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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. 10
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 12
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Address of Depositor's Principal Executive Offices)
(409) 763-4661
(Depositor's Telephone Number, including Area Code)
Rex Hemme Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National Insurance Company With copy to: One Moody Plaza
One Moody Plaza Galveston, Texas 77550
Galveston, Texas 77550
(Name and Address of Agent for Service)
===============================================================================
Declaration Required by Rule 24f-2(a)(1): An indefinite number of securities of
the Registrant has been registered under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Notice required by Rule
24f-2(b)(1) has been filed in the Office of the Securities and Exchange
Commission on March 31, 1999 for the Registrant's fiscal year ending
December 31, 1998.
===============================================================================
It is proposed that this filing will become effective (check appropriate box):
[_] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) of Rule 485
[_] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[_] on (date) pursuant to paragraph (a)(i) of Rule 485
[_] 75 days after filing pursuant to paragraph (a)(ii) of rule 485
[_] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[X] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Variable Annuity Contracts
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INVESTRAC GOLD VARIABLE ANNUITY CONTRACTS
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Home Office One Moody Plaza Galveston TX 77550-7999
PROSPECTUS May 1, 1999 1-800-306-2959
This prospectus describes
. flexible purchase payment deferred annuity contracts
. a single purchase payment immediate 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 of 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
. Managed Portfolio
. Balanced Portfolio
. Money Market Portfolio
T. ROWE PRICE FUNDS
. Equity Income Portfolio
. Mid-Cap Growth Portfolio
. International Stock Portfolio
FIDELITY FUNDS
. Equity Income Portfolio
. High Income Portfolio
. Growth Portfolio
. Overseas Portfolio
. Money Market Portfolio
. Investment Grade Bond Portfolio
. Asset Manager Portfolio
. Index 500 Portfolio
. Contrafund Portfolio
. Asset Manager: Growth Portfolio
. Growth Opportunities Portfolio
. Growth and Income Portfolio
. Balanced Portfolio
. Mid Cap Growth Portfolio
THIS PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD KNOW BEFORE PURCHASING A
CONTRACT. ADDITIONAL INFORMATION ABOUT THE CONTRACTS IS CONTAINED IN A STATEMENT
OF ADDITIONAL INFORMATION ("SAI") FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION ("SEC"), WHICH IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. YOU
MAY OBTAIN A FREE COPY OF THE SAI, WHICH IS DATED THE SAME DATE AS THIS
PROSPECTUS, BY WRITING OR CALLING US AT OUR HOME OFFICE. THE TABLE OF CONTENTS
OF THE SAI IS ON PAGE 47 OF THIS PROSPECTUS. THE SEC MAINTAINS AN INTERNET WEB
SITE (HTTP://WWW.SEC.GOV) THAT CONTAINS MATERIAL INCORPORATED BY REFERENCE INTO
THIS PROSPECTUS, SAI AND OTHER INFORMATION REGARDING COMPANIES THAT FILE
ELECTRONICALLY WITH THE SEC.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OR
PROSPECTUS PROFILES FOR THE AMERICAN NATIONAL FUND, FIDELITY FUNDS, AND T. ROWE
PRICE FUNDS.
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 CONTRACTS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR ARE THE CONTRACTS FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY.
THE CONTRACTS INVOLVE INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL.
Please read this prospectus carefully and keep it for future reference.
Form 5774 Rev. 5-99
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TABLE OF CONTENTS
Glossary................................................................ 4
Introduction............................................................ 5
What is the Purpose of the Contracts?................................. 5
What are my Investment Options?....................................... 5
How Do I Purchase a Contract?......................................... 5
How Do I Allocate Purchase Payments?.................................. 6
Can I Transfer Amounts Between the Investment Alternatives? .......... 6
What are the Death Benefits Under the Contracts?...................... 6
Can I Get My Money If I Need It?...................................... 6
How Can I Receive Annuity Payments?................................... 7
What are the Charges and Deductions Under the Contract? .............. 7
What are the Tax Consequences Associated with the Contract? .......... 7
If I Have Questions, Where Can I Go?.................................. 7
Contractowner Transaction Expenses...................................... 8
Expenses Before the Annuity Date...................................... 8
Sales Load as a Percentage of Purchase Payments....................... 8
Deferred Sales Load ("Surrender Charge").............................. 8
Expenses During the Annuity Period.................................... 14
Accumulation Unit Values................................................ 18
Contracts............................................................... 20
Types of Contracts.................................................... 20
Contract Application and Purchase Payments............................ 20
Allocation of Purchase Payments....................................... 21
Crediting of Accumulation Units....................................... 21
Allocation of Charges and Other Deductions to the Subaccounts and the
Fixed Account....................................................... 21
Determining Accumulation Unit Values.................................. 21
Transfers Before Annuity Date......................................... 22
Charges and Deductions.................................................. 22
Charges and Deductions Before Annuity Date............................ 22
Charges and Deductions During the Annuity Period...................... 24
Exceptions to Charges................................................. 25
Distributions Under the Contract........................................ 25
Distributions Before the Annuity Date................................. 25
Surrenders............................................................ 25
Policy Loans in Qualified Deferred Annuity Contracts.................. 26
Death Benefit Before Annuity Date..................................... 28
Distribution During the Annuity Period................................ 30
Election of Annuity Date and Form of Annuity.......................... 30
Allocation of Benefits................................................ 30
Annuity Options....................................................... 30
Value of Variable Annuity Payments: Assumed Investment Rates ......... 32
Annuity Provisions.................................................... 32
The Company, Separate Account, Funds, and Fixed Account ................ 33
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American National Insurance Company................................... 33
The Separate Account.................................................. 33
The Funds............................................................. 34
Changes in Investment Options......................................... 38
Fixed Account........................................................... 38
Federal Tax Matters..................................................... 39
Introduction.......................................................... 39
Tax Status of the Contracts........................................... 39
Taxation of Annuities in General...................................... 39
Withdrawals........................................................... 40
Penalty Tax........................................................... 40
Annuity Payments...................................................... 40
Taxation of Death Benefit Proceeds.................................... 41
Transfers or Assignments of a Contract................................ 41
Required Distributions................................................ 41
Withholding........................................................... 41
Multiple Contracts.................................................... 41
Exchanges............................................................. 42
Taxation of Qualified Contracts....................................... 42
Distribution from Qualified Contracts................................. 42
Possible Changes in Taxation.......................................... 44
All Contracts......................................................... 45
Performance............................................................. 45
Distributor of Contracts................................................ 46
Legal Matters........................................................... 46
Legal Proceedings....................................................... 46
Experts................................................................. 46
Additional Information.................................................. 46
Financial Statements.................................................... 47
Table of Contents of Statement of Additional Information................ 47
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GLOSSARY
Accumulation Period. The time between the date Accumulation Units are first
purchased by us and the earliest of (1) the Annuity Date; (2) the date the
Contract is surrendered; or (3) the date of the Contractowner's death.
Accumulation Unit. A unit used by us to calculate a Contract's value during the
Accumulation Period.
Accumulation Value. The sum of (1) the value of your Accumulation Units; (2)
value in the Fixed Account; and (3) contract value which secures policy loans.
American National Fund. American National Investment Accounts, Inc.
Annuitant. The person or persons who will receive annuity payments involving
life contingencies.
Annuity Date. The date annuity payments begin.
Annuity Period. The time during which annuity payments are made.
Annuity Unit. A unit used by us to calculate the dollar amount of annuity
payments.
Company ("we", "our" or "us" ). American National Insurance Company.
Contract. A 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.
Deferred Annuity Contract. A Contract in which annuity payments commence
at some future date.
Eligible Portfolio. A Portfolio which corresponds to a subaccount.
Fidelity Funds. Variable Insurance Products Fund and 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.
Immediate Annuity. A Contract which provides immediate annuity payments.
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.
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T. Rowe Price Funds. T. Rowe Price Equity Series, Inc. and T. Rowe Price
International Series, Inc.
Valuation Date. Each day the New York Stock Exchange is open for regular
trading.
Valuation Period. The close of business on any Valuation Date to the close of
business on another.
Variable Annuity. An annuity with payments that vary in dollar amount.
INTRODUCTION
WHAT IS THE PURPOSE OF THE CONTRACTS?
The Contracts allow you to accumulate funds, on a tax-deferred basis, at rates
that will increase or decline in value based on the performance of investments
you choose. You should use the Contracts 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:
. AN Money Market
. AN Growth
. AN Balanced
. AN Managed
. VIP II Investment Grade Bond
. VIP II Asset Manager
. VIP II Index 500
. VIP Money Market
. VIP Equity-Income
. VIP High Income
. VIP Growth
. VIP Overseas
. VIP II Contrafund
. VIP II Asset Manager: Growth
. VIP III Growth Opportunities
. VIP III Growth and Income
. VIP III Balanced
. VIP III Mid Cap Growth
. T. Rowe Price Equity Income
. T. Rowe Price Mid-Cap Growth
. T. Rowe Price International Stock
Each such subaccount and corresponding Eligible Portfolio has its own investment
objective. Some of the Eligible Portfolios have similar investment objectives.
(See "The Funds" beginning on page 34.) 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. The minimum and maximum amounts of Purchase
Payments vary depending upon the type of Contract purchased. (See "Contract
Application and Purchase Payments," page 20.)
For a limited time, usually ten days after you receive your Contract, you can
return the Contract to our home office and receive a refund. (See "Contract
Application and Purchase Payments" on page 20.)
The contracts are not available in some states. You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is different.
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HOW DO I ALLOCATE PURCHASE PAYMENTS?
You can allocate your Purchase Payments among the 21 currently available
subaccounts and the Fixed Account. You cannot allocate less than 10% of a
Purchase Payment to any one investment option.
CAN I TRANSFER AMOUNTS BETWEEN THE INVESTMENT ALTERNATIVES?
You can make transfers between subaccounts and to our Fixed Account at any
time. Transfers from our Fixed Account before the Annuity Date are limited.
(See "Transfers Before Annuity Date" on page 22 for additional limitations.)
Transfers from our Fixed Account after the Annuity Date are not permitted. (See
"Allocation of Benefits" on page 30 for additional limitations.)
Before the Annuity Date, the first twelve transfers each Contract Year among the
subaccounts or the Fixed Account are free. Additional transfers will be subject
to a $10.00 exchange fee. Transfers after the Annuity Date are unlimited and
free.
You should periodically review your allocations among the subaccounts and the
Fixed Account to make sure they fit your current situation and financial goals.
