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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. 2
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 11
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
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One Moody Plaza Galveston, Texas 77550
Galveston, Texas 77550
(Name and Address of Agent for Service)
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Declaration Required by Rule 24f-2(a)(1): An indefinite number of securities of
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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
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24f-2(b)(1) has been filed in the Office of the Securities and Exchange
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Commission on _____ for the Registrant's fiscal year ending December 31, 1998.
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It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[ ] on (date) pursuant to paragraph (b) of Rule 485
[x] 60 days after filing pursuant to paragraph (a)(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:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Variable Annuity Contracts
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WEALTHQUEST
VARIABLE ANNUITY II
Issued by
AMERICAN NATIONAL INSURANCE COMPANY
HOME OFFICE - One Moody Plaza
Galveston, Texas 77550-7999
1-800-306-2959
P R O S P E C T U S
May 1, 1999
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
. Value 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
. MFS FUND
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, 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 _____ of this prospectus.
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
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TABLE OF CONTENTS
PAGE
Glossary...................................................
Introduction...............................................
What is the Purpose of the Contract?.....................
What are my Investment Options?..........................
How Do I Purchase a Contract?............................
How Do I Allocate Purchase Payments?.....................
Can I transfer Amounts Between the
Investment Alternatives?.................................
What is the Death Benefit Under the Contract?............
Can I Get My Money if I Need It?.........................
How Can I Receive Annuity Payments?......................
What are the Charges and Deductions
Under the Contract?......................................
What are the Tax Consequences Associated
With the Contract?.......................................
If I have Questions, Where Can I Go?.....................
Contractowner Transaction Expenses.........................
Sales Load as a percentage of Purchase Payments..........
Deferred Sales Loan ("Surrender Charge").................
Expenses During the Annuity Period.......................
Accumulation Unit Values...................................
Contract...................................................
Type of Contract.........................................
Contract Application and Purchase Payments...............
Allocation of Purchase Payments..........................
Crediting of Accumulation Units..........................
Allocation of charges and Other Deductions...............
To the Subaccounts and the Fixed Account.................
Determining Accumulation Unit Values.....................
Transfers Before Annuity Date............................
Special Programs.........................................
Charges and Deductions Prior the Annuity Date..............
Surrender Charge.........................................
Other Charges............................................
Distributions Under the Contract...........................
Distributions Before the Annuity Date......................
Surrenders...............................................
Systematic Withdrawal Program............................
Waiver of Surrender Charge...............................
Death Benefit Before the Annuity Date....................
Distributions During the Annuity Period....................
Election of Annuity Date and Form of Annuity.............
Allocation of Benefits...................................
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Annuity Options..........................................
Value of Variable Annuity Payments:......................
Assumed Investment Rates.................................
The Company, Separate Account, Funds and
Fixed Account..............................................
American National Insurance Company......................
The Separate Account.....................................
The Funds................................................
Changes in Investment Options............................
Fixed Account..............................................
Federal Tax Matters........................................
Introduction..........................................
Tax Status of the Contracts...........................
Taxation of Annuities in General......................
Withdrawals...........................................
Penalty Tax...........................................
Annuity Payments......................................
Taxation of Death Benefit Proceeds....................
Transfers or Assignments of a Contract................
Required Distributions................................
Withholding...........................................
Multiple Contracts....................................
Exchanges.............................................
Taxation of Qualified Contracts.......................
Possible Changes in Taxation..........................
All Contracts.........................................
Performance................................................
Distributor of the Contract................................
Legal Matters..............................................
Legal Proceedings..........................................
Experts....................................................
Additional Information.....................................
Financial Statements.......................................
Table of Contents of
Statement of Additional Information........................
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.
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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.
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 The close of business on each day the New
York Stock Exchange is open for regular
trading.
Valuation Period The period between Valuation Dates.
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, at
rates that reflect 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 Value Series
. 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 ___.) 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.
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 _____.)
The contract is not available in some states. You should rely only on the
information contained in this prospectus or to which you have been referred. 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 ____ for additional limitations.)
Transfers from our Fixed Account after the Annuity Date are not permitted.
(See "Allocation of Benefits" on page ____ 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.
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You can make allocation changes in writing or 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 ____.)
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 "Qualified
Contracts" under "Federal Tax Matters" at page ___.)
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 ____.)
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, to 1.15% 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
withdrawals 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
Qualified 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 ___.)
IF I HAVE QUESTIONS, WHERE CAN I GO?
If you have any questions about the Contract, you can contact your
registered representative or write or call us.
CONTRACTOWNER TRANSACTION EXPENSES
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 ____.
For information concerning the fees and expenses charged during the Annuity
Period, see "Expenses During the Annuity Period", page ___.
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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
Accumulation 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 calculate the percentage such
withdrawal is of your Accumulation Value. We will reduce the first part of
the formula for calculating the Free Withdrawal Amount (i.e., the 10% of
Accumulation Value part) 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.
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 Amount will be your $4,000. Accordingly, $4,000 of your
withdrawal will be free. 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. The remaining $4,075 will be a withdrawal of
Purchase Payments and will be subject to a Surrender Charge.
. 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 SINCE
PURCHASE APPLICABLE SURRENDER CHARGE
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
EXCHANGE FEE $ 10
(THERE IS NO EXCHANGE FEE FOR
THE FIRST 12 TRANSFERS)
Annual Contract Fee $ 35
SEPARATE ACCOUNT ANNUAL EXPENSES
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(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 * ** 0.28%
Other Expenses 0.59%
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 1.09%.
AMERICAN NATIONAL BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.10%
Other Expenses 0.80%
Total American National Balanced Portfolio
Annual Expenses 0.90%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.30%.
AMERICAN NATIONAL MANAGED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.33%
Other Expenses 0.60%
Total American National Managed Portfolio
Annual Expenses 0.93%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.10%.
AMERICAN NATIONAL MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after
reimbursement * ** 0.14%
Other Expenses 0.73%
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 1.23%.
** 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,
1999, 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 .90% and the American National Managed Portfolio for expenses in excess of
.93%, of each of such Portfolios' average daily net assets during such period.
SM&R is under no obligation to renew this undertaking for any Portfolio at the
end of such period.
FIDELITY ASSET MANAGER PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.55%
Other Expenses 0.10%
Total Portfolio Annual Expenses** 0.65%
FIDELITY INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.24%
Other Expenses 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 0.27%, 0.13% and 0.40% respectively.
FIDELITY CONTRAFUND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
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Management Fees 0.60%
Other Expenses 0.11%
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 0.17%
Total Portfolio Annual Expenses** 0.77%
* 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 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, .81% for Contrafund Portfolio, .87% for asset Manager: Growth
Portfolio and .84% for Growth Opportunities Portfolio.
FIDELITY GROWTH OPPORTUNITIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Other Expenses 0.14%
Total Portfolio Annual Expenses** 0.74%
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%
*The management fee includes the ordinary expense of operating the fund.
MFS VALUE SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.25%
Total Portfolio Annual Expenses* 1.00%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expense and total expense
would have been 0.75%, 1.33% and 2.08%, respectively.
MFS EMERGING GROWTH SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.12%
Total Portfolio Annual Expenses 0.87%
MFS RESEARCH 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%
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MFS GROWTH WITH INCOME SERIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.20%
Total Portfolio Annual Expenses* 1.00%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, and other expenses and total
expenses would have been 0.75%, 0.35% and 1.10%, respectively.
VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
Other Expenses 0.17%
Total Portfolio Annual Expenses 1.17%
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
Other Expenses 0.34%
Total Portfolio Annual Expenses 1.34%
FEDERATED UTILITY FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* (after waiver) 0.48%
Other Expenses 0.37%
Total Portfolio Annual Expenses 0.85%
*The total operating expenses would have been 1.12% absent the voluntary waiver
of a portion of the management fee.
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* (after waiver) 0.08%
Other Expenses 0.77%
Total Portfolio Annual Expenses 0.85%
*The total operating expenses were 1.52% absent the voluntary waiver of a
portion of the management fee.
