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INVESTRAC
GOLD
VARIABLE
ANNUITY
Prospectus for
Variable Annuity Contracts
Issued by
AMERICAN NATIONAL
INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
1-800-306-2959
DISTRIBUTOR
SECURITIES MANAGEMENT AND RESEARCH, INC.
[LOGO OF ONE MOODY PLAZA
AMERICAN NATIONAL GALVESTON, TEXAS 77550-7999
APPEARS HERE]
CUSTODIAN
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
INVESTMENT MANAGER
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
INSURER
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
This Prospectus describes the deferred annuity and immediate annuity forms of
individual Variable Annuity Contracts (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 Deferred Annuity Contracts
provide for annuity payments commencing at some later date specified by the
Contractowner. The Immediate Annuity Contracts provide for annuity payments
commencing immediately.
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 Investment Accounts, Inc. (the "American National Fund") and
in the portfolios of Variable Insurance Products Fund ("VIP") and Variable
Insurance Products Fund II ("VIP II")(sometimes referred to, collectively, as
the "Fidelity Funds"). The portfolios of the American National Fund and the
portfolios of the Fidelity Funds 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 fourteen separate Subaccounts: the AN Money Market, the AN Growth,
the AN Balanced, the AN Managed, the VIP II Investment Grade Bond, the VIP II
Asset Manager, the VIP II Index 500, the VIP Money Market, the VIP Equity-
Income, the VIP High Income, the VIP Growth, the VIP Overseas, the VIP II
Contrafund and the VIP II Asset Manager: Growth Subaccounts. The assets of such
Subaccounts are invested in shares of a corresponding Eligible Portfolio. The
accompanying prospectuses for the American National Fund and the Fidelity Funds
describe the investment objectives, policies and the risks of each of the
Eligible Portfolios. The prospectuses for the Fidelity Funds include certain
portfolios which are not Eligible Portfolios and therefore not available for
investment under the Policy.
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 calling American National at the telephone number
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 24.
This Prospectus is valid only when accompanied by Current Prospectuses or
Prospectus Profiles For The American National Investment Accounts, Inc.,
Variable Insurance Products Fund and Variable Insurance Products Fund II. 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.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION, OR ANY STATE SECURITIES REGULATORY AUTHORITY, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
PLEASE READ THIS PROSPECTUS CAREFULLY AND RETAIN IT FOR FUTURE REFERENCE.
The Date of This Prospectus is April 30, 1998.
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TABLE OF CONTENTS
PAGE
Glossary of Terms.......................................................... 3
Summary of the Contracts................................................... 4
Purpose of the Contracts.................................................. 4
Investment Options........................................................ 4
Purchasing a Variable Annuity Contract.................................... 4
Allocations and Transfers................................................. 4
How the Death Benefit Varies.............................................. 4
Surrenders from the Contract Prior to Annuity Date........................ 4
How Annuity Payments are Determined....................................... 4
Your Right to Cancel the Variable Annuity Contract......................... 4
Summary of Expenses........................................................ 5
Expenses During the Accumulation Period................................... 5
Expenses During the Annuity Period........................................ 8
Accumulation Unit Values................................................... 8
American National Insurance Company
and the Separate Account................................................... 10
American National Insurance Company....................................... 10
The Separate Account...................................................... 10
The American National Fund................................................ 10
The Fidelity Funds........................................................ 11
Addition, Deletion or Substitution of Investments......................... 12
Fixed Account.............................................................. 12
Contracts.................................................................. 13
Purpose of the Contracts.................................................. 13
Types of Contracts........................................................ 13
Contract Application and Purchase Payments................................ 13
Allocation of Purchase Payments........................................... 14
Crediting of Accumulation Units........................................... 14
Determining the Accumulation Unit Values.................................. 14
Transfers Prior to Annuity Date........................................... 14
Contractowner Inquiries.................................................... 14
Charges and Deductions During
the Accumulation Period.................................................... 14
Surrender Charge.......................................................... 14
Other Charges............................................................. 15
(a) Administrative Charges............................................... 15
(b) State Premium Taxes.................................................. 15
(c) Mortality and Expense Risk Fee....................................... 15
(d) Distribution Expense Charge.......................................... 15
(e) Charges for Taxes.................................................... 15
(f) Exchange Fee......................................................... 15
Deduction of Fees......................................................... 15
Exceptions to Charges..................................................... 16
Distributions Under the Contract
Accumulation Period........................................................ 16
Full and Partial Surrenders............................................... 16
Systematic Withdrawal Program............................................. 16
Policy Loans in Special Circumstances..................................... 16
Policy Loans.............................................................. 16
Death Benefit During Accumulation Period.................................. 17
Annuity Period............................................................. 18
Election of Annuity Date and Form of Annuity.............................. 18
Allocation of Benefits.................................................... 18
Annuity Options........................................................... 18
Value of Variable Annuity Payments:
Assumed Investment Rates.................................................. 19
Annuity Provisions........................................................ 19
Federal Tax Matters........................................................ 19
Introduction.............................................................. 19
Taxation of Annuities in General.......................................... 19
Penalty Tax on Distributions.............................................. 20
Qualified Contracts....................................................... 20
Possible Legislative Changes.............................................. 21
Performance................................................................ 21
Distributor of the Contracts............................................... 21
Safekeeping of the Separate Account's Assets............................... 22
Voting Rights.............................................................. 22
State Regulation of American National...................................... 22
Preparing for Year 2000................................................... 22
Legal Matters.............................................................. 23
Legal Proceedings.......................................................... 23
Experts.................................................................... 23
Additional Information..................................................... 23
Financial Statements....................................................... 23
Table of Contents of
Statement of Additional Information........................................ 24
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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 of the individual
Contractowner's death.
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 14).
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 times the respective Accumulation
Unit Values of such Subaccounts, (ii) the Contractowner's value in the Fixed
Account, and (iii) the Contractowner's value held in American National's General
Account to secure policy loans on such Contracts.
ANNUITANT - The person or persons 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.
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 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 14).
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).
DEFERRED ANNUITY CONTRACT - A Contract in which annuity payments commence at
some future date specified by the Contractowner.
ELIGIBLE PORTFOLIO - A Portfolio of the American National Fund or the Fidelity
Funds 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.
IMMEDIATE ANNUITY - A Contract purchased with a single Purchase Payment, which
provides immediate annuity payments on an annual, semi-annual, quarterly or
monthly schedule to the Contractowner.
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 over the Accumulation Value on the date
immediately prior to the surrender.
PLAN - A document or agreement defining the retirement benefits and those
eligible to receive them. The Plan is not a part of a Contract and American
National is not a party to a Plan.
POLICY DEBT - The sum of all unpaid policy loans and accrued interest thereon.
PORTFOLIO - A separate series of capital securities designed to meet specified
investment objectives. The American National Fund currently consists of four
portfolios, all of which are Eligible Portfolios. The Fidelity Funds currently
consist of thirteen portfolios, ten 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.
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 Friday, November 27, 1998 and Thursday, December 24, 1998.
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 American National Fund or the
Fidelity Funds.
3
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SUMMARY OF THE CONTRACTS
PURPOSE OF THE CONTRACTS
The purpose of the Contracts is to provide Accumulation Values and/or Annuity
Payments which are expected to reflect changes in the cost of living to a
greater degree than a traditional Guaranteed Annuity. The Contracts offer
Contractowners the opportunity to vary the Accumulation Value based on the
performance of the investments chosen by the Contractowner through two different
types of Variable Annuity Contracts: a Deferred Annuity and an Immediate
Annuity.
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 12.)
Because the Contract provides for an Accumulation Value as well as a Death
Benefit, the Contract can be used for various individual and business financial
planning purposes. Purchasing the Contract in part for such purposes entails
certain risks. For example, if the investment performance of the Subaccounts to
which Accumulation Value is allocated is poorer than expected, the Contract may
lapse or may not accumulate sufficient Accumulation Value to fund the purpose
for which the Contract was purchased. Withdrawals may significantly affect
current and future Accumulation Value, surrender value, or death benefit
proceeds. Because the Contract is designed to provide benefits on a long-term
basis, before purchasing a Contract for a specialized purpose a purchaser should
consider whether the long-term nature of the Contract is consistent with the
purpose for which it is being considered. Using a Contract for a specialized
purpose may have tax consequences. (See "Federal Tax Matters" on page 19.)
INVESTMENT OPTIONS
Net Purchase Payments may be invested in the Subaccounts and/or in American
National's Fixed Account. The fourteen Subaccounts are: the AN Money Market, the
AN Growth, the AN Balanced, the AN Managed, the VIP II Investment Grade Bond,
the VIP II Asset Manager, the VIP II Index 500, the VIP Money Market, the VIP
Equity-Income, the VIP High Income, VIP Growth, the VIP Overseas, the VIP II
Contrafund and the VIP II Asset Manager: Growth Subaccounts. Each of the
Subaccounts invests exclusively in the shares of a corresponding Eligible
Portfolio. Each such Subaccount and corresponding Eligible Portfolio has a
different investment objective (See "The American National Fund" at page 10, and
"The Fidelity Funds" at 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. The minimum and maximum amounts of Purchase Payments vary depending
upon the type of Contract purchased. (See "Contract Application and Purchase
Payments," page 13.)
ALLOCATION AND TRANSFERS
Net Purchase Payments will be initially allocated to each Subaccount and/or
American National's Fixed Account as instructed in the application. Thereafter,
the allocation may be changed by the Contractowner. All allocations must be at
least 10% of the Net Purchase Payment.
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" on page 14.
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 to 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 Deferred Annuity Contracts will equal the greater of: (i)
Accumulation Value less Policy Debt on the date that notice of death is received
by American National at its home office in Galveston, Texas, or (ii) the Minimum
Guaranteed Death Benefit on the Contract, less Policy Debt. During the Annuity
Period, death benefits, if any, depend upon the annuity option selected. (See
Annuity Options at page 18).
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. Contracts purchased in connection with retirement
plans may also be subject to restrictions imposed by the Plan. Surrenders from
Contracts qualified under Section 403(b) of the Code may be restricted. (See
"Qualified Contracts" under "Federal Tax Matters" at page 19.) The sum of
surrender charges and distribution expense charges will never be more than 9.0%
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 ten
or 20 years, or payments made jointly (See Annuity Options, page 18.) 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
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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. (See "Contract
Application and Purchase Payments," page 13.)
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, including the fees and expenses assessed in connection with
Immediate Annuity Contracts, see "Expenses During the Annuity Period", page 8.
CONTRACTOWNERS 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 less total
Purchase Payments made, may be withdrawn without Surrender Charge.
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, a portion 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
CONTRACT YEARS SINCE AS A PERCENTAGE
CHARGEABLE WITHDRAWAL OF EACH PURCHASE
AMOUNT OR PORTION PAYMENT OR PORTION
THEREOF 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
NON-QUALIFIED QUALIFIED
DEFERRED DEFERRED
Annuity Annuity
EXCHANGE FEE $ 10 $ 10
(THERE IS NO EXCHANGE FEE FOR
THE FIRST 12 TRANSFERS)
Annual Contract Fee $ 25 $ 30
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS PERCENTAGE OF AVERAGE NET ASSETS)
Mortality Risk Fees 0.80% 0.80%
Expense Risk Fees 0.45% 0.45%
Administrative Asset Fees 0.10% 0.10%
Distribution Expense Charge 0.05% 0.05%
Total Separate Account
Annual Expenses 1.40% 1.40%
AN MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.14% 0.14%
Other Expenses 0.73% 0.73%
Total AN Money Market Portfolio
Annual Expenses 0.87% 0.87%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.23%.
AN GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.28% 0.28%
Other Expenses 0.59% 0.59%
Total AN Growth Portfolio
Annual Expenses 0.87% 0.87%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.29%.
AN BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.10% 0.10%
Other Expenses 0.80% 0.80%
Total AN Balanced Portfolio
Annual Expenses 0.90% 0.90%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.30%.
AN MANAGED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.33% 0.33%
Other Expenses 0.60% 0.60%
Total AN Managed Portfolio
Annual Expenses 0.93% 0.93%
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* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.10%.
**Under its Administrative Service Agreement with the Fund, Securities
Management and Research, Inc. ("SM&R"), the Fund's Investment 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, 1999, pursuant to which SM&R has
agreed to reimburse the AN Money Market Portfolio and the AN Growth Portfolio
for expenses in excess of .87%; the AN Balanced Portfolio for expenses in excess
of .90% and the AN 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.
VIP II INVESTMENT GRADE BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.44% 0.44%
Other Expenses 0.14% 0.14%
Total VIP II Investment
Grade Bond
Portfolio Annual Expenses 0.58% 0.58%
VIP II ASSET MANAGER
PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.55% 0.55%
Other Expenses 0.10% 0.10%
Total VIP II Asset Manager
Portfolio Annual Expenses 0.65% 0.65%
*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 .55%, .20% and .75% respectively.
VIP II INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.24% 0.24%
Other Expenses 0.04% 0.04%
Total VIP II Index 500 Portfolio
Annual Expenses * 0.28% 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 0.27%, 0.13% and.0.40%, respectively.
VIP MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.21% 0.21%
Other Expenses 0.10% 0.10%
Total VIP Money Market Portfolio
Annual Expenses 0.31% 0.31%
VIP EQUITY-INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50% 0.50%
Other Expenses 0.08% 0.08%
Total VIP Equity-Income Portfolio
Annual Expenses* 0.58% 0.58%
*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 .50%, .18% and .68% respectively.
VIP HIGH INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59% 0.59%
Other Expenses 0.12% 0.12%
Total VIP High Income Portfolio
Annual Expenses* 0.71% 0.71%
*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 .59%, .22% and .81% respectively.
VIP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60% 0.60%
Other Expenses 0.09% 0.09%
Total VIP Growth Portfolio
Annual Expenses* 0.69% 0.69%
*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 .60%, .19% and .79% respectively.
VIP OVERSEAS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75% 0.75%
Other Expenses 0.17% 0.17%
Total VIP Overseas Portfolio
Annual Expenses* 0.92% 0.92%
*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 .75%, .27% and 1.02% respectively.
VIP II CONTRAFUND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60% 0.60%
Other Expenses 0.11% 0.11%
Total VIP II Contrafund Portfolio
Annual Expenses* 0.71% 0.71%
*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 .60%, .21% and .81% respectively.
VIP II ASSET MANAGER: GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60% 0.60%
Other Expenses 0.17% 0.17%
Total VIP II Asset Manager:
Growth Portfolio Annual Expenses 0.77% 0.77%
*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 .60%, .27% and .87% respectively.
EXAMPLE: NON-QUALIFIED DEFERRED ANNUITY CONTRACT
If you surrender your Deferred Annuity 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:
6
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
AN Money Market Portfolio $88 $130 $163 $263
AN Growth Portfolio $88 $130 $163 $263
AN Balanced Portfolio $88 $131 $164 $266
AN Managed Portfolio $89 $132 $166 $269
VIP II Investment
Grade Bond Portfolio $85 $122 $148 $233
VIP II Asset Manager
Portfolio $87 $126 $156 $250
VIP II Index 500 Portfolio $82 $113 $133 $201
VIP Money Market Portfolio $83 $114 $134 $203
VIP Equity-Income Portfolio $85 $122 $148 $233
VIP High Income Portfolio $86 $126 $155 $246
VIP Growth Portfolio $86 $125 $154 $244
VIP Overseas Portfolio $89 $132 $166 $269
VIP II Contrafund Portfolio $87 $126 $156 $250
VIP II Asset Manager:
Growth Portfolio $88 $130 $163 $263
If you do not surrender your Deferred Annuity Contract or annuitize your
Deferred Annuity Contract:
You would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
AN Money Market Portfolio $23 $ 72 $123 $263
AN Growth Portfolio $23 $ 72 $123 $263
AN Balanced Portfolio $24 $ 73 $124 $266
AN Managed Portfolio $24 $ 73 $126 $269
VIP II Investment
Grade Bond Portfolio $20 $ 63 $108 $233
VIP II Asset Manager
Portfolio $22 $ 68 $116 $250
VIP II Index 500 Portfolio $17 $ 54 $ 92 $201
VIP Money Market Portfolio $18 $ 54 $ 93 $203
VIP Equity-Income Portfolio $20 $ 63 $108 $233
VIP High Income Portfolio $22 $ 67 $115 $246
VIP Growth Portfolio $21 $ 66 $114 $244
VIP Overseas Portfolio $24 $ 73 $126 $269
VIP II Contrafund Portfolio $22 $ 68 $116 $250
VIP II Asset Manager:
Growth Portfolio $23 $ 72 $123 $263
EXAMPLE: QUALIFIED DEFERRED ANNUITY CONTRACT
If you surrender your Deferred Annuity 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:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
AN Money Market Portfolio $88 $131 $165 $267
AN Growth Portfolio $88 $131 $165 $267
AN Balanced Portfolio $89 $132 $166 $270
AN Managed Portfolio $89 $133 $168 $273
VIP II Investment
Grade Bond Portfolio $86 $123 $151 $237
VIP II Asset Manager
Portfolio $87 $128 $158 $254
VIP II Index 500 Portfolio $83 $114 $136 $206
VIP Money Market Portfolio $83 $115 $137 $208
VIP Equity-Income Portfolio $86 $123 $151 $237
VIP High Income Portfolio $87 $127 $157 $251
VIP Growth Portfolio $87 $126 $156 $249
VIP Overseas Portfolio $89 $133 $168 $273
VIP II Contrafund Portfolio $87 $128 $158 $254
VIP II Asset Manager:
Growth Portfolio $88 $131 $165 $267
If you do not surrender your Deferred Annuity Contract or annuitize your
Deferred Annuity Contract:
You would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
AN Money Market Portfolio $24 $ 73 $125 $267
AN Growth Portfolio $24 $ 73 $125 $267
AN Balanced Portfolio $24 $ 74 $126 $270
AN Managed Portfolio $24 $ 75 $128 $273
VIP II Investment Grade Bond
Portfolio $21 $ 64 $110 $237
VIP II Asset Manager
Portfolio $22 $ 69 $118 $254
VIP II Index 500 Portfolio $18 $ 55 $ 95 $206
VIP Money Market Portfolio $18 $ 56 $ 96 $208
VIP Equity-Income Portfolio $21 $ 64 $110 $237
VIP High Income Portfolio $22 $ 68 $117 $251
VIP Growth Portfolio $22 $ 67 $116 $249
VIP Overseas Portfolio $24 $ 75 $128 $273
VIP II Contrafund Portfolio $22 $ 69 $118 $254
VIP II Asset Manager:
Growth Portfolio $24 $ 73 $125 $267
</TABLE>
7
<PAGE>
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 American National Fund and/or the Fidelity Funds.
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 Fixed Account. For a more complete
description of the various costs and expenses of the American National Fund and
the Fidelity Funds, 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 1.25% 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. In addition to the Mortality
and Expense Risk Fee and portfolio expenses, the Immediate Annuity Contract will
incur a contract fee of $100.00 at the time the single Purchase Payment is paid.
No other fees or expenses are charged against the Contracts during the Annuity
Period. To the extent that American National derives profits from the Mortality
and Expense Risk Fee, those profits may be used to pay for other expenses,
including distribution expenses.
ACCUMULATION UNIT VALUES
(For an accumulation unit outstanding throughout the period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
----------- --------- --------
<S> <C> <C> <C>
AN GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.456 $ 1.255 $ 0.990
Accumulation unit value at end of period $ 1.731 $ 1.456 $ 1.255
Number of accumulation units outstanding at
end of period 1,622,115 911,104 326,360
AN MONEY MARKET PORTFOLIO
Accumulation unit value at beginning of period $ 1.066 $ 1.036 $ 1.000
Accumulation unit value at end of period $ 1.101 $ 1.066 $ 1.036
Number of accumulation units outstanding at
end of period 195,843 32,515 10,421
AN BALANCED PORTFOLIO
Accumulation unit value at beginning of period $ 1.254 $ 1.136 $ 1.000
Accumulation unit value at end of period $ 1.469 $ 1.254 $ 1.136
Number of accumulation units outstanding at
end of period 558,223 287,278 43,097
AN MANAGED PORTFOLIO
Accumulation unit value at beginning of period $ 1.458 $ 1.255 $ 0.990
Accumulation unit value at end of period $ 1.758 $ 1.458 $ 1.255
Number of accumulation units outstanding at
end of period 1,937,161 1,100,338 275,204
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation unit value at beginning of period $ 1.176 $ 1.159 $ 1.000
Accumulation unit value at end of period $ 1.263 $ 1.176 $ 1.159
Number of accumulation units outstanding at
end of period 93,192 72,929 26,194
</TABLE>
a Inception date April 20, 1994
8
<PAGE>
ACCUMULATION UNIT VALUES (CONTINUED)
(For an accumulation unit outstanding throughout the period)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1997 1996 1995
----------- --------- --------
<S> <C> <C> <C>
FIDELITY VIPII ASSET MANAGER
Accumulation unit value at beginning of period $ 1.278 $ 1.134 $ 0.990
Accumulation unit value at end of period $ 1.518 $ 1.278 $ 1.134
Number of accumulation units outstanding at
end of period 602,425 426,424 332,773
FIDELITY VIPII INDEX 500
Accumulation unit value at beginning of period $ 1.649 $ 1.365 $ 1.010
Accumulation unit value at end of period $ 2.154 $ 1.649 $ 1.365
Number of accumulation units outstanding at
end of period 1,753,242 636,107 92,340
FIDELITY VIP MONEY MARKET
Accumulation unit value at beginning of period $ 1.087 $ 1.049 $ 1.010
Accumulation unit value at end of period $ 1.127 $ 1.087 $ 1.049
Number of accumulation units outstanding at
end of period 774,056 179,947 382,247
FIDELITY VIP EQUITY INCOME FUND
Accumulation unit value at beginning of period $ 1.482 $ 1.322 $ 1.000
Accumulation unit value at end of period $ 1.869 $ 1.482 $ 1.322
Number of accumulation units outstanding at
end of period 1,805,034 971,692 301,955
FIDELITY VIP HIGH INCOME FUND
Accumulation unit value at beginning of period $ 1.334 $ 1.189 $ 1.000
Accumulation unit value at end of period $ 1.546 $ 1.334 $ 1.189
Number of accumulation units outstanding at
end of period 365,784 259,931 126,513
FIDELITY VIP GROWTH
Accumulation unit value at beginning of period $ 1.513 $ 1.341 $ 1.010
Accumulation unit value at end of period $ 1.840 $ 1.513 $ 1.341
Number of accumulation units outstanding at
end of period 1,263,215 895,058 281,102
FIDELITY VIP OVERSEAS
Accumulation unit value at beginning of period $ 1.167 $ 1.048 $ 0.970
Accumulation unit value at end of period $ 1.283 $ 1.167 $ 1.048
Number of accumulation units outstanding at
end of period 233,047 170,694 147,599
FIDELITY VIPII CONTRA FUND
Accumulation unit value at beginning of period $ 1.355 $ 1.157 $ 1.000 a
Accumulation unit value at end of period $ 1.657 $ 1.355 $ 1.157
Number of accumulation units outstanding at
end of period 748,156 259,582 20,680
FIDELITY VIPII ASSET MANAGER GROWTH
Accumulation unit value at beginning of period $ 1.207 $ 1.024 $ 1.000 a
Accumulation unit value at end of period $ 1.487 $ 1.207 $ 1.024
Number of accumulation units outstanding at
end of period 441,436 34,541 24,995
</TABLE>
a Inception date April 28, 1995
9
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND THE SEPARATE ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
American National is a stock life insurance company chartered in 1905 in the
State of Texas. It is licensed to do life insurance business in 49 states, the
District of Columbia, Puerto Rico, Guam, and American Samoa. American National's
home office is located at the American National Insurance Building, One Moody
Plaza, Galveston, Texas 77550-7999. The Moody Foundation (the "Foundation"), a
charitable foundation established for charitable and educational purposes, owns
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owns approximately 37.6% of such shares. Robert L. Moody
("RLM"), Chairman of the Board, President and Chief Executive Officer of
American National, RLM's son, Ross R. Moody, and Frances Moody Newman, RLM's
mother, are trustees of the Foundation.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie S.