You can make allocation changes in writing or during our normal business hours
by telephone if a telephone authorization form is on file with us. We will
employ reasonable procedures to confirm that telephone instructions are genuine.
If we follow those procedures, we will not be liable for losses due to
unauthorized or fraudulent instructions. We may be liable for such losses if we
do not follow those procedures.
WHAT ARE THE DEATH BENEFITS UNDER THE CONTRACTS?
If you or the Annuitant die before the Annuity Date, the death benefit for
Deferred Annuity Contracts will be at least the amount of the Accumulation Value
less policy debt on the date notice of death is received at our home office. The
death benefit may be more. (See "Death Benefit Before Annuity Date" on page 28.
Policy debt is the amount of all unpaid policy loans plus accrued interest.
For the Immediate Annuity Contract, and after the Annuity Date for Deferred
Annuity Contracts, death benefits, if any, depend upon the annuity option
selected. (See "Annuity Options" at page 30).
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 Contracts qualified under Section
403(b) of the Internal Revenue Code may be restricted. (See "Taxation of
Qualified Contracts" under "Federal Tax Matters" at page 42.)
You can also make policy loans in Qualified Deferred Annuity Contracts. (See
"Policy Loans in Qualified Deferred Annuity Contracts" on page 26.)
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HOW CAN I RECEIVE ANNUITY PAYMENTS?
You can choose from a number of annuity payment options, which include
. monthly payments for a number of years
. payments for life
. payments made jointly
You can also choose to receive your Annuity Payments on a fixed or variable
basis. Variable payments will increase or decrease based on the investment
performance of the Eligible Portfolios and the declared rate paid by us on our
Fixed Account. (See "Annuity Options," page 30.)
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. We
also charge a daily distribution expense charge to cover sales or distribution
expenses not covered by surrender charges. Such expense charge equals, on an
annual basis, 0.05% of the Contract's daily Accumulation Value.
You will also be charged an annual contract fee of $25 on Non-Qualified
Contracts and $30 on Qualified Contracts.
We charge a daily amount equal, on an annual basis, a mortality risk fee of .80%
and an expense risk fee of .45% 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 administration 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 CONTRACTS?
You are generally required to pay taxes on amounts earned in a Non-Qualified
Contract when they are withdrawn. When you take distributions or withdrawals
from a deferred contract, taxable earning 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 pealty for distributions or withdrawals taken before age
59 1/2.
You generally are required to pay taxes on all amounts withdrawn from a
Qualified Contract. Restrictions and penalties may apply to withdrawals from a
Qualified Contract. (See "Federal Tax Matters," page 39.)
IF I HAVE QUESTIONS, WHERE CAN I GO?
If you have any questions about the Contracts, you can contact your registered
representative or write us at One Moody Plaza, Galveston, Texas 77550-7999 or
call us at 1-800-306-2959.
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CONTRACTOWNER TRANSACTION
EXPENSES
EXPENSES BEFORE THE ANNUITY DATE
The following table summarizes the charges we will make prior to 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 22.
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 divide such withdrawal by your
Accumulation Value and convert such results into a percentage. We will reduce
the first part of the formula for calculating the Free Withdrawal Amount
(i.e., the 10% of Accumulation Value) by that percentage and will use the
reduced percentage in the formula for calculating the Free Withdrawal Amount
for additional withdrawals in that same Contract Year.
. Calculation of Surrender Charges
Surrender Charges vary depending on the number of Contract Years since the
Purchase Payment being withdrawn was paid, on a first paid, first withdrawn
basis. The Surrender Charge will be deducted from your Accumulation Value, if
sufficient. If your Accumulation Value is not sufficient, your withdrawal will
be reduced accordingly. Surrender Charges will be a percentage of each
Purchase Payment or portion thereof withdrawn as illustrated in the following
table:
CONTRACT YEARS 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
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NON-QUALIFIED QUALIFIED
DEFERRED DEFERRED
ANNUITY ANNUITY
- --------------------------------------------------------------------------------
EXCHANGE FEE $ 10 $ 10
(THERE IS NO EXCHANGE FEE FOR
THE FIRST 12 TRANSFERS)
ANNUAL CONTRACT FEE $ 25 $ 30
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS PERCENTAGE OF AVERAGE NET ASSETS)
Mortality Risk Fees 0.80% 0.80%
Expense Risk Fees 0.45% 0.45%
Administrative Asset Fees 0.10% 0.10%
Distribution Expense Charge 0.05% 0.05%
Total Separate Account Annual Expenses 1.40% 1.40%
NON-QUALIFIED QUALIFIED
DEFERRED DEFERRED
ANNUITY ANNUITY
- --------------------------------------------------------------------------------
AN MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * ** 0.00% 0.00%
Other Expenses 0.87% 0.87%
Total AN Money Market Portfolio Annual Expenses 0.87% 0.87%
* Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.37%.
AN GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * ** 0.36% 0.36%
Other Expenses 0.51% 0.51%
Total AN Growth Portfolio Annual Expenses 0.87% 0.87%
* Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.01%.
AN BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * ** 0.44% 0.44%
Other Expenses 0.74% 0.74%
Total AN Balanced Portfolio Annual Expenses 1.18% 1.18%
* Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 1.24%.
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AN MANAGED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * ** 0.16% 0.16%
Other Expenses 0.49% 0.49%
Total AN Managed Portfolio Annual Expenses 0.65% 0.65%
* Without reimbursement, management fees would have been 0.50% and the
total portfolio annual expense would have been 0.99%.
**Under its Administrative Service Agreement with the American National Fund,
Securities Management and Research, Inc. ("SM&R"), the American National
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 American National Fund effective May 1,
1994 until April 30, 2000, pursuant to which SM&R has agreed to reimburse the
AN Money Market Portfolio and the AN Growth Portfolio for expenses in excess
of .87%; the AN Balanced Portfolio for expenses in excess of 1.18% and the AN
Managed Portfolio for expenses in excess of .65%, of each of such Portfolios'
average daily net assets during such period. SM&R is under no obligation to
renew this undertaking for any Portfolio at the end of such period.
VIP II INVESTMENT GRADE BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.43% 0.43%
Other Expenses 0.14% 0.14%
Total VIP II Investment Grade Bond Portfolio
Annual Expenses 0.57% 0.57%
VIP II ASSET MANAGER PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.54% 0.54%
Other Expenses after reimbursement* 0.10% 0.10%
Total VIP II Asset Manager Portfolio
Annual Expenses 0.64% 0.64%
*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 .54%, .24% and .78% respectively.
VIP II INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.24% 0.24%
Other Expenses 0.04% 0.04%
Total VIP II Index 500 Portfolio Annual Expenses 0.28% 0.28%
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VIP MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.20% 0.20%
Other Expenses 0.10% 0.10%
Total VIP Money Market Portfolio Annual Expenses 0.30% 0.30%
VIP EQUITY-INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.49% 0.49%
Other Expenses after reimbursement* 0.09% 0.09%
Total VIP Equity-Income Portfolio Annual Expenses 0.58% 0.58%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been .49%, .19% and .68% respectively.
VIP HIGH INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.58% 0.58%
Other Expenses after reimbursement* 0.12% 0.12%
Total VIP High Income Portfolio Annual Expenses 0.70% 0.70%
*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 .58%, .24% and .82% respectively.
VIP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59% 0.59%
Other Expenses after reimbursement* 0.09% 0.09%
Total VIP Growth Portfolio Annual Expenses 0.68% 0.68%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been .59%, .21% and .80% respectively.
VIP OVERSEAS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.74% 0.74%
Other Expenses after reimbursement* 0.17% 0.17%
Total VIP Overseas Portfolio Annual Expenses 0.91% 0.91%
*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 .74%, .27% and 1.01% respectively.
VIP II CONTRAFUND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59% 0.59%
Other Expenses after reimbursement* 0.11% 0.11%
Total VIP II Contrafund Portfolio Annual Expenses 0.70% 0.70%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been .60%, .21% and .81% respectively.
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VIP II ASSET MANAGER: GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59% 0.59%
Other Expenses after reimbursement* 0.14% 0.14%
Total VIP II Asset Manager: Growth Portfolio
Annual Expenses 0.73% 0.73%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been .59%, .30% and .89% respectively.
VIP III BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.44% 0.44%
Other Expenses after reimbursement* 0.15% 0.15%
Total VIP III Balanced Portfolio Annual Expenses 0.59% 0.59%
*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 .44%, .26% and .70% respectively.
VIP III GROWTH AND INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.49% 0.49%
Other Expenses after reimbursement* 0.12% 0.12%
Total VIP III Growth and Income Portfolio
Annual Expenses 0.61% 0.61%
*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 .49%, .22% and .71% respectively.
VIP III GROWTH OPPORTUNITIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59% 0.59%
Other Expenses after reimbursement* 0.12% 0.12%
Total VIP III Growth Opportunities Portfolio
Annual Expenses 0.71% 0.71%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been .59%, .21% and .80% respectively.
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VIP III MID CAP PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.56% 0.56%
Other Expenses after reimbursement* 0.30% 0.30%
Total VIP III Mid Cap Portfolio Annual Expenses 0.86% 0.86%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total
expenses would have been .56%, .40% and .96% respectively.
T. ROWE PRICE EQUITY INCOME PORTFOLIO ANNUAL EXPENSE
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.85% 0.85%
Other Expenses 0.00% 0.00%
Total T. Rowe Price Equity Income Portfolio
Annual Expenses** 0.85% 0.85%
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.85% 0.85%
Other Expenses 0.00% 0.00%
Total T. Rowe Price Mid Cap Growth Portfolio
Annual Expenses** 0.85% 0.85%
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.05% 1.05%
Other Expenses 0.00% 0.00%
Total T. Rowe Price International Stock Portfolio
Annual Expenses** 1.05% 1.05%
**T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price an
annual all-inclusive fee of 0.85% based on such portfolio's average daily net
assets. The T. Rowe Price International Stock Portfolio pays Rowe-Price-Fleming
International, Inc. an annual all-inclusive fee of 1.05% based on such
portfolio's average daily net assets. These fees pay for investment manage-ment
services and other operating costs of the portfolios.
13
<PAGE>
EXPENSES DURING THE ANNUITY PERIOD
During the Annuity Period, we will charge the Separate Account a mortality risk
fee of .80% and expense risk fee of .45%. We will also charge the Separate
Account with the expenses of the Eligible Portfolios shown on previous pages in
which you have invested. At the time you purchase the Immediate Annuity
Contract, you will be charged a $100 Contract fee. No other fees or expenses are
charged against the Contracts during the Annuity Period.
