it shall perform its obligations for the Fund in
compliance in all material respects with any applicable state and federal
securities laws.
2.11. The Fund, the Underwriter and the Adviser represent and warrant that
all of their directors/trustees, officers, employees, investment advisers and
other individuals/entities dealing with money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund, in an amount not less than the
minimum coverage as required by Rule 17g-1 of the 1940 Act or related provisions
as may from time to time be promulgated. The aforesaid bond shall include
coverage for larceny and embezzlement and shall be issued by a reputable bonding
company. The Fund shall notify the Company in the event such coverage no longer
applies.
ARTICLE III
Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company (at the Underwriter's
expense) with as many copies of the Fund's current prospectus as the Company may
reasonably request. If requested by the Company in lieu thereof, the Fund shall
provide such documentation (including a final copy of the new prospectus as set
in type at the Fund's expense) and other assistance as is reasonably necessary
in order for the Company once each year (or more frequently if the prospectus
for the Fund is amended) to have the prospectus (or private offering memorandum,
if a Contract and its associated Account are exempt from registration) for the
Contracts and the Fund's prospectus printed together in one document (such
printing to be at the Company's expense).
Page 6
<PAGE>
3.2. The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter (or in the Fund's
discretion, from the Fund), and the Underwriter (or the Fund), at its expense,
shall provide such Statement of Additional Information free of charge to the
Company and to any owner of a Contract or prospective owner who requests such
Statement.
3.3. The Fund, at its expense, shall provide the Company with copies of
its proxy statements, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4. If and to the extent required by law, the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote Portfolio shares in accordance with instructions received
from Contract owners; and
(iii) vote Portfolio shares for which no instructions have been
received in the same proportion as shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. The Company
reserves the right to vote Fund shares held in any segregated asset account in
its own right, to the extent permitted by law. The Company shall be responsible
for assuring that each of its separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
in the Shared Funding Order and rules and regulations of the SEC, which
standards will also be provided to other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
ARTICLE IV
Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund, the Underwriter or the Adviser is named, at least
fifteen Business Days prior to its use. No such material shall be used unless
approved in writing by the Fund or the Underwriter. The Fund and the Underwriter
will use reasonable best efforts to provide the Company with written response
Page 7
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within ten Business Days of receipt of such materials. Any piece which merely
names the Fund, the Underwriter or the Adviser as participating in the Variable
Insurance Products may be used after ten Business Days of receipt by the Fund
and the Underwriter if the Company has not received a written response from the
Fund or the Underwriter.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund, as such registration statement and prospectus may from time to time be
amended or supplemented, or in reports or proxy statements for the Fund, or in
sales literature or other promotional material provided to the Company by the
Fund or its designee or by the Underwriter, except with the written permission
of the Fund or the Underwriter, pursuant to Section 4.1 hereof.
4.3. The Fund, the Underwriter or their designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used unless approved in writing by the Company or its
designee. The Company will use reasonable best efforts to provide the Fund with
written response within ten Business Days of receipt of such materials. Any
piece which merely states that the Fund, the Underwriter or the Adviser are
participating in the Variable Insurance Products may be used after ten Business
Days after receipt by the Company if the Fund or the Underwriter have not
received a written response from the Company.
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may from time to time be amended or
supplemented, or in published reports which are in the public domain or approved
by the Company for distribution to Contract owners, or in sales literature or
other promotional material approved by the Company or its designee, except with
the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to any of the Portfolios or their shares,
promptly following the filing of such document with the SEC or other regulatory
authorities.
4.6. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to the Contracts or
each Account, promptly following the filing of such document with the SEC or
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other regulatory authorities; and, if a Contract and its associated Account are
exempt from registration, the equivalents to the above.
4.7. For purposes of this Agreement, the phrase "sales literature or other
promotional material" includes, but is not limited to, any of the following that
refer to the Fund or any affiliate of the Fund: advertisements (such as material
published or designed for use in a newspaper, magazine, or other periodical,
radio, television, telephone or tape recording, videotape or electronic display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees.
ARTICLE V
Fees and Expenses
-----------------
5.1. The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing and such payments will be made out of existing fees otherwise payable to
the Underwriter, past profits of the Underwriter or other resources available to
the Underwriter. No such payments shall be made directly by the Fund. Currently,
no such payments are contemplated.
5.2. Except as otherwise expressly provided in the Agreement, all expenses
incident to performance by the Fund under this Agreement shall be paid by the
Fund. The Fund shall see to it that all Portfolio shares are registered and
authorized for issuance in accordance with applicable federal law and, if and to
the extent deemed advisable by the Fund, in accordance with applicable state
laws prior to their sale. The Fund shall bear the expenses for the cost of
registration and qualification of the Portfolios' shares, preparation and filing
of the Fund's prospectus and registration statement, proxy materials and
reports, setting the prospectus in type, setting in type and printing the proxy
materials and reports to shareholders (including the costs of printing a
prospectus that constitutes an annual report), the preparation of all statements
and notices required by any federal or state law and all taxes on the issuance
or transfer of the Portfolios' shares.
5.3. The Company shall bear the expenses of printing and distributing the
Fund's prospectus to owners of Contracts issued by the Company and of
distributing the Fund's proxy materials and reports to such Contract owners.
5.4 The Company agrees to provide certain administrative services,
specified in Schedule D attached hereto and incorporated herein by reference, in
connection with the arrangements contemplated by this Agreement. The parties
acknowledge and agree that the
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services referred to in this Section 5.4 are recordkeeping, shareholder
communication, and other transaction facilitation and processing, and related
administrative services only and are not the services of an underwriter or a
principal underwriter of the Fund and that the Company is not an underwriter of
the shares of the Portfolio(s), within the meaning of the 1933 Act or the 1940
Act.
ARTICLE VI
Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in such a
manner as to ensure that the Contracts will be treated as variable contracts
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, the Fund will at all times comply with Section 817(h) of the
Code and Treasury Regulation 1.817-5, relating to the diversification
requirements for variable annuity, endowment or life insurance contracts and any
amendments or other modifications to such Section or Regulation. In the event of
a breach of this Article VI by the Fund, it will take all reasonable steps (a)
to notify Company of such breach and (b) to adequately diversify the Fund so as
to achieve compliance with the grace period afforded by Regulation 1.817-5.
ARTICLE VII
Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. A material irreconcilable conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance, tax
or securities laws or regulations, or a public ruling, private letter ruling,
no-action or interpretive letter or any similar action by insurance, tax, or
securities regulatory authorities; (c) an administrative or judicial decision in
any relevant proceeding; (d) the manner in which the investments of a Portfolio
are being managed; (e) a difference in voting instructions given by variable
annuity contract and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
contract owners. The Board shall promptly inform the Company if it determines
that a material irreconcilable conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts to the
Board. The Company will assist the Board in carrying out its responsibilities
under the Shared Funding Order, by providing the Board with all information
reasonably necessary for the Board to consider any issues raised. This includes,
but is not limited to, an obligation by the Company to inform the Board whenever
any of the events in Section 7.1, as they pertain to the Company, occur (e.g., a
decision to disregard contract owner voting instructions).
7.3. If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to
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remedy or eliminate the material irreconcilable conflict, up to and including:
(1) withdrawing the assets allocable to some or all of the separate accounts
from the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the Fund,
or submitting the question whether such segregation should be implemented to a
vote of all affected Contract owners and, as appropriate, segregating the assets
of any appropriate group (i.e., annuity contract owners, life insurance contract
owners or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change, and (2) establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees of the Board. Any such
withdrawal and termination must take place within six months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Fund and the Underwriter shall continue to accept
and implement orders by the Company for the purchase (and redemption) of shares
of the Fund.
7.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
that of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created a material irreconcilable
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested trustees of the Board. Until
the end of that six month period, the Fund and the Underwriter shall continue to
accept and implement orders by the Company for the purchase (and redemption) of
shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested trustees of the Board shall determine whether any
proposed action adequately remedies a material irreconcilable conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy a material irreconcilable conflict,
then the Company will withdraw the Account's investment in the Fund and
terminate this Agreement within six months after the Board informs the Company
in writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required by any such
material irreconcilable conflict as determined by a majority of the
disinterested trustees of the Board.
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7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Order) on terms and conditions materially
different from those contained in the Shared Funding Order, then (a) the Fund
and/or the Participating Insurance Companies, as appropriate, shall take such
steps as may be necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and
Rule 6e-3 as adopted, to the extent such rules are applicable; and (b) Sections
3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in effect
only to the extent that terms and conditions substantially identical to such
Sections are contained in such Rule(s) as so amended or adopted.
ARTICLE VIII
Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
8.1(a). The Company agrees to indemnify and hold harmless the Fund, the
Underwriter and the Adviser and each trustee/director and officer thereof and
each person, if any, who controls the Fund, the Underwriter, or the Adviser
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company), expenses or litigation (including legal and other
expenses) (hereinafter referred to collectively as a "Loss"), to which the
Indemnified Parties may become subject under any statute or regulation, at
common law or otherwise, insofar as a Loss is related to the sale or acquisition
of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or private offering memorandum
for the Contracts or contained in the Contracts or sales
literature or other promotional materials for the Contracts (or
any amendment or supplement to any of the foregoing), or arise
out of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statement therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was made in reliance upon and in conformity
with written information furnished to the Company by or on behalf
of the Indemnified Party for use in the registration statement or
prospectus for the Contracts or in the Contracts or in sales
literature or any other promotional materials (or any amendment
or supplement to any of the foregoing); or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature or other
promotional materials of the Fund not supplied by the Company, or
persons under its control) or wrongful conduct
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of the Company or persons under its control, with respect to the
sale or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a registration statement,
prospectus or sales literature or other promotional materials of
the Fund (or any amendment or supplement to any of the foregoing)
or arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading
if such statement or omission was made in reliance upon or in
conformity with written information furnished to the Fund, the
Underwriter or the Adviser by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Company, as limited by and in accordance
with the provisions of Sections 8.1 (b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations or
duties under this Agreement or to the Fund, the Underwriter or the Adviser,
whichever is applicable.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Company shall be entitled to participate,
at its own expense, in the defense thereof. The Company also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such Party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
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8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
this Agreement, the issuance or sale of Portfolio shares or the Contracts or the
operation of the Fund.
8.2. Indemnification By The Fund
---------------------------
8.2(a). The Fund agrees to indemnify and hold harmless the Company, and
each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the diversification
requirements specified in Article VI of this Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Fund, as limited by and in accordance with the
provisions of Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Fund shall not be liable under this indemnification provision
with respect to any Loss incurred or assessed against an Indemnified Party as
such may arise from such Indemnified Party's willful misfeasance, bad faith or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to the Company, an Account, the Fund, the Underwriter or
the Adviser, whichever is applicable.
8.2(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund shall be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such Party
under this Agreement for any legal or other expenses subsequently incurred by
such Party independently in connection with the defense thereof other than
reasonable costs of investigation.
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8.2(d). The Company will promptly notify the Fund of the commencement of
any litigation or proceedings against the Indemnified Parties in connection with
this Agreement, the issuance or sale of Portfolio shares or the Contracts, the
operation of each Account or the acquisition of shares of the Fund.
8.3. Indemnification By The Underwriter
----------------------------------
8.3(a) The Underwriter agrees to indemnify and hold harmless the Company
and each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.3)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement or prospectus or sales literature or other
promotional materials of the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in
reliance upon and in conformity with written information furnished
to the Fund, the Underwriter or the Adviser by or on behalf of the
Indemnified Party for use in the registration statement or
prospectus of the Fund or in sales literature or other promotional
materials (or any amendment or supplement to any of the
foregoing); or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature or other
promotional materials for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of
the Fund or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Fund
shares; or
(iii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus or
private offering memorandum for the Contracts or contained in the
Contracts or sales literature or other promotional materials for
the Contracts (or any amendment or supplement to any of the
foregoing) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statement or statements
therein not misleading, if such statement or omission was made
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in reliance upon or in conformity with written information
furnished to the Company by or on behalf of the Fund or the
Underwriter; or
(iv) arise as a result of any failure by the Underwriter to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in good
faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Underwriter, as limited by and in
accordance with the provisions of Sections 8.3(b) and 8.3(c)
hereof.
8.3(b). The Underwriter shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Company or an Account, whichever is
applicable.
8.3(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Underwriter shall be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the Party named in the action. After notice from the Underwriter to such Party
of the Underwriter's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel retained by it,
and the Underwriter will not be liable to such Party under this Agreement for
any legal or other expenses subsequently incurred by such Party independently in
connection with the defense thereof other than reasonable costs of
investigation.
8.3(d). The Company will promptly notify the Underwriter of the
commencement of any litigation or proceedings against the Indemnified Parties in
connection with this Agreement, the issuance or sale of Portfolio shares or the
Contracts or the operation of each Account.