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* (after waiver) 0.15%
Other Expenses 0.65%
Total Portfolio Annual Expenses 0.80%
*The total operating expenses were 1.25% absent the voluntary waiver of a
portion of the management fee.
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* (after waiver) 0.51%
Other Expenses 0.25%
Total Portfolio Annual Expenses 0.80%
*The total operating expenses would have been 0.89% absent the voluntary waiver
of a portion of the management fee.
FEDERATED EQUITY INCOME FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* (after waiver) 0.00%
Other Expenses 0.85%
Total Portfolio Annual Expenses 0.85%
*The total operating expenses would have been 2.29% absent the voluntary waiver
of a portion of the management fee and the voluntary reimbursement of certain
other operating expenses.
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees* 1.00%
12b-1Fees* 0.25%
Other Expenses** 0.32%
Total Portfolio Annual Expenses 1.57%
LAZARD RETIREMENT SMALL CAP PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
12b-1 Fees* 0.25%
10
<PAGE>
Other Expenses** 0.07%
Total Portfolio Annual Expenses 1.07%
*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 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.
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):
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
American National Growth Portfolio $88 $130 $163 $263
American National Balanced Portfolio $88 $130 $163 $263
American National Managed Portfolio $88 $131 $164 $266
American National Money Market Portfolio $89 $132 $166 $269
Fidelity Asset Manager Portfolio $85 $122 $148 $233
Fidelity Index 500 Portfolio $87 $126 $156 $250
Fidelity Contrafund Portfolio $82 $113 $133 $201
Fidelity Asset Manager: Growth Portfolio $83 $114 $134 $203
Fidelity Growth Opportunities Portfolio $85 $122 $148 $233
T. Rowe Price Equity Income Portfolio $86 $126 $155 $246
T. Rowe Price International Stock Portfolio $86 $125 $154 $244
T. Rowe Price Mid-Cap Growth Portfolio $89 $132 $166 $269
T. Rowe Price Limited - Term Bond Portfolio $87 $126 $156 $250
MFS Value Series Portfolio $88 $130 $163 $263
MFS Emerging Growth Series Portfolio $88 $130 $163 $263
MFS Research Series Portfolio $88 $130 $163 $263
MFS Growth With Income Series Portfolio $88 $130 $163 $263
Van Eck Worldwide Hard Assets Portfolio $88 $130 $163 $263
Van Eck World Wide Emerging Markets
Portfolio $88 $130 $163 $263
Federated Utility Fund II Portfolio $88 $130 $163 $263
Federated Growth Strategies Fund II Portfolio $88 $130 $163 $263
Federated Fund for U.S. Government
Securities II Portfolio $88 $130 $163 $263
Federated High Income Bond Fund II
Portfolio $88 $130 $163 $263
Federated Equity Income Fund II Portfolio $88 $130 $163 $263
Lazard Retirement Emerging Markets
Portfolio $88 $130 $163 $263
Lazard Retirement Small Cap Portfolio $88 $130 $163 $263
</TABLE>
If you do not surrender your Contract, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets.
<TABLE>
<CAPTION>
1 3 5 10
FUND YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
American National Money Market Portfolio $23 $72 $123 $263
American National Growth Portfolio $23 $72 $123 $263
American National Balanced Portfolio $24 $73 $124 $266
American National Managed Portfolio $24 $73 $126 $269
VIP II Investment
Grade Bond Portfolio $20 $63 $108 $233
VIP II Asset Manager
Portfolio $22 $68 $116 $250
VIP II Index 500 Portfolio $17 $54 $ 92 $201
VIP Money Market Portfolio $18 $54 $ 93 $203
VIP Equity-Income Portfolio $20 $63 $108 $233
VIP High Income Portfolio $22 $67 $115 $246
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
VIP Growth Portfolio $21 $66 $114 $244
VIP Overseas Portfolio $24 $73 $126 $269
VIP II Contrafund Portfolio $22 $68 $116 $250
VIP II Asset Manager:
Growth Portfolio $23 $72 $123 $263
</TABLE>
You should not consider the examples as representative of past or future
expenses. 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 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.
EXPENSES DURING THE ANNUITY PERIOD
During the Annuity Period, we will charge the Separate Account a mortality
and expense risk fee at an annual rate of 1.15%. 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.
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.
<TABLE>
<CAPTION>
YEAR ENDED DEC
1998 1997 1996
<S> <C> <C> <C>
AMERICAN NATIONAL GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.456 $ 1.255 $ 0.990
Accumulation unit value at end of period $ 1.731 $ 1.456 $ 1.255
Number of accumulation units outstanding at
end of period 1,622,115 911,104 326,360
AMERICAN NATIONAL MONEY MARKET PORTFOLIO
Accumulation unit value at beginning of period $ 1.066 $ 1.036 $ 1.000
Accumulation unit value at end of period $ 1.101 $ 1.066 $ 1.036
Number of accumulation units outstanding at
end of period 195,843 32,515 10,421
AMERICAN NATIONAL BALANCED PORTFOLIO
Accumulation unit value at beginning of period $ 1.254 $ 1.136 $ 1.000
Accumulation unit value at end of period $ 1.469 $ 1.254 $ 1.136
Number of accumulation units outstanding at
end of period 558,223 287,278 43,097
AMERICAN NATIONAL MANAGED PORTFOLIO
Accumulation unit value at beginning of period $ 1.458 $ 1.255 $ 0.990
Accumulation unit value at end of period $ 1.758 $ 1.458 $ 1.255
Number of accumulation units outstanding at
end of period 1,937,161 1,100,338 275,204
FIDELITY ASSET MANAGER PORTFOLIO
Accumulation unit value at beginning of period $ 1.176 $ 1.159 $ 1.000
Accumulation unit value at end of period $ 1.263 $ 1.176 $ 1.159
Number of accumulation units outstanding at
end of period 93,192 72,929 26,194
a Inception date April 20, 1994
FIDELITY INDEX 500 PORTFOLIO
Accumulation unit value at beginning of period $ 1.278 $ 1.134 $ 0.990
Accumulation unit value at end of period $ 1.518 $ 1.278 $ 1.134
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C>
Number of accumulation units outstanding at
end of period 602,425 426,424 332,773
FIDELITY CONTRAFUND PORTFOLIO
Accumulation unit value at beginning of period $ 1.649 $ 1.365 $ 1.010
Accumulation unit value at end of period $ 2.154 $ 1.649 $ 1.365
Number of accumulation units outstanding at
end of period 1,753,242 636,107 92,340
FIDELITY ASSET MANAGER: GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.087 $ 1.049 $ 1.010
Accumulation unit value at end of period $ 1.127 $ 1.087 $ 1.049
Number of accumulation units outstanding at
end of period 774,056 179,947 382,247
FIDELITY GROWTH OPPORTUNTIES PORTFOLIO
Accumulation unit value at beginning of period $ 1.482 $ 1.322 $ 1.000
Accumulation unit value at end of period $ 1.869 $ 1.482 $ 1.322
Number of accumulation units outstanding at
end of period 1,805,034 971,692 301,955
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Accumulation unit value at beginning of period $ 1.334 $ 1.189 $ 1.000
Accumulation unit value at end of period $ 1.546 $ 1.334 $ 1.189
Number of accumulation units outstanding at
end of period 365,784 259,931 126,513
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Accumulation unit value at beginning of period $ 1.513 $ 1.341 $ 1.010
Accumulation unit value at end of period $ 1.840 $ 1.513 $ 1.341
Number of accumulation units outstanding at
end of period 1,263,215 895,058 281,102
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.167 $ 1.048 $ 0.970
Accumulation unit value at end of period $ 1.283 $ 1.167 $ 1.048
Number of accumulation units outstanding at
end of period 233,047 170,694 147,599
T. ROWE PRICE LIMITED - TERM BOND PORTFOLIO
Accumulation unit value at beginning of period $ 1.355 $ 1.157 $ 1.000 a
Accumulation unit value at end of period $ 1.657 $ 1.355 $ 1.157
Number of accumulation units outstanding at
end of period 748,156 259,582 20,680
MFS VALUE SERIES PORTFOLIO
Accumulation unit value at beginning of period $ 1.207 $ 1.024 $ 1.000 a
Accumulation unit value at end of period $ 1.487 $ 1.207 $ 1.024
Number of accumulation units outstanding at
end of period 441,436 34,541 24,995
a Inception date April 28, 1995
MFS EMERGING GROWTH SERIES PORTFOLIO
MFS RESEARCH SERIES PORTFOLIO
MFS GROWTH WITH INCOME SERIES PORTFOLIO
</TABLE>
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<PAGE>
VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO
FEDERATED UTILITY FUND II PORTFOLIO
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO
FEDERATED FUND FOR U.S. GOVERNMENT SECURITIES II PORTFOLIO
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO
FEDERATED EQUITY INCOME FUND II PORTFOLIO
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
LAZARD RETIREMENT SMALL CAP PORTFOLIO
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 ____.) 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 VIP 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.
