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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-effective Amendment No. 3
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 13
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Address of Depositor's Principal Executive Offices)
(409) 763-4661
(Depositor's Telephone Number, including Area Code)
Rex Hemme Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National Insurance Company With copy to: One Moody Plaza
One Moody Plaza Galveston, Texas 77550
Galveston, Texas 77550
(Name and Address of Agent for Service)
=================================================================
Declaration Required by Rule 24f-2(a)(1): An indefinite number of securities of
the Registrant has been registered under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Notice required by Rule
24f-2(b)(1) has been filed in the Office of the Securities and Exchange
Commission on March 31, 1999 for the Registrant's fiscal year ending December
31, 1998.
=================================================================
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[_] on (date) pursuant to paragraph (a)(i) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(ii) of rule 485
[_] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Variable Annuity Contracts
***PROSP
***SAI
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WEALTHQUEST VARIABLE ANNUITY II
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Home Office One Moody Plaza Galveston TX 77550-7999
PROSPECTUS MAY 1, 1999 1-800-306-2959
This prospectus describes an individual deferred variable annuity contract.
You can allocate your contract value to American National Variable Annuity
Separate Account, which reflects the investment performance of mutual fund
portfolios selected by you, and our Fixed Account which earns a guaranteed
minimum rate. At this time, you can allocate your contract value to the
following mutual fund portfolios:
AMERICAN NATIONAL FUND
. Growth Portfolio
. Balanced Portfolio
. Managed Portfolio
. Money Market Portfolio
FIDELITY FUNDS
. Asset Manager Portfolio
. Index 500 Portfolio
. Contrafund Portfolio
. Asset Manager: Growth Portfolio
. Growth Opportunities Portfolio
T. ROWE PRICE FUNDS
. Equity Income Portfolio
. Mid-Cap Growth Portfolio
. International Stock Portfolio
. Limited-Term Bond Portfolio
MFS FUND
. Capital Opportunities Series Portfolio
. Emerging Growth Series Portfolio
. Research Series Portfolio
. Growth With Income Series Portfolio
VAN ECK FUND
. Worldwide Hard Assets Portfolio
. Worldwide Emerging Markets Portfolio
FEDERATED FUND
. Utility Fund II Portfolio
. Growth Strategies Portfolio
. U.S. Government Bond Portfolio
. High Income Bond Portfolio
. Equity Income Fund II Portfolio
LAZARD FUND
. Retirement Emerging Markets Portfolio
. Retirement Small Cap Portfolio
THIS PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD KNOW BEFORE PURCHASING
A CONTRACT. ADDITIONAL INFORMATION ABOUT THE CONTRACT IS CONTAINED IN A
STATEMENT OF ADDITIONAL INFORMATION ("SAI") FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION, ("SEC") WHICH IS INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS. YOU MAY OBTAIN A FREE COPY OF THE SAI, WHICH IS DATED THE
SAME DATE AS THIS PROSPECTUS, BY WRITING OR CALLING US AT OUR HOME OFFICE. THE
TABLE OF CONTENTS OF THE SAI IS ON PAGE 48 OF THIS PROSPECTUS. THE SEC MAINTAINS
AN INTERNET WEBSITE (http://www.sec.gov) THAT CONTAINS MATERIAL INCORPORATED
BY REFERENCE INTO THIS PROSPECTUS, SAI AND OTHER INFORMATION REGARDING
COMPANIES THAT FILE ELECTRONICALLY WITH THE SEC.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OR
PROSPECTUS PROFILES FOR THE AMERICAN NATIONAL FUND, FIDELITY FUNDS, T.
ROWE PRICE FUNDS, MFS FUND, VAN ECK FUND, FEDERATED FUND, AND LAZARD
FUND.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
INTERESTS IN THE CONTRACT ARE NOT DEPOSITS OR OBLIGATIONS 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 Keep It For Future Reference
Form 3934 Rev. 5-99
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TABLE OF CONTENTS
Page
Glossary.............................................................. 4
Introduction.......................................................... 6
What is the Purpose of the Contract?................................ 6
What are my Investment Options?..................................... 6
How Do I Purchase a Contract?....................................... 6
How Do I Allocate Purchase Payments?................................ 7
Can I Transfer Amounts Between the Investment Alternatives?......... 7
What is the Death Benefit Under the Contract?....................... 7
Can I Get My Money if I Need It?.................................... 7
How Can I Receive Annuity Payments?................................. 8
What are the Charges and Deductions Under the Contract?............. 8
What are the Tax Consequences Associated With the Contract?......... 8
If I have Questions, Where Can I Go?................................ 8
Contractowner Transaction Expenses.................................... 9
Expenses Before the Annuity Date.................................... 9
Sales Load as a Percentage of Purchase Payments..................... 9
Deferred Sales Load ("Surrender Charge")............................ 9
Expenses During the Annuity Period.................................. 15
Accumulation Unit Values.............................................. 18
Contract.............................................................. 21
Type of Contract.................................................... 21
Contract Application and Purchase Payments.......................... 21
Allocation of Purchase Payments..................................... 21
Crediting of Accumulation Units..................................... 21
Allocation of Charges and Other Deductions To the Subaccounts
and the Fixed Account............................................. 22
Determining Accumulation Unit Values................................ 22
Transfers Before Annuity Date....................................... 22
Special Programs.................................................... 23
Charges and Deductions Prior the Annuity Date......................... 23
Surrender Charge.................................................... 23
Other Charges....................................................... 24
Deduction of Fees................................................... 25
Exception to Charges................................................ 25
Distributions Under the Contract...................................... 25
Distributions Before the Annuity Date................................. 25
Surrenders.......................................................... 25
Systematic Withdrawal Program....................................... 26
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Page
Waiver of Surrender Charge.......................................... 27
Death Benefit Before the Annuity Date............................... 28
Distributions During the Annuity Period............................... 30
Election of Annuity Date and Form of Annuity........................ 30
Allocation of Benefits.............................................. 31
Annuity Options..................................................... 31
Value of Variable Annuity Payments: Assumed Investment Rates ....... 32
Annuity Provisions.................................................. 32
The Company, Separate Account, Funds and Fixed Account................ 33
American National Insurance Company................................. 33
The Separate Account................................................ 34
The Funds........................................................... 35
Changes in Investment Options....................................... 39
Fixed Account......................................................... 40
Federal Tax Matters................................................... 40
Introduction........................................................ 40
Tax Status of the Contracts......................................... 41
Taxation of Annuities in General.................................... 41
Withdrawals......................................................... 41
Penalty Tax......................................................... 41
Annuity Payments.................................................... 42
Taxation of Death Benefit Proceeds.................................. 42
Transfers or Assignments of a Contract.............................. 42
Required Distributions.............................................. 42
Withholding......................................................... 42
Multiple Contracts.................................................. 43
Exchanges........................................................... 43
Taxation of Qualified Contracts..................................... 43
Possible Changes in Taxation........................................ 46
All Contracts....................................................... 46
Performance........................................................... 46
Distributor of the Contract........................................... 47
Legal Matters......................................................... 47
Legal Proceedings..................................................... 47
Experts............................................................... 47
Additional Information................................................ 48
Financial Statements.................................................. 48
Table of Contents of Statement of Additional Information.............. 48
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GLOSSARY
Accumulation Period. The time between the date Accumulation Units are first
purchased by us and the earliest of (1) the Annuity Date; (2) the date the
Contract is surrendered; or (3) the date of the Contractowner's death.
Accumulation Unit. A unit used by us to calculate a Contract's value during the
Accumulation Period.
Accumulation Value. The sum of (1) the value of your Accumulation Units and
(2) value in the Fixed Account.
American National Fund. American National Investment Accounts, Inc.
Annuitant. The person or persons who will receive annuity payments involving
life contingencies.
Annuity Date. The date annuity payments begin.
Annuity Period. The time during which annuity payments are made.
Annuity Unit. A unit used by us to calculate the dollar amount of annuity
payments.
Company ("we", "our" or "us" ). American National Insurance Company
Contract. The contract described in this Prospectus.
Contractowner ("You" or "Your"). Unless changed by notice to us, the
Contractowner is as stated in the application.
Contract Anniversary. An anniversary of the date the Contract was issued.
Contract Year. A one-year period commencing on either the date of issue or a
Contract Anniversary.
Date of Issue. The date a Contract is issued.
Eligible Portfolio. A Portfolio which corresponds to a subaccount.
Federated Fund. Federated Insurance Series
Fidelity Funds. Variable Insurance Products Fund II and Variable Insurance
Products Fund III
Fixed Account. A part of our General Account which will accumulate interest at
a fixed rate.
General Account. All of our assets except those segregated in separate accounts.
Lazard Fund. Lazard Retirement Series, Inc.
MFS Fund. MFS Variable Insurance Trust
Non-Qualified Contract. A Contract issued in connection with a retirement plan
that does not receive favorable tax treatment under the Internal Revenue Code.
Portfolio. A series of a mutual fund designed to meet specified investment
objectives.
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Purchase Payment. A payment made to us during the Accumulation Period less
any premium tax charges.
Qualified Contract. A Contract issued in connection with a retirement plan that
receives favorable tax treatment under the Internal Revenue Code.
T. Rowe Price Funds. T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and T. Rowe Price Fixed Income Series, Inc.
Valuation Date. Each day the New York Stock Exchange is open for regular
trading.
Valuation Period. The close of business on one Valuation Date to the close of
business on another.
Van Eck Fund. Van Eck Worldwide Insurance Trust
Variable Annuity. An annuity with payments that vary in dollar amount.
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INTRODUCTION
WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract allows you to accumulate funds, on a tax-deferred basis, that will
increase or decline in value based on the performance of investments you choose.
You should use the Contract for retirement planning or other long-term
goals.
WHAT ARE MY INVESTMENT OPTIONS?
You can invest your Purchase Payments in one or more of the following
subaccounts of the Separate Account, each of which invests exclusively in shares
of a corresponding Eligible Portfolio:
. American National Growth
. American National Balanced
. American National Managed
. American National Money Market
. Fidelity Asset Manager
. Fidelity Index 500
. Fidelity Contrafund
. Fidelity Asset Manager: Growth
. Fidelity Growth Opportunities
. T. Rowe Price Equity Income
. T. Rowe Price Mid-Cap Growth
. T. Rowe Price International Stock
. T. Rowe Price Limited-Term Bond
. MFS Capital Opportunities Series
Portfolio
. MFS Emerging Growth Series
. MFS Research Series
. MFS Growth With Income Series
. Van Eck Worldwide Hard Assets
. Van Eck Worldwide Emerging
Markets
. Federated Utility Fund II
. Federated Growth Strategies
. Federated U.S. Government Bond
. Federated High Income Bond
. Federated Equity Income Fund II
. Lazard Retirement Emerging
Markets
. Lazard Retirement Small Cap
Each such subaccount and corresponding Eligible Portfolio has its own investment
objective. Some of the Eligible Portfolios have similar investment objectives.
(See "Funds" beginning on page 35.) There is no assurance that Eligible
Portfolios will achieve their investment objectives. Accordingly, you could lose
some or all of your Contract value.
You can also invest in our Fixed Account.
HOW DO I PURCHASE A CONTRACT?
You can purchase a Contract by completing an application and paying the
minimum Purchase Payment to our home office. You must make at least a $5,000
minimum initial Purchase Payment and at least $2,000 subsequent Purchase
Payments. We may change these amounts.
Without our prior approval, the maximum Purchase Payment under a Contract is
$1,000,000.
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For a limited time, usually ten days after you receive the Contract, you can
return the Contract to our home office and receive a refund. (See "Contract
Application and Purchase Payments" on page 21.)
The contract is not available in some states. You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is different.
HOW DO I ALLOCATE PURCHASE PAYMENTS?
You can allocate your Purchase Payments among the 26 currently available
subaccounts and the Fixed Account. You cannot allocate less than 1% of a
Purchase Payment to any one investment option. The minimum initial deposit in
any subaccount and the Fixed Account is $500.
CAN I TRANSFER AMOUNTS BETWEEN THE INVESTMENT ALTERNATIVES?
You can make transfers between subaccounts and to our Fixed Account at any
time. Transfers from our Fixed Account before the Annuity Date are limited. (See
"Transfers Before Annuity Date" on page 22 for additional limitations.)
Transfers from our Fixed Account after the Annuity Date are not permitted. (See
"Allocation of Benefits" on page 31 for additional limitations.)
Before the Annuity Date, you can make twelve transfers each Contract Year at no
charge. Additional transfers will be subject to a $10.00 exchange fee. Transfers
after the Annuity Date are unlimited and free.
You should periodically review your allocations among the subaccounts and the
Fixed Account to make sure they fit your current situation and financial goals.
You can make allocation changes in writing or during our normal business hours
by telephone if a telephone authorization form is on file with us. We will
employ reasonable procedures to confirm that telephone instructions are genuine.
If we follow those procedures, we will not be liable for losses due to
unauthorized or fraudulent instructions. We may be liable for such losses if we
do not follow those procedures.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT?
If you or the Annuitant die before the Annuity Date, the death benefit will be
at least the amount of the Accumulation Value on the date notice of death is
received at our home office. The death benefit may be more. (See "Death Benefit
Before Annuity Date" on page 28.)
CAN I GET MY MONEY IF I NEED IT?
By written request to us, you can withdraw all or part of your Accumulation
Value at any time before the Annuity Date. Such withdrawal may be subject to a
Surrender Charge, an IRS penalty tax and income tax. If your contract was
purchased in connection with a retirement plan, such withdrawal may also be
subject to plan restrictions. Withdrawals from a Contract qualified under
Section 403(b) of the Internal Revenue Code may be restricted. (See "Taxation of
Qualified Contracts" under "Federal Tax Matters" at page 43.)
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HOW CAN I RECEIVE ANNUITY PAYMENTS?
You can choose from a number of annuity payment options, which include
. monthly payments for a number of years
. payments for life
. payments made jointly
You can also choose to receive your Annuity Payments on a fixed or variable
basis. Variable payments will increase or decrease based on the investment
performance of the Eligible Portfolios and the declared rate paid by us on our
Fixed Account. (See "Annuity Options", page 31.)
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?
We do not currently deduct a sales charge when you purchase your Contract. We
may deduct a surrender charge up to 7% of Purchase Payments withdrawn.
You will also be charged an annual contract fee of $35 unless
. all of your Accumulation Value is in the Fixed Account, or
. your Accumulation Value is greater than $50,000 on the last day of a Contract
Year.
We charge a daily amount equal, on an annual basis, a mortality risk fee of .80%
and an expense risk fee of .35% of the Contract's daily Accumulation Value to
meet our death benefit obligations and to pay on expenses not covered by the
annual contract fee.
We also charge a daily administrative fee equal, on an annual basis, to 0.10% of
the Contract's daily Accumulation Value.
Additional charges may be made by us for premium taxes when incurred.
WHAT ARE THE TAX CONSEQUENCES ASSOCIATED WITH THE CONTRACT?
You are generally required to pay taxes on amounts earned in a Non-Qualified
Contract only when they are withdrawn. When you take distributions or with-
drawals from a Contract, taxable earnings are considered to be paid out first,
followed by the investment in the Contract. All or a portion of each annuity
payment you receive under a Non-Qualified Contract will be taxable.
Distributions from a Contract are taxed as ordinary income. You may owe a 10%
federal income tax penalty for distributions or withdrawals taken before
age 59 1/2.
You are generally required to pay taxes on all amounts withdrawn from a Quali-
fied Contract because Purchase Payments were made with before-tax dollars.
Restrictions and penalties may apply to withdrawals from Qualified Contracts.
(See "Federal Tax Matters", page 40.)
IF I HAVE QUESTIONS, WHERE CAN I GO?
If you have any questions about the Contract, you can contact your registered
representative or write us at One Moody Plaza, Galveston, Texas, 77550-7999 or
call us at 1-800-306-2959.
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CONTRACTOWNER TRANSACTION
EXPENSES
EXPENSES BEFORE THE ANNUITY DATE
The following table summarizes the charges we will make before the Annuity
Date. The table also summarizes the fees and expenses of the Eligible
Portfolios. You should consider this information with the information under the
heading "Charges and Deductions Before Annuity Date" on page 23.
SALES LOAD AS A PERCENTAGE OF PURCHASE PAYMENTS 0%
DEFERRED SALES LOAD ("SURRENDER CHARGE")
. Free Withdrawal Amount
In any Contract Year, you can withdraw the greater of (1) 10% of your Accu-
mulation Value or (2) your Accumulation Value less total Purchase Payments free
(the "Free Withdrawal Amount"). The portion of a withdrawal in excess of the
Free Withdrawal Amount is a withdrawal of Purchase Payments and is subject to a
Surrender Charge.
When you make a withdrawal, we will divide such withdrawal by your Accumulation
Value and convert such result to a percentage. We will then reduce
the first part of the formula for calculating the Free Withdrawal Amount (i.e.,
the 10% of Accumulation Value) by that percentage and will use the reduced
percentage in the formula for calculating the Free Withdrawal Amount for
additional withdrawals in that same Contract Year.
. Calculation of Surrender Charges
Surrender Charges vary depending on the number of Contract Years since the
Purchase Payment being withdrawn was paid, on a first paid, first withdrawn
basis. The Surrender Charge will be deducted from your Accumulation Value, if
sufficient. If your Accumulation Value is not sufficient, your withdrawal will
be reduced accordingly. Surrender Charges will be a percentage of each Purchase
Payment or portion thereof withdrawn as illustrated in the following table:
Contract Years Applicable
Since Surrender Charge
Purchase Payment as a
Made Percentage
---------------- ----------------
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
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Exchange Fee $ 10
(there is no exchange fee for the first 12 transfers)
Annual Contract Fee $ 35
Separate Account Annual Expenses
(as percentage of average net assets)
Mortality Risk Fees 0.80%
Expense Risk Fees 0.35%
Administrative Asset Fees 0.10%
Total Separate Account
Annual Expenses* 1.25%
*Does not include $35 Annual Contract Fee
PORTFOLIO COMPANY ANNUAL EXPENSES
American National Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement * ** 0.36%
Other Expenses 0.51%
Total American National Growth Portfolio
Annual Expenses 0.87%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.01%.
American National Balanced Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement * ** 0.44%
Other Expenses 0.74%
Total American National Balanced Portfolio
Annual Expenses 1.18%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.24%.
American National Managed Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement * ** 0.16%
Other Expenses 0.49%
Total American National Managed Portfolio
Annual Expenses 0.65%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 0.99%.
American NationaL Money Market Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement * ** 0.00%
Other Expenses 0.87%
Total Money Market Portfolio
Annual Expenses 0.87%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.37%.
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**Under its Administrative Service Agreement with American National Investment
Accounts, Inc., 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,
2000, pursuant to which SM&R has agreed to reimburse the American National Money
Market Portfolio and the American National Growth Portfolio for expenses in
excess of .87%; the American National Balanced Portfolio for expenses in excess
of 1.18% and the American National Managed Portfolio for expenses in excess of
.65%, of each of such Portfolios' average daily net assets during such period.
SM&R is under no obligation to renew this undertaking for any Portfolio at the
end of such period.
Fidelity Index 500 Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.24%
Other Expenses after reimbursement 0.04%
Total Portfolio Annual Expenses* 0.28%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor. Absent reimbursement, management fee, other expenses and
total expenses would have been 0.24%, 0.11% and 0.35% respectively.
Fidelity Asset Manager Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.54%
Other Expenses after reimbursement 0.10%
Total Portfolio Annual Expenses** 0.64%
Fidelity Contrafund Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.59%
Other Expenses after reimbursement 0.12%
Total Portfolio Annual Expenses** 0.74%
Fidelity Asset Manager: Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.60%
Other Expenses after reimbursement 0.17%
Total Portfolio Annual Expenses** 0.77%
Fidelity Growth Opportunities Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.59%
Other Expenses after reimbursement 0.12%
Total Portfolio Annual Expenses** 0.71%
* A portion of the brokerage commissions that certain of the Fidelity funds pay
was used to reduce their expenses. In addition, certain of the Fidelity funds
have entered into arrangements with their custodian and transfer agent whereby
interest earned on
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uninvested cash balances was used to reduce custodian and transfer agent
expenses. Including these reductions, the total operating expenses presented in
the table would have been .75% of the Asset Manager Portfolio, .80% for
Contrafund Portfolio, .89% for asset Manager: Growth Portfolio and .80% for
Growth Opportunities Portfolio.
T. Rowe Price Equity Income Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.85%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.85%
T. Rowe Price International Stock Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.05%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 1.05%
T. Rowe Price Mid-Cap Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.85%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.85%
T. Rowe Price Limited - Term Bond Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.70%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.70%
*T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price an
annual all-inclusive fee of 0.85% based on such Portfolios' average daily net
assets. T. Rowe Price Limited-Term Bond Portfolio pays T. Rowe Price an annual
all-inclusive fee of 0.70% based on such Portfolios' average daily net assets.
T. Rowe Price International Stock Portfolio pays Rowe-Price-Flemming
International, Inc. an annual all-inclusive fee of 0.70% based on such
Portfolios' average daily net assets. These fees pay for investment management
services and other operating costs of the Portfolios.
MFS Capital Opportunities Series Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.27%
Total Portfolio Annual Expenses* 1.02%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expense and total expense
would have been 0.75%, 1.36% and 1.11%, respectively.
MFS Emerging Growth Series Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.10%
Total Portfolio Annual Expenses 0.85%
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MFS Research Series Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.11%
Total Portfolio Annual Expenses 0.86%
MFS Growth with Income Series Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.13%
Total Portfolio Annual Expenses 0.88%
Van Eck Worldwide Hard Assets Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.00%
Other Expenses after reimbursement 0.16%
Total Portfolio Annual Expenses* 1.16%
*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 1.00%, 0.20%, and 1.20% respectively.
Van Eck Worldwide Emerging Markets Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.00%
Other Expenses after reimbursement 0.50%
Total Portfolio Annual Expenses* 1.50%
*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 1.00%, 0.61%, and 1.61% respectively.
Federated Utility Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement 0.68%
Other Expenses after reimbursement 0.25%
Total Portfolio Annual Expenses* 0.93%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been 0.75%, 0.50%, and 1.25% respectively.
Federated Growth Strategies Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.44%
Other Expenses after reimbursement 0.42%
Total Portfolio Annual Expenses* 0.86%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been 0.75%, 0.42%, and 1.17% respectively.
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Federated Fund for U.S. Government Securities II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement 0.52%
Other Expenses after reimbursement 0.33%
Total Portfolio Annual Expenses* 0.85%
*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 0.60%, 0.58%, and 1.18% respectively.
Federated High Income Bond Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.60%
Other Expenses 0.18%
Total Portfolio Annual Expenses 0.78%
Federated Equity Income Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement 0.32%
12-b1 Fees after reimbursement 0.00%
Other Expenses after reimbursement 0.61%
Total Portfolio Annual Expenses* 0.93%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, distribution fee, other expenses
and total expenses would have been 0.75%, 0.25%, 0.36%, and 1.36% respectively.
Lazard Retirement Emerging Markets Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees* 1.00%
12b-1Fees* 0.25%
Other Expenses** 0.55%
Total Portfolio Annual Expenses 1.80%
Lazard Retirement Small Cap Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
12b-1 Fees* 0.25%
Other Expenses** 0.50%
Total Portfolio Annual Expenses 1.50%
*Shares of the Lazard retirement portfolios are subject to a Distribution and
Servicing Plan, which is a so-called "12b-1 plan" adopted pursuant to Rule 12b-1
under the Investment Company Act of 1940t. Under the Distribution and Servicing
Plan, each portfolio pays Lazard Freres & Co. LLC ("Lazard Freres"), the
distributor for the portfolio's shares, for advertising, marketing, and
distributing the portfolio's shares and for the provision of certain services to
contractowners with amounts invested in the portfolios at an annual rate of .25
of 1% of the portfolio's average daily assets. Lazard Freres may, in turn, make
payments to insurance companies such as the Company (or affiliates of such
insurance companies) that use the portfolios to fund their variable annuity and
variable life insurance contracts, for providing services to contractowners or
to certain financial institutions, securities dealers, and other industry
professionals
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for providing services to participants in qualified pension and retirement plans
that invest in the portfolios. The fees payable by each portfolio to Lazard
Freres under the Distribution and Servicing Plan for its services and for
payments to insurance companies and other third parties are payable without
regard to actual expenses incurred. For a more complete description of the
Distribution and Servicing Plan, see the prospectus for the Lazard Retirement
Series.
**Other Expenses are based on estimated amounts for the current fiscal year.
EXPENSES DURING THE ANNUITY PERIOD
During the Annuity Period, we will charge the Separate Account a mortality risk
fee of .80% and an expense risk fee of .35%. We will also charge the Separate
Account with the expenses of the Eligible Portfolios in which you have invested.
No other fees or expenses are charged against the Contract during the Annuity
Period.
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Example: Deferred Contract
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets (regardless of whether the surrender proceeds are paid to the
Contractowner, applied under the Systematic Withdrawal Program, or applied
under an annuity option):
Fund 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
AN Growth Portfolio $ 86 $ 125 $ 154 $ 245
AN Balanced Portfolio $ 89 $ 134 $ 170 $ 277
AN Managed Portfolio $ 84 $ 119 $ 143 $ 222
AN Money Market Portfolio $ 86 $ 125 $ 154 $ 245
Fidelity Asset Manager Portfolio $ 84 $ 119 $ 142 $ 221
Fidelity Index 500 Portfolio $ 81 $ 108 $ 123 $ 182
Fidelity Contrafund Portfolio $ 85 $ 120 $ 145 $ 227
Fidelity Asset Manager: Growth
Portfolio $ 85 $ 121 $ 147 $ 231
Fidelity Growth Opportunities Portfolio $ 85 $ 121 $ 146 $ 229
T. Rowe Price Equity Income Portfolio $ 86 $ 125 $ 153 $ 243
T. Rowe Price International Stock
Portfolio $ 88 $ 130 $ 163 $ 264
T. Rowe Price Mid-Cap Growth Portfolio $ 86 $ 125 $ 153 $ 243
T. Rowe Price Limited - Term
Bond Portfolio $ 85 $ 120 $ 145 $ 227
MFS Capital Opportunities Series
Portfolio $ 88 $ 129 $ 162 $ 261
MFS Emerging Growth Series Portfolio $ 86 $ 125 $ 153 $ 243
MFS Research Series Portfolio $ 86 $ 125 $ 153 $ 244
MFS Growth With Income Series
Portfolio $ 86 $ 125 $ 154 $ 246
Van Eck Worldwide Hard Assets
Portfolio $ 89 $ 133 $ 169 $ 275
Van Eck World Wide Emerging Markets
Portfolio $ 92 $ 143 $ 185 $ 308
Federated Utility Fund II Portfolio $ 87 $ 127 $ 157 $ 251
Federated Growth Strategies Fund II
Portfolio $ 86 $ 125 $ 153 $ 244
Federated Fund for U.S. Government
Securities II Portfolio $ 86 $ 125 $ 153 $ 243
Federated High Income Bond Fund II
Portfolio $ 85 $ 123 $ 149 $ 236
Federated Equity Income Fund II
Portfolio $ 87 $ 127 $ 157 $ 251
Lazard Retirement Emerging Markets
Portfolio $ 95 $ 151 $ 200 $ 336
Lazard Retirement Small Cap Portfolio $ 92 $ 143 $ 185 $ 308
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If you do not surrender your Contract, you would pay the following expenses on
a $1,000 investment, assuming 5% annual return on assets.