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8.4. Indemnification By The Adviser
------------------------------
8.4(a) The Adviser agrees to indemnify and hold harmless the Company and
each of its directors/trustees and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.4)
against any Loss to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as a Loss is related
to the sale or acquisition of the Fund's shares or the Contracts and:
(i) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature or other
promotional materials for the Contracts not supplied by the
Adviser, or persons under its control) or wrongful conduct of the
Adviser or persons under its control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(ii) arise out of any untrue statement or alleged untrue statement of a
material fact contained in a registration statement, prospectus or
private offering memorandum for the Contracts or contained in the
Contracts or sales literature or other promotional materials for
the Contracts (or any amendment or supplement to any of the
foregoing) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statement or statements therein not misleading, if such
statement or omission was made in reliance upon or in conformity
with written information furnished to the Company by or on behalf
of the Adviser; or
(iii) arise as a result of any failure by the Adviser to provide the
services and furnish the materials under the terms of this
Agreement (including a failure by the Fund, whether unintentional
or in good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(iv) arise out of or result from any material breach of any
representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material breach
of this Agreement by the Adviser, as limited by and in accordance
with the provisions of Sections 8.4(b) and 8.4(c) hereof.
8.4(b). The Adviser shall not be liable under this indemnification
provision with respect to any Loss incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful misfeasance, bad
faith or gross negligence in the performance of such Indemnified Party's duties
or by reason of such Indemnified Party's reckless disregard of
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obligations and duties under this Agreement or to the Company or an Account,
whichever is applicable.
8.4(c). The Adviser shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Adviser in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser shall be entitled to participate,
at its own expense, in the defense thereof. The Adviser also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Adviser to such party of the Adviser's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Adviser will
not be liable to such Party under this Agreement for any legal or other expenses
subsequently incurred by such Party independently in connection with the defense
thereof other than reasonable costs of investigation.
8.4(d). The Company will promptly notify the Adviser of the commencement
of any litigation or proceedings against the Indemnified Parties in connection
with this Agreement, the issuance or sale of Portfolio shares or the Contracts
or the operation of each Account.
8.5. Except as otherwise expressly provided in the Agreement, no party
shall be liable to any other party for special, consequential, punitive or
exemplary damages, or damages of a like kind or nature; and, without limiting
the foregoing, with respect to Section 1.10 of Article I and Sections 8.2, 8.3
and 8.4 of Article VIII as such Sections relate to errors in calculation or
untimely reporting of net asset value per share or dividend or capital gain
rate, the liability of a party to any other party shall be limited to the amount
required to correct the value of the Account as if there had been no incorrect
calculation or reporting or untimely reporting of the net asset value per share
or dividend or capital gain rate.
ARTICLE IX
Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York.
9.2. This Agreement shall be subject to the provisions of the 1933 Act,
the 1934 Act and the 1940 Act and the rules and regulations and rulings
thereunder, including such exemptions from those statutes, rules and regulations
as the SEC may grant (including, but not limited to, the Shared Funding Order)
and the terms of this Agreement shall be interpreted and construed in accordance
therewith.
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ARTICLE X
Termination
-----------
10.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party for any reason by sixty (60) days'
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably
available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of the
Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund, the
Underwriter and the Adviser with respect to any Portfolio in the
event that such Portfolio ceases to qualify as a "regulated
investment company" under Subchapter M of the Code or under any
successor or similar provision, or if the Company reasonably
believes that the Fund will fail to so qualify; or
(e) termination by the Company by written notice to the Fund, the
Underwriter and the Adviser with respect to any Portfolio in the
event that such Portfolio fails to meet the diversification
requirements specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter shall determine, in their sole judgment exercised in
good faith, that the Company and/or its affiliated companies has
suffered a material adverse change in its business, operations,
financial condition or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund or the Underwriter
has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of
this Agreement or is the subject of material adverse publicity; or
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(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination
outstanding under any other provision of this Agreement; provided,
however, that any termination under this Section 10.1(h) shall be
effective forty-five days after the notice specified in Section
1.6(b) was given.
10.2. Effect of Termination. Notwithstanding termination of this
Agreement, the Fund and the Underwriter shall, if the Company and the
Underwriter mutually agree, continue to make available additional shares of the
Fund pursuant to the terms and conditions of this Agreement, for all Contracts
in effect on the effective date of termination of this Agreement (hereinafter
referred to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts shall be permitted to retain investments in the
Fund, reinvest dividends and redeem investments in the Fund. The parties agree
that this Section 10.2 shall not apply to any terminations under Section 1.2 of
Article I or under Article VII, and the effect of such Article VII terminations
shall be governed by Article VII of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions; or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"); or (iii) as a
result of action by the Fund's Board, acting in good faith, upon sixty (60)
days' advance written notice to the Company and Contract Owners. Upon request,
the Company will promptly furnish to the Fund and the Underwriter the opinion of
counsel for the Company (which counsel shall be reasonably satisfactory to the
Fund and the Underwriter) to the effect that any redemption pursuant to clause
(ii) above is a Legally Required Redemption, or is as permitted by an order of
the SEC pursuant to Section 26(b) of the 1940 Act. In the event that the Company
is to redeem shares pursuant to clause (iii) above, the Fund will promptly
furnish to the Company the opinion of counsel for the Fund (which counsel shall
be reasonably satisfactory to the Company) to the effect that any such
redemption is not in violation of the 1940 Act or any rule or regulation
thereunder, or is as permitted by an order of the SEC. Furthermore, except in
cases where permitted under the terms of the Contracts, the Company shall not
prevent Contract Owners from allocating payments to a Portfolio that was
otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days' advance written notice of its intention to do so.
ARTICLE XI
Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail or next-day delivery to the other parties at the address of such parties
set forth below or at such other address as any party may from time to time
specify in writing to the other parties.
Page 20
<PAGE>
If to the Company:
One Moody Plaza
Galveston, Texas 77550
Attention: Douglas A. Culp, Vice President - Independent Marketing
If to the Fund:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel
If to the Underwriter:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel
If to the Adviser:
99 Park Avenue
New York, New York 10016
Attention: President, with a copy to the General Counsel
ARTICLE XII
Miscellaneous
-------------
12.1. All persons dealing with the Fund must look solely to the property
of the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
12.2. Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party, until such time as it may come into the public domain.
12.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
Page 21
<PAGE>
12.5. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including, without limitation, the SEC,
the NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
12.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8. This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereunder; provided, however, that the Underwriter may assign this Agreement or
any rights or obligations hereunder to any affiliate of or company under common
control with the Underwriter, if such assignee is duly licensed and registered
to perform the obligations of the Underwriter under this Agreement.
12.9. The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, copies of the following reports:
(a) the Company's annual statement (prepared under statutory accounting
principles) and annual report (prepared under generally accepted
accounting principles ("GAAP"), if any), as soon as practical and in
any event within 120 days after the end of each fiscal year;
(b) the Company's semi-annual statements (statutory) (and GAAP, if any),
as soon as practical and in any event within 60 days after the end of
each period:
(c) any financial statement, proxy statement, notice or report of the
Company sent to stockholders and/or policyholders, as soon as
practical after the delivery thereof to stockholders;
(d) any registration statement (without exhibits) and financial reports of
the Company filed with the SEC or any state insurance regulator, as
soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent accountants
in connection with any annual, interim or special audit made by them
of the books of the Company, as soon as practical after the receipt
thereof.
Page 22
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
AMERICAN NATIONAL INSURANCE Attest:
By:_____________________ By: ________________________
Name:___________________ Name: ______________________
Title:__________________ Title: _____________________
VAN ECK WORLDWIDE INSURANCE TRUST Attest:
By:_____________________ By: ________________________
Name:___________________ Name: ______________________
Title:__________________ Title: _____________________
VAN ECK SECURITIES CORPORATION Attest:
By:_____________________ By: ________________________
Name:___________________ Name: ______________________
Title:__________________ Title: _____________________
VAN ECK ASSOCIATES CORPORATION Attest:
By:_____________________ By: ________________________
Name:___________________ Name: ______________________
Title:__________________ Title: _____________________
Page 23
<PAGE>
SCHEDULE A
ACCOUNTS
Date Established by the Company's
Name of Account Board of Directors
--------------- ---------------------------------
Page 24
<PAGE>
SCHEDULE B
PORTFOLIOS AND OTHER FUNDS
ADVISED BY ADVISER
I. Portfolios
Gold and Natural Resources Fund
Worldwide Emerging Markets Fund
II. Other Funds Advised by the Adviser
Page 25
<PAGE>
SCHEDULE C
OTHER INVESTMENT COMPANIES AVAILABLE
AS FUNDING VEHICLE FOR THE CONTRACTS
(If none, so state)
Page 26
<PAGE>
SCHEDULE D
ADMINISTRATIVE SERVICES
To be performed by the Company
A. The Company will provide the properly registered and licensed personnel
and systems needed for all customer servicing and support - for both Fund and
Contract information and questions - including:
Delivery of prospectuses, proxies and reports - Fund and or Contracts
Entry and transmission of all purchases, withdrawal, and exchange
orders;
Transfers of cash between the Company and Fund;
Entry and transmission of transfers between the Portfolios;
Fund balance and allocation inquiries;
Explanations of Fund objectives and characteristics;
Respond to Contract owner inquiries
B. For the services, the Company shall receive a fee of : 0.25% per annum
applied to the average daily value of the shares of the Portfolios held by the
Company's customers up to $50 million; 0.15% per annum applied to the average
daily value of shares of the Portfolios held by the Company's customers, between
$50 million and $100 million; and .25% per annum applied to the average daily
value of shares of the Portfolios held by the Company's customers, over $100
million. The fee is payable by the Adviser to the Company within 30 (thirty)
days after the last day of the month to which payment relates.
Page 27
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE FIXED INCOME SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
AMERICAN NATIONAL LIFE
THIS AGREEMENT, made and entered into as of this ________ day of
________________________, 1997 by and among American National Life (hereinafter,
the "Company"), a Texas insurance company, on its own behalf and on behalf of
each segregated asset account of the Company set forth on Schedule A hereto as
may be amended from time to time (each account hereinafter referred to as the
"Account"), and the undersigned funds, each, a corporation organized under the
laws of Maryland (hereinafter referred to as the "Fund") and T. Rowe Price
Investment Services, Inc. (hereinafter the "Underwriter"), a Maryland
corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
<PAGE>
-2-
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the
<PAGE>
-3-
"Board") may refuse to sell shares of any Designated Portfolio to any person, or
suspend or terminate the offering of shares of any Designated Portfolio if such
action is required by law or by regulatory authorities having jurisdiction, or
is, in the sole discretion of the Board acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Designated Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to suspend the right of redemption or postpone the
date of payment or satisfaction upon redemption consistent with Section 22(e) of
the 1940 Act and any sales thereunder, and in accordance with the procedures and
policies of the Fund as described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
receipt of an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire by 4:00 p.m. Baltimore time. If payment in Federal Funds
for any purchase is not received or is received by the Fund after 4:00 p.m.
Baltimore time on such Business Day, the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund
of the federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Fund.
<PAGE>
-4-
1.8 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital gain
distributions payable on the Designated Portfolios' shares. The Company hereby
elects to receive all such income, dividends, and capital gain distributions as
are payable on Designated Portfolio shares in additional shares of that
Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Fund shall use its best efforts to
furnish advance notice of the day such dividends and distributions are expected
to be paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however, that (a) such other investment company, or series thereof, has
investment objectives or policies that are different from the investment
objectives and policies of the Fund; or (b) the Company gives the Fund and the
Underwriter 45 days written notice of its intention to make such other
investment company available as a funding vehicle for the Contracts; or (c) such
other investment company was available as a funding vehicle for the Contracts
prior to the date of this Agreement and the Company so informs the Fund and
Underwriter prior to their signing this Agreement; or (d) the Fund or
Underwriter consents to the use of such other investment company, such consent
not to be unreasonably withheld.
ARTICLE II. Representations and Warranties
------------------------------
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Texas insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
<PAGE>
-5-
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Texas and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Texas to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Maryland and that it does and will comply in all
material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Texas and any applicable state and
federal securities laws.
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Texas and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
<PAGE>
-6-
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies. The Company agrees to exercise its best efforts to
ensure that other individuals/entities not employed or controlled by the Company
and dealing with the money and/or securities of the Fund maintain a similar bond
or coverage in a reasonable amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
-------------------------------------------------------------
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
at the Fund's expense) and other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus for the
Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4 The Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received in
the same proportion as Fund shares of such Designated Portfolio
for which instructions have been received,
<PAGE>
-7-
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners or to the
extent otherwise required by law. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
------------------------------
4.1 The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops or uses and in which the Fund (or a Portfolio thereof)
or the Adviser or the Underwriter is named, at least fifteen calendar days prior
to its use. No such material shall be used if the Fund or its designee
reasonably object to such use within fifteen calendar days after receipt of such
material. The Fund or its designee reserves the right to reasonably object to
the continued use of such material, and no such material shall be used if the
Fund or its designee so object.