Moody Trust. RLM is Chief Executive Officer of the Bank and of Moody Bank
Holding Company, Inc. ("MBHC"), the Bank's controlling stockholder. RLM is also
a Director and President of Moody Bancshares, Inc. ("Bancshares"), MBHC's sole
shareholder. The Three R Trusts, trusts established by RLM for the benefit of
his children, own 100% of Bancshares' Class B stock (which elects a majority of
Bancshares' directors) and 49.6% of its Class A Stock. The trustee of the Three
R Trusts is Irwin M. Herz, Jr., a partner in Greer, Herz & Adams, L.L.P., 18th
Floor, One Moody Plaza, Galveston, Texas, General Counsel to American National,
the Bank, Bancshares, MBHC, the American National Fund and Securities Management
and Research, Inc.
American National's total assets on December 31, 1997 were $ 6,911,337,624 on
a statutory basis.
American National writes life, health and accident insurance and annuities.
THE SEPARATE ACCOUNT
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. At present the Separate Account is
used only to support Variable Annuity Contracts. 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 supported by it. In addition to these assets, the
Separate Account assets may include accumulations of the charges American
National makes against Policies and 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 Variable Annuity 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 fourteen
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 American National Fund shares are also
purchased by American National Variable Life Separate Account.
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 Money Market Portfolio, a Growth
Portfolio, a Balanced Portfolio and a Managed Portfolio.
AN 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 adviser. The Money
Market Portfolio of the American National Funds shall be referred to herein as
"AN Money Market".
AN 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. This
Growth Portfolio of the American National Fund is referred to herein as "AN
Growth".
AN BALANCED PORTFOLIO ... seeks to provide conservation of
10
<PAGE>
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.
AN 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.
Securities Management and Research, Inc. ("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, ten of the Subaccounts of the
Separate Account invest in the shares of ten 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. The Fidelity Funds' shares are also purchased by
American National Variable Life Separate Account.
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 personal and a full compliment of
related support facilities. Fidelity Management & Research (U.K.) Inc. ("FMR
U.K.") and Fidelity Management and Research (Far East) Inc. ("FMR Far East")
are wholly owned subsidiaries of FMR that provide research with respect to
foreign securities. FMR U.K. and FMR Far East maintain their principal business
offices in London and Tokyo, respectively. As of December 31, 1997, FMR advised
funds having more than 29 million shareholder accounts with a total value of
more than $432 billion. Fidelity Distributors Corporation distributes shares for
the Fidelity funds. FMR Corp. is the holding company for the Fidelity companies.
Through ownership of voting common stock, Edward C. Johnson 3d, President and a
Trustee of the Fidelity Funds, and various trusts for the benefit of Johnson
family members form a controlling group with respect to FMR Corp.
The 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. The Fidelity Funds are series mutual funds which currently have a
total of thirteen separate investment portfolios, ten of which are Eligible
Portfolios.
VIP II INVESTMENT GRADE BOND PORTFOLIO ... seeks as high a level of current
income as is consistent with the preservation of capital by investing in a broad
range of investment-grade fixed-income securities. The VIP II Investment Grade
Bond Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
VIP EQUITY INCOME PORTFOLIO ... seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the VIP
Equity-Income Portfolio will also consider the potential for capital
appreciation. The VIP Equity-Income Portfolio's goal is to achieve a yield which
exceeds the composite yield on the securities comprising the Standard & Poor's
500 Composite Stock Price Index.
VIP HIGH INCOME PORTFOLIO ... seeks to obtain a high level of current income
by investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. High yielding, lower-rated securities
present higher risks of untimely interest and principal payments, default and
price volatility than higher-quality securities, and may present problems of
liquidity and valuation. See the prospectus describing the VIP High Income
Portfolio for more information on the risks of investing in high-yielding,
lower-rated securities.
VIP GROWTH PORTFOLIO ... seeks to achieve capital appreciation. The VIP Growth
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
VIP OVERSEAS PORTFOLIO ... seeks long term growth of capital primarily through
investments in foreign securities. VIP Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
VIP MONEY MARKET PORTFOLIO ... seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The VIP
Money Market Portfolio will invest only in high quality U.S. dollar denominated
money market securities of domestic and foreign issuers.
VIP II ASSET MANAGER PORTFOLIO ... seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
VIP II INDEX 500 PORTFOLIO ... seeks to provide investment results that
correspond to the total return (i.e., the combination of
11
<PAGE>
capital charges and income) of common stocks publicly traded in the United
States. In seeking this objective, the Index 500 Portfolio attempts to duplicate
the composition and total return of the Standard & Poor's 500 Composite Stock
Price Index while keeping transaction cost and other expense low. The VIP II
Index 500 Portfolio is designed as a long-term investment option.
VIP II CONTRAFUND PORTFOLIO ... seeks capital appreciation by investing in
companies FMR believes to be undervalued due to an overly pessimistic appraisal
by the public. In pursuit of the fund's goal, FMR looks for companies with the
following characteristics: (i) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an improved
balance sheet, (ii) recently popular, but temporarily out of favor due to short-
term or one-time factors, or (iii) undervalued compared to other companies in
the same industry.
VIP II ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total return over
the long term by allocating its assets among stocks, bonds, and short-term
instruments. Allocating among different types of investments allows the fund to
take advantage of opportunities wherever they may occur, but also subjects the
fund to the risks of a given investment type.
American National has entered into arrangements with either the investment
advisor or distributor for certain of the Eligible Portfolios pursuant to which
the advisor or distributor pays American National a fee based upon an annual
percentage of the average aggregate net amount invested by American National on
behalf of the Portfolio. These percentages differ, and American National is paid
a greater percentage by some investment advisors or distributors than other
advisors or distributors. These agreements reflect administrative and other
services provided by American National.
The Eligible Portfolios and the investment companies of which they are a part
are offered and sold only to registered separate accounts of insurance companies
offering variable annuity and variable life insurance contracts, and, in some
cases, to certain qualified pension and retirement plans. The Eligible
Portfolios and investment companies are not offered or sold to the general
public and should not be mistaken for other investment companies that may be
offered by the same sponsor and/or that may have similar names.
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
American National Fund and the Fidelity Funds 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
make policy loans, 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 American National Fund's and the
Fidelity Funds' various portfolios.
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
Subaccount to the Fixed Account. Transfers from the Fixed Account to the
Subaccount are restricted. (See Transfers Prior to Annuity Date, page 14.)
12
<PAGE>
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 Matters-Qualified Contracts,"
page 20 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 14; 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.
TYPES OF CONTRACTS
This Prospectus offers the following two general types of Variable Annuity
Contracts:
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.
IMMEDIATE ANNUITY CONTRACT
This form of Immediate Annuity Contract is used by an individual making a
single Purchase Payment. The individual will receive Immediate Annuity payments
annually, semi-annually, quarterly or monthly.
The availability of any Variable Annuity Contract described herein in any
particular state is dependent upon the approval of that Contract by that state.
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 14, 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.
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 plus any
premium taxes, mortality and risk fees 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 are allocated to the Subaccount of the VIP Money Market
Portfolio of the Fidelity Funds. Thereafter, such amounts allocated to the
Subaccount of the Money Market Portfolio and Net Purchase Payments paid are
allocated as directed by the Contractowner. No surrender charges are assessed on
premiums returned during this "free look" period.
Deferred Annuity Contracts require certain minimum initial and subsequent
Purchase Payments. For Flexible Purchase Payment Deferred Annuity Contracts, the
minimum initial monthly and subsequent payments are $100. Single Purchase
Payment Deferred Annuity Contracts require a minimum single payment of $5,000.
The maximum Purchase Payment under any Deferred Annuity Contract is $1,000,000
without the prior approval of American National. For Immediate Annuity
Contracts, the minimum initial investment is $2,000. These amounts may be
changed at the sole discretion of American National. In addition, American
National reserves the right to terminate any Deferred Annuity Contract for
certain specified reasons, including failure of the Accumulation Value to meet
certain specified minimums.
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For a Flexible Purchase Payment Deferred Annuity Contract, Purchase Payments
may be made at such intervals as desired, but are usually made on an annual,
semi-annual, quarterly or monthly basis. The frequency of Purchase Payments may
be changed by the Contractowners. If Purchase Payments cease, they may be
resumed at a future date, subject to the Annuity Date requirements. The number
of changes permitted and the maximum payments allowed under the Internal Revenue
Code for Qualified Contracts vary depending on the type of Plan. Failure to
comply with those limitations may subject the Contract to adverse tax treatment.
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 may by written instruction to the Home Office
indicate 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 10% of the Net
Purchase Payment being allocated to any one Subaccount and/or the Fixed Account.
Changes in allocation of future Net Purchase Payments (with the same 10%
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 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,
distribution expense charge 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. ATelephone 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. Once
each Contract Year, during the thirty- day period beginning on the Contract
anniversary, the maximum amount which may be transferred from the Fixed Account
to the Subaccounts is the greater of (a) twenty-five 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 15). Transfers resulting from policy loans will not be subject to a
transfer charge. In addition, such policy loans will not be counted for purposes
of the limitation on the number of free transfers allowed in each year. 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 18.
CONTRACTOWNER INQUIRIES
Contractowner inquiries should be addressed to American National Insurance
Company, One Moody Plaza, Galveston, Texas 77550-7999, or made by calling 1-800-
306-2959.
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
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withdrawn without a Surrender Charge. 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 and the distribution expense
charges assessed exceed 9.0% of total Purchase Payments paid. (See the chart
under "Contractowners Transaction Expenses" at Page 5.)
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. These
charges are designed only to reimburse American National for the cost of
administration and are not intended to produce a profit.
The annual contract fee is charged at the end of each Contract Year to cover
American National's fixed cost of administration of the Contract. The charge
is $25.00 for Non-qualified Deferred Annuity Contracts and $30.00 for all
Qualified Deferred Annuity Contracts. When a Contract is surrendered for its
full value, a pro rata portion of the annual contract fee will be deducted
at the time of full surrender.
Immediate Annuity Contracts have a one time contract fee of $100.00 when the
single Purchase Payment is paid.
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 0.45% 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. American National could realize a gain or a loss from such
fee depending on the mortality and expenses actually incurred.
(d) Distribution Expense Charge
A distribution expense is assessed daily to each Subaccount to compensate
American National for the risk that surrender charges assessed under the
Contracts may be insufficient to cover the costs of distributing the
Contracts. The distribution expense charge is 0.05% annually for Qualified
and Non-qualified Deferred Annuity Contracts. If the distribution expense
charge is insufficient to cover the actual risk assumed, American National
will bear the loss; however if the charge is more than sufficient, any
excess will be a profit to American National. The sum of all surrender
charges and the distribution expense charges assessed will at no time exceed
9.0% of all Purchase Payments paid.
(e) 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.
(f) 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
exchange fee will not be imposed on transfers that occur as a result of
policy loans. 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 and the Fixed
Account in the same proportion as the
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Accumulation Value in each Subaccount and the Fixed Account bears to the total
Accumulation Value on that date.
EXCEPTIONS TO CHARGES
The surrender charges, distribution expense charges or other administrative
charges or deductions 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 or other administrative charges or deductions.
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 $250 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 15. Upon a partial surrender,
any charges will be deducted from the amount of the surrender.
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 pro rata annual
administrative fees and 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 on the next page.
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 Subaccount 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," page 19.)
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 "Qualified Contracts," page 20.)
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. Numerous special tax rules
apply to Contractowners whose Contracts are used with a qualified plan.
Contractowners should consult a tax advisor before electing to participate in
the Minimum Distributions Program.
POLICY LOANS IN SPECIAL CIRCUMSTANCES
Policy loans are allowed on Qualified Deferred Annuity Contracts where Federal
Law permits policy loans to be taken without being considered a taxable
distribution. Policy loans are not allowed on Non-Qualified Deferred Annuity
Contracts because of adverse tax consequences.
POLICY LOANS
After the first year, the Contractowner may borrow money from American
National using the Contract as the only security for the policy loan. Policy
loans are usually funded within seven days after receipt of a written request in
proper form. Only one loan will be permitted at any time. Policy loans may have
a tax consequence. (See Federal Tax Matters, page 19.)
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(a) Policy Loan Amount
The policy loan amount cannot be less than $2,500 nor exceed the lesser of:
(1) 50% of the Contract's Accumulation Value less surrender charges on the
date of the policy loan; or
(2) $50,000.00.
(b) Loan Interest
American National will charge interest daily on any policy loan at an annual
loan interest rate not to exceed 8%. Interest is due:
(1) at the end of each Contract Year; or
(2) when the policy loan is paid back, if that comes first.
If interest is not paid when due, it will become part of the policy loan and
will accrue interest charges.
(c) Effect of Policy Loans
When a policy loan is made, Accumulation Value equal to the amount of the
policy loan will be transferred from the Accumulation Value in the Separate
Account and/or the Fixed Account to American National's General Account as
security for the Policy Debt. The Accumulation Value securing the policy loan
will earn interest at an annual rate not less than 3.0% which will be credited
at the end of the Contract Year. The Accumulation Value securing the policy
loan will be allocated among the Subaccounts and/or the Fixed Account in
accordance with the instructions given by the Contractowner when the policy
loan is requested. The minimum amount which can remain in a Subaccount or the
Fixed Account after a policy loan is $100. In the event no allocation
instructions are provided or the allocation instructions conflict with this
minimum held in Subaccounts, the policy loan amount will be processed in the
manner as set forth in the "Deduction of Fees" on page 18. American
National will transfer Accumulation Value from the Subaccounts and/or the
Fixed Account to secure loan interest which is not paid when due in any
Contract Year. (Refer to "Deduction of Fees" on page 15.)
A policy loan will permanently affect the Accumulation Value of a Contract
even if the policy loan is repaid. The effect could be favorable or
unfavorable depending on whether the investment performance of the
Subaccount(s) selected by the Contractowner is less than or greater than the
interest rate credited to the Accumulation Value held in the General Account
to secure the policy loan. In comparison to a Contract under which no policy
loan was made, the Accumulation Value will be lower if the General Account
interest rate is less than the investment performance of the Subaccount(s),
and greater if the General Account interest rate is higher than the investment
performance of the Subaccount(s).
Interest earned on amounts held in the General Account will be allocated to
the Subaccounts and the Fixed Account on each Contract anniversary in the same
proportion that Net Purchase Payments are being allocated to those Subaccounts
and the Fixed Account at the time. Upon repayment of Policy Debt, the portion
of the repayment allocated in accordance with the repayment of indebtedness
provision will be transferred to increase the Accumulation Value in that
Subaccount and/or the Fixed Account.
(d) Policy Debt
All outstanding policy loans together with accrued interest thereon will be a
Policy Debt. The Contract will terminate and have no value if at any time the
Policy Debt on the Contract equals or exceeds the Accumulation Value less
surrender charges. The effective date of termination will be 31 days after
American National has mailed notice of termination to the Contractowner's last
known address and the Contractowner has not paid the Policy Debt exceeding
surrender amount.
If a surrender is requested while any policy loan is outstanding, the
Accumulation Value will be reduced by the Policy Debt, if any, and any
surrender charges.
If any death benefit proceeds or annuity benefits become due and payable while
any policy loan is outstanding, the amount of proceeds will be reduced by the
Policy Debt.
(e) Policy Loan Repayment
All policy loans, other than "Home Loans," must be repaid in full on or before
the fifth anniversary of the date of the policy loan. All policy loans may be
repaid in a lump sum payment or, at American National's discretion in
installments. All policy loan payments must be at least $10.00.
Any Policy Debt, other than Policy Debt on a "Home Loan," which remains unpaid
after the fifth anniversary of the date of policy loan will be deemed a
distribution of the Contract proceeds. The Contract will be reduced by the
amount of any such balance. (Refer to Tax Section.)
"Home Loan" means any policy loan obtained for the purpose of acquiring,
constructing, reconstructing or substantially rehabilitating a dwelling unit
for use by the Contractowner (as defined in Section 267(c) of the Internal
Revenue Code) as a principal place of residence for a reasonable period of
time.
"Home Loans" may be repaid over a period of time not to exceed 15 years, with
level installment payments made not less frequently than quarterly.
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 less Policy Debt
on the date that notice of death is received by American National at its home
office in Galveston, Texas, or (ii) the Minimum Guaranteed Death Benefit on the
Contract less Policy Debt. The death benefit will be paid in a lump sum to the
beneficiary named in the contract usually 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 18. If
the Contractowner did not make such an
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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 whichannuity payments to the beneficiary are determined
and in which they may vary from month to month are described under "Annuity
Period," on page 18.
ANNUITY PERIOD
All or a part of any amount payable at the Annuity Date for Deferred Annuity
Contracts 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 or state 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 $2,000.
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 70 and
annuity payments must begin no later than April 1st of the calendar year
following the calendar year in which the Annuitant reaches 70 1/2.
If no election of an Annuity Date is made under a Contract, American National
reserves the right to automatically begin payments at age 65 (or if age at
purchase was over 55, then 10 years after issue) 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
Matters" on page 19.)
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 Fixed Accounts 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 $20.
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 ten 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 ten 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 not exceeding 20. 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.
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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.
Option 8 - IRC Age Recalculation - An annuity payment based upon the
Annuitant's life expectancy, or the joint life expectancies of the Annuitant and
a beneficiary, at the Annuitant's attained age (and the beneficiary's attained
or adjusted age, if applicable) each year as computed in reference to actuarial
tables prescribed by the Treasury Secretary, until the amount applied, adjusted
daily by the investment results, is exhausted.
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 $2,000, 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, 6 or 8 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.
At the election of the Contractowner, where state law permits, an Immediate
Annuity Contract may provide annuity benefits based on an assumed investment
rate other than 3.0%. The annuity rates for Immediate Annuity Contracts are
available upon request from American National's home office.
ANNUITY PROVISIONS
Non-qualified life contingent annuity payments are determined on the basis of
the mortality table (1983 Table a projected to 1993, 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.
Qualified life contingent annuity payments are determined on the basis of the
mortality table [1983 Table a (female) projected to 1993, 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.
Payment of any amount upon surrender, upon a request for policy loans,
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 Policyowners; or (iii) an emergency exists, as determined by
the Commission, as a result of which disposal of securities is not reasonably
practicable or it is not reasonably practicable to determine the value of the
Separate Account's net assets.
FEDERAL TAX MATTERS
INTRODUCTION
The following discussion is general in nature and is not intended as tax
advice for each Contractowner. It does not address the tax consequences
resulting from all situations in which each Contractowner may be entitled to or
may receive a distribution under a Contract. Tax advice should be sought from a
competent source prior to purchase. The discussion below is based on American
National's understanding of the present federal tax law as currently interpreted
by the Internal Revenue Service. No representation is made as to the
continuation of present federal tax law or its current interpretation. State tax
law may also be applicable.
TAXATION OF ANNUITIES IN GENERAL
A Contractowner, other than a corporate owner or an owner that is not a
natural person, is not generally subject to income tax on increases in the
Accumulation Value of the Contract until payments are received under the
Contract. Income taxation of the benefits received under the Contract, whether
before or after the Annuity Date, is determined under Section 72 of the Code.
Any distribution whether a full or partial surrender, prior to the Annuity
Date may subject the Contractowner to income tax. For this purpose, a policy
loan under any Contract, or an assignment
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<PAGE>
or pledge (or an agreement to assign or pledge) is considered a distribution
prior to the Annuity Date.
If the distribution prior to Annuity Date is by full surrender, the
Contractowner is taxed on the amount distributed less Purchase Payments less any
prior partial surrenders which were not subject to income tax.
If the distribution prior to the Annuity Date is by partial surrender, it is
deemed to come first from any previously untaxed Accumulation Value and then
from Purchase Payments. The Contractowner is subject to income tax on any
previously untaxed Accumulation Value which is distributed.
Purchase Payments may be paid by means of a tax free exchange of annuity
Contracts under Section 1035 of the Code. Contracts exchanged under Code Section
1035 will be subject to the annuity income tax rules of Section 72 of the Code
in effect after that date, with exceptions set out in the description of the
Penalty Tax regarding the First-in First-out treatment of pre-August 14, 1982
contracts.
Withdrawals of amounts attributable to contributions made pursuant to a salary
reduction agreement (in accordance with Code Section 403(b)(11)) are limited to
circumstances only: when the Contractowner attains age 59 1/2, separates from
service, dies, becomes disabled (within the meaning of Section 72(m)(7) of the
Code); or in the case of hardship. Withdrawals for hardship are restricted to
the portion of the Accumulation Value which represents contributions made by the
Contractowner and does not include any investment results. These limitations on
withdrawals apply to: (1) salary reduction contributions made after December 31,
1988; (2) income attributable to such contributions; and (3) income attributable
to amounts held as of December 31, 1988. The limitations on withdrawals do not
affect rollovers or exchanges between certain qualified plans. Tax penalties may
also apply. While the foregoing limitations only apply to certain Contracts
issued in connection with Section 403(b) qualified plans, all Contractowners
should seek competent tax advice regarding any withdrawals or distributions.