Fund 1 Year 3 Years 5 Years 10 Years
- -----------------------------------------------------------------------------
AN Growth Portfolio $ 22 $ 66 $ 114 $ 245
AN Balanced Portfolio $ 25 $ 76 $ 130 $ 277
AN Managed Portfolio $ 19 $ 60 $ 103 $ 222
AN Money Market Portfolio $ 22 $ 66 $ 114 $ 245
Fidelity Asset Manager Portfolio $ 19 $ 59 $ 102 $ 221
Fidelity Index 500 Portfolio $ 16 $ 48 $ 83 $ 182
Fidelity Contrafund Portfolio $ 20 $ 61 $ 105 $ 227
Fidelity Asset Manager: Growth
Portfolio $ 20 $ 62 $ 107 $ 231
Fidelity Growth Opportunities Portfolio $ 20 $ 62 $ 106 $ 229
T. Rowe Price Equity Income Portfolio $ 21 $ 66 $ 113 $ 243
T. Rowe Price International Stock
Portfolio $ 23 $ 72 $ 123 $ 264
T. Rowe Price Mid-Cap Growth Portfolio $ 21 $ 66 $ 113 $ 243
T. Rowe Price Limited - Term Bond
Portfolio $ 20 $ 61 $ 105 $ 227
MFS Capital Opportunities Series
Portfolio $ 23 $ 71 $ 122 $ 261
MFS Emerging Growth Series Portfolio $ 21 $ 66 $ 113 $ 243
MFS Research Series Portfolio $ 21 $ 66 $ 113 $ 244
MFS Growth With Income Series
Portfolio $ 22 $ 67 $ 114 $ 246
Van Eck Worldwide Hard Assets
Portfolio $ 24 $ 75 $ 129 $ 275
Van Eck World Wide Emerging Markets
Portfolio $ 28 $ 85 $ 145 $ 308
Federated Utility Fund II Portfolio $ 22 $ 68 $ 117 $ 251
Federated Growth Strategies Fund II
Portfolio $ 21 $ 66 $ 113 $ 244
Federated Fund for U.S. Government
Securities II Portfolio $ 21 $ 66 $ 113 $ 243
Federated High Income Bond Fund II
Portfolio $ 21 $ 64 $ 109 $ 236
Federated Equity Income Fund II
Portfolio $ 22 $ 68 $ 117 $ 251
Lazard Retirement Emerging Markets
Portfolio $ 31 $ 94 $ 160 $ 336
Lazard Retirement Small Cap Portfolio $ 28 $ 85 $ 145 $ 308
You should not consider the examples as representative of past or future ex-
penses. The examples do not include the deduction of state premium taxes
assessed.
The purpose of the preceding table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. The table reflects
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expenses of the Separate Account and the Eligible Portfolios. The expenses shown
above for the Eligible Portfolios are assessed at the underlying fund level and
are not direct charges against the Separate Account's assets or reductions from
Accumulation Value. These expenses are taken into consideration in computing
each portfolio's net asset value, which is the share price used to calculate the
value of an Accumulation Unit. Actual expenses may be more or less than shown.
As required by the Securities and Exchange Commission, the example assumes a 5%
annual rate of return. This hypothetical rate of return is not intended to be
representative of past or future performance of an Eligible Portfolio. Annual
Contract fees are deducted pro rata from each subaccount and our Fixed Account.
For a more complete description of the various costs and expenses of the
American National Fund, the Fidelity Funds, the T. Rowe Price Funds, the MFS
Fund, the Van Eck Fund, the Federated Fund and the Lazard Fund, see their
Prospectuses.
ACCUMULATION UNIT VALUES
The value of an Accumulation Unit outstanding throughout the period and the
number of Accumulation Units outstanding for each subaccount are shown
below.
Year Ended December 31,
- --------------------------------------------------------------------------------
1998
AMERICAN NATIONAL GROWTH PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.178
Number of accumulation units outstanding at end of
period 422,903
AMERICAN NATIONAL MONEY MARKET PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.026
Number of accumulation units outstanding at
end of period 1,432,628
AMERICAN NATIONAL BALANCED PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.096
Number of accumulation units outstanding at
end of period 496,647
AMERICAN NATIONAL MANAGED PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.138
Number of accumulation units outstanding at
end of period 1,311,739
FIDELITY ASSET MANAGER PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.131
Number of accumulation units outstanding at end of
period 574,144
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FIDELITY INDEX 500 PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.256
Number of accumulation units outstanding at
end of period 1,961,720
FIDELITY CONTRAFUND PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.200
Number of accumulation units outstanding at
end of period 1,280,113
FIDELITY ASSET MANAGER: GROWTH PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.158
Number of accumulation units outstanding at
end of period 400,709
FIDELITY GROWTH OPPORTUNTIES PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.253
Number of accumulation units outstanding at
end of period 1,048,341
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.080
Number of accumulation units outstanding at
end of period 1,576,949
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.135
Number of accumulation units outstanding at
end of period 949,083
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.214
Number of accumulation units outstanding at
end of period 901,714
T. ROWE PRICE LIMITED - TERM BOND PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.049
Number of accumulation units outstanding at
end of period 619,169
MFS CAPITAL OPPORTUNITIES SERIES PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.136
Number of accumulation units outstanding at
end of period 754,319
MFS EMERGING GROWTH SERIES PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.320
Number of accumulation units outstanding at
end of period 1,028,469
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MFS RESEARCH SERIES PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.049
Number of accumulation units outstanding at
end of period 842,237
MFS GROWTH WITH INCOME SERIES PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.058
Number of accumulation units outstanding at
end of period 1,101,687
VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $0.711
Number of accumulation units outstanding at
end of period 42,830
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $0.687
Number of accumulation units outstanding at
end of period 344,775
FEDERATED UTILITY FUND II PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.059
Number of accumulation units outstanding at
end of period 192,159
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.037
Number of accumulation units outstanding at
end of period 143,889
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.055
Number of accumulation units outstanding at
end of period 739,034
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.001
Number of accumulation units outstanding at
end of period 1,641,012
FEDERATED EQUITY INCOME FUND II PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $1.154
Number of accumulation units outstanding at
end of period 402,944
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $0.820
Number of accumulation units outstanding at
end of period 274,165
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LAZARD RETIREMENT SMALL CAP PORTFOLIO
Accumulation unit value at beginning of period $1.000
Accumulation unit value at end of period $0.967
Number of accumulation units outstanding at
end of period 847,131
CONTRACT
TYPE OF CONTRACT
This Prospectus offers an individual deferred variable annuity contract
providing for future annuity payments. You can choose to vary your Purchase
Payments or pay a single Purchase Payment. The Contract can be either Qualified
or Non-Qualified.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
To purchase a Contract, you must complete an application and send the minimum
Purchase Payment to our home office. (See "Allocation of Purchase Payments",
page 21.) If your application cannot be processed within five days after
receipt, we will return your payment. We will credit your initial Purchase
Payment to the Contract within two business days after a completed application
is received at our home office.
You have a "free look" period during which you can return the Contract to our
home office and get a refund. The refund will equal the greater of (1) all of
your Purchase Payments or (2) Accumulation Value plus charges deducted by us
during such period. The "free look" period is established by state law and
generally runs ten days after you receive a Contract. We require that Purchase
Payments received by us during the 15-day period after the Date of Issue be
allocated to the AN Money Market Portfolio. Thereafter, amounts allocated to
such subaccount and Purchase Payments paid are allocated as directed by you. No
Surrender Charges are assessed on refunds.
ALLOCATION OF PURCHASE PAYMENTS
After the "free look" period, Purchase Payments will be allocated to the
subaccounts and the Fixed Account according to your instructions in the
application. You can change these allocations at any time by written
instruction to our home office or by telephone, if a properly completed
telephone transfer authorization form is on file with us.
CREDITING OF ACCUMULATION UNITS
Before the Annuity Date, Purchase Payments will be used to purchase
Accumulation Units in subaccounts and be allocated to the Fixed Account as you
have instructed. We will determine the number of Accumulation Units purchased by
dividing the dollar amount of the Purchase Payment allocated to a subaccount by
the Accumulation Unit value for that subaccount computed following such
allocation.
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ALLOCATION OF CHARGES AND OTHER DEDUCTIONS TO THE SUBACCOUNTS
AND THE FIXED ACCOUNT
Unless you allocated differently, deductions from the subaccounts and the Fixed
Account will be made, pro rata, to the extent necessary for us to
. collect charges
. pay surrender value
. provide benefits
We will immediately reinvest dividends and capital gain distributions received
from an Eligible Portfolio at net asset value in shares of that Eligible
Portfolio.
DETERMINING ACCUMULATION UNIT VALUES
The Accumulation Unit value of each subaccount reflects the investment
performance of that subaccount. We calculate Accumulation Unit value on each
Valuation Date by:
. multiplying the per share net asset value of the corresponding Eligible
Portfolio by the number of shares held by the subaccount, after the purchase
or redemption of any shares on the Valuation Date;
. subtracting a charge for the administrative fee and the mortality and expense
risk fee for that subaccount; and
. dividing by the number of units held in the subaccount on the Valuation Date,
before the purchase or redemption of any units on that date.
We will calculate the Accumulation Unit value for each subaccount at the end of
each Valuation Period. Investment performance of the Eligible Portfolios will
increase or decrease the Accumulation Unit Value for each subaccount, the
Eligible Portfolio expenses and the deduction of certain charges by us will
decrease the Accumulation Unit value for each subaccount.
TRANSFERS BEFORE ANNUITY DATE
You can make transfers among the subaccounts and the Fixed Account subject to
the following restrictions:
. Transfers from subaccounts must be at least $250, or the balance of the
subaccount, if less.
. A subaccount must have a balance of at least $100 after a transfer.
. Transfers from the Fixed Account cannot exceed the greater of (1) 10% of the
amount in the Fixed Account or (2) $1,000.
. The first twelve (12) transfers in a Contract Year are free. A $10.00 fee will
be deducted from the amount transferred for each additional transfer. (See
"Exchange Fee", page 25.)
We will make transfers and determine values on the later of (1) the date
designated in your request or (2) the end of the Valuation Period in which your
transfer request is received.
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We may revoke or modify the transfer privilege. For a discussion of transfers
after the Annuity Date, see "Allocation of Benefits" at page 31.
SPECIAL PROGRAMS
. Dollar Cost Averaging Program - If you have at least $10,000 Accumulation
Value in your Contract, you can instruct us to periodically transfer an amount
or percentage from a subaccount or the Fixed Account to any subaccount(s) or
the Fixed Account. The transfers can be monthly, quarterly, semi-annually or
annually. The amount transferred each time must be at least $1,000. The
minimum transfer to each subaccount must be at least $100.
Dollar cost averaging results in the purchase of more Accumulation Units when
Accumulation Unit Value is low, and fewer when Accumulation Unit value is
high. There is no guarantee that dollar cost averaging will result in higher
Accumulation Value or otherwise be successful.
. Asset Allocation Program - If you have at least $10,000 Accumulation Value in
your Contract, you can instruct us to allocate Purchase Payments and
Accumulation Value among the subaccounts and the Fixed Account in accordance
with allocation instructions specified by you or recommended by us. We will
periodically rebalance your investment by allocating Purchase Payments and
transferring Accumulation Value among the subaccounts and the Fixed Account in
conformity with your current allocation instructions. Rebalancing will be
performed on a quarterly, semi-annual or annual basis as you specify.
Transfers of Accumulation Value pursuant to this program will not be counted
in determining whether the Exchange Fee described below applies.
You can request participation in or discontinue such special programs at any
time.
There is no charge for participation in such special programs.
CHARGES AND DEDUCTIONS BEFORE ANNUITY DATE
SURRENDER CHARGE
Since no sales charge is deducted from your Purchase Payments, a Surrender
Charge may be imposed on withdrawals to cover expenses of distributing the
Contract. (See "Deferred Sales Load (`Surrender Charge')" on page 9.)
When you make a withdrawal, we will divide such withdrawal by your Accumulation
Value and convert such result as a percentage. Assume you have $40,000
Accumulation Value, $38,000 of which represents total Purchase Payments and
$2,000 of which represents Accumulation Value less total Purchase Payments.
. Example 1 - Assume you want to withdraw $7,000. You can withdraw the greater
of (1) 10% of your $40,000 Accumulation Value or (2) Accumulation Value minus
total Purchase Payments with no Surrender Charge. Since 10% of your
Accumulation Value, $4,000, is greater than Accumulation Value minus total
Purchase Payments, $2,000, your Free Withdrawal
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Amount will be your $4,000. Accordingly, $4,000 of your withdrawal will
be free of surrender charge. The remaining $3,000 is a withdrawal of
Purchase Payments and will be subject to a Surrender Charge.
. Example 2 - Assume you have made a $3,000 withdrawal and want to make an
additional $5,000 withdrawal in the same Contract Year. The first withdrawal
would have been free because it was less than the Free Withdrawal Amount.
However, such withdrawal would have utilized a portion of the Free Withdrawal
Amount available in that Contract Year. The first part of the formula for
calculating the Free Withdrawal Amount will be reduced by 7.5%, which is the
percentage the first surrender was of your Accumulation Value at that time. If
there have been no additional Purchase Payments or increases in the amount by
which your Accumulation Value exceeds your total Purchase Payments since the
first withdrawal, the Free Withdrawal Amount for the second withdrawal will be
the greater of (1) 2.5% of your Accumulation Value, which is $925.00 or (2)
Accumulation Value minus total Purchase Payments, which is zero (0).
Accordingly, $925 of your second withdrawal will be free of Surrender Charges.
The remaining $4,075 will be a withdrawal of Purchase Payments and will be
subject to a Surrender Charge.
OTHER CHARGES
Your Contract is subject to certain other charges:
. Administrative Charges
. A $35 annual contract fee for each Contract Year or portion thereof unless all
of your Accumulation Value is in the Fixed Account or is greater than $50,000
on the last day of a Contract Year.
. An administrative asset fee charged daily at an annual rate of 0.10%.
These fees are designed to reimburse us for the cost of administration and are
not intended to produce a profit.
. Premium Taxes
Premium taxes (which presently range from 0% to 3.5%) will be deducted if
assessed.
. Mortality and Expense Risk Fee
We assume the risks that Annuitants as a class may live longer than expected
(requiring a greater number of annuity payments) and that fees may not be
sufficient to cover our actual costs. In assuming these risks, we agree to make
annuity payments to the Annuitant or other payee for as long as he or she may
live. In addition, we are at risk for the death benefits payable under the
Contract, to the extent that the death benefit exceeds the Accumulation Value.
For our promises to accept these risks, a 0.80% per annum Mortality Risk Fee
and a 0.35% per annum Expense Risk Fee will be assessed daily against the
Separate Account during both the Accumulation Period and Annuity Period. We
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could realize a gain or a loss from such fees depending on the mortality
experiences and expenses actually incurred.
. Charges for Taxes
None at present. We may, however, make a charge in the future if income or gains
within the Separate Account incur federal, state or local taxes or if our tax
treatment changes. Charges for such taxes, if any, would be deducted from the
Separate Account and the Fixed Account. We would not realize a profit on such
charges.
. Exchange Fee
A $10.00 exchange fee is charged for transfers among the subaccounts and Fixed
Account after twelve transfers per Contract Year. Such fee compensates us for
the costs of effecting the transfers. We do not expect to make a profit from the
exchange fee. The exchange fee will be deducted from the amount transferred.
DEDUCTION OF FEES
Deductions for annual fees will be prorated among the subaccounts and the Fixed
Account.
EXCEPTIONS TO CHARGES
We may reduce charges in sales to a trustee, employer or similar entity if we
determine that such sales reduce sales or administrative expenses. We also
reduce charges in sales to directors, officers and bona fide full-time employees
(and their spouses and minor children) of SM&R and the Company.
The Contract may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of the Company
and our affiliated companies, and spouses and immediate family members (i.e.,
children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contract, and spouses and immediate family
members of the foregoing. In such case, a Contract may be credited with some or
all of the cost savings resulting from such direct sale, but only if such credit
will not be unfairly discriminatory to any person.
DISTRIBUTIONS UNDER THE CONTRACT
DISTRIBUTIONS BEFORE ANNUITY DATE
SURRENDERS
You can surrender your Contract, in whole or in part, before the Annuity Date
subject to the following limitations:
. If a partial surrender would leave less than $1,000 Accumulation Value, the
Contract must be fully surrendered.
. A partial surrender request should specify the allocation of that surrender
among the subaccounts and the Fixed Account. If not specified, we will
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prorate the surrender among the subaccounts and the Fixed Account. Surrender
Charges will be deducted from the Accumulation Value remaining after a
partial surrender.
The Accumulation Unit value for Surrenders will be the applicable Accumulation
Unit value determined on the Valuation Date following receipt by us at our home
office of your surrender request.
Accumulation Value available upon full or partial surrenders can be determined
by:
. multiplying the number of Accumulation Units for each subaccount times the
Accumulation Unit value
. adding any Accumulation Value in the Fixed Account
. deducting prorata annual administrative fees and any surrender charge
We expect to pay surrenders within seven days of receipt of your written request
in proper form. We may delay payment of a partial surrender from the Fixed
Account for up to six (6) months.
Unless you provide us a written election not to have federal and state income
taxes withheld, we are 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, you can instruct us to make payments
of a predetermined dollar amount of Accumulation Value from one or
more subaccounts and the Fixed Account monthly, quarterly, semi-annually or
annually. The total minimum systematic withdrawal payment is $100. The
minimum systematic withdrawal from any one subaccount or the Fixed Account
is $50. Systematic withdrawals can be started at any time. We must receive
written notification from you specifying the amount and frequency and timing of
payment. You can specify the subaccount from which systematic withdrawals
will be made. If you do not specify, withdrawals will be taken prorata from each
subaccount. Surrender Charges will apply.
Because distributions may be taxable, you should consult your tax adviser
before requesting systematic withdrawals. (See "Federal Tax Matters," page 40.)
Under the Systematic Withdrawal Program, you can participate in the Minimum
Distributions Program by instructing us to calculate and make minimum
distributions required if the Contract is used with a qualified plan. (See
"Taxation of Qualified Contracts," page 43.) We will determine the amount
required to be distributed based on information you provide and choices you
make. To participate in the Minimum Distributions Program, you must notify us
of such election in writing in the calendar year during which you attain age
70 1/2. The Minimum Distributions Program is subject to all rules applicable to
the Systematic Withdrawal Program. In addition, certain rules apply only to the
Minimum Distributions Program. For a description of the requirements applicable
to the Minimum
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Distributions Program, see "Minimum Distributions Program" in the Statement
of Additional Information, page 5. Numerous special tax rules apply to
Contractowners whose Contract is used with a qualified plan. You should consult
a tax advisor before electing to participate in the Minimum Distributions
Program.
WAIVER OF SURRENDER CHARGES
We will waive Surrender Charges in the following situations:
. Nursing Home Waiver - The surrender charge will be waived upon written
proof from a licensed physician that you have been confined in any of the
following facilities for at least 60 consecutive days
. a hospital which
. is licensed or recognized by the state in which it is located
. provides or operates diagnostic and major surgery facilities for medical
care and treatment of injured and sick persons on an inpatient basis
. charges for its services
. provides 24-hour nursing service by or under the supervision of a graduate
registered nurse (R.N.)
. a convalescent care facility which
. is licensed by the state in which it is located as a convalescent nursing
facility, a skilled nursing facility, a convalescent hospital, a
convalescent unit of a hospital, an intermediate care facility, or a
custodial care facility
. provides continuous nursing service by or under the supervision of a
physician or a graduate registered nurse (R.N.)
. maintains a daily record of each patient which is available for review by us
. administers a planned program of observation and treatment by a physician
in accordance with existing standards of medical practice
. a hospice facility which
. is licensed, certified or registered by the state in which it is located as
a hospice facility
. provides a formal care program for terminally ill patients whose life
expectancy is less than 6 months
. provides services on an inpatient basis as directed by a physician
This waiver is not available
(1) if you are confined in a hospital, nursing home or hospice facility on the
Date of Issue
(2) if the application is signed by power of attorney
(3) if you are more than age 80 on the Date of Issue
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(4) if you enter the hospital, convalescent care facility or hospice facility
within 90 days from the Date of Issue
(5) in connection with surrenders or withdrawals requested more than 90
days after the last day of confinement in such facility
. Disability Waiver - The surrender charge will be waived while you are
physically disabled. Such waiver is subject to the following limitations
. we require proof of disability, including written confirmation of receipt of
Social Security Disability Benefits
. we will require proof of continued disability
. we may have a Contractowner claiming disability examined by a licensed
physician chosen by us
This waiver is not available
(1) if you are receiving Social Security Disability Benefits on the Date of
Issue
(2) if you are age 65 or older
(3) in some states
. Involuntary Unemployment Waiver - We will waive the surrender charge while you
are involuntarily unemployed. Such waiver is subject to the following
limitations
. you must furnish us a letter from a state Department of Labor indicating
you were employed at least 60 days before the election of such waiver
. the waiver may be utilized only once
. the waiver is not available if any Contractowner or Annuitant is receiving
unemployment benefits on the Date of Issue
. the waiver may not be available in some states
. Terminal Illness Waiver - We will waive the surrender charge if you are
diagnosed with a terminal illness. We will require proof of such illness
including written confirmation from a licensed physician chosen by us.
This waiver is not available
(1) if any Contractowner is diagnosed with a terminal illness before or on
the Date of Issue
(2) in some states
DEATH BENEFIT BEFORE ANNUITY DATE
If you or the Annuitant die before the Annuity Date, we will pay a death benefit
equal to the greater of:
. Accumulation Value, or
. The Minimum Guaranteed Death Benefit.
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We recalculate the "minimum guaranteed death benefit" of your Contract each time
you make a partial surrender and at the end of each six Contract Years. During
the first six Contract Years, the minimum guaranteed death benefit will equal
all Purchase Payments made less reductions to reflect partial surrenders, if
any, during such period. In subsequent six Contract Year periods, the minimum
guaranteed death benefit will equal the greater of:
(1) the Accumulation Value at the end of the preceding six Contract Year
period; or
(2) the minimum guaranteed death benefit at the end of the preceding six
Contract Year period, plus Purchase Payments made and minus reductions to
reflect partial surrenders, if any, after such date.
A reduction in the minimum guaranteed death benefit is made each time you
make a partial surrender. The reduction is calculated by dividing the minimum
guaranteed death benefit immediately before a partial surrender by the
Accumulation Value on the same date and multiplying such amount times the
amount of the partial surrender.
Example 1 - Assume you have made $4,000 in total Purchase Payments during the
first six Contract Year period and have made no partial surrenders. Your
minimum guaranteed death benefit at the end of the first six Contract Year
period would be $4,000.
Example 2 - Assume you make a $2,000 partial surrender in the third Contract
Year of the first six Contract Year period, at which time you have made $4,000
in total Purchase Payments, and your Contract's Accumulation Value is $8,000.
Your minimum guaranteed death benefit would be recalculated and reduced at the
time of such partial surrender. The amount of such reduction would be $1,000
which is calculated by:
. dividing the minimum guaranteed death benefit immediately before the partial
surrender ($4,000) by Accumulation Value at that time ($8,000); and
. multiplying such amount ($4,000 divided by $8,000, or .5) times the amount
of the partial surrender ($2,000).
Your minimum guaranteed death benefit before the partial surrender ($4,000)
would be reduced by the amount necessary to reflect the partial surrender
($1,000) which would result in a new minimum guaranteed death benefit of
$3,000.
Example 3 - Assume you make a $4,000 partial surrender in the second Contract
Year of the second six Contract Year period. Assume further that you have made
$1,000 in total Purchase Payments since the end of the first six Contract Year
period; that your Contract Accumulation Value is $10,000 and that the minimum
guaranteed death benefit at the end of the first six Contract Year period is
$8,000. Your minimum guaranteed death benefit would be recalculated and
reduced at the time of such partial surrender. The amount of such reduction
would be $3,600 which is calculated by
. dividing the minimum guaranteed death benefit immediately before the
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partial surrender ($9,000) ($8,000 for the minimum guaranteed death benefit
at the end of the last six Contract Year period plus $1,000 in Purchase
Payments made since the end of the last six Contract Year period) by
Accumulation Value at that time ($10,000); and
. multiplying such amount ($9,000 divided by $10,000, or .9) times the
amount of the partial surrender ($4,000).
Your minimum guaranteed death benefit before the partial surrender ($9,000)
would be reduced by the amount necessary to reflect the partial surrender
($3,600) which would result in a new minimum guaranteed death benefit of
$5,400.
We expect to pay the death benefit in a lump sum to the beneficiary named in the
Contract within seven business days of receipt of proof of death in proper form.
In lieu of payment in a lump sum, you can elect that the death benefit be
applied under one of the annuity options described on page 31. If you do not
make such election, the beneficiary can do so. The person selecting the annuity
option settlement may also designate contingent beneficiaries to receive any
amounts due after death of the first beneficiary. The manner in which annuity
payments to the beneficiary are determined and may vary are described below
under "Distributions During the Annuity Period".
DISTRIBUTIONS DURING THE ANNUITY PERIOD
All or part of any amount payable at the Annuity Date may be applied to any of
the Annuity Options. We will discharge in a single sum any liability under an
assignment of the Contract and any applicable federal, state, municipal or other
taxes, fees or assessments based on or predicated on the Purchase Payments
which have not otherwise been deducted or offset. The remaining amount is the
net sum payable. The minimum amount that we will apply to an Annuity Option is
$5,000. Our consent is required for any payment to a corporation, association,
partnership, or trustee.