Example: NON-QUALIFIED DEFERRED ANNUITY CONTRACT
If you surrender your Deferred Annuity Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------
AN Money Market Portfolio $ 87 $ 126 $ 155 $ 248
AN Growth Portfolio $ 87 $ 126 $ 155 $ 248
AN Balanced Portfolio $ 89 $ 135 $ 171 $ 279
AN Managed Portfolio $ 84 $ 120 $ 144 $ 225
VIP II Investment Grade Bond Portfolio $ 84 $ 117 $ 140 $ 217
VIP II Asset Manager Portfolio $ 84 $ 119 $ 143 $ 224
VIP II Index 500 Portfolio $ 81 $ 109 $ 125 $ 185
VIP Money Market Portfolio $ 81 $ 109 $ 126 $ 187
VIP Equity-Income Portfolio $ 84 $ 118 $ 140 $ 218
VIP High Income Portfolio $ 85 $ 121 $ 147 $ 230
VIP Growth Portfolio $ 85 $ 120 $ 146 $ 228
VIP Overseas Portfolio $ 87 $ 127 $ 157 $ 252
VIP II Contrafund Portfolio $ 85 $ 121 $ 147 $ 230
VIP II Asset Manager: Growth Portfolio $ 85 $ 122 $ 148 $ 233
VIP III Balanced Portfolio $ 84 $ 118 $ 141 $ 219
VIP III Growth and Income Portfolio $ 84 $ 118 $ 142 $ 221
VIP III Growth Opportunities Portfolio $ 85 $ 121 $ 147 $ 231
VIP III Mid Cap Portfolio $ 86 $ 126 $ 155 $ 219
T. Rowe Price Equity Income Portfolio $ 86 $ 125 $ 154 $ 246
T. Rowe Price Mid-Cap Growth Portfolio $ 86 $ 125 $ 154 $ 246
T. Rowe Price International Stock Portfolio $ 88 $ 131 $ 164 $ 266
14
<PAGE>
If you do not surrender your Deferred Annuity Contract or annuitize your De-
ferred Annuity Contract:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------
AN Money Market Portfolio $ 22 $ 67 $ 115 $ 248
AN Growth Portfolio $ 22 $ 67 $ 115 $ 248
AN Balanced Portfolio $ 25 $ 77 $ 131 $ 279
AN Managed Portfolio $ 20 $ 60 $ 104 $ 225
VIP II Investment Grade Bond Portfolio $ 19 $ 58 $ 100 $ 217
VIP II Asset Manager Portfolio $ 19 $ 60 $ 103 $ 224
VIP II Index 500 Portfolio $ 16 $ 49 $ 85 $ 185
VIP Money Market Portfolio $ 16 $ 50 $ 86 $ 187
VIP Equity-Income Portfolio $ 19 $ 58 $ 100 $ 218
VIP High Income Portfolio $ 20 $ 62 $ 107 $ 230
VIP Growth Portfolio $ 20 $ 61 $ 106 $ 228
VIP Overseas Portfolio $ 22 $ 68 $ 117 $ 252
VIP II Contrafund Portfolio $ 20 $ 62 $ 107 $ 230
VIP II Asset Manager: Growth Portfolio $ 20 $ 63 $ 108 $ 233
VIP III Balanced Portfolio $ 19 $ 59 $ 101 $ 219
VIP III Growth and Income Portfolio $ 19 $ 59 $ 102 $ 221
VIP III Growth Opportunities Portfolio $ 20 $ 62 $ 107 $ 231
VIP III Mid Cap Portfolio $ 22 $ 67 $ 115 $ 247
T. Rowe Price Equity Income Portfolio $ 22 $ 67 $ 114 $ 246
T. Rowe Price Mid-Cap Growth Portfolio $ 22 $ 67 $ 114 $ 246
T. Rowe Price International Stock Portfolio $ 24 $ 73 $ 124 $ 266
15
<PAGE>
Example: QUALIFIED DEFERRED ANNUITY CONTRACT
If you surrender your Deferred Annuity Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------
AN Money Market Portfolio $ 88 $ 129 $ 161 $ 259
AN Growth Portfolio $ 88 $ 129 $ 161 $ 259
AN Balanced Portfolio $ 90 $ 138 $ 176 $ 290
AN Managed Portfolio $ 85 $ 123 $ 149 $ 236
VIP II Investment Grade Bond Portfolio $ 85 $ 120 $ 145 $ 228
VIP II Asset Manager Portfolio $ 85 $ 122 $ 149 $ 235
VIP II Index 500 Portfolio $ 82 $ 112 $ 130 $ 197
VIP Money Market Portfolio $ 82 $ 113 $ 131 $ 199
VIP Equity-Income Portfolio $ 85 $ 121 $ 146 $ 229
VIP High Income Portfolio $ 86 $ 124 $ 152 $ 241
VIP Growth Portfolio $ 86 $ 124 $ 151 $ 239
VIP Overseas Portfolio $ 88 $ 130 $ 163 $ 263
VIP II Contrafund Portfolio $ 86 $ 124 $ 152 $ 241
VIP II Asset Manager: Growth Portfolio $ 86 $ 125 $ 154 $ 244
VIP III Balanced Portfolio $ 85 $ 121 $ 146 $ 230
VIP III Growth and Income Portfolio $ 85 $ 122 $ 147 $ 232
VIP III Growth Opportunities Portfolio $ 86 $ 124 $ 152 $ 242
VIP III Mid Cap Portfolio $ 87 $ 129 $ 160 $ 258
T. Rowe Price Equity Income Portfolio $ 87 $ 128 $ 160 $ 257
T. Rowe Price Mid-Cap Growth Portfolio $ 87 $ 128 $ 160 $ 257
T. Rowe Price International Stock Portfolio $ 89 $ 134 $ 170 $ 277
16
<PAGE>
If you do not surrender your Deferred Annuity Contract or annuitize your De-
ferred Annuity Contract:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
1 3 5 10
FUND YEAR YEARS YEARS YEARS
- ---------------------------------------------------------------------------
AN Money Market Portfolio $ 23 $ 70 $ 121 $ 259
AN Growth Portfolio $ 23 $ 70 $ 121 $ 259
AN Balanced Portfolio $ 26 $ 80 $ 136 $ 290
AN Managed Portfolio $ 21 $ 64 $ 109 $ 236
VIP II Investment Grade Bond Portfolio $ 20 $ 61 $ 105 $ 228
VIP II Asset Manager Portfolio $ 21 $ 63 $ 109 $ 235
VIP II Index 500 Portfolio $ 17 $ 52 $ 90 $ 197
VIP Money Market Portfolio $ 17 $ 53 $ 91 $ 199
VIP Equity-Income Portfolio $ 20 $ 62 $ 106 $ 229
VIP High Income Portfolio $ 21 $ 65 $ 112 $ 241
VIP Growth Portfolio $ 21 $ 65 $ 111 $ 239
VIP Overseas Portfolio $ 23 $ 72 $ 123 $ 263
VIP II Contrafund Portfolio $ 21 $ 65 $ 112 $ 241
VIP II Asset Manager: Growth Portfolio $ 21 $ 66 $ 114 $ 244
VIP III Balanced Portfolio $ 20 $ 62 $ 106 $ 230
VIP III Growth and Income Portfolio $ 20 $ 63 $ 107 $ 232
VIP III Growth Opportunities Portfolio $ 21 $ 66 $ 112 $ 242
VIP III Mid Cap Portfolio $ 23 $ 70 $ 120 $ 258
T. Rowe Price Equity Income Portfolio $ 23 $ 70 $ 120 $ 257
T. Rowe Price Mid-Cap Growth Portfolio $ 23 $ 70 $ 120 $ 257
T. Rowe Price International Stock Portfolio $ 25 $ 76 $ 130 $ 277
You should not consider the examples as representative of past or future ex-
penses. The examples do not include the deduction of any 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 and the T. Rowe Price Funds, see
their Prospectuses.
17
<PAGE>
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 DECEMBER 31,
- ------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
AN GROWTH PORTFOLIO
Accumulation unit value at beginning of period $1.731 $1.456 $1.255
Accumulation unit value at end of period $2.026 $1.731 $1.456
Number of accumulation units outstanding at
end of period 1,996,017 1,622,115 911,104
AN MONEY MARKET PORTFOLIO
Accumulation unit value at beginning of period $1.101 $1.066 $1.036
Accumulation unit value at end of period $1.137 $1.101 $1.066
Number of accumulation units outstanding at
end of period 170,622 195,843 32,515
AN BALANCED PORTFOLIO
Accumulation unit value at beginning of period $1.469 $1.254 $1.136
Accumulation unit value at end of period $1.689 $1.469 $1.254
Number of accumulation units outstanding at
end of period 948,986 558,223 287,278
AN MANAGED PORTFOLIO
Accumulation unit value at beginning of period $1.758 $1.458 $1.255
Accumulation unit value at end of period $2.011 $1.758 $1.458
Number of accumulation units outstanding at
end of period 2,650,678 1,937,161 1,100,338
VIP II INVESTMENT GRADE BOND
Accumulation unit value at beginning of period $1.263 $1.176 $1.159
Accumulation unit value at end of period $1.357 $1.263 $1.176
Number of accumulation units outstanding at
end of period 353,787 93,192 72,929
VIPII ASSET MANAGER
Accumulation unit value at beginning of period $1.518 $1.278 $1.134
Accumulation unit value at end of period $1.724 $1.518 $1.278
Number of accumulation units outstanding at
end of period 712,337 602,425 426,424
VIPII INDEX 500
Accumulation unit value at beginning of period $2.154 $1.649 $1.365
Accumulation unit value at end of period $2.727 $2.154 $1.649
Number of accumulation units outstanding at
end of period 2,288,623 1,753,242 636,107
VIP MONEY MARKET
Accumulation unit value at beginning of period $1.127 $1.087 $1.049
Accumulation unit value at end of period $1.172 $1.127 $1.087
Number of accumulation units outstanding at
end of period 518,157 774,056 179,947
VIP EQUITY-INCOME
Accumulation unit value at beginning of period $1.869 $1.482 $1.322
Accumulation unit value at end of period $2.054 $1.869 $1.482
Number of accumulation units outstanding at
end of period 2,141,972 1,805,034 971,692
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
VIP HIGH INCOME
Accumulation unit value at beginning of period $1.546 $1.334 $1.189
Accumulation unit value at end of period $1.460 $1.546 $1.334
Number of accumulation units outstanding at
end of period 390,294 365,784 259,931
VIP GROWTH
Accumulation unit value at beginning of period $1.840 $1.513 $1.341
Accumulation unit value at end of period $2.532 $1.840 $1.513
Number of accumulation units outstanding at
end of period 1,515,237 1,263,215 895,058
VIP OVERSEAS
Accumulation unit value at beginning of period $1.283 $1.167 $1.048
Accumulation unit value at end of period $1.427 $1.283 $1.167
Number of accumulation units outstanding at
end of period 287,821 233,047 170,694
VIPII CONTRA FUND
Accumulation unit value at beginning of period $1.657 $1.355 $1.157
Accumulation unit value at end of period $2.126 $1.657 $1.355
Number of accumulation units outstanding at
end of period 1,048,708 748,156 259,582
VIPII ASSET MANAGER GROWTH
Accumulation unit value at beginning of period $1.487 $1.207 $1.024
Accumulation unit value at end of period $1.725 $1.487 $1.207
Number of accumulation units outstanding at
end of period 449,242 441,436 34,541
</TABLE>
19
<PAGE>
CONTRACTS
TYPES OF CONTRACTS
This Prospectus offers the following two types of Contracts:
. DEFERRED ANNUITY CONTRACT - Provides for annuity payments to commence at a
future date. You can choose to vary your Purchase Payments or pay a single
Purchase Payment. Deferred annuity contracts can be either Qualified or Non-
Qualified.