If distributions are received after the Annuity Date under an annuity option,
that portion of each annuity payment which represents the Contractowner's
investment in the Contract is excluded from gross income for income tax
purposes. The "investment in the contract" is equal to the total Purchase
Payments for the Contract less any payments under the Contract that were
excluded from gross income. Once the Contractowner's investment in the Contract
is returned in full, the entire amount of each annuity payment is taxable as
ordinary income.
The Technical and Miscellaneous Revenue Act of 1988 made several changes in
the Code. Among those changes is a provision that provides that all annuity
Contracts issued by the same life insurance company to the same Contractowner
during a twelve month period shall be treated as one annuity Contract for
purposes of determining the amount includable in the Contractowner's income for
amounts not received as an annuity. This rule will apply to a distribution
received under the Contract, including a distribution by full or partial
surrender, or other distribution that is not in the form of a payment received
under an annuity option of the Contract.
If the Contractowner dies before the Annuity Date, the Accumulation Value must
be distributed within a specified period. This distribution requirement does not
apply where the spouse of the Contractowner is the successor owner.
Annuity payments and other amounts received under Contracts are subject to
income tax withholding unless the recipient elects not to have taxes withheld.
Notwithstanding the recipient's election, withholding may be required with
respect to certain payments to be delivered outside the United States.
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which set standards of diversification for the investment
underlying the Contracts, in order for the Contracts to be treated as annuities
for income tax purposes. American National intends that these diversification
standards will be satisfied. American National reserves the right to amend the
Contracts in any way necessary to maintain compliance with these standards.
PENALTY TAX ON DISTRIBUTIONS
If there is a taxable distribution from the annuity, there is a penalty tax
equal to 10% of the taxable amount distributed to the extent the taxable
distribution is considered to be an early distribution under the annuity
Contract. The penalty tax does not apply to taxable distributions made as a
result of the death or disability of the Contractowner or distributions made
after the Contractowner reaches age 59 1/2; to distributions made under
Immediate Annuities; to distributions made under Settlement Options 1 or 4,
provided the distribution under such plans are substantially equal; and to
distributions attributable to Purchase Payments prior to August 14, 1982. The
penalty tax will not apply to distributions attributable to Purchase Payments
within ten years or more prior to the distribution. For this purpose,
distributions will be attributed to Purchase Payments on a "first-in, first-out"
basis (to the earliest Purchase Payment which has not been fully allocated to
prior distributions).
QUALIFIED CONTRACTS
Qualified Contracts are designed for use with several types of qualified plans
including those subject to Code sections 401, 403(b), 408, and 457. The tax
rules applicable to Annuitants in such qualified plans vary according to the
type of plan and the terms and conditions of the plan itself. Annuitants in
qualified plans may include: individuals purchasing Individual Retirement
Annuities (IRAs); business owners (both self-employed and stockholders) who
establish pensions, profit sharing plans, and SEPs; employees of 501(c)(3)
organizations or public schools contributing to 403(b) annuities; and government
employees covered by a 457 deferred compensation plan.
As a general rule, Purchase Payments made by or for Annuitants in qualified
plans are not subject to current taxation. To the extent
20
<PAGE>
any such amounts are taxed prior to or at the time of Purchase Payment, such
amounts establish a cost basis exempt from tax at the time of distribution.
Distributions from Qualified Contracts must satisfy certain minimum
distribution requirements. These requirements relate to both the time and amount
of distribution which include premature payments. Failure to comply may result
in penalty taxes which would be in addition to normal taxes. Distributions from
401 plans and 403(b) annuities paid to the plan participant/annuitant will be
subject to mandatory Federal withholding of twenty percent (20%). No withholding
will apply if there is a direct rollover among plans.
The Retirement Equity Act of 1984 imposes certain requirements with respect to
payments from qualified plans for married Annuitants and provides certain
restrictions involving qualified domestic relations orders.
POSSIBLE LEGISLATIVE CHANGES
The President's Budget Proposal has recommended legislation in 1998 that, if
enacted, would adversely modify the federal taxation of certain insurance and
annuity contracts. For example, one proposal would tax transfers among
investment options and tax exchanges involving variable contracts. A second
proposal would reduce the "investment in the contract" under cash value life
insurance and certain annuity contracts, thereby increasing the amount of income
for purposes of computing gain. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or other means. Moreover, it is also
possible that any change could be retroactive (that is, effective prior to the
date of change). You should consult a qualified tax adviser with respect to
legislative developments and their effect on the Contract.
PERFORMANCE
Performance information for the Subaccounts may appear in reports and
advertising to current and prospective Contractowners. The performance
information is based on historical investment experience of the Subaccounts and
the Funds and does not indicate or represent future performance.
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 FID Money Market Subaccount and the AN Money Market Subaccount may
advertise its 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 similar manner except that income earned is assumed to
be reinvested. The Investment Grade Bond and the High Income Subaccounts may
advertise a 30-day yield which reflects the income generated by an investment in
the Subaccount over a 30-day period.
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 Fund's 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.
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SAFEKEEPING OF THE SEPARATE ACCOUNT'S ASSETS
American National holds the assets of the Separate Account. The assets are
kept physically segregated and held separate and apart from the General Account
assets, except for the Fixed Account. 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.
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.
PREPARING FOR YEAR 2000
Like all financial services providers, American National utilizes systems that
may be affected by Year 2000 transition issues and it relies on service
providers, including the Eligible Portfolios, that may also be affected.
American National has developed, and is in the process of implementing, a Year
2000 transition plan, and is confirming that its service providers are also so
engaged. The resources that are being devoted to this effort are substantial. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on American National. However, as of the date of this prospectus, it is
not anticipated that Policyowners will experience negative effects on their
Accumulation Value, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. American National currently
anticipates that its systems will be Year 2000 compliant on or about January 1,
1999, but there can be no assurance that American National will be successful,
or that interaction with other service providers will not impair American
National's services at that time.
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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, LLP, General
Counsel.
LEGAL PROCEEDINGS
American National and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/ or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, American National believes that
at the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
American National.
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1997 and 1996 and for the years then ended,
and the statements of net assets of American National Variable Annuity Separate
Account as of December 31, 1997 and the related statements of operations for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended, included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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 Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, American National and the Contract
offered hereby. 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.
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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
The Contract......................................................... 2
Valuation of Accumulation Units...................................... 2
Computation of Variable Annuity Payments............................. 2
Annuity Unit Value................................................... 2
Summary.............................................................. 3
Exceptions to Charges................................................ 3
Termination of Contract.............................................. 3
Group Unallocated Contract........................................... 3
Additional Federal Tax Matters....................................... 3
Limits on Subsequent Purchase Payments
(Under the Internal Revenue Code).................................. 3
Taxation of American National........................................ 4
Tax Status of the Contracts.......................................... 4
Assignment........................................................... 4
Distribution of the Contracts........................................ 4
Safekeeping of Separate Account Assets............................... 4
State Regulation of American National................................ 4
Records and Reports.................................................. 5
Performance.......................................................... 5
Total Return......................................................... 5
Yields............................................................... 5
Legal Matters........................................................ 6
Legal Proceedings.................................................... 6
Experts.............................................................. 6
Additional Information............................................... 6
Financial Statements................................................. 6
Financials........................................................... 7
24
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<TABLE>
<CAPTION>
[LOGO OF AMERICAN NATIONAL
APPEARS HERE]
PURCHASER SUITABILITY FORM & ARBITRATION AGREEMENT
This form must accompany all applications for American National Variable Universal Life and Variable Annuity products.
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
1. NEW PURCHASER INFORMATION
Name______________________________________________________________________________________________Date_____________________________
Address____________________________________________________________________________________________________________________________
Social Security or Tax I.D. Number_________________________________________________________________________________________________
If Purchaser is a corporation, partnership or other legal entity, names of any
persons authorized to transact business on behalf of entity:
___________________________________________________________________________________________________________________________________
2. PURCHASER'S OCCUPATION
Name and Address of Employer______________________________________________________________________________________________________
Business Phone____________________________________________________________________________________________________________________
3. IS THE PURCHASER EMPLOYED BY OR ASSOCIATED WITH A MEMBER OF THE NASD OR NYSE?
[ ] Yes [ ] No If yes, provide the name, address and phone number of the firm:____________________________________________________
___________________________________________________________________________________________________________________
4. TAX STATUS
[ ] Single [ ] Head of Household [ ] Married filing separate returns
[ ] Married filing joint return or qualifying widow(er) with dependent child [ ] Corporation [ ] Other_________________
5. MARITAL STATUS
[ ] Married [ ] Single [ ] Widowed
6. DEPENDENTS
[ ] Spouse [ ] Children: Ages____________ [ ] Other_____________________________________________________________
INVESTOR SUITABILITY INFORMATION (the information requested applies to the Applicant/Policy Owner if different from the Proposed
Insured) To be completed by Purchaser or Registered Representative.
NASD rules require Registered Representatives to have reasonable grounds for believing the recommended purchase is suitable for the
customer. Therefore, representatives are required to make inquiries concerning the financial condition of a proposed purchaser of
any of American National's Variable products. You are urged to supply such information so that the representative can make an
informed judgment as to the suitability of your investment selection(s). However, you are not required to divulge such information.
If you choose not to do so, you must sign at the section provided below indicating refusal and acknowledging that the representative
did request the suitability information.
1. SOURCES OF FUNDS FOR INVESTMENT
A. [ ] Current Earnings C. [ ] Gift or Inheritance E. [ ] Insurance Benefit
B. [ ] Savings D. [ ] Sale of Assets F. [ ] Maturity Proceeds G. [ ]___________________________
2. PRIMARY PURPOSE OF INVESTMENT
A. [ ] Education C. [ ] Savings E. [ ] Retirement G. [ ] Estate Planning
B. [ ] Tax Shelter D. [ ] Business Purposes F. [ ] Current Income H. [ ]___________________________
3. INVESTMENT PROFILE
(a) What is your current investment preference?
[ ] Aggressive Growth [ ] Growth [ ] Growth & Current Income
[ ] Current Income [ ] Maximum safety, even if modest return
(b) What is your risk comfort level?
[ ] High [ ] High/Moderate [ ] Moderate [ ] Moderate/Limited [ ] Low
(c) What is your financial goal time horizon?
[ ] 1-5 years [ ] 5-10 years [ ] 10 years and beyond
(d) What is your age range?
[ ] 21-40 [ ] 41-59 [ ] 60 +
(e) What is your tax bracket?
[ ] 15% [ ] 28% [ ] 28% +
(f) What is your estimated annual family income?
[ ] $15,000 [ ] $15,000-$30,000 [ ] $30,000-$50,000
[ ] $50,000-$100,000 [ ] Over $100,000
(g) What is your estimated net worth (exclude home, furnishings and automobiles)?
[ ] $25,000 [ ] $25,000 - $50,000 [ ]$50,000 - $100,000 [ ] Over $100,000
(h) Are you responsible for the financial welfare of anyone other than your immediate family (i.e. alimony, child or parental
support,etc.)? [ ] Yes [ ] No
(i) Do you own other securities? [ ] Yes [ ] No
Types: [ ] Stocks [ ] Bonds [ ] Mutual Funds [ ] Variable Products [ ]Other
I (we) furnished the above suitability information and it has been accurately recorded.
___________________________________________________________ ___________________________________________________________
Purchaser Signature Joint Owner Signature
continued on reverse side
</TABLE>
<PAGE>
STATEMENT OF REFUSAL TO PROVIDE FINANCIAL INFORMATION
I (we) fully understand that the Registered Representative, acting on behalf of
American National Insurance Company and Securities Management & Research, Inc.,
has requested the above suitability information to determine whether my (our)
purchase of American National's Variable products is an appropriate investment
considering my (our) financial situation. I (we) refuse to provide the requested
information and by my (our) signature(s) below agree not to seek rescission of
the applicable variable product issued or damages based on its unsuitability.
_________________________________ ___________________________________
Purchaser Signature Joint Owner Signature
REGISTERED REPRESENTATIVE NOTICE - Should the Purchaser sign the above Statement
of Refusal to Provide Financial Information, it is still an NASD requirement
that you have reasonable grounds to recommend the purchase of this investment as
suitable. Therefore, you must complete the suitability information to the best
of your knowledge and certify that you have done so when signing the Registered
Representative's Statement below.
PURCHASER AGREEMENT TO ARBITRATION
(THIS SECTION IS NOT APPLICABLE TO MISSOURI RESIDENTS)
The following conditions are agreed to by all parties to this agreement.
1. Arbitration is final and binding on the parties.
2. The parties are waiving their right to seek remedies in court, including the
right to a jury trial.
3. Pre-arbitration discovery is generally more limited and different from court
proceedings.
4. The arbitrators' award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings
by arbitrators is strictly limited.
5. The panel of arbitrators will typically include a minority of arbitrators who
were or are affiliated with the securities industry.
By signature below, I (we) understand that I (we) have the right to any dispute
between us arising under the federal securities laws to be resolved through
litigation in the courts. In lieu of using the courts, I (we) may agree, after
any such dispute has arisen, to settle it by arbitration before an appropriate
group of arbitrators. However, I (we) understand that any other dispute between
us arising out of any transaction or this agreement shall be settled by
arbitration before the National Association of Securities Dealer, Inc., which
must be commenced by a written notice of intent to arbitrate. Judgment upon any
award may be entered in any appropriate court.
I (we) further understand that we may not bring a punitive or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against anyone who has initiated in court a punitive class action; or who is a
member of a punitive class action until (1) the class action certification is
denied; or (2) the class is decertified; or (3) I (we) are excluded from the
class action by the court. Such forbearance to enforce an agreement to arbitrate
shall not constitute a waiver of any right under this agreement except to the
extent stated herein.
_________________________________ ___________________________________
Purchaser Signature Joint Owner Signature
REGISTERED REPRESENTATIVE STATEMENT & SIGNATURE
Check appropriate boxes.
[ ] Application attached.
[ ] Signed Arbitration Agreement
[ ] Suitability Information was provided by the Purchaser(s) and the
Purchaser(s) signed acknowledgment that information was accurately
recorded.
or,
[ ] Refusal to Provide Financial Information Statement signed by
Purchaser(s). I provided the suitability information to the best of my
knowledge and have reasonable grounds to recommend the purchase of this
investment as suitable for the Investor.
______________________________________ _______________________________________
Registered Representative Signature Registered Representative Personal Code
______________________________________ _______________________________________
Registered Representative Name (print) Date Branch Office # PSO#
- --------------------------------------------------------------------------------
Home Office Approval:______________________________________
Date Received:________________________
<PAGE>
[AMERICAN NATIONAL LOGO APPEARS HERE]
<PAGE>
INVE$TRAC
GOLD
VARIABALE
ANNUITY
CONTRACTS
Prospectus for
Group Unallocated
Variable Annuity Contracts
Issued by
AMERICAN NATIONAL
INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
1-800-306-2959
DISTRIBUTOR
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
[LOGO OF CUSTODIAN
AMERICAN AMERICAN NATIONAL INSURANCE COMPANY
NATIONAL ONE MOODY PLAZA
APPEARS GALVESTON, TEXAS 77550-7999
HERE]
INVESTMENT MANAGER
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
INSURER
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT BE LAWFULLY MADE. NO DEALER, SALESMAN, OR OTHER PERSON IS
AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATIONS IN CONNECTION
WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
This Prospectus describes the group unallocated form of Variable Annuity
Contracts (the "Contract") offered by American National Insurance Company
("American National"). The Contract is designed to provide an investment vehicle
for the accumulation of capital on a tax-deferred basis for retirement or other
long-term purposes.
Unlike traditional guaranteed annuities, the Contract provides Accumulation
Values 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 Investment
Accounts, Inc. (the "American National Fund") and in the portfolios of Variable
Insurance Products Fund (VIP)and Variable Insurance Products Fund II (VIP
II)(sometimes referred to, collectively, as the "Fidelity Funds"). The
portfolios of the American National Fund and the portfolios of the Fidelity
Funds that are available for investment will sometimes be referred to,
individually, as an "Eligible Portfolio" and, collectively, as the "Eligible
Portfolios."
The Contractowner may request that all or a portion of the Accumulation Value
of the Contract be annuitized. At that time, a portion of the Accumulation Value
is allocated to the Fixed Account and annuity payments are made according to the
option provided by the Plan.
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 fourteen separate Subaccounts: the AN Money Market, the AN Growth,
the AN Balanced, the AN Managed, the VIP II Investment Grade Bond, the VIP II
Asset Manager, the VIP II Index 500, the VIP Money Market, the VIP Equity-
Income, the VIP High Income, the VIP Growth, the VIP Overseas, the VIP II
Contrafund and the VIP II Asset Manager: Growth Subaccounts. The assets of such
Subaccounts are invested in shares of a corresponding Eligible Portfolio. The
accompanying prospectuses for the American National Fund and the Fidelity Funds
describe the investment objectives, policies and the risks of each of the
Eligible Portfolios. The prospectuses for the Fidelity Funds include certain
portfolios which are not Eligible Portfolios and therefore not available for
investment under the Policy.
The Fixed Account is funded by the general assets of American National.
Although the Contract is designed primarily to offer benefits based on
investment performance, all or a portion of the Accumulation Value 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. State law generally does not provide such a
"free look" period for the Plan Participants.
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 calling American National at the telephone number
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 18.
This Prospectus is valid only when accompanied by Current Prospectuses or
Prospectus Profiles For The American National Investment Accounts, Inc.,
Variable Insurance Products Fund and Variable Insurance Products Fund II
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, OR BY ANY STATE SECURITIES REGULATORY AUTHORITY, NOR HAS
THE COMMISSION, OR ANY STATE SECURITIES REGULATORY AUTHORITY, PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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 APRIL 30, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE
Glossary of Terms.................................................... 3
Summary of the Contracts............................................. 4
Purpose of the Contracts............................................ 4
Investment Options.................................................. 4
Purchasing a Variable Annuity Contract.............................. 4
Allocations and Transfers........................................... 4
Death Benefit....................................................... 4
Surrenders from the Contract........................................ 4
How Annuity Payments are Determined................................. 4
Your Right to Cancel the Variable Annuity
Contract.......................................................... 4
Summary of Expenses.................................................. 4
Expenses............................................................ 4
American National Insurance Company and
the Separate Account................................................ 8
American National Insurance Company................................. 8
The Separate Account................................................ 8
The American National Fund.......................................... 8
The Fidelity Funds.................................................. 9
Addition, Deletion or Substitution of
Investments....................................................... 10
Fixed Account........................................................ 11
Contract............................................................. 11
Purpose of the Contract............................................. 11
Type of Contract.................................................... 11
Contract Application and Purchase Payments.......................... 11
Allocation of Purchase Payments..................................... 12
Crediting of Accumulation Units..................................... 12
Determining the Accumulation Unit Values............................ 12
Transfers........................................................... 12
Contractowner Inquiries.............................................. 12
Charges and Deductions............................................... 12
Surrender Charge.................................................... 12
Other Charges....................................................... 12
(a) Administrative Charges.......................................... 12
(b) State Premium Taxes............................................. 13
(c) Mortality and Expense Risk Fee.................................. 13
(d) Charges for Taxes............................................... 13
(e) Exchange Fee.................................................... 13
Exceptions to Charges............................................... 13
Distributions Under the Contract..................................... 13
Full and Partial Surrenders......................................... 13
Annuity Payments..................................................... 14
Annuity Options..................................................... 14
Annuity Provisions.................................................. 14
Federal Tax Matters.................................................. 14
Introduction........................................................ 14
Taxation of Annuities in General.................................... 14
Qualified Contracts................................................. 15
Possible Legislative Changes........................................ 15
Performance.......................................................... 15
Distributor of the Contracts......................................... 16
Safekeeping of the Separate Account's Assets......................... 16
Voting Rights........................................................ 16
Legal Matters........................................................ 16
State Regulation of American National................................ 16
Preparing for Year 2000............................................. 17
Legal Proceedings.................................................... 17
Experts.............................................................. 17
Additional Information............................................... 17
Financial Statements................................................. 17
Table of Contents of Statement of
Additional Information.............................................. 18
2
<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 date the Contract is surrendered for its then
current value.
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 12.)
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 times the respective Accumulation
Unit Values of such Subaccounts, and (ii) the Contractowner's value in the Fixed
Account.
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 entity entitled to exercise rights of ownership in a
Contract prior to termination of the Contract.
CONTRACT YEAR - The period from the date the first Purchase Payment is
credited to the immediately preceding day of the succeeding year. (February 29
will be treated as February 28 for the purpose of this definition.)
DEFERRED ANNUITY CONTRACT - A Contract in which annuity payments commence at
some future date specified by the Contractowner.
ELIGIBLE PORTFOLIO - A Portfolio of The American National Fund or the Fidelity
Funds 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.
GROUP UNALLOCATED CONTRACT - A Contract between theContractowner and American
National under which all Accumulation Units are credited to one accumulation
account.
IMMEDIATE ANNUITY - A Contract purchased with a single Purchase Payment, which
provides immediate annuity payments on an annual, semiannual, quarterly or
monthly schedule to the Contractowner.
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.
PLAN - A document or agreement defining the retirement or other benefits and
those eligible to receive them. The Plan is not a part of a Contract and
American National is not a party to a Plan.
PLAN PARTICIPANT - a participant in a Plan.
PORTFOLIO - A separate series of capital securities designed to meet specified
investment objectives. The American National Fund currently consists of four
portfolios, all of which are Eligible Portfolios. The Fidelity Funds currently
consist of ten portfolios, all of which are Eligible Portfolios.
PURCHASE PAYMENT - A payment made into a Contract.
QUALIFIED CONTRACT - A Contract issued in connection with a Plan that receives
favorable tax treatment under the Internal Revenue Code of 1986.
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") 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 Accumulation Value which varies in
dollar amount depending on the investment results of the American National Fund
or the Fidelity Funds.
3
<PAGE>
SUMMARY OF THE CONTRACTS
PURPOSE OF THE CONTRACTS
The purpose of the Contract is to provide Accumulation Values which are
expected to reflect changes in the cost of living to a greater degree than a
traditional guaranteed annuity. The Contract offers Contractowners the
opportunity to vary the Accumulation Value based on the performance of the
investments chosen by the Contractowner.
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 11.)