ELECTION OF ANNUITY DATE AND FORM OF ANNUITY
. Non-Qualified Contracts - Annuity Date and form of annuity are elected in the
application. A Contract cannot be purchased after the Annuitant's age 85 and
annuity payments must begin not later than Annuitant's age 95.
. Qualified Contracts - Annuity Payment Date and form of annuity are elected in
the application. A Contract cannot be purchased after age 85 and, under the
Internal Revenue Code, annuity payments must begin not later than age 95, or
in some cases, the later of April 1st of the calendar year following the
calendar year in which the Annuitant reaches 70 1/2 or retires.
If you have not elected an Annuity Date, we may automatically begin payments
at age 95 under Option 2, Life Annuity with 120 monthly payments certain. (See
"Federal Tax Matters" on page 40.)
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Once an annuity payment is made, the Annuity Option cannot be changed to
another Annuity Option.
ALLOCATION OF BENEFITS
Unless you elect to the contrary, the Accumulation Units of each subaccount will
be changed to Annuity Units and applied to provide a Variable Annuity based on
that subaccount.
In lieu of this allocation, you may elect to transfer your Accumulation Units to
either one or more Eligible Portfolios or to the Fixed Account. After the
Annuity Date, you can only make twelve transfers among subaccounts each Contract
year. You can transfer Annuity Units of one subaccount to Annuity Units of
another subaccount and to the Fixed Account at any time other than during the
five-day interval before and including any annuity payment date.
No election can be made unless such election would produce an initial annuity
payment of at least $100.
ANNUITY OPTIONS
The following annuity options are available.
. Option 1 - Life Annuity - monthly payments during the lifetime of an
individual, ceasing with the last annuity payment due before 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 before 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 - monthly payments 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 - monthly payments during the lifetime of
an individual with annuity payments made for a period certain not less than
the number of months determined by dividing (1) the amount applied under this
option by (2) 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 - monthly payments 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 before
the survivor's death. It would be possible under this option for only one
annuity payment to be made if both individuals under the option died before
the second annuity payment date, or only two annuity payments if both died
before the third annuity payment date, etc.
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. Option 5 - Installment Payments, Fixed Period - monthly payments for a
specified number of years of at least 5, but not exceeding 30. The amount of
each Variable Annuity payment will be determined by multiplying the Annuity
Unit value on the day the annuity payment is made by the number of Annuity
Units applied under this Option divided by the number of remaining monthly
annuity payments.
. Option 6 - Equal Installment Payments, Fixed Amount - monthly installments
(not less than $6.25 per $1,000 applied) until the amount applied, adjusted
daily by the investment results, is exhausted. The final annuity payment will
be the remaining sum left with us.
. Option 7 - Deposit Option - The amount due may be left on deposit with us for
placement in our Fixed Account with interest not less than 3.0% per annum.
Interest will be paid annually, semiannually, quarterly or monthly as elected.
This option may not be available under certain Qualified Contracts.
. Other Annuity Forms - May be agreed upon.
Any amount remaining under Option 5, 6 or 7 may be withdrawn as a lump sum or,
if that amount is at least $5,000, may be applied under any one of the first
four Options. The lump sum payment requested will be paid within seven days of
receipt of the request at our home office based on the value computed on the
next Valuation Date after receipt of the request.
If the beneficiary dies while receiving annuity payments certain under Option 2,
3, 5, or 6 above, the present value of minimum guaranteed payments 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 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 is 3.0% per annum, the annuity payments will remain constant.
If the actual net investment return exceeds 3.0%, the annuity payments will
increase. If the actual net investment return is less than 3.0%, the annuity
payments will decline.
Annuity payments will be greater for shorter guaranteed periods than for longer
guaranteed periods. Annuity payments will be greater for life annuities than for
joint and survivor annuities, because the life annuities are expected to be made
for a shorter period.
At your election, 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 to
us.
ANNUITY PROVISIONS
We determine non-qualified life contingent annuity payments based on the
mortality table (1983 Table "a" with Projection Scale G, and 3.0% interest)
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which generally reflects the age and sex of the Annuitant and the type of
annuity option selected. The annuity payment will also vary with the investment
performance of Eligible Portfolios you choose.
We determine qualified life contingent annuity payments based on 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 will vary with the investment performance of Eligible Portfolios you choose.
The attained age at settlement will be adjusted downward by one year for each
full five-year period that has lapsed since January 1, 1993.
Payment of surrender amounts, policy loans and benefits payable in connection
with death, annuity payments and transfers may be postponed whenever: (1) the
NYSE is closed other than customary week-end and holiday closings, or trading on
the NYSE is restricted as determined by the SEC; (2) the SEC by order permits
postponement for the protection of the Contractowners; or (3) an emergency
exists, as determined by the SEC, as a result of which disposal of securities
is not reasonably practicable or it is not reasonably practicable to determine
the value of the Separate Account's net assets.
THE COMPANY, SEPARATE ACCOUNT, FUNDS AND FIXED ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
The Company is a stock life insurance company chartered in 1905 in the State of
Texas. We write individual and group life and accident and health insurance and
annuities. Our home office is located in the American National Insurance
Building, One Moody Plaza, Galveston, Texas 77550-7999. The Moody Foundation, a
charitable foundation, owns approximately 23.7% and the Libbie S. Moody Trust, a
private trust, owns approximately 37.6% of our common stock.
We are regulated by the Texas Department of Insurance and are subject to the
insurance laws and regulations of other states where we operate. Each year, we
file a National Association of Insurance Commissioners convention blank with
the Texas Department of Insurance. Such convention blank covers our operations
and reports on our financial condition and the Separate Account's financial
condition as of December 31 of the preceding year. Periodically, the Texas
Department of Insurance examines and certifies the adequacy of the Separate
Account's and our liabilities and reserves. A full examination of our operations
is also conducted periodically by the National Association of Insurance
Commissioners.
We utilize systems that may be affected by Year 2000 transition issues. We rely
on service providers, including the Eligible Portfolios, that may also be
affected. We have a Year 2000 transition plan and are confirming that our
service providers are doing the same. We have completed the renovation of our
system and are currently testing for Year 2000 compliance. We expect such
testing to be completed and to be Year 2000 compliant by the end of the third
quarter of 1999. We
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do not believe you will experience any negative effects under the Contract as a
result of Year 2000 transition issues.
Obligations under the Contract are our obligations.
THE SEPARATE ACCOUNT
We established the Separate Account under Texas law on July 30, 1991. The
Separate Account's assets are held exclusively for the benefit of persons
entitled to payments under variable annuity contracts issued by us. We are the
legal holder of the Separate Account's assets and will cause the total market
value of such assets to be at least equal to the Separate Account's reserve and
other contract liabilities. Such assets are held separate and apart from our
General Account assets. We maintain records of all purchases and redemptions of
shares of Eligible Portfolios by each of the subaccounts. Liabilities arising
out of any other business we conduct cannot be charged against the assets of the
Separate Account. Income, as well as both realized and unrealized gains or
losses from the Separate Account's assets, is credited to or charged against the
Separate Account without regard to income, gains or losses arising out of other
business that we conduct. However, if the Separate Account's assets exceed its
liabilities, the excess is available to cover the liabilities of our General
Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust, which is a type of investment company.
Such registration does not involve any SEC supervision of management or
investment policies or practices. There are currently 26 subaccounts within the
Separate Account available to Contractowners and each invests only in a
corresponding Eligible Portfolio.
Since we are the legal holder of the Eligible Portfolio shares in the Separate
Account, we have the right to vote such shares at shareholders' meetings. To the
extent required by law, we will vote in accordance with instructions from
Contractowners. The number of votes for which a 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, the Fidelity Funds, the
T. Rowe Price Funds, the MFS Fund, the Van Eck Fund, the Federated Fund and the
Lazard Fund. We will furnish you proper forms, materials and reports to enable
you to give us instructions if you choose.
The number of shares of an Eligible Portfolio for which you can give
instructions is determined by dividing the Accumulation Value held in the
corresponding subaccount by the net asset value of one share in such Eligible
Portfolio. Fractional shares will be counted. Shares of an Eligible Portfolio
held in a subaccount for which you have not given timely instructions and other
shares held in a subaccount will be voted by us in the same proportion as those
shares in that subaccount for which timely instructions are received. Voting
instructions to abstain will be applied on a pro rata basis to reduce the votes
eligible to be cast. Should applicable federal securities laws or regulations
permit, we may vote shares of the Eligible Portfolios in our own right.
The Separate Account is not the only separate account that invests in the
Eligible
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Portfolios. Other separate accounts, including those funding other variable
annuity contracts, variable life policies and other insurance contracts and
retirement plans, invest in some of the Eligible Portfolios. We do not believe
this results in any disadvantages to you. However, there is a theoretical
possibility that a material conflict of interest could arise with owners of
variable life insurance policies funded by the Separate Account and owners of
other variable annuity contracts whose values are allocated to other separate
accounts investing in the Eligible Portfolios. There is also a theoretical
possibility that a material conflict could arise between the interests of
Contractowners or owners of other contracts and the retirement plans which
invest in the Eligible Portfolios or their participants. If a material conflict
arises, we will take any necessary steps, including removing the Eligible
Portfolio from the Separate Account, to resolve the matter. The Board of
Directors of each Eligible Portfolio will monitor events in order to identify
any material conflicts that may arise and determine what action, if any, to take
in response to those events or conflicts. See the accompanying prospectuses for
the Eligible Portfolios for more information.
THE FUNDS
Each subaccount invests in shares of a corresponding Eligible Portfolio of the
American National Fund, the Fidelity Funds, the T. Rowe Price Funds, the MFS
Fund, the Van Eck Fund, the Federated Fund and the Lazard Fund. The investment
objectives and policies of each Eligible Portfolio are summarized below. You
will be notified of and have an opportunity to instruct us how to vote on any
proposed material change in the investment policy of any Eligible Portfolio in
which you have an interest.
. The American National Fund - currently has the following series or portfolios,
each of which is an Eligible Portfolio:
. AN MONEY MARKET PORTFOLIO ... seeks the highest current income consistent
with the preservation of capital and maintenance of liquidity.
. AN GROWTH PORTFOLIO ... seeks to achieve capital appreciation.
. AN BALANCED PORTFOLIO ... seeks to conserve principal, produce reasonable
current income, and achieve long-term capital appreciation.
. AN MANAGED PORTFOLIO ... seeks to achieve growth of capital and/or current
income.
Securities Management and Research, Inc. ("SM&R") is the American National
Fund's investment adviser. SM&R also provides investment advisory and portfolio
management services to us and to other clients. SM&R maintains a staff of
experienced investment personnel and related support facilities.
. The Fidelity Funds - currently have 13 series or portfolios, the following
five of which are Eligible Portfolios:
. FIDELITY ASSET MANAGER PORTFOLIO ... seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds and
short-term instruments.
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. FIDELITY INDEX 500 PORTFOLIO ... seeks investment results that correspond to
the total return of common stocks publicly traded in the United States, as
represented by the S&P 500. The portfolio normally invests at least 80% of
its assets in common stocks included in the S&P 500. The portfolio seeks the
achieve a 98% or better correlation between its total return and the total
return of the index.
. FIDELITY CONTRAFUND PORTFOLIO ... seeks long-term capital appreciation. The
portfolio normally invests primarily in common stocks. The portfolio invests
in securities of companies whose value the portfolio believes is not fully
recognized by the public.
. FIDELITY ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total return
by allocating its assets among stocks, bonds, short-term instruments, and
other investments.
. FIDELITY GROWTH OPPORTUNITIES PORTFOLIO ... seeks to provide capital growth.
The portfolio normally invests its assets primarily in common stocks. The
portfolio may also invest in other types of securities, including bonds
which may be lower-quality debt securities.
The Fidelity Management & Research Company ("FMR") is the Fidelity Funds'
investment adviser. FMR provides a number of mutual funds and other clients
with investment research and portfolio management services. Fidelity Management
& Research (U.K.) Inc. and Fidelity Management & Research (Far East),
wholly-owned subsidiaries of FMR, provide research with respect to foreign
securities. FMR maintains a large staff of experienced investment personnel and
a full complement of related support facilities.
. The T. Rowe Price Funds - currently have the following series or portfolios,
each of which are Eligible Portfolios:
. T. ROWE PRICE EQUITY INCOME PORTFOLIO ... seeks to provide substantial
dividend income as well as long-term growth of capital through investments
in common stocks of established companies. The portfolio will normally
invest at least 65% of its assets in the common stocks of well-established
companies paying above-average dividends.
. T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ... seeks to achieve long term
capital appreciation by investing in mid-cap stocks with potential for
above-average earnings growth. The portfolio will invest at least 65% of its
assets in diversified portfolio of common stocks of mid-cap companies whose
earnings are expected to grow at a faster rate than the average company. The
portfolio considers "mid-cap companies" as companies with market
capitalizations (number of shares outstanding multiplied by share price)
between $300 million and $5 billion. Most of the portfolio's assets will be
invested in U. S. common stocks.
. T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ... seeks to provide long-term
growth of capital through investments primarily in common stocks of
established non-U.S. companies. The portfolio expects to invest
substantially all of the portfolio's assets (with a minimum of 65%) in
established
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companies beyond U.S. borders. The portfolio's focus will typically be on
large and, to a lesser extent, medium-sized companies.
. T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO ... seeks a high level of income
consistent with modest price fluctuation by investing primarily in
investment grade debt securities.
T. Rowe Price Associates, Inc. is responsible for selection and management of
the portfolio investments of T. Rowe Price Equity Securities and T. Rowe Price
Fixed Income Securities. Rowe Price-Fleming International, Inc., a joint venture
between T. Rowe Price Associates, Inc. and Robert Fleming Holdings Limited, is
responsible for selection and management of the portfolio investments of T.
Rowe Price International Series.
. The MFS Fund - currently has the following series or portfolios, each of which
are Eligible Portfolios:
. MFS CAPITAL OPPORTUNITIES PORTFOLIO ... seeks capital appreciation. Dividend
income, if any, is a consideration incidental to the Series' objective of
capital appreciation. While the Series' policy is to invest primarily in
common stocks, it may seek appreciation in other types of securities such as
fixed income securities (which may be unrated), convertible bonds,
convertible preferred stocks and warrants when relative values make such
purchases appear attractive either as individual issues or as types of
securities in certain economic environments. The Series may invest in lower
rated fixed income securities or comparable unrated securities.
. MFS EMERGING GROWTH SERIES PORTFOLIO ... seeks to provide long-term growth
of capital through investing primarily in common stocks of emerging growth
companies, which involves greater risk than is customarily associated with
investments in more established companies. The Series may invest in a
limited extent in lower rated fixed income securities or comparable unrated
securities.
. MFS RESEARCH SERIES PORTFOLIO ... seeks to provide long-term growth of
capital and future income by investing a substantial proportion of its
assets in the common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-term
growth. No more than 5% of the Portfolio's convertible securities, if any,
will consist of securities in lower rated categories or securities believed
to be of similar quality to lower rated securities. The Portfolio may invest
in a limited extent in lower rated fixed income securities or comparable
unrated securities.
. MFS GROWTH WITH INCOME SERIES PORTFOLIO ... seeks to provide reasonable
current income and long-term growth and income. Under normal market
conditions, the Series will invest at least 65% of its assets in common
stocks or securities convertible into common stocks that are believed to
have long-term prospects for growth and income. The Series may also invest
up to 75% of its net assets in foreign securities which are not traded on a
U.S. exchange.
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Massachusetts Financial Service Company is responsible for selection and
management of the portfolio investments of the MFS Variable Series.
. The Van Eck Fund - currently has the following series or portfolios, each of
which are Eligible Portfolios:
. VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO (FORMERLY VAN ECK GOLD AND NATURAL
RESOURCES PORTFOLIO) ... seeks long-term capital appreciation by investing
primarily in "Hard Asset Securities." Income is a secondary consideration.
Hard Asset Securities include equity securities of "Hard Asset Companies"
and securities, including structured notes, whose value is linked to the
price of a Hard Asset commodity or a commodity index. "Hard Asset Companies"
includes companies that are directly or indirectly (whether through supplier
relationships, servicing agreements or otherwise) engaged to a significant
extent in the exploration, development, production or distribution or one or
more of the following (together "Hard Assets"): (1) precious metals, (2)
ferrous and non-ferrous metals, (3) gas, petroleum, petrochemicals and other
hydrocarbons, (4) forest products, (5) real estate and (6) other basic non-
agricultural commodities.
. VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ... seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Associates Corporation serves as investment advisor and manages the
investment operations of the Van Eck Portfolios and furnishes the Portfolios
with a continuous investment program which includes determining which securities
should be brought, sold or held.
. The Federated Fund - currently has the following series or portfolios, each of
which are Eligible Portfolios:
. FEDERATED UTILITY FUND II PORTFOLIO ... seeks to achieve high current income
and moderate capital appreciation. The Portfolio invests primarily in equity
and debt securities of utility companies.
. FEDERATED GROWTH STRATEGIES PORTFOLIO ... seeks capital appreciation. The
Portfolio invests at least 65% of its assets in equity securities of
companies with prospects for above average growth in earnings and dividends.
. FEDERATED U.S. GOVERNMENT BOND PORTFOLIO ... seeks current income by
investing in a diversified portfolio limited to U.S. government securities.
. FEDERATED HIGH INCOME BOND PORTFOLIO ... seeks high current income. The
Portfolio invests in fixed income securities which are lower rated corporate
debt obligations, which are commonly referred to as "junk bonds." The risk
in investing in junk bonds is described in the prospectus for the Insurance
Management Series, which should be read carefully before investing.
. FEDERATED EQUITY INCOME FUND II PORTFOLIO ... seeks to provide above average
income and capital appreciation by investing in income producing equity
securities including common stocks, preferred stocks, and debt securities
that are convertible into common stocks, in cash and cash items
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during times of unusual conditions to maintain liquidity. Cash items may
include commercial paper, Europaper, certificates of deposit, obligations of
the U.S. Government, repurchase agreements and other short-term
instruments.
Federated Advisors makes all investment decisions for the Federated Insurance
Series, subject to direction by the Federated insurance Series Trustees.
. The Lazard Fund - currently has the following series or portfolios, each of
which are Eligible Portfolios:
. LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ... seeks capital
appreciation. This portfolio invests primarily in equity securities of non-
United States issuers located, or doing significant business, in emerging
market countries considered to be inexpensively priced relative to the
return on total capital or equity.
. LAZARD RETIREMENT SMALL CAP PORTFOLIO ... seeks capital appreciation. This
Portfolio invests primarily in equity securities of companies with market
capitalization under $1 billion considered to be inexpensively priced
relative to the return on total capital or equity.
Lazard Freres Asset Management serves as investment advisor and continually
furnishes an investment program for each Portfolio consistent with its
investment objectives and policies, including the purchase, retention and
disposition of securities.
The accompanying prospectuses should be read in conjunction with this
prospectus before investing and contain a full description of the above funds,
their investment policies and restrictions, risks, charges and expenses and
other aspects of their operation.
We have arrangements to provide services to certain Eligible Portfolios for
which the advisor or distributor of such portfolios pay us fees. The fees are
based upon an annual percentage of the average aggregate net amount invested by
us in such Eligible Portfolios. Some advisors or distributors pay us higher fees
than others.
The Eligible Portfolios and the mutual funds of which they are a part are 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 mutual funds
are not sold to the general public and should not be mistaken for other mutual
funds offered by the same sponsor or that have similar names.
CHANGES IN INVESTMENT OPTIONS
We may establish additional subaccounts which would invest in portfolios of
other mutual funds chosen by us. We may also, from time to time, discontinue the
availability of existing subaccounts. If we do, we may, by appropriate
endorsement, make such changes to the Contract as we believe are necessary or
appropriate. In addition, if a subaccount is discontinued, we may redeem shares
in the corresponding Eligible Portfolio and substitute shares of another mutual
fund. We will not do so, or make other changes without prior notice to you and
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without complying with other applicable laws. Such laws may require approval
by the SEC and the Texas Department of Insurance.
If we deem it to be in your best interest, and subject to any required
approvals, we may combine the Separate Account with another of our separate
accounts.
FIXED ACCOUNT
Before the Annuity Date, you can allocate all or a portion of your Purchase
Payment to the Fixed Account. Subject to certain limitations, you can also
transfer Accumulation Value from the subaccounts to the Fixed Account.
Transfers from the Fixed Account to the subaccounts are restricted. (See
"Transfers Before Annuity Date", page 22.)
Purchase Payments allocated to and transfers from a subaccount to the Fixed
Account are placed in our General Account. We have sole discretion regarding the
investment of and bear the investment risk with respect to the assets in our
General Account. You bear the 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 "'33 Act") and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "'40 Act"). Accordingly, neither the General Account
nor any interest therein is generally subject to the provisions of the '33 Act
or '40 Act. We understand 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.
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT TAX ADVICE
INTRODUCTION
The following summary describes some of the federal income tax rules that apply
to a Contract. This summary is not complete and does not cover all tax
situations. Special tax rules, not discussed here, may apply to certain
individuals. This discussion is not tax advice. You should consult a competent
tax adviser for more complete information. This discussion is based upon our
understanding of the present federal income tax laws. We do not know if these
laws will change or how the Internal Revenue Service (the "IRS") will interpret
them. Moreover, the discussion below does not consider any applicable state or
other tax laws. We have included additional discussion regarding taxes in the
Statement of Additional Information.
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TAX STATUS OF THE CONTRACTS
The following discussion assumes that the Contract will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information explains the requirements for qualifying as an annuity contract.
TAXATION OF ANNUITIES IN GENERAL
If you are a natural person, you generally will not be taxed on increases in the
Accumulation Value until you receive payments under the Contract. Any
distribution of payments, including a full or partial surrender of a Contract,
may subject you to income tax. If you assign or pledge (or agree to assign or
pledge) any portion of a Contract's Accumulation Value, this generally will be
considered a distribution of payments to you and may be taxable.
Corporations, partnerships, trusts, and other entities that own a Contract
generally must include in income increases in the excess of the Accumulation
Value over the investment in the contract. There are some exceptions to this
rule and such a prospective Contractowner should discuss these with a tax
adviser.
The "investment in the contract" generally equals the amount, if any, of
Purchase Payments paid with after-tax dollars (that is, purchase payments that
were not excluded from the individual's gross income).
The following discussion applies to Contracts owned by natural persons.
WITHDRAWALS
If you make a partial surrender from a Non-Qualified Contract (including
Systematic Withdrawals), the amount received will be taxed as ordinary income,
up to an amount equal to the excess (if any) of the Accumulation Value
immediately before the distribution over the investment in the Contract at that
time. In the case of a full surrender under a Non-Qualified Contract, the amount
received generally will be taxable as ordinary income to the extent it exceeds
the investment in the Contract.
PENALTY TAX
For all distributions from Non-Qualified Contracts, there is a federal penalty
tax equal to 10% of the amount treated as taxable income. However, in general,
there is no penalty tax on distributions:
. made after the taxpayer reaches age 59 1/2;
. made as a result of the death of the Contractowner;
. attributable to the taxpayer becoming disabled; or
. made as part of a series of substantially equal periodic payments for the
life, or life expectancy, of the taxpayer.
There are other exceptions and special rules may apply to the exceptions listed
above. You should consult a tax adviser with regard to exceptions from the
penalty tax.
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ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment
method elected under the contract, generally only the portion of the annuity
payment that represents the amount by which the Accumulation Value exceeds
the investment in the contract will be taxed.
. For variable annuity payments, in general the taxable portion of each annuity
payment is determined by a formula which establishes a specific non-taxable
dollar amount of each annuity payment. This dollar amount is determined by
dividing the investment in the contract by the total number of expected
annuity payments.
. For fixed annuity payments, in general there is no tax on the portion of each
annuity payment which reflects the ratio that the investment in the contract
bears to the total expected value of annuity payments for the term of the
payments; however, the remainder of each annuity payment is taxable.
In all cases, after the investment in the Contract is recovered, the full amount
of any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the death
of the Annuitant. Generally, such amounts are taxable to the recipient as
follows:
. if distributed in a lump sum, they are taxed in the same manner as a full
surrender of the Contract; or
. if distributed under an annuity option, they are taxed in the same way as
annuity payments, as described above.
TRANSFERS OR ASSIGNMENTS OF A CONTRACT
A transfer or assignment of a Contract, the designation of certain Annuitants,
or the selection of certain Annuity Dates may result in tax consequences that
are not discussed herein. You should consult a tax advisor as to the tax
consequences of any such transaction.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
the Code requires any non-qualified annuity contract to contain certain
provisions concerning how an interest in the contract is distributed on the
owner's death. The Non-Qualified Contracts contain provisions that are intended
to comply with these Code requirements, although no regulations interpreting
these requirements have yet been issued. We may modify the Contracts if
necessary to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
WITHHOLDING
Annuity distributions generally are subject to withholding for the recipient's
federal income tax liability. Recipients can generally elect, however, not to
have
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tax withheld from distributions. Withholding is mandatory for certain Qualified
Contracts.
MULTIPLE CONTRACTS
All non-qualified, deferred annuity contracts that are issued by us (or our
affiliates) to the same owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in income
when a taxable distribution occurs. In addition, there may be other situations
in which the U.S. Treasury Department may conclude that it would be appropriate
to aggregate two or more annuity contracts purchased by the same owner (it has
authority to issue regulations on aggregating multiple contracts). Accordingly,
you should consult a tax advisor before purchasing more than one annuity
contract.
EXCHANGES
Section 1035 of the Internal Revenue Code (the "Code") provides generally for
tax-free exchanges of one annuity contract for another. A number of special
rules and procedures apply to section 1035 exchanges. Anyone wishing to take
advantage of section 1035 should consult a tax advisor.
TAXATION OF QUALIFIED CONTRACTS
The Qualified Contracts are designed for retirement plans that qualify for
special income tax treatment under Sections 401(a), 403(b), 408, (408A) or 457
of the Code. Certain requirements apply to the purchase of a Qualified Contract
and to distributions therefrom in order for you to receive favorable tax
treatment. The following discussion assumes that Qualified Contracts qualify for
the intended special federal income tax treatment.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. In general,
adverse tax consequences may result from:
. contributions made in excess of specified limits;
. distributions received prior to age 59 1/2 (subject to certain exceptions);
. distributions that do not conform to specified commencement and minimum
distribution rules;
. aggregate distributions in excess of a specified annual amount; and
. contributions or distributions made in other circumstances.
The terms and conditions of the retirement plans may limit the rights otherwise
available to you under a Qualified Contract. You are responsible for determining
that contributions, distributions and other transactions with respect to a
Qualified Contract comply with applicable law. If you are considering purchasing
an annuity contract for use with any qualified retirement plan, you should get
legal and tax advice.