. IMMEDIATE ANNUITY CONTRACT - Provides for annuity payments to commence
immediately. You can only purchase this type of Contract by making a single
Purchase Payment.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
To purchase a Contract, you must complete an application and send the minimum
Purchase Payment to our home office. (See "Allocation of Purchase Payments",
page 21.) If your application cannot be processed within five days after
receipt, we will return your payment. We will credit your initial Purchase
Payment to the Contract within two business days after a completed application
is received at our home office.
You have a "free look" period during which you can return the Contract to our
home office and get a refund. The refund will equal the greater of (1) all of
your Purchase Payments or (2) Accumulation Value plus charges deducted by us
during such period. The "free look" period is established by state law and
generally runs ten days after you receive a Contract. We require that Purchase
Payments received by us during the 15-day period after the Date of Issue be
allocated to the 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.
Unless changed by us, Deferred Annuity Contracts require the following minimum
Purchase Payments:
. Flexible Purchase Payment Deferred Annuity Contracts - $100 minimum
initial and subsequent Purchase Payments
. Single Purchase Payment Deferred Annuity Contracts - $5,000 minimum
single payment
. Immediate Annuity Contracts - $2,000 minimum initial investment
Without our approval, the maximum Purchase Payment under a Deferred
Annuity Contract is $1,000,000.
You can make Purchase Payments in a Flexible Purchase Payment Deferred
Annuity Contract at such intervals as you desire. You can change the frequency
of your Purchase Payments. If you stop making Purchase Payments, you may
resume such payments at any time before the Annuity Date.
20
<PAGE>
The number of changes permitted and the maximum payments allowed under the
Internal Revenue Code for Qualified Contracts vary depending on the type of
Plan. Failure to comply with those limitations may subject the Contract to
adverse tax treatment.
ALLOCATION OF PURCHASE PAYMENTS
After the "free look" period, your Purchase Payments will be allocated to the
subaccounts and the Fixed Account according to your instructions in the applica-
tion. You can change these allocations at any time by written instruction to our
home office or by telephone, if a properly completed telephone transfer authori-
zation form is on file with us.
CREDITING OF ACCUMULATION UNITS
Before the Annuity Date, Purchase Payments will be used to purchase Accumu-
lation 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
. secure policy loans
. provide benefits
We will immediately reinvest dividends and capital gain distributions received
from an Eligible Portfolio at net asset value in shares of that Eligible
Portfolio.
DETERMINING ACCUMULATION UNIT VALUES
The Accumulation Unit value of each subaccount reflects the investment perfor-
mance of that subaccount. We calculate Accumulation Unit value on each Valuation
Date by:
. multiplying the per share net asset value of the corresponding Eligible
Portfolio by the number of shares held by the subaccount, after the purchase
or redemption of any shares on the Valuation Date;
. subtracting a charge for the administrative fee, distribution expense charge
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.
21
<PAGE>
We will calculate the Accumulation Unit Value for each subaccount at the end of
each Valuation Period. Investment performance of the Eligible Portfolios will
increase or decrease the Accumulation Unit Value for each subaccount, the
Eligible Portfolio expenses and the deduction of certain charges by us 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 can only be made during the first thirty (30)
days of each Contract Year and cannot exceed the greater of (1) 25% 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 24.)
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.
Transfers resulting from policy loans will not be subject to a transfer charge.
In addition, such policy loans will not be counted for purposes of the
limitation on the number of free transfers allowed in each Contract Year.
We may revoke or modify the transfer privilege. For a discussion of transfers
after the Annuity Date, see "Allocation of Benefits" at page 30.
CHARGES AND DEDUCTIONS
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
Contracts. (See "Deferred Sales Load" [`Surrender Charge'] on page 8.)
When you make a withdrawal, we will divide such withdrawal by your Accumulation
Value and convert such result into a percentage. Assume you have $40,000
Accumulation Value, $38,000 of which represents total Purchase Payments and
$2,000 of which represents Accumulation Value less total Purchase Payments.
22
<PAGE>
. 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 of surrender
charge. The remaining $3,000 is a withdrawal of Purchase Payments and will be
subject to a Surrender Charge.
. Example 2 - Assume you have made a $3,000 withdrawal and want to make
an additional $5,000 withdrawal in the same Contract Year. The first
withdrawal would have been free because it was less than the Free Withdrawal
Amount. However, such withdrawal would have utilized a portion of the Free
Withdrawal Amount available in that Contract Year. The first part of the
formula for calculating the Free Withdrawal Amount will be reduced by 7.5%,
which is the percentage the first surrender was of your Accumulation Value at
that time. If there have been no additional Purchase Payments or increases in
the amount by which your Accumulation Value exceeds your total Purchase
Payments since the first withdrawal, the Free Withdrawal Amount for the second
withdrawal will be the greater of (1) 2.5% of your Accumulation Value, which
is $925.00 or (2) Accumulation Value minus total Purchase Payments, which is
zero (0). Accordingly, $925 of your second withdrawal will be free of
surrender charge. The remaining $4,075 will be a withdrawal of Purchase
Payments and will be subject to a Surrender Charge.
OTHER CHARGES
Your Contract is subject to certain other charges:
. Administrative Charges
. An annual contract fee charged at the end of each Contract Year. The fee
for Non-Qualified Deferred Annuity Contracts is $25. The fee for Qualified
Deferred Annuity Contracts is $30. If a Contract is fully surrendered, a pro
rata portion of the fee will be deducted.
. An administrative asset fee charged daily in Deferred Annuity Contracts 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
Annuity payments will not decrease because of adverse mortality experience
of annuitants as a class or increases in our actual expenses over expense
charges. We assume the risks that Annuitants as a class may live longer than
23
<PAGE>
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 Contracts, 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 0.45% per annum Expense Risk Fee will be assessed daily against the
Separate Account. We could realize a gain or a loss from such fees depending
on the mortality experienced and expenses actually incurred.
. Distribution Expense Charge
A distribution expense charge is assessed daily to each subaccount to
compensate us for the risk that surrender charges may be insufficient to cover
the costs of distributing the Contracts. The distribution expense charge is
0.05% annually. If the distribution expense charge is insufficient to cover
the actual risk assumed, we will bear the loss. If the charge is more than
sufficient, the excess will be a profit to us.
. 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. No fee is imposed on transfers as a result of policy loans. There
is no charge for one transfer from the Fixed Account permitted each contract
year.
DEDUCTION OF FEES
Deductions for annual fees will be prorated among the subaccounts and the Fixed
Account.
CHARGES AND DEDUCTIONS DURING THE ANNUITY PERIOD
During the Annuity Period, we will charge:
. A mortality risk fee of .80% and expense risk fee of .45% against the Separate
Account
. Expenses of the Eligible Portfolios in which you have invested, as shown in
the tables on page 9
. If you purchase an Immediate Annuity contract, a $100 Contract fee at the
time of purchase
24
<PAGE>
No other fees or expenses are charged against the Contracts during the Annuity
Period.
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 may 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.
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 $250 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 for full or partial surrenders can be determined
by:
. multiplying the number of Accumulation Units for each subaccount times the
Accumulation Unit Value;
. adding any Accumulation Value in the Fixed Account; and
. deducting policy debt, 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.
25
<PAGE>
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 minimum systematic withdrawal payment is $100. The minimum systematic
withdrawal from a subaccount or the Fixed Account is $50. Systematic withdrawals
can be started at anytime. We must receive written notification from you
specifying the amount, frequency and timing of payment. You can specify the
subaccount from which systematic withdrawals will be made. If you do not
specify, withdrawals will be taken prorata from each subaccount. Surrender
Charges will apply.
Because distributions may be taxable, you should consult your tax adviser before
requesting systematic withdrawals. (See "Federal Tax Matters," page 39.)
Under the Systematic Withdrawal Program, you can participate in the Minimum
Distributions Program by instructing us to calculate and make minimum
distributions required if the Contract is used with a qualified plan. (See
"Taxation of Qualified Contracts," page 42.) 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. Numerous special tax rules apply to
Contractowners whose Contracts are used with a qualified plan. You should
consult a tax advisor before electing to participate in the Minimum
Distributions Program.
POLICY LOANS IN QUALIFIED DEFERRED ANNUITY CONTRACTS
Policy loans are allowed on Qualified Deferred Annuity Contracts unless
considered as taxable distributions under federal law. After the first year, you
may borrow from us using the Qualified Contract as the security for the loan.
Policy loans are subject to the following:
. Policy Loan Amount
. cannot be less than $2,500
. cannot exceed the lesser of:
- 50% of Accumulation Value less surrender; or
- $50,000.00.
. Loan Interest
charged daily, not to exceed 8% annual rate
. due at the end of each Contract Year or when the policy loan is repaid, if
earlier.
. interest not paid when due will become part of the policy loan and will
accrue interest charges.