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
14
<PAGE>
shares of that Eligible Portfolio.
DETERMINING ACCUMULATION UNIT VALUES
The Accumulation Unit value of each subaccount reflects the investment
performance of that subaccount. Accumulation Unit value is calculated 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, their
expenses and the deduction of certain charges by us affect 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 ____.)
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.
We may revoke or modify the transfer privilege. For a discussion of
transfers after the Annuity Date, see "Allocation of Benefits" at page ____.
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 ____.)
OTHER CHARGES
Your Contract is subject to certain other charges:
15
<PAGE>
. 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
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 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:
16
<PAGE>
. 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 Considerations,"
page ____.)
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
"Qualified Contracts," page ___.) 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 Distributions Program, see "Minimum Distributions Program" in the
State of Additional Information, page ___. 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
17
<PAGE>
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
(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.
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
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$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 (.50) 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
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) 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 ___. 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 ___.)
Once an annuity payment is made, the Annuity Option cannot be changed to
another Annuity Option.
ALLOCATION OF BENEFITS
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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.
. 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.
. 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.
. Other Annuity Forms - May be agreed upon.
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.
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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)
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, 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 developed and are implementing a Year 2000 transition plan and
are confirming that our service providers are doing the same. We 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.
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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 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 the following series or portfolios,
each of which is an Eligible Portfolio:
. 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.
. 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
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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 ______ series or portfolios, the
following 4 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 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 have ______ series or portfolios, the following 3
of which are Eligible Portfolios:
. MFS VALUE SERIES PORTFOLIO...seeks capital appreciation. Dividend
income, if any, is a consideration incidental to the Series' objective
of capital appreciation. While the Series' policy is to invest
primarily in common stocks, it may seek appreciation in other types of
securities such as fixed income securities (which may be unrated),
convertible bonds, convertible preferred stocks and warrants when
relative values make such purchases appear attractive either as
individual issues or as types of securities in certain economic
environments. The Series may invest in lower rated fixed income
securities or comparable unrated securities.
. MFS EMERGING GROWTH SERIES PORTFOLIO...seeks to provide long-term
growth of capital through investing primarily in common stocks of
emerging growth companies, which involves greater risk than is
customarily associated with investments in more established companies.
The Series may invest in a limited extent in lower rated fixed income
securities or comparable unrated securities.
. MFS RESEARCH SERIES PORTFOLIO...seeks to provide long-term growth of
capital and future income by investing a substantial proportion of its
assets in the common stocks or securities convertible into common
stocks of companies believed to possess better than average prospects
for long-term growth. No more than 5% of the Portfolio's convertible
securities, if any, will consist of securities in lower rated
categories or securities believed to be of similar quality to lower
rated securities. The Portfolio may invest in a limited extent in
lower rated fixed income securities or comparable unrated securities.
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. MFS GROWTH WITH INCOME SERIES PORTFOLIO... seeks to provide reasonable
current income and long-term growth and income. Under normal market
conditions, the Series will invest at least 65% of its assets in
common stocks or securities convertible into common stocks that are
believed to have long-term prospects for growth and income. The Series
may also invest up to 75% of its net assets in foreign securities
which are not traded on a U.S. exchange.
Massachusetts Financial Service Company is responsible for selection and
management of the portfolio investments of the MFS Variable Series.
. The Van Eck Fund - currently has 4 series or portfolios, the following 2 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 ______ series or portfolios, the
following 5 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 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 have ______ series or portfolios, the following
2 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
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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 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 ___.)
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.
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
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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 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.
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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.
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 $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.]
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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.
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.
The VIP Money Market subaccount and the American National Money Market
subaccount may advertise their current and
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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 the 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.
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...............................................................
Valuation of Accumulation Units............................................
Computation of Variable Annuity Payments.................................
Annuity Unit Value.......................................................
Summary..................................................................
Exceptions to Charges......................................................
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Assignment.................................................................
Minimum Distributions Program..............................................
Distribution of the Contracts..............................................
Tax Matters................................................................
Records and Reports........................................................
Performance................................................................
Total Return.............................................................
Other Total Returns......................................................
Yields...................................................................
State Law Differences......................................................
Separate Account...........................................................
Termination of Participating Agreements....................................
Financial Statements.......................................................
Financials.................................................................
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AMERICAN NATIONAL VARIABLE ANNUITY II
STATEMENT OF ADDITIONAL INFORMATION
relating to the Prospectus
dated April 30, 1999
Issued by
AMERICAN NATIONAL INSURANCE COMPANY
One Moody Plaza
Galveston, Texas 77550-7999
1-800-306-2959
CUSTODIAN
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
UNDERWRITER
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.
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AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENT OF ADDITIONAL INFORMATION
April 30, 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 April 30,1999, 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...................................................
Valuation of Accumulation Units................................
Computation of Variable Annuity Payments....................
Annuity Unit Value..........................................
Summary.....................................................
Exceptions to Charges..........................................
Assignment.....................................................
Minimum Distributions Program..................................
Distribution of the Contracts..................................
Tax Matters....................................................
Records and Reports............................................
Performance....................................................
Total Return................................................
Other Total Returns.........................................
Yields......................................................
State Law Differences..........................................
Separate Account...............................................
Termination of Participating Agreements........................
Financial Statements...........................................
Financials.....................................................
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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.
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
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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
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.
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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 permitted 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.
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.
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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.
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
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(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. 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
8
<PAGE>
general, which may be illustrated by graphs, charts, or
otherwise, and which may include a comparison, at various
points in time, of the return from an investment in a
Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a
taxable basis.
TOTAL RETURN
Total Return quoted in advertising reflects all aspects of a subaccount's
return, including the automatic reinvestment by the Separate Account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady rate
that would equal 100% growth on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
Average annual total returns are computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula:
P(1+T)/n/ = ERV
where P is a hypothetical investment payment of $1,000, T is the average annual
total return, n is the number of years, and ERV is the withdrawal value at the
end of the periods shown. Since the Contract is intended as a long-term product,
the average annual total returns assume that no money was withdrawn from the
Contract prior to the end of the period.
In addition to average annual returns, the subaccounts may advertise
unaveraged or cumulative total returns reflecting the simple change in value of
an investment over a stated period.
From time to time, sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Separate Account
commenced operations. Such performance information for the subaccounts will be
calculated based on the performance of the Eligible Portfolios and the
assumption that the subaccounts were in existence for the same periods as those
indicated for the Eligible Portfolios, with the level of Contract charges
currently in effect.
OTHER TOTAL RETURN
From time to time, sales literature or advertisements may also quote
average annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as the average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with an ending value for the period that does not take
into account any charges on amounts surrendered. Sales literature or
advertisements may also quote average annual total returns for periods prior to
the date the Separate Account commenced operations, calculated based on the
performance of the Eligible Portfolios and the assumption that the subaccounts
were in existence for the same periods as those indicated for the Eligible
Portfolios, with the level of Contract charges currently in effect except for
the Surrender Charge.