4.2 The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause to
be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
fifteen calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within fifteen calendar days after
receipt of such material. The Company reserves the right to reasonably object to
the continued use of such material and no such material shall be used if the
Company so objects.
<PAGE>
-8-
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, SAIs, reports, proxy statements, sales
literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, SAIs, reports, solicitations for voting
instructions, sales literature and other promotional materials, applications for
exemptions, requests for no-action letters, and all amendments to any of the
above, that relate to the Contracts or the Account, contemporaneously with the
filing of such document(s) with the SEC or other regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and other
promotional materials" includes, but is not limited to, any of the following
that refer to the Fund or any affiliate of the Fund: advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, or other public media), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, reports, market
letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
-----------------
5.1 The Fund and the Underwriter shall pay no fee or other compensation to
the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
<PAGE>
-9-
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of registration and
qualification of the Fund's shares, preparation and filing of the Fund's
prospectus and registration statement, proxy materials and reports, setting the
prospectus in type, setting in type and printing the proxy materials and reports
to shareholders (including the costs of printing a prospectus that constitutes
an annual report), the preparation of all statements and notices required by any
federal or state law, and all taxes on the issuance or transfer of the Fund's
shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
---------------------------------
6.1 Subject to the Company's maintaining the treatment of the Contracts as
life insurance, endowment, or annuity contracts under applicable provisions of
the Internal Revenue Code of 1986, as amended (the "Code") and the regulations
issued thereunder (or any successor provisions), the Fund will invest its assets
in such a manner as to ensure that the Contracts will be treated as annuity,
endowment, or life insurance contracts, whichever is appropriate, under the Code
and the regulations issued thereunder (or any successor provisions). Without
limiting the scope of the foregoing, the Fund will comply with Section 817(h) of
the Code and Treasury Regulation (S)1.817-5, and any Treasury interpretations
thereof, relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts, and any amendments or other
modifications or successor provisions to such Section or Regulations. In the
event of a breach of this Article VI by the Fund, it will take all reasonable
steps (a) to notify the Company of such breach and (b) to adequately diversify
the Fund so as to achieve compliance within the grace period afforded by
Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 Subject to the Fund's compliance with Section 817(h) of the Code and
Treasury Regulation (S)1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, any amendments or other modifications or successor
provisions to such Sections or Regulations, the Company represents that the
Contracts are currently, and at the time of issuance shall be, treated as life
insurance, endowment contracts, or annuity insurance contracts, under applicable
provisions of the Code, and that it will make every effort to maintain such
treatment, and that it will notify the Fund and the Underwriter
<PAGE>
-10-
immediately upon having a reasonable basis for believing the Contracts have
ceased to be so treated or that they might not be so treated in the future. The
Company agrees that any prospectus offering a contract that is a "modified
endowment contract" as that term is defined in Section 7702A of the Code (or any
successor or similar provision), shall identify such contract as a modified
endowment contract.
ARTICLE VII. Potential Conflicts. The following provisions apply effective
upon investment in the Fund by a separate account of a Participating Insurance
Company supporting variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict may
arise for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Board shall promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
<PAGE>
-11-
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal and
termination must take place within six (6) months after the Fund gives written
notice that this provision is being implemented, and until the end of that six
month period the Fund shall continue to accept and implement orders by the
Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account within six months after the Board informs the Company in writing
that it has determined that such decision has created an irreconcilable material
conflict; provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Until the
end of the foregoing six month period, the Fund shall continue to accept and
implement orders by the company for the purchase (and redemption) of shares of
the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4,
<PAGE>
-12-
and 7.5 of this Agreement shall continue in effect only to the extent that terms
and conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1 Indemnification By the Company
------------------------------
8.1(a). The Company agrees to indemnify and hold harmless the Fund and
the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the
Registration Statement, prospectus, or statement of additional
information for the Contracts or contained in the Contracts or
sales literature for the Contracts (or any amendment or
supplement to any of the foregoing), or arise out of or are
based upon the omission or the alleged omission to state therein
a material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with
information furnished to the Company by or on behalf of the Fund
for use in the Registration Statement, prospectus or statement
of additional information for the Contracts or in the Contracts
or sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the Contracts
or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the
Fund not supplied by the Company or persons under its control)
or wrongful conduct of the Company or persons under its
authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment
thereof or supplement thereto or the omission or
<PAGE>
-13-
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms
of this Agreement (including a failure, whether unintentional or
in good faith or otherwise, to comply with the qualification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
<PAGE>
-14-
8.1(d). The Indemnified Parties will promptly notify the Company of
the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund Shares or the Contracts or the operation
of the Fund.
8.2 Indemnification by the Underwriter
----------------------------------
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of it directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter) or litigation
(including legal and other expenses) to which the Indemnified Parties may become
subject under any statute or regulation, at common law or otherwise, insofar as
such losses, claims, damages, liabilities or expenses (or actions in respect
thereof) or settlements are related to the sale or acquisition of the Fund's
shares or the Contracts; and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained
in the Registration Statement or prospectus or SAI or
sales literature of the Fund (or any amendment or
supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to
state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or
omission was made in reliance upon and in conformity
with information furnished to the Underwriter or Fund by
or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales
literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or
representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not
supplied by the Underwriter or persons under its
control) or wrongful conduct of the Fund or Underwriter
or persons under their control, with respect to the sale
or distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus or sales literature covering the
Contracts, or any amendment thereof or supplement
thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to
<PAGE>
-15-
make the statement or statements therein not misleading,
if such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of
the Fund; or
(iv) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter
in this Agreement or arise out of or result from any
other material breach of this Agreement by the
Underwriter;
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Party, the Underwriter will be entitled to participate,
at its own expense, in the defense thereof. The Underwriter also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Underwriter to such party of the
Underwriter's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
the Underwriter will not be liable to such party under this Agreement for any
legal or other expenses subsequently incurred by such party independently in
connection with the defense thereof other than reasonable costs of
investigation.
<PAGE>
-16-
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms of
this Agreement (including a failure, whether
unintentional or in good faith or otherwise, to comply
with the diversification and other qualification
requirements specified in Article VI of this Agreement);
or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other
material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Fund of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this
<PAGE>
-17-
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct. After
notice from the Fund to such party of the Fund's election to assume the defense
thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceeding against it or any of
its respective officers or directors in connection with the Agreement, the
issuance or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
--------------
9.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, and the rules and regulations and rulings thereunder, including such
exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1 This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by six (6) months' advance written
notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio based upon
the Company's determination that shares of the Fund are not
reasonably available to meet the requirements of the Contracts;
provided that such termination shall apply only to the Designated
Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Designated Portfolio's shares
are not registered, issued or sold in accordance with applicable
state and/or federal
<PAGE>
-18-
law or such law precludes the use of such shares as the
underlying investment media of the Contracts issued or to be
issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by
the NASD, the SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding the Company's
duties under this Agreement or related to the sale of the
Contracts, the operation of any Account, or the purchase of the
Fund shares, provided, however, that the Fund or Underwriter
determines in its sole judgment exercised in good faith, that any
such administrative proceedings will have a material adverse
effect upon the ability of the Company to perform its obligations
under this Agreement; or
(e) termination by the Company in the event that formal
administrative proceedings are instituted against the Fund or
Underwriter by the NASD, the SEC, or any state securities or
insurance department or any other regulatory body, provided,
however, that the Company determines in its sole judgment
exercised in good faith, that any such administrative proceedings
will have a material adverse effect upon the ability of the Fund
or Underwriter to perform its obligations under this Agreement;
or
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event
that such Designated Portfolio ceases to qualify as a Regulated
Investment Company under Subchapter M or fails to comply with the
Section 817(h) diversification requirements specified in Article
VI hereof, or if the Company reasonably believes that such
Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the
qualifications specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a material
adverse change in its business, operations, financial condition,
or prospects since the date of this Agreement or is the subject
of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that the Fund or the Underwriter has
suffered a material adverse
<PAGE>
-19-
change in its business, operations, financial condition or
prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(j) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.11 hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however, any termination under this Section 10.1(j)
shall be effective sixty days after the notice specified in
Section 1.11 was given.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be permitted
to reallocate investments in the Fund, redeem investments in the Fund and/or
invest in the Fund upon the making of additional purchase payments under the
Existing Contracts. The parties agree that this Section 10.2 shall not apply to
any termination under Article VII and the effect of such Article VII termination
shall be governed by Article VII of this Agreement. The parties further agree
that this Section 10.2 shall not apply to any termination under Section 10.1(g)
of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the Contracts
(as opposed to Fund shares attributable to the Company's assets held in the
Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
10.5 Any successor by law of the parties hereto shall be entitled to the
benefits of the indemnification provisions contained in Article VIII.
<PAGE>
-20-
ARTICLE XI. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: John Cammack
Copy to: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as
<PAGE>
-21-
permitted by this Agreement, shall not disclose, disseminate or utilize such
names and addresses and other confidential information without the express
written consent of the affected party until such time as such information may
come into the public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Texas Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Texas
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior written consent of all parties
hereto.
<PAGE>
-22-
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: AMERICAN NATIONAL LIFE
By its authorized officer
By:___________________________
Title:________________________
Date:_________________________
FUND: T. ROWE PRICE INTERNATIONAL
SERIES, INC.
By its authorized officer
By:___________________________
Title:________________________
Date:_________________________
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By:___________________________
Title:________________________
Date:_________________________
<PAGE>
-23-
FUND: T. ROWE PRICE FIXED INCOME SERIES, INC.
By its authorized officer
By:___________________________
Title:________________________
Date:_________________________
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:___________________________
Title:________________________
Date:_________________________
<PAGE>
SCHEDULE A
----------
<TABLE>
<CAPTION>
<S> <C> <C>
Name of Separate Account and Contracts Funded by
Date Established by Board of Directors Separate Account Designated Portfolios
- -------------------------------------- -------------------- ---------------------
T. Rowe Price International Series, Inc.
. T. Rowe Price International Stock
Portfolio
T. Rowe Price Equity Series, Inc.
. T. Rowe Price Equity Income
Portfolio
T. Rowe Price Mid-Cap Growth
Portfolio
T. Rowe Price Fixed Income Series, Inc.
. T. Rowe Price Limited-Term Bond
Portfolio
</TABLE>
<PAGE>
PARTICIPATION AGREEMENT
AMONG
MFS VARIABLE INSURANCE TRUST,
[ ]
AND
MASSACHUSETTS FINANCIAL SERVICES COMPANY
THIS AGREEMENT, made and entered into this ____ day of November 1994, by and
among MFS VARIABLE INSURANCE TRUST, a Massachusetts business trust (the
"Trust"), ______________________ Company, a __________ corporation (the
"Company) on its own behalf and on behalf of each of the segregated asset
accounts of the Company set forth in Schedule A hereto, as may be amended from
time to time (the "Accounts"), and MASSACHUSETTS FINANCIAL SERVICES COMPANY, a
Delaware corporation ("MFS").
WHEREAS, the Trust is registered as an open-end management investment company
under the Investment Company Act of 1940, as amended (the "1940 Act"), and its
shares are registered or will be registered under the Securities Act of 1933, as
amended (the "1933 Act");
WHEREAS, shares of beneficial interest of the Trust are divided into several
series of shares, each representing the interests in a particular managed pool
of securities and other assets;
WHEREAS, the series of shares of the Trust offered by the Trust to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and, collectively, the "Portfolios");
WHEREAS, MFS is duly registered as an investment adviser under the Investment
Advisers Act of 1940, as amended, and any applicable state securities law, and
is the Trust's investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable life
insurance contracts (individually, the "Policy" or, collectively, the
"Policies") which, if required by applicable law, will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated asset
accounts, established by resolution of the Board of Directors of the Company, to
set aside and invest assets attributable to the aforesaid variable annuity
and/or variable life insurance contracts that are allocated to the Accounts (the
Policies and the Accounts covered by this Agreement, and each corresponding
Portfolio covered by this Agreement in which the Accounts invest, is specified
in Schedule A attached hereto as may be modified from time to time);
WHEREAS, the Company has registered or will register the Accounts as unit
investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, MFS Investor Services, Inc. (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under the
Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"), and is
a member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD");
WHEREAS, CIGNA Financial Advisors, Inc. the underwriter for the individual
variable annuity and the variable life policies, is registered as a broker-
dealer with the SEC under the 1934 Act and is a member in good standing of the
NASD; and
<PAGE>
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf of
the Accounts to fund the Policies, and the Trust intends to sell such Shares to
the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Trust, MFS,
and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
--------------------
1.1. The Trust agrees to sell to the Company those Shares which the
Accounts order (based on orders placed by Policy holders on that Business
Day, as defined below) and which are available for purchase by such
Accounts, executing such orders on a daily basis at the net asset value
next computed after receipt by the Trust or its designee of the order for
the Shares. For purposes of this Section 1.1, the Company shall be the
designee of the Trust for receipt of such orders from Policy owners and
receipt by such designee shall constitute receipt by the Trust; provided
that the Trust receives notice of such orders by 9:30 a.m. New York time on
the next following Business Day. "Business Day" shall mean any day on
which the New York Stock Exchange, Inc. (the "NYSE") is open for trading
and on which the Trust calculates its net asset value pursuant to the rules
of the SEC.