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DISTRIBUTIONS FROM QUALIFIED CONTRACTS
Annuity payments from Qualified Contracts are generally taxed in the same
manner as under a Non-Qualified Contract. When a withdrawal from a Qualified
Contract occurs, all or some of the amount received is taxable. For Qualified
Contracts, the investment in the contract can be zero; in that case, the full
amount of all distributions would be taxable. Distributions from certain
qualified plans are generally subject to mandatory withholding.
For qualified plans under Sections 401(a), 403(b), and 457, the Code requires
that distributions generally must begin by the later of April 1 of the calendar
year following the calendar year in which the Contractowner (or plan
participant): (a) reaches age 70 1/2 ; or (b) retires. Distributions must be
made in a specified form and manner. If the participant is a "5 percent owner"
(as defined in the Code), distributions generally must begin no later than
April 1 of the calendar year following the calendar year in which the policy
owner (or plan participant) reaches age 70 1/2. For Individual Retirement
Annuities (IRAs) described in Section 408 of the Code, distributions generally
must begin no later than April 1 of the calendar year following the calendar
year in which the policy owner (or plan participant) reaches age 70 1/2.
. Corporate and Self-Employed Pension and Profit Sharing Plans - Section 401(a)
of the Code permits employers to establish retirement plans for employees and
permits self-employed individuals to establish retirement plans for themselves
and their employees. Adverse tax or other legal consequences to the plan, to
the Plan Participant, or to both may result if this Contract is purchased by a
401(a) plan and later assigned or transferred to any individual. Employers
intending to use the Contract with such plans should consult a tax advisor.
. Tax Sheltered Annuities - Under Code Section 403(b), public school systems and
certain tax-exempt organizations may purchase annuity contracts for their
employees. Generally, payments to Section 403(b) annuity contracts will be
excluded from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes. Under Section 403(b) annuity contracts, the following amounts may only
be distributed upon death of the employee, attainment of age 59 1/2,
separation from service, disability, or financial hardship:
(a) elective contributions made in years beginning after December 31, 1988;
(b) earnings on those contributions; and
(c) earnings in such years on amounts held as of the last year beginning
before January 1, 1989.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
. Individual Retirement Annuities - Section 408 of the Code permits certain
eligible individuals to contribute to an individual retirement program known
as an "Individual Retirement Annuity" or "IRA." Section 408 of the Code limits
the amount which may be contributed to an IRA each year to the lesser of
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$2,000 or 100% of the Contractowner's adjusted gross income. These
contributions may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other
than non-deductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59 1/2 (unless certain exceptions apply) are subject
to a 10% penalty tax.
[Roth IRAs. Effective January 1, 1998, section 408A of the Code permits certain
eligible individuals to contribute to a Roth IRA. Contributions to a Roth IRA,
which are subject to certain limitations, are not deductible, and must be made
in cash or as a rollover or transfer from another IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax, and other special
rules may apply. Distributions from a Roth IRA generally are not taxed, except
that, once aggregate distributions exceed contributions to the Roth IRA, income
tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years starting
with the year in which the first contribution is made to the Roth IRA.]
. SIMPLE Individual Retirement Annuities - Certain small employers may establish
SIMPLE plans (Savings Incentive Match Plans) as provided by Section 408(p) of
the Code. Under these plans employees may defer a percentage of compensation
of up to certain dollar amount. The sponsoring employer is required to make a
matching contribution. Distributions from a SIMPLE plan are subject to the
same restrictions that apply to IRA distributions and are taxed as ordinary
income. Subject to certain exceptions, distributions prior to age 59 1/2 are
subject to a 10% penalty tax, which increases to 25% if the distribution
occurs during the first two years the employee participates in the plan.
. Deferred Compensation Plans - Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on
contributions and distributions. Under non-governmental plans, all amounts are
subject to the claims of general creditors of the employer and depending on
the terms of the particular plan, the employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan obligations.
In general, distributions from a deferred compensation plan are prohibited
unless made after the Plan Participant attains age 70 1/2, separates from
service, dies, or suffers an unforeseeable financial emergency. Distributions
under these plans are taxable as ordinary income in the year paid or made
available. Adverse tax consequences may result from certain distributions that
do not conform to applicable commencement and minimum distribution rules.
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POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the contract could change by legislation
or other means (such as U.S. Treasury Department regulations, Internal Revenue
Service revenue rulings, and judicial decisions). It is possible that any change
could be retroactive (that is, effective prior to the date of the change). You
should consult a tax advisor regarding such developments and their effect on the
Contract.
ALL CONTRACTS
As noted above, the foregoing comments about the federal tax consequences under
the Contracts are not exhaustive, and special rules may apply with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law, and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Contractowner or
recipient of a distribution. A tax adviser should be consulted for further
information.
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 Eligible Portfolios 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 Eligible
Portfolio share prices, 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.
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The American National Money Market subaccount may advertise their current and
effective yield. Current yield reflects the income generated by an investment in
the subaccount over a 7-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
DISTRIBUTOR OF THE CONTRACT
Securities Management and Research, Inc. ("SM&R"), 2450 South Shore Boulevard,
Suite 400, League City, Texas 77573, our wholly-owned subsidiary, is the
principal underwriter of the Contract. SM&R was organized under the laws of the
State of Florida in 1964; is a registered broker/dealer; and is a member of the
National Association of Securities Dealers.
SM&R's registered representatives selling a Contract will receive commissions
from SM&R. After issuance of the Contract, broker-dealers will receive
commissions aggregating up to 8.0% of the Purchase Payments. In addition, after
the first Contract Year, broker-dealers who have distribution agreements with us
may receive an annual commission of up to 0.25% of the Contract's Accumulation
Value.
LEGAL MATTERS
Various matters of Texas law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Texas insurance law,
have been reviewed by Greer, Herz and Adams, LLP, General Counsel.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe at the present time no
lawsuits are pending or threatened that are reasonably likely to have a material
adverse impact on the Separate Account or us.
EXPERTS
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 1998 and 1997 and for the years then ended, and
the statements of net assets of American National Variable Annuity Separate
Account as of December 31, 1998 and the related statements of operations for the
year 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.
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ADDITIONAL INFORMATION
A registration statement describing the Contract has been filed with the
Securities and Exchange Commission, under the Securities Act of 1933. This
Prospectus does not contain all information in the registration statement, to
which reference is made for further information concerning us, the Separate
Account and the Contract offered hereby. The omitted information may be obtained
at the SEC's principal office in Washington, D.C. by paying the SEC's prescribed
fees. Statements contained in this Prospectus as to the terms of the Contract
and other legal instruments are summaries. For a complete statement of such
terms reference is made to such instruments as filed.
FINANCIAL STATEMENTS
Our financial statements should be considered only as bearing on our ability to
meet our obligations under the Contract. 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.
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 ........................... 4
Summary....................................... 4
Exceptions to Charges ........................ 5
Assignment ................................... 5
Minimum Distributions Program ................ 5
Distribution of the Contract ................. 6
Tax Matters .................................. 7
Records and Reports .......................... 7
Performance .................................. 8
Total Return ................................. 8
Other Total Return ........................... 9
Yields ....................................... 9
State Law Differences ........................ 10
Separate Account ............................. 10
Termination of Participating Agreements ...... 11
Financial Statements .......................... 17
Financials .................................... 18
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AMERICAN NATIONAL VARIABLE ANNUITY II
STATEMENT OF ADDITIONAL INFORMATION
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Home Office One Moody Plaza Galveston TX 77550-7999
1-800-306-2959
relating to the Prospectus dated May 1, 1999
CUSTODIAN
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
PRINCIPAL DISTRIBUTOR
Securities Management and Research, Inc.
2450 South Shore Boulevard, Suite 400
League City, Texas 77573
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
MAY 1, 1999
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Variable Annuity Contract II ("the Contract") offered
by American National Insurance Company ("American National"). You may
obtain a copy of the prospectus dated May 1,1999, by calling 1-800-306-2959, or
writing to American National Insurance Company, One Moody Plaza, Galveston,
Texas 77550-7999. Terms used in the current prospectus for the Contract are
incorporated in this Statement. All terms not specifically defined in this
statement shall have the meaning set forth in the current prospectus.
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TABLE OF CONTENTS
Page
The Contract........................................................... 3
Valuation of Accumulation Units........................................ 3
Computation of Variable Annuity Payments............................... 3
Annuity Unit Value..................................................... 4
Summary................................................................ 4
Exceptions to Charges.................................................. 5
Assignment............................................................. 5
Minimum Distributions Program.......................................... 5
Distribution of the Contract........................................... 6
Tax Matters............................................................ 7
Records and Reports.................................................... 7
Performance............................................................ 8
Total Return........................................................... 8
Other Total Return..................................................... 9
Yields................................................................. 9
State Law Differences.................................................. 10
Separate Account....................................................... 10
Termination of Participating Agreements................................ 11
Financial Statements................................................... 17
Financials............................................................. 18
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THE CONTRACT
The following provides additional information about the Contract which
supplements the description in the prospectus and which may be of interest to
some Contractowners.
VALUATION OF ACCUMULATION UNITS
The Accumulation Unit Value for a Subaccount on any day is equal to (a) divided
by (b), where (a) is the net asset value of the corresponding Eligible Portfolio
of the underlying fund owned by each Subaccount less any applicable deductions
and (b) is the number of Accumulation Units of that subaccount at the beginning
of that day.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will depend on
the amount of his/her Accumulation Value applied to effect the variable annuity
as of the tenth day immediately preceding the date annuity payments commence,
the amount of any premium tax owed (if applicable), the annuity option selected,
and the age of the Annuitant. The Contract contains 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.
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ANNUITY UNIT VALUE
The value of an annuity unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for shares of
Eligible Portfolios and other assets and liabilities. The following
illustrations show, by use of hypothetical examples, the method of determining
the annuity unit value and the amount of variable annuity payments.
ILLUSTRATION: CALCULATION OF ANNUITY UNIT VALUE
Annuity at age 65: Life with 120 payments certain
1. Annuity unit value, beginning of period $ .980000
2. Net investment factor for Period 1.001046
3. Daily adjustment for 3.0% Assumed Investment Rate .999919
4. (2) x (3) 1.000965
5. Annuity unit value, end of period (1) x (4) $.980946
ILLUSTRATION: ANNUITY PAYMENTS
Annuity at age 65: Life with 120 payments certain
1. Number of accumulation units at annuity date 10,000.00
2. Accumulation Unit value (10 days prior to date of
first monthly payment) $1.800000
3. Accumulation Value of Contract (1) x (2) $18,000.00
4. First monthly annuity payment per $1,000 of
Accumulation Value $5.63
5. First monthly annuity payment (3) x (4) / 1,000 $101.34
6. Annuity Unit value (10 days prior to date of first
monthly payment) $.980000
7. Number of annuity units (5) / (6) 103.408
8. Assume annuity unit value for second month equal to $.997000
9. Second monthly annuity payment (7) x (8) $103.10
10. Assume annuity unit value for third month equal to $.953000
11. Third monthly annuity payment (7) x (10) $98.55
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/(1.03) //30/365//] = $100.75
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We have shown that the AIR methodology means that at each payment date the value
in a participant's annuity is updated to reflect actual investment results to
date, but continued assumption of the AIR for the remainder of the Annuity
Period.
EXCEPTIONS TO CHARGES
The surrender charges, mortality and expense risk fees and administrative
charges may be reduced for, or additional amounts credited on, 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 permit-ted to purchase Contracts with substantial reduction of the
surrender charges, mortality and expense risk fees, or administrative charges.
The Contract may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of American
National and its affiliated companies, and spouses and immediate family members
(i.e., children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contracts, and spouses and immediate family
members of the foregoing. If sold under these circumstances, a Contract may be
credited with in part or in whole any cost savings resulting from the Contract
being sold directly, rather than through an agent with an associated commission,
but only if such credit will not be unfairly discriminatory to any person.
ASSIGNMENT
The Contract may be assigned by the Contractowner except when issued to plans
or trusts qualified under Section 403(b) or 408 of the Internal Revenue Code.
401(k) Contracts are not assignable.
MINIMUM DISTRIBUTIONS PROGRAM
Under the Systematic Withdrawal Program, the Contractowner can elect to
participate in the "Minimum Distributions Program" by instructing American
National to calculate and make minimum distributions that may be required if the
Contract is used with a tax qualified plan. American National calculates such
amounts assuming the minimum distribution amount is based soley on the value of
the Contractowner's Contract. However, the required minimum distribution amounts
applicable to the Contractowner's particular situation may depend on other
annuities, savings, or investments of which American National is not aware, so
that the required amount may be greater than the minimum distribution amount
American National calculates based on the Contractowner's Contract. The Minimum
Distributions Program is subject to all the rules applicable to the Systematic
Withdrawal Program. In addition, certain rules apply only to the Minimum
Distributions Program. These rules are described below.
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In order to participate in the Minimum Distributions Program, the Contractowner
must notify American National of such election in writing in the calendar year
in which the Contractowner attains age 70 1/2. If the Contractowner is taking
payments under the Systematic Withdrawal Program when the Minimum Distributions
Program is elected, the existing Systematic Withdrawal Program will be
discontinued.
American National will determine the amount that is required to be distributed
from a Contract each year based on the information provided by the Contractowner
and elections made by the Contractowner. The Contractowner specifies whether the
withdrawal amount will be based on a life expectancy calculated on a single life
basis, or on a joint life basis. American National calculates a required
distribution amount each year based on the Internal Revenue Code's minimum
distribution rules.
Minimum Distributions Program is based on American National's understanding of
the present federal income tax laws, as they are currently interpreted by the
IRS. Numerous special tax rules apply to Contractowners whose Contracts are used
with qualified plans. Contractowners should consult a tax advisor before
electing to participate in the Minimum Distributions Programs.
DISTRIBUTION OF THE CONTRACT
Subject to arrangements with American National, the Contract is 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 Contract. Under the Agreement, SM&R is to use
commercially reasonable efforts to sell the Contract through registered
representatives. In connection with these sales activities SM&R is responsible
for:
. compliance with the requirements of any applicable state broker-dealer
regulations and the Securities Exchange Act of 1934,
. keeping correct records and books of account in accordance with Rules 17a-3
and 17a-4 of the Securities Exchange Act,
. training agents of American National for the sale of Contracts, and
. 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.
The sum of surrender charges under a Contract will never exceed 8.5% of
Purchase Payments.
6
<PAGE>
TAX MATTERS
Diversification Requirements. The Code requires that the investments underlying
a separate account be "adequately diversified" in order for annuity contracts to
be treated as annuity contracts for federal income tax purposes. We intend that
the Separate Account, through the Eligible Portfolios, will satisfy these
diversification requirements.
In certain circumstances, owners of variable annuity contracts may be considered
for federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. When this is the case, the contract owners would be
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features of the Contracts, such
as the flexibility of a Contractowner to allocate premium payments and transfer
Accumulation Value, have not been explicitly addressed in published rulings.
While we believe that the Contracts do not give Contractowners investment
control over Separate Account assets, we reserve the right to modify the
Contracts as necessary to prevent a Contractowner from being treated as the
owner of the Separate Account assets supporting a Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, each non-qualified deferred annuity contract must
provide that:
(i) if a Contractowner dies on or after the Annuity Date but before the entire
interest in the Contract has been distributed, the remaining interest in the
Contract will be distributed at least as rapidly as under the distribution
method that was used immediately before the Contractowner died; and
(ii) if a Contractowner dies before the Annuity Date, the entire interest in the
Contract will be distributed within five years after the Contractowner
dies.
These requirements are considered satisfied as to any portion of the
Contractowner's interest that is (i) payable as annuity payments which begin
within one year of the Contractowner's death, and (ii) which are made over the
life of the Beneficiary or over a period not extending beyond the Beneficiary's
life expectancy.
If the Beneficiary is the surviving spouse of the Contractowner, the Contract
may be continued with the surviving spouse as the new Contractowner and no
distribution is required.
Other rules may apply to Qualified Contracts.
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.
7
<PAGE>
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:
. the Standard & Poor's 500 Composite Stock Price Index ("S & P 500"),
. Dow Jones Industrial Average ("DJIA"),
. Donoghue's Money Market Institutional Averages;
. 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
. 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:
. 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
. 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
8
<PAGE>
average annual return of 7.18%, which is the steady rate that would equal 100%
growth on a compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors should realize
that the subaccount's performance is not constant over time, but changes from
year to year, and that average annual returns represent averaged figures as
opposed to the actual year-to-year performance of a subaccount.
Average annual total returns are computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula:
P(1+T)/n/ = ERV
where P is a hypothetical investment payment of $1,000, T is the average annual
total return, n is the number of years, and ERV is the withdrawal value at the
end of the periods shown. Since the Contract is intended as a long-term product,
the average annual total returns assume that no money was withdrawn from the
Contract prior to the end of the period.
In addition to average annual returns, the subaccounts may advertise unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period.
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Separate Account
commenced operations. Such performance information for the subaccounts will be
calculated based on the performance of the Eligible Portfolios and the
assumption that the subaccounts were in existence for the same periods as those
indicated for the Eligible Portfolios, with the level of Contract charges
currently in effect.
OTHER TOTAL RETURN
From time to time, sales literature or advertisements may also quote average
annual total returns that reflect the annual contract fee nor the Surrender
Charge. These are calculated in exactly the same way as the average annual total
returns described above, except that the ending redeemable value of the
hypothetical account for the period is replaced with an ending value for the
period that does not take into account the annual contract fee and any charges
on amounts surrendered. Sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Separate Account
commenced operations, calculated based on the performance of the Eligible
Portfolios and the assumption that the subaccounts were in existence for the
same periods as those indicated for the Eligible Portfolios, with the level of
Contract charges currently in effect except for the annual contract fee and the
Surrender Charge.
YIELDS
Some subaccounts may also advertise yields. Yields quoted in advertising reflect
the change in value of a hypothetical investment in the subaccount over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized
9
<PAGE>
and stated as a percentage. Yields do not reflect the impact of any contingent
deferred sales load. Yields quoted in advertising may be based on historical
seven day periods. Current yield for the American National Money Market
subaccount will reflect the income generated by a Subaccount over a 7-day
period. Current yield is calculated by determining the net change, exclusive of
capital changes, in the value of a hypothetical account having one Accumulation
Unit at the beginning of the period and dividing the difference by the value of
the account at the beginning of the base period to obtain the base period
return, and multiplying the base period return by (365/7). The resulting yield
figure will be carried to the nearest hundredth of a percent. Effective yield
for the American National Money Market subaccount is calculated in a similar
manner to current yield except that investment income is assumed to be
reinvested throughout the year at the 7-day rate. Effective yield is obtained by
taking the base period returns as computed above, and then compounding the base
period return by adding 1, raising the sum to a power equal to (365/7) and
subtracting one from the result, according to the formula
Effective Yield = [(Base Period Return +1)//365/7//] - 1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
A 30-day yield for bond subaccounts will reflect the income generated by a
subaccount over a 30-day period. Yield will be computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Accumulation Unit on the last day of the period, according to
the following formula:
Yield = 2[((a - b)/cd + 1)//6// - 1]
where a = net investment income earned by the applicable portfolio, b = expenses
for the period including expenses charged to the contract owner accounts, c =
the average daily number of Accumulation Units outstanding during the period,
and d = the maximum offering price per Accumulation Unit on the last day of the
period.
STATE LAW DIFFERENCES
Differences in state laws may require American National to offer a Contract in
one or more states which is more favorable to a Contractowner than that offered
in other states.
SEPARATE ACCOUNT
The Separate Account will purchase and redeem shares of the Eligible Portfolios
at net asset value. The net asset value of a share is equal to the total assets
of the portfolio less the total liabilities of the portfolio divided by the
number of shares outstanding.
10
<PAGE>
American National will redeem shares in the Eligible Portfolios as needed to:
. collect charges,
. pay the surrenders,
. secure Policy loans,
. provide benefits, or
. transfer assets from one subaccount to another, or to the Fixed Account.
Any dividend or capital gain distribution received from an Eligible Portfolio
will be reinvested immediately at net asset value in shares of that Eligible
Portfolio and retained as assets of the corresponding subaccount.
The Separate Account may include other subaccounts that are not available under
the Policy. American National may from time to time discontinue the availability
of some of the subaccounts. If the availability of a subaccount is discontinued,
American National may redeem any shares in the corresponding Eligible Portfolio
and substitute shares of another registered, open-end management company.
American National may also establish additional subaccounts. Each new subaccount
would correspond to a portfolio of a registered, open-end management company.
American National would establish the terms upon which existing Policyowners
could purchase shares in such portfolios.
If any of these substitutions or changes are made, American National may
change the Policy by sending an endorsement. American National may:
. operate the Separate Account as a management company,
. de-register the Separate Account if registration is no longer required,
. combine the Separate Account with other separate accounts,
. restrict or eliminate any voting rights associated with the Separate Account,
or
. transfer the assets of the Separate Account relating to the Contracts to
another separate account.
American National would, of course, not make any changes to the menu of
Eligible Portfolios or to the Separate Account without complying with applicable
laws and regulations. Such laws and regulations may require notice to and
approval from the Contractowners, the SEC and state insurance regulatory
authorities.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares to
the Variable Account contain varying provisions regarding termination. The
following generally summarizes those provisions:
THE FIDELITY FUNDS
All participation agreements for the Fidelity Funds provide for termination:
. upon sixty days advance written notice by any party,
11
<PAGE>
. by American National with respect to any Fidelity Portfolio if American
National determines that shares of such Fidelity Portfolio are not reasonably
available to meet the requirements of the Contracts,
. by American National with respect to any Fidelity Portfolio if any of the
shares of such Fidelity Portfolio are not registered, issued, or sold in
accordance with applicable state or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts,
. by American National with respect to any Fidelity Portfolio if such Fidelity
Portfolio ceases to be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code (the "Code"), or if American
National reasonably believes the Fidelity Funds may fail to so qualify,
. by American National with respect to any Fidelity Portfolio if such Fidelity
Portfolio fails to meet the diversification requirements specified in the
Fidelity participation agreement,
. by the Fidelity Funds or the underwriter, upon a determination by either, that
American National has suffered a material adverse change in its business,
operations, financial condition, or prospects, or is the subject of material
adverse publicity,
. by American National upon a determination by American National that either the
Fidelity Funds or the underwriter has suffered a material adverse change in
its business, operations, financial condition, or prospects, or is the subject
of material adverse publicity,
. by the Fidelity Funds or the underwriter forty-five days after American
National gives the Fidelity Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts, if at the time such notice was given, no
other notice of termination of the Fidelity participation agreement was then
outstanding, or
. upon a determination that a material irreconcilable conflict exists between
the interests of the Contractowners and other investors in the Fidelity Funds
or between American National's interests in the Fidelity Funds and the
interests of other insurance companies invested in the Fidelity Funds.
THE VAN ECK FUND
This participation agreement provides for termination:
. upon sixty days advance written notice by any party,
. by American National with respect to any Van Eck Portfolio if American
National determines that shares of such Van Eck Portfolio are not reasonably
available to meet the requirements of the Contracts,
. by American National with respect to any Van Eck Portfolio if any of the
shares of such Van Eck Portfolio are not registered, issued, or sold in
accordance with applicable state or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts,
12
<PAGE>
. by American National with respect to any Van Eck Portfolio if such Van Eck
Portfolio ceases to qualify as a Regulated Investment Company under Subchapter
M of the Code, or if American National reasonably believes the Van Eck Fund
will fail to so qualify,
. by American National with respect to any Van Eck Portfolio if such Van Eck
Portfolio fails to meet the diversification requirements specified in the Van
Eck participation agreement,
. by the Van Eck Fund or the underwriter, upon a determination by either, that
American National or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition, or prospects, or is
the subject of material adverse publicity,
. by American National upon a determination by American National that either the
Van Eck Fund or the underwriter has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by the Van Eck Fund or the underwriter forty-five days after American National
gives the Van Eck Fund and the underwriter written notice of American
National's intention to make another investment company available as a funding
vehicle for the Contracts, if at the time such notice was given, no other
notice of termination of the Van Eck participation agreement was then
outstanding, or
. upon a determination that a material irreconcilable conflict exits between the
interests of the Contractowners and other investors or between American
National's interests in the Van Eck Fund and the interests of other insurance
companies invested in the Van Eck Fund.
THE T. ROWE PRICE FUNDS
This participation agreement provides for termination:
. upon six months advance written notice by any party,
. by American National with respect to any T. Rowe Price Portfolio if American
National determines that shares of such T. Rowe Price Portfolio are not
reasonably available to meet the requirements of the Contracts,
. by American National with respect to any T. Rowe Price Portfolio if any of the
shares of such T. Rowe Price Portfolio are not registered, issued, or sold in
accordance with applicable state or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts,
. by the T. Rowe Price Funds or the underwriter upon the institution of formal
proceedings against American National by the SEC, NASD, or any other
regulatory body regarding American National's duties under the T. Rowe Price
participation agreement or related to the sale of the Contracts, the operation
of the Separate Account, or the purchase of T. Rowe Price Funds shares, if the
T. Rowe Price Funds or the underwriter determines that such proceedings will
13
<PAGE>
have a material adverse effect on American National's ability to perform under
the T. Rowe Price participation agreement,
. by American National upon the institution of formal proceedings against the T.
Rowe Price Funds or the underwriter by the SEC, NASD, or any other regulatory
body, if American National determines that such proceedings will have a
material adverse effect upon the ability of the T. Rowe Price Funds or the
underwriter to perform its obligations under the T. Rowe Price participation
agreement,
. by American National with respect to any T. Rowe Price Portfolio if such T.
Rowe Price Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code, or if American National reasonably believes
the T. Rowe Price Funds may fail to so qualify,
. by American National with respect to any T. Rowe Price Portfolio if such T.
Rowe Price Portfolio fails to meet the diversification requirements specified
in the T. Rowe Price participation agreement, or American National reasonably
believes the T. Rowe Price Portfolio may fail to so comply,
. by the T. Rowe Price Funds or the underwriter, upon a determination by either,
that American National has suffered a material adverse change in its business,
operations, financial condition, or prospects, or is the subject of material
adverse publicity,
. by American National upon a determination by American National that either the
T. Rowe Price Funds or the underwriter has suffered a material adverse change
in its business, operations, financial condition, or prospects, or is the
subject of material adverse publicity,
. by the T. Rowe Price Funds or the underwriter sixty days after American
National gives the T. Rowe Price Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts if at the time such notice was given, no
other notice of termination of the T. Rowe Price participation agreement was
then outstanding,
. upon a determination that a material irreconcilable conflict exists between
the Contractowners and other investors in the T. Rowe Price Funds or between
American National's interests in the T. Rowe Price Funds and interests of
other insurance companies invested in the T. Rowe Price Funds.