YIELDS
Some subaccounts may also advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the subaccount over
a stated period of time, not taking into account capital gains or losses.
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<PAGE>
Yields are annualized and stated as a percentage. Yields do not reflect the
impact of any contingent deferred sales load. Yields quoted in advertising may
be based on historical seven day periods. Current yield for the American
National Money Market subaccount will reflect the income generated by a
Subaccount over a 7-day period. Current yield is calculated by determining the
net change, exclusive of capital changes, in the value of a hypothetical account
having one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the 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.
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.
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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,
. 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,
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<PAGE>
. 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,
. 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
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<PAGE>
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 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
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<PAGE>
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 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
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<PAGE>
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 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,
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<PAGE>
. 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.
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
16
<PAGE>
. 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.
[financial statement to be added in subsequent amendment]
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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 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
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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 (to be filed in a
subsequent post-effective amendment)
Exhibit "10" - Consent of independent accountants (to be filed
in a subsequent post-effective amendment)
Exhibit "11" - Not applicable
Exhibit "12" - Not applicable
Exhibit "13" - Not applicable
Exhibit "14" - Control chart of Depositor (to be filed in a
subsequent post-effective amendment)
Exhibit "27" - Financial data schedule (to be filed in a
subsequent post-effective amendment
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
2
<PAGE>
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
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
3
<PAGE>
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
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
4
<PAGE>
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
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
5
<PAGE>
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
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 (to be filed in a subsequent
post-effective amendment)
Item 27. Number of Contractowners.
As of March 31, 1999, the Registrant had ___ Contractowners of the Flexible
Purchase Payment Deferred Annuity Contracts, ___ Contractowners of the Single
Premium Immediate Annuity Contracts, and ___ Contractowners of the Group
Unallocated 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
6
<PAGE>
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 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.
<TABLE>
<CAPTION>
Principal Business
Name Position Address
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Gordon D. Dixon Director, Securities Management
Senior Vice President and Research, Inc.
and Chief 2450 South Shore Boulevard
Investment League City, Texas 77573
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
</TABLE>
7
<PAGE>
<TABLE>
<S> <C> <C>
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
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
</TABLE>
(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
8
<PAGE>
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include as part of any application to
purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) The Registrant hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. 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.
9
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has caused this amended Registration Statement to be signed
on its behalf, in the City of Galveston, and the State of Texas on the 25th day
of February, 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 - February 25, 1999
________________________ Investments
Michael W. McCroskey (Principal Financial Officer)
/s/ Stephen E. Pavlicek Senior Vice President and February 25, 1999
________________________ Controller
Stephen E. Pavlicek (Principal Accounting Officer)
10
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody Chairman of the Board, February 25, 1999
____________________________ Director, President and Chief
Robert L. Moody Executive Officer
/s/ G. Richard Ferdinandtsen Director, Senior Executive Vice February 25, 1999
____________________________ President and Chief Operating
G. Richard Ferdinandtsen Officer
/s/ Irwin M. Herz, Jr. Director February 25, 1999
____________________________
Irwin M. Herz, Jr.
/s/ R. Eugene Lucas Director February 25, 1999
____________________________
R. Eugene Lucas
Director ____________
____________________________
E. Douglas McLeod
Director ____________
____________________________
Frances Anne Moody
Director ____________
____________________________
Russell S. Moody
/s/ W. L. Moody IV Director February 25, 1999
____________________________
W. L. Moody IV
Director ____________
____________________________
Joe Max Taylor
11
<PAGE>
EXHIBIT 8(d)
PARTICIPATION AGREEMENT
-----------------------
Among
VARIABLE INSURANCE PRODUCTS FUND III,
------------------------------------
FIDELITY DISTRIBUTORS CORPORATION
---------------------------------
and
AMERICAN NATIONAL INSURANCE COMPANY
-----------------------------------
THIS AGREEMENT, made and entered into as of the 1st day of January,
1998 by and among AMERICAN NATIONAL INSURANCE COMPANY, (hereinafter the
"Company"), a Texas corporation, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each such account hereinafter referred to as the
"Account"), and the VARIABLE INSURANCE PRODUCTS FUND III, an unincorporated
business trust organized under the laws of the Commonwealth of Massachusetts
(hereinafter the "Fund") and FIDELITY DISTRIBUTORS CORPORATION (hereinafter the
"Underwriter"), a Massachusetts corporation.
WHEREAS, the Fund engages in business as an open-end management
investment company and is available to act as the investment vehicle for
separate accounts established for variable life insurance policies and variable
annuity contracts (collectively, the "Variable Insurance Products") to be
offered by insurance companies which have entered into participation agreements
with the Fund and the Underwriter (hereinafter "Participating Insurance
Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several
series of shares, each representing the interest in a particular managed
portfolio of securities and other assets, any one or more of which may be made
available under this Agreement, as may be amended from time to time by mutual
agreement of the parties hereto (each such series hereinafter referred to as a
"Portfolio"); and
WHEREAS, the Fund has obtained an order from the Securities and
Exchange Commission, dated September 17, 1986 (File No. 812-6422), granting
Participating Insurance Companies and variable annuity and variable life
insurance separate accounts exemptions from the provisions of sections 9(a),
13(a), 15(a), and 15(b) of the Investment Company Act of 1940, as amended,
(hereinafter the "1940 Act") and Rules 6e-2(b) (15) and 6e-3(T) (b) (15)
thereunder, to the extent necessary to permit shares of the Fund to be sold to
and held by variable annuity and variable life insurance separate accounts of
both affiliated and unaffiliated life insurance companies (hereinafter the
"Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and its shares are registered under the Securities
Act of 1933, as amended (hereinafter the "1933 Act"); and
1
<PAGE>
WHEREAS, Fidelity Management & Research Company (the "Adviser") is
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940 and any applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance and variable annuity contracts and/or variable life insurance
policies under the 1933 Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid variable annuity contracts and
variable life insurance policies; and
WHEREAS, the Company has registered or will register each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act of
1934, as amended, (hereinafter the "1934 Act"), and is a member in good standing
of the National Association of Securities Dealers, Inc. (hereinafter "NASD");
and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios on behalf
of each Account to fund certain of the aforesaid variable life and variable
annuity contracts and the Underwriter is authorized to sell such shares to unit
investment trusts such as each Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the
Company, the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
-------------------
1.1. The Underwriter agrees to sell to the Company those shares of
the Fund which each Account orders, executing such orders on a daily basis at
the net asset value next computed after receipt by the Fund or its designee of
the order for the shares of the Fund. For purposes of this Section 1.1, the
Company shall be the designee of the Fund for receipt of such orders from each
Account and receipt by such designee shall constitute receipt by the Fund;
provided that the Fund receives notice of such order by 10:00 a.m. Boston time
on the next following Business Day. "Business Day" shall mean any day on which
the New York Stock Exchange is open for trading and on which the Fund calculates
its net asset value pursuant to the rules of the Securities and Exchange
Commission.
1.2. The Fund agrees to make its shares available indefinitely for
purchase at the applicable net asset value per share by the Company and its
Accounts on those days on which the Fund calculates its net asset value pursuant
to rules of the Securities and Exchange Commission and the Fund shall use
reasonable efforts to calculate such net asset value on each day which the New
York Stock Exchange is open for trading. Notwithstanding the foregoing, the
Board of Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action is required by law or by regulatory
authorities having jurisdiction or is, in the sole discretion of the Board
acting in good faith and in light of their fiduciary duties under federal and
any applicable state laws, necessary in the best interests of the shareholders
of such Portfolio.
2
<PAGE>
1.3. The Fund and the Underwriter agree that shares of the Fund will
be sold only to Participating Insurance Companies and their separate accounts.
No shares of any Portfolio will be sold to the general public.
1.4. The Fund and the Underwriter will not sell Fund shares to any
insurance company or separate account unless an agreement containing provisions
substantially the same as Articles I, III, V, VII and Section 2.5 of Article II
of this Agreement is in effect to govern such sales.