INVESTMENT OPTIONS
Net Purchase Payments may be invested in the Subaccounts and/or in American
National's Fixed Account. The fourteen Subaccounts are: the AN Money Market, the
AN Growth, the AN Balanced, the AN Managed, the VIP II Investment Grade Bond,
the VIP II Asset Manager, the VIP II Index 500, the VIP Money Market, the VIP
Equity-Income, the VIP High Income, VIP Growth, the VIP Overseas, the VIP II
Contrafund and the VIP II Asset Manager: Growth Subaccounts. Each of the
Subaccounts invests exclusively in the shares of a corresponding Eligible
Portfolio. Each such Subaccount and corresponding Eligible Portfolio has a
different investment objective. (See "The American National Fund" at page 8, and
"The Fidelity Funds" at page 9.)
PURCHASING A VARIABLE ANNUITY CONTRACT
If a legal entity wishes to purchase a Contract, the legal entity must
complete an application and pay the minimum initial Purchase Payment to American
National's home office.
ALLOCATION AND TRANSFERS
Net Purchase Payments will be initially allocated to each Subaccount and/or
American National's Fixed Account as instructed in the application. Thereafter,
the allocation may be changed by the Contractowner.
Transfers can be made between Subaccounts and American National's Fixed
Account. American National allows 12 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" on page
12.
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 to be on file at American National's home office before
telephone instructions will be allowed.
DEATH BENEFIT
The death benefit, if any will be determined by the provisions of the Plan
pursuant to which the Contract is issued.
SURRENDERS FROM THE CONTRACT
All or part of a Accumulation Value may be surrendered upon the
Contractowner's written request. The surrender is subject to a Surrender Charge.
Contracts purchased in connection with retirement plans may be subject to
restrictions imposed by the Plan. The sum of surrender charges and distribution
expense charges will never be more than 9.0% of total Purchase Payments paid.
HOW ANNUITY PAYMENTS ARE DETERMINED
The Contractowner may request that all or a portion of the Accumulation Value
of the Contract be annuitized. At that time, a portion of the Accumulation Value
is allocated to the Fixed Account and annuity payments are made according to the
option provided by the Plan. There are a number of different annuity options,
each of which provides a different level and number of annuity payments. The
annuity options include payments for the life of a Plan Participant, payments
for the life of an Plan Participant with a guarantee that such payments will
continue for at least 10 or 20 years, or payments made jointly to a Plan
Participant and another named individual with a right of survivorship. (See
Annuity Options, page 14.)
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 the
Contractowner may return the Contract to American National's home office. State
law does not generally provide a "free look" period for the Plan Participants.
If a Contract is returned during the Contractowner's "free look" period,
American National will then refund the greater of all Purchase Payments made or
the Accumulation Value plus the amount of any charges for state premium taxes,
mortality and expense risk and advisory fees. (See "Contract Application and
Purchase Payments," page 11.)
SUMMARY OF EXPENSES
EXPENSES
The purpose of the following table is to illustrate the costs and expenses
that are borne, directly and indirectly, by Contractowners. 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.
CONTRACTOWNER TRANSACTION EXPENSES
Sales Load as a percentage of Purchase Payments 0%
Deferred Sales Load ("Surrender Charge")
4
<PAGE>
A Surrender Charge is imposed based upon the Contract Year in which the
withdrawal is made. The Surrender Charge is deducted from the remaining
Accumulation Value, or, if the remaining Accumulation Value is insufficient to
cover the Surrender Charge, a portion of the Surrender Charge will be deducted
from the withdrawal amount. Such Surrender Charge will be a percentage of each
withdrawal as illustrated in the following table:
Contract Years Applicable Surrender Charge
as a Percentage of Each Withdrawal
1................. 4.0
2................. 3.5
3................. 3.0
4................. 2.5
5................. 2.0
6................. 1.5
7................. 1.0
8 and thereafter.. 0.0
EXCHANGE FEE $10.
(THERE IS NO EXCHANGE FEE FOR
THE FIRST TWELVE TRANSFERS)
Annual Contract Fee $ 0.
Separate Account Annual Expenses
(AS A PERCENT OF AVERAGE NET ASSETS)
Mortality Risk Fee 0.40%
Expense Risk Fee 0.45%
Administrative Asset Fee 0.10%
Total Separate Account Annual Expense 0.95%
AN MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after expense reimbursement * **0.14%
Other Expenses 0.73%
Total AN Money Market Portfolio Annual Expense 0.87%
* Without reimbursement the management fees would have been 0.50% and the total
portfolio annual expense would have been 1.23%.
AN GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.28%
Other Expenses 0.59%
Total AN Growth Portfolio Annual Expenses 0.87%
* Without reimbursement the management fees would have been 0.50% and the total
portfolio annual expense would have been 1.09%.
AN BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.10%
Other Expenses 0.80%
Total AN Balanced Portfolio Annual Expenses 0.90%
* Without reimbursement the management fees would have been 0.50% and the total
portfolio annual expense would have been 1.30%.
AN MANAGED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.33%
Other Expenses 0.60%
Total AN Managed Portfolio Annual Expenses 0.93%
* Without reimbursement the management fees would have been 0.50% and the total
portfolio annual expense would have been 1.10%.
** Under its Administrative Service Agreement with the Fund, Securities
Management and Research, Inc. ("SM&R"), the Fund's Investment 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, 1999, pursuant to which SM&R has
agreed to reimburse the AN Money Market Portfolio and the AN Growth Portfolio
for expenses in excess of .87%; the AN Balanced Portfolio for expenses in excess
of .90% and the AN 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.
VIP II INVESTMENT GRADE BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.44%
Other Expenses 0.14%
Total VIP II Investment Grade Bond Portfolio
Annual Expenses 0.58%
VIP II ASSET MANAGER PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.55%
Other Expenses 0.10%
Total VIP II Asset Manager Portfolio Annual
Expenses after reduction *0.65%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.55%, 0.20% and 0.75%, respectively.
VIP II INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.24%
Other Expenses 0.04%
Total VIP II Index 500 Portfolio Annual
Expenses 0.28%
VIP MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.21%
Other Expenses 0.10%
Total VIP Money Market Portfolio Annual Expenses 0.31%
VIP EQUITY-INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Other Expenses 0.08%
Total VIP Equity-Income Portfolio Annual
Expenses after reduction *0.58%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.50%, 0.18% and 0.68%, respectively.
VIP HIGH INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59%
Other Expenses 0.12%
Total VIP High Income Portfolio Annual
Expenses after reduction *0.71%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other
5
<PAGE>
expenses and total portfolio expenses would have been 0.59%, 0.22% and 0.81%,
respectively.
VIP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Other Expenses 0.09%
Total VIP Growth Portfolio Annual Expenses
after reduction *0.69%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.60%, 0.19% and 0.79%, respectively.
VIP OVERSEAS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.17%
Total VIP Overseas Portfolio Annual Expenses
after reduction *0.92%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.75%, 0.27% and 1.02%, respectively.
VIP II Contrafund Portfolio Annual Expenses
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Other Expenses 0.11%
Total VIP II Contrafund Portfolio Annual
Expenses after reimbursement *0.71%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.60%, 0.21% and 0.81%, respectively.
VIP II ASSET MANAGER: GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Other Expenses 0.17%
Total VIP II Asset Manager: Growth Portfolio
Annual Expenses after reimbursement *0.77%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.60%, 0.27% and 0.87%, respectively.
EXAMPLE: GROUP UNALLOCATED CONTRACT
If you surrender your Group Unallocated 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:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AN Money Market Portfolio $58 $89 $121 $214
AN Growth Portfolio $58 89 121 214
AN Balanced Portfolio $59 90 123 217
AN Managed Portfolio $59 91 124 220
VIP II Investment Grade
Bond Portfolio $56 80 106 182
VIP II Asset Manager
Portfolio $57 85 115 200
VIP II Index 500 Portfolio $53 71 91 149
VIP Money Market Portfolio $53 72 92 151
VIP Equity-Income
Portfolio $56 80 106 182
VIP High Income Portfolio $57 84 113 197
VIP Growth Portfolio $57 84 112 194
VIP Overseas Portfolio $59 91 124 220
VIP II Contrafund Portfolio $57 85 115 200
VIP II Asset Manager:
Growth Portfolio $58 89 121 214
If you do not surrender your Group Unallocated Contract: You would pay the
following expenses on a $1,000 investment, assuming 5% annual return on
assets:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
AN Money Market
Portfolio $18 $57 $ 99 $214
AN Growth Portfolio $18 57 99 214
AN Balanced Portfolio $19 58 100 217
AN Managed Portfolio $19 59 102 220
VIP II Investment Grade
Bond Portfolio $16 48 83 182
VIP II Asset Manager
Portfolio $17 53 92 200
VIP II Index 500 Portfolio $13 39 68 149
VIP Money Market
Portfolio $13 40 69 151
VIP Equity-Income
Portfolio $16 48 83 182
VIP High Income
Portfolio $17 52 90 197
VIP Growth Portfolio $17 52 89 194
VIP Overseas Portfolio $19 59 102 220
VIP II Contrafund
Portfolio $17 53 92 200
VIP II Asset Manager:
Growth Portfolio $18 57 99 214
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 American National Fund and/or the Fidelity Funds. 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. For a more complete description of the various costs and
expenses of the American National Fund and the Fidelity Funds, see their
Prospectuses.
6
<PAGE>
ACCUMULATION UNIT VALUES
<TABLE>
<CAPTION>
(For an accumulation unit outstanding throughout the period) Year Ended December 31,
----------------------------
1997 1996 1995
------- -------- -------
<S> <C> <C> <C><C>
AN GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.558 $ 1.343 b $ --
Accumulation unit value at end of period $ 1.968 $ 1.558 $ --
Number of accumulation units outstanding at end of period 17,443 14,363 --
AN MONEY MARKET PORTFOLIO
Accumulation unit value at beginning of period $ 1.387 $ 1.053 c $ --
Accumulation unit value at end of period $ 1.101 $ 1,387 $ --
Number of accumulation units outstanding at end of period -- 71 --
AN BALANCED PORTFOLIO
Accumulation unit value at beginning of period $ 1.369 $ 1.184 b $ --
Accumulation unit value at end of period $ 1.504 $ 1.369 $ --
Number of accumulation units outstanding at end of period 3,587 3,330 --
AN MANAGED PORTFOLIO
Accumulation unit value at beginning of period $ 2.466 $ 1.353 b $ --
Accumulation unit value at end of period $ 1.903 $ 2.466 $ --
Number of accumulation units outstanding at end of period 465 1,498 --
FIDELITY VIP II INVESTMENT GRADE BOND
Accumulation unit value at beginning of period $ 1.185 $ 1.121 b $ --
Accumulation unit value at end of period $ 1.283 $ 1.185 $ --
Number of accumulation units outstanding at end of period 13,768 17,859 --
FIDELITY VIP II ASSET MANAGER
Accumulation unit value at beginning of period $ 1.318 $ 1.149 $0.990
Accumulation unit value at end of period $ 1.583 $ 1.318 $1.149
Number of accumulation units outstanding at end of period 78,051 42,474 41,926
FIDELITY VIP II INDEX 500
Accumulation unit value at beginning of period $ 1.777 $ 1.486 b $ --
Accumulation unit value at end of period $ 2.487 $ 1.777 $ --
Number of accumulation units outstanding at end of period 11,675 6,327 --
FIDELITY VIP MONEY MARKET
Accumulation unit value at beginning of period $ 1.109 $ 1.066 a $ --
Accumulation unit value at end of period $ 1.196 $ 1.109 $ --
Number of accumulation units outstanding at end of period 10,040 8,304 --
FIDELITY VIP EQUITY INCOME FUND
Accumulation unit value at beginning of period $ 1.535 $ 1.338 $1.000
Accumulation unit value at end of period $ 1.980 $ 1.535 $1.338
Number of accumulation units outstanding at end of period 77,128 47,017 39,570
FIDELITY VIP HIGH INCOME FUND
Accumulation unit value at beginning of period $ 1.415 $ 1.260 b $ --
Accumulation unit value at end of period $ 1.635 $ 1.415 $ --
Number of accumulation units outstanding at end of period 8,122 8,006 --
FIDELITY VIP GROWTH
Accumulation unit value at beginning of period $ 1.587 $ 1.462 b $ --
Accumulation unit value at end of period $ 1.994 $ 1.587 $ --
Number of accumulation units outstanding atend of period 28,010 20,557 --
FIDELITY VIP OVERSEAS
Accumulation unit value at beginning of period $ 1.196 $ 1.061 $ 0.970
Accumulation unit value at end of period $ 1.319 $ 1.196 $ 1.061
Number of accumulation units outstanding at end of period 43,013 25,842 21,832
FIDELITY VIP II CONTRA FUND
Accumulation unit value at beginning of period $ 1.455 $ 1.213 b
Accumulation unit value at end of period $ 1.757 $ 1.455
Number of accumulation units outstanding at end of period 9,016 4,605
FIDELITY VIP II ASSET MANAGER GROWTH
Accumulation unit value at beginning of period $ 1.222 $ 1.102 b
Accumulation unit value at end of period $ 1.503 $ 1.222
Number of accumulation units outstanding at end of period 9,295 7,234
a June 10, 1996 (the first date the Subaccount received a transfer or had a purchase payment allocated)
b June 25, 1996 (the first date the Subaccount received a transfer or had a purchase payment allocated)
c July 30, 1996 (the first date the Subaccount received a transfer or had a purchase payment allocated)
</TABLE>
7
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND THE SEPARATE ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
American National is a stock life insurance company chartered in 1905 in the
State of Texas. It is licensed to do life insurance business in 49 states, the
District of Columbia, Puerto Rico, Guam, and American Samoa. American National's
home office is located at the American National Insurance Building, One Moody
Plaza, Galveston, Texas 77550-7999. The Moody Foundation (the "Foundation"), a
charitable foundation established for charitable and educational purposes, owns
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owns approximately 37.6% of such shares. Robert L. Moody
("RLM"), Chairman of the Board, President and Chief Executive Officer of
American National, RLM's son, Ross R. Moody, and Frances Moody Newman, RLM's
mother, are trustees of the Foundation.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie S.
Moody Trust. RLM is Chief Executive Officer of the Bank and of Moody Bank
Holding Company, Inc. ("MBHC"), the Bank's controlling stockholder. RLM is also
a Director and President of Moody Bancshares, Inc. ("Bancshares"), MBHC's sole
shareholder. The Three R Trusts, trusts established by RLM for the benefit of
his children, own 100% of Bancshares' Class B stock (which elects a majority of
Bancshares' directors) and 49.6% of its Class A Stock. The trustee of the Three
R Trusts is Irwin M. Herz, Jr., a partner in Greer, Herz & Adams, LLP, 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.
American National's total assets on December 31, 1997 were $6,911,337,624 on a
statutory basis.
American National writes life, health and accident insurance and annuities.
THE SEPARATE ACCOUNT
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. At present the Separate Account is
used only to support Variable Annuity Contracts. 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 Contract's supported by it. In addition to these assets, the
Separate Account assets may include accumulations of the charges American
National makes against Policies and 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 Variable Annuity 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 fourteen
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 American National Fund shares are also
purchased by American National Variable Life Separate Account.
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 Money Market Portfolio, a Growth
Portfolio, a Balanced Portfolio and a Managed Portfolio.
AN 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 adviser. The Money
Market Portfolio of the American National Funds shall be referred to herein as
"AN Money Market."
AN 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. This Growth
Portfolio of the American National Fund is referred to herein as "AN Growth."
AN 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
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securities such as bonds, preferred stock and short-term obligations combined
with common stocks and securities convertible into common stocks.
AN 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 AN Managed Portfolio will consist of equity
securities.
Securities Management and Research, Inc. ("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, ten of the Subaccounts of the
Separate Account invest in the shares of ten 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. The Fidelity Funds' shares are also purchased by
American National Variable Life Separate Account.
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 personal and a full compliment of
related support facilities. Fidelity Management & Research (U.K.) Inc. ("FMR
U.K.") and Fidelity Management and Research (Far East) Inc. ("FMR Far East") are
wholly owned subsidiaries of FMR that provide research with respect to foreign
securities. FMR U.K. and FMR Far East maintain their principal business offices
in London and Tokyo, respectively. As of December 31, 1997, FMR advised funds
having more than 29 million shareholder accounts with a total value of more than
$423 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. The Fidelity Funds are series mutual funds which currently have a
total of thirteen separate investment portfolios, ten of which are Eligible
Portfolios.
VIP II INVESTMENT GRADE BOND PORTFOLIO ... seeks as high a level of current
income as is consistent with the preservation of capital by investing in a broad
range of investment-grade, fixed-income securities. The VIP II Investment Grade
Bond Portfolio will maintain a dollar-weighted average portfolio maturity of ten
years or less.
VIP EQUITY-INCOME PORTFOLIO ... seeks reasonable income by investing primarily
in income-producing equity securities. In choosing these securities, the VIP
Equity-Income Portfolio will also consider the potential for capital
appreciation. The VIP Equity-Income Portfolio's goal is to achieve a yield which
exceeds the composite yield on the securities comprising the Standard & Poor's
500 Composite Stock Price Index.
VIP HIGH INCOME PORTFOLIO ... seeks to obtain a high level of current income
by investing primarily in high-yielding, lower-rated, fixed-income securities,
while also considering growth of capital. High yielding, lower-rated securities
present higher risks of untimely interest and principal payments, default and
price volatility than higher-quality securities, and may present problems of
liquidity and valuation. See the prospectus describing the VIP High Income
Portfolio for more information on the risks of investing in high-yielding,
lower-rated securities.
VIP GROWTH PORTFOLIO ... seeks to achieve capital appreciation. The VIP Growth
Portfolio normally purchases common stocks, although its investments are not
restricted to any one type of security. Capital appreciation may also be found
in other types of securities, including bonds and preferred stocks.
VIP OVERSEAS PORTFOLIO ... seeks long term growth of capital primarily through
investments in foreign securities. VIP Overseas Portfolio provides a means for
investors to diversify their own portfolios by participating in companies and
economies outside of the United States.
VIP MONEY MARKET PORTFOLIO ... seeks to obtain as high a level of current
income as is consistent with preserving capital and providing liquidity. The VIP
Money Market Portfolio will invest only in high quality U.S. dollar denominated
money market securities of domestic and foreign issuers.
VIP II ASSET MANAGER PORTFOLIO ... seeks high total return with reduced risk
over the long-term by allocating its assets among stocks, bonds and short-term
fixed-income instruments.
VIP II INDEX 500 PORTFOLIO ... seeks to provide investment results that
correspond to the total return (i.e., the combination of capital charges and
income) of common stocks publicly traded in the United States. In seeking this
objective, the VIP II Index 500
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Portfolio attempts to duplicate the composition and total return of the Standard
& Poor's 500 Composite Stock Price Index while keeping transaction cost and
other expense low. The VIP II Index 500 Portfolio is designed as a long-term
investment option.
VIP II CONTRAFUND PORTFOLIO ... seeks capital appreciation by investing in
companies FMR believes to be undervalued due to an overly pessimistic appraisal
by the public. In pursuit of the fund's goal, FMR looks for companies with the
following characteristics: (i) unpopular, but improvements seem possible due to
developments such as a change in management, a new product line, or an improved
balance sheet, (ii) recently popular, but temporarily out of favor due to short-
term or onetime factors, or (iii) undervalued compared to other companies in the
same industry.
VIP II ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total return over
the long term by allocating its assets among stocks, bonds, and short-term
instruments. Allocating among different types of investments allows the fund to
take advantage of opportunities wherever they may occur, but also subjects the
fund to the risks of a given investment type.
American National has entered into arrangements with either the investment
advisor or distributor for certain of the Eligible Portfolios pursuant to which
the advisor or distributor pays American National a fee based upon an annual
percentage of the average aggregate net amount invested by American National on
behalf of the Portfolio. These percentages differ, and American National is paid
a greater percentage by some investment advisors or distributors than other
advisors or distributors. These agreements reflect administrative and other
services provided by American National.
The Eligible Portfolios and the investment companies of which they are a part
are offered and sold only to registered separate accounts of insurance companies
offering variable annuity and variable life insurance contracts, and, in some
cases, to certain qualified pension and retirement plans. The Eligible
Portfolios and investment companies are not offered or sold to the general
public and should not be mistaken for other investment companies that may be
offered by the same sponsor and/or that may have similar names.
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
in appropriate 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 possible 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 from 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
American National Fund and the Fidelity Funds 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
make policy loans, 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 American National Fund's and the
Fidelity Funds' various portfolios.
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FIXED ACCOUNT
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 Subaccount to the Fixed Account. Transfers
from the Fixed Account to the Subaccount are restricted.
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 assets 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 Contractowner 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 of 1933 (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.
CONTRACT
PURPOSE OF THE CONTRACT
The Contract 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 Matters-Qualified Contracts,"
page 15 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 10; 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 CONTRACT
This Prospectus offers a Group Unallocated Contract which is a form of a
Deferred Annuity Contract.
The availability of the Contract described herein in any particular state is
dependent upon the approval of that Contract by that state.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
An entity 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 11, 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.
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 plus any
premium taxes, mortality and risk fees and advisory fees deducted. The "free
look" period is established by state law and generally runs ten days after the
Contractowner receives the Contract. The "free look" period is not based on the
date which a Plan Participant receives a Contract. Therefore, the "free look"
period may have expired before a Plan Participant makes his or her initial
contribution to a Plan. American National requires that all Net Purchase
Payments received by American National during the 15-day period after the Date
of Issue are allocated to the Subaccount of the Money Market Portfolio of the
Fidelity Funds. Thereafter, such amounts allocated to the Subaccount of the
Money Market Portfolio and Net Purchase Payments paid are allocated as directed
by the Contractowner. No surrender charges are assessed on premiums returned
during this "free look" period.
The Contract requires a minimum initial payment of $2000 and subsequent
payments of $100. The maximum Purchase Payment is $1,000,000 without the prior
approval of American National. 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
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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 may by written instruction to the home office
indicate one or more Subaccounts and/or the Fixed Account to which a specified
portion or portions of the Net Purchase Payment should be applied. Changes in
allocation of future Net Purchase Payments may be made at any time by written
instruction to the American National 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
All Net Purchase Payments received will purchase Accumulation Units in the
Subaccount selected and/or 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. The Net Purchase Payments are not credited to a
Subaccount until actually received by American National. A Plan Participant's
contribution to a Plan will not be credited to the Contract until the
Contractowner forwards such contribution to American National.
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,
distribution expense charge 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
Accumulation Value may be transferred among the subaccounts and/or the Fixed
Accounts subject to the following limits. The transfer 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. Once
each Contract Year, during the thirty-day period beginning on the Contract
anniversary, the maximum amount which may be transferred from the Fixed Account
to the Subaccounts is the greater of (a) twenty-five 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 13.) American National may at any time
revoke or modify the transfer privilege, including the number and minimum amount
transferable.