1.2. The Trust agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which the Trust calculates its net asset value
pursuant to rules of the SEC and the Trust shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding the
foregoing, the Board of Trustees of the Trust (the "Board") may refuse to
sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties under
federal and any applicable state laws, necessary in the best interest of
the Shareholders of such Portfolio.
1.3. The Trust and MFS agree that the Shares will be sold only to
insurance companies which have entered into participation agreements with
the Trust and MFS (the "Participating Insurance Companies") and their
separate accounts, qualified pension and retirement plans and MFS or its
affiliates. The Trust and MFS will not sell Trust shares to any insurance
company or separate account unless and agreement containing provisions
substantially the same as Articles III and VII of this Agreement is in
effect to govern such sales. The Company will not resell the Shares except
to the Trust or its agents.
1.4. The Trust agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy holders on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by the Trust or
its designee of the request for redemption. For purposes of this Section
1.4, the Company shall be the designee of the Trust for receipt of requests
for redemption from Policy owners and receipt by such designee shall
constitute receipt by the Trust; provided that the Trust receives notice of
such request for redemption by 9:30 a.m. New York time on the next
following Business Day.
1.5. Purchase, redemption and exchange orders placed by the Company shall
be placed separately for each Portfolio and shall not be netted among
Portfolios. However, with respect to payment of the purchase price by the
Company and of redemption proceeds by the Trust, the Company and the Trust
shall net purchase and redemption orders with respect to each Portfolio and
shall transmit one net payment for all of the Portfolios in accordance with
Section 1.6.
1.6. In the event of net purchases, the Company shall pay for the Shares
by 2:00 p.m. New York time on the next Business Day after an order to
purchase the Shares is made in accordance with the provisions of
-2-
<PAGE>
Section 1.1. hereof. In the event of net redemptions, the Trust shall pay
the redemption proceeds by 2:00 p.m. New York time on the next Business Day
after an order to redeem the shares is made in accordance with the
provisions of Section 1.4. hereof. All such payments shall be in federal
funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The
Shares ordered from the Trust will be recorded in an appropriate title for
the Accounts or the appropriate subaccounts of the Accounts.
1.8. The Trust shall furnish same day notice (by wire or telephone
followed by written confirmation) to the Company of any dividends or
capital gain distributions payable on the Shares. The Company hereby
elects to receive all such dividends and distributions as are payable on a
Portfolio's Shares in additional Shares of that Portfolio. The Trust shall
notify the Company of the number of Shares so issued as payment of such
dividends and distributions.
1.9. The Trust or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. New York time. In the event that the Trust is unable to meet
the 6:30 p.m. time stated herein, it shall provide additional time for the
Company to place orders for the purchase and redemption of Shares. Such
additional time shall be equal to the additional time which the Trust takes
to make the net asset value available to the Company. If the Trust
provides materially incorrect share net asset value information, the Trust
shall make an adjustment to the number of shares purchased or redeemed for
the Accounts to reflect the correct net asset value per share. Any
material error in the calculation or reporting of net asset value per
share, dividend or capital gains information shall be reported promptly
upon discovery to the Company.
ARTICLE II. CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
--------------------------------------------------
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Account as a segregated asset
account under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales accordance with the securities laws of the various states only if and
to the extent deemed necessary by the Company.
2.2. The Company represents and warrants that the Policies are currently
and at the time of issuance will be treated as life insurance, endowment or
annuity contract under applicable provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), that it will maintain such treatment and
that it will notify the Trust or MFS immediately upon having a reasonable
basis for believing that the policies have ceased to be so treated or that
they might not be so treated in the future.
2.3. The Company represents and warrants that [ ], the underwriter for the
individual variable annuity and the variable life policies, is a member in
good standing of the NASD and is a registered broker-dealer with the SEC.
The Company represents and warrants that the Company and [ ] will sell and
-3-
<PAGE>
distribute such policies in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.4. The Trust and MFS represent and warrant that the Shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized
for issuance and sold in compliance with the laws of The Commonwealth of
Massachusetts and all applicable federal and state securities laws and that
the Trust is and shall remain registered under the 1940 Act. The Trust
shall amend the registration statement for its Shares under the 1933 Act
and the 1940 Act from time to time as required in order to effect the
continuous offering of its Shares. The Trust shall register and qualify the
Shares for sale in accordance with the laws of the various states only if
and to the extent deemed necessary by the Trust.
2.5. MFS represents and warrants that the Underwriter is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Trust and MFS represent that the Trust and the Underwriter will sell and
distribute the Shares in accordance in all material respects with all
applicable state and federal securities laws, including without limitation
the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. The Trust represents that it is lawfully organized and validly
existing under the laws of The Commonwealth of Massachusetts and that it
does and will comply in all material respects with the 1940 Act and any
applicable regulations thereunder.
2.7. MFS represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for the Trust in compliance in all material
respects with any applicable federal securities laws and with the
securities laws of The Commonwealth of Massachusetts. MFS represents and
warrants that it is not subject to state securities laws other than the
securities laws of The Commonwealth of Massachusetts and that it is exempt
from registration as an investment adviser under the securities laws of The
Commonwealth of Massachusetts.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
---------------------------------------
3.1. At least annually, the Trust or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. The Trust or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by the
Company in lieu thereof, the Trust or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) the Trust or its designee in proportion to
the number of pages of the Policy and Shares' prospectuses, taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; the Trust or its designee to bear the
cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by the Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; provided, however, that the Company shall bear
all printing expenses of such combined documents where used for
distribution to prospective purchasers or to owners of existing Policies
not funded by the Shares. In the
-4-
<PAGE>
event that the Company requests that the Trust or its designee provides the
Trust's prospectus in a "camera ready" or diskette format, the Trust shall
be responsible for providing the prospectus in the format in which it or
MFS is accustomed to formatting prospectuses and shall bear the expense of
providing the prospectus in such format (e.g., typesetting expenses), and
the Company shall bear the expense of adjusting or changing the format to
conform with any of its prospectuses.
3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from the Trust or its
designee. The Trust or its designee, at its expense, shall print and
provide such statement of additional information to the Company (or a
master of such statement suitable for duplication by the Company) for
distribution to any owner of a Policy funded by the Shares. The Trust or
its designee, at the Company's expense, shall print and provide such
statement to the Company (or a master of such statement suitable for
duplication by the Company) for distribution to a prospective purchaser who
requests such statement or to an owner of a Policy not funded by the
Shares.
3.3. The Trust or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of the Trust's proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for distribution
to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above, or
of Article V below, the Company shall pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense. Distribution expenses would include by way of illustration, but
are not limited to, the printing of the Shares' prospectus or prospectuses
for distribution to prospective purchasers or to owners of existing
Policies not funded by such Shares.
3.5. The Trust hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received from
Policy owners; and
(c) vote the Shares for which no instructions have been received in
the same proportion as the Shares of such Portfolio for which
instructions have been received from Policy owners;
so long as and to the extent that the SEC continues to interpret the 1940
Act to require pass through voting privileges for variable contract owners.
The Company will in no way recommend action in connection with or oppose or
interfere with the solicitation of proxies for the Shares held for such
Policy owners. The Company reserves the right to vote shares held in any
segregated asset account in its own right, to the extent permitted by law.
Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts holding Shares calculates voting privileges
in the manner required by the Mixed and Shared Funding Exemptive Order. The
Trust and MFS will notify the Company of any changes of interpretations or
amendments to the Mixed and Shared Funding Exemptive Order.
ARTICLE IV. Sales Material and Information
------------------------------
4.1. The Company shall furnish, or shall cause to be furnished, to the
Trust or its designee, each piece of sales literature or other promotional
material in which the Trust, MFS, any other investment adviser to the
Trust, or any affiliate of MFS are named, at least three (3) Business Days
prior to its use. No such material shall be used if the Trust, MFS, or
their respective designees reasonably objects to such use within three (3)
Business Days after receipt of such material.
-5-
<PAGE>
4.2. The Company shall not give any information or make any representations
or statement on behalf of the Trust, MFS, any other investment adviser to
the Trust, or any affiliate of MFS or concerning the Trust or any other
such entity in connection with the sale of the Policies other than the
information or representations contained in the registration statement,
prospectus or statement of additional information for the Shares, as such
registration statement, prospectus and statement of additional information
may be amended or supplemented from time to time, or in reports or proxy
statements for the Trust, or in sales literature or other promotional
material approved by the Trust, MFS or their respective designees, except
with the permission of the Trust, MFS or their respective designees. The
Trust, MFS or their respective designees each agrees to respond to any
request for approval on a prompt and timely basis. The Company shall adopt
and implement procedures reasonably designed to ensure that information
concerning the Trust, MFS or any of their affiliates which is intended for
use only by brokers or agents selling the Policies (i.e., information that
is not intended for distribution to Policy holders or prospective Policy
holders) is so used, and neither the Trust, MFS nor any of their affiliates
shall be liable for any losses, damages or expenses relating to the
improper use of such broker only materials.
4.3. The Trust or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named, at least three (3) Business Days prior to its use. No such material
shall be used if the company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. The Trust and MFS shall not give, and agree that the Underwriter shall
not give, any information or make any representations on behalf of the
Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such registration
statement, prospectus and statement of additional information may be
amended or supplemented from time to time, or in reports for the Accounts,
or in sales literature or other promotional material approved by the
Company or its designee, except with the permission of the Company. The
Company or its designee agrees to respond to any request for approval on a
prompt and timely basis. The parties hereto agree that this Section 4.4. is
neither intended to designate nor otherwise imply that MFS is an
underwriter or distributor of the Policies.
4.5. The Company and the Trust (or its designee in lieu of the Company or
the Trust, as appropriate) will each provide to the other at least one
complete copy of all registration statements, prospectuses, statements of
additional information, reports, proxy statements, sales literature and
other promotional materials, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to the
Policies, or to the Trust or its Shares, prior to or contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
The Company and the Trust shall also each promptly inform the other or the
results of any examination by the SEC (or other regulatory authorities)
that relates to the Policies, the Trust or its Shares, and the party that
was the subject of the examination shall provide the other party with a
copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. The Trust and MFS will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in the Trust's registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. The Trust and MFS will
cooperate with the Company so as to enable the Company to solicit proxies
from Policy owners or to make changes to its prospectus, statement of
additional information or registration statement, in an orderly manner. The
Trust and MFS will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
-6-
<PAGE>
4.7. For purpose of this Article IV and Article VIII, the phrase "sales
literature or other promotional material" includes but is not limited to
advertisements (such as material published, or designed for use in, a
newspaper, magazine, or other periodical, radio, television, telephone or
tape recording, videotape display, signs or billboards, motion pictures, or
other public media), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. Fees and Expenses
-----------------
5.1. The Trust shall pay no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to
the Trust, except that if the Trust or any Portfolio adopts and implements
a plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution
and Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, the Trust may make payments to
the Company or to the underwriter for the Policies if and in amounts agreed
to by the Trust in writing. Each party, however, shall, in accordance with
the allocation of expenses specified in Articles III and V hereof,
reimburse other parties for expense initially paid by one party but
allocated to another party. In addition, nothing herein shall prevent the
parties hereto from otherwise agreeing to perform, and arranging for
appropriate compensation for, other services relating to the Trust and/or
to the Accounts.