THE FEDERATED FUND
This participation agreement provides for termination:
. upon one hundred eighty days advance written notice by any party
. at American National's option if American National determines that shares of
the Federated Portfolios are not reasonably available to meet the requirements
of the Contracts
. at the option of the Federated Fund or the underwriter upon the institution of
14
<PAGE>
formal proceedings against American National by the SEC, NASD, or any other
regulatory body regarding American National's duties under the Federated
participation agreement or related to the sale of the Contracts, the operation
of the Separate Account, or the purchase of Federated Fund shares,
. at American National's option upon the institution of formal proceedings
against the Federated Fund or the underwriter by the SEC, NASD, or any other
regulatory body,
. upon a requisite vote of the Contractowners to substitute shares of another
fund for shares of the Federated Fund,
. if any of the shares of a Federated Portfolio are not registered, issued, or
sold in accordance with applicable state or federal law or such law precludes
the use of such shares as the underlying investment media of the Contracts,
. by any party upon a determination by the Federated Fund that an irreconcilable
conflict exists between the Contractowners and other investors in the
Federated Fund or between American National's interests in the Federated Fund
and the interests of other insurance companies invested in the Federated Fund,
. at American National's option if the Federated Fund or a Federated Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of the
Code, or
. at American National's option if the Federated Fund or a Federated Portfolio
fails to meet the diversification requirements specified in the Federated
participation agreement.
THE LAZARD FUND
This participation agreement provides for termination:
. upon one hundred eighty days advance written notice by any party, unless a
shorter period is agreed upon by the parties
. at American National's option if shares of any Lazard Portfolio are not
reasonably available to meet the requirements of the Contracts or are not
"appropriate funding vehicles" for the Contracts, as determined by American
National,
. at American National's option upon the institution of formal proceedings
against the Lazard Fund or the underwriter by the SEC, NASD, or any other
regulatory body, if American National determines that such proceedings will
have a material adverse effect upon the Lazard Fund's ability to perform its
obligations under the Lazard participation agreement
. at the option of the Lazard Fund upon the institution of formal proceedings
against American National by the SEC, NASD, or any other regulatory body if
the Lazard Fund determines that such proceedings will have a material adverse
effect on American National's ability to perform under the Lazard
participation agreement,
. at the option of the Lazard Fund upon a determination by the Lazard Fund that
15
<PAGE>
American National has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity and such
change or publicity is likely to have a material adverse impact on the
business and operation of American National, if, after the expiration of sixty
days written notice of such determination, American National has not cured the
situation to the satisfaction of the Lazard Fund,
. at American National's option upon a determination by American National that
the Lazard Fund has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity and such
change or publicity is likely to have a material adverse impact on the
business and operation of the Lazard Fund, if, after the expiration of sixty
days written notice of such determination, the Lazard Fund has not cured the
situation to the satisfaction of American National,
. upon the termination of the Investment Management Agreement between the Lazard
Fund and its investment advisor, unless American National specifically
approves selection of a new investment advisor, or upon the sale, acquisition
or change of control of the investment advisor,
. if any of the shares of a Lazard Portfolio are not registered, issued, or sold
in accordance with applicable federal law, or such law precludes the use of
such shares as the underlying investment media of the Contracts,
. at the option of the Lazard Fund upon a determination by the Lazard Fund's
Board of Trustees that it is no longer in the best interest of the
shareholders for the Lazard Fund to operate under the Lazard participation
agreement,
. at the option of the Lazard Fund if the Contracts cease to qualify as annuity
contracts or life insurance policies under the Code, or the Lazard Fund
reasonably believes the Contracts may fail to so qualify,
. at the option of either party upon one party's breach of a material provision
of the Lazard participation agreement, which breach has not been cured to the
satisfaction of the non-breaching party within ten days after receipt of
written notice of the breach,
. at the Lazard Fund's option if the Contracts are not registered, issued, or
sold in accordance with applicable federal or state law,
. upon assignment of the Lazard participation agreement, unless made with the
written consent of the non-assigning party,
. at the option of either party upon a determination by a majority of the
Trustees of the Lazard Fund that an irreconcilable conflict exists between the
interests of the Contractowners and other investors in the Lazard Fund or
between American National's interests in the Lazard Fund and the interests of
other insurance companies invested in the Lazard Fund, or
. upon a requisite vote of the Contractowners, or obtaining a SEC order or no-
action letter, to substitute the shares of another fund for the shares of one
or more Lazard Portfolios upon 60 days written notice to the Lazard Fund.
16
<PAGE>
THE MFS FUND
This participation agreement provides for termination:
. upon six months advance written notice by any party
. at American National's option to the extent the shares of any MFS Portfolio
are not reasonably available to meet the requirements of the Contracts or are
not "appropriate funding vehicles" for the Contracts, as determined by
American National
. at the option of the MFS Fund or the underwriter upon the institution of
formal proceedings against American National by the SEC, NASD, or any other
regulatory body regarding American National's duties under the MFS
participation agreement or related to the sale of the Contracts, the operation
of the Separate Account, or the purchase of shares of the MFS Fund,
. at American National's option upon the institution of formal proceedings
against the MFS Fund by the SEC, NASD, or any other regulatory body regarding
the MFS Fund's or the underwriter's duties under the MFS participation
agreement or related to the sale of shares of the MFS Fund
. at the option of any party upon receipt of any necessary regulatory approvals
or the vote of the Contractowners to substitute shares of another fund for the
shares of the MFS Fund, provided American National gives the MFS Fund and the
underwriter thirty days advance written notice of any proposed vote or other
action taken to replace the shares of the MFS Fund
. by the MFS Fund or the underwriter upon a determination by either that
American National has suffered a material adverse change in its business,
operations, financial condition, or prospects, or is the subject of material
adverse publicity
. by American National upon a determination by American National that the MFS
Fund or the underwriter has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity
. at the option of any party, upon another party's material breach of any
provision of the MFS participation agreement, or
. upon assignment of the MFS participation agreement, unless made with the
written consent of the parties to the MFS participation agreement.
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.
17
<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 Asset Manager,
Fidelity Index 500, Fidelity Growth Opportunities, Fidelity Contra Fund,
Fidelity Asset Manager Growth, T. Rowe Price Equity Income, T. Rowe Price
International Stock, T. Rowe Price Midcap Growth, T. Rowe Price Limited Term
Bond, MFS Value Series, MFS Emerging Growth Series, MFS Research Series, MFS
Growth w/ Income Series, Van Eck Worldwide Hard Assets, Van Eck Worldwide
Emerging Markets, Federated Utility Fund II, Federated Growth Strategies Fund
II, Federated Fund for US Government Securities II, Federated High Income Bond,
Federated Equity Income Fund II, Lazard Retirement Emerging Markets, and Lazard
Retirement Small Cap Portfolio Subaccounts) (collectively, the Account) as of
December 31,1998, and the related statements of operations and the statements of
changes in net assets for the year then ended. These financial statements are
the responsibility of the Account's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31,1998 by correspondence with
the custodians. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Account as of
December 31, 1998 and the results of its operations and the changes in net
assets for the year then ended, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 1999
18
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<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 $ 521,597 $ 1,469,427 $ 544,463 $ 1,492,405
===========================================================================================================================
LIABILITIES:
Contract owner reserves $ 521,597 $ 1,469,427 $ 544,463 $ 1,492,405
===========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 288,175 1,469,427 353,547 852,803
Cost $ 473,349 $ 1,469,427 $ 506,117 $ 1,399,007
===========================================================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
FIDELITY FIDELITY FIDELITY FIDELITY
ASSET INDEX GROWTH CONTRA-
MANAGER 500 OPPORTUNITIES FUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 649,361 $ 2,463,517 $ 1,313,225 $ 1,535,461
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 649,361 $ 2,463,517 $ 1,313,225 $ 1,535,461
===================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 35,758 17,441 57,396 62,826
Cost $ 596,182 $ 2,181,139 $ 1,162,144 $ 1,319,271
==================================================================================================================================
</TABLE>
19
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
FIDELITY
ASSET T. ROWE PRICE T. ROWE PRICE T. ROWE PRICE
MANAGER: EQUITY INTERNATIONAL MIDCAP
GROWTH INCOME STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 463,914 $ 1,702,712 $1,077,093 $ 1,095,037
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 463,914 $ 1,702,712 $1,077,093 $ 1,095,037
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 27,241 88,453 74,180 76,737
Cost $ 412,976 $ 1,692,674 $ 1,007,386 $ 963,801
==================================================================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
MFS
T. ROWE PRICE MFS EMERGING MFS
LIMITED - VALUE GROWTH RESEARCH
TERM BOND SERIES SERIES SERIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 649,667 $ 856,472 $ 1,358,682 $ 883,643
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 649,667 $ 856,472 $ 1,358,682 $ 883,643
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 129,416 58,105 63,283 46,385
Cost $ 649,711 $ 733,696 $ 1,137,972 $ 801,414
==================================================================================================================================
</TABLE>
20
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
MFS VAN ECK VAN ECK
GROWTH WORLDWIDE WORLDWIDE FEDERATED
W/ INCOME HARD EMERGING UTILITY
SERIES ASSETS MARKETS FUND II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 1,165,793 $ 30,440 $ 236,873 $ 203,403
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 1,165,793 $ 30,440 $ 236,873 $ 203,403
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 57,971 3,309 33,269 13,320
Cost $ 1,022,392 $ 34,918 $ 243,141 $ 191,506
==================================================================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
FEDERATED
FEDERATED FUND FOR US FEDERATED FEDERATED
GROWTH GOVERNMENT HIGH EQUITY
STRATEGIES SECURITIES INCOME INCOME
FUND II II BOND FUND II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 149,167 $ 779,979 $ 1,642,364 $ 464,919
==================================================================================================================================
LIABILITIES:
Contract owner reserves $ 149,167 $ 779,979 $ 1,642,364 $ 464,919
==================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 8,329 69,953 150,400 32,856
Cost $ 133,381 $ 763,334 $ 1,620,486 $ 415,400
==================================================================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1998
<TABLE>
<CAPTION>
LAZARD
RETIREMENT LAZARD
EMERGING RETIREMENT
MARKETS SMALL CAP
PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 224,737 $ 818,896
=================================================================================================
LIABILITIES:
Contract owner reserves $ 224,737 $ 818,896
=================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 30,956 86,018
Cost $ 224,014 $ 779,326
=================================================================================================
</TABLE>
21
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 4,193 $ 5,905 $ 12,096 $ 17,335
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (2,977) (11,578) (2,764) (9,073)
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 1,216 $ (5,673) $ 9,332 $ 8,262
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments $ 809 $ -- $ (109) $ 5,282
Capital gains distributions from mutual funds 14,185 -- 9,694 21,947
Net unrealized appreciation of investments during the period 48,248 -- 38,346 93,398
- --------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $63,242 $ -- $47,931 $120,627
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $64,458 $ (5,673) $57,263 $128,889
================================================================================================================================
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY FIDELITY FIDELITY
ASSET INDEX GROWTH CONTRA-
MANAGER 500 OPPORTUNITIES FUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 19 $ 16 $ 8 $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (2,598) (11,219) (6,339) (6,264)
- --------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (2,579) $ (11,203) $(6,331) $ (6,264)
- --------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) on investments $ 2,652 $ 4,736 $ 2,971 $(13,374)
Capital gains distributions from mutual funds 59 38 28 --
Net unrealized appreciation of investments during the period 53,179 282,378 151,081 216,190
- --------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 55,890 $ 287,152 $154,080 $202,816
- --------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 53,311 $ 275,949 $147,749 $196,552
================================================================================================================================
</TABLE>
22
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
FIDELITY
ASSET T. ROWE PRICE T. ROWE PRICE T. ROWE PRICE
MANAGER: EQUITY INTERNATIONAL MID-CAP
GROWTH INCOME STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 10 $ 19,298 $ 12,157 $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (1,963) (8,912) (5,139) (4,727)
- ----------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (1,953) $ 10,386 $ 7,018 $ (4,727)
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) on investments $ 3,377 $ 438 $(19,455) $(20,242)
Capital gains distributions from mutual funds 49 46,181 4,291 15,113
Net unrealized appreciation of investments
during the period 50,938 10,038 69,707 131,236
- ----------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 54,364 $ 56,657 $ 54,543 $126,107
- ----------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 52,411 $ 67,043 $ 61,561 $121,380
======================================================================================================================
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
MFS
T. ROWE PRICE MFS EMERGING MFS
LIMITED- VALUE GROWTH RESEARCH
TERM BOND SERIES SERIES SERIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 8,113 $ 1,053 $ 194 $ 168
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (2,483) (3,415) (5,745) (3,552)
- ------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 5,630 $ (2,362) $ (5,551) $ (3,384)
- ------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments $ 2,043 $(14,874) $ 2,592 $ (2,354)
Capital gains distributions from mutual funds 4,160 722 70 17
Net unrealized appreciation (depreciation)
of investments during the period (44) 122,776 220,710 82,229
- ------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 6,159 $108,624 $223,372 $ 79,892
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 11,789 $106,262 $217,821 $ 76,508
==============================================================================================================================
</TABLE>
23
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
MFS VAN ECK VAN ECK
GROWTH WORLDWIDE WORLDWIDE FEDERATED
W/INCOME HARD EMERGING UTILITY
SERIES SERIES SERIES SERIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ -- $ -- $ 25 $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (4,393) (200) (1,016) (633)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (4,393) $ (200) $ (991) $ (633)
- -----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments $(16,093) $ (1,624) $ (7,483) $ 554
Capital gains distributions from mutual funds -- -- -- --
Net unrealized appreciation (depreciation)
of investments during the period 143,401 (4,478) (6,268) 11,897
- -----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $127,308 $ (6,102) $(13,751) $12,451
- -----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $122,915 $ (6,302) $(14,742) $11,818
===================================================================================================================================
</TABLE>
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
FEDERATED FEDERATED FEDERATED
GROWTH FUND FOR US FEDERATED EQUITY
STRATEGIES GOVERNMENT HIGH INCOME INCOME
FUND II SECURITIES II BOND FUND II FUND II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ -- $ 317 $ 507 $ 53
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (690) (2,850) (7,338) (1,557)
- -----------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT (LOSS) $ (690) $ (2,533) $ (6,831) $(1,504)
- -----------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments $ (127) $ 770 $ (2,994) $ 204
Capital gains distributions from
mutual funds -- 12 43 --
Net unrealized appreciation (depreciation)
of investments during the period 15,786 16,645 21,878 49,519
- -----------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 15,659 $ 17,427 $ 18,927 $ 49,723
- -----------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $ 14,969 $ 14,894 $ 12,096 $ 48,219
=============================================================================================================================
</TABLE>
24
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
LAZARD LAZARD
RETIREMENT RETIREMENT
EMERGING SMALL
MARKETS CAP
PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------
<S> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 1,738 $ 222
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (964) (4,051)
- ------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 774 $ (3,829)
- ------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized (loss) on investments $(3,210) $(38,396)
Capital gains distributions from mutual funds -- --
Net unrealized appreciation
of investments during the period 723 39,570
- ------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $(2,487) $ 1,174
- ------------------------------------------------------------------------------------------
(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $(1,713) $ (2,655)
==========================================================================================
</TABLE>
25
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
AN MONEY MARKET AN BALANCED AN MANAGED
AN GROWTH PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 1,216 $ (5,673) $ 9,332 $ 8,262
Net realized gain (loss) on investments 809 -- (109) 5,282
Capital gains distributions from mutual funds 14,185 -- 9,694 21,947
Net unrealized appreciation of investments
during the year 48,248 -- 38,346 93,398
- -------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 64,458 $ (5,673) $ 57,263 $ 128,889
- -------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $457,139 $ 1,484,372 $502,720 $1,376,485
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees -- (9,272) (15,520) (12,969)
- -------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $457,139 $ 1,475,100 $487,200 $1,363,516
- -------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $521,597 $ 1,469,427 $544,463 $1,492,405
Net assets, beginning of period -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $521,597 $ 1,469,427 $544,463 $1,492,405
===============================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- -- -- --
Purchase payments 453,751 23,990,552 527,099 1,428,370
Policy withdrawals and charges (10,848) (22,557,923) (30,452) (116,631)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 442,903 1,432,629 496,647 1,311,739
================================================================================================================================
Accumulation unit value $ 1.178 $ 1.026 $ 1.096 $ 1.138
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
26
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
FIDELITY FIDELITY GROWTH FIDELITY ASSET MANAGER:
ASSET MANAGER INDEX 500 OPPORTUNITIES CONTRAFUND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment (loss) $ (2,579) $ (11,203) $ (6,331) $ (6,264) $ (1,953)
Net realized gain (loss) on investments 2,652 4,736 2,971 (13,374) 3,377
Capital gains distributions from mutual funds 59 38 28 -- 49
Net unrealized appreciation of investments
during the year 53,179 282,378 151,081 216,190 50,938
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
operations $ 53,311 $ 275,949 $ 147,749 $ 196,552 $ 52,411
- --------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $596,898 $2,205,471 $1,180,769 $1,360,247 $417,760
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (848) (17,903) (15,293) (21,338) (6,257)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $596,050 $2,187,568 $1,165,476 $1,338,909 $411,503
- --------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $649,361 $2,463,517 $1,313,225 $1,535,461 $463,914
Net assets, beginning of period -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $649,361 $2,463,517 $1,313,225 $1,535,461 $463,914
================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- -- -- -- --
Purchase payments 651,201 2,130,086 1,323,095 1,480,273 441,338
Policy withdrawals and charges (77,057) (168,366) (274,754) (200,160) (40,629)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 574,144 1,961,720 1,048,341 1,280,113 400,709
================================================================================================================================
Accumulation unit value $ 1.131 $ 1.256 $ 1.253 $ 1.200 $ 1.158
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
27
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
T. ROWE PRICE T. ROWE PRICE T. ROWE PRICE T. ROWE PRICE MFS
EQUITY INTERNATIONAL MID-CAP LIMITED - VALUE
INCOME STOCK GROWTH TERM BOND SERIES
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 10,386 $ 7,018 $ (4,727) $ 5,630 $ (2,362)
Net realized gain (loss) on investments 438 (19,455) (20,242) 2,043 (14,874)
Capital gains distributions from mutual funds 46,181 4,291 15,113 4,160 722
Net unrealized appreciation (depreciation)
of investments during the year 10,038 69,707 131,236 (44) 122,776
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
operations $ 67,043 $ 61,561 $ 121,380 $ 11,789 $ 106,262
- ----------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $1,672,997 $1,035,914 $ 985,435 $ 643,628 $ 755,855
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (37,328) (20,382) (11,778) (5,750) (5,645)
- ----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $1,635,669 $1,015,532 $ 973,657 $ 637,878 $ 750,210
- ----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $1,702,712 $1,077,093 $1,095,037 $ 649,667 $ 856,472
Net assets, beginning of period -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $1,702,712 $1,077,093 $1,095,037 $ 649,667 $ 856,472
==================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- -- -- -- --
Purchase payments 1,756,844 1,148,812 1,175,029 723,406 855,724
Policy withdrawals and charges (179,895) (199,728) (273,314) (104,236) (101,404)
- ----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,576,949 949,084 901,715 619,170 754,320
==================================================================================================================================
Accumulation unit value $ 1.080 $ 1.135 $ 1.214 $ 1.049 $ 1.136
==================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
28
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
MFS VAN ECK
MFS MFS GROWTH W/ VAN ECK WORLDWIDE
EMERGING RESEARCH INCOME WORLDWIDE EMERGING
GROWTH SERIES SERIES SERIES HARD ASSETS MARKETS
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment (loss) $ (5,551) $ (3,384) $ (4,393) $ (200) $ (991)
Net realized gain (loss) on investments 2,592 (2,354) (16,093) (1,624) (7,483)
Capital gains distributions from mutual funds 70 17 -- -- --
Net unrealized appreciation (depreciation)
of investments during the year 220,710 82,229 143,401 (4,478) (6,268)
- --------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 217,821 $ 76,508 $ 122,915 $ (6,302) $(14,742)
- -----------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $1,147,309 $ 814,306 $1,051,172 $ 37,525 $251,734
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (6,448) (7,171) (8,294) (783) (119)
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $1,140,861 $ 807,135 $1,042,878 $ 36,742 $251,615
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $1,358,682 $ 883,643 $1,165,793 $ 30,440 $236,873
Net assets, beginning of period -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $1,358,682 $ 883,643 $1,165,793 $ 30,440 $236,873
===================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- -- -- -- --
Purchase payments 1,071,081 1,068,683 1,164,571 59,083 401,549
Policy withdrawals and charges (42,611) (226,446) (62,883) (16,252) (56,774)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,028,470 842,237 1,101,688 42,831 344,775
===================================================================================================================================
Accumulation unit value $ 1.321 $ 1.049 $ 1.058 $ 0.711 $ 0.687
===================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
29
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
FEDERATED FEDERATED
FEDERATED GROWTH FUND FOR US FEDERATED FEDERATED
UTILITY STRATEGIES GOVERNMENT HIGH INCOME EQUITY INCOME
FUND II FUND II SECURITIES II BOND FUND II FUND II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operations:
Net investment (loss) $ (633) $ (690) $ (2,533) $ (6,831) $ (1,504)
Net realized gain (loss) on investments 554 (127) 770 (2,994) 204
Capital gains distributions from mutual funds -- -- 12 43 --
Net unrealized appreciation of investments
during the year 11,897 15,786 16,645 21,878 49,519
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 11,818 $ 14,969 $ 14,894 $ 12,096 $ 48,219
- --------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $192,078 $135,702 $767,103 $1,653,293 $416,700
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (493) (1,504) (2,018) (23,025) --
- --------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $191,585 $134,198 $765,085 $1,630,268 $416,700
- --------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $203,403 $149,167 $779,979 $1,642,364 $464,919
Net assets, beginning of period -- -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $203,403 $149,167 $779,979 $1,642,364 $464,919
================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- -- -- -- --
Purchase payments 201,258 147,642 801,885 2,085,469 463,298
Policy withdrawals and charges (9,098) (3,752) (62,850) (444,456) (60,354)
- --------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 192,160 143,890 739,035 1,641,013 402,944
================================================================================================================================
Accumulation unit value $ 1.059 $ 1.037 $ 1.055 $ 1.001 $ 1.154
================================================================================================================================
</TABLE>
See accompanying notes to financial statements.
30
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
For the year ended December 31, 1998
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
LAZARD
RETIREMENT LAZARD
EMERGING RETIREMENT
MARKETS SMALL CAP
PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Operations:
Net investment income (loss) $ 774 $ (3,829)
Net realized (loss) on investments (3,210) (38,396)
Capital gains distributions from mutual funds -- --
Net unrealized appreciation (depreciation)
of investments during the year 723 39,570
- -----------------------------------------------------------------------------------------------
(Decrease) in net assets resulting from operations $ (1,713) $ (2,655)
- -----------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $226,450 $ 840,970
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees -- (19,419)
- -----------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $226,450 $ 821,551
- -----------------------------------------------------------------------------------------------
Total increase in net assets $224,737 $ 818,896
Net assets, beginning of period -- --
- -----------------------------------------------------------------------------------------------
Net assets, end of period $224,737 $ 818,896
===============================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- --
Purchase payments 293,885 989,130
Policy withdrawals and charges (19,719) (141,998)
- -----------------------------------------------------------------------------------------------
Accumulation units end of year 274,166 847,132
===============================================================================================
Accumulation unit value $ 0.820 $ 0.967
===============================================================================================
</TABLE>
See accompanying notes to financial statements.
31
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- -------------------------------------------------------------------------------
(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.
These financial statements report the results of the subaccounts for the
Variable Annuity II Contracts which began operations on January 1, 1998. There
are currently twenty six subaccounts within the Separate Account which are
active for the Variable Annuity II Contracts. Each of the subaccounts is
invested only in a corresponding portfolio of the American National (AN) Funds,
the Fidelity Funds, the MFS Funds, the T. Rowe Price Funds, the Van Eck Funds,
the Federated Funds or the Lazard Funds. The American National Funds were
organized and are managed for a fee by Securities Management & Research, Inc.
(SM&R) which is a wholly-owned subsidiary of the Sponsor.
BASIS OF PRESENTATION ... The financial statements of the Separate Account
have been prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS ... Investments in shares of the separate investment portfolios
are stated at market value which is the net asset value per share as determined
by the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded
and reinvested upon receipt. Dividends received from mutual funds are reinvested
daily in additional shares of the portfolios and are recorded as dividend income
on the record date.
FEDERAL TAXES ... The operations of the Separate Account form a part of, and
are taxed with, the operations of the Sponsor. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the contract owners are not
taxed to the Sponsor. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on distributions received by the
subaccounts. Accordingly, no provision for income taxes is required in the
accompanying financial statements.
USE OF ESTIMATES ... The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
(2) SECURITY PURCHASES AND SALES
For the year ended December 31, 1998, 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):
PURCHASES SALES
- -----------------------------------------------------------------------
AN Growth Portfolio $ 485 $ 13
AN Money Market Portfolio 13,415 11,946
AN Balanced Portfolio 533 26
AN Managed Portfolio 1,515 121
Fidelity Asset Manager 786 193
Fidelity Index 500 2,402 225
Fidelity Growth Opportunities 1,384 225
Fidelity Contra Fund 1,732 400
Fidelity Asset Manager: Growth 593 183
T. Rowe Price Equity Income 1,767 75
T. Rowe Price International Stock 1,273 247
T. Rowe Price Mid-Cap Growth 1,257 273
T. Rowe Price Limited-TermBond 814 166
MFS Value Series 931 182
MFS Emerging Growth Series 1,193 58
MFS Research Series 923 120
MFS Growth With Income Series 1,230 192
Van Eck WorldWide Hard Assets 52 15
Van Eck WorldWide Emerging Markets 282 32
Federated Utility Fund II 201 10
Federated Growth Strategies Fund II 137 4
Federated Fund for US Gov't Securities II 801 39
Federated High Income Bond Fund II 1,863 240
Federated Equity Income Fund II 437 22
Lazard Retirement Emerging Markets 244 17
Lazard Retirement Small Cap 1,044 227
- -----------------------------------------------------------------------
Totals $ 37,294 $ 15,251
=======================================================================
32
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
(3) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES ... Mortality risk and expense risk
charges, at an effective annual rate of 1.15%, are assessed daily against the
Separate Account's net asset value. 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 $35 for Flexible Purchase Payment Annuity Contracts. At
the time of full surrender, the annual contract fee will be deducted on a pro
rata basis. 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 zero in the eighth
contract year after the purchase payment being withdrawn was made.