CONTRACTOWNER INQUIRIES
Contractowner inquiries should be addressed to American National Insurance
Company, One Moody Plaza, Galveston, Texas 77550-7999, or made by calling (800)
306-2959.
CHARGES AND DEDUCTIONS
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. A Surrender Charge is imposed based upon the
Contract Year in which the withdrawal is made. The Surrender Charge is a maximum
of 4% of the Accumulation Value withdrawn and grades down to zero in the eighth
Contract Year.
In no event will the sum of all surrender charges and the distribution expense
charges assessed exceed 9.0% of total Purchase Payments paid. (See the chart
under "Contractowner Transaction Expenses" at Page 4.)
OTHER CHARGES
(a) Administrative Charges
American National's administrative charges consist of a daily administrative
asset fee. The administrative charge is to covers all fixed and varying costs
of administering the Contract. This charge is designed only to reimburse
American National for the cost of administration and is not intended to
produce a profit.
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An administrative asset fee is charged daily at an annual rate of 0.10% to
each Subaccount to cover the varying costs of a 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 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 Plan Participants 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 Plan Participants 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 Plan Participant or other payee for as
long as he or she may live. American National assumes the risk that fees
deducted may not prove sufficient to cover its actual costs.
For American National's contractual promises to accept this risks, a 0.85% per
annum Mortality and Expense Risk Fee will be assessed daily against the
Separate Account based on the value of its net assets. American National could
realize a gain or a loss from such fee depending on the mortality and expenses
actually incurred.
(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.
EXCEPTIONS TO CHARGES
The surrender charges or other administrative charges or deductions 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 or other administrative charges or
deductions.
DISTRIBUTIONS UNDER THE CONTRACT
FULL AND PARTIAL SURRENDERS
To the extent permitted by the Plan under the terms of which the Contract was
purchased, 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 $250 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, such surrender
shall be allocated among the Subaccounts and the Fixed Account in the same
proportion as the Accumulation Value in each Subaccount and the Fixed Account
bears to the total Accumulation Value of the Contract on the date of surrender.
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.
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ANNUITY PAYMENTS
All or a part of the Accumulation Value may be applied to any of the Annuity
Options. Any such Accumulation Value will be transferred into the Fixed Account
and annuity payments will be based upon the annuity option selected. If any of
the Accumulation Value is applied to an Annuity Option, such Accumulation Value
shall be segregated and annuity payments shall be made according to the annuity
option selected and to the Plan Participant designated by the Contractowner.
Accumulation Value which is applied to an Annuity Option is treated as an
immediate variable annuity contract for the Plan Participant designated, however
the Contract is not subject to the onetime $100 charge normally applicable to
individual immediate variable annuity contracts issued by American National.
(See the Prospectus for the individual forms of Variable Annuity Contracts
issued by American National for more information.)
ANNUITY OPTIONS
The following annuity options are available to Contractowners. The Plans will
specify which of these options are available to individual Plan Participants.
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 Ten 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 ten or 20 years, as elected. The annuity payments will
be continued to a designated beneficiary until the end of the period certain.
Option 3 - 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 4 - 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.
Option 5 - IRC Age Recalculation - An annuity payment based upon the Plan
Participant's life expectancy, or the joint life expectancies of the Plan
Participant and a beneficiary, at the Plan Participant's attained age (and the
beneficiary's attained or adjusted age, if applicable) each year as computed in
reference to actuarial tables prescribed by the Treasury Secretary, until the
amount applied, adjusted daily by the investment results, is exhausted.
At any time, any amount remaining under Option 4 may be withdrawn as a lump
sum or, if that amount is at least $2,000, may be applied under any one of the
first three 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, or 5 above, the present value will be paid in a lump sum to the estate of
the beneficiary.
ANNUITY PROVISIONS
Non-qualified life contingent annuity payments are determined on the basis of
the mortality table (1983 Table a projected to 1993, and 3.0% interest) which
generally reflects the age and sex of the Plan Participant and the type of
annuity option selected.
Qualified life contingent annuity payments are determined on the basis of the
mortality table [1983 Table a (female) projected to 1993, and 3.0% interest]
which generally reflects the age of the Plan Participant and type of annuity
option selected.
Payment of any amount upon surrender, partial withdrawal or transfer may be
postponed whenever: (i) the New York Stock Exchange is closed other than
customary weekend and holiday closings, or trading on the New York Stock
Exchange is restricted as determined by the Securities and Exchange Commission
("Commission"); (ii) the Commission by order permits postponement for the
protection of 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 MATTERS
INTRODUCTION
The following discussion is general in nature and is not intended as tax
advice for each Contractowner. It does not address the tax consequences
resulting from all situations in which a Contractowner may maintain such a
Contract. Tax advice should be sought from a competent source prior to purchase.
The discussion below is based on American National's understanding of the
present federal tax law as currently interpreted by the Internal Revenue
Service. No representation is made as to the continuation of present federal tax
law or its current interpretation. State tax law may also be applicable.
TAXATION OF ANNUITIES IN GENERAL
Since a Group Unallocated Contract is not purchased directly by
14
<PAGE>
individuals, those portions of the Code relating to individual ownership are not
applicable to the Group Unallocated Contractowner. Certain provisions of Section
72 of the Code would apply if the Contractowner is a corporation or is not a
natural person and the Contract is not maintained under a plan which has
favorable tax treatment under the Code.
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which set standards of diversification for the investment
underlying the Contract, in order for the Contract to be treated as annuities
for income tax purposes. American National intends that these diversification
standards will be satisfied. American National reserves the right to amend the
Contract in any way necessary to maintain compliance with these standards.
QUALIFIED CONTRACTS
The Group Unallocated Contract is designed for use with several types of
qualifying Plans subject to Code sections 401 and 457. The tax rules applicable
to such qualified Plans vary according to the type of Plan and the terms and
conditions of the Plan itself. Participants in qualified Plans may include
business owners (both self-employed and stockholders) and their employees for
whom pension and profit sharing plans have been established and government
employees covered by a section 457 deferred compensation plan.
As a general rule, purchase payments made by or for participants in qualified
Plans are not subject to taxation at the time such payments are made in the
Contract. In their capacity as Plan trustees or administrators, Contractowners
are responsible for the communication of appropriate information about the
operation of the Plan and the tax consequences of distributing benefits.
Distribution of benefits and tax withholding thereon is the sole responsibility
of the Contractowner.
Due to the complexity of the tax rules associated with the sponsorship and
operation of qualified Plans, entities contemplating establishment of such Plans
should seek advice from competent sources with respect to the responsibilities
and obligations associated with such Plans.
POSSIBLE LEGISLATIVE CHANGES
The President's Budget Proposal has recommended legislation in 1998 that, if
enacted, would adversely modify the federal taxation of certain insurance and
annuity contracts. For example, one proposal would tax transfers among
investment options and tax exchanges involving variable contracts. A second
proposal would reduce the "investment in the contract" under cash value life
insurance and certain annuity contracts, thereby increasing the amount of income
for purposes of computing gain. Although the likelihood of legislative changes
is uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or other means. Moreover, it is also
possible that any change could be retroactive (that is, effective prior to the
date of change). You should consult a qualified tax adviser with respect to
legislative developments and their effect on the Contract.
PERFORMANCE
Performance information for the Subaccounts may appear in reports and
advertising to current and prospective Contractowners. The performance
information is based on historical investment experience of the Subaccounts and
the Funds and does not indicate or represent future performance.
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 FID Money Market Subaccount may advertise its 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 similar manner except
that income earned is assumed to be reinvested. The Investment Grade Bond and
the High Income Subaccounts may advertise a 30-day yield which reflects the
income generated by an investment in the Subaccount over a 30-day period.
15
<PAGE>
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 Fund's 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 6.1% 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.
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.
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, LLP, General
Counsel.
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
16
<PAGE>
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.
PREPARING FOR YEAR 2000
Like all financial services providers, American National utilizes systems that
may be affected by Year 2000 transition issues and it relies on service
providers, including the Eligible Portfolios, that may also be affected.
American National has developed, and is in the process of implementing, a Year
2000 transition plan, and is confirming that its service providers are also so
engaged. The resources that are being devoted to this effort are substantial. It
is difficult to predict with precision whether the amount of resources
ultimately devoted, or the outcome of these efforts, will have any negative
impact on American National. However, as of the date of this prospectus, it is
not anticipated that Policyowners will experience negative effects on their
Accumulation Value, or on the services provided in connection therewith, as a
result of Year 2000 transition implementation. American National currently
anticipates that its systems will be Year 2000 compliant on or about January 1,
1999, but there can be no assurance that American National will be successful,
or that interaction with other service providers will not impair American
National's services at that time.
LEGAL PROCEEDINGS
American National and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and/ or
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, American National believes that
at the present time there are not pending or threatened lawsuits that are
reasonably likely to have a material adverse impact on the Separate Account or
American National.
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1997 and 1996 and for the years then ended,
and the statements of net assets of American National Variable Annuity Separate
Account as of December 31, 1997 and the related statements of operations for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended, included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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 Prospectus does not contain all the information
set forth in the registration statement and the amendments and exhibits to the
registration statement, to all of which reference is made for further
information concerning the Separate Account, American National and the Contract
offered hereby. 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.
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<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
The Contract.................................................... 3
Valuation of Accumulation Units................................. 3
Computation of Variable Annuity Payments........................ 3
Annuity Unit Value.............................................. 3
Summary......................................................... 4
Exceptions to Charges........................................... 4
Termination of Contract......................................... 4
Group Unallocated Contract...................................... 4
Additional Federal Tax Matters.................................. 4
Limits on Subsequent Purchase Payments
(Under the Internal Revenue Code)............................... 4
Taxation of American National................................... 5
Tax Status of the Contracts..................................... 5
Assignment...................................................... 5
Distribution of the Contracts................................... 5
Safekeeping of Separate Account Assets.......................... 5
State Regulation of American National........................... 5
Records and Reports............................................. 6
Performance..................................................... 6
Total Return.................................................... 6
Yields.......................................................... 6
Legal Matters................................................... 7
Legal Proceedings............................................... 7
Experts......................................................... 7
Additional Information.......................................... 7
Financial Statements............................................ 7
Financials...................................................... 8
[LOGO OF AMERICAN NATIONAL APPEARS HERE]
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<PAGE>
INVESTRAC
GOLD
VARIABLE
ANNUITY
SEPARATE
ACCOUNT
STATEMENT OF
ADDITIONAL INFORMATION
RELATING TO THE PROSPECTUS
DATED APRIL 30, 1998
ISSUED BY
AMERICAN NATIONAL
INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
(409) 763-4661
INVESTMENT MANAGER
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
CUSTODIAN
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
UNDERWRITER
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TEXAS 77550-7999
INDEPENDENT AUDITORS
ARTHUR ANDERSEN LLP
711 LOUISIANA, SUITE 1300
HOUSTON, TEXAS 77002-2786
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND SHOULD BE READ
ONLY IN CONJUNCTION WITH THE PROSPECTUS FOR THE CONTRACT.
AMERICAN NATIONAL
VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF
ADDITIONAL INFORMATION
APRIL 30, 1998
This Statement of Additional Information expands upon subjects discussed in
the current Prospectuses for the Variable Annuity Contracts ("the Contracts")
offered by American National Insurance Company ("American National"). You may
obtain a copy of the Prospectuses dated April 30, 1998, 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.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Contract.............................. 2
Valuation of Accumulation Units........... 2
Computation of Variable Annuity Payments.. 2
Annuity Unit Value........................ 2
Summary................................... 3
Exceptions to Charges..................... 3
Termination of Contract................... 3
Group Unallocated Contract................ 3
Additional Federal Tax Matters............ 3
Limits on Subsequent Purchase Payments
(Under the Internal Revenue Code)......... 3
Taxation of American National............. 4
Tax Status of the Contracts............... 4
Assignment................................ 4
Distribution of the Contracts............. 4
Safekeeping of Separate Account Assets.... 4
State Regulation of American National..... 4
Records and Reports....................... 5
Performance............................... 5
Total Return.............................. 5
Yields.................................... 5
Legal Matters............................. 6
Legal Proceedings......................... 6
Experts................................... 6
Additional Information.................... 6
Financial Statements...................... 6
Financials................................ 7
</TABLE>
Form 5774-SAI * 5 7 7 4 S A I * 4-98
<PAGE>
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 affect 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.
<TABLE>
<CAPTION>
ILLUSTRATION: CALCULATION OF ANNUITY UNIT VALUE
Annuity at age 65: Life with 120 payments certain
<S> <C> <C>
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
</TABLE>
2
<PAGE>
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 or other administration charges or deductions 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 or other administrative charges or deductions. No sales
commission will be paid on such contracts.
TERMINATION OF CONTRACT
American National reserves the right to terminate any Group Unallocated
Contract under the following circumstances: (1) the contract value is less than
$2,000 after the end of the first contract year, or $5,000 after the end of the
third contract year; (2) the Plan pursuant to which the contract is issued is
terminated for any reason or becomes disqualified under Section 401 or 403 of
the Internal Revenue Code or (3) for any reason after the eighth policy year.
American National may also terminate individual contracts during the
accumulation period if certain conditions exist. These conditions are that (1)
no purchase payments have been received by American National for the contract
for three full years; (2) the Accumulation Value of the contract is less than
$200; and (3) the value of the contract allocated to the Fixed Account,
projected to the maturity date, would produce installments of less than $20 per
month using contractual guarantees. Termination of a Contract may have adverse
tax consequences. (See the prospectus at "Federal Tax Matters," page 18.)
GROUP UNALLOCATED CONTRACTS
Group Unallocated Contract is a contract between the Contractowner and American
National. Individual accounts are not established for Plan Participants unless
the one of the annuity payment options is selected.
ADDITIONAL FEDERAL TAX MATTERS
LIMITS ON SUBSEQUENT PURCHASE PAYMENTS
(Under The Internal Revenue Code)
The amount of subsequent Purchase Payments may be increased or decreased on
any date, and submission of a Purchase Payment different from the previous
Purchase Payment will automatically effect such an increase or decrease.
However, U.S. Treasury Regulations currently permit only one change to a salary
deduction agreement in any taxable year for contracts issued to qualify under
Section 403(b) of the Internal Revenue Code (the Code). Contracts issued under
Section 408(b) of the Code provide that the maximum Purchase Payments for each
Participant for a taxable year shall be $2,000 or other such amount as may
become permissible under amended laws. Contracts issued to qualify under Section
408(k) of the Code provide that the maximum annual Purchase Payment by an
employer for each employee shall be the lesser of 25% of the employee's
compensation or $30,000 or such other amount as may become permissible under
amended law.
Contracts issued to qualify under Section 457 of the Code provide that the
maximum Purchase Payment in any taxable year shall be $7,500 for each
Participant or such other amount as may become permissible under amended law.
Such contracts further provide for an increase in Purchase Payments for one or
more of the Participant's last three taxable years ending before normal
retirement age in accordance with the provisions of the applicable Plan
agreement.
Purchase Payments pursuant to the salary deduction agreements to contracts
issued under Section 403(b), 408(k), 401(k) or 457 of the Code that are in
excess of $7,000 in a taxable year ($9,500 in the case of Section 403(b)
contracts and the lesser of $7,000 or /1//3 of employee's compensation for 457)
may be subject to adverse tax treatment.
3
<PAGE>
TAXATION OF AMERICAN NATIONAL
American National is taxed as a life insurance company under Part 1 of
Subchapter L of the Code. Since the Separate Account is not an entity separate
from American National and its operations form a part of American National, it
will not be taxed separately as a "regulated investment company" under
Subchapter M of the code. Investment income and realized net capital gains on
Separate Account assets are reinvested and are taken into account in determining
the contract values. As a result, such investment income and realized net
capital gains are automatically retained as part of the reserves under the
Contract. Under existing federal income tax law, American National believes that
the Separate Account's investment income and realized net capital gains should
not be taxed to the extent that such income and gains are retained as part of
the reserves under the Contract.
TAX STATUS OF THE CONTRACTS
To comply with regulations under 817(h) of the Code, the investment of the
Separate Account must be "adequately diversified" in order for the Contracts to
qualify as annuity contracts under section 72 of the code. The Separate Account,
through the underlying funds, intends to comply with the diversification
requirements prescribed by the Treasury which affect how the Separate Account's
assets may be invested. American National will monitor compliance with this
requirement. Thus, American National believes that the Contracts will be treated
as annuity contracts for federal tax purposes.
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.
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.
4
<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.
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 FID Money Market Subaccount
and the AN 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 base period return by
(365/7). The resulting yield figure will be carried to the nearest hundredth of
a percent. Effective yield for the FID Money Market Subaccount and the AN 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.
5
<PAGE>
LEGAL MATTERS
All matters of Texas law pertaining to the Contract, including the validity of
the Contract and American National's right to issue theContract under Texas
Insurance Law, have been passed upon by Greer, Herz and Adams, LLP, 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, 1997 and 1996 and for the years then ended,
and the statements of net assets of American National Variable Annuity Separate
Account as of December 31, 1997 and the related statements of operations for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended, included in this prospectus and elsewhere in the
registration statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
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.