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. Effect of Policy Loans
Accumulation Value equal to the policy loan will be transferred from the
Separate Account and the Fixed Account to our General Account as security for
the policy debt. Such amount will earn interest at an annual rate not less
than 3.0% which will be credited at the end of the Contract Year. The
Accumulation Value securing the policy debt will be allocated among the
subaccounts and the Fixed Account in accordance with your instructions when
the policy loan is requested. The minimum amount that can remain in a
subaccount or the Fixed Account after a policy loan is $100. If you do not
give us allocation instructions, or if your instructions conflict with this
minimum requirement, the allocation will be prorata among the subaccounts and
the Fixed Account. We will transfer Accumulation Value from the subaccounts
and the Fixed Account to secure loan interest which is not paid in any
Contract Year. (Refer to "Deduction of Fees" on page 24.)
A policy loan will permanently affect the Accumulation Value of a Contract
even if the policy loan is repaid. The effect could be favorable or
unfavorable depending on whether the investment performance of the
subaccount(s) selected by you (or by us if you do not make an allocation) is
less or greater than the interest rate credited to the Accumulation Value held
in the General Account to secure policy debt. In comparison to a Contract
under which no policy loan was made, the Accumulation Value will be lower if
the General Account interest rate is less than the investment performance of
the subaccount(s), and greater if the General Account interest rate is higher
than the investment performance of the subaccount(s).
We will allocate interest earned on amounts held in the General Account to the
subaccounts and the Fixed Account on each Contract Anniversary in the same
proportion that Purchase Payments are being allocated to those subaccounts and
the Fixed Account. Upon repayment of policy debt, the portion of the repayment
allocated in accordance with the repayment of indebtedness provision will be
transferred to the Accumulation Value in that subaccount or the Fixed Account.
We expect to fund policy loans within seven days after receipt of your written
request in proper form. You can only have one loan outstanding at any time.
Policy loans may have tax consequences. (See "Federal Tax Matters," page 39.)
. Policy Debt
The Contract will terminate and have no value if the amount of unpaid loans,
plus accrued interest, ever equal or exceed the Accumulation Value less
Surrender Charges. The effective date of termination will be 31 days after we
have mailed notice of termination to your last known address and you have not
paid policy debt at least equal to the excess over the surrender amount.
If any death benefit proceeds or annuity benefits become due and payable
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when a policy loan is outstanding, we will reduce proceeds by the policy debt.
. Policy Loan Repayment
. You must repay Policy loans, other than "Home Loans," on or before the
fifth anniversary of the policy loan.
. You must repay Policy loans in a lump sum payment or, at our discretion, in
installments. All policy loan payments must be at least $10.00.
. Policy debt, other than a "Home Loan," unpaid after the fifth anniversary of
the policy loan will be deemed a distribution of the Contract proceeds. The
Contract will be reduced by the amount of any such balance. (See "Taxation
of Annuities in General" on page 39.)
"Home Loan" means any policy loan for the purpose of acquiring, con-
structing, reconstructing or substantially rehabilitating a dwelling unit
for use by you (as defined in Section 267(c) of the Internal Revenue Code)
as a principal place of residence for a reasonable period of time. You may
repay "Home Loans" over a period of time not to exceed 15 years, with level
installment payments made not less frequently than quarterly.
Policy loans are not allowed on Non-Qualified Deferred Annuity Contracts
because of adverse tax consequences.
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 less policy debt; or
. The minimum guaranteed death benefit less policy debt.
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 prior to 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
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minimum guaranteed death benefit at the end of the first six Contract Year
period would be $4,000.
Example 2 - Assume you make a $2,000 partial surrender in the third Contract
Year of the first six Contract Year period, at which time you have made $4,000
in total Purchase Payments, and your Contract's Accumulation Value is $8,000.
Your minimum guaranteed death benefit would be recalculated and reduced at the
time of such partial surrender. The amount of such reduction would be $1,000
which is calculated by:
. dividing the minimum guaranteed death benefit immediately prior to the
partial surrender ($4,000) by Accumulation Value at that time ($8,000); and
. multiplying such amount ($4,000 divided by $8,000 or .5) times the amount of
the partial surrender ($2,000).
Your minimum guaranteed death benefit prior to 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 prior to 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 ($9,000 divided by $10,000 or .9) times the amount
of the partial surrender ($4,000).
Your minimum guaranteed death benefit prior to 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 30. 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," on page 30.
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DISTRIBUTIONS DURING THE ANNUITY PERIOD
All or part of any amount payable at the Annuity Date for Deferred Annuity
Contracts 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 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 $2,000. 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 Date and form of annuity are elected in the
application. A Contract cannot be purchased after age 70 and annuity payments
must begin not later than 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 39.)
Once an Annuity Payment is made, the Annuity Option cannot be changed to
another Annuity Option.
ALLOCATION OF BENEFITS
Unless you elect to the contrary, the Accumulation Units of each subaccount will
be changed to Annuity Units and applied to provide a Variable Annuity based on
that subaccount.
In lieu of this allocation, you may elect to transfer your Accumulation Units to
either one or more Eligible Portfolios or to the Fixed Account. After the
Annuity Date, you can only make twelve transfers among subaccounts each Contract
year. You can transfer Annuity Units of one subaccount to Annuity Units of
another subaccount and to the Fixed Account at any time other than during the
five-day interval before and including any annuity payment date.
No election can be made unless such election would produce an initial annuity
payment of at least $20.
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 prior to the death of
the individual. This option offers the maximum level of monthly annuity
payments since there is no provision for a minimum number of annuity payments
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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 not exceeding 20. 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.
. Option 8 - IRC Age Recalculation - payment based upon the Annuitant's life
expectancy, or the joint life expectancies of the Annuitant and a beneficiary,
at the Annuitant's attained age (and the beneficiary's attained or adjusted
age, if applicable), each year as computed in reference to actuarial tables
prescribed by the U. S. Treasury Secretary, until the amount applied, adjusted
daily by the investment results, is exhausted.
. Other Annuity Forms - May be agreed upon.
Any amount remaining under Option 5, 6 or 7 may be withdrawn as a lump sum or,
if that amount is at least $2,000, may be applied under any one of the first
four
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Options. The lump sum payment requested will be paid within seven days of
receipt of the request at our home office based on the value computed on the
next Valuation Date after receipt of the request.
If the beneficiary dies while receiving annuity payments certain under Option 2,
3, 5, 6 or 8 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 perfor-
mance of the particular subaccount selected is such that the net investment
return is 3.0% per annum, the annuity payments will remain constant. If the
actual net investment return exceeds 3.0%, the annuity payments will increase.
If the actual net investment return is less than 3.0%, the annuity payments will
decline.
Annuity payments will be greater for shorter guaranteed periods than for longer
guaranteed periods. Annuity payments will be greater for life annuities than for
joint and survivor annuities, because the life annuities are expected to be made
for a shorter period.
At your election, where state law permits, an Immediate Annuity Contract may
provide annuity benefits based on an assumed investment rate other than 3.0%.
The annuity rates for Immediate Annuity Contracts are available upon request to
us.
ANNUITY PROVISIONS
We determine non-qualified life contingent annuity payments based on the
mortality table (1983 Table "a" with Projection scale G, and 3.0% interest)
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 emer-
gency 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.
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THE COMPANY, SEPARATE ACCOUNT,
FUNDS, AND FIXED ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
The Company is a stock life insurance company chartered in 1905 in the State of
Texas. We write individual and group life and accident and health insurance and
annuities. Our home office is located in the American National Insurance
Building, One Moody Plaza, Galveston, Texas 77550-7999. The Moody Foundation, a
charitable foundation, owns approximately 23.7% and the Libbie S. Moody Trust, a
private trust, owns approximately 37.6% of our common stock.
We are regulated by the Texas Department of Insurance and are subject to the
insurance laws and regulations of other states where we operate. Each year, we
file a National Association of Insurance Commissioners convention blank with
the Texas Department of Insurance. Such convention blank covers our operations
and reports on our financial condition and the Separate Account's financial
condition as of December 31 of the preceding year. Periodically, the Texas
Department of Insurance examines and certifies the adequacy of the Separate
Account's and our liabilities and reserves. A full examination of our operations
is also conducted periodically by the National Association of Insurance
Commissioners.
We utilize systems that may be affected by Year 2000 transition issues. We rely
on service providers, including the Eligible Portfolios, that may also be
affected. We have a Year 2000 transition plan and are confirming that our
service providers are doing the same. We have completed the renovation of our
system and are currently testing for Year 2000 compliance. We expect such
testing to be complete and to be Year 2000 compliant by the end of the third
quarter of 1999. We do not believe you will experience any negative effects
under the Contract as a result of Year 2000 transition issues.
Obligations under the Contracts 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.
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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 twenty-one 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 and the T.
Rowe Price Funds. We will furnish you proper forms, materials and reports to
enable you to give us instructions if you choose.
The number of shares of an Eligible Portfolio for which you can give
instructions is determined by dividing the Accumulation Value held in the
corresponding subaccount by the net asset value of one share in such Eligible
Portfolio. Fractional shares will be counted. Shares of an Eligible Portfolio
held in a subaccount for which you have not given timely instructions and other
shares held in a subaccount will be voted by us in the same proportion as those
shares in that subaccount for which timely instructions are received. Voting
instructions to abstain will be applied on a pro rata basis to reduce the votes
eligible to be cast. Should applicable federal securities laws or regulations
permit, we may vote shares of the Eligible Portfolios in our own right.
The Separate Account is not the only separate account that invests in the
Eligible 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 insur-ance 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 and the T. Rowe Price Funds. The
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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:
. GROWTH PORTFOLIO ... seeks to achieve capital appreciation.
. MANAGED PORTFOLIO ... seeks to achieve growth of capital and/or current
income.
. BALANCED PORTFOLIO ... seeks to conserve principal, produce reasonable
current income and achieve long-term capital appreciation.
. MONEY MARKET PORTFOLIO ... seeks the highest income consistent with
preserving capital and maintenance of liquidity.
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:
. VIP II INVESTMENT GRADE BOND PORTFOLIO ... seeks as high a level of
current income as is consistent with the preservation of capital. The
portfolio normally invests in U. S. dollar-denominated investment-grade
bonds. The portfolio is managed to have similar overall interest rate risk
to the Lehman Brothers Aggregate Bond Index.
. VIP EQUITY INCOME PORTFOLIO ... seeks reasonable income, while also
considering the potential for capital appreciation. The portfolio seeks a
yield which exceeds the composite yield on the securities comprising the S&P
500. The portfolio normally invests at least 65% of its total assets in
income-producing equity securities. It may also invest in other types of
equity securities and debt securities, including lower-quality debt
securities.