5.2. The Trust or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of the Trust's
registration statement, and payment of filing fees and registration fees;
preparation and filing of the Trust's proxy materials and reports to
Shareholders; setting in type and printing its prospectus and statement of
additional information (to the extent provided by and as determined in
accordance with Article III above); setting in type and printing the proxy
materials and reports to Shareholders (to the extent provided by and as
determined in accordance with Article III above); the preparation of all
statements and notices required of the Trust by any federal or state law
with respect to its Shares; all taxes on the issuance or transfer of the
Shares; and the costs of distributing the Trust's prospectuses and proxy
materials to owners of Policies funded by the Shares and any expenses
permitted to be paid or assumed by the Trust pursuant to a plan, if any,
under Rule 12b-1 under the 1940 Act. The Trust shall not bear any expenses
of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares'
prospectus or prospectuses in connection with new sales of the Policies and
of distributing the Trust's Shareholder reports and proxy materials to
Policy owners. The Company shall bear all expenses associated with the
registration, qualification, and filing of the Policies under applicable
federal securities and state insurance laws; the cost of preparing,
printing and distributing the Policy prospectus and statement of additional
information; and the cost of preparing, printing and distributing annual
individual account statements for Policy owners as required by state
insurance laws.
ARTICLE VI. Diversification and Related Limitations
---------------------------------------
6.1. The Trust and MFS represent and warrant that they will use their best
efforts to ensure that each Portfolio of the Trust will meet the
diversification requirements of Section 817(h)(1) of the Code and Treas.
Reg. 1.817-5, relating to the diversification requirements for variable
annuity, endowment, or life insurance contracts, as they may be amended
from time to time (and any revenue rulings, revenue procedures, notices,
and other published announcements of the Internal Revenue Service
interpreting these sections).
-7-
<PAGE>
ARTICLE VII. Potential Material Conflicts
7.1. The Trust agrees that the Board, constituted with a majority of
disinterested trustees, will monitor each Portfolio of the Trust for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in the Trust. The Board shall have the sole authority to
determine if a material irreconcilable conflict exists, and such
determination shall be binding on the Company only if approved in the form
of a resolution by a majority of the Board, or a majority of the
disinterested trustees of the Board. The Board will give prompt notice of
any such determination to the Company.
7.2. The Company agrees that it will be responsible for assisting the Board
in carrying out its responsibilities under the conditions set forth in the
Trust's exemptive application pursuant to which the SEC has granted the
Mixed and Shared Funding Exemptive Order by providing the Board, as it may
reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly reporting any potential or existing conflicts of which it is aware
to the Board including, but not limited to, an obligation by the Company to
inform the Board whenever contract owner voting instructions are disregard.
The Company also agrees that, if a material irreconcilable conflict arises,
it will at is own cost remedy such conflict up to an including (a)
withdrawing the assets allocable to some or all of the Accounts from the
Trust or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Trust, or submitting to a vote of all affected contract owners whether to
withdraw assets from the Trust or any Portfolio and reinvesting such assets
in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes
in favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their contracts
or policies, and (b) establishing a new registered management investment
company and segregating the assets underlying the Policies, unless a
majority of Policy owners materially adversely affected by the conflict
have voted to decline the offer to establish a new registered management
investment company.
7.3. A majority of the disinterested trustees of the Board shall determine
whether any proposed action by the Company adequately remedies any material
irreconcilable conflict. In the event that the Board determines that any
proposed action does not adequately remedy any material irreconcilable
conflict, the Company will withdraw from investment in the Trust each of
the Accounts designated by the disinterested trustees and terminate this
Agreement within six (6) months after the Board informs the Company in
writing of the foregoing determination; provided, however, that such
withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested trustees of the Board.
7.4. If and to the extent that rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the
1940 Act or the rules promulgated thereunder with respect to mixed or
shares funding (as defined in the Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed Shared Funding Exemptive Order, then (a) the Trust and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of this Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such Sections are contained in such Rule(s) as so amended or adopted.
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<PAGE>
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification by the Company
------------------------------
The Company agrees to indemnify and hold harmless the Trust, MFS, any
affiliates of MFS, and each of their respective directors/trustees, officers and
each person, if any, who controls the Trust or MFS within the meaning of Section
15 of the 1933 Act, and any agents or employees of the foregoing (each an
"Indemnified Party," or collectively, the "Indemnified Parties" for purposes of
this Section 8.1) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Company)
or expenses (including reasonable counsel fees) to which an Indemnified Party
may become subject under any statute, regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement, prospectus or statement of additional information for the
Policies or contained in the Policies or sales literature or other
promotional material for the Policies (or any amendment or supplement
to any of the foregoing), or arise out of or are based upon the
commission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading provided that this agreement to indemnify shall
not apply as to any Indemnified Party if such statement or omission or
such alleged statement or omission was made in reasonable reliance
upon and in conformity with information furnished to the Company or
its designee by or on behalf of the Trust or MFS for use in the
registration statement, prospectus or statement of additional
information for the Policies or in the Policies or sales literature or
other promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the Policies or
Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Trust not supplied by
the Company or this designee, or persons under its control and on
which the Company has reasonably relied) or wrongful conduct of the
Company or persons under its control, with respect to the sale or
distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the registration statement, prospectus,
statement of additional information, or sales literature or other
promotional literature of the Trust, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if such
statement or omission was made in reliance upon information furnished
to the Trust by or on behalf of the Company; or
(d) arise out of or result from any material breach of any representation
and/or warranty made by the Company in this Agreement or arise out of
or result from any other material breach of this Agreement by the
Company; or
(e) arise as a result of any failure by the Company to provide the
services and furnish the materials under the terms of this Agreement;
as limited by and in accordance with the provisions of this Article VIII.
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<PAGE>
8.2. Indemnification by the Trust
----------------------------
The Trust agrees to indemnify and hold harmless the Company and each of its
directors and officers and each person, if any, who controls the Company within
the meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.2) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Trust) or expenses (including reasonable counsel fees) to which
any Indemnified Party may become subject under any statute, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material of the Trust (or any
amendment or supplement to any of the foregoing), or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement therein not misleading, provided that this agreement to
indemnify shall not apply as to any Indemnified Party if such
statement or omission or such alleged statement or omission was made
in reasonable reliance upon and in conformity with information
furnished to the Trust, MFS, the Underwriter or their respective
designees by or on behalf of the Company for use in the registration
statement, prospectus or statement of additional information for the
Trust or in sales literature or other promotional material for the
Trust (or any amendment or supplement) or otherwise for use in
connection with the sale of the Policies or Shares; or
(b) arise out of or as a result of statements or representations (other
than statements or representations contained in the registration
statement, prospectus, statement of additional information or sales
literature or other promotional material for the Policies not supplied
by the Trust, MFS, the Underwriter or any of their respective
designees or persons under their respective control and on which any
such entity has reasonably relied) or wrongful conduct of the Trust or
persons under its control, with respect to the sale or distribution of
the Policies or Shares; or
(c) arise out of or result from any material breach of any representation
and/or warranty made by the Trust in this Agreement (including a
failure, whether unintentional or in good faith or otherwise, to
comply with the diversification requirements specified in Article VI
of this Agreement) or arise out of or result from any other material
breach of this Agreement by the Trust; or
(d) arise out of or result from the materially incorrect or untimely
calculation or reporting of the daily net asset value per share or
dividend or capital gain distribution rate; or
(e) arise as a result of any failure by the Trust to provide the services
and furnish the materials under the terms of the Agreement;
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<PAGE>
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall the Trust be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) the failure by the Company or
any Participating Insurance Company to maintain its variable annuity and/or
variable life insurance contracts (with respect to which any Portfolio
serves as an underlying funding vehicle) as life insurance, endowment or
annuity contracts under applicable provisions of the Code.
8.4. Neither the Company nor the Trust shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section 8.5.
of commencement of action, such Indemnified Party will, if a claim in
respect thereof is to be made against the indemnifying party under this
section, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any Indemnified Party otherwise than under
this section. In case any such action is brought against any Indemnified
Party, and it notified the indemnifying party of the commencement thereof,
the indemnifying party will be entitled to participate therein and, to the
extent that it may wish, assume the defense thereof, with counsel
satisfactory to such Indemnified Party. After notice from the indemnifying
party of its intention to assume the defense of an action, the Indemnified
Party shall bear the expenses of any additional counsel obtained by it, and
the indemnifying party shall not be liable to such Indemnified Party under
this section for any legal or other expenses subsequently incurred by such
Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of the
commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
8.7. A successor by law of the parties to this Agreement shall be entitled
to the benefits of the indemnification contained in this Article VIII. The
indemnification provisions contained in this Article VIII shall survive any
termination of this Agreement.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of The Commonwealth of
Massachusetts.
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<PAGE>
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
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<PAGE>
ARTICLE X. Notice of Formal Proceedings
----------------------------
The Trust, MFS, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the purchase of the Shares.
ARTICLE XI. Termination
-----------
11.1. This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance written
notice to the other parties; or
(b) at the option of the Company to the extent that the Shares of
Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate funding
vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing, the
Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the
diversification or other requirements referred to in Article VI
hereof; or if the Company would be permitted to disregard
Policy owner voting instructions pursuant to Rule 6e-2 or 6e-
3(T) under the 1940 Act. Prompt notice of the election to
terminate for such cause and an explanation of such cause shall
be furnished to the Trust by the Company; or
(c) at the option of the Trust or MFS upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding the
Company's duties under this Agreement or related to the sale of
the Policies, the operation of the Accounts, or the purchase of
the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against the Trust by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body regarding the Trust's or MFS' duties under this
Agreement or related to the sale of the shares; or
(e) at the option of the Company, the Trust or MFS upon receipt of
any necessary regulatory approvals and/or the vote of the
Policy owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio Shares
had been selected to serve as the underlying investment media.
The Company will give thirty (30) day's prior written notice to
the Trust of the Date of any proposed vote or other action
taken to replace the Shares; or
(f) termination by either the Trust or MFS by written notice to the
Company, if either one or both of the Trust or MFS
respectively, shall determine, in their sole judgment exercised
in good faith, that the Company has suffered a material adverse
change in its business, operations, financial condition, or
prospects since the date of this Agreement or is the subject of
material adverse publicity; or
(g) termination by the Company by written notice to the Trust and
MFS, if the Company shall determine, in its sole judgment
exercised in good faith, that the Trust or MFS has suffered
-13-
<PAGE>
a material adverse change in this business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity; or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement; or
(i) upon assignment of this Agreement, unless made with the written
consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified the Trust of
its intention to do so.
11.5. Notwithstanding any termination of this Agreement, the Trust and MFS
shall, at the option of the Company, continue to make available additional
shares of the Portfolios pursuant to the terms and conditions of this
Agreement, for all Policies in effect on the effective date of termination
of this Agreement (the "Existing Policies"), except as otherwise provided
under Article VII of this Agreement. Specifically, without limitation, the
owners of the Existing Policies shall be permitted to transfer or
reallocate investment under the Policies, redeem investments in any
Portfolio and/or invest in the Trust upon the making of additional purchase
payments under the Existing Policies.
ARTICLE XII. Notices
-------
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Trust:
MFS VARIABLE INSURANCE TRUST
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, Secretary
If to the Company:
[ ]
Attn:
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<PAGE>
If to MFS:
Massachusetts Financial Services Company
500 Boylston Street
Boston, Massachusetts 02116
Attn: Stephen E. Cavan, General Counsel
ARTICLE XIII. Miscellaneous
-------------
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. A copy of the Trust's Declaration of Trust is on file with the
Secretary of State of The Commonwealth of Massachusetts. The Company
acknowledges that the obligations of or arising out of this instrument are
not binding upon any of the Trust's trustees, officers, employees, agents
or shareholders individually, but are binding solely upon the assets and
property of the Trust in accordance with its proportionate interest
hereunder. The Company further acknowledges that the assets and liabilities
of each Portfolio are separate and distinct and that the obligations of or
arising out of this instrument are binding solely upon the assets or
property of the Portfolio on whose behalf the Trust has executed this
instrument. The Company also agrees that the obligations of each Portfolio
hereunder shall be several and not joint, in accordance with its
proportionate interest hereunder, and the Company agrees not to proceed
against any Portfolio for the obligations of another Portfolio.
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
[ ]
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
MFS VARIABLE INSURANCE TRUST, ON
BEHALF OF THE PORTFOLIOS
By its authorized officer and not
individually,
By: _______________________________
Title: ____________________________
Date: _____________________________
MASSACHUSETTS FINANCIAL SERVICES
COMPANY
By its authorized officer,
By: _______________________________
Title: ____________________________
Date: _____________________________
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<PAGE>
As of ____________________
SCHEDULE A
ACCOUNTS, POLICIES AND PORTFOLIOS
SUBJECT TO THE PARTICIPATION AGREEMENT
--------------------------------------
================================================================================
Name of Separate
Account and Date Policies Funded Portfolios
Established by Board of Directors by Separate Account Applicable to Policies
================================================================================
- --------------------------------------------------------------------------------
-17-
<PAGE>
FUND PARTICIPATION AGREEMENT
----------------------------
This AGREEMENT is made this day of _____________, 199_, by and
between _________________ (the "Insurer"), a life insurance company domiciled in
_______________, on its behalf and on behalf of the segregated asset accounts of
the Insurer listed on Exhibit A to this Agreement (the "Separate Accounts");
Insurance Series (the "Fund"), a Massachusetts business trust; and Federated
Securities Corp. (the "Distributor"), a Pennsylvania corporation.