6
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American
National Variable Annuity Separate Account:
We have audited the accompanying statements of net assets of
the American National Variable Annuity Separate Account
(comprised of American National (AN) Growth, AN Money Market,
AN Balanced, AN Managed, Fidelity VIP II Investment Grade Bond,
Fidelity VIP II Asset Manager, Fidelity VIP II Index 500,
Fidelity VIP Money Market, Fidelity VIP Equity Income, Fidelity
VIP High Income, Fidelity VIP Growth, Fidelity VIP Overseas,
Fidelity VIP II Contra Fund and Fidelity VIP II Asset Manager
Growth Portfolio Subaccounts) as of December 31, 1997, and the
related statements of operations for the year then ended, and
the statements of changes in net assets for each of the two
years in the period then ended. These financial statements are
the responsibility of the Account's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of
December 31, 1997 by correspondence with the custodians. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial
position of the American National Variable Annuity Separate
Account (comprised of American National (AN) Growth, AN Money
Market, AN Balanced, AN Managed, Fidelity VIP II Investment
Grade Bond, Fidelity VIP II Asset Manager, Fidelity VIP II
Index 500, Fidelity VIP Money Market, Fidelity VIP Equity
Income, Fidelity VIP High Income, Fidelity VIP Growth, Fidelity
VIP Overseas, Fidelity VIP II Contra Fund and Fidelity VIP II
Asset Manager Growth Portfolio Subaccounts) as of December 31,
1997 and the results of its operations for the year then ended,
and the changes in net assets for each of the two years in the
period then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
7
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $2,843 $216 $881 $3,465
- ----------------------------------------------------------------------------------------------
LIABILITIES:
Individual contract owner reserves $2,809 $216 $876 $3,464
Group contract owner reserves 34 -- 5 1
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES $2,843 $216 $881 $3,465
==============================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 1,776,735 215,543 634,169 2,221,389
Cost $2,675 $ 216 $ 848 $3,254
==============================================================================================
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
FIDELITY
VIP II FIDELITY FIDELITY FIDELITY
INVESTMENT VIP II VIP II VIP
GRADE ASSET INDEX MONEY
BOND MANAGER 500 MARKET
- ----------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $135 $1,038 $3,806 $884
==============================================================================================
LIABILITIES:
Individual contract owner reserves $118 $ 914 $3,777 $872
Group contract owner reserves 17 124 29 12
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES $135 $1,038 $3,806 $884
==============================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 10,778 57,645 33,274 884,049
Cost $134 $929 $3,443 $ 884
==============================================================================================
</TABLE>
8
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP VIP
EQUITY HIGH FIDELITY FIDELITY
INCOME INCOME VIP VIP
FUND FUND GROWTH OVERSEAS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $3,527 $612 $2,381 $387
==============================================================================================
LIABILITIES:
Individual contract owner reserves $3,374 $599 $2,325 $330
Group contract owner reserves 153 13 56 57
- ----------------------------------------------------------------------------------------------
TOTAL LIABILITIES $3,527 $612 $2,381 $387
==============================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 145,254 45,087 64,169 20,150
Cost $3,176 $573 $2,004 $374
==============================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1997
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
FIDELITY
FIDELITY VIP II
VIP II ASSET
CONTRA MANAGER
FUND GROWTH
- --------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $1,303 $671
==========================================================================
LIABILITIES:
Individual contract owner reserves $1,287 $656
Group contract owner reserves 16 15
- --------------------------------------------------------------------------
TOTAL LIABILITIES $1,303 $671
==========================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 65,363 40,987
Cost $ 1,225 $652
==========================================================================
</TABLE>
9
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
<TABLE>
<CAPTION>
(In thousands)
- -----------------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 40 $ 6 $ 25 $ 56
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (30) (2) (9) (38)
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 10 $ 4 $ 16 $ 18
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments $ 87 $ 0 $ 13 $159
Capital gains distributions from mutual funds $194 $ 0 $ 41 $181
Net unrealized appreciation of investments
during the period $ 65 $ 0 $ 26 $ 94
- ----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $346 $ 0 $ 80 $434
- ----------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $356 $ 4 $ 96 $452
====================================================================================================
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
(In thousands)
- ----------------------------------------------------------------------------------------------------
FIDELITY
VIPII FIDELITY FIDELITY
INVESTMENT VIPII FIDELITY VIP
GRADE ASSET VIPII MONEY
BOND MANAGER INDEX 500 MARKET
- ----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 7 $ 21 $ 12 $ 32
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (1) (11) (30) (8)
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) 6 10 (18) 24
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments $ 2 $ 23 $272 $ --
Capital gains distributions from mutual funds -- 53 25 --
Net unrealized appreciation of investments
during the period -- 44 222 --
- ----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 2 $ 120 $519 $ --
- ----------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 8 $ 130 $501 $ 24
====================================================================================================
</TABLE>
10
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
(In thousands)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP VIP
EQUITY HIGH FIDELITY FIDELITY
INCOME INCOME VIP VIP
FUND FUND GROWTH OVERSEAS
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 27 $ 26 $ 10 $ 4
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (33) (6) (27) (4)
- ----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (6) $ 20 $(17) $ --
- ----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments $191 $ 26 $ 42 $ 15
Capital gains distributions from mutual fun 133 3 44 16
Net unrealized appreciation (depreciation)
of investments during the period 207 20 285 (6)
- ----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $531 $ 49 $371 $ 25
- ----------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $525 $ 69 $354 $ 25
====================================================================================================
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1997
(In thousands)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
FIDELITY
FIDELITY VIPII
VIPII ASSET
CONTRA MANAGER
FUND GROWTH
- ----------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 3 $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (10) (4)
- ----------------------------------------------------------------------
NET INVESTMENT LOSS $ (7) $ (4)
- ----------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN
ON INVESTMENTS
Net realized gain on investments $ 95 $ 37
Capital gains distributions from mutual fun 9 --
Net unrealized appreciation
of investments during the period 39 15
- ----------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS 143 $ 52
- ----------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $136 $ 48
======================================================================
</TABLE>
11
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31
(In thousands except for unit information)
<TABLE>
<CAPTION>
====================================================================================================================================
AN GROWTH PORTFOLIO AN MONEY MARKET PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 10 $ 7 $ 4 $ 1
Net realized gain on investments 87 33 -- --
Capital gains distributions from mutual funds 194 23 -- --
Net unrealized appreciation
of investments during the year 65 84 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 356 $ 147 $ 4 $ 1
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 1,242 $ 871 $ 178 $ 27
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (104) (79) (1) (4)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 1,138 $ 792 $ 177 $ 23
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $ 1,494 $ 939 $ 181 $ 24
Net assets, beginning of period 1,349 410 35 11
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 2,843 $ 1,349 $ 216 $ 35
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 911,104 326,360 32,515 10,421
Purchase payments 1,053,001 708,207 388,429 35,731
Policy withdrawals and charges (341,990) (123,463) (225,101) (13,637)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,622,115 911,104 195,843 32,515
====================================================================================================================================
Accumulation unit value $ 1.731 $ 1.456 $ 1.101 $ 1.066
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 14,363 -- 71 --
Purchase payments 42,586 14,363 -- 71
Policy withdrawals and charges (39,506) -- (71) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 17,443 14,363 -- 71
====================================================================================================================================
Accumulation unit value $ 1.968 $ 1.558 $ -- $ 1.387
====================================================================================================================================
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments -- -- -- --
Policy withdrawals and charges -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- -- --
====================================================================================================================================
Accumulation unit value $ -- $ -- $ -- $ --
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
AN BALANCED PORTFOLIO AN MANAGED PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 16 $ 6 $ 18 $ 13
Net realized gain on investments 13 5 159 20
Capital gains distributions from mutual funds 41 5 181 31
Net unrealized appreciation
of investments during the year 26 6 94 103
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 96 $ 22 $ 452 $ 167
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 446 $ 322 $ 1,615 $ 1,127
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (26) (28) (210) (31)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 420 $ 294 $ 1,405 $ 1,096
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $ 516 $ 316 $ 1,857 $ 1,263
Net assets, beginning of period 365 49 1,608 345
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 881 $ 365 $ 3,465 $ 1,608
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 287,278 43,097 1,100,338 275,204
Purchase payments 428,643 279,979 1,316,439 952,309
Policy withdrawals and charges (157,698) (35,798) (479,616) (127,175)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 558,223 287,278 1,937,161 1,100,338
====================================================================================================================================
Accumulation unit value $ 1.469 $ 1.254 $ 1.758 $ 1.458
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 3,330 -- 1,498 --
Purchase payments 10,408 3,330 1,433 1,498
Policy withdrawals and charges (10,151) -- (2,466) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 3,587 3,330 465 1,498
====================================================================================================================================
Accumulation unit value $ 1.504 $ 1.369 $ 1.903 $ 2.466
====================================================================================================================================
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments 38,829 -- 32,778 --
Policy withdrawals and charges (1,145) -- (967) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 37,684 -- 31,811 --
====================================================================================================================================
Accumulation unit value $ 1.492 $ -- $ 1.871 $ --
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
12
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31
(In thousands except for unit information)
<TABLE>
<CAPTION>
====================================================================================================================================
FIDELITY VIP II
INVESTMENT GRADE BOND FIDELITY VIP II ASSET MANAGER
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment income $ 6 $ 1 $ 10 $ 7
Net realized gain on investments 2 -- 23 24
Capital gains distributions from mutual funds -- -- 53 14
Net unrealized appreciation
of investments during the year -- 1 44 24
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 8 $ 2 $ 130 $ 69
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 28 $ 82 $ 347 $ 155
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (8) (7) (40) (49)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets resulting from
policy related transactions $ 20 $ 75 $ 307 $ 106
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets $ 28 $ 77 $ 437 $ 175
Net assets, beginning of period 107 30 601 426
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 135 $ 107 $ 1,038 $ 601
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 72,929 26,194 426,424 332,773
Purchase payments 121,137 62,112 400,627 192,186
Policy withdrawals and charges (100,874) (15,377) (224,626) (98,535)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 93,192 72,929 602,425 426,424
====================================================================================================================================
Accumulation unit value $ 1.263 $ 1.176 $ 1.518 $ 1.278
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 17,859 -- 42,474 41,926
Purchase payments 31,140 17,859 38,094 29,633
Policy withdrawals and charges (35,321) -- (2,517) (29,085)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 13,768 17,859 78,051 42,474
====================================================================================================================================
Accumulation unit value $ 1.283 $ 1.185 $ 1.583 $ 1.318
====================================================================================================================================
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments -- -- -- --
Policy withdrawals and charges -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- -- --
====================================================================================================================================
Accumulation unit value $ -- $ -- $ -- $ --
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FIDELITY VIP II INDEX 500 FIDELITY VIP MONEY MARKET
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment income $ (18) $ (9) $ 24 $ 14
Net realized gain on investments 272 8 -- --
Capital gains distributions from mutual funds 25 4 -- --
Net unrealized appreciation
of investments during the year 222 130 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 501 $ 133 $ 24 $ 14
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 2,404 $ 820 $ 659 $ (18)
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (159) (19) (4) (192)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets resulting from
policy related transactions $ 2,245 $ 801 $ 655 $ (210)
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets $ 2,746 $ 934 $ 679 $ (196)
Net assets, beginning of period 1,060 126 205 401
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 3,806 $ 1,060 $ 884 $ 205
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 636,107 92,340 179,947 382,247
Purchase payments 1,788,625 571,654 15,492,455 5,204,483
Policy withdrawals and charges (671,490) (27,887) (14,898,346) (5,406,783)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,753,242 636,107 774,056 179,947
====================================================================================================================================
Accumulation unit value $ 2.154 $ 1.649 $ 1.127 $ 1.087
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 6,327 -- 8,304 --
Purchase payments 26,207 6,327 47,990 47,280
Policy withdrawals and charges (20,859) -- (46,254) (38,976)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 11,675 6,327 10,040 8,304
====================================================================================================================================
Accumulation unit value $ 2.487 $ 1.777 $ 1.196 $ 1.109
====================================================================================================================================
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments -- -- -- --
Policy withdrawals and charges -- -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- -- --
====================================================================================================================================
Accumulation unit value $ -- $ -- $ -- $ --
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
13
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31
(In thousands except for unit information)
<TABLE>
<CAPTION>
====================================================================================================================================
FIDELITY VIP EQUITY INCOME FUND FIDELITY VIP HIGH INCOME FUND
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (6) $ (16) $ 20 $ 8
Net realized gain on investments 191 32 26 10
Capital gains distributions from mutual funds 133 30 3 3
Net unrealized appreciation (depreciation)
of investments during the year 207 86 20 10
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 525 $ 132 $ 69 $ 31
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 1,758 $ 1,004 $ 188 $ 182
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (268) (76) (3) (5)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 1,490 $ 928 $ 185 $ 177
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $ 2,015 $ 1,060 $ 254 $ 208
Net assets, beginning of period 1,512 452 358 150
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 3,527 $ 1,512 $ 612 $ 358
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 971,692 301,955 259,931 126,513
Purchase payments 1,601,106 804,222 362,629 201,864
Policy withdrawals and charges (767,764) (134,485) (256,776) (68,446)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,805,034 971,692 365,784 259,931
====================================================================================================================================
Accumulation unit value $ 1.869 $ 1.482 $ 1.546 $ 1.334
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 47,017 39,570 8,006 --
Purchase payments 57,299 38,896 28,336 8,006
Policy withdrawals and charges (27,188) (31,449) (28,220) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 77,128 47,017 8,122 8,006
====================================================================================================================================
Accumulation unit value $ 1.980 $ 1.535 $ 1.635 $ 1.415
====================================================================================================================================
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments -- -- 21,985 --
Policy withdrawals and charges -- -- (648) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- 21,337 --
====================================================================================================================================
Accumulation unit value $ -- $ -- $ 1.570 $ --
====================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
FIDELITY VIP GROWTH FIDELITY VIP OVERSEAS
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (17) $ (14) $ -- $ (1)
Net realized gain on investments 42 16 15 14
Capital gains distributions from mutual funds 44 32 16 2
Net unrealized appreciation (depreciation)
of investments during the year 285 76 (6) 9
- ------------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 354 $ 110 $ 25 $ 24
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 767 $ 934 $ 163 $ 87
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (127) (34) (31) (59)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 640 $ 900 $ 132 $ 28
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $ 994 $ 1,010 $ 157 $ 52
Net assets, beginning of period 1,387 377 230 178
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 2,381 $ 1,387 $ 387 $ 230
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 895,058 281,102 170,694 147,599
Purchase payments 656,314 773,957 168,571 85,247
Policy withdrawals and charges (288,157) (160,001) (106,218) (62,152)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,263,215 895,058 233,047 170,694
====================================================================================================================================
Accumulation unit value $ 1.840 $ 1.513 $ 1.283 $ 1.167
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 20,557 -- 25,842 21,832
Purchase payments 63,945 20,557 24,146 19,373
Policy withdrawals and charges (56,492) -- (6,975) (15,363)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 28,010 20,557 43,013 25,842
====================================================================================================================================
Accumulation unit value $ 1.994 $ 1.587 $ 1.319 $ 1.196
====================================================================================================================================
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments -- -- 24,755 --
Policy withdrawals and charges -- -- (730) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- 24,025 --
====================================================================================================================================
Accumulation unit value $ -- $ -- $ 1.295 $ --
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31
(In thousands except for unit information)
<TABLE>
<CAPTION>
====================================================================================================================================
FIDELITY VIP II ASSET
FIDELITY VIP II CONTRA FUND MANAGER GROWTH
- ------------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED APRIL 28 TO YEAR ENDED APRIL 28 TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1997 1996
====================================================================================================================================
<S> <C> <C> <C> <C>
Operations:
Net investment loss $ (7) $ (3) $ (4) $ --
Net realized gain on investments 95 5 37 --
Capital gains distributions from mutual funds 9 1 -- 2
Net unrealized appreciation
of investments during the year 39 38 15 4
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 136 $ 41 $ 48 $ 6
- ------------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 836 $ 306 $ 575 $ 21
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (27) (13) (3) (2)
- ------------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 809 $ 293 $ 572 $ 19
- ------------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $ 945 $ 334 $ 620 $ 25
Net assets, beginning of period 358 24 51 26
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 1,303 $ 358 $ 671 $ 51
====================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 259,582 20,680 34,541 24,995
Purchase payments 844,976 299,802 636,101 11,938
Policy withdrawals and charges (356,402) (60,900) (229,206) (2,392)
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 748,156 259,582 441,436 34,541
====================================================================================================================================
Accumulation unit value $ 1.657 $ 1.355 $ 1.487 $ 1.207
====================================================================================================================================
Group contract owners
Accumulation units beginning of year 4,605 -- 7,234 --
Purchase payments 22,649 4,605 25,784 7,234
Policy withdrawals and charges (18,238) -- (23,723) --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 9,016 4,605 9,295 7,234
====================================================================================================================================
Accumulation unit value $ 1.757 $ 1.455 $ 1.530 $ 1.222
====================================================================================================================================
Deferred individual annuity contract in the annuity period
Accumulation units beginning of year -- -- -- --
Purchase payments 29,153 -- -- --
Policy withdrawals and charges (860) -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 28,293 -- -- --
====================================================================================================================================
Accumulation unit value $ 1.688 $ -- $ -- $ --
====================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1997
- --------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL ... American National Variable Annuity Separate Account (Separate
Account) was established on July 30,1991 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on April 20, 1994. The assets of the Separate
Account are segregated from the Sponsor's other assets and are used only to
support variable annuity products issued by the Sponsor.
The Separate Account is registered under the Investment Company Act of 1940,
as amended, as a unit investment trust. There are currently fourteen active
subaccounts within the Separate Account, each of which is invested only in a
corresponding portfolio of the American National (AN) or Fidelity Funds. The
American National Funds were organized and are managed for a fee by Securities
Management & Research, Inc. (SM&R) which is a wholly-owned subsidiary of the
Sponsor. The Fidelity Funds were organized and are managed for a fee by Fidelity
Management & Research Co. ("FMR")
BASIS OF PRESENTATION...The financial statements of the Separate Account have
been prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS...Investments in shares of the separate investment portfolios are
stated at market value which is the net asset value per share as determined by
the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded
and reinvested upon receipt. Dividends received from mutual funds are reinvested
daily in additional shares of the portfolios and are recorded as dividend income
on the record date.
FEDERAL TAXES... The operations of the Separate Account form a part of, and
are taxed with, the operations of the Sponsor. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the contract owners are not
taxed to the Sponsor. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on distributions received by the
subaccounts. Accordingly, no provision for income taxes is required in the
accompanying financial statements.
USE OF ESTIMATES...The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements and the reported amounts of income and
expenses during the period. Operating results in the future could vary from the
amounts derived from management's estimates.
RECLASSIFICATIONS...Certain items in the 1996 financial statements have been
reclassified to conform with the 1997 presentation.
(2) SECURITY PURCHASES AND SALES
For the year ended December 31, 1997, the aggregate cost of purchases
(including reinvestment of dividend distributions) and proceeds from sales of
investments in the mutual fund portfolios were as follows (in thousands):
<TABLE>
<CAPTION>
PURCHASES SALES
- -----------------------------------------------------------
<S> <C> <C>
AN Growth Portfolio $ 1,711 $ 370
AN Money Market Portfolio 409 228
AN Balanced Portfolio 677 199
AN Managed Portfolio 2,298 693
Fidelity VIPII Investment Grade Bond 151 124
Fidelity VIPII Asset Manager 500 130
Fidelity VIPII Index 500 3,114 862
Fidelity VIP Money Market 10,436 9,757
Fidelity VIP Equity Income Fund 2,554 928
Fidelity VIP High Income Fund 547 339
Fidelity VIP Growth 932 265
Fidelity VIP Overseas 369 221
Fidelity VIPII Contra Fund 1,365 554
Fidelity VIPII Asset Manager Growth 796 228
- -----------------------------------------------------------
Totals $25,849 $14,898
===========================================================
</TABLE>
(3) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES...Mortality risk and expense risk charges,
at an effective annual rate of 1.25%, are assessed daily against the Separate
Account's net asset value for both qualified and non-qualified Flexible Purchase
Payment Annuity Contracts. These charges are assessed at a rate of 0.85% for the
Group Unallocated Deferred Annuity Contracts. This fee is assessed during both
the accumulation period and the annuity period.
MONTHLY ADMINISTRATIVE CHARGES ...American National's administrative charges
consist of an annual contract fee and a daily administrative asset fee. The
annual contract fee is $25 for non-qualified Flexible Purchase Payment Annuity
Contracts and $30 for all qualified Flexible Purchase Payment Annuity Contracts.
At the time of full surrender, the annual contract fee will be deducted on a pro
rata basis. Immediate Annuity Contracts have a one time contract fee of $100
when the single purchase payment is paid. The Group Unallocated Deferred Annuity
Contracts have no annual contract fee. The administrative asset fee is 0.10%
annually for all contracts. These charges are deducted through termination of
units of interest from applicable contract owners' accounts.
SURRENDER CHARGE...On withdrawals of that portion of the accumulation value
representing purchase payments, a surrender charge is imposed based upon the
number of years since the year in which the purchase payments withdrawn were
paid, on a first paid, first withdrawn basis. For Flexible Purchase Payment
Deferred Annuities in the first policy year, the surrender charge is a maximum
of 7% of the purchase payment withdrawn and grades down to
16
<PAGE>
zero in the eighth contract year after the purchase payment being withdrawn was
made. For Group Unallocated Deferred Annuity Contracts the surrender charge is a
maximum of 4% and grades down to zero in the eighth policy year.
TRANSFER CHARGE... A $10 transfer charge is imposed after the first twelve
transfers in any one policy year for transfers made among the subaccounts.
PREMIUM CHARGES...Premium taxes for certain jurisdictions are deducted from
premiums paid at rates ranging form zero to 3.5%. American National's current
practice is to deduct any state imposed premium tax from Purchase Payments. If a
state only imposes premium taxes upon annuitization, American National will
deduct these taxes from the contract value upon annuitization.
DISTRIBUTION EXPENSE CHARGE ... A distribution expense is assessed daily to
each Subaccount. The distribution expense charge is 0.25% annually for Flexible
Purchase Payment Deferred Annuity Contracts. Group Unallocated Deferred Annuity
Contracts do not incur a distribution expense charge. The sum of all surrender
charges and the distribution expense charges assessed will at no time exceed
9.0% of all Purchase Payments paid.
17
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statements of
financial position of American National Insurance Company and
subsidiaries (the Company) as of December 31, 1997 and 1996,
and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended.
These consolidated financial statements (pages 19 through 34)
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used
and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of American National Insurance Company and
subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
18
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 349,073 $ 329,937
Accident and health premiums 378,521 364,198
Property and casualty premiums 312,987 257,845
Other policy revenues 99,930 82,911
Net investment income 472,895 435,691
Gain from sale of investments 103,320 58,001
Other income 23,178 21,416
- -------------------------------------------------------------------------------------------------
Total revenues 1,739,904 1,549,999
- -------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 382,696 363,035
Accident and health 279,348 261,942
Property and casualty 233,887 206,120
Increase (decrease) in liability for future policy benefits:
Life and annuity 50,995 37,988
Accident and health (4,843) (1,570)
Commissions for acquiring and servicing policies 239,633 267,305
Other operating costs and expenses 167,079 156,128
Increase in deferred policy acquisition costs, net of amortization (12,267) (73,880)
Taxes, licenses and fees 39,687 38,234
- -------------------------------------------------------------------------------------------------
Total benefits and expenses 1,376,215 1,255,302
- -------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES 363,689 294,697
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 9,333 10,764
- -------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 373,022 305,461
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 134,271 90,103
Deferred (9,606) (237)
- -------------------------------------------------------------------------------------------------
NET INCOME $ 248,357 $ 215,595
=================================================================================================
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 9.38 $ 8.14
=================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
DECEMBER 31,
- -------------------------------------------------------------------------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $3,605,927 $3,430,726
Bonds available-for-sale, at market 600,380 528,306
Marketable equity securities, at market:
Preferred stocks 40,744 51,625
Common stocks 882,864 754,039
Mortgage loans on real estate 1,103,333 1,098,583
Policy loans 300,574 303,336
Investment real estate, net of accumulated depreciation
of $100,298 and $108,974 258,210 323,826
Short-term investments 126,732 5,470
Other invested assets 63,135 70,064
- ---------------------------------------------------------------------------------------------------
Total investments 6,981,899 6,565,975
Cash 5,497 13,545
Investments in unconsolidated affiliates 100,888 95,836
Accrued investment income 102,361 97,883
Reinsurance ceded receivables 48,193 42,695
Prepaid reinsurance premiums 140,791 109,965
Premiums due and other receivables 85,945 70,922
Deferred policy acquisition costs 748,341 739,023
Property and equipment 32,142 26,455
Other assets 57,889 73,713
Separate account assets 179,027 152,533
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,482,973 $7,988,545
===================================================================================================
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $1,990,978 $1,939,926
Accident and health 101,550 106,555
Policy account balances 2,422,828 2,353,245
Policy and contract claims 326,182 289,846
Other policyholder funds 419,736 356,456
- ---------------------------------------------------------------------------------------------------
Total policyholder liabilities 5,261,274 5,046,028
Current federal income taxes 14,340 17,810
Deferred federal income taxes 215,606 196,712
Other liabilities 107,309 101,556
Separate account liabilities 179,027 152,533
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,777,556 5,514,639
- ---------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Net unrealized gains on securities 215,883 163,352
Retained earnings 2,561,218 2,382,238
Treasury stock, at cost (102,727) (102,727)
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,705,417 2,473,906
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,482,973 $7,988,545
===================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
20
<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, 1995 $ 30,832 $ 211 $158,898 $2,233,899 $ (102,727) $2,321,113
Net income 215,595 215,595
Dividends to stockholders
($2.54 per share) (67,256) (67,256)
Increase in unrealized gains on
marketable securities, net
of applicable federal
income taxes 4,454 4,454
- ------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1996 30,832 211 163,352 2,382,238 (102,727) 2,473,906
Net income 248,357 248,357
Dividends to stockholders
($2.62 per share) (69,377) (69,377)
Increase in unrealized gains on
marketable securities, net
of applicable federal
income taxes 52,531 52,531
- ------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $30,832 $ 211 $215,883 $2,561,218 $(102,727) $2,705,417
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
21
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(In thousands)
- ------------------------------------------------------------------------------------------------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 248,357 $ 215,595
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 145,663 103,946
Charges to policy account balances (99,625) (81,651)
Interest credited to policy account balances 135,478 121,689
Deferral of policy acquisition costs (151,891) (182,124)
Amortization of deferred policy acquisition costs 138,710 108,017
Deferred federal income tax expense (benefit) (9,606) (237)
Depreciation 20,454 20,104
Accrual and amortization of discounts and premiums (34,416) (7,959)
Gain from sale of investments (103,320) (58,001)
Equity in earnings of unconsolidated affiliates (9,333) (10,764)
Decrease (increase) in premiums receivable (15,023) 3,093
Increase in accrued investment income (4,478) (15,342)
Capitalization of interest on policy and mortgage loans (14,475) (14,338)
Other changes, net (26,937) (36,969)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 219,558 165,059
- ------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 196,807 201,485
Stocks 331,679 191,284
Real estate 89,448 26,528
Other invested assets 5,706 1,112
Principal payments received on:
Mortgage loans 168,603 56,352
Policy loans 40,207 37,645
Purchases of investments:
Bonds (424,721) (725,070)
Stocks (279,690) (120,441)
Real estate (1,537) (7,696)
Mortgage loans (151,471) (218,019)
Policy loans (23,023) (25,137)
Other invested assets (15,250) (74,259)
Decrease (increase) in short-term investments, net (121,262) 9,596
Decrease (increase) in investment in unconsolidated affiliates, net (4,281) 13,718
Increase in property and equipment, net (3,173) (2,867)
- ------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (191,958) (635,769)
- ------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 391,607 756,727
Policyholders' withdrawals from policy account balances (357,878) (219,161)
Dividends to stockholders (69,377) (67,256)
- ------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (35,648) 470,310
- ------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH (8,048) (400)
Cash:
Beginning of the year 13,545 13,945
- ------------------------------------------------------------------------------------------------------------------
End of the year $ 5,497 $ 13,545
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiple line
insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues are generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiple line ordinary, group
brokerage, credit and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas, Garden State Life Insurance Company, Standard Life
and Accident Insurance Company, American National Property and Casualty Company,
American National General Insurance Company and American National Lloyds
Insurance Company. The major non-insurance subsidiaries are Securities
Management & Research, Inc. and ANREM Corporation. As part of its investment
portfolio, American National also owns interests in unconsolidated affiliates,
primarily several real estate joint ventures and partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--The consolidated
financial statements include the accounts of American National Insurance Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. Investments in unconsolidated affiliates
are shown at cost plus equity in undistributed earnings since the dates of
acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance companies,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 12.)