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 from zero to 3.5%. American National's current
practice is to deduct any state imposed premium taxes from Purchase Payments. If
a state only imposes premium taxes upon annuitization, American National will
deduct these taxes from the contract value upon annuitization.
33
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statements of financial
position of American National Insurance Company and subsidiaries (the Company)
as of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These consolidated financial statements (pages 35 through 55) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Insurance Company and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 22,1999
34
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 340,286 $ 348,973
Accident and health premiums 393,602 378,621
Property and casualty premiums 354,820 312,987
Other policy revenue 105,041 99,930
Net investment income 475,242 472,895
Gain from sale of investments 49,768 103,320
Other income 25,906 23,178
- -------------------------------------------------------------------------------------------------------------
Total revenue 1,744,665 1,739,904
- -------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 259,010 246,855
Accident and health 289,553 280,376
Property and casualty 280,036 233,887
Increase/(decrease) in liability for future policy benefits:
Life and annuity 162,049 185,827
Accident and health (262) (4,862)
Commissions for acquiring and servicing policies 247,015 239,633
Other operating costs and expenses 199,294 176,988
Decrease/(increase) in deferred policy acquisition costs,
net of amortization 9,795 (12,267)
Taxes, licenses and fees 32,334 29,778
- -------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,478,824 1,376,215
- -------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES 265,841 363,689
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 8,048 9,333
- -------------------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 273,889 373,022
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 77,707 134,271
Deferred (1,216) (9,606)
- -------------------------------------------------------------------------------------------------------------
NET INCOME $ 197,398 $ 248,357
=============================================================================================================
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 7.45 $ 9.38
=============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
35
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------------
1998 1997
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $3,565,974 $3,605,927
Bonds available-for-sale, at market 720,818 600,380
Marketable equity securities, at market:
Preferred stocks 41,664 40,744
Common stocks 1,051,926 882,864
Mortgage loans on real estate 1,025,683 1,103,333
Policy loans 296,109 300,574
Investment real estate, net of accumulated depreciation
of $109,415 and $100,298 238,714 258,210
Short-term investments 90,368 126,786
Other invested assets 112,207 63,081
- ------------------------------------------------------------------------------------------------------------------
Total investments 7,143,463 6,981,899
Cash 22,228 5,497
Investments in unconsolidated affiliates 120,098 100,888
Accrued investment income 104,405 102,361
Reinsurance ceded receivables 65,667 49,499
Prepaid reinsurance premiums 171,116 141,270
Premiums due and other receivables 91,518 84,275
Deferred policy acquisition costs 731,703 748,341
Property and equipment 40,860 32,142
Other assets 94,302 58,577
Separate account assets 230,292 179,027
- ------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $8,815,652 $8,483,776
==================================================================================================================
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $2,029,396 $1,993,723
Accident and health 60,113 60,589
Policy account balances 2,324,310 2,422,828
Policy and contract claims 359,953 326,985
Other policyholder funds 510,130 457,952
- ------------------------------------------------------------------------------------------------------------------
Total policyholder liabilities 5,283,902 5,262,077
Current federal income taxes (20,515) 14,340
Deferred federal income taxes 259,243 215,606
Other liabilities 148,118 107,309
Separate account liabilities 230,292 179,027
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,901,040 5,778,359
- ------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Accumulated other comprehensive income 299,176 215,883
Retained earnings 2,687,120 2,561,218
Treasury stock, at cost (102,727) (102,727)
- ------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,914,612 2,705,417
- ------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $8,815,652 $8,483,776
==================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
36
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $30,832 $211 $163,352 $2,382,238 $(102,727) $2,473,906
Comprehensive income (net of taxes):
Net income 248,357 248,357
Unrealized gains on marketable securities 52,531 52,531
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 300,888
Dividends to stockholders ($2.62 per share) (69,377) (69,377)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $30,832 $211 $215,883 $2,561,218 $(102,727) $2,705,417
Comprehensive income (net of taxes):
Net income 197,398 197,398
Unrealized gains on marketable securities 83,293 83,293
- --------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 280,691
Dividends to stockholders ($2.70 per share) (71,496) (71,496)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $30,832 $211 $299,176 $2,687,120 $(102,727) $2,914,612
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
37
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 197,398 $ 248,357
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 121,016 145,663
Charges to policy account balances (104,059) (99,625)
Interest credited to policy account balances 126,914 135,478
Deferral of policy acquisition costs (140,707) (151,891)
Amortization of deferred policy acquisition costs 149,116 138,710
Deferred federal income tax benefit (1,216) (9,606)
Depreciation 19,073 20,454
Accrual and amortization of discounts (69,760) (34,416)
Gain from sale of investments (49,768) (103,320)
Equity in earnings of unconsolidated affiliates (8,048) (9,333)
Increase in premiums receivable (7,243) (15,023)
Increase in accrued investment income (2,044) (4,478)
Capitalization of interest on policy and mortgage loans (16,750) (14,475)
Other changes, net (52,366) (26,937)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 161,556 219,558
- --------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 316,067 196,807
Stocks 247,951 331,679
Real estate 33,186 89,448
Other invested assets 171 5,706
Principal payments received on:
Mortgage loans 154,333 168,603
Policy loans 40,069 40,207
Purchases of investments:
Bonds (373,401) (424,721)
Stocks (237,868) (279,690)
Real estate (7,462) (1,537)
Mortgage loans (35,420) (151,471)
Policy loans (21,988) (23,023)
Other invested assets (79,081) (15,250)
Decrease (increase) in short-term investments, net 36,418 (121,262)
Decrease in investment in unconsolidated affiliates, net (19,210) (4,281)
Increase in property and equipment, net (5,721) (3,173)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 48,044 (191,958)
- --------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 288,984 391,607
Policyholders' withdrawals from policy account balances (410,357) (357,878)
Dividends to stockholders (71,496) (69,377)
- --------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (192,869) (35,648)
- --------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 16,731 (8,048)
Cash:
Beginning of the year 5,497 13,545
- --------------------------------------------------------------------------------------------------------------
End of the year $ 22,228 $ 5,497
==============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
38
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiple line
insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues is generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiple line ordinary, group
brokerage, credit and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas (ANTEX), Garden State Life Insurance Company,
Standard Life and Accident Insurance Company, American National Property and
Casualty Company (ANPAC), American National General Insurance Company (ANGIC)
and American National Lloyds Insurance Company (ANPAC Lloyds). The major non-
insurance subsidiaries are Securities Management and Research, Inc.;
Comprehensive Investment Services, Inc.; Alternative Benefit Management, Inc.;
ANTAC, Inc.; and ANREM Corporation. As part of its investment portfolio,
American National also owns interests in unconsolidated affiliates, primarily
several real estate joint ventures and partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--The consolidated
financial statements include the accounts of American National Insurance Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. Investments in unconsolidated affiliates
are shown at cost plus equity in undistributed earnings since the dates of
acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance companies,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 14.)
Certain reclassifications have been made to the 1997 financial information
to conform to the 1998 presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from reported
results using those estimates.
ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE--As of December 31, 1997, American National adopted FAS
No. 128, "Earnings per Share." This statement establishes standards for
computing and presenting earnings per share. As American National has a simple
capital structure, the adoption of this new standard did not have any effect on
the calculation of earnings per share.
REPORTING COMPREHENSIVE INCOME--Effective January 1, 1998, American
National adopted FAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for presenting comprehensive income and its components
prominently in the financial statements. American National has elected to
display comprehensive income as part of the consolidated statements of changes
in stockholders' equity. Additional information regarding the components of
comprehensive income is reported in Note 11.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--
Effective January 1, 1998, American National adopted FAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This statement
establishes standards for presenting information about operating segments in
financial statements. The statement requires disclosure of information on
operating segments that are evaluated regularly by the chief operating decision
maker in deciding how to allocate resources and assess performance. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The adoption of this new standard required
the restatement of prior period segment disclosures to conform with the new
format, but had no effect on American National's financial position or results
from operations. The segment disclosures are presented in Note 13.
39
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
PENSION AND OTHER POSTRETIREMENT BENEFIT DISCLOSURES--As of December 31,
1998, American National adopted FAS No. 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." This statement establishes revised
standards for disclosures about pensions and other postretirement benefit plans.
The adoption of this new standard required the restatement of prior period
disclosures to conform with the new requirements, but had no effect on American
National's financial position or results from operations. The retirement
benefits disclosures are presented in Note 15.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS--FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," is effective for all quarters
beginning after June 15, 1999. This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The
statement requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value.
American National will adopt FAS No. 133 on July 1, 1999. Management believes
that the adoption of FAS No. 133 will not have a significant effect on American
National's financial position or results from operations.
INVESTMENTS
DEBT SECURITIES--Bonds that are intended to be held-to-maturity are carried
at amortized cost. American National has the ability and intent to hold these
securities until maturity.
Bonds held as available-for-sale are carried at market.
PREFERRED STOCKS--All preferred stocks are classified as available-for-sale,
and are carried at market.
COMMON STOCKS--All common stocks are classified as available-for-sale, and
are carried at market.
UNREALIZED GAINS--For all investments carried at market, the unrealized gains
or losses (differences between amortized cost and market value), net of
applicable federal income taxes, are reflected in stockholders' equity as a
component of accumulated other comprehensive income.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized cost,
less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of loan
and property information, such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation allowances are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowance for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years), using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through the
review of operating information and periodic inspections. This information is
evaluated in light of current economic conditions and other factors, such as
geographic location and property type. As a result of this review, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial paper)
are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for impairments of mortgage loans, real estate and
other assets in accordance with the policies established for each class of
invested asset. The increase in the valuation allowances is reflected in current
period income as a realized loss.
40
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Management believes that the valuation allowances are adequate. However, it
is possible that a significant change in economic conditions in the near term
could result in losses exceeding the amounts established.
CASH AND CASH EQUIVALENTS--American National considers cash on hand and in
banks as cash for purposes of the consolidated statements of cash flows.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES--These assets are primarily
investments in real estate joint ventures, and are accounted for under the
equity method of accounting.
PROPERTY AND EQUIPMENT--These assets consist of buildings occupied by the
companies, electronic data processing equipment, and furniture and equipment.
These assets are carried at cost, less accumulated depreciation. Depreciation is
provided using straight-line and accelerated methods over the estimated useful
lives of the assets (three to 50 years).
INSURANCE SPECIFIC ASSETS AND LIABILITIES
DEFERRED POLICY ACQUISITION COSTS--Certain costs of acquiring new insurance
business have been deferred. For life, annuity, and accident and health
business, such costs consist of inspection report and medical examination fees,
commissions, related fringe benefit costs and the cost of insurance in force
gained through acquisitions. The amount of commissions deferred includes first-
year commissions and certain subsequent year commissions that are in excess of
ultimate level commission rates.
The deferred policy acquisition costs on traditional life and health products
are amortized with interest over the anticipated premium-paying period of the
related policies, in proportion to the ratio of annual premium revenue to be
received over the life of the policies. Expected premium revenue is estimated by
using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. The amount of deferred policy
acquisition costs is reduced by a provision for possible inflation of
maintenance and settlement expenses in the determination of such amounts by
means of grading interest rates.
Costs deferred on universal life, limited pay and investment-type contracts
are amortized as a level percentage of the present value of anticipated gross
profits from investment yields, mortality, and surrender charges. The effect on
the deferred policy acquisition costs that would result from realization of
unrealized gains (losses) is recognized with an offset to net unrealized gains
(losses) in consolidated stockholders' equity as of the balance sheet date. It
is possible that a change in interest rates could have a significant impact on
the deferred policy acquisition costs calculated for these contracts.
Deferred policy acquisition costs associated with property and casualty
insurance business consist principally of commissions, underwriting and issue
costs. These costs are amortized over the coverage period of the related
policies, in relation to premium revenue recognized.
FUTURE POLICY BENEFITS--For traditional products, liabilities for future
policy benefits have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality, and other assumptions that
were appropriate at the time that the policies were issued. Estimates used are
based on the companies' experience, as adjusted to provide for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs
significantly from the assumed, the estimates are revised for current and future
issues.
Future policy benefits for universal life and investment-type contracts
reflect the current account value before applicable surrender charges. In the
near term, it is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
RECOGNITION OF PREMIUM REVENUE AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH--Life and accident and health premium is
recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
ANNUITIES--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in the
case of variable annuities, administrative fees. Policy account balances for
annuities represent the
41
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
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
proportionately as revenue over the contract period. Policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims, and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case basis estimates for reported losses and experience for claims
incurred but not reported. These loss reserves are reported net of an allowance
for salvage and subrogation. Management believes that American National's
reserves have been appropriately calculated, based on available information as
of December 31, 1998. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to
participating policyowners is based upon a comparison of experienced rates of
mortality, interest and expenses, as determined periodically for representative
plans of insurance, issue ages and policy durations, with the corresponding
rates assumed in the calculation of premiums. Participating business comprised
approximately 2.7% of the life insurance in force at December 31, 1998 and 5.1%
of life premiums in 1998.
FEDERAL INCOME TAXES--American National and all but one of its subsidiaries
will file a consolidated life/non-life federal income tax return for 1998.
Alternative Benefit Management, Inc files a separate return. In 1997, Garden
State Life Insurance Company filed a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
SEPARATE ACCOUNT ASSETS AND LIABILITIES--The separate account assets and
liabilities represent funds maintained to meet the investment objectives of
contract holders who bear the investment risk. The investment income and
investment gains and losses from these separate funds accrue directly to the
contract holders of the policies supported by the separate accounts. The assets
of each separate account are legally segregated, and are not subject to claims
that arise out of any other business of American National. The assets of these
accounts are carried at market value. Deposits, net investment income and
realized investment gains and losses for these accounts, are excluded from
revenues, and related liability increases are excluded from benefits and
expenses in this report.
NET INCOME PER COMMON SHARE--Net income per common share is based on the
weighted average number of shares outstanding (26,479,165 shares for 1998 and
1997).
42
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(3) INVESTMENTS
The amortized cost and estimated market values of investments in held-to-
maturity and available-for-sale securities are shown below (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 166,206 $ 5,503 $ -- $ 171,709
States and political subdivisions 39,427 692 (24) 40,095
Foreign governments 106,924 9,436 -- 116,360
Public utilities 1,210,677 73,784 (135) 1,284,326
All other corporate bonds 1,914,950 132,731 (491) 2,047,190
Mortgage-backed securities 127,790 8,344 (1) 136,133
- ---------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,565,974 230,490 (651) 3,795,813
- ---------------------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 71,579 1,368 -- 72,947
Foreign governments 42,780 4,758 -- 47,538
Public utilities 230,534 16,738 -- 247,272
All other corporate bonds 328,132 25,310 (381) 353,061
- ---------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 673,025 48,174 (381) 720,818
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,238,999 278,664 (1,032) 4,516,631
- ---------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,264 2,427 (27) 41,664
Common stock 619,197 473,099 (40,370) 1,051,926
- ---------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities 658,461 475,526 (40,397) 1,093,590
- ---------------------------------------------------------------------------------------------------------------------------------
Total investments in securities $ 4,897,460 $ 754,190 $ (41,429) $ 5,610,221
=================================================================================================================================
DECEMBER 31, 1997
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 180,156 $ 5,662 $ (220) $ 185,598
States and political subdivisions 11,367 261 (15) 11,613
Foreign governments 121,643 7,147 -- 128,790
Public utilities 1,198,814 39,353 (2,374) 1,235,793
All other corporate bonds 1,885,700 85,963 (1,925) 1,969,738
Mortgage-backed securities 208,247 12,809 (2) 221,054
- ---------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,605,927 151,195 (4,536) 3,752,586
- ---------------------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 49,990 1,348 -- 51,338
Foreign governments 47,141 4,328 -- 51,469
Public utilities 185,078 12,330 -- 197,408
All other corporate bonds 280,860 19,311 (6) 300,165
- ---------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 563,069 37,317 (6) 600,380
- ---------------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,168,996 188,512 (4,542) 4,352,966
- ---------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,313 1,510 (79) 40,744
Common stock 575,058 331,280 (23,474) 882,864
- ---------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities 614,371 332,790 (23,553) 923,608
- ---------------------------------------------------------------------------------------------------------------------------------
Total investments in securities $ 4,783,367 $ 521,302 $ (28,095) $ 5,276,574
=================================================================================================================================
</TABLE>
43
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
DEBT SECURITIES--The amortized cost and estimated market value, by
contractual maturity of debt securities at December 31, 1998, are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- --------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- --------------------------------------------------------------------------
Due in one year
or less $ 20,555 $ 20,665 $ -- $ --
Due after one year
through five years 781,869 823,428 198,820 212,534
Due after five years
through ten years 2,600,777 2,780,095 448,940 481,640
Due after ten years 34,984 35,494 25,265 26,644
- --------------------------------------------------------------------------
3,438,185 3,659,682 673,025 720,818
Without single
maturity date 127,789 136,131 -- --
- --------------------------------------------------------------------------
$ 3,565,974 $3,795,813 $ 673,025 $ 720,818
==========================================================================
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $317,556,000 for 1998. Gross gains of $71,935,000
and gross losses of $36,975,000 were realized on those sales. Included in the
proceeds from sales of available-for-sale securities are $40,454,000 of proceeds
from the sale of bonds that had been reclassified from bonds held-to-maturity.
The bonds had been reclassified due to evidence of a significant deterioration
in the issuer's creditworthiness. The net gain from the sale of these bonds was
$1,073,000.
Bonds were called by the issuers during 1998, which resulted in proceeds of
$89,205,000 from the disposal. Gross gains of $747,000 were realized on those
disposals.
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) were $331,679,000 for 1997. Gross gains of $118,985,000
and gross losses of $12,301,000 were realized on those sales. Bonds were called
by the issuers during 1997, which resulted in proceeds from the disposal of
$11,442,000. Gross gains of $531,000 were realized on those disposals.
All gains and losses were determined using specific identification of the
securities sold.
UNREALIZED GAINS ON SECURITIES--Unrealized gains on marketable equity
securities and bonds available-for-sale, presented in the stockholders' equity
section of the consolidated statements of financial position, are net of
deferred tax liabilities of $160,912,000 and $116,062,000 for 1998 and 1997,
respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
1998 1997
- -----------------------------------------------------------------
Bonds available-for-sale $ 10,482 $ 13,391
Preferred stocks 969 352
Common stocks 124,923 71,152
Amortization of deferred policy
acquisition costs (8,229) (3,863)
- -----------------------------------------------------------------
128,145 81,032
Provision for federal income taxes (44,852) (28,501)
- -----------------------------------------------------------------
$ 83,293 $ 52,531
=================================================================
MORTGAGE LOANS--In general, mortgage loans are secured by first liens on
income-producing real estate. The loans are expected to be repaid from the cash
flows or proceeds from the sale of real estate. American National generally
allows a maximum loan-to-collateral-value ratio of 75% to 90% on newly funded
mortgage loans. As of December 31, 1998, mortgage loans have both fixed rates
from 5.75% to 12.5% and variable rates from 6.25% to 10.25%. The majority of the
mortgage loan contracts require periodic payments of both principal and
interest, and have amortization periods of 3 to 31 years.
American National has investments in first lien mortgage loans on real estate
with carried values of $1,025,683,000 and $1,103,333,000 at December 31, 1998
and 1997, respectively. Problem loans, on which impairment allowances were
established, totaled $2,995,000 and $6,493,900 at December 31, 1998 and 1997,
respectively.
POLICY LOANS--Policy loans have interest rates ranging from 2.75% to 8%.
Approximately 99% of the policy loan portfolio carried interest rates of 5% to
8% at December 31, 1998.
44
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Investment income and realized
gains (losses) from disposals of investments, before federal income taxes, for
the years ended December 31 are summarized as follows (in thousands):
INVESTMENT GAINS (LOSSES) FROM
INCOME DISPOSALS OF INVESTMENTS
- -------------------------------------------------------------------------------
1998 1997 1998 1997
- -------------------------------------------------------------------------------
Bonds $ 317,481 $ 303,426 $ 2,614 $ 530
Preferred stocks 2,584 3,173 1 21
Common stocks 16,774 18,977 33,092 106,662
Mortgage loans 97,871 109,165 1,248 (1,277)
Real estate 80,138 84,344 1,338 (5,977)
Other invested assets 29,123 26,872 (564) (83)
Investment in unconsolidated
affiliates -- -- 29 (79)
- -------------------------------------------------------------------------------
543,971 545,957 37,758 99,797
Investment expenses (68,729) (73,062) -- --
Decrease in valuation allowances -- -- 12,010 3,523
- -------------------------------------------------------------------------------
$ 475,242 $ 472,895 $49,768 $ 103,320
===============================================================================
(4) CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest return
possible commensurate with sound and prudent underwriting practices to ensure a
well-diversified investment portfolio.
BONDS:
American National's bond portfolio is of high investment quality and is well
diversified. The bond portfolio distributed by quality rating at December 31 is
summarized as follows:
1998 1997
-----------------------------------------------------
AAA 9% 8%
AA 14% 13%
A 55% 56%
BBB & below 22% 23%
-----------------------------------------------------
100% 100%
=====================================================
COMMON STOCK:
American National's stock portfolio by market sector distribution at December
31 is summarized as follows:
1998 1997
----------------------------------------------------
Basic materials 4% 8%
Capital goods 7% 10%
Consumer goods 18% 18%
Energy 5% 7%
Finance 11% 9%
Technology 16% 12%
Health care 24% 21%
Miscellaneous 15% 15%
----------------------------------------------------
100% 100%
====================================================
MORTGAGE LOANS AND INVESTMENT REAL ESTATE:
American National invests primarily in the commercial sector in areas that
offer the potential for property value appreciation. Generally, mortgage loans
are secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution at
December 31 are summarized as follows:
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
-------------------------------------------------------------
1998 1997 1998 1997
-------------------------------------------------------------
Office buildings 21% 21% 19% 19%
Shopping centers 56% 56% 40% 40%
Commercial 3% 3% 14% 15%
Apartments 1% 2% 3% 3%
Hotels/motels 3% 3% 16% 16%
Industrial 13% 12% 4% 4%
Other 3% 3% 4% 3%
-------------------------------------------------------------
100% 100% 100% 100%
=============================================================
45
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
American National has a well-diversified portfolio of mortgage loans and real
estate properties. Mortgage loans and real estate investments by geographic
distribution at December 31 are as follows:
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
-----------------------------------------------------------------
1998 1997 1998 1997
-----------------------------------------------------------------
Texas 18% 18% 41% 45%
South Central, except Texas 2% 2% 1% 1%
California 11% 11% 8% 7%
Western, except California 7% 6% 4% 4%
Southeastern 9% 10% 22% 22%
North Central U.S. 8% 10% 15% 14%
North Eastern U.S. 45% 43% 9% 7%
-----------------------------------------------------------------
100% 100% 100% 100%
=================================================================
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined using
available market information and appropriate valuation methodologies. However,
considerable judgment is required in developing the estimates of fair value.
Accordingly, these estimates are not necessarily indicative of the amounts that
could be realized in a current market exchange, or the amounts that may
ultimately be realized. The use of different market assumptions or estimating
methodologies may have a material effect on the estimated market values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values from
published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
MORTGAGE LOANS:
The market value for mortgage loans is estimated using discounted cash flow
analyses based on interest rates currently being offered for comparable loans.
Loans with similar characteristics are aggregated for purposes of the analyses.
POLICY LOANS:
The carrying amounts for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amounts for short-term investments approximates their market
value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration,
and the market value was not significant at December 31, 1998 or 1997.
VALUES:
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
1998 1997
- -------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- -------------------------------------------------------------------------------
Financial assets:
Bonds:
Held-to-maturity $3,565,974 $3,795,813 $3,605,927 $3,752,586
Available-for-sale 720,818 720,818 600,380 600,380
Preferred stock 41,664 41,664 40,744 40,744
Common stock 1,051,926 1,051,926 882,864 882,864
Mortgage loans on real estate 1,025,683 1,158,033 1,103,333 1,229,078
Policy loans 296,109 296,109 300,574 300,574
Short-term investments 90,368 90,368 126,786 126,786
Financial liabilities:
Investment contracts 1,736,223 1,736,223 1,867,233 1,867,233
- -------------------------------------------------------------------------------
46
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December
31, 1998 and 1997, are summarized as follows (in thousands):
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- -------------------------------------------------------------------------------
Balance at December 31, 1996 $624,012 $107,192 $ 7,819 $ 739,023
- -------------------------------------------------------------------------------
Additions 105,268 21,373 24,336 150,977
Amortization (92,830) (23,553) (22,327) (138,710)
Effect of change in unrealized
gains on available-for-sale
securities (3,863) (3,863)
- -------------------------------------------------------------------------------
Net change 8,575 (2,180) 2,009 8,404
Acquisitions 752 162 -- 914
- -------------------------------------------------------------------------------
Balance at December 31, 1997 633,339 105,174 9,828 748,341
- -------------------------------------------------------------------------------
Additions 87,660 25,897 25,764 139,321
Amortization (98,017) (26,940) (24,159) (149,116)
Effect of change in unrealized
gains on available-for-sale
securities (8,229) (8,229)
- -------------------------------------------------------------------------------
Net change (18,586) (1,043) 1,605 (18,024)
Acquisitions 782 604 -- 1,386
- -------------------------------------------------------------------------------
Balance at December 31, 1998 $615,535 $104,735 $ 11,433 $ 731,703
===============================================================================
1998 premiums $340,286 $393,602 $354,820 $1,088,708
===============================================================================
1997 premiums $348,973 $378,621 $312,987 $1,040,581
===============================================================================
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios under
assumption reinsurance agreements.
(7) FUTURE POLICY BENEFITS
LIFE INSURANCE:
Interest assumptions used in the calculation of future policy benefits for
life policies are as follows:
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- --------------------------------------------------------------------------------
ORDINARY--
1996-1998 7.5% for years 1 through 5, graded to 5.5% at the
end of year 25, and level thereafter 2%
1981-1995 8% for years 1 through 5, graded to 6% at the end
of year 25, and level thereafter 20%
1976-1981 7% for years 1 through 5, graded to 5% at the end
of year 25, and level thereafter 22%
1972-1975 6% for years 1 through 5, graded to 4% at the end
of year 25, and level thereafter 9%
1969-1971 6% for years 1 through 5, graded to 3.5% at the
end of year 30, and level thereafter 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5% at the
end of year 15, and level thereafter 13%
1948-1961 4% for years 1 through 5,graded to 3.5% at the
end of year 10, and level thereafter 13%
1947 and prior Statutory rates of 3% or 3.5% 2%
INDUSTRIAL--
1948-1967 4% for years 1 through 5, graded to 3.5% at the end
of year 10, and level thereafter 6%
1947 and prior Statutory rates of 3% 6%
- --------------------------------------------------------------------------------
100%
================================================================================
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.