W I T N E S S E T H
-------------------
WHEREAS, the Fund is registered with the Securities and Exchange
Commission ("SEC") as an open-end management investment company under the
Investment Company Act of 1940, as amended ("1940 Act") and the Fund is
authorized to issue separate classes of shares of beneficial interest
("shares"), each representing an interest in a separate portfolio of assets
known as a "portfolio" and each portfolio has its own investment objective,
policies, and limitations; and
WHEREAS, the Fund is available to offer shares of one or more of its
portfolios to separate accounts of insurance companies that fund variable
annuity contracts ("Variable Contracts") and to serve as an investment medium
for Variable Contracts offered by insurance companies that have entered into
participation agreements substantially similar to this agreement ("Participating
Insurance Companies"), and the Fund will be made available in the future to
offer shares of one or more of its portfolios to separate accounts of insurance
companies that fund variable life insurance policies (at which time such
policies would also be "Variable Contracts" hereunder), and
1
<PAGE>
WHEREAS, the Fund is currently comprised of eight separate portfolios,
and other portfolios may be established in the future; and
WHEREAS, the Fund has obtained an order from the SEC dated
December 29, 1993 (File No. 812-8620), granting Participating Insurance
Companies and variable annuity and variable life insurance separate accounts
exemptions from the provisions of sections 9(a), 13(a), 15(a), and 15(b) of the
1940 Act and Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent
necessary to permit shares of the Fund to be sold to and held by variable
annuity and variable life insurance separate accounts of life insurance
companies that may or may not be affiliated with one another (hereinafter the
"Mixed and Shared Funding Exemptive Order"); and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC
under the Securities Exchange Act of 1934, as amended ("1934 Act"), and is a
member in good standing of the National Association of Securities Dealers, Inc.
("NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Insurer wishes to purchase shares of one or more of the Fund's
portfolios on behalf of its Separate Accounts to serve as an investment medium
for Variable Contracts funded by the Separate Accounts, and the Distributor is
authorized to sell shares of the Fund's portfolios;
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants hereinafter set forth, the parties hereby agree as
follows:
ARTICLE I. Sale of Fund Shares
2
<PAGE>
1.1 The Distributor agrees to sell to the Insurer those shares of the
portfolios offered and made available by the Fund and identified on Exhibit B
("Portfolios") that the Insurer orders on behalf of its Separate Accounts, and
agrees to execute such orders on each day on which the Fund calculates its net
asset value pursuant to rules of the SEC ("business day") at the net asset value
next computed after receipt and acceptance by the Fund or its agent of the order
for the shares of the Fund.
1.2 The Fund agrees to make available on each business day shares of
the Portfolios for purchase at the applicable net asset value per share by the
Insurer on behalf of its Separate Accounts; provided, however, that the Board of
Trustees of the Fund may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio, if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Trustees, acting in good faith and in light of the
Trustees' fiduciary duties under applicable law, necessary in the best interests
of the shareholders of any Portfolio.
1.3 The Fund and the Distributor agree that shares of the Portfolios
of the Fund will be sold only to Participating Insurance Companies, their
separate accounts, and other persons consistent with each Portfolio being
adequately diversified pursuant to Section 817(h) of the Internal Revenue Code
of 1986, as amended ("Code"), and the regulations thereunder. No shares of any
Portfolio will be sold directly to the general public to the extent not
permitted by applicable tax law.
1.4 The Fund and the Distributor will not sell shares of the
Portfolios to any insurance company or separate account unless an agreement
containing provisions substantially the same as the provisions in Article IV of
this Agreement is in effect to govern such sales.
3
<PAGE>
1.5 Upon receipt of a request for redemption in proper form from the
Insurer, the Fund agrees to redeem any full or fractional shares of the
Portfolios held by the Insurer, ordinarily executing such requests on each
business day at the net asset value next computed after receipt and acceptance
by the Fund or its agent of the request for redemption, except that the Fund
reserves the right to suspend the right of redemption, consistent with Section
22(e) of the 1940 Act and any rules thereunder. Such redemption shall be paid
consistent with applicable rules of the SEC and procedures and policies of the
Fund as described in the current prospectus.
1.6 For purposes of Sections 1.2 and 1.5, the Insurer shall be the
agent of the Fund for the limited purpose of receiving and accepting purchase
and redemption orders from each Separate Account and receipt of such orders by
4:00 p.m. Eastern time by the Insurer shall be deemed to be receipt by the Fund
for purposes of Rule 22c-1 of the 1940 Act; provided that the Fund receives
notice of such orders on the next following business day prior to 4:00 p.m.
Eastern time on such day, although the Insurer will use its best efforts to
provide such notice by 9:00 a.m. Eastern time.
1.7 The Insurer agrees to purchase and redeem the shares of each
Portfolio in accordance with the provisions of the current prospectus for the
Fund.
1.8 The Insurer shall pay for shares of the Portfolio on the next
business day after it places an order to purchase shares of the Portfolio.
Payment shall be in federal funds transmitted by wire.
1.9 Issuance and transfer of shares of the Portfolios will be by book
entry only unless otherwise agreed by the Fund. Stock certificates will not be
issued to the
4
<PAGE>
Insurer or the Separate Accounts unless otherwise agreed by the Fund. Shares
ordered from the Fund will be recorded in an appropriate title for the Separate
Accounts or the appropriate subaccounts of the Separate Accounts.
1.10 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Insurer of any income dividends or
capital gain distributions payable on the shares of the Portfolios. The Insurer
hereby elects to reinvest in the Portfolio all such dividends and distributions
as are payable on a Portfolio's shares and to receive such dividends and
distributions in additional shares of that Portfolio. The Insurer reserves the
right to revoke this election in writing and to receive all such dividends and
distributions in cash. The Fund shall notify the Insurer of the number of shares
so issued as payment of such dividends and distributions.
1.11 The Fund shall instruct its recordkeeping agent to advise the
Insurer on each business day of the net asset value per share for each Portfolio
as soon as reasonably practical after the net asset value per share is
calculated and shall use its best efforts to make such net asset value per share
available by 7:00 p.m. Eastern time.
ARTICLE II. Representations and Warranties
2.1 The Insurer represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that it is
taxed as an insurance company under Subchapter L of the Code.
2.2 The Insurer represents and warrants that it has legally and
validly established each of the Separate Accounts as a segregated asset account
under the
5
<PAGE>
____________________ Insurance Code, and that each of the Separate
Accounts is a validly existing segregated asset account under applicable federal
and state law.
2.3 The Insurer represents and warrants that the Variable Contracts
issued by the Insurer or interests in the Separate Accounts under such Variable
Contracts (1) are or, prior to issuance, will be registered as securities under
the Securities Act of 1933 ("1933 Act") or, alternatively, (2) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act.
2.4 The Insurer represents and warrants that each of the Separate
Accounts (1) has been registered as a unit investment trust in accordance with
the provisions of the 1940 Act or, alternatively, (2) has not been registered in
proper reliance upon an exclusion from registration under the 1940 Act.
2.5 The Insurer represents that it believes, in good faith, that the
Variable Contracts issued by the Insurer are currently treated as annuity
contracts or life insurance policies (which may include modified endowment
contracts), whichever is appropriate, under applicable provisions of the Code.
2.6 The Fund represents and warrants that it is duly organized as a
business trust under the laws of the Commonwealth of Massachusetts, and is in
good standing under applicable law.
2.7 The Fund represents and warrants that the shares of the
Portfolios are duly authorized for issuance in accordance with applicable law
and that the Fund is registered as an open-end management investment company
under the 1940 Act.
6
<PAGE>
2.8 The Fund represents that it believes, in good faith, that the
Portfolios currently comply with the diversification provisions of Section
817(h) of the Code and the regulations issued thereunder relating to the
diversification requirements for variable life insurance policies and variable
annuity contracts.
2.9 The Distributor represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
ARTICLE III. General Duties
3.1 The Fund shall take all such actions as are necessary to permit
the sale of the shares of each Portfolio to the Separate Accounts, including
maintaining its registration as an investment company under the 1940 Act, and
registering the shares of the Portfolios sold to the Separate Accounts under the
1933 Act for so long as required by applicable law. The Fund shall amend its
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
from time to time as required in order to effect the continuous offering of the
shares of the Portfolios. The Fund shall register and qualify the shares for
sale in accordance with the laws of the various states to the extent deemed
necessary by the Fund or the Distributor.
3.2 The Fund shall make every effort to maintain qualification of
each Portfolio as a Regulated Investment Company under Subchapter M of the Code
(or any successor or similar provision) and shall notify the Insurer immediately
upon having a reasonable basis for believing that a Portfolio has ceased to so
qualify or that it might not so qualify in the future.
7
<PAGE>
3.3 The Fund shall make every effort to enable each Portfolio to
comply with the diversification provisions of Section 817(h) of the Code and the
regulations issued thereunder relating to the diversification requirements for
variable life insurance policies and variable annuity contracts and any
prospective amendments or other modifications to Section 817 or regulations
thereunder, and shall notify the Insurer immediately upon having a reasonable
basis for believing that any Portfolio has ceased to comply.
3.4 The Insurer shall take all such actions as are necessary under
applicable federal and state law to permit the sale of the Variable Contracts
issued by the Insurer, including registering each Separate Account as an
investment company to the extent required under the 1940 Act, and registering
the Variable Contracts or interests in the Separate Accounts under the Variable
Contracts to the extent required under the 1933 Act, and obtaining all necessary
approvals to offer the Variable Contracts from state insurance commissioners.
3.5 The Insurer shall make every effort to maintain the treatment of
the Variable Contracts issued by the Insurer as annuity contracts or life
insurance policies, whichever is appropriate, under applicable provisions of the
Code, and shall notify the Fund and the Distributor immediately upon having a
reasonable basis for believing that such Variable Contracts have ceased to be so
treated or that they might not be so treated in the future.
3.6 The Insurer shall offer and sell the Variable Contracts issued by
the Insurer in accordance with applicable provisions of the 1933 Act, the 1934
Act, the 1940 Act, the NASD Rules of Fair Practice, and state law respecting the
offering of variable life insurance policies and variable annuity contracts.
8
<PAGE>
3.7 The Distributor shall sell and distribute the shares of the
Portfolios of the Fund in accordance with the applicable provisions of the 1933
Act, the 1934 Act, the 1940 Act, the NASD Rules of Fair Practice, and state law.
3.8 During such time as the Fund engages in Mixed Funding or Shared
Funding, a majority of the Board of Trustees of the Fund shall consist of
persons who are not "interested persons" of the Fund ("disinterested Trustees"),
as defined by Section 2(a)(19) of the 1940 Act and the rules thereunder, and as
modified by any applicable orders of the SEC, except that if this provision of
this Section 3.8 is not met by reason of the death, disqualification, or bona
fide resignation of any Trustee or Trustees, then the operation of this
provision shall be suspended (a) for a period of 45 days if the vacancy or
vacancies may be filled by the Fund's Board; (b) for a period of 60 days if a
vote of shareholders is required to fill the vacancy or vacancies; or (c) for
such longer period as the SEC may prescribe by order upon application.
3.9 The Insurer and its agents will not in any way recommend any
proposal or oppose or interfere with any proposal submitted by the Fund at a
meeting of owners of Variable Contracts or shareholders of the Fund, and will in
no way recommend, oppose, or interfere with the solicitation of proxies for Fund
shares held by Contract Owners, without the prior written consent of the Fund,
which consent may be withheld in the Fund's sole discretion.
3.10 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities having jurisdiction (including, without
limitation, the SEC, the NASD, and state insurance regulators) and shall permit
such authorities
9
<PAGE>
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
ARTICLE IV. Potential Conflicts
4.1 During such time as the Fund engages in Mixed Funding or Shared
Funding, the parties hereto shall comply with the conditions in this Article IV.
4.2 The Fund's Board of Trustees shall monitor the Fund for the
existence of any material irreconcilable conflict (1) between the interests of
owners of variable annuity contracts and variable life insurance policies, and
(2) between the interests of owners of Variable Contracts ("Variable Contract
Owners") issued by different Participating Life Insurance Companies that invest
in the Fund. A material irreconcilable conflict may arise for a variety of
reasons, including: (a) an action by any state insurance regulatory authority;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling, no-action or
interpretive letter, or any similar action by insurance, tax, or securities
regulatory authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any Portfolio of
the Fund are being managed; (e) a difference in voting instructions given by
variable annuity and variable life insurance contract owners; or (f) a decision
by a Participating Insurance Company to disregard the voting instructions of
Variable Contract Owners.