. VIP HIGH INCOME PORTFOLIO ... seeks a high level of current income while
also considering growth of capital. The portfolio normally invests at least
65% of its total assets in income-producing debt securities, preferred
stocks and convertible securities, with an emphasis on lower-quality debt
securities. Many lower-quality debt securities are subject to legal or
contractual restrictions on resale to the general public. The portfolio may
also invest in non-income producing securities, including defaulted
securities and common stocks. The portfolio currently intends to limit
common stocks to 10% of the portfolio's assets.
. VIP GROWTH PORTFOLIO ... seeks capital appreciation. The portfolio normally
invests primarily in common stocks, of companies believed to have
above-average growth potential.
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. VIP OVERSEAS PORTFOLIO ... seeks long term growth of capital. The portfolio
normally invests at least 65% of its total assets in foreign securities,
primarily common stocks. The portfolio normally diversifies its investments
across different countries and regions.
. VIP MONEY MARKET PORTFOLIO ... seeks as high a level of current income as
is consistent with the preservation of capital and liquidity. The portfolio
will invest in U.S. dollar denominated money market securities of domestic
and foreign issuers, including U.S. government securities and repurchase
agreements.
. VIP II ASSET MANAGER PORTFOLIO ... seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds and
short-term instruments.
. VIP II 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.
. VIP II 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.
. VIP II ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total
return by allocating its assets among stocks, bonds, short-term instruments,
and other investments.
. VIP III GROWTH OPPORTUNITIES PORTFOLIO ... seeks to provide capital
growth. The portfolio normally invests its assets primarily in common
stocks. The portfolio may also invest in other types of securities,
including bonds which may be lower-quality debt securities.
. VIP III GROWTH AND INCOME PORTFOLIO ... seeks high total return through a
combination of current income and capital appreciation. The portfolio
normally invests a majority of its assets in common stocks with a focus on
those that pay dividends and show potential for capital appreciation. It may
also invest in bonds, including lower-quality debt securities, as well as
stocks that are not currently paying dividends, but offer prospects for
future income or capital appreciation.
. VIP III BALANCED PORTFOLIO ... seeks both income and growth of capital.
The portfolio maintains a balance between stocks and bonds, but will always
invest at least 25% of the fund's total assets in fixed-income senior
securities, including debt securities and preferred stock.
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. VIP III MID CAP GROWTH PORTFOLIO ... seeks long-term growth of capital.
The portfolio normally invests primarily in common stocks. At least 65% of
the portfolio's total assets will be invested in securities of companies
with medium market capitalizations.
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. FMR maintains a
large staff of experienced investment personnel and a full complement of related
support facilities.
. The T. Rowe Price Funds - currently have the following series or portfolios,
all 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 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 accompanying prospectuses should be read in conjunction with this
prospectus before investing and contain a full description of the American
National Fund, the Fidelity Funds and the T. Rowe Price Funds, their investment
policies and restrictions, risks, charges and expenses and other aspects of
their operation.
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We have arrangements to provide services to certain Eligible Portfolios for
which the advisor or distributor of such portfolios pays 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 en-
dorsement, 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. Trans-
fers from the Fixed Account to the subaccounts are restricted. (See "Transfers
Before Annuity Date," page 22.)
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We guarantee that we will credit interest to the Fixed Account at an effective
annual rate of at least 3.0% compounded daily. We may, at our discretion,
declare higher interest rate(s) for amounts allocated or transferred to the
Fixed Account.
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.
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.
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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
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bears to the total expected value of annuity payments for the term of the
payments; however, the remainder of each annuity payment is taxable.
In all cases, after the investment in the Contract is recovered, the full amount
of any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the death
of the Annuitant. Generally, such amounts are taxable to the recipient as
follows:
. if distributed in a lump sum, they are taxed in the same manner as a full
surrender of the Contract; or
. if distributed under an annuity option, they are taxed in the same way as
annuity payments, as described above.
TRANSFERS OR ASSIGNMENTS OF A CONTRACT
A transfer or assignment of a Contract, the designation of certain Annuitants,
or the selection of certain Annuity Dates may result in tax consequences that
are not discussed herein. You should consult a tax advisor as to the tax
consequences of any such transaction.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
the Code requires any non-qualified annuity contract to contain certain
provisions concerning how an interest in the contract is distributed on the
owner's death. The Non-Qualified Contracts contain provisions that are intended
to comply with these Code requirements, although no regulations interpreting
these requirements have yet been issued. We may modify the Contracts if
necessary to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
WITHHOLDING
Annuity distributions generally are subject to withholding for the recipient's
federal income tax liability. Recipients can generally elect, however, not to
have 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.
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EXCHANGES
Section 1035 of the Internal Revenue Code (the "Code") provides generally for
tax-free exchanges of one annuity contract for another. A number of special
rules and procedures apply to section 1035 exchanges. Anyone wishing to take
advantage of section 1035 should consult a tax advisor.
TAXATION OF QUALIFIED CONTRACTS
The Qualified Contracts are designed for retirement plans that qualify for
special income tax treatment under Sections 401(a), 403(b), 408, (408A) or 457
of the Code. Certain requirements apply to the purchase of a Qualified Contract
and to distributions therefrom in order for you to receive favorable tax
treatment. The following discussion assumes that Qualified Contracts qualify for
the intended special federal income tax treatment.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. In general,
adverse tax consequences may result from:
. contributions made in excess of specified limits;
. distributions received prior to age 59 1/2 (subject to certain exceptions);
. distributions that do not conform to specified commencement and minimum
distribution rules;
. aggregate distributions in excess of a specified annual amount; and
. contributions or distributions made in other circumstances.
The terms and conditions of the retirement plans may limit the rights otherwise
available to you under a Qualified Contract. You are responsible for determining
that contributions, distributions and other transactions with respect to a
Qualified Contract comply with applicable law. If you are considering purchasing
an annuity contract for use with any qualified retirement plan, you should get
legal and tax advice.
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)
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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 ad-
justed 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
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cash or as a rollover or transfer from another IRA. A rollover from or
conversion of an IRA to a Roth IRA may be subject to tax, and other special
rules may apply. Distributions from a Roth IRA generally are not taxed, except
that, once aggregate distributions exceed contributions to the Roth IRA, income
tax and a 10% penalty tax may apply to distributions made (1) before age 59 1/2
(subject to certain exceptions) or (2) during the five taxable years starting
with the year in which the first contribution is made to the Roth IRA.]
SIMPLE Individual Retirement Annuities
Certain small employers may establish SIMPLE plans (Savings Incentive Match
Plans) as provided by Section 408(p) of the Code. Under these plans employees
may defer a percentage of compensation of up to certain dollar amount. The
sponsoring employer is required to make a matching contribution. Distributions
from a SIMPLE plan are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject to certain exceptions,
distributions prior to age 59 1/2 are subject to a 10% penalty tax, which
increases to 25% if the distribution occurs during the first two years the
employee participates in the plan.
Deferred Compensation Plans
Section 457 of the Code provides for certain deferred compensation plans
available with respect to service for state governments, local governments,
political subdivisions, agencies, instrumentalities and certain affiliates of
such entities, and tax-exempt organizations. These plans are subject to various
restrictions on contributions and distributions. Under non-governmental plans,
all amounts are subject to the claims of general creditors of the employer and
depending on the terms of the particular plan, the employer may be entitled to
draw on deferred amounts for purposes unrelated to its Section 457 plan
obligations. In general, distributions from a deferred compensation plan are
prohibited unless made after the Plan Participant attains age 70 1/2, separates
from service, dies, or suffers an unforeseeable financial emergency.
Distributions under these plans are taxable as ordinary income in the year paid
or made available. Adverse tax consequences may result from certain
distributions that do not conform to applicable commencement and minimum
distribution rules.
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.
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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, inherit-
ance 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 advertis-
ing 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 surren-
dered 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 AN Money Market subaccount may
advertise their current and effective yield. Current yield reflects the income
generated by an investment in the subaccount over a 7-day period. Effective
yield is calculated in a similar manner except that income earned is assumed to
be reinvested. The VIP II Investment Grade Bond and the VIP High Income
subaccounts may advertise a 30-day yield which reflects the income generated by
an investment in the subaccount over a 30-day period.
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DISTRIBUTOR OF CONTRACTS
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 Contracts. 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 Contracts 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 Contracts under Texas insurance law,
have been reviewed by Greer, Herz and Adams, LLP, General Counsel.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe at the present time no
lawsuits are pending or threatened that are reasonably likely to have a material
adverse impact on the Separate Account or us.
EXPERTS
The consolidated financial statements of American National Insurance Company
and subsidiaries as of December 31, 1998 and 1997 and for the years then ended,
and the statements of net assets of American National Variable Annuity Separate
Account as of December 31, 1998 and the related statements of operations for
the year then ended, and the statements of changes in net assets for each of the
two years in the period then ended, included in this prospectus and elsewhere in
the registration statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
A registration statement describing the Contracts has been filed with the
Securities and Exchange Commission under the `33 Act. This Prospectus does not
contain all information in the registration statement, to which reference is
made
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for further information concerning us, the Separate Account and the Contracts
offered hereby. Statements contained in this Prospectus as to the terms of the
Contracts 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 Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account. The financial statements can be found in the Statement of Additional
Information.
TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
Page
The Contracts........................................................... 3
Valuation of Accumulation Units......................................... 3
Computation of Variable Annuity Payments................................ 3
Annuity Unit Value...................................................... 3
Summary................................................................. 4
Exceptions to Charges................................................... 5
Termination of Contracts................................................ 5
Group Unallocated Contracts............................................. 6
Additional Federal Tax Matters.......................................... 6
Limits on Subsequent Purchase Payments
(Under the Internal Revenue Code)...................................... 6
Taxation of American National........................................... 6
Tax Status of the Contracts............................................. 7
Diversification Requirement............................................. 7
Required Distributions.................................................. 7
Assignment.............................................................. 8
Distribution of the Contracts........................................... 8
Records and Reports..................................................... 8
Performance............................................................. 9
Total Return............................................................ 9
Yields.................................................................. 10
State Law Differences................................................... 11
Separate Account........................................................ 11
Termination of Participating Agreements................................. 12
Financial Statements.................................................... 14
Financials.............................................................. 15
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[AMERICAN NATIONAL LOGO APPEARS HERE]
AMERICAN NATIONAL INSURANCE COMPANY
ONE MOODY PLAZA GALVESTON, TEXAS 77550-7999
FORM 5774 REV 5-99
<PAGE>
INVE$TRAC GOLD VARIABLE ANNUITY CONTRACTS
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Home Office One Moody Plaza Galveston TX 77550-7999
PROSPECTUS May 1, 1999 1-800-306-2959
This prospectus describes a group unallocated variable annuity contract.