1.5. The Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day.
1.6. The Company agrees that purchases and redemptions of Portfolio
shares offered by the then current prospectus of the Fund shall be made in
accordance with the provisions of such prospectus. The Company agrees that all
net amounts available under the variable annuity contracts and variable life
insurance policies with the form number(s) which are listed on Schedule A
attached hereto and incorporated herein by this reference, as such Schedule A
may be amended from time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the Fund, in such
other Funds advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, or in the Company's general account, provided that such
amounts may also be invested in an investment company other than the Fund if (a)
such other investment company, or series thereof, has investment objectives or
policies that are substantially different from the investment objectives and
policies of all the Portfolios of the Fund; or (b) the Company gives the Fund
and the Underwriter 45 days written notice of its intention to make such other
investment company available as a funding vehicle for the Contracts; or (c) such
other investment company was available as a funding vehicle for the Contracts
prior to the date of this Agreement and the Company so informs the Fund and
Underwriter prior to their signing this Agreement (a list of such funds
appearing on Schedule C to this Agreement); or (d) the Fund or Underwriter
consents to the use of such other investment company.
1.7. The Company shall pay for Fund shares on the next Business Day
after an order to purchase Fund shares is made in accordance with the provisions
of Section 1.1 hereof. Payment shall be in federal funds transmitted by wire.
For purpose of Section 2.10 and 2.11, upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund.
1.8. Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9. The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Fund's shares. The Company hereby
elects to receive all such income dividends and capital gain distributions as
are payable on the Portfolio shares in additional shares of that Portfolio. The
Company reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash. The Fund shall notify
the Company of the number of shares so issued as payment of such dividends and
distributions.
3
<PAGE>
1.10. The Fund shall make the net asset value per share for each
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Boston time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Boston time.
ARTICLE II. Representations and Warranties
------------------------------
2.1. The Company represents and warrants that the Contracts are or
will be registered under the 1933 Act; that the Contracts will be issued and
sold in compliance in all material respects with all applicable Federal and
State laws and that the sale of the Contracts shall comply in all material
respects with state insurance suitability requirements. The Company further
represents and warrants that it is an insurance company duly organized and in
good standing under applicable law and that it has legally and validly
established each Account prior to any issuance or sale thereof as a segregated
asset account under Section 3.75 of the Texas Insurance Code and has registered
or, prior to any issuance or sale of the Contracts, will register each Account
as a unit investment trust in accordance with the provisions of the 1940 Act to
serve as a segregated investment account for the Contracts.
2.2. The Fund represents and warrants that Fund shares sold pursuant
to this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the State of Texas and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3. The Fund represents that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Internal Revenue Code of
1986, as amended, (the "Code") and that it will make every effort to maintain
such qualification (under Subchapter M or any successor or similar provision)
and that it will notify the Company immediately upon having a reasonable basis
for believing that it has ceased to so qualify or that it might not so qualify
in the future.
2.4. The Company represents that the Contracts are currently treated
as annuity or life insurance contracts, under applicable provisions of the Code
and that it will make every effort to maintain such treatment and that it will
notify the Fund and the Underwriter immediately upon having a reasonable basis
for believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.5. With respect to Initial Class Shares, the Fund has adopted a
"no fee" or "defensive" Rule 12b-1 Plan under which it makes no payments for
distribution expenses. To the extent that it decides to finance distribution
expenses pursuant to Rule 12b-1, the Fund undertakes to have a board of
trustees, a majority of whom are not interested persons of the Fund, formulate
and approve any plan under Rule 12b-1 to finance distribution expenses.
2.6. The Fund makes no representation as to whether any aspect of
its operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Texas and the Fund and the Underwriter
4
<PAGE>
represent that their respective operations are and shall at all times remain in
material compliance with the laws of the State of Texas to the extent required
to perform this Agreement.
2.7. The Underwriter represents and warrants that it is a member in
good standing of the NASD and is registered as a broker-dealer with the SEC.
The Underwriter further represents that it will sell and distribute the Fund
shares in accordance with the laws of the State of Texas and all applicable
state and federal securities laws, including without limitation the 1933 Act,
the 1934 Act, and the 1940 Act.
2.8. The Fund represents that it is lawfully organized and validly
existing under the laws of the Commonwealth of Massachusetts and that it does
and will comply in all material respects with the 1940 Act.
2.9. The Underwriter represents and warrants that the Adviser is and
shall remain duly registered in all material respects under all applicable
federal and state securities laws and that the Adviser shall perform its
obligations for the Fund in compliance in all material respects with the laws of
the State of Texas and any applicable state and federal securities laws.
2.10. The Fund and Underwriter represent and warrant that all of
their directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of the Fund are
and shall continue to be at all times covered by a blanket fidelity bond or
similar coverage for the benefit of the Fund in an amount not less than the
minimal coverage as required currently by Rule 17g-(1) of the 1940 Act or
related provisions as may be promulgated from time to time. The aforesaid Bond
shall include coverage for larceny and embezzlement and shall be issued by a
reputable bonding company.
2.11. The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals/entities dealing
with the money and/or securities of the Fund are covered by a blanket fidelity
bond or similar coverage for the benefit of the Fund, and that said bond is
issued by a reputable bonding company, includes coverage for larceny and
embezzlement, and is in an amount not less than $5 million. The Company agrees
to make all reasonable efforts to see that this bond or another bond containing
these provisions is always in effect, and agrees to notify the Fund and the
Underwriter in the event that such coverage no longer applies.
ARTICLE III. Prospectuses and Proxy Statements; Voting
-----------------------------------------
3.1. The Underwriter shall provide the Company with as many printed
copies of the Fund's current prospectus and Statement of Additional Information
as the Company may reasonably request. If requested by the Company in lieu
thereof, the Fund shall provide camera-ready film containing the Fund's
prospectus and Statement of Additional Information, and such other assistance as
is reasonably necessary in order for the Company once each year (or more
frequently if the prospectus and/or Statement of Additional Information for the
Fund is amended during the year) to have the prospectus for the Contracts and
the Fund's prospectus printed together in one document, and to have the
Statement of Additional Information for the Fund and the Statement of Additional
Information for the Contracts printed together in one document. Alternatively,
the Company may print the Fund's prospectus and/or its Statement of Additional
Information in combination with other fund companies' prospectuses and
statements of additional information. Except as provided in the following three
sentences, all expenses of printing and distributing Fund prospectuses and
Statements of Additional Information shall be the expense of the Company. For
prospectuses and Statements of Additional Information provided by the Company to
its existing owners of Contracts in order to update disclosure annually as
required by the 1933 Act and/or the 1940 Act, the cost of printing shall be
borne by the Fund. If the
5
<PAGE>
Company chooses to receive camera-ready film in lieu of receiving printed copies
of the Fund's prospectus, the Fund will reimburse the Company in an amount equal
to the product of A and B where A is the number of such prospectuses distributed
to owners of the Contracts, and B is the Fund's per unit cost of typesetting and
printing the Fund's prospectus. The same procedures shall be followed with
respect to the Fund's Statement of Additional Information.
The Company agrees to provide the Fund or its designee with such
information as may be reasonably requested by the Fund to assure that the Fund's
expenses do not include the cost of printing any prospectuses or Statements of
Additional Information other than those actually distributed to existing owners
of the Contracts.
3.2. The Fund's prospectus shall state that the Statement of
Additional Information for the Fund is available from the Underwriter or the
Company (or in the Fund's discretion, the Prospectus shall state that such
Statement is available from the Fund).
3.3. The Fund, at its expense, shall provide the Company with copies
of its proxy statements, reports to shareholders, and other communications
(except for prospectuses and Statements of Additional Information, which are
covered in Section 3.1) to shareholders in such quantity as the Company shall
reasonably require for distributing to Contract owners.