47
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(8) LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for accident and health, and property and casualty
unpaid claims and claim adjustment expenses is summarized as follows (in
thousands):
1998 1997
------------------------------------------------------------------
Balance at January 1 $ 249,639 $ 222,996
Less reinsurance recoverables 2,567 2,439
------------------------------------------------------------------
Net balance at January 1 247,072 220,557
------------------------------------------------------------------
Incurred related to:
Current year 598,681 515,202
Prior years (6,592) (1,098)
------------------------------------------------------------------
Total incurred 592,089 514,104
------------------------------------------------------------------
Paid related to:
Current year 411,352 343,333
Prior years 158,879 144,256
------------------------------------------------------------------
Total paid 570,231 487,589
------------------------------------------------------------------
Net balance at December 31 268,930 247,072
Plus reinsurance recoverables 11 2,567
------------------------------------------------------------------
Balance at December 31 $ 268,941 $ 249,639
==================================================================
The balances at December 31 are included in policy and contract claims on the
consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure portions of
certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
American National evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. At December 31,
1998, amounts recoverable from reinsurers, with a carrying value of $93,551,000,
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. American
National holds collateral related to these credit reinsurers totaling
$71,554,000. This collateral is in the form of custodial accounts controlled by
American National, which can be drawn on for amounts that remain unpaid for more
than 120 days. American National believes that the failure of any single
reinsurer to meet its obligations would not have a significant effect on its
financial position or results of operations.
Premiums, premium-related reinsurance amounts and reinsurance recoveries for
the years ended December 31 are summarized as follows (in thousands):
1998 1997
- -------------------------------------------------------------------
Direct premiums $1,201,189 $1,134,615
Reinsurance premiums assumed from
other companies 42,403 25,146
Reinsurance premiums ceded to other
companies (154,884) (119,180)
- -------------------------------------------------------------------
Net premiums $1,088,708 $1,040,581
===================================================================
Reinsurance recoveries $ 88,240 $ 56,535
===================================================================
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
1998 1997
- --------------------------------------------------------------------
Direct life insurance in force $44,134,974 $43,143,187
Reinsurance risks assumed from other
companies 713,200 662,171
- --------------------------------------------------------------------
Total life insurance in force 44,848,174 43,805,358
Reinsurance risks ceded to other
companies (7,965,042) (6,985,956)
- --------------------------------------------------------------------
Net life insurance in force $36,883,132 $36,819,402
====================================================================
(10) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when
applying the statutory federal income tax rate. A reconciliation of the
effective tax rate of the companies to the statutory federal income tax rate
follows (in thousands, except percentages):
1998 1997
- ------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE
- ------------------------------------------------------------------------
Income tax on pre-tax income $95,861 35.00% $130,558 35.00 %
Tax-exempt investment income (971) (0.35)% (383) (0.10)%
Dividend exclusion (5,044) (1.84)% (3,046) (0.82)%
Exempted losses on sale of assets (9,856) (3.60)% -- -- %
Miscellaneous tax credits, net (1,467) (0.54)% (1,238) (0.33)%
Other items, net (2,032) (0.74)% (1,226) (0.33)%
- ------------------------------------------------------------------------
$76,491 27.93% $124,665 33.42 %
========================================================================
48
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are as follows (in thousands):
1998 1997
- -------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Investment in bonds, real estate and other invested
assets, principally due to investment valuation
allowances $ 10,656 $ 11,858
Policyowner funds, principally due to policy
reserve discount 78,279 81,935
Policyowner funds, principally due to unearned
premium reserve 10,020 9,527
Other assets 2,649 6,701
- -------------------------------------------------------------------------------
Total gross deferred tax assets $ 101,604 $ 110,021
Less valuation allowance (3,000) (3,000)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 98,604 $ 107,021
- -------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Marketable equity securities, principally due to
net unrealized gains on stock $(151,396) $(107,767)
Investment in bonds, principally due to
accrual of discount on bonds (17,390) (16,312)
Deferred policy acquisition costs, due to
difference between GAAP and tax (177,057) (185,903)
Property, plant and equipment, principally due
to difference between GAAP and tax
depreciation methods (12,004) (12,563)
Other liabilities -- (82)
- -------------------------------------------------------------------------------
Net deferred tax liabilities $(357,847) $(322,627)
- -------------------------------------------------------------------------------
Total deferred tax $(259,243) $(215,606)
===============================================================================
Through 1983, under the provision of the Life Insurance Company Income Tax
Act of 1959, life insurance companies were permitted to defer from taxation a
portion of their income (within certain limitations) until and unless it is
distributed to stockholders, at which time it was taxed at regular corporate tax
rates. No provision for deferred federal income taxes applicable to such untaxed
income has been made, because management is of the opinion that no distributions
of such untaxed income (designated by federal law as "policyholders' surplus")
will be made in the foreseeable future. There was no change in the
"policyholders' surplus" between December 31, 1997 and December 31, 1998, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $111,465,000 and $136,212,000
were paid to the Internal Revenue Service in 1998 and 1997, respectively. The
statute of limitations for examination by the Internal Revenue Service of
federal income tax returns through 1994 for American National and its
subsidiaries has expired. All prior year deficiencies have been paid or provided
for, and American National has filed appropriate claims for refunds through
1995. In the opinion of management, adequate provision has been made for any tax
deficiencies that may be sustained.
(11) COMPONENTS OF COMPREHENSIVE INCOME
The only item included in comprehensive income, other than net income, is
unrealized gains. The details on the unrealized gains included in comprehensive
income, and the related tax effects thereon are as follows:
FEDERAL
INCOME NET OF
BEFORE TAX FEDERAL
FEDERAL EXPENSE INCOME
TAX (BENEFIT) TAX
- -----------------------------------------------------------------------------
DECEMBER 31, 1998
- -----------------
Unrealized gains 163,103 57,086 106,017
Less: reclassification adjustment for
gains realized in net income (34,960) (12,236) (22,724)
- -----------------------------------------------------------------------------
Net unrealized gains component of
comprehensive income 128,143 44,850 83,293
DECEMBER 31, 1997
- -----------------
Unrealized gains 187,501 65,625 121,876
Less: reclassification adjustment for
gains realized in net income (106,684) (37,339) (69,345)
- -----------------------------------------------------------------------------
Net unrealized gains component of
comprehensive income 80,817 28,286 52,531
=============================================================================
49
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(12) STOCKHOLDERS' EQUITY
American National has only one class of common stock, no preferred stock and
no options which could be converted into common or preferred stock. At December
31, 1998 and 1997, American National had 50,000,000 authorized shares of $1.00
par value common stock. At December 31, 1998 and 1997, issued shares were
30,832,449; treasury shares were 4,353,284; and outstanding shares were
26,479,165.
American National's payment of dividends to stockholders is restricted by
statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity, as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1998, approximately $571,986,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(13) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business. Management organizes the business around its marketing
distribution channels. Separate management of each segment is required because
each business unit is subject to different marketing strategies. There are eight
operating segments based on the company's marketing distribution channels.
The operating segments are as follows:
MULTIPLE LINE MARKETING -- This segment derives its revenues from the sale of
individual life, annuity, accident and health, and property and casualty
products marketed through American National Insurance Company, ANTEX, ANPAC,
ANGIC, and ANPAC Lloyds.
HOME SERVICE DIVISION -- This segment derives its revenues from the sale of
individual life, annuity, and accident and health insurance using a system where
the agents collect the premiums.
INDEPENDENT MARKETING -- This segment derives its revenues mainly from the
sale of life and annuity lines marketed through independent marketing
organizations.
HEALTH DIVISION -- This segment derives its revenues primarily from the sale
of accident and health insurance, plus group life insurance marketed through
group brokers and third party marketing organizations.
CREDIT INSURANCE DIVISION -- This segment derives its revenues principally
from the sale of credit life and credit accident and health insurance.
SENIOR AGE MARKETING -- This segment derives its revenues primarily from the
sale of Medicare supplement plans, individual life, annuities, and accident and
health insurance marketed through Standard Life and Accident Insurance Company.
DIRECT MARKETING -- This segment derives its revenues principally from the
sale of individual life insurance, marketed through Garden State Life Insurance
Company, using direct selling methods.
CAPITAL AND SURPLUS -- This segment derives its revenues principally from
investment instruments.
ALL OTHER -- This category comprises segments that are too small to show
individually. This category includes non-insurance, reinsurance assumed, and
retirement benefits.
All income and expense amounts specifically attributable to policy
transactions are recorded directly to the appropriate line of business within
each segment. Income and expenses, which are not specifically attributable to
policy transactions, are allocated to the lines within each segment as follows:
Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated based on the funds generated by each line at the
average yield available from these fixed income assets at the time such funds
become available. Net investment income from all other assets is allocated to
capital and surplus to arrive at an underwriting gain from operations. A portion
of the income allocated to capital and surplus is then reallocated to the other
segments in accordance with the amount of equity invested in each segment.
Expenses are allocated to the lines based upon various factors, including
premium and commission ratios within the respective operating segments.
50
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Gain or loss on the sale of investments and equity in earnings of
unconsolidated affiliates is allocated to capital and surplus.
Federal income taxes have been applied to the net earnings of each segment,
based on a fixed tax rate. Any difference between the amount allocated to the
segments and the total federal income tax amount is allocated to capital and
surplus.
The following tables summarize net income and various components of net
income by operating segment for the years ended December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
OPERATIONS
GAIN FROM INVESTMENT BEFORE FEDERAL
PREMIUM EXPENSES INCOME EQUITY IN FEDERAL INCOME TAX
AND OTHER INTEREST AND GAIN FROM ON UNCONSOLIDATED INCOME EXPENSES
REVENUE REVENUE BENEFITS OPERATIONS EQUITY AFFILIATES TAXES (BENEFIT) NET INCOME
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Multiple Line Marketing $ 452,146 $ 72,110 $ 488,84 2 $ 35,414 $ 22,953 $ -- $ 58,367 $ 19,261 $ 39,106
Home Service 203,975 88,759 252,44 5 40,289 33,429 -- 73,718 24,327 49,391
Independent Marketing 69,714 109,604 184,65 5 (5,337) 12,675 -- 7,338 2,422 4,916
Health 211,249 3,175 240,19 4 (25,770) 4,674 -- (21,096) (6,962) (14,134)
Credit Insurance 57,727 5,743 61,18 1 2,289 9,472 -- 11,761 3,881 7,880
Senior Age Marketing 162,161 10,132 169,92 9 2,364 7,628 -- 9,992 3,297 6,695
Direct Marketing 26,619 3,050 24,03 5 5,634 539 -- 6,173 2,037 4,136
Capital and Surplus 81,471 123,520 76 1 204,230 (96,272) 8,048 116,006 24,390 91,616
All other 38,851 24,659 56,78 2 6,728 4,902 -- 11,630 3,838 7,792
- -----------------------------------------------------------------------------------------------------------------------------------
$1,303,913 $440,752 $1,478,82 4 $265,841 $ -- $ 8,048 $273,889 $ 76,491 $197,398
===================================================================================================================================
1997
- ----
Multiple Line Marketing $ 408,184 $ 72,259 $ 427,132 $ 53,311 $ 21,229 $ -- $ 74,540 $ 24,598 $ 49,942
Home Service 209,082 89,638 249,127 49,593 33,064 -- 82,657 27,277 55,380
Independent Marketing 70,590 112,032 178,419 4,203 13,604 -- 17,807 5,876 11,931
Health 185,057 3,088 200,797 (12,652) 3,966 -- (8,686) (2,866) (5,820)
Credit Insurance 54,363 5,677 57,847 2,193 8,895 -- 11,088 3,659 7,429
Senior Age Marketing 168,685 15,030 182,914 801 8,298 -- 9,099 3,003 6,096
Direct Marketing 26,615 2,972 26,712 2,875 542 -- 3,417 1,128 2,289
Capital and Surplus 145,403 109,104 3,430 251,077 (94,679) 9,333 165,731 56,258 109,473
All other 36,859 25,266 49,837 12,288 5,081 -- 17,369 5,732 11,637
- -----------------------------------------------------------------------------------------------------------------------------------
$1,304,838 $435,066 $1,376,215 $363,689 $ -- $ 9,333 $373,022 $124,665 $248,357
===================================================================================================================================
</TABLE>
51
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
There were no significant non-cash items to report. Substantially all of the
Company's revenues are derived in the U.S.
The majority of the operating segments provide essentially the same types of
products. The following tables provide revenues within each segment by line of
business for the years ended December 31, 1998 and 1997 (in thousands):
TOTAL REVENUES (INCLUDING INTEREST INCOME)
<TABLE>
<CAPTION>
ACCIDENT & PROPERTY & ALL TOTAL
LIFE ANNUITY HEALTH CASUALTY CREDIT OTHER REVENUES
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Multiple Line Marketing $121,829 $ 16,826 $ 20,232 $365,369 $ -- $ -- $ 524,256
Home Service 279,531 4,410 8,793 -- -- -- 292,734
Independent Marketing 5,328 173,990 -- -- -- -- 179,318
Health Insurance 3,802 -- 210,622 -- -- -- 214,424
Credit Insurance -- -- -- -- 63,470 -- 63,470
Senior Age Marketing 32,821 1,583 137,889 -- -- -- 172,293
Direct Marketing 29,042 165 462 -- -- -- 29,669
Capital and Surplus -- -- -- -- -- 204,991 204,991
All other 31,996 18,962 1,977 -- -- 10,575 63,510
- ----------------------------------------------------------------------------------------------------------------------
$504,349 $215,936 $379,975 $365,369 $63,470 $215,566 $1,744,665
======================================================================================================================
1997
- ----
Multiple Line Marketing $120,083 $ 16,728 $ 20,008 $323,624 $ -- $ -- $ 480,443
Home Service 284,698 4,675 9,347 -- -- -- 298,720
Independent Marketing 3,525 179,097 -- -- -- -- 182,622
Health Insurance 3,224 -- 184,920 -- -- -- 188,144
Credit Insurance -- -- -- -- 60,040 -- 60,040
Senior Age Marketing 34,583 1,549 147,583 -- -- -- 183,715
Direct Marketing 28,901 176 510 -- -- -- 29,587
Capital and Surplus -- -- -- -- -- 254,507 254,507
All other 33,331 17,684 2,791 -- -- 8,319 62,125
- ----------------------------------------------------------------------------------------------------------------------
$508,345 $219,909 $365,159 $323,624 $ 60,040 $262,826 $1,739,903
======================================================================================================================
</TABLE>
Within all operating segments, to the extent required for reserves, fixed
income assets and policy loans have been directly assigned to the insurance
lines. Equity type assets, such as stocks, real estate and other invested
assets, have been allocated to the segments, based on the equity invested in
each. Assets of the non-insurance companies are specifically associated with
those companies in the "All other" segment. Any assets not allocated are
assigned to Capital and Surplus.
52
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The following table summarizes assets by operating segment for the years
ended December 31, 1998 and 1997 (in thousands):
1998 1997
- ------------------------------------------------------------------
Multiple Line Marketing $1,513,396 $1,425,919
Home Service 1,760,415 1,741,155
Independent Marketing 1,761,832 1,874,000
Health 170,301 140,179
Credit Insurance 372,787 355,789
Senior Age Marketing 330,631 326,235
Direct Marketing 83,759 76,939
Capital and surplus 2,232,612 2,066,779
All other 589,919 476,781
- ------------------------------------------------------------------
Total assets $8,815,652 $8,483,776
==================================================================
The net assets of the Capital and Surplus segment include investments in
unconsolidated affiliates. Substantially all of the company's assets are located
in the U.S.
The amount of each segment item reported is the measure reported to the chief
operating decision maker for purposes of making decisions about allocating
resources to the segment and assessing its performance. Adjustments and
eliminations made in preparing the financial statements and allocations of
revenues, expenses and gains or losses have been included in determining
reported segment profit or loss.
The reported measures are determined in accordance with the measurement
principles most consistent with those used in measuring the corresponding
amounts in the consolidated financial statements.
The results of the operating segments of the business are affected by
economic conditions and customer demands. A significant portion of American
National's insurance business is written through one third-party marketing
organization. During 1998, approximately 11% of the total premium revenues and
policy account deposits were written through that organization, which is
included in the Independent Marketing operating segment. This compares with 18%
in 1997. Of the total business written by this one organization, the majority
was annuities.
(14) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from those used to prepare financial statements on the basis of generally
accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as
determined using statutory accounting principles, to the amounts included in the
accompanying consolidated financial statements, as of and for the years ended
December 31, are as follows (in thousands):
1998 1997
- ------------------------------------------------------------------------
Statutory net income of insurance companies $ 155,368 $ 207,998
Net gain of non-insurance companies 15,240 2,592
- ------------------------------------------------------------------------
Combined net income 170,608 210,590
Increases/(decreases):
Deferred policy acquisition costs (9,795) 12,267
Policyholder funds 18,702 7,963
Deferred federal income tax benefit 1,216 9,606
Premiums deferred and other receivables (84) 602
Gain (loss) on sale of investments (292) 79
Change in interest maintenance reserve 2,773 1,532
Asset valuation allowances 11,492 3,524
Other adjustments, net 2,854 2,218
Consolidating eliminations and adjustments (76) (24)
- ------------------------------------------------------------------------
Net income reported herein $ 197,398 $ 248,357
========================================================================
1998 1997
- ------------------------------------------------------------------------
Statutory capital and surplus of
insurance companies $2,163,593 $2,011,016
Stockholders equity of non-insurance
companies 305,920 77,725
- ------------------------------------------------------------------------
Combined capital and surplus 2,469,513 2,088,741
Increases/(decreases):
Deferred policy acquisition costs 731,703 748,341
Policyholder funds 154,445 135,262
Deferred federal income taxes (259,243) (215,606)
Premiums deferred and other receivables (78,139) (77,629)
Reinsurance in "unauthorized companies" 38,748 34,010
Statutory asset valuation reserve 344,926 370,102
Statutory interest maintenance reserve 10,762 7,989
Asset valuation allowances (28,489) (44,899)
Investment market value adjustments 48,656 39,050
Non-admitted assets and other adjustments, net 173,877 135,680
Consolidating eliminations and adjustments (692,147) (515,624)
- ------------------------------------------------------------------------
Stockholders' equity reported herein $2,914,612 $2,705,417
========================================================================
In accordance with various government and state regulations, American
National and its insurance subsidiaries had bonds with an amortized value of
$74,021,000 on deposit with appropriate regulatory authorities.
(15) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. One of the programs is contributory and
covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home office clerical employees subject to a
53
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
collective bargaining agreement. The program covering salaried and management
employees provides pension benefits that are based on years of service and the
employee's compensation during the five years before retirement. The programs
covering hourly employees and agents generally provide benefits that are based
on the employee's career average earnings and years of service. American
National also sponsors two non-tax-qualified pension plans for key executives.
These plans restore benefits that would otherwise be curtailed by statutory
limits on qualified plan benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense (before income taxes) produced a
pension debit of $3,051,000 for 1998 and $2,474,000 for 1997.
The pension debit is made up of the following (in thousands):
1998 1997
- ----------------------------------------------------------------------
Service cost--benefits earned during period $ 5,629 $ 5,402
Interest cost on projected benefit obligation 7,661 7,221
Expected return on plan assets (8,887) (8,795)
Amortization of past service cost 473 490
Amortization of transition asset (2,619) (2,619)
Amortization of actuarial loss 794 775
- ----------------------------------------------------------------------
Total pension debit $ 3,051 $ 2,474
======================================================================
The following table sets forth the funded status and amounts recognized in
the consolidated statements of financial position at December 31 for the
companies' pension plans.
Actuarial present value of benefit obligation:
1998 1997
- --------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- --------------------------------------------------------------------------------
Vested benefit obligation $(76,916) $(19,136) $(71,811) $(22,468)
================================================================================
Accumulated benefit obligation $(79,405) $(19,136) $(75,492) $(22,468)
================================================================================
Projected benefit obligation $(96,812) $(26,340) $(92,422) $(22,616)
Plan assets at fair value
(long-term securities) 137,543 -- 129,380 --
- --------------------------------------------------------------------------------
Funded status:
Plan assets in excess of
projected benefit obligation 40,731 (26,340) 36,958 (22,616)
Unrecognized net loss 2,341 3,729 8,305 2,614
Prior service cost not yet
recognized in periodic
pension cost -- 1,028 -- 1,505
Unrecognized net transition asset
at January 1 being recognized
over 15 years (7,858) -- (10,477) --
- ------------------------------------------------------------------------------
Prepaid pension cost included
in other assets or other
liabilities $ 35,214 $(21,583) $ 34,786 $(18,497)
================================================================================
Assumptions used at December 31:
1998 1997
- -----------------------------------------------------------------------------
Weighted average discount rate on
benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.80%
Expected long-term rate of return on plan assets 7.00% 7.00%
OTHER BENEFITS
Under American National and its subsidiaries' various group benefit plans for
active employees, a $2,500 paid-up life insurance certificate is provided upon
retirement for eligible participants who meet certain age and length of service
requirements.
American National has one retiree health benefit plan for retirees of all
companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan. Participation in either of these plans is limited
to current retirees and their dependents and those employees and their
dependents who met certain age and length of service requirements as of December
31, 1993. No new participants will be added to these plans in the future.
54
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The retiree health benefit plans provide major medical benefits for participants
under the age of 65 and Medicare supplemental benefits for those over 65.
Prescription drug benefits are provided to both age groups. The plans are
contributory, with the company's contribution limited to $80 per month for
retirees and spouses under the age of 65, and $40 per month for retirees and
spouses over the age of 65. All additional contributions necessary, over the
amount to be contributed by the companies, are to be contributed by the
retirees.
The accrued post-retirement benefit obligation, included in other
liabilities, was $12,989,000 and $12,970,000 at December 31, 1998 and 1997,
respectively. These amounts were approximately equal to the unfunded accumulated
post-retirement benefit obligation. Since the companies' contributions to the
cost of the retiree benefit plans are fixed, the health care cost trend rate
will have no effect on the future expense or the accumulated post-retirement
benefit obligation.
(16) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various cities
for their insurance sales offices. The long-term lease commitments at December
31, 1998 were approximately $5,620,000.
In the ordinary course of their operations, the companies also had
commitments outstanding at December 31, 1998 to purchase, expand or improve real
estate, and to fund mortgage loans aggregating $120,922,000, all of which are
expected to be funded in 1999. As of December 13, 1998, all of the mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged failure
to honor certain loan commitments, alleged breach of certain agency and real
estate contracts, various employment matters, allegedly deceptive insurance
sales and marketing practices, and other litigation arising in the ordinary
course of operations. Certain of these lawsuits include claims for compensatory
and punitive damages. Management is of the opinion, after reviewing the above
matters with legal counsel, that the ultimate liability, if any, resulting from
any of or all of the above matters would not have a material adverse effect on
the companies' consolidated financial position or results of operations.
However, these lawsuits are in various stages of development, and future facts
and circumstances could result in management changing its conclusions.
55
<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 22, 1999. 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 22, 1999
56
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1998
(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 $ 166,206 $ 171,709 $ 166,206
States, municipalities and political
subdivisions 39,427 40,095 39,427
Foreign governments 106,924 116,360 106,924
Public utilities 1,210,677 1,284,326 1,210,677
All other corporate bonds 2,042,740 2,183,323 2,042,740
Bonds Available-for-Sale:
United States Government and government agencies
and authorities 34,964 35,874 35,874
States, municipalities and political subdivisions 36,615 37,073 37,073
Foreign governments 42,780 47,538 47,538
Public utilities 230,534 247,272 247,272
All other corporate bonds 328,132 353,061 353,061
Redeemable preferred stock 39,264 41,664 41,664
- ---------------------------------------------------------------------------------------------------------
Total fixed maturities 4,278,263 4,558,295 4,328,456
- ---------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks:
Public utilities 19,185 25,183 25,183
Banks, trust and insurance companies 80,916 116,283 116,283
Industrial, miscellaneous and all other 519,096 910,460 910,460
- ---------------------------------------------------------------------------------------------------------
Total equity securities 619,197 1,051,926 1,051,926
- ---------------------------------------------------------------------------------------------------------
Mortgage loans on real estate 1,025,683 XXXXXX 1,025,683
Investment real estate 215,477 XXXXXX 215,477
Real estate acquired in satisfaction of debt 23,237 XXXXXX 23,237
Policy loans 296,109 XXXXXX 296,109
Other long-term investments 112,207 XXXXXX 112,207
Short-term investments 90,368 XXXXXX 90,368
- ---------------------------------------------------------------------------------------------------------
Total investments $ 6,660,541 XXXXXX $ 7,143,463
=========================================================================================================
</TABLE>
(a) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and valuation write-downs and adjusted for
amortization of premiums or accrual of discounts.