4.3 The Insurer agrees that it shall report any potential or existing
conflicts of which it is aware to the Fund's Board of Trustees. The Insurer
will be responsible for assisting the Board of Trustees of the Fund in carrying
out its responsibilities under the Mixed and Shared Funding Exemptive Order, or,
if the Fund is engaged in Mixed
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Funding or Shared Funding in reliance on Rule 6e-2, 6e-3(T), or any other
regulation under the 1940 Act, the Insurer will be responsible for assisting the
Board of Trustees of the Fund in carrying out its responsibilities under such
regulation, by providing the Board with all information reasonably necessary for
the Board to consider any issues raised. This includes, but is not limited to,
an obligation by the Insurer to inform the Board whenever Variable Contract
Owner voting instructions are disregarded. The Insurer shall carry out its
responsibility under this Section 4.3 with a view only to the interests of the
Variable Contract Owners.
4.4 The Insurer agrees that in the event that it is determined by a
majority of the Board of Trustees of the Fund or a majority of the Fund's
disinterested Trustees that a material irreconcilable conflict exists, the
Insurer shall, at its expense and to the extent reasonably practicable (as
determined by a majority of the disinterested Trustees of the Board of the
Fund), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (1) withdrawing the
assets allocable to some or all of the Separate Accounts from the Fund or any
Portfolio and reinvesting such assets in a different investment medium,
including another portfolio of the Fund, or submitting the question as to
whether such segregation should be implemented to a vote of all affected
Variable Contract Owners and, as appropriate, segregating the assets of any
appropriate group (i.e., annuity contract owners or life insurance contract
owners of contracts issued by one or more Participating Insurance Companies),
that votes in favor of such segregation, or offering to the affected Variable
Contract Owners the option of making such a change; and (2) establishing a new
registered management investment company or managed separate account. If a
material irreconcilable conflict arises because of the Insurer's decision to
disregard Variable Contract Owners' voting instructions and that decision
represents a minority position or would preclude a majority vote, the Insurer
shall be required, at the Fund's
11
<PAGE>
election, to withdraw the Separate Accounts' investment in the Fund, provided,
however, that such withdrawal and termination shall be limited to the extent
required by the foregoing material irreconcilable conflict as determined by a
majority of the disinterested Trustees, and no charge or penalty will be imposed
as a result of such withdrawal. These responsibilities shall be carried out with
a view only to the interests of the Variable Contract Owners. A majority of the
disinterested Trustees of the Fund shall determine whether or not any proposed
action adequately remedies any material irreconcilable conflict, but in no event
will the Fund or its investment adviser or the Distributor be required to
establish a new funding medium for any Variable Contract. The Insurer shall not
be required by this Section 4.4 to establish a new funding medium for any
Variable Contract if any offer to do so has been declined by vote of a majority
of Variable Contract Owners materially adversely affected by the material
irreconcilable conflict.
4.5 The Insurer, at least annually, shall submit to the Fund's Board
of Trustees such reports, materials, or data as the Board reasonably may request
so that the Trustees of the Fund may fully carry out the obligations imposed
upon the Board by the conditions contained in the application for the Mixed and
Shared Funding Exemptive Order and said reports, materials, and data shall be
submitted more frequently if deemed appropriate by the Board.
4.6 All reports of potential or existing conflicts received by the
Fund's Board of Trustees, and all Board action with regard to determining the
existence of a conflict, notifying Participating Insurance Companies of a
conflict, and determining whether any proposed action adequately remedies a
conflict, shall be properly recorded in the minutes of the Board of Trustees of
the Fund or other appropriate records, and such minutes or other records shall
be made available to the SEC upon request.
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<PAGE>
4.7 The Board of Trustees of the Fund shall promptly notify the
Insurer in writing of its determination of the existence of an irreconcilable
material conflict and its implications.
ARTICLE V. Prospectuses and Proxy Statements; Voting
5.1 The Insurer shall distribute such prospectuses, proxy statements
and periodic reports of the Fund to the owners of Variable Contracts issued by
the Insurer as required to be distributed to such Variable Contract Owners under
applicable federal or state law.
5.2 The Distributor shall provide the Insurer with as many copies of
the current prospectus of the Fund as the Insurer may reasonably request. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's prospectus as set in type or
in camera-ready copy) and other assistance as is reasonably necessary in order
for the Insurer to either print a stand-alone document or print together in one
document the current prospectus for the Variable Contracts issued by the Insurer
and the current prospectus for the Fund, or a document combining the Fund
prospectus with prospectuses of other funds in which the Variable Contracts may
be invested. The Fund shall bear the expense of printing copies of its current
prospectus that will be distributed to existing Variable Contract Owners, and
the Insurer shall bear the expense of printing copies of the Fund's prospectus
that are used in connection with offering the Variable Contracts issued by the
Insurer.
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<PAGE>
5.3 The Fund and the Distributor shall provide, at the Fund's
expense, such copies of the Fund's current Statement of Additional Information
("SAI") as may reasonably be requested, to the Insurer and to any owner of a
Variable Contract issued by the Insurer who requests such SAI.
5.4 The Fund, at its expense, shall provide the Insurer with copies
of its proxy materials, periodic reports to shareholders, and other
communications to shareholders in such quantity as the Insurer shall reasonably
require for purposes of distributing to owners of Variable Contracts issued by
the Insurer. The Fund, at the Insurer's expense, shall provide the Insurer with
copies of its periodic reports to shareholders and other communications to
shareholders in such quantity as the Insurer shall reasonably request for use in
connection with offering the Variable Contracts issued by the Insurer. If
requested by the Insurer in lieu thereof, the Fund shall provide such
documentation (including a final copy of the Fund's proxy materials, periodic
reports to shareholders, and other communications to shareholders, as set in
type or in camera-ready copy) and other assistance as reasonably necessary in
order for the Insurer to print such shareholder communications for distribution
to owners of Variable Contracts issued by the Insurer.
5.5 For so long as the SEC interprets the 1940 Act to require pass-
through voting by Participating Insurance Companies whose Separate Accounts are
registered as investment companies under the 1940 Act, the Insurer shall vote
shares of each Portfolio of the Fund held in a Separate Account or a subaccount
thereof, whether or not registered under the 1940 Act, at regular and special
meetings of the Fund in accordance with instructions timely received by the
Insurer (or its designated agent) from owners of Variable Contracts funded by
such Separate Account or subaccount thereof having a voting interest in the
Portfolio. The Insurer shall vote shares of a
14
<PAGE>
Portfolio of the Fund held in a Separate Account or a subaccount thereof that
are attributable to the Variable Contracts as to which no timely instructions
are received, as well as shares held in such Separate Account or subaccount
thereof that are not attributable to the Variable Contracts and owned
beneficially by the Insurer (resulting from charges against the Variable
Contracts or otherwise), in the same proportion as the votes cast by owners of
the Variable Contracts funded by that Separate Account or subaccount thereof
having a voting interest in the Portfolio from whom instructions have been
timely received. The Insurer shall vote shares of each Portfolio of the Fund
held in its general account, if any, in the same proportion as the votes cast
with respect to shares of the Portfolio held in all Separate Accounts of the
Insurer or subaccounts thereof, in the aggregate.
5.6 During such time as the Fund engages in Mixed Funding or Shared
Funding, the Fund shall disclose in its prospectus that (1) the Fund is intended
to be a funding vehicle for variable annuity and variable life insurance
contracts offered by various insurance companies, (2) material irreconcilable
conflicts possibly may arise, and (3) the Board of Trustees of the Fund will
monitor events in order to identify the existence of any material irreconcilable
conflicts and to determine what action, if any, should be taken in response to
any such conflict. The Fund hereby notifies the Insurer that prospectus
disclosure may be appropriate regarding potential risks of offering shares of
the Fund to separate accounts funding both variable annuity contracts and
variable life insurance policies and to separate accounts funding Variable
Contracts of unaffiliated life insurance companies.
ARTICLE VI. Sales Material and Information
15
<PAGE>
6.1 The Insurer shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material in which the Fund (or any Portfolio thereof) or its investment adviser
or the Distributor is named at least 15 days prior to the anticipated use of
such material, and no such sales literature or other promotional material shall
be used unless the Fund and the Distributor or the designee of either approve
the material or do not respond with comments on the material within 10 days from
receipt of the material.
6.2 The Insurer agrees that neither it nor any of its affiliates or
agents shall give any information or make any representations or statements on
behalf of the Fund or concerning the Fund other than the information or
representations contained in the Registration Statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee and by the Distributor or its designee, except with the permission of
the Fund or its designee and the Distributor or its designee.
6.3 The Fund or the Distributor or the designee of either shall
furnish to the Insurer or its designee, each piece of sales literature or other
promotional material in which the Insurer or its Separate Accounts are named at
least 15 days prior to the anticipated use of such material, and no such
material shall be used unless the Insurer or its designee approves the material
or does not respond with comments on the material within 10 days from receipt of
the material.
6.4 The Fund and the Distributor agree that each and the affiliates
and agents of each shall not give any information or make any representations on
behalf of the Insurer or concerning the Insurer, the Separate Accounts, or the
Variable Contracts
16
<PAGE>
issued by the Insurer, other than the information or representations contained
in a registration statement or prospectus for such Variable Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in reports for the Separate Accounts or prepared for distribution to
owners of such Variable Contracts, or in sales literature or other promotional
material approved by the Insurer or its designee, except with the permission of
the Insurer.
6.5 The Fund will provide to the Insurer at least one complete copy
of the Mixed and Shared Funding Exemptive Application and any amendments
thereto, all prospectuses, Statements of Additional Information, reports, proxy
statements and other voting solicitation materials, and all amendments and
supplements to any of the above, that relate to the Fund or its shares, promptly
after the filing of such document with the SEC or other regulatory authorities.
6.6 The Insurer will provide to the Fund all prospectuses (which
shall include an offering memorandum if the Variable Contracts issued by the
Insurer or interests therein are not registered under the 1933 Act), Statements
of Additional Information, reports, solicitations for voting instructions
relating to the Fund, and all amendments or supplements to any of the above that
relate to the Variable Contracts issued by the Insurer or the Separate Accounts
which utilize the Fund as an underlying investment medium, promptly after the
filing of such document with the SEC or other regulatory authority.
6.7 For purposes of this Article VI, the phrase "sales literature or
other promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use, in a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion
17
<PAGE>
pictures, computerized media, or other public media), sales literature (i.e.,
any written communication distributed or made generally available to customers
or the public, including brochures, circulars, research reports, market letters,
form letters, seminar texts, reprints or excerpts of any other advertisement,
sales literature, or published article), educational or training materials or
other communications distributed or made generally available to some or all
agents or employees.
ARTICLE VII. Indemnification
7.1 Indemnification by the Insurer
7.1(a) The Insurer agrees to indemnify and hold harmless the
Fund, each of its Trustees and officers, any affiliated person of the Fund
within the meaning of Section 2(a)(3) of the 1940 Act, and the Distributor
(collectively, the "Indemnified Parties" for purposes of this Section 7.1)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Insurer) or litigation expenses
(including legal and other expenses), to which the Indemnified Parties may
become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or litigation expenses are
related to the sale or acquisition of the Fund's shares or the Variable
Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or prospectus (which shall include an
offering memorandum) for the Variable Contracts issued by the
Insurer or sales literature for such Variable Contracts (or any
amendment or supplement to any of the foregoing), or arise out of
or are based upon the omission or the alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, provided
that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged
statement or omission was
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<PAGE>
made in reliance upon and in conformity with information
furnished to the Insurer by or on behalf of the Fund for use in
the registration statement or prospectus for the Variable
Contracts issued by the Insurer or sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of such Variable Contracts or Fund shares; or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement, prospectus or sales
literature of the Fund not supplied by the Insurer or persons
under its control) or wrongful conduct of the Insurer or any of
its affiliates, employees or agents with respect to the sale or
distribution of the Variable Contracts issued by the Insurer or
the Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature of the Fund or any
amendment thereof or supplement thereto or the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading if such a statement or omission was made in reliance
upon information furnished to the Fund by or on behalf of the
Insurer; or
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the Insurer in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Insurer;
except to the extent provided in Sections 7.1(b) and 7.1(c) hereof.
7.1(b) The Insurer shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of the Indemnified Party's duties or by reason of the
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Fund.
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<PAGE>
7.1(c) The Insurer shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Party shall have notified the Insurer in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Insurer of any such
claim shall not relieve the Insurer from any liability which it may have to the
Indemnified Party against whom such action is brought otherwise than on account
of this indemnification provision. In case any such action is brought against
the Indemnified Parties, the Insurer shall be entitled to participate, at its
own expense, in the defense of such action. The Insurer also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Insurer to such party of the Insurer's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Insurer will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
7.1(d) The Indemnified Parties shall promptly notify the Insurer
of the commencement of any litigation or proceedings against them in connection
with the issuance or sale of the Fund shares or the Variable Contracts issued by
the Insurer or the operation of the Fund.