3.4. If and to the extent required by law the Company shall:
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions
(iii) vote Fund shares for which no instructions have been
received in a particular separate account in the same
proportion as Fund shares of such portfolio for which
instructions have been received in that separate account,
so long as and to the extent that the Securities and Exchange Commission
continues to interpret the 1940 Act to require pass-through voting privileges
for variable contract owners. The Company reserves the right to vote Fund
shares held in any segregated asset account in its own right, to the extent
permitted by law. Participating Insurance Companies shall be responsible for
assuring that each of their separate accounts participating in the Fund
calculates voting privileges in a manner consistent with the standards set forth
on Schedule B attached hereto and incorporated herein by this reference, which
standards will also be provided to the other Participating Insurance Companies.
3.5. The Fund will comply with all provisions of the 1940 Act
requiring voting by shareholders, and in particular the Fund will either provide
for annual meetings or comply with Section 16(c) of the 1940 Act (although the
Fund is not one of the trusts described in Section 16(c) of that Act) as well as
with Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the Securities and Exchange Commission's interpretation
of the requirements of Section 16(a) with respect to periodic elections of
trustees and with whatever rules the Commission may promulgate with respect
thereto.
ARTICLE IV. Sales Material and Information
------------------------------
6
<PAGE>
4.1. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee, each piece of sales literature or other promotional
material in which the Fund or its investment adviser or the Underwriter is
named, at least fifteen Business Days prior to its use. No such material shall
be used if the Fund or its designee reasonably objects to such use within
fifteen Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus for the
Fund shares, as such registration statement and prospectus may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3. The Fund, Underwriter, or its designee shall furnish, or shall
cause to be furnished, to the Company or its designee, each piece of sales
literature or other promotional material in which the Company and/or its
separate account(s), is named at least fifteen Business Days prior to its use.
No such material shall be used if the Company or its designee reasonably objects
to such use within fifteen Business Days after receipt of such material.
4.4. The Fund and the Underwriter shall not give any information or
make any representations on behalf of the Company or concerning the Company,
each Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each Account which are in the public domain
or approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5. The Fund will provide to the Company at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, proxy statements, sales literature and other promotional
materials, applications for exemptions, requests for no-action letters, and all
amendments to any of the above, that relate to the Fund or its shares,
contemporaneously with the filing of such document with the Securities and
Exchange Commission or other regulatory authorities.
4.6. The Company will provide to the Fund at least one complete copy
of all registration statements, prospectuses, Statements of Additional
Information, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemptions, requests for no
action letters, and all amendments to any of the above, that relate to the
Contracts or each Account, contemporaneously with the filing of such document
with the SEC or other regulatory authorities.
4.7. For purposes of this Article IV, the phrase "sales literature or
other promotional material" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
----
available to customers or the public, including brochures, circulars, research
reports, market letters, form letters, seminar texts, reprints or excerpts of
any other advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made generally
available to some or all agents or
7
<PAGE>
employees, and registration statements, prospectuses, Statements of Additional
Information, shareholder reports, and proxy materials.
ARTICLE V. Fees and Expenses
-----------------
5.1. To the extent that the Fund or any Portfolio has adopted and
implemented a plan pursuant to Rule 12b-1 to finance distribution expenses, the
Underwriter may make payments to the Company or to the underwriter with respect
to the Contracts if and in amounts agreed to by the Underwriter in writing and
such payments will be made out of existing fees otherwise payable to the
Underwriter, past profits of the Underwriter or other resources available to the
Underwriter. No such payments shall be made directly by the Fund.
5.2. All expenses incident to performance by the Fund under this
Agreement shall be paid by the Fund. The Fund shall see to it that all its
shares are registered and authorized for issuance in accordance with applicable
federal law and, if and to the extent deemed advisable by the Fund, in
accordance with applicable state laws prior to their sale. The Fund shall bear
the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. The Company shall bear the expenses of distributing the Fund's
prospectus, proxy materials and reports to owners of Contracts issued by the
Company.
ARTICLE VI. Diversification
---------------
6.1. The Fund will at all times invest money from the Contracts in
such a manner as to ensure that the Contracts will be treated as variable
contracts under the Code and the regulations issued thereunder. Without
limiting the scope of the foregoing, the Fund will at all times comply with
Section 817(h) of the Code and Treasury Regulation 1.817-5, relating to the
diversification requirements for variable annuity, endowment, or life insurance
contracts and any amendments or other modifications to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 1.817-5.
ARTICLE VII. Potential Conflicts
-------------------
7.1. The Board will monitor the Fund for the existence of any
material irreconcilable conflict between the interests of the contract owners of
all separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling, private
letter ruling, no-action or interpretative letter, or any similar action by
insurance, tax, or securities regulatory authorities; (c) an administrative or
judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard
8
<PAGE>
the voting instructions of contract owners. The Board shall promptly inform the
Company if it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of
which it is aware to the Board. The Company will assist the Board in carrying
out its responsibilities under the Shared Funding Exemptive Order, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever contract owner voting instructions are
disregarded.
7.3. If it is determined by a majority of the Board, or a majority of
its disinterested trustees, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested trustees), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected Contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
----
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4. If a material irreconcilable conflict arises because of a
decision by the Company to disregard contract owner voting instructions and that
decision represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the affected
Account's investment in the Fund and terminate this Agreement with respect to
such Account; provided, however that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable conflict
as determined by a majority of the disinterested members of the Board. Any such
withdrawal and termination must take place within six (6) months after the Fund
gives written notice that this provision is being implemented, and until the end
of that six month period the Underwriter and Fund shall continue to accept and
implement orders by the Company for the purchase (and redemption) of shares of
the Fund.
7.5. If a material irreconcilable conflict arises because a
particular state insurance regulator's decision applicable to the Company
conflicts with the majority of other state regulators, then the Company will
withdraw the affected Account's investment in the Fund and terminate this
Agreement with respect to such Account within six months after the Board informs
the Company in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board. Until the end of the foregoing six month period, the Underwriter
and Fund shall continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
7.6. For purposes of Sections 7.3 through 7.6 of this Agreement, a
majority of the disinterested members of the Board shall determine whether any
proposed action adequately remedies any irreconcilable material conflict, but in
no event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a new
funding medium for the Contracts if an offer to do so has been declined by vote
of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines that
any proposed action does not
9
<PAGE>
adequately remedy any irreconcilable material conflict, then the Company will
withdraw the Account's investment in the Fund and terminate this Agreement
within six (6) months after the Board informs the Company in writing of the
foregoing determination, provided, however, that such withdrawal and termination
shall be limited to the extent required by any such material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
7.7. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are
amended, or Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the Act or the rules promulgated thereunder with respect to mixed or shared
funding (as defined in the Shared Funding Exemptive Order) on terms and
conditions materially different from those contained in the Shared Funding
Exemptive Order, then (a) the Fund and/or the Participating Insurance Companies,
as appropriate, shall take such steps as may be necessary to comply with Rules
6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to the extent such
rules are applicable; and (b) Sections 3.4, 3.5, 7.1, 7.2, 7.3, 7.4, and 7.5 of
this Agreement shall continue in effect only to the extent that terms and
conditions substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE VIII. Indemnification
---------------
8.1. Indemnification By The Company
------------------------------
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and each trustee of the Board and officers and each person, if any, who controls
the Fund within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.1) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Company) or litigation (including legal and other
expenses), to which the Indemnified Parties may become subject under any
statute, regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts
and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
Registration Statement or prospectus for the Contracts or contained in
the Contracts or sales literature for the Contracts (or any amendment
or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, provided that this agreement to indemnify
shall not apply as to any Indemnified Party if such statement or
omission or such alleged statement or omission was made in reliance
upon and in conformity with information furnished to the Company by or
on behalf of the Fund for use in the Registration Statement or
prospectus for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the
Registration Statement, prospectus or sales literature of the Fund not
supplied by the Company, or persons under its control) or wrongful
conduct of the Company or persons under its control, with respect to
the sale or distribution of the Contracts or Fund Shares; or
10
<PAGE>
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement,
prospectus, or sales literature of the Fund or any amendment thereof
or supplement thereto or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements therein not misleading if such a statement or
omission was made in reliance upon information furnished to the Fund
by or on behalf of the Company; or
(iv) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of this
Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement
or arise out of or result from any other material breach of this
Agreement by the Company, as limited by and in accordance with the
provisions of Sections 8.1(b) and 8.1(c) hereof.