57
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C Column D Column E Column F Column G Column H Column I Column J Column K
FUTURE POLICY BENEFITS, AMORTIZATION
DEFERRED BENEFITS, OTHER POLICY CLAIMS, LOSSES OF DEFERRED
POLICY LOSSES, CLAIMS CLAIMS AND NET AND POLICY OTHER
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT ACQUISITION OPERATING PREMIUMS
SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME(a) EXPENSES COSTS EXPENSES(b) WRITTEN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
- ----
Multiple Line Marketing $ 115,981 $ 857,532 $ 200,675 $ 183,998 $ 406,317 $ 95,063 $ 343,841 $ 37,772 $ 81,041 $373,506
Home Service 230,216 1,396,059 4,630 27,640 183,189 122,188 114,292 34,149 83,438 --
Independent Marketing 156,334 1,603,818 5 11,214 40,535 122,279 26,903 25,940 29,219 --
Health Insurance 16,087 22,092 11,999 69,186 210,502 7,849 158,388 14,119 68,437 --
Credit Insurance 61,575 -- 229,371 42,803 50,391 15,215 22,942 21,100 17,680 --
Senior Age Marketing 75,818 154,625 36,525 37,776 162,060 17,760 116,297 5,696 44,816 --
Direct Marketing 31,392 41,992 266 8,228 25,588 3,589 13,626 3,787 4,817 --
Capital and Surplus -- -- -- -- -- 57,969 -- -- (1,200) --
All Other 44,300 337,701 437 5,330 10,126 33,330 32,310 6,553 11,074 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 731,703 $4,413,819 $ 483,908 $ 386,175 $1,088,708 $ 475,242 $ 828,599 $149,116 $339,322 $373,506
====================================================================================================================================
1997
- ----
Multiple Line Marketing $ 111,679 $ 845,232 $ 157,908 $ 168,600 $ 365,628 $ 92,488 $ 296,468 $ 35,310 $ 71,153 $326,789
Home Service 230,827 1,374,110 5,715 30,404 187,237 122,702 117,592 32,016 81,724 --
Independent Marketing 176,548 1,703,279 -- 11,736 45,649 125,636 16,264 26,135 10,677 --
Health Insurance 14,201 22,860 7,381 52,481 184,409 7,054 141,645 9,618 50,917 --
Credit Insurance 60,585 -- 222,643 40,967 47,483 14,572 22,308 19,016 16,524 --
Senior Age Marketing 77,475 148,391 41,217 36,145 173,626 18,288 124,409 6,326 53,533 --
Direct Marketing 30,126 40,888 285 4,008 25,385 3,514 16,677 3,795 3,808 --
Capital and Surplus -- -- -- -- -- 56,500 -- -- (1,610) --
All Other 46,900 342,380 596 4,851 11,164 32,141 25,755 6,494 8,696 --
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 748,341 $4,477,140 $ 435,745 $ 349,192 $1,040,581 $ 472,895 $ 761,118 $138,710 $295,422 $326,789
====================================================================================================================================
(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 the insurance lines as necessary to support the equity
assigned to that line with the remainder allocated to capital & 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>
58
<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>
1998
- ----
Life insurance in force $ 44,134,974 $ 7,965,042 $ 713,200 $ 36,883,132 1.9%
==================================================================================================================
Premiums:
Life insurance 386,554 55,700 9,432 340,286 2.8%
Accident and health insurance 442,233 73,256 24,625 393,602 6.3%
Property and liability insurance 372,402 25,928 8,346 354,820 2.4%
- ------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,201,189 $ 154,884 $ 42,403 $ 1,088,708 3.9%
==================================================================================================================
1997
- ----
Life insurance in force $ 43,143,187 $ 6,985,956 $ 662,171 $ 36,819,402 1.8%
==================================================================================================================
Premiums:
Life insurance 391,024 51,776 9,725 348,973 2.8%
Accident and health insurance 418,860 48,963 8,724 378,621 2.3%
Property and liability insurance 324,731 18,441 6,697 312,987 2.1%
- ------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,134,615 $ 119,180 $ 25,146 $ 1,040,581 2.4%
==================================================================================================================
</TABLE>
59
<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>
1998
- ----
Investment valuation allowances:
Mortgage loans on real estate $ 15,230 $ - $ - $ 2,430 $ 12,800
Investment real estate 22,577 1,038 1,379 518 21,718
Investment in unconsolidated affiliates 3,727 1,279 - - 5,006
Other assets 11,800 - - 10,000 1,800
- ------------------------------------------------------------------------------------------------------------------------
Total $ 53,334 $2,317 $1,379 $12,948 $ 41,324
========================================================================================================================
1997
- ----
Investment valuation 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
========================================================================================================================
(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>
60
<PAGE>
PART C ITEM AND CAPTION
Items 24. Financial Statements and Exhibits.
(a) Financial Statements FINANCIAL STATEMENTS and FINANCIAL STATEMENT
SCHEDULES sections of Statement of Additional
Information
(b) Exhibits
Exhibit "1" - Copy of the resolutions of the Board of
Directors of the Depositor authorizing the
establishment of the Registrant (incorporated
herein by reference to the Registrant's
initial registration statement filed with the
Securities and Exchange Commission on
August 21, 1996)
Exhibit "2" - Not applicable
Exhibit "3" - Distribution and Administrative Services
Agreement (incorporated herein by reference to
the Registrant's initial registration
statement filed with the Securities and
Exchange Commission on August 21, 1996)
Exhibit "4" - Form of each variable annuity contract
(incorporated herein by reference to the
Registrant's pre-effective amendment number
one filed with the Securities and Exchange
Commission on July 2, 1997)
Exhibit "5" - Form of application used with any variable
annuity contract (incorporated herein by
reference to the Registrant's pre-effective
amendment number one filed with the Securities
and Exchange Commission on July 2, 1997)
Exhibit "6a" - Copy of the Articles of Incorporation of the
Depositor (incorporated herein by reference to
the Registrant's initial registration
statement filed with the Securities and
Exchange Commission on August 21, 1996)
Exhibit "6b" - Copy of the By-laws of the Depositor
(incorporated herein by reference to the
Registrant's initial registration statement
filed with the Securities and Exchange
Commission on August 21, 1996)
Exhibit "7" - Not applicable
Exhibit "8a" Form of American National Investment Account,
Inc. Participation Agreement (incorporated
herein by reference to the Registrant's
initial registration statement filed with
1
<PAGE>
the Securities and Exchange Commission on
August 21, 1996)
Exhibit "8b" Form of Variable Insurance Products Fund
Participation Agreement (incorporated herein
by reference to the Registrant's initial
registration statement filed with the
Securities and Exchange Commission on August
21, 1996)
Exhibit "8c" Form of Variable Insurance Products Fund II
Participation Agreement (incorporated herein
by reference to the Registrant's initial
registration statement filed with the
Securities and Exchange Commission on August
21, 1996)
Exhibit "8d" Form of Variable Insurance Products Fund III
Participation Agreement
Exhibit "8e" Form of Lazard Retirement Series, Inc. Fund
Participation Agreement (incorporated herein
by reference to the Registrant's initial
registration statement filed with the
Securities and Exchange Commission on August
21, 1996)
Exhibit "8f" Form of Van Eck Worldwide Insurance Trust
Participation Agreement (incorporated herein
by reference to the Registrant's initial
registration statement filed with the
Securities and Exchange Commission on August
21, 1996)
Exhibit "8g" Form of T. Rowe Price International Series,
Inc. T. Rowe Price Equity Series, Inc., and T.
Rowe Price Fixed Income Series, Inc.
(incorporated herein by reference to the
Registrant's initial registration statement
filed with the Securities and Exchange
Commission on August 21, 1996)
Exhibit "8h" Form of MFS Variable Insurance Trust
Participation Agreement (incorporated herein
by reference to the Registrant's initial
registration statement filed with the
Securities and Exchange Commission on August
21, 1996)
Exhibit "8i" Form of Federated Insurance Series Fund
Participation Agreement (incorporated herein
by reference to the Registrant's initial
registration statement filed with the
Securities and Exchange Commission on August
21, 1996)
Exhibit "9" - An opinion of counsel and consent to its use
as to the legality of the securities being
registered, indicating whether they will be
legally issued and will represent binding
obligations of the depositor
Exhibit "10" - Consent of independent accountants
2
<PAGE>
Exhibit "11" - Not applicable
Exhibit "12" - Not applicable
Exhibit "13" - Not applicable
Exhibit "14" - Control chart of Depositor
Exhibit "27" - Financial data schedule
Item 25. Directors and Officers of the Depositor.
Directors
Name Business Address
- ---- ----------------
G. Richard Ferdinandtsen American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Irwin M. Herz, Jr. Greer, Herz & Adams, L.L.P.
One Moody Plaza, 18th Floor
Galveston, Texas 77550
R. Eugene Lucas Gal-Tex Hotel Corporation
2302 Postoffice, Suite 504
Galveston, Texas 77550
E. Douglas McLeod The Moody Foundation
2302 Postoffice, Suite 704
Galveston, Texas 77550
Frances Anne Moody 7031 Inwood
Dallas, Texas 75209
Robert L. Moody 2302 Postoffice, Suite 702
Galveston, Texas 77550
Russell S. Moody 6016 Mount Bonnell Hollow
Austin, Texas 78731
W.L. Moody, IV 2302 Postoffice, Suite 502
Galveston, Texas 77550
Joe Max Taylor Galveston County Sheriff's Department
715 19th Street
Galveston, Texas 77550
3
<PAGE>
Officers
- --------
The principal business address of the officers, unless indicated otherwise
in the "Directors" section, or unless indicated by an asterisk (*), is American
National Insurance Company, One Moody Plaza, Galveston, Texas 77550. Those
officers with an asterisk by their names have a principal business address of
2450 South Shore Boulevard, League City, Texas 77573.
Name Office
- ---- ------
R.L. Moody Chairman of the Board, President and Chief Executive Officer
G.R. Ferdinandtsen Senior Executive Vice President and Chief Operating Officer
D.A. Behrens Executive Vice President, Independent Marketing
R.A. Fruend Executive Vice President, Director of Multiple Line
Marketing
B.J. Garrison Executive Vice President, Director of Home Service Division
M.W. McCroskey * Executive Vice President, Investments
J.E. Pozzi Executive Vice President, Independent Marketing
R.J. Welch Executive Vice President and Chief Actuary
C.H. Addison Senior Vice President, Systems Planning and Computing
A.L. Amato, Jr. Senior Vice President, Life Policy Administration
G.C. Langley Senior Vice President, Human Resources
S.E. Pavlicek Senior Vice President and Controller
S.H. Schouweiler Senior Vice President, Health Insurance Operations
J.R. Thomason Senior Vice President, Credit Insurance Services
G.W. Tolman Senior Vice President, Corporate Affairs
V.E. Soler, Jr. Vice President, Secretary & Treasurer
J.J. Antkowiak Vice President, Director of Computing Services
D.M. Azur Vice President, Claims
D. D. Brichler * Vice President, Mortgage Loan Production
F.V. Broll, Jr. Vice President & Actuary
W.F. Carlton Vice President & Assistant Controller, Financial Reports
4
<PAGE>
R.T. Crawford Vice President & Assistant Controller, General Accounting
G.C. Crume Vice President, Independent Marketing
D.A. Culp Vice President, Independent Marketing
G.D. Dixon * Vice President, Stocks
F.J. Gerren Vice President, Independent Marketing
J.F. Grant, Jr. Vice President, Group Actuary
R.D. Hemme Vice President and Actuary
M.E. Hogan Vice President, Credit Insurance Operations
C.J. Jones Vice President, Health Underwriting & New Business
D.D. Judy Vice President, Financial Marketing
Dr. H.B. Kelso, Jr. Vice President & Medical Director
G.W. Kirkham Vice President, Director of Planning and Support
D.D. Lagrone Vice President, Home Office Services
George A. Macke Vice President, General Auditor
G.W. Marchand Vice President, Life Underwriting
R.G. McCrary Vice President, Application Development Division
D.N. McDaniel Vice President, Home Service Administration
J.W. Pangburn Independent Marketing
E.B. Pavelka Vice President, Life Premium Accounting & Policy Service
W.T. Porter Vice President, Chief Marketing Officer, Health Operations
R.A. Price Vice President, Director of Training and Market Development
J.C. Shank Vice President, Health Actuary
G.A. Sparks, Sr. Vice President, Director of Field Services
W.H. Watson III Vice President, Health Actuary
G.W. Williamson Vice President, Assistant Director, Home Service Division
5
<PAGE>
P. Barber Asst. Vice President, Human Resources
S.F. Brast * Asst. Vice President, Real Estate Manager
J.J. Cantu Asst. Vice President and Illustration Actuary
J. R. Cramer Asst. Vice President, Health Claims
J.D. Ferguson Asst. Vice President, Creative Services
J.M. Flippin Asst. Vice President; Director, Life Marketing
D.S. Fuentes Asst. Vice President, Director of Group Claims
D.M. Jensen Asst. Vice President, Director of Marketing
K.E. Johnston Asst. Vice President, Asst. Director of Financial Marketing
K.J. Juneau Asst. Vice President, Director, Agency Systems
P.E. Kennedy Asst. Vice President, Human Resources
D. Knowles Asst. Vice President, Director of Marketing/Agency Support
C.A. Kratz Asst. Vice President, Human Resources
C.H. Lee Asst. Vice President and Actuary
D.L. Leining Asst. Vice President, Life Underwriting
M.S. Nimmons Asst. Vice President; Associate General Auditor, Home Office
R.J. Ostermayer Asst. Vice President, Director of Group Quality Assurance
M.C. Paetz Asst. Vice President, Director of Group Underwriting
J.J. Rooney Asst. Vice President, Group Legal/Audit
G.A. Schillaci Asst. Vice President & Actuary
M.J. Soler Asst. Vice President, Health Marketing Administration
C.E. Tipton Asst. Vice President & Assistant Actuary
D.G. Trevino Asst. Vice President, Director, Computing Services
J.A. Tyra Asst. Vice President, Life Insurance Systems
M.L. Waugh, Jr. Asst. Vice President, Claims
6
<PAGE>
R.M. Williams Life Product Actuary
J.E. Cernosek Asst. Secretary
V.J. Krc Asst. Treasurer
Item 26. Persons Controlled by or Under Common Control with Depositor of
Registrant.
Exhibit "14" - control chart of depositor
Item 27. Number of Contractowners.
As of December 31, 1998, the Registrant had 477 Contractowners of the
Flexible Purchase Payment Deferred Annuity Contracts.
Item 28. Indemnification.
The following provision is in the Distribution and Administrative Services
Agreement:
"American National agrees to indemnify SM&R for any liability that
SM&R may incur to a Contractowner or party-in-interest under a
Contract (i) arising out of any act or omission in the course of, or
in connection with, rendering services under this Agreement, or (ii)
arising out of the purchase, retention or surrender of a Contract;
provided, however, that American National will not indemnify SM&R for
any such liability that results from the willful misfeasance, bad
faith or gross negligence of SM&R, or from the reckless disregard, by
SM&R, of its duties and obligations arising under this Agreement."
The officers and directors of American National are indemnified by American
National in the American National By-Laws for liability incurred by reason of
the officer and directors serving in such capacity. This indemnification would
cover liability arising out of the variable annuity sales of American National.
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefor, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters.
(a) SM&R Equity Funds consisting of SM&R Growth Fund, Inc., SM&R Equity
Income
7
<PAGE>
Fund, Inc. and SM&R Balanced Fund, Inc.; SM&R Investments, Inc. consisting of
SM&R Government Bond Fund, SM&R Tax Free Fund, SM&R Primary Fund and SM&R Money
Market Fund; American National Investment Accounts, Inc.
(b) The Registrant's principal underwriter is Securities Management and
Research, Inc. The following are the officers and directors of Securities
Management and Research, Inc.
Principal Business
Name Position Address
- ---- -------- -------
Gordon D. Dixon Director, Securities Management
Senior Vice and Research, Inc.
President 2450 South Shore Boulevard
and Chief League City, Texas 77573
Investment
Officer
Robert A. Fruend, C.L.U. Director American National
Insurance Company
One Moody Plaza
Galveston, Texas 77550
R. Eugene Lucas Director Gal-Tenn Hotel Corporation
504 Moody National Bank
Tower
Galveston, Texas 77550
Michael W. McCroskey Director, Securities Management
President and Research, Inc.
and Chief 2450 South Shore Boulevard
Executive League City, Texas 77573
Officer
Ronald J. Welch Director American National
Insurance Company
One Moody Plaza
Galveston, Texas 77550
William J. Kearns, Jr. Senior Vice President Securities Management and
Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
K. David Wheeler Senior Vice President Securities Management and
Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Teresa E. Axelson Vice President and Securities Management and
8
<PAGE>
Secretary Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Brenda T. Koelemay Vice President, Securities Management and
Chief Administrative Research, Inc.
Officer and Chief 2450 South Shore Boulevard
Financial Officer League City, Texas 77573
Emerson V. Unger Vice President Securities Management and
Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Sally F. Praker Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Michele S. Lord Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
(c) Not Applicable
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained at the offices of American National Insurance
Company, One Moody Plaza, Galveston, Texas 77550.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include as part of any application to
purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information.
9
<PAGE>
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) The Registrant hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
(i) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b) (11) in each
registration statement, including the prospectus, used in
connection with the offer of the contract;
(ii) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b) (11) in any sales
literature used in connection with the offer of the contract;
(iii) Instruct sales representatives who solicit participants to
purchase the contract specifically to bring the redemption
restrictions imposed by Section 403(b) (11) to the attention of
the potential participants;
(iv) Obtain from each plan participant who purchases a Section 403
(b) annuity contract, prior to or at the time of such purchase,
a signed statement acknowledging the participant's
understanding of (1) the restrictions on redemption imposed by
Section 403 (b) (11), and (2) other investment alternatives
available under the employer's Section 403 (b) arrangement to
which the participant may elect to transfer his contract value.
10
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
and has caused this amended Registration Statement to be signed on its behalf,
in the City of Galveston, and the State of Texas on the 30/th/ day of April,
1999.
AMERICAN NATIONAL VARIABLE ANNUITY
SEPARATE ACCOUNT (Registrant)
By: AMERICAN NATIONAL INSURANCE COMPANY
-----------------------------------
By: /s/ Robert L. Moody
-----------------------------------
Robert L. Moody, Chairman of the
Board, President and Chief Executive Officer
AMERICAN NATIONAL INSURANCE COMPANY
(Sponsor)
By: /s/ Robert L. Moody
-----------------------------------
Robert L. Moody, Chairman of the
Board, President and Chief Executive Officer
ATTEST:
/s/ Vincent E. Soler, Jr.
- ---------------------------------------
Vincent E. Soler, Jr.,
Vice President, Secretary and Treasurer
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in their capacities and on
the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael W. McCroskey Executive Vice President - April 30, 1999
- -------------------------- Investments
Michael W. McCroskey (Principal Financial Officer)
/s/ Stephen E. Pavlicek Senior Vice President and April 30, 1999
- -------------------------- Controller
Stephen E. Pavlicek (Principal Accounting Officer)
11
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody Chairman of the Board, April 30, 1999
- -------------------------- Director, President and Chief
Robert L. Moody Executive Officer
/s/ G. Richard Ferdinandtsen Director, Senior Executive April 30, 1999
- -------------------------- Vice President and Chief
G. Richard Ferdinandtsen Operating Officer
/s/ Irwin M. Herz, Jr. Director April 30, 1999
- --------------------------
Irwin M. Herz, Jr.
/s/ R. Eugene Lucas Director April 30, 1999
- --------------------------
R. Eugene Lucas
Director
- --------------------------
E. Douglas McLeod
Director
- --------------------------
Frances Anne Moody
Director
- --------------------------
Russell S. Moody
Director
- --------------------------
W. L. Moody IV
/s/ Joe Max Taylor Director April 30, 1999
- --------------------------
Joe Max Taylor
12
<PAGE>
Exhibit 99.B9
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
Galveston, Texas 77550
Galveston (409) 765-5525
Houston (713) 480-5278
Telecopier (409) 766-6424
April 30, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judicial Plaza
Washington, D.C. 20549
RE: American National Variable Annuity Separate Account ("Separate
Account") Post-Effective Amendment No. 3 to Form N-4; File No. 333-
10581; Opinion and Consent of Counsel
- --------------------
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission. Accordingly, we are familiar with the
corporate records, certificates, and consents of officers of ANICO as we have
deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of
the State of Texas and that its principal business is to be an insurer.
2. The Separate Account is a duly organized and existing separate
account of ANICO under the laws of the State of Texas and is registered as a
unit investment trust under the Investment Company Act of 1940.
3. The Variable Annuity Contracts registered by this Registration
Statement under the Securities Act of 1933 and the Investment Company Act of
1940 (File No. 333-10581) will, upon issuance thereof, be validly authorized and
issued.
We hereby consent to the use of our opinion of counsel in the Post-
Effective Amendment No. 3 to Form N-4 Registration Statement (File No. 333-
10581) filed on behalf of the Separate Account. We further consent to the
1
<PAGE>
statements made regarding us and to the use of our name under the caption "Legal
Matters" in the prospectuses constituting a part of such Post-Effective
Amendment No. 3 to such Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L.L.P.
/s/ Jerry L. Adams
----------------------------
Jerry L. Adams
2
<PAGE>
Exhibit 99.B10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
-------------------
Houston, Texas
April 30, 1999
1
<PAGE>
Exhibit 99.B14
CONTROL LIST
The Registrant, American National Variable Annuity Separate Account, is a
separate account of American National Insurance Company, a Texas insurance
company The Libbie Shearn Moody Trust owns approximately 37.58% of the
outstanding stock of American National Insurance Company. The Moody Foundation,
which has a 75% contingent remainder interest in the Libbie Shearn Moody Trust,
owns approximately 23.7% of the outstanding stock of American National Insurance
Company.
The Trustees of The Moody Foundation are Mrs. Frances Moody Newman, Robert
L. Moody and Ross Rankin Moody. Robert L. Moody is a life income beneficiary of
the Libbie Shearn Moody Trust and Chairman of the Board, Director, President and
Chief Executive Officer of American National Insurance Company. Robert L. Moody
has assigned his interest in the Libbie Shearn Moody Trust to National Western
Life Insurance Company, a Colorado insurance company of which he is also
Chairman of the Board, a Director and controlling shareholder.
The Moody National Bank of Galveston is the trustee of the Libbie Shearn
Moody Trust and various other trusts which, in the aggregate, own approximately
44% of the outstanding stock of American National Insurance Company. Moody Bank
Holding Company, Inc. owns approximately 97% of the outstanding shares of The
Moody National Bank of Galveston. Moody Bank Holding Company, Inc. is a wholly
owned subsidiary of Moody Bancshares, Inc. The Three R Trusts, trusts created by
Robert L. Moody for the benefit of his children, are controlling stockholders of
Moody Bancshares, Inc.
The Moody Foundation owns 33.0% and the Libbie Shearn Moody Trust owns
51.0% of the outstanding stock of Gal-Tex Hotel Corporation, a Texas
corporation. Gal-Tex Hotel Corporation has the following wholly-owned
subsidiaries, listed in alphabetical order:
Gal-Tenn Hotel Corporation
Gal-Tex Management Company
Gal-Tex Woodstock, Inc.
GTG Corporation
New Paxton Hotel Corporation
American National owns a direct or indirect interest in the following
entities, listed in alphabetical order:
Entity: Alternative Benefit Management, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: ANTAC, Inc. owns all of the outstanding
common stock.
1
<PAGE>
Entity: American Hampden Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: American National Insurance Company owns a
98% interest.
Entity: American National of Delaware Corporation
Entity Form: a Delaware corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company
Entity: American National Financial Corporation
Entity Form: a Texas corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: American National Financial Corporation (Delaware)
Entity Form: a Delaware corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: American National Financial Corporation (Nevada)
Entity Form: a Nevada corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: American National General Insurance Company
Entity Form: a Missouri insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: American National Insurance Service Company
Entity Form: a Missouri corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: American National Investment Accounts, Inc.
Entity Form: a Maryland corporation - registered investment company
2
<PAGE>
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own all of the outstanding
stock of the Company.
Entity: American National Life Insurance Company of Texas
Entity Form: a Texas insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company
Entity: American National Lloyds Insurance Company
Entity Form: a Texas corporation
Ownership or Other Basis for Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: American National Property and Casualty Company
Entity Form: a Missouri insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANDV 97, Inc.
Entity Form: a Texas company
Ownership or Other Basis of Control: Wholly owned subsidiary of ANTAC, Inc.
Entity: ANMEX International, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANMEX International Services, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANPAC General Agency of Texas
3
<PAGE>
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: ANPAC Lloyds Insurance Management, Inc.
Entity Form: a Texas corporation
Ownership or Other Basis for Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: ANREM Corporation
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of Securities
Management and Research, Inc.
Entity: ANTAC, Inc.
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Beechwood Business Park Joint Venture.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: ANDV 97, Inc. owns a 50% limited
partnership interest.
Entity: Comprehensive Investment Services, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Fairway Plaza Associates, L.P.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: ANREM Corporation owns a 50% limited
partnership interest.
4
<PAGE>
Entity: Galveston Health Network, Inc.
Entity Form: a Texas corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Garden State Life Insurance Company
Entity Form: a New Jersey insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Gateway Park Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: South Shore Harbour Development, Ltd. has
a 50% interest.
Entity: Harbour Title Company
Entity Form: a Texas corporation
Ownership or Other Basis of Control: South Shore Harbour Development, Ltd. owns
50% of the outstanding stock.
Entity: IAH 97 Joint Venture
Entity Form: a Texas general partnership
Ownership or Other Basis of Control: ANDV 97, Inc. has a 50% interest.
Entity: Kearns Building Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: American National owns a 85% interest.
Entity: MR/SA Partnership
Entity Form: a Nevada general partnership
Ownership or Other Basis of Control: ANTAC, Inc. owns a 50% interest.
5
<PAGE>
Entity: Pacific Property and Casualty Company
Entity Form: a California corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: Panther Creek Limited Partnership
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
99% limited partnership interest
Entity: Rutledge Partners, L.P.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
50% interest.
Entity: Securities Management and Research, Inc.
Entity Form: a Florida corporation - a registered broker-dealer and investment
adviser
Ownership or Other Basis of Control: wholly-owned subsidiary of American
National Insurance Company
Entity: SM&R Balanced Fund, Inc.
Entity Form: a Maryland corporation - a registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: SM&R Equity Income Fund, Inc.
Entity Form: a Maryland corporation - registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: SM&R Growth Fund, Inc.
6
<PAGE>
Entity Form: a Maryland corporation - registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: SM&R Investments, Inc.
Entity Form: a Maryland corporation - a registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: South Shore Harbour Development, Ltd.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: ANTAC, Inc. owns a 95% limited partnership
interest. ANREM Corp. owns a 5% general partnership interest.
Entity: Standard Life and Accident Insurance Company
Entity Form: an Oklahoma insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Terra Venture Bridgeton Project Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: Wholly owned by American National
Insurance Company.
Entity: Third and Catalina, Ltd.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
49% limited partnership interest.
Entity: Timbermill, Ltd.
Entity Form: a Texas joint venture
7
<PAGE>
Ownership or Other Basis of Control: American National Insurance Company owns a
99% limited partnership interest.
Entity: Town and Country Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: ANDV 97, Inc. owns a 99% limited
partnership interest.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 21,934
<INVESTMENTS-AT-VALUE> 23,793
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,793
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 23,793
<DIVIDEND-INCOME> 83
<INTEREST-INCOME> 0
<OTHER-INCOME> 117
<EXPENSES-NET> 112
<NET-INVESTMENT-INCOME> 88
<REALIZED-GAINS-CURRENT> (114)
<APPREC-INCREASE-CURRENT> 1,859
<NET-CHANGE-FROM-OPS> 1,833
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 23,793
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