7.2 Indemnification By the Distributor
7.2(a) The Distributor agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts, and
each of their directors and officers and any affiliated person of the Insurer
within the meaning
20
<PAGE>
of Section 2(a)(3) of the 1940 Act (collectively, the "Indemnified Parties" for
purposes of this Section 7.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Distributor) or litigation expenses (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims, damages,
liabilities or litigation expenses are related to the sale or acquisition of the
Fund's shares or the Variable Contracts issued by the Insurer and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to the Distributor
or the Fund or the designee of either by or on behalf of the
Insurer for use in the registration statement or prospectus for
the Fund or in sales literature (or any amendment or supplement)
or otherwise for use in the registration statement or prospectus
for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of
the Variable Contracts issued by the Insurer or Fund shares; or
(ii) arise out of or as a result of any statement or
representations (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Variable Contracts not supplied by the
Distributor or any employees or agents thereof) or wrongful
conduct of the Fund or Distributor, or the affiliates, employees,
or agents of the Fund or the Distributor with respect to the sale
or distribution of the Variable Contracts issued by the Insurer
or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature covering the Variable
Contracts issued by the Insurer, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
21
<PAGE>
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Insurer by or on behalf of the
Fund; or
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the Distributor in
this Agreement or arise out of or result from any other material
breach of this Agreement by the Distributor;
except to the extent provided in Sections 7.2(b) and 7.2(c) hereof.
7.2(b) The Distributor shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation expenses to which an Indemnified Party would otherwise
be subject by reason of willful misfeasance, bad faith, or gross negligence in
the performance of the Indemnified Party's duties or by reason of the
Indemnified Party's reckless disregard of obligations or duties under this
Agreement or to the Insurer or the Separate Accounts.
7.2(c) The Distributor shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Party shall have notified the Distributor in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Party shall have received notice of such
service on any designated agent), but failure to notify the Distributor of any
such claim shall not relieve the Distributor from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Distributor will be entitled to
participate, at is own expense, in the defense thereof. The Distributor also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action. After notice from the Distributor to such party
of the Distributor's election to assume the defense thereof,
22
<PAGE>
the Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Distributor will not be liable to such party under this
Agreement for any legal or other expense subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
7.2(d) The Insurer shall promptly notify the Distributor of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the operation of the Separate Accounts.
7.3 Indemnification by the Fund
7.3(a) The Fund agrees to indemnify and hold harmless the
Insurer, its affiliated principal underwriter of the Variable Contracts, and
each of their directors and officers and any affiliated person of the Insurer
within the meaning of Section 2(a)(3) of the 1940 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation expenses (including legal and
other expenses) to which the Indemnified Parties may become subject under any
statute or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or litigation expenses are related to the sale or
acquisition of the Fund's shares or the Variable Contracts issued by the Insurer
and:
(i) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature of the
Fund (or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance
23
<PAGE>
upon and in conformity with information furnished to the
Distributor or the Fund or the designee of either by or on behalf
of the Insurer for use in the registration statement or
prospectus for the Fund or in sales literature (or any amendment
or supplement) or otherwise for use in connection with the sale
of the Variable Contracts issued by the Insurer or Fund shares;
or
(ii) arise out of or as a result of any statement or
representation (other than statements or representations
contained in the registration statement, prospectus or sales
literature for the Variable Contracts not supplied by the
Distributor or any employees or agents thereof) or wrongful
conduct of the Fund, or the affiliates, employees, or agents of
the Fund, with respect to the sale or distribution of the
Variable Contracts issued by the Insurer or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus or sales literature covering the Variable
Contracts issued by the Insurer, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statement or statements therein not
misleading, if such statement or omission was made in reliance
upon information furnished to the Insurer by or on behalf of the
Fund; or
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
except to the extent provided in Sections 7.3(b) and 7.3(c) hereof.
7.3(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
expenses to which an Indemnified Party would otherwise be subject by reason of
willful misfeasance, bad faith, or gross negligence in the performance of the
Indemnified Party's duties or by reason of the Indemnified Party's reckless
disregard of obligations or duties under this Agreement or to the Insurer or the
Separate Accounts.
24
<PAGE>
7.3(c) The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such party shall have notified the Fund in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Party shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense thereof. The Fund
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
7.3(d) The Insurer shall promptly notify the Fund of the com-
mencement of any litigation or proceedings against it or any of its officers or
directors in connection with the issuance or sale of the Variable Contracts
issued by the Insurer or the sale of the Fund's shares.
ARTICLE VIII. Applicable Law
8.1 This Agreement shall be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Pennsylvania.
25
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8.2 This Agreement shall be subject to the provisions of the 1933, 1934,
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, the Mixed and Shared Funding Exemptive Order),
and the terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE IX. Termination
9.1 This Agreement shall terminate:
(a) at the option of any party upon 180 days advance written notice to
the other parties; or
(b) at the option of the Insurer if shares of the Portfolios are not
reasonably available to meet the requirements of the Variable Contracts issued
by the Insurer, as determined by the Insurer, and upon prompt notice by the
Insurer to the other parties; or
(c) at the option of the Fund or the Distributor upon institution of
formal proceedings against the Insurer or its agent by the NASD, the SEC, or any
state securities or insurance department or any other regulatory body regarding
the Insurer's duties under this Agreement or related to the sale of the Variable
Contracts issued by the Insurer, the operation of the Separate Accounts, or the
purchase of the Fund shares; or
26
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(d) at the option of the Insurer upon institution of formal proceedings
against the Fund or the Distributor by the NASD, the SEC, or any state
securities or insurance department or any other regulatory body; or
(e) upon requisite vote of the Variable Contract Owners having an
interest in the Separate Accounts (or any subaccounts thereof) to substitute the
shares of another investment company for the corresponding shares of the Fund or
a Portfolio in accordance with the terms of the Variable Contracts for which
those shares had been selected or serve as the underlying investment media; or
(f) in the event any of the shares of a Portfolio are not registered,
issued or sold in accordance with applicable state and/or federal law, or such
law precludes the use of such shares as the underlying investment media of the
Variable Contracts issued or to be issued by the Insurer; or
(g) by any party to the Agreement upon a determination by a majority of
the Trustees of the Fund, or a majority of its disinterested Trustees, that an
irreconcilable conflict, as described in Article IV hereof, exists; or
(h) at the option of the Insurer if the Fund or a Portfolio fails to
meet the requirements under Subchapter M of the Code for qualification as a
Regulated Investment Company specified in Section 3.2 hereof or the diversi-
fication requirements specified in Section 3.3 hereof.
9.2 Each party to this Agreement shall promptly notify the other parties
to the Agreement of the institution against such party of any such formal
proceedings as described in Sections 9.1(c) and (d) hereof. The Insurer shall
give 60 days prior
27
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written notice to the Fund of the date of any proposed vote of Variable Contract
Owners to replace the Fund's shares as described in Section 9.1(e) hereof.
9.3 Except as necessary to implement Variable Contract Owner initiated
transactions, or as required by state insurance laws or regulations, the Insurer
shall not redeem Fund shares attributable to the Variable Contracts issued by
the Insurer (as opposed to Fund shares attributable to the Insurer's assets held
in the Separate Accounts), and the Insurer shall not prevent Variable Contract
Owners from allocating payments to a Portfolio, until 60 days after the Insurer
shall have notified the Fund or Distributor of its intention to do so.
9.4 Notwithstanding any termination of this Agreement, the Fund and the
Distributor shall at the option of the Insurer continue to make available
additional shares of the Fund pursuant to the terms and conditions of this
Agreement, for all Variable Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing Contracts").
Specifically, without limitation, based upon instructions from the owners of the
Existing Contracts, the Separate Accounts shall be permitted to reallocate
investments in the Portfolios of the Fund and redeem investments in the
Portfolios, and shall be permitted to invest in the Portfolios in the event that
owners of the Existing Contracts make additional purchase payments under the
Existing Contracts. If this Agreement terminates, the parties agree that
Sections 3.10, 7.1, 7.2, 7.3, 8.1, and 8.2, and, to the extent that all or a
portion of the assets of the Separate Accounts continue to be invested in the
Fund or any Portfolio of the Fund, Articles I, II, and IV and Sections 5.5 and
5.6 will remain in effect after termination.
ARTICLE X. Notices
28
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Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
Insurance Management Series
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Distributor:
Federated Securities Corp.
Federated Investors Tower
1001 Liberty Avenue
Pittsburgh, Pennsylvania 15222-3779
Attn.: John W. McGonigle
If to the Insurer:
ARTICLE XI: Miscellaneous
11.1 The Fund and the Insurer agree that if and to the extent Rule 6e-2
or Rule 6e-3(T) under the 1940 Act is amended or if Rule 6e-3 is adopted in
final form, to the extent applicable, the Fund and the Insurer shall each take
such steps as may be necessary to comply with the Rule as amended or adopted in
final form.
29
<PAGE>
11.2 A copy of the Fund's Agreement and Declaration of Trust is on file
with the Secretary of the Commonwealth of Massachusetts and notice is hereby
given that any agreements that are executed on behalf of the Fund by any Trustee
or officer of the Fund are executed in his or her capacity as Trustee or officer
and not individually. The obligations of this Agreement shall only be binding
upon the assets and property of the Fund and shall not be binding upon any
Trustee, officer or shareholder of the Fund individually.
11.3 Nothing in this Agreement shall impede the Fund's Trustees or
shareholders of the shares of the Fund's Portfolios from exercising any of the
rights provided to such Trustees or shareholders in the Fund's Agreement and
Declaration of Trust, as amended, a copy of which will be provided to the
Insurer upon request.
11.4 Administrative services to Variable Contract Owners shall be the
responsibility of Insurer. Insurer, on behalf of its separate accounts will be
the sole shareholder of record of Fund shares. Fund and Distributor recognize
that they will derive a substantial savings in administrative expense by virtue
of having a sole shareholder rather than multiple shareholders. In
consideration of the administrative savings resulting from having a sole
shareholder rather than multiple shareholders, Distributor agrees to pay to
Insurer an amount computed at an annual rate of .25 of 1% of the average daily
net asset value of shares held in subaccounts for which Insurer provides
administrative services. Distributor's payments to Insurer are for
administrative services only and do not constitute payment in any manner for
investment advisory services.
11.5 It is understood that the name "Federated" or any derivative thereof
or logo associated with that name is the valuable property of the Distributor
and its
30
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affiliates, and that the Insurer has the right to use such name (or
derivative or logo) only so long as this Agreement is in effect. Upon
termination of this Agreement the Insurer shall forthwith cease to use such name
(or derivative or logo).
11.6 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.8 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
11.9 This Agreement may not be assigned by any party to the Agree-ment
except with the written consent of the other parties to the Agreement.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the day and year first above written.
INSURANCE MANAGEMENT SERIES
ATTEST: BY:
--------------------------- ------------------------------
Name: Name:
----------------------------- ----------------------------
Title: Title:
---------------------------- ---------------------------
FEDERATED SECURITIES CORP.
ATTEST: BY:
--------------------------- ------------------------------
Name: Name:
----------------------------- ----------------------------
Title: Title:
---------------------------- ---------------------------
[INSURER NAME]
ATTEST: BY:
--------------------------- ------------------------------
Name: Name:
----------------------------- ----------------------------
Title: Title:
---------------------------- ---------------------------
32
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Exhibit 99.B9
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
18th Floor
Galveston, Texas 77550
Galveston (409) 755-5525
Houston (281) 480-5278
Telecopier (409) 766-6424
July , 1997
Securities and Exchange Commission
450 Fifth Street, N.W.
Judicial Plaza
Washington, D.C. 20549
RE: American National Variable Annuity Separate Account
("Separate Account") Pre-Effective Amendment No. 1 to
Form N-4; 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. Accordingly, we are familiar with the
corporate records, certificates, and consents of officers of ANICO as we have
deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
<PAGE>
3. The Variable Annuity Contracts registered by this Registration Statement
under the Securities Act of 1933 and the Investment Company Act of 1940 (File
No. 333-10581) will, upon issuance thereof, be validly authorized and issued.
We hereby consent to the use of our opinion of counsel in the Pre-Effective
Amendment No. 1 to Form N-4 Registration Statement (File No. 333-10581) 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
prospectuses constituting a part of such Pre-Effective Amendment No. 1 to such
Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L. L. P.
Jerry L. Adams
-----------------------------
Jerry L. Adams
JLA/cfk
<PAGE>
Exhibit 99.B10
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
Houston, Texas
July 1, 1997