You can allot contract value to American National Variable Annuity Separate
Account, which reflects the investment performance of mutual fund portfolios
selected by you, or our Fixed Account which earns a guaranteed minimum rate.
At this time, you can allot your contract value to the following mutual fund
portfolios:
AMERICAN NATIONAL FUND
. Growth Portfolio
. Managed Portfolio
. Balanced Portfolio
. Money Market Portfolio
FIDELITY FUNDS
. Equity Income Portfolio
. High Income Portfolio
. Growth Portfolio
. Overseas Portfolio
. Money Market Portfolio
. Investment Grade Bond Portfolio
. Asset Manager Portfolio
. Index 500 Portfolio
. Contrafund Portfolio
. Asset Manager: Growth Portfolio
THIS PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD KNOW BEFORE PURCHASING A
CONTRACT. ADDITIONAL INFORMATION ABOUT THE CONTRACT IS CONTAINED IN A STATEMENT
OF ADDITIONAL INFORMATION ("SAI") FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, ("SEC") WHICH IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. YOU
MAY OBTAIN A FREE COPY OF THE SAI, WHICH IS DATED THE SAME DATE AS THIS
PROSPECTUS, BY WRITING OR CALLING US AT OUR HOME OFFICE. THE TABLE OF CONTENTS
OF THE SAI IS ON PAGE 28 OF THIS PROSPECTUS. THE SEC MAIN TAINS AN INTERNET
WEBSITE (HTTP://WWW.SEC.GOV) THAT CONTAINS MATERIAL INCORPORATED BY REFERENCE
INTO THIS PROSPECTUS, SAI AND OTHER INFORMATION REGARDING COMPANIES THAT FILE
ELECTRONICALLY WITH THE SEC.
THIS PROSPECTUS IS VALID ONLY WHEN ACCOMPANIED BY CURRENT PROSPECTUSES OR
PROSPECTUS PROFILES FOR THE AMERICAN NATIONAL FUND AND THE FIDELITY FUNDS.
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED THESE
SECURITIES OR PASSED UPON THE ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
INTERESTS IN THE CONTRACT ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK, NOR IS THE CONTRACT FEDERALLY INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER
AGENCY. THE CONTRACT INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
Please read this prospectus carefully and keep it for future reference.
Form 1005 Rev. 5-99
<PAGE>
TABLE OF CONTENTS
Page
Glossary................................................................... 4
Introduction............................................................... 5
What is the Purpose of the Contract?..................................... 5
What are the Investment Options?......................................... 5
How Do I Purchase a Contract?............................................ 5
How Do I Allot Purchase Payments?........................................ 6
Can I Transfer Amounts Between the Investment Alternatives?.............. 6
Can I Make Withdrawals?.................................................. 6
Is An Annuity Available?................................................. 6
What are the Charges and Deductions Under the Contract?.................. 6
What are the Tax Consequences Associated with the Contract?.............. 7
If I Have Questions, Where Can I Go?..................................... 7
Contractowner Transaction Expenses......................................... 8
Sales Load as a Percentage of Purchase Payments.......................... 8
Deferred Sales Load ("Surrender Charges")................................ 8
Accumulation Unit Values................................................... 13
Contract................................................................... 15
Type of Contract......................................................... 15
Contract Application and Purchase Payments............................... 15
Allocation of Purchase Payments.......................................... 15
Crediting of Accumulation Units.......................................... 15
Determining Accumulation Unit Values..................................... 15
Transfers................................................................ 16
Charges and Deductions..................................................... 16
Surrender Charge......................................................... 16
Other Charges............................................................ 16
Deduction of Fees.... 17
Exceptions to Charges.................................................... 17
Distributions Under the Contract........................................... 18
Surrenders............................................................... 18
Annuity Payments........................................................... 18
Annuity Options.......................................................... 18
Annuity Provisions....................................................... 19
The Company, Separate Account, Funds and Fixed Account..................... 20
American National Insurance Company...................................... 20
2
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PAGE
The Separate Account..................................................... 20
The Funds................................................................ 22
Changes in Investment Options............................................ 24
Fixed Account............................................................ 24
Federal Tax Matters........................................................ 25
Introduction............................................................. 25
Taxation of Annuities in General......................................... 25
Qualified Contracts...................................................... 25
Performance................................................................ 26
Distributor of the Contract................................................ 26
Legal Matters.............................................................. 27
Legal Proceedings.......................................................... 27
Experts.................................................................... 27
Additional Information..................................................... 27
Financial Statements....................................................... 27
Table of Contents of Statement of Additional Information................... 28
3
<PAGE>
GLOSSARY
ACCUMULATION PERIOD. The time between the date Accumulation Units are first
purchased by us and the date the Contract is surrendered.
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.
COMPANY ("WE", "OUR" OR "US" ). American National Insurance Company.
CONTRACT The contract described in this Prospectus.
CONTRACTOWNER ("YOU"). Unless changed by notice to us, the Contractowner is
the entity 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.
DEFERRED ANNUITY CONTRACT. A Contract in which annuity payments commence
at some future date.
ELIGIBLE PORTFOLIO. A Portfolio which corresponds to a subaccount.
FIDELITY FUNDS. Variable Insurance Products Fund and Variable Insurance
Products Fund II.
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.
GROUP UNALLOCATED CONTRACT. A contract in which all Accumulation Units are
credited to one accumulation account.
NON-QUALIFIED CONTRACT. A Contract issued in connection with a retirement plan
that does not receive favorable tax treatment under the Internal Revenue Code.
PLAN. A document or agreement defining retirement or other benefits and those
eligible to receive them. A Plan is not a part of a Contract and we are not a
party to a Plan.
PORTFOLIO. A series of a mutual fund designed to meet specified investment
objectives.
PURCHASE PAYMENT. A payment made to us 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.
VALUATION DATE. Each day the New York Stock Exchange is open for regular
trading.
VALUATION PERIOD. The close of business on one Valuation Date to the close of
business on another.
4
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INTRODUCTION
WHAT IS THE
PURPOSE OF THE
CONTRACT?
The Contract allows the accumulation of funds, on a tax-deferred basis, at rates
that will increase or decline in value based on the performance of investments
you choose.
WHAT ARE THE
INVESTMENT
OPTIONS?
You can invest Purchase Payments in one or more of the following subaccounts
of the Separate Account, each of which invests exclusively in shares of a corre-
sponding Eligible Portfolio:
. AN Money Market
. AN Balanced
. AN Managed
. AN Growth
. VIP Investment Grade Bond
. VIP II Asset Manager
. VIP II Index 500
. VIP Money Market
. VIP Equity-Income
. VIP High Income
. VIP Growth
. VIP Overseas
. VIP II Contrafund
. VIP II Asset Manager: Growth
Each such subaccount and corresponding Eligible Portfolio has its own invest-
ment objective (See "The Funds" at page 22). There is no assurance that Eligible
Portfolios will achieve their investment objectives. Accordingly, you could lose
some or all of the 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 $2,000
minimum initial Purchase Payment and at least $100 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 15.)
The contract is not available in some states. You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is different.
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HOW DO I ALLOT
PURCHASE
PAYMENTS?
You can allot Purchase Payments among the 14 currently available subaccounts
and the Fixed Account. You cannot allot less than 10% of a Purchase Payment to
any one investment option.
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 are limited. (See "Transfers" on page 16
for additional limitations.)
The first twelve transfers each Contract Year among the subaccounts or to the
Fixed Account are free. Additional transfers will be subject to a $10.00
exchange fee.
You should periodically review allocations among the subaccounts and the Fixed
Account to make sure they fit the current situation and financial goals.
You can make allotment changes in writing or during our normal business hours by
telephone if a telephone authorization form is on file with us. We will employ
reasonable procedures to confirm that telephone instructions are genuine. If we
follow those procedures, we will not be liable for losses due to unauthorized or
fraudulent instructions. We may be liable for such losses if we do not follow
those procedures.
CAN I MAKE
WITHDRAWALS?
By written request to us, you can withdraw all or part of the Accumulation Value
at any time. Such withdrawal may be subject to a Surrender Charge, an IRS
penalty tax and income tax. Such withdrawal may also be subject to Plan restric-
tions.
IS AN ANNUITY
AVAILABLE?
You can select from a number of annuity options, either fixed or variable, each
of which provides a different level and number of annuity payments. The annuity
options include payments
. for the life of a Plan Participant
. for the life of a Plan Participant, with a guarantee that such payments will
continue for at least 10 or 20 years
. made jointly to a Plan Participant and another named individual with a right
of survivorship.
(See "Annuity Options," page 18).
WHAT ARE THE
CHARGES AND
DEDUCTIONS
UNDER THE
CONTRACT?
We do not currently deduct a sales charge when you purchase a Contract. We
may deduct a surrender charge up to 4% of Purchase Payments withdrawn. We
also charge a daily administrative asset fee. Such expense charge equals, on an
annual basis, 0.10% of the Contract's daily Accumulation Value.
We charge a daily amount equal, on an annual basis, a mortality risk fee of .40%
and an expense risk fee of .45% of the Contract's daily Accumulation Value to
meet our death benefit obligations and to pay expenses.
Additional charges may be made by us for premium taxes when incurred.
6
<PAGE>
WHAT ARE THE
TAX
CONSEQUENCES
ASSOCIATED
WITH THE
CONTRACT?
You are generally required to pay taxes on amounts earned in a Non-Qualified
Contract only when they are withdrawn. When you take distributions or with-
drawals from a deferred 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 generally are required to pay taxes on all amounts withdrawn from a Quali-
fied Contract. Restrictions and penalties may apply to withdrawals from a
Qualified Contract.
IF I HAVE
QUESTIONS,
WHERE CAN I
GO?
If you or the plan administrator have any questions about the Contract, you or
the plan administrator can contact your registered representative or write us at
One Moody Plaza, Galveston, Texas 77550-7999. You can call us at 1-800-306-2959.
7
<PAGE>
CONTRACTOWNER TRANSACTION
EXPENSES
The following table summarizes the charges we will make. The table also sum-
marizes the fees and expenses of the Eligible Portfolios. You should consider
this information with the information under the heading "Charges and Deductions"
on page 16.