Certain reclassifications have been made to the 1996 financial information to
conform to the 1997 presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using
those estimates.
ACCOUNTING CHANGES
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF-- Effective January 1, 1996, American National adopted
Statement of Financial Accounting Standard (FAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of."
This statement requires that long-lived assets be reviewed for impairment
whenever circumstances indicate that the carrying value may not be recoverable.
The review must be done by estimating future undiscounted cash flows to be
received. If the sum of the expected future undiscounted cash flows is less than
the carrying value, an analysis of the investment's fair value compared with its
carrying value is performed. If the fair value is less than the carrying value,
an impairment loss is recognized as a charge to current earnings. As American
National used similar methods to calculate valuation reserves on investment real
estate in prior years, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations.
FAS No. 121 also requires that long-lived assets to be disposed of be carried
at the lower of book value or the expected amount to be received on sale, less
the cost to sell. Prior to January 1, 1996, American National's real estate
acquired in satisfaction of debt (foreclosed real estate) was carried at cost
less accumulated depreciation and reserves for possible losses. Upon the
adoption of FAS No. 121, American National determined that all of its foreclosed
real estate was held for sale and should therefore be held at the lower of book
value or the expected amount to be received on sale, less the cost to sell,
without any further allowance for depreciation. Since all of the book values for
foreclosed real estate were below the expected amount to be received on sale,
less the cost to sell, the adoption of this new standard did not have a material
effect on American National's consolidated financial position or results of
operations.
EARNINGS PER SHARE--As of December 31, 1997, American National adopted FAS No.
128 "Earnings per Share." This statement establishes standards for computing and
presenting earnings per share. As American National has a simple capital
structure, the adoption of this new standard did not have any effect on the
calculation of earnings per share.
NEW ACCOUNTING PRONOUNCEMENTS
REPORTING COMPREHENSIVE INCOME--FAS No. 130, "Reporting Comprehensive Income,"
is effective for years beginning after December 15, 1997. This statement
establishes standards for reporting and display of comprehensive income and its
components in a financial statement that are displayed with the same prominence
as the rest of the financial statements in a report.
American National will adopt FAS No. 130 on January 1, 1998. Management
believes that the adoption of FAS No. 130 will have no effect on American
National's financial position or results from operations.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--FAS No.
131, "Disclosures about Segments of an Enterprise and Related Information," is
effective for years beginning after December 15, 1997. This statement
establishes standards for the way information is reported about operating
segments in financial statements. The statement requires disclosure of
information on operating segments that are evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and assess
performance. It also establishes standards for related disclosures about
products and services, geographic areas and major customers.
American National will adopt FAS No. 131 on January 1, 1998. The adoption of
this standard will require American National to
23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
change the way it reports segment information to match more closely the way the
business is analyzed by management. Upon adoption, applicable prior period
results will be revised to reflect the new disclosure. However, management
believes that the adoption of FAS No. 131 will have no effect on American
National's financial position or results from operations.
INVESTMENTS
DEBT SECURITIES--Bonds which are intended to be held-to-maturity are carried
at amortized cost. The carrying value of these debt securities is expected to be
realized, due to American National's ability and intent to hold these securities
until maturity.
Bonds held as available-for-sale are carried at market.
PREFERRED STOCKS--All preferred stocks are classified as available-for-sale
and are carried at market
COMMON STOCKS-- All common stocks are classified as available-for-sale and are
carried at market.
UNREALIZED GAINS--For all investments carried at market, the unrealized gains
or losses (differences between amortized cost and market), net of applicable
federal income taxes, are reflected in stockholders' equity.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized cost,
less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of loan
and property information, such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation allowances are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowances for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years) using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through the
review of operating information and periodic inspections. This information is
evaluated in light of current economic conditions and other factors, such as
geographic location and property type. As a result of this review, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial paper)
are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures as used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for other than temporary impairments of mortgage
loans, real estate and other assets in accordance with the policies established
for each class of invested asset. The increase in the valuation allowances is
reflected in current period income as a realized loss.
Management believes that the valuation allowances are adequate. However, it is
possible that a significant change in economic conditions in the near term could
result in losses exceeding the amounts established.
CASH AND CASH EQUIVALENTS--American National considers cash on hand and in
banks as cash for purposes of the consolidated statements of cash flows.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES--These assets are primarily investments
in real estate joint ventures, and are accounted for under the equity method of
accounting.
PROPERTY AND EQUIPMENT--These assets consist of buildings occupied by the
companies, electronic data processing equipment, and furniture and equipment.
These assets are carried at cost, less accumulated depreciation. Depreciation is
provided using straight-line and accelerated methods over the estimated useful
lives of the assets (3 to 50 years).
INSURANCE SPECIFIC ASSETS AND LIABILITIES
DEFERRED POLICY ACQUISITION COSTS--Certain costs of acquiring new insurance
business have been deferred. For life, annuity and accident and health business,
such costs consist of inspection report and medical examination fees,
commissions, related fringe benefit costs and the cost of insurance in force
gained through acquisitions. The amount of commissions deferred includes first-
year commissions and certain subsequent year commissions that are in excess of
ultimate level commission rates.
The deferred policy acquisition costs on traditional life and health products
are amortized with interest over the anticipated premium-paying period of the
related policies, in proportion to the ratio of annual premium revenue to be
received over the life of the policies. Expected premium revenue is estimated by
using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. The amount of deferred policy
acquisition costs is reduced by a provision for possible inflation of
maintenance and settlement expenses in the determination of such amounts by
means of grading interest rates.
Costs deferred on universal life, limited pay and investment type contracts
are amortized as a level percentage of the present value of anticipated gross
profits from investment yields, mortality, and surrender charges. The effect on
the deferred policy acquisition costs that would result from realization of
unrealized gains (losses) is recognized with an offset to net unrealized gains
(losses) in consolidated stockholders' equity as of the balance sheet date. It
is possible that a change in interest rates could have a significant impact on
the deferred policy acquisition costs calculated for these contracts.
Deferred policy acquisition costs associated with property and casualty
insurance business consist principally of commissions,
24
<PAGE>
underwriting and issue costs. These costs are amortized over the coverage period
of the related policies, in relation to premium revenue recognized.
FUTURE POLICY BENEFITS--For traditional products, liabilities for future
policy benefits have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality and other assumptions which
were appropriate at the time the policies were issued. Estimates used are based
on the companies' experience, as adjusted to provide for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs
significantly from the assumed, the estimates are revised for current and future
issues.
Future policy benefits for universal life and investment-type contracts
reflect the current account value before applicable surrender charges. In the
near term, it is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
RECOGNITION OF PREMIUM REVENUE AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH--Life and accident and health premium is
recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
ANNUITIES--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in the
case of variable annuities, administrative fees. Policy account balances for
annuities represent the premiums received plus accumulated interest less
applicable accumulated administrative fees. It is possible that a change in
interest rates could have a significant impact on the values calculated for
these contracts.
UNIVERSAL LIFE AND SINGLE PREMIUM WHOLE LIFE--Revenues from universal life
policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges actually paid and earned policy service fees. Policyholder
account balances consist of the premiums received plus credited interest, less
accumulated policyholder assessments. Amounts included in expense represent
benefits in excess of account balances returned to policyholders.
PROPERTY AND CASUALTY--Property and casualty premiums are recognized as
revenue proportionately over the contract period. Policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case basis estimates for reported losses and experience for claims
incurred but not reported. These loss reserves are reported net of an allowance
for salvage and subrogation. Management believes that American National's
reserves have been appropriately calculated, based on available information as
of December 31, 1997. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to participating
policyowners is based upon a comparison of experience rates of mortality,
interest and expense, as determined periodically for representative plans of
insurance, issue ages and policy durations, with the corresponding rates assumed
in the calculation of premiums. Participating business comprised approximately
2.6% of the life insurance in force at December 31, 1997, and 4.5% of life
premiums in 1997.
FEDERAL INCOME TAXES--American National and all but one of its subsidiaries file
a consolidated life/non-life federal income tax return. Garden State Life
Insurance Company files a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
Realization of the deferred tax assets is dependent on generating sufficient
taxable income in the future. Management believes that it is more likely than
not that sufficient income will be generated to realize the net deferred tax
assets.
SEPARATE ACCOUNT ASSETS AND LIABILITIES--The separate account assets and
liabilities represent funds maintained to meet the investment objectives of
contract holders who bear the investment risk. The investment income and
investment gains and losses from these separate funds accrue directly to the
contract holders of the policies supported by the separate accounts. The assets
of each separate account are legally segregated and are not subject to claims
that arise out of any other business of American National. The assets of these
accounts are carried at market value. Deposits, net investment income and
realized investment gains and losses for these accounts are excluded from
revenues, and related liability increases are excluded from benefits and
expenses in this report.
NET INCOME PER COMMON SHARE--Net income per common share is based on the
weighted average number of shares outstanding (26,479,165 shares for 1997 and
1996).
25
<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, 1997:
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies $ 180,156 $ 5,662 $ (220) $ 185,598
States and political subdivisions 11,367 261 (15) 11,613
Foreign governments 121,643 7,147 -- 128,790
Public utilities 1,198,814 39,353 (2,374) 1,235,793
All other corporate bonds 1,885,700 85,963 (1,925) 1,969,738
Mortgage-backed securities 208,247 12,809 (2) 221,054
- ------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,605,927 151,195 (4,536) 3,752,586
- ------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. Government and agencies 49,990 1,348 -- 51,338
Foreign governments 47,141 4,328 -- 51,469
Public utilities 185,078 12,330 -- 197,408
All other corporate bonds 280,860 19,311 (6) 300,165
- ------------------------------------------------------------------------------------------
Total bonds available-for-sale 563,069 37,317 (6) 600,380
- ------------------------------------------------------------------------------------------
Total debt securities 4,168,996 188,512 (4,542) 4,352,966
- ------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,313 1,510 (79) 40,744
Common stock 575,058 331,280 (23,474) 882,864
- ------------------------------------------------------------------------------------------
Total marketable equity securities 614,371 332,790 (23,553) 923,608
- ------------------------------------------------------------------------------------------
Total investments in securities $4,783,367 $521,302 $(28,095) $5,276,574
==========================================================================================
- ------------------------------------------------------------------------------------------
DECEMBER 31, 1996:
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies $ 174,399 $ 3,911 $ (506) $ 177,804
States and political subdivisions 14,185 216 (39) 14,362
Foreign governments 107,573 4,257 (133) 111,697
Public utilities 1,142,072 19,654 (22,213) 1,139,513
All other corporate bonds 1,698,451 46,039 (17,584) 1,726,906
Mortgage-backed securities 294,046 13,527 (11) 307,562
- ------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,430,726 87,604 (40,486) 3,477,844
- ------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. Government and agencies 26,062 559 (75) 26,546
Foreign governments 41,594 2,961 (10) 44,545
Public utilities 184,677 7,267 (222) 191,722
All other corporate bonds 252,053 13,826 (386) 265,493
- ------------------------------------------------------------------------------------------
Total bonds available-for-sale 504,386 24,613 (693) 528,306
- ------------------------------------------------------------------------------------------
Total debt securities 3,935,112 112,217 (41,179) 4,006,150
- ------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 50,546 1,563 (484) 51,625
Common stock 517,385 249,796 (13,142) 754,039
- ------------------------------------------------------------------------------------------
Total marketable equity securities 567,931 251,359 (13,626) 805,664
- ------------------------------------------------------------------------------------------
Total investments in securities $4,503,043 $363,576 $ (54,805) $4,811,814
==========================================================================================
</TABLE>
26
<PAGE>
DEBT SECURITIES:
The amortized cost and estimated market value, by contractual maturity of debt
securities at December 31, 1997, are shown below (in thousands). Expected
maturities will differ from contractual maturities because borrowers may have
the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- ----------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year
or less $ 40,881 $ 41,139 $ -- $ --
Due after one year
through five years 433,567 457,505 136,408 146,007
Due after five years
through ten years 2,893,187 3,000,519 421,661 448,609
Due after ten years 30,045 32,369 5,000 5,764
- ----------------------------------------------------------------------
3,397,680 3,531,532 563,069 600,380
Without single
maturity date 208,247 221,054 -- --
- ----------------------------------------------------------------------
$3,605,927 $3,752,586 $563,069 $600,380
======================================================================
</TABLE>
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $331,679,000 for 1997. Gross gains of $118,985,000
and gross losses of $12,301,000 were realized on those sales. Bonds were called
by the issuers during 1997, which resulted in proceeds from the disposal of
$11,442,000. Gross gains of $531,000 were realized on those disposals.
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $190,636,000 for 1996. Gross gains of $71,768,000
and gross losses of $227,000 were realized on those sales. Bonds were called by
the issuers during 1996, which resulted in proceeds of $40,126,000 from the
disposal. Gross gains of $54,000 were realized on those disposals.
All gains and losses were determined using specific identification of the
securities sold.
UNREALIZED GAINS ON SECURITIES:
Unrealized gains on marketable equity securities and bonds available-for-sale,
presented in the stockholder's equity section of the consolidated statements of
financial position, are net of deferred tax liabilities of $116,062,000 and
$87,561,000 for 1997 and 1996, respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Bonds available-for-sale $13,391 $(22,725)
Preferred stocks 352 (262)
Common stocks 71,152 40,718
Amortization of deferred
policy acquisition costs (3,863) (10,740)
- ----------------------------------------------------------------
81,032 6,991
Provision for federal
income taxes (28,501) (2,537)
- ----------------------------------------------------------------
$ 52,531 $ 4,454
================================================================
</TABLE>
MORTGAGE LOANS:
In general, mortgage loans are secured by first liens on income- producing
real estate. The loans are expected to be repaid from the cash flows or proceeds
from the sale of real estate. American National generally allows a maximum loan-
to-collateral-value ratio of 75% to 90% on newly funded mortgage loans. As of
December 31, 1997, mortgage loans have both fixed rates from 5.25% to 13% and
variable rates from 7% to 10.25%. The majority of the mortgage loan contracts
require periodic payments of both principal and interest, and have amortization
periods of 3 to 31 years.
American National has investments in first lien mortgage loans on real estate
with carried values of $1,103,300,000 and $1,098,583,000 at December 31, 1997
and 1996, respectively. Problem loans, on which impairment allowances were
established, totaled $6,493,900 and $14,602,000 at December 31, 1997 and 1996,
respectively.
POLICY LOANS:
Policy loans have interest rates ranging from 2.5% to 8%. Approximately 99% of
the policy loan portfolio carried interest rates of 5% to 8% at December 31,
1997.
INVESTMENT INCOME AND REALIZED GAINS (LOSSES):
Investment income and realized gains (losses) from disposals of investments,
before federal income taxes, for the years ended December 31 are summarized as
follows (in thousands):
<TABLE>
<CAPTION>
GAINS (LOSSES) FROM
INVESTMENT INCOME DISPOSALS OF INVESTMENTS
- -------------------------------------------------------------------------
1997 1996 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $303,426 $281,780 $ 530 $ 172
Preferred stocks 3,173 3,372 21 13
Common stocks 18,977 17,649 106,662 71,410
Mortgage loans 109,165 94,823 (1,277) (4,212)
Real estate 84,344 85,810 (5,977) (7,249)
Other invested assets 26,872 23,399 (83) (93)
Investment in
unconsolidated
affiliates -- -- (79) 864
- -------------------------------------------------------------------------
545,957 506,833 99,797 60,905
Investment expenses (73,062) (71,142) -- --
Decrease (increase) in
valuation allowances -- -- 3,523 (2,904)
- -------------------------------------------------------------------------
$472,895 $435,691 $103,320 $ 58,001
=========================================================================
</TABLE>
27
<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:
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------
<S> <C> <C>
AAA 8% 14%
AA 13% 6%
A 56% 54%
BBB & below 23% 26%
- ----------------------------------
100% 100%
==================================
</TABLE>
COMMON STOCK:
American National's stock portfolio by market sector distribution at December
31 is summarized as follows:
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------
<S> <C> <C>
Basic materials 8% 8%
Capital goods 10% 9%
Consumer goods 18% 20%
Energy 7% 7%
Finance 9% 6%
Technology 12% 13%
Health care 21% 21%
Miscellaneous 15% 16%
- --------------------------------------
100% 100%
======================================
</TABLE>
MORTGAGE LOANS AND INVESTMENT REAL ESTATE:
American National invests primarily in the commercial sector in areas that
offer the potential for property value appreciation. Generally, mortgage loans
are secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- ------------------------------------------------------
1997 1996 1997 1996
- ------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings 21% 21% 19% 30%
Shopping centers 56% 56% 40% 30%
Commercial 3% 4% 15% 16%
Apartments 2% 1% 3% 2%
Hotels/motels 3% 3% 16% 13%
Industrial 12% 12% 4% 4%
Residential -- 1% -- --
Other 3% 2% 3% 5%
- ------------------------------------------------------
100% 100% 100% 100%
======================================================
</TABLE>
American National has a well diversified portfolio of mortgage loans and real
estate properties. Mortgage loans and real estate investments by geographic
distribution at December 31 are as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- -----------------------------------------------------------------
1997 1996 1997 1996
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas 18% 15% 45% 53%
South Central, except Texas 2% 2% 1% --
California 11% 14% 7% 10%
Western, except California 6% 6% 4% 4%
Southeastern 10% 13% 22% 16%
North Central U.S. 10% 10% 14% 11%
North Eastern U.S. 43% 40% 7% 6%
- -----------------------------------------------------------------
100% 100% 100% 100%
=================================================================
</TABLE>
For discussion of other off-balance sheet risks, see Note 15.
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in developing the estimates of fair value.
Accordingly, these estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange or the amounts that may
ultimately be realized. The use of different market assumptions or estimating
methodologies may have a material effect on the estimated market values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values from
published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
MORTGAGE LOANS:
The market value for mortgage loans is estimated using discounted cash flow
analyses based on interest rates currently being offered for comparable loans.
Loans with similar characteristics are aggregated for purposes of the analyses.
POLICY LOANS:
The carrying amount for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amount for short-term investments approximates their market value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
28
<PAGE>
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration, and
the market value was not significant at December 31, 1997 or 1996.
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds:
Held-to-maturity $3,605,927 $3,752,586 $3,430,726 $3,477,844
Available-for-sale 600,380 600,380 528,306 528,306
Preferred stock 40,744 40,744 51,625 51,625
Common stock 882,864 882,864 754,039 754,039
Mortgage loans on
real estate 1,103,333 1,229,078 1,098,583 1,195,053
Policy loans 300,574 300,574 303,336 303,336
Short-term
investments 126,732 126,732 5,470 5,470
Financial liabilities:
Investment contracts 1,867,233 1,867,233 1,821,715 1,821,715
- ----------------------------------------------------------------------------
</TABLE>
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December
31, 1997 and 1996, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 $562,393 $106,528 $ 6,735 $675,656
- ----------------------------------------------------------------------------
Additions 143,046 17,847 21,004 181,897
Amortization (70,786) (17,311) (19,920) (108,017)
Effect of change in
unrealized gains on
available-for-sale
securities (10,740) (10,740)
- ----------------------------------------------------------------------------
Net change 61,520 536 1,084 63,140
Acquisitions 99 128 -- 227
- ----------------------------------------------------------------------------
Balance at
December 31, 1996 624,012 107,192 7,819 739,023
- ----------------------------------------------------------------------------
Additions 105,268 21,373 24,336 150,977
Amortization (92,830) (23,553) (22,327) (138,710)
Effect of change in
unrealized gains on
available-for-sale
securities (3,863) (3,863)
- ----------------------------------------------------------------------------
Net change 8,575 (2,180) 2,009 8,404
Acquisitions 752 162 -- 914
- ----------------------------------------------------------------------------
Balance at
December 31, 1997 $633,339 $105,174 $ 9,828 $ 748,341
============================================================================
1997 Premiums $349,073 $378,521 $312,987 $1,040,581
============================================================================
1996 Premiums $ 329,937 $364,198 $257,845 $ 951,980
============================================================================
</TABLE>
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios under
assumption reinsurance agreements.
(7) FUTURE POLICY BENEFITS
LIFE INSURANCE:
Interest assumptions used in the calculation of future policy benefits for
life policies are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- -----------------------------------------------------------------------
<S> <C> <C>
ORDINARY--
1996-1997 7.5% for years 1 through 5, graded to 5.5%
at the end of year 25, and level thereafter 1%
1981-1995 8% for years 1 through 5, graded to 6% at
the end of year 25, and level thereafter 19%
1976-1981 7% for years 1 through 5, graded to 5% at
the end of year 25, and level thereafter 22%
1972-1975 6% for years 1 through 5, graded to 4% at
the end of year 25, and level thereafter 9%
1969-1971 6% for years 1 through 5, graded to 3.5%
at the end of year 30, and level thereafter 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5%
at the end of year 15, and level thereafter 14%
1948-1961 4% for years 1 through 5, graded to 3.5%
at the end of year 10, and level thereafter 14%
1947 and prior Statutory rates of 3% or 3.5% 2%
INDUSTRIAL--
1948-1967 4% for years 1 through 5, graded to 3.5% at
the end of year 10, and level thereafter 6%
1947 and prior Statutory rates of 3% 6%
- -----------------------------------------------------------------------
100%
=======================================================================
</TABLE>
Future policy benefits for universal life are calculated from the current
account value.