8.1(b). The Company shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation incurred or assessed against an Indemnified
Party as such may arise from such Indemnified Party's willful
misfeasance, bad faith, or gross negligence in the performance of such
Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
8.1(c). The Company shall not be liable under this
indemnification provision with respect to any claim made against an
Indemnified Party unless such Indemnified Party shall have notified
the Company in writing within a reasonable time after the summons or
other first legal process giving information of the nature of the
claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on
any designated agent), but failure to notify the Company of any such
claim shall not relieve the Company from any liability which it may
have to the Indemnified Party against whom such action is brought
otherwise than on account of this indemnification provision. In case
any such action is brought against the Indemnified Parties, the
Company shall be entitled to participate, at its own expense, in the
defense of such action. The Company also shall be entitled to assume
the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Company to such party of the
Company's election to assume the defense thereof, the Indemnified
Party shall bear the fees and expenses of any additional counsel
retained by it, and the Company will not be liable to such party under
this Agreement for any legal or other expenses subsequently incurred
by such party independently in connection with the defense thereof
other than reasonable costs of investigation.
8.1(d). The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them in
connection with the issuance or sale of the Fund Shares or the
Contracts or the operation of the Fund.
8.2. Indemnification by the Underwriter
----------------------------------
8.2(a). The Underwriter agrees to indemnify and hold harmless the
Company and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 8.2)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Underwriter)
11
<PAGE>
or litigation (including legal and other expenses) to which the Indemnified
Parties may become subject under any statute, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions in
respect thereof) or settlements are related to the sale or acquisition of the
Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the Registration Statement or prospectus or sales
literature of the Fund (or any amendment or supplement to
any of the foregoing), or arise out of or are based upon
the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statements therein not misleading, provided that
this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and
in conformity with information furnished to the Underwriter
or Fund by or on behalf of the Company for use in the
Registration Statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(ii) arise out of or as a result of statements or
representations (other than statements or representations
contained in the Registration Statement, prospectus or
sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful
conduct of the Fund, Adviser or Underwriter or persons
under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration
Statement, prospectus, or sales literature covering the
Contracts, or any amendment thereof or supplement thereto,
or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to
make the statement or statements therein not misleading, if
such statement or omission was made in reliance upon
information furnished to the Company by or on behalf of the
Fund; or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in
this Agreement or arise out of or result from any other
material breach of this Agreement by the Underwriter; as
limited by and in accordance with the provisions of
Sections 8.2(b) and 8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this
indemnification provision with respect to any losses, claims, damages,
liabilities or litigation to which an Indemnified Party would otherwise be
subject by reason of such Indemnified Party's willful misfeasance, bad faith, or
gross negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and duties
under this Agreement or to each Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this
indemnification provision with respect to any claim made against an Indemnified
Party unless such Indemnified Party shall have notified the Underwriter
12
<PAGE>
in writing within a reasonable time after the summons or other first legal
process giving information of the nature of the claim shall have been served
upon such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on any designated agent), but failure to notify the
Underwriter of any such claim shall not relieve the Underwriter from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Underwriter will be
entitled to participate, at its own expense, in the defense thereof. The
Underwriter also shall be entitled to assume the defense thereof, with counsel
satisfactory to the party named in the action. After notice from the Underwriter
to such party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of each Account.
8.3. Indemnification By the Fund
---------------------------
8.3(a). The Fund agrees to indemnify and hold harmless the Company,
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute,
at common law or otherwise, insofar as such losses, claims, damages, liabilities
or expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this
Agreement (including a failure to comply with the
diversification requirements specified in Article VI of this
Agreement);or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim
13
<PAGE>
shall have been served upon such Indemnified Party (or after such Indemnified
Party shall have received notice of such service on any designated agent), but
failure to notify the Fund of any such claim shall not relieve the Fund from any
liability which it may have to the Indemnified Party against whom such action is
brought otherwise than on account of this indemnification provision. In case any
such action is brought against the Indemnified Parties, the Fund will be
entitled to participate, at its own expense, in the defense thereof. The Fund
also shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Fund to such party of
the Fund's election to assume the defense thereof, the Indemnified Party shall
bear the fees and expenses of any additional counsel retained by it, and the
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such party independently in connection
with the defense thereof other than reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
--------------
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
9.2. This Agreement shall be subject to the provisions of the 1933,
1934 and 1940 acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
Securities and Exchange Commission may grant (including, but not limited to, the
Shared Funding Exemptive Order) and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE X. Termination
-----------
10.1. This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party for any reason by sixty (60) days
advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio based upon the
Company's determination that shares of such Portfolio are not
reasonably available to meet the requirements of the Contracts;
or
(c) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event any of
the Portfolio's shares are not registered, issued or sold in
accordance with applicable state and/or federal law or such law
precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio ceases to qualify as a Regulated Investment
14
<PAGE>
Company under Subchapter M of the Code or under any successor or
similar provision, or if the Company reasonably believes that
the Fund may fail to so qualify; or
(e) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements
specified in Article VI hereof; or
(f) termination by either the Fund or the Underwriter by written
notice to the Company, if either one or both of the Fund or the
Underwriter respectively, shall determine, in their sole
judgment exercised in good faith, that the Company and/or its
affiliated companies has suffered a material adverse change in
its business, operations, financial condition or prospects since
the date of this Agreement or is the subject of material adverse
publicity; or
(g) termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole
judgment exercised in good faith, that either the Fund or the
Underwriter has suffered a material adverse change in its
business, operations, financial condition or prospects since the
date of this Agreement or is the subject of material adverse
publicity; or
(h) termination by the Fund or the Underwriter by written notice to
the Company, if the Company gives the Fund and the Underwriter
the written notice specified in Section 1.6(b) hereof and at the
time such notice was given there was no notice of termination
outstanding under any other provision of this Agreement;
provided, however any termination under this Section 10.1(h)
shall be effective forty five (45) days after the notice
specified in Section 1.6(b) was given.
10.2. Effect of Termination. Notwithstanding any termination of this
---------------------
Agreement, the Fund and the Underwriter shall at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, the owners of the Existing
Contracts shall be permitted to reallocate investments in the Fund, redeem
investments in the Fund and/or invest in the Fund upon the making of additional
purchase payments under the Existing Contracts. The parties agree that this
Section 10.2 shall not apply to any terminations under Article VII and the
effect of such Article VII terminations shall be governed by Article VII of this
Agreement.
10.3. The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, or (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption") or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act.
Upon request, the Company will promptly furnish to the Fund and the Underwriter
the opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
ARTICLE XI.Notices
-------
15
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Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
If to the Company:
One Moody Plaza
Galveston, TX 77550
Attention: Sr. VP & Chief Actuary
with a copy to:
Jerry L. Adams
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, TX 77550
If to the Underwriter:
82 Devonshire Street
Boston, Massachusetts 02109
Attention: Treasurer
ARTICLE XII. Miscellaneous
-------------
12.1 All persons dealing with the Fund must look solely to the
property of the Fund for the enforcement of any claims against the Fund as
neither the Board, officers, agents or shareholders assume any personal
liability for obligations entered into on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come into
the public domain without the express written consent of the affected party.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid
by a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
16
<PAGE>
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the California Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the insurance operations
of the Company are being conducted in a manner consistent with the California
Insurance Regulations and any other applicable law or regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8. This Agreement or any of the rights and obligations hereunder
may not be assigned by any party without the prior written consent of all
parties hereto; provided, however, that the Underwriter may assign this
Agreement or any rights or obligations hereunder to any affiliate of or company
under common control with the Underwriter, if such assignee is duly licensed and
registered to perform the obligations of the Underwriter under this Agreement.
The Company shall promptly notify the Fund and the Underwriter of any change in
control of the Company.
12.9. The Company shall furnish, or shall cause to be furnished, to
the Fund or its designee copies of the following reports:
(a) the Company's annual statement (prepared under statutory
accounting principles) and annual report (prepared under
generally accepted accounting principles ("GAAP"), if any),
as soon as practical and in any event within 90 days after
the end of each fiscal year;
(b) the Company's quarterly statements (statutory) (and GAAP,
if any), as soon as practical and in any event within 45
days after the end of each quarterly period:
(c) any financial statement, proxy statement, notice or report
of the Company sent to stockholders and/or policyholders,
as soon as practical after the delivery thereof to
stockholders;
(d) any registration statement (without exhibits) and financial
reports of the Company filed with the Securities and
Exchange Commission or any state insurance regulator, as
soon as practical after the filing thereof;
(e) any other report submitted to the Company by independent
accountants in connection with any annual, interim or
special audit made by them of the books of the Company, as
soon as practical after the receipt thereof.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its duly authorized
representative and its seal to be hereunder affixed hereto as of the date
specified below.
17
<PAGE>
AMERICAN NATIONAL LIFE INSURANCE COMPANY
By: _________________________
Name: _________________________
Title: _________________________
VARIABLE INSURANCE PRODUCTS FUND III
By: _________________________
Robert C. Pozen
Senior Vice President
FIDELITY DISTRIBUTORS CORPORATION
By: _________________________
Kevin J. Kelly
Vice President
18
<PAGE>
Schedule A
----------
Separate Accounts and Associated Contracts
------------------------------------------
Name of Separate Account and Policy Form Numbers of Contracts Funded
Date Established by Board of Directors By Separate Account
- -------------------------------------- -------------------
American National Variable Life FPVA-NQ
Separate Account established FPVA-PQ
July 30, 1987 VA95-NQ
VA95-PQ
FL89
GUA95
SPIVA94
19
<PAGE>
SCHEDULE B
PROXY VOTING PROCEDURE
The following is a list of procedures and corresponding responsibilities for the
handling of proxies relating to the Fund by the Underwriter, the Fund and the
Company. The defined terms herein shall have the meanings assigned in the
Participation Agreement except that the term "Company" shall also include the
department or third party assigned by the Insurance Company to perform the steps
delineated below.
1. The number of proxy proposals is given to the Company by the Underwriter as
early as possible before the date set by the Fund for the shareholder
meeting to facilitate the establishment of tabulation procedures. At this
time the Underwriter will inform the Company of the Record, Mailing and
Meeting dates. This will be done verbally approximately two months before
meeting.
2. Promptly after the Record Date, the Company will perform a "tape run", or
other activity, which will generate the names, addresses and number of units
which are attributed to each contractowner/policyholder (the "Customer") as
of the Record Date. Allowance should be made for account adjustments made
after this date that could affect the status of the Customers' accounts as
of the Record Date.
Note: The number of proxy statements is determined by the activities
described in Step #2. The Company will use its best efforts to call in the
number of Customers to Fidelity, as soon as possible, but no later than two
weeks after the Record Date.
3. The Fund's Annual Report no longer needs to be sent to each Customer by the
Company either before or together with the Customers' receipt of a proxy
statement. Underwriter will provide the last Annual Report to the Company
pursuant to the terms of Section 3.3 of the Agreement to which this Schedule
relates.
4. The text and format for the Voting Instruction Cards ("Cards" or "Card") is
provided to the Company by the Fund. The Company, at its expense, shall
produce and personalize the Voting Instruction Cards. The Legal Department
of the Underwriter or its affiliate ("Fidelity Legal") must approve the Card
before it is printed. Allow approximately 2-4 business days for printing
information on the Cards. Information commonly found on the Cards includes:
a. name (legal name as found on account registration)
b. address
c. Fund or account number
d. coding to state number of units
e. individual Card number for use in tracking and verification of votes
(already on Cards as printed by the Fund)
(This and related steps may occur later in the chronological process due to
possible uncertainties relating to the proposals.)
5. During this time, Fidelity Legal will develop, produce, and the Fund will
pay for the Notice of Proxy and the Proxy Statement (one document).
Printed and folded notices and statements will be sent to Company for
insertion into envelopes (envelopes and return envelopes are provided and
paid for by the Insurance Company). Contents of envelope sent to Customers
by Company will include:
20
<PAGE>
a. Voting Instruction Card(s)
b. One proxy notice and statement (one document)
c. return envelope (postage pre-paid by Company) addressed to the
Company or its tabulation agent
d. "urge buckslip" - optional, but recommended. (This is a small,
single sheet of paper that requests Customers to vote as quickly
as possible and that their vote is important. One copy will be
supplied by the Fund.)
e. cover letter - optional, supplied by Company and reviewed and
approved in advance by Fidelity Legal.
6. The above contents should be received by the Company approximately 3-5
business days before mail date. Individual in charge at Company reviews
and approves the contents of the mailing package to ensure correctness and
completeness. Copy of this approval sent to Fidelity Legal.
7. Package mailed by the Company.
* The Fund must allow at least a 15-day solicitation time to the Company
----
as the shareowner. (A 5-week period is recommended.) Solicitation time
is calculated as calendar days from (but not including) the meeting,
---
counting backwards.
8. Collection and tabulation of Cards begins. Tabulation usually takes place
in another department or another vendor depending on process used. An
often used procedure is to sort Cards on arrival by proposal into vote
categories of all yes, no, or mixed replies, and to begin data entry.
Note: Postmarks are not generally needed. A need for postmark information
would be due to an insurance company's internal procedure and has not been
required by Fidelity in the past.
9. Signatures on Card checked against legal name on account registration which
was printed on the Card.
Note: For Example, If the account registration is under "Bertram C. Jones,
Trustee," then that is the exact legal name to be printed on the Card and
is the signature needed on the Card.
10. If Cards are mutilated, or for any reason are illegible or are not signed
properly, they are sent back to Customer with an explanatory letter, a new
Card and return envelope. The mutilated or illegible Card is disregarded
and considered to be not received for purposes of vote tabulation. Any
--- --------
Cards that have "kicked out" (e.g. mutilated, illegible) of the procedure
are "hand verified," i.e., examined as to why they did not complete the
system. Any questions on those Cards are usually remedied individually.
11. There are various control procedures used to ensure proper tabulation of
votes and accuracy of that tabulation. The most prevalent is to sort the
Cards as they first arrive into categories depending upon their vote; an
estimate of how the vote is progressing may then be calculated. If the
initial estimates and the actual vote do not coincide, then an internal
audit of that vote should occur. This may entail a recount.
12. The actual tabulation of votes is done in units which is then converted to
shares. (It is very important that the Fund receives the tabulations
stated in terms of a percentage and the number of shares.) Fidelity Legal
------
must review and approve tabulation format.
21
<PAGE>
13. Final tabulation in shares is verbally given by the Company to Fidelity
Legal on the morning of the meeting not later than 10:00 a.m. Boston time.
Fidelity Legal may request an earlier deadline if required to calculate the
vote in time for the meeting.
14. A Certification of Mailing and Authorization to Vote Shares will be
required from the Company as well as an original copy of the final vote.
Fidelity Legal will provide a standard form for each Certification.
15. The Company will be required to box and archive the Cards received from the
Customers. In the event that any vote is challenged or if otherwise
necessary for legal, regulatory, or accounting purposes, Fidelity Legal
will be permitted reasonable access to such Cards.
16. All approvals and "signing-off" may be done orally, but must always be
followed up in writing.
22
<PAGE>
SCHEDULE C
Other investment companies currently available under variable annuities or
variable life insurance issued by the Company.
American National Investment Accounts, Inc.
Variable Insurance Products Fund
Variable Insurance Products Fund II
MFS Variable Insurance Products Trust
T. Rowe Price International Series, Inc.
T. Rowe Price Equity Series, Inc.
T. Rowe Price Fixed Income Series, Inc.
Van Eck Worldwide Insurance Trust
Federated Insurance Series
Lazard Retirement Series, Inc.
23