Future policy benefits for other policies have been calculated using level
interest rates principally as follows: annuities at 6% and group at 4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies are
calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
29
<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):
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $ 222,996 $ 214,599
Less reinsurance recoverables 2,439 1,346
- ----------------------------------------------------------------------
Net balance at January 1 220,557 213,253
- ----------------------------------------------------------------------
Incurred related to:
Current year 515,202 482,988
Prior years (1,098) (13,820)
- ----------------------------------------------------------------------
Total incurred 514,104 469,168
- ----------------------------------------------------------------------
Paid related to:
Current year 343,333 332,305
Prior years 144,256 129,559
- ----------------------------------------------------------------------
Total paid 487,589 461,864
- ----------------------------------------------------------------------
Net balance at December 31 247,072 220,557
Plus reinsurance recoverables 2,567 2,439
- ----------------------------------------------------------------------
Balance at December 31 $ 249,639 $ 222,996
======================================================================
</TABLE>
The balances at December 31 are included in policy and contract claims on the
consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure portions of
certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
The company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. At December 31,
1997, amounts recoverable from reinsurers with a carrying value of $89,232,000
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. The company
holds collateral related to these credit reinsurers totaling $70,760,000. This
collateral is in the form of custodial accounts controlled by the company, which
can be drawn on for amounts that remain unpaid for more than 120 days. American
National believes that the failure of any single reinsurer to meet its
obligations would not have a significant effect on its financial position or
results of operations.
Premiums, premium-related reinsurance amounts and reinsurance recoveries for
the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Direct premiums $1,135,094 $1,032,072
Reinsurance premiums assumed
from other companies 25,146 20,052
Reinsurance premiums ceded
to other companies (119,659) (100,144)
- ---------------------------------------------------------------
Net premiums $1,040,581 951,980
===============================================================
Reinsurance recoveries $ 56,535 $ 54,871
===============================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Direct life insurance in force $43,143,187 $41,945,640
Reinsurance risks assumed
from other companies 662,171 583,853
- --------------------------------------------------------------
Total life insurance in force 43,805,358 42,529,493
Reinsurance risks ceded to
other companies (6,985,956) (6,007,905)
- --------------------------------------------------------------
Net life insurance in force $36,819,402 $36,521,588
==============================================================
</TABLE>
30
<PAGE>
(10) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business, and operate primarily in six segments (lines of business)
within the insurance industry.
The following table summarizes the premiums and other revenue, gain (loss)
from operations before equity in earnings of unconsolidated affiliates and
federal income taxes, and assets by line of business for the years ended
December 31, 1997 and 1996 (in thousands):
<TABLE>
<CAPTION>
GAIN (LOSS)
BEFORE
APPLICABLE
FEDERAL
PREMIUMS INCOME TAXES
AND OTHER AND OTHER
LINE OF BUSINESS: REVENUE ITEMS ASSETS
- --------------------------------------------------------------------------
<S> <C> <C> <C>
1997
- ----
Individual life insurance $ 501,812 $85,210 $2,608,582
Individual accident and
health insurance 191,840 (77) 108,731
Annuities 218,719 6,965 1,962,252
Group life & health insurance 181,034 (11,211) 49,234
Credit insurance 58,254 2,208 136,520
Property and casualty insurance 325,419 28,524 343,280
- --------------------------------------------------------------------------
Total insurance lines 1,477,078 111,619 5,208,599
Capital and surplus 151,187 146,917 3,206,487
Non-insurance 8,319 1,833 67,887
- --------------------------------------------------------------------------
1,636,584 260,369 8,482,973
Gain from sale of investments 103,320 103,320 --
$1,739,904 $363,689 $8,482,973
==========================================================================
1996
- ----
Individual life insurance $ 496,571 $ 79,076 $2,564,102
Individual accident and
health insurance 199,982 (4,943) 108,922
Annuities 167,226 5,783 1,870,659
Group life & health insurance 159,004 811 42,844
Credit insurance 53,411 1,978 123,508
Property and casualty insurance 269,519 15,052 292,113
- ---------------------------------------------------------------------
Total insurance lines 1,345,713 97,757 5,002,148
Capital and surplus 137,573 138,781 2,912,340
Non-insurance 8,712 158 74,057
- ---------------------------------------------------------------------
1,491,998 236,696 7,988,545
Gain from sale of investments 58,001 58,001 --
- ---------------------------------------------------------------------
$1,549,999 $294,697 $7,988,545
=====================================================================
</TABLE>
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines. It is based on the funds generated
by each line at the average yield available from these fixed income assets at
the time such funds become available. Net investment income from policy loans is
allocated to the insurance lines according to the amount of loans made by each
line. Net investment income from all other assets is allocated to capital and
surplus.
Identifiable commissions and expenses are charged directly to the appropriate
line of business. The remaining expenses are allocated to the lines based upon
various factors including premium and commission ratios within the respective
lines.
Fixed income assets and policy loans have been directly assigned to the
insurance lines to the extent required for reserves. Equity type assets, such as
stocks and real estate and all other assets not required for the insurance
lines, have been assigned to capital and surplus.
Policy account deposits totaled $391,607,000 in 1997 and $756,727,000 in 1996.
The majority of these deposits were in the annuity line, which totaled
$281,287,000 and $648,234,000 in 1997 and 1996, respectively.
A significant portion of American National's insurance business is written
through one third-party marketing organization. During 1997, approximately 18%
of the total premium and policy account deposits were written through that
organization. This compares with 35% in 1996. Of the total business written by
this one organization, the majority was annuities.
(11) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when applying
the statutory federal income tax rate. A reconciliation of the effective tax
rate of the companies to the statutory federal income tax rate follows (in
thousands, except percentages):
<TABLE>
<CAPTION>
1997 1996
- -------------------------------------------------------------------------------------
Amount Rate Amount Rate
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax on pre-tax income $130,558 35.00 % $106,911 (35.00)%
Tax-exempt investment income (383) (0.10)% (384) (0.13)%
Dividend exclusion (3,046) (0.82)% (3,303) (1.08)%
Tax refund -- -- (7,360) (2.41)%
Prior year reserve method change -- -- (3,994) (1.31)%
Miscellaneous tax credits, net (1,238) (0.33)% (1,350) (0.44)%
Other items, net (1,226) (0.33)% (654) (0.21)%
- ---------------------------------------------------------------------------------------
$124,665 33.42 % $ 89,866 29.42 %
=======================================================================================
</TABLE>
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1997 and December 31, 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- --------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Investment in bonds, real estate and
other invested assets, principally due to
investment valuation allowances $ 11,858 ($) 12,943
Policyowner funds, principally
due to policy reserve discount 81,935 86,282
Policyowner funds, principally
due to unearned premium reserve 9,527 7,294
Other assets 6,701 7,375
- --------------------------------------------------------------------------
Total gross deferred tax assets 110,021 113,894
Less valuation allowance (3,000) (3,000)
- --------------------------------------------------------------------------
Net deferred tax assets 107,021 110,894
- --------------------------------------------------------------------------
Deferred tax liabilities:
Marketable equity securities, principally
due to net unrealized gains on stock (107,767) (90,526)
Investment in bonds, principally
due to accrual of discount on bonds (16,312) (14,283)
Deferred policy acquisition costs, due to
difference between GAAP and tax (185,903) (188,725)
Property, plant and equipment, principally
due to difference between GAAP
and tax depreciation methods (12,563) (12,445)
Other liabilities (82) (1,627)
- --------------------------------------------------------------------------
Net deferred tax liabilities (322,627) (307,606)
- --------------------------------------------------------------------------
Total deferred tax $(215,606) $(196,712)
==========================================================================
</TABLE>
31
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Management believes that a sufficient level of taxable income will be achieved
to utilize the net deferred tax assets.
Through 1983, under the provision of the Life Insurance Company Income Tax Act
of 1959, life insurance companies were permitted to defer from taxation a
portion of their income (within certain limitations) until and unless it is
distributed to stockholders, at which time it was taxed at regular corporate tax
rates. No provision for deferred federal income taxes applicable to such untaxed
income has been made, because management is of the opinion that no distributions
of such untaxed income (designated by federal law as "policyholders' surplus")
will be made in the foreseeable future. There was no change in the
"policyholders' surplus" between December 31, 1996 and December 31, 1997, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $136,212,000 and $83,475,000 were
paid to the Internal Revenue Service in 1997 and 1996, respectively. The statute
of limitations for the examination of federal income tax returns through 1993
for American National and its subsidiaries by the Internal Revenue Service has
expired. All prior year deficiencies have been paid or provided for, and
American National has filed appropriate claims for refunds through 1994. In the
opinion of management, adequate provision has been made for any tax deficiencies
that may be sustained.
(12) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from those used to prepare financial statements on the basis of generally
accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as determined
using statutory accounting principles, to the amounts included in the
accompanying consolidated financial statements, as of and for the years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Statutory net income of insurance companies $ 207,998 $ 146,100
Net gain (loss) of non-insurance companies 2,592 750
- ------------------------------------------------------------------------------------------------
Combined net income 210,590 146,850
Increases (decreases):
Deferred policy acquisition costs 12,267 73,880
Policyholder funds 7,963 (16,323)
Deferred federal income tax benefit 9,606 237
Premiums deferred and other receivables 602 5,549
Gain on sale of investments 79 1,102
Change in interest maintenance reserve 1,532 (463)
Asset valuation allowances 3,524 (2,904)
Other adjustments, net 2,218 7,711
Consolidating eliminations and adjustments (24) (44)
- ------------------------------------------------------------------------------------------------
Net income reported herein $ 248,357 $ 215,595
================================================================================================
1997 1996
- ------------------------------------------------------------------------------------------------
Statutory capital and
surplus of insurance companies $2,011,016 $1,784,692
Stockholders' equity
of non-insurance companies 77,725 79,316
- ------------------------------------------------------------------------------------------------
Combined capital and surplus 2,088,741 1,864,008
Increases (decreases):
Deferred policy acquisition costs 748,341 739,023
Policyholder funds 135,262 126,925
Deferred federal income taxes (215,606) (196,712)
Premiums deferred and other receivables (77,629) (78,231)
Reinsurance in "unauthorized companies" 34,010 30,506
Statutory asset valuation reserve 370,102 326,336
Statutory interest maintenance reserve 7,989 6,457
Asset valuation allowances (44,899) (47,518)
Investment market value adjustments 39,050 25,414
Non-admitted assets and
other adjustments, net 258,191 257,617
Consolidating eliminations and adjustments (638,135) (579,919)
- -------------------------------------------------------------------------------------------------
Stockholders' equity reported herein $2,705,417 $2,473,906
==================================================================================================
</TABLE>
In accordance with various government and state regulations, American National
and its insurance subsidiaries had bonds with an amortized value of $73,790,000
on deposit with appropriate regulatory authorities.
32
<PAGE>
(13) STOCKHOLDERS' EQUITY
American National has only one class of common stock, no preferred stock and
no options which could be converted into common or preferred stock. At December
31, 1997 and 1996, American National had 50,000,000 authorized shares of $1.00
par value common stock. At December 31, 1997 and 1996, issued shares were
30,832,449; treasury shares were 4,353,284; and outstanding shares were
26,479,165.
American National's payment of dividends to stockholders is restricted by
statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity, as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1997, approximately $529,692,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(14) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. One of the programs is contributory and
covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home office clerical employees subject to a collective bargaining
agreement. The program covering salaried and management employees provides
pension benefits that are based on years of service and the employee's
compensation during the five years before retirement. The programs covering
hourly employees and agents generally provide benefits that are based on the
employee's career average earnings and years of service. American National also
sponsors two non-tax-qualified pension plans for key executives that restore
benefits that would otherwise be curtailed by statutory limits on qualified plan
benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense (before income taxes) produced a
pension debit of $2,474,000 for 1997 and $902,000 for 1996.
The pension debit is made up of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Service cost--benefits earned during period $ 5,402 $ 5,040
Interest cost on projected benefit obligation 7,221 (6,735
Actual return on plan assets (9,927) (6,542)
Net amortization and deferral (222) (4,331)
- ---------------------------------------------------------------------------
Total pension debit $ 2,474 $ 902
===========================================================================
</TABLE>
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial position at December 31 for the companies'
pension plans.
Actuarial present value of benefit obligation:
<TABLE>
<CAPTION>
1997 1996
- ---------------------------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Vested benefit obligation $(71,811) $(22,468) $(66,688) $(16,029)
===================================================================================================
Accumulated benefit
obligation $ (75,492) $ (22,468) $ (70,303) $ (16,029)
===================================================================================================
Projected benefit obligation $ (92,422) $ (22,616) $ (85,891) $ (20,975)
Plan assets at fair value
(long-term securities) 129,380 -- 125,068 --
- ---------------------------------------------------------------------------------------------------
Plan assets in excess of
projected benefit
obligation 36,958 (22,616) 39,177 (20,975)
Unrecognized net loss 8,305 2,614 7,842 3,519
Prior service cost not yet
recognized in periodic
pension cost -- 1,505 18 1,902
Unrecognized net transition
asset at January 1 being
recognized over 15 years (10,477) -- (13,097) --
Adjustment required to
recognize additional
liability -- -- -- (513)
- ---------------------------------------------------------------------------------------------------
Prepaid pension cost
included in other assets $ 34,786 $ (18,497) $ 33,940 $ (16,067)
===================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Assumptions used at December 31:
1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Weighted-average discount rate
on benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.50%
Expected long-term rate of return on plan assets 7.00% 8.00%
</TABLE>
Under American National and its subsidiaries' various group benefit plans for
active employees, a $2,500 paid-up life insurance certificate is provided upon
retirement for eligible participants who meet certain age and length of service
requirements.
American National has one retiree health benefit plan for retirees of all
companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health
33
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
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 $12,970,000 and $13,007,000 at December 31, 1997 and 1996, respectively.
These amounts were approximately equal to the unfunded accumulated post-
retirement benefit obligation. Since the companies' contributions to the cost of
the retiree benefit plans are fixed, the health care cost trend rate will have
no effect on the future expense or the accumulated post-retirement benefit
obligation.
(15) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various cities
for their insurance sales offices. The long-term lease commitments at December
31, 1997 were approximately $6,315,000.
In the ordinary course of their operations, the companies also had commitments
outstanding at December 31, 1997 to purchase, expand or improve real estate, and
to fund mortgage loans aggregating $74,522,000, all of which are expected to be
funded in 1998. Of the commitment amount, $54,138,000 of mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged failure to
honor certain loan commitments, alleged breach of certain agency and real estate
contracts, various employment matters, allegedly deceptive insurance sales and
marketing practices, and other litigation arising in the ordinary course of
operations. Certain of these lawsuits include claims for compensatory and
punitive damages. Management is of the opinion, after reviewing the above
matters with legal counsel, that the ultimate liability, if any, resulting from
any of or all of the above matters would not have a material adverse effect on
the companies' consolidated financial position or results of operations.
However, these lawsuits are in various stages of development and future facts
and circumstances could result in management changing its conclusions.
In 1995 a series of fires occurred at a warehouse, located in Houston, Texas,
which American National owns. American National leased the warehouse to a
company that, in turn, rented out space to various other parties to store
materials. As a result of these fires, some of the materials stored in the
warehouse caused damage at the warehouse site. As the owner of the warehouse,
American National is now named as a defendant in several lawsuits concerning
alleged damages related to the fires. After reviewing this situation with legal
counsel, management believes that American National has meritorious defenses
against these lawsuits. The company also has meritorious grounds to recover any
damages from the third parties who actually owned the materials that caused the
fires. Therefore, no specific reserves for this matter have been recorded in the
consolidated financial statements. However, if the defenses and recoveries are
not resolved in the manner that management anticipates, it is possible that the
resulting liability could have a material impact on the consolidated financial
results.
In 1996, American National was named as a defendant in a purported nationwide
class action lawsuit, filed in the state of Alabama, in which the plaintiffs
allege that American National and a third party marketing and administration
organization engaged in improper sales practices in connection with a group
annuity. This litigation is still in the discovery stage, and management
believes that American National has meritorious defenses to class certification
and the substantive allegations in the complaint. Because the ultimate outcome
of this litigation is not foreseeable, no estimate of potential loss, if any, is
possible. Therefore, no provision for this matter has been recorded in the
consolidated financial statements. However, if the defenses are not successful
and a nationwide class is certified, it is possible that the resulting liability
could have a material impact on the consolidated financial results.
34
<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 19, 1998. 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, fairly state in all material respects the financial
data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 19, 1998
35
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1997
(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 $ 180,156 $ 185,598 $ 180,156
States, municipalities and political subdivisions 11,367 11,613 11,367
Foreign governments 121,643 128,790 121,643
Public utilities 1,198,814 1,235,793 1,198,814
All other corporate bonds 2,093,947 2,190,792 2,093,947
Bonds Available-for-Sale:
United States Government and government agencies
and authorities 49,990 51,338 51,338
Foreign governments 47,141 51,469 51,469
Public utilities 185,078 197,408 197,408
All other corporate bonds 280,860 300,165 300,165
Redeemable preferred stock 39,313 40,744 40,744
- ----------------------------------------------------------------------------------------------
Total fixed maturities $4,208,309 $4,393,710 $4,247,051
- ----------------------------------------------------------------------------------------------
Equity Securities:
Common stocks:
Public utilities $ 33,778 $ 48,893 $ 48,893
Banks, trust and insurance companies 48,755 72,875 72,875
Industrial, miscellaneous and all other 492,525 761,096 761,096
- ----------------------------------------------------------------------------------------------
Total equity securities $ 575,058 $ 882,864 $ 882,864
- ----------------------------------------------------------------------------------------------
Mortgage loans on real estate $1,103,333 XXXXXX $1,103,333
Investment real estate 227,372 XXXXXX 227,372
Real estate acquired in satisfaction of debt 30,838 XXXXXX 30,838
Policy loans 300,574 XXXXXX 300,574
Other long-term investments 63,135 XXXXXX 63,135
Short-term investments 126,732 XXXXXX 126,732
- ----------------------------------------------------------------------------------------------
Total investments $6,635,351 XXXXXX $6,981,899
==============================================================================================
(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.
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
- ----------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
FUTURE POLICY
DEFERRED BENEFITS, OTHER POLICY
POLICY LOSSES, CLAIMS CLAIMS AND
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM
SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
- ----
Individual life insurance $430,231 $2,362,599 $ 6,490 $ 56,196 $ 273,389
Individual accident and
health insurance 54,107 91,221 4,882 66,047 184,676
Annuities 172,805 2,017,781 9 14,183 50,524
Group life and A & H
insurance 21,900 43,755 5,398 47,647 173,297
Credit insurance 59,470 -- 221,118 40,881 45,708
Property and casualty
insurance 9,828 -- 156,830 126,237 312,987
Capital and surplus -- -- -- -- --
Non-insurance -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Total $748,341 $4,515,356 $394,727 $351,191 $1,040,581
=================================================================================================
1996
- ----
Individual life insurance $426,277 $2,329,606 $ 6,518 $ 54,793 $ 271,715
Individual accident and
health insurance 57,183 95,424 4,316 64,641 192,450
Annuities 172,502 1,936,717 -- 8,729 35,610
Group life and A & H
insurance 19,830 37,979 3,509 39,230 152,420
Credit insurance 55,412 -- 205,213 37,499 41,940
Property and casualty
insurance 7,819 -- 111,011 110,843 257,845
Capital and surplus -- -- -- -- --
Non-insurance -- -- -- -- --
- -------------------------------------------------------------------------------------------------
Total $739,023 $4,399,726 $330,567 $315,735 $ 951,980
=================================================================================================
- -------------------------------------------------------------------------------------------------
COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
BENEFITS, AMORTIZATION
CLAIMS, LOSSES OF DEFERRED
NET AND POLICY OTHER
INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT INCOME (A) EXPENSES COSTS EXPENSES (B) WRITTEN
- -------------------------------------------------------------------------------------------------
1997
- ----
Individual life insurance $152,783 $232,975 $ 45,922 $ -- $ --
Individual accident and
health
insurance 7,106 135,237 5,481 -- --
Annuities 137,319 135,714 38,213 -- --
Group life and A & H
insurance 4,625 136,076 9,096 -- --
Credit insurance 5,665 22,042 17,671 -- --
Property and casualty
insurance 12,349 233,887 22,327 -- 326,789
Capital and surplus 151,179 -- -- -- --
Non-insurance 1,869 -- -- -- --
- -------------------------------------------------------------------------------------------------
Total $472,895 $895,931 $138,710 $ -- $326,789
=================================================================================================
1996
- ----
Individual life insurance $151,323 $236,716 $ 47,715 $122,548 $ --
Individual accident and
health
insurance 7,471 142,628 4,429 58,343 --
Annuities 115,726 115,422 15,339 2,548 --
Group life and A & H
insurance 4,600 109,543 4,712 45,694 --
Credit insurance 5,213 20,668 15,902 14,863 --
Property and casualty
insurance 11,733 206,120 19,920 28,427 271,061
Capital and surplus 137,573 -- -- (1,208) --
Non-insurance 2,052 -- -- 8,554 --
- -------------------------------------------------------------------------------------------------
Total $435,691 $831,097 $108,017 $279,769 $271,061
=================================================================================================
(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.
</TABLE>
37
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
(In thousands)
<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>
1997
- ----
Life insurance in force $ 43,143,187 $ 6,985,956 $ 662,171 $ 36,819,402 1.8%
======================================================================================================
Premiums:
Life insurance 391,124 51,776 9,725 349,073 2.8%
Accident and health insurance 419,239 49,442 8,724 378,521 2.3%
Property and liability insurance 324,731 18,441 6,697 312,987 2.1%
- ------------------------------------------------------------------------------------------------------
Total premiums $1,135,094 $119,659 $25,146 $1,040,581 2.4%
======================================================================================================
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%
======================================================================================================
</TABLE>
38
<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>
1997
- ----
Investment valuationt allowances:
Mortgage loans on real estate $ 14,846 $ 707 $ 323 $ -- $ 15,230
Investment real estate 28,561 1,400 6,607 777 22,577
Investment in unconsolidated
affiliates 2,327 1,400 -- -- 3,727
Other assets 11,900 100 11,800
- ----------------------------------------------------------------------------------------------------------------------------------
Total $ 57,634 $ 3,507 $7,030 $ 777 $ 53,334
==================================================================================================================================
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
===================================================================================================================================
(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.
</TABLE>
39
<PAGE>
[AMERICAN NATIONAL LOGO APPEARS HERE]
40