SALES LOAD AS A PERCENTAGE OF PURCHASE PAYMENTS 0%
DEFERRED SALES LOAD ("SURRENDER CHARGE")
Contract Years Applicable Surrender Charge
AS A
PERCENTAGE OF
EACH WITHDRAWAL
- --------------------------------------------------------------------------------
1 4.0
2 3.5
3 3.0
4 2.5
5 2.0
6 1.5
7 1.0
8 and thereafter 0.0
EXCHANGE FEE $10
(there is no exchange fee for
the first twelve transfers)
Annual Contract Fee $ 0
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS A PERCENT OF AVERAGE NET ASSETS)
Mortality Risk Fee 0.40%
Expense Risk Fee 0.45%
Administrative Asset Fee 0.10%
Total Separate Account Annual Expense 0.95%
AN MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.00%
Other Expenses 0.87%
Total AN Money Market Portfolio Annual Expense 0.87%
*Without reimbursement the management fees would have been 0.50% and the
total portfolio annual expense would have been 1.37%.
AN GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.36%
Other Expenses 0.51%
Total AN Growth Portfolio Annual Expenses 0.87%
*Without reimbursement the management fees would have been 0.50% and the
total portfolio annual expense would have been 1.01%.
8
<PAGE>
AN BALANCED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.44%
Other Expenses 0.74%
Total AN Balanced Portfolio Annual Expenses 1.18%
*Without reimbursement the management fees would have been 0.50% and the
total portfolio annual expense would have been 1.24%.
AN MANAGED PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement * **0.16%
Other Expenses 0.49%
Total AN Managed Portfolio Annual Expenses 0.65%
*Without reimbursement the management fees would have been 0.50% and the
total portfolio annual expense would have been 0.99%.
**Under its Administrative Service Agreement with the Fund, Securities Man-
agement and Research, Inc. ("SM&R"), the Fund's Investment Adviser and Manager,
has agreed to pay (or to reimburse each Portfolio for) each Portfolio's expenses
(including the advisory fee and administrative service fee paid to SM&R, but
exclusive of interest, commissions and other expenses incidental to portfolio
transactions) in excess of 1.50% per year of such Portfolio's average daily net
assets. In addition, SM&R has entered into a separate undertaking with the Fund
effective May 1, 1994 until April 30, 2000, pursuant to which SM&R has agreed to
reimburse the AN Money Market Portfolio and the AN Growth Portfolio for expenses
in excess of .87%; the AN Balanced Portfolio for expenses in excess of 1.18% and
the AN Managed Portfolio for expenses in excess of .99%, of each of such
Portfolios' average daily net assets during such period. SM&R is under no
obligation to renew this undertaking for any Portfolio at the end of such
period.
VIP II INVESTMENT GRADE BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.43%
Other Expenses 0.14%
Total VIP II Investment Grade Bond Portfolio
Annual Expenses 0.57%
VIP II ASSET MANAGER PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.54%
Other Expenses after reimbursement 0.10%
Total VIP II Asset Manager Portfolio Annual
Expenses after reduction *0.64%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.54%, 0.24% and 0.78%, respectively.
9
<PAGE>
VIP II INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.24%
Other Expenses 0.04%
Total VIP II Index 500 Portfolio Annual Expenses 0.28%
VIP MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.20%
Other Expenses 0.10%
Total VIP Money Market Portfolio Annual Expenses 0.30%
VIP EQUITY-INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.49%
Other Expenses after reimbursement 0.09%
Total VIP Equity-Income Portfolio Annual Expenses after reduction *0.58%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.49%, 0.19% and 0.68%, respectively.
VIP HIGH INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.58%
Other Expenses after reimbursement 0.12%
Total VIP High Income Portfolio Annual Expenses after reduction *0.70%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.58%, 0.24% and 0.82%, respectively.
VIP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59%
Other Expenses after reimbursement 0.09%
Total VIP Growth Portfolio Annual Expenses after reduction *0.68%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.59%, 0.21% and 0.80%, respectively.
10
<PAGE>
VIP OVERSEAS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.74%
Other Expenses after reimbursement 0.17%
Total VIP Overseas Portfolio Annual Expenses after reduction *0.91%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.74%, 0.27% and 1.01%, respectively.
VIP II CONTRAFUND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59%
Other Expenses after reimbursement 0.11%
Total VIP II Contrafund Portfolio Annual Expenses after reimbursement *0.70%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.59%, 0.21% and 0.80%, respectively.
VIP II ASSET MANAGER: GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.59%
Other Expenses after reimbursement 0.14%
Total VIP II Asset Manager: Growth Portfolio
Annual Expenses after reimbursement *0.73%
* The portfolio's expenses were voluntarily reduced by the portfolio's
investment adviser. Absent reimbursement, management fees, other expenses and
total portfolio expenses would have been 0.59%, 0.30% and 0.89%, respectively.
11
<PAGE>
EXAMPLE: GROUP UNALLOCATED CONTRACT
If you surrender your Group Unallocated Contract at the end of the applicable
time period:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
AN Money Market Portfolio $62 $98 $136 $245
AN Growth Portfolio $62 98 136 245
AN Balanced Portfolio $65 107 152 277
AN Managed Portfolio $59 92 125 222
VIP II Investment Grade Bond Portfolio $58 89 121 214
VIP II Asset Manager Portfolio $59 91 125 221
VIP II Index 500 Portfolio $56 80 106 182
VIP Money Market Portfolio $56 81 107 185
VIP Equity-Income Portfolio $59 89 122 215
VIP High Income Portfolio $60 93 128 227
VIP Growth Portfolio $60 92 127 225
VIP Overseas Portfolio $62 99 138 249
VIP II Contrafund Portfolio $60 93 128 227
VIP II Asset Manager: Growth Portfolio $60 94 129 231
If you do not surrender your Group Unallocated Contract:
You would pay the following expenses on a $1,000 investment, assuming 5%
annual return on assets:
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
- --------------------------------------------------------------------------------
AN Money Market Portfolio $22 $66 $114 $245
AN Growth Portfolio $22 66 114 245
AN Balanced Portfolio $25 76 130 277
AN Managed Portfolio $19 60 103 222
VIP II Investment Grade Bond Portfolio $18 57 99 214
VIP II Asset Manager Portfolio $19 59 102 221
VIP II Index 500 Portfolio $16 48 83 182
VIP Money Market Portfolio $16 49 84 185
VIP Equity-Income Portfolio $19 58 99 215
VIP High Income Portfolio $20 61 90 197
VIP Growth Portfolio $20 61 104 225
VIP Overseas Portfolio $22 68 116 249
VIP II Contrafund Portfolio $20 61 105 227
VIP II Asset Manager: Growth Portfolio $20 62 107 231
You should not consider the examples as representative of past or future
expenses. The examples do not include the deduction of any state premium
taxes assessed.
12
<PAGE>
The purpose of the preceding table is to assist you in understanding the various
costs and expenses the Contract 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 in-
tended 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 and the Fidelity Funds, see their
Prospectuses.
ACCUMULATION UNIT VALUES
The value of an Accumulation Unit outstanding throughout the period and the
number of Accumulation Units outstanding for each subaccount are shown
below.
(FOR AN ACCUMULATION UNIT OUTSTANDING THROUGHOUT THE PERIOD)
YEAR ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1998 1997 1996
AN GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.968 $ 1.558 $ 1.343b
Accumulation unit value at end of period $ 2.302 $ 1.558 $ 1.558b
Number of accumulation units outstanding at
end of period 2,746 17,443 14,363b
AN MONEY MARKET PORTFOLIO
Accumulation unit value at beginning of period $ -- $ 1.381 $ 1.503c
Accumulation unit value at end of period $ -- $ 1.101 $ 1.387c
Number of accumulation units outstanding at
end of period -- -- 71
AN BALANCED PORTFOLIO
Accumulation unit value at beginning of period $ 1.504 $ 1.369 $ 1.184b
Accumulation unit value at end of period $ 1.729 $ 1.504 $ 1.369b
Number of accumulation units outstanding at
end of period 3,399 3,587 3,330b
AN MANAGED PORTFOLIO
Accumulation unit value at beginning of period $ 1.903 $ 2.466 $ 1.353b
Accumulation unit value at end of period $ 2.178 $ 1.903 $ 2.466b
Number of accumulation units outstanding at
end of period 454 465 1,498b
VIP II INVESTMENT GRADE BOND
Accumulation unit value at beginning of period $ 1.283 $ 1.185 $ 1.121b
Accumulation unit value at end of period $ 1.378 $ 1.283 $ 1.185b
Number of accumulation units outstanding at
end of period 5,606 13,768 17,859b
13
<PAGE>
VIP II ASSET MANAGER
Accumulation unit value at beginning of period $ 1.583 $ 1.318 $ 1.149b
Accumulation unit value at end of period $ 1.798 $ 1.583 $ 1.318b
Number of accumulation units outstanding at
end of period 92,332 78,051 42,474b
VIP II INDEX 500
Accumulation unit value at beginning of period $ 2.487 $ 1.777 $ 1.486b
Accumulation unit value at end of period $ 3.148 $ 2.487 $ 1.777b
Number of accumulation units outstanding at
end of period 2,703 11,675 6,327b
VIP MONEY MARKET
Accumulation unit value at beginning of period $ 1.196 $ 1.109 $ 1.066a
Accumulation unit value at end of period $ 1.242 $ 1.196 $ 1.109b
Number of accumulation units outstanding at
end of period 7,631 10,040 8,304b
VIP EQUITY INCOME FUND
Accumulation unit value at beginning of period $ 1.980 $ 1.535 $ 1.338b
Accumulation unit value at end of period $ 2.176 $ 1.980 $ 1.535b
Number of accumulation units outstanding at
end of period 85,637 77,128 47,017b
VIP HIGH INCOME FUND
Accumulation unit value at beginning of period $ 1.635 $ 1.415 $ 1.260b
Accumulation unit value at end of period $ 1.545 $ 1.635 $ 1.415b
Number of accumulation units outstanding at
end of period 5,791 8,122 8,006b
VIP GROWTH
Accumulation unit value at beginning of period $ 1.994 $ 1.587 $ 1.462b
Accumulation unit value at end of period $ 2.743 $ 1.994 $ 1.587b
Number of accumulation units outstanding at
end of period 13,476 28,010 20,557b
VIP OVERSEAS
Accumulation unit value at beginning of period $ 1.319 $ 1.196 $ 1.061b
Accumulation unit value at end of period $ 1.468 $ 1.319 $ 1.190b
Number of accumulation units outstanding at
end of period 52,812 43,013 25,842b
VIP II CONTRA FUND
Accumulation unit value at beginning of period $ 1.757 $ 1.455 $ 1.213b
Accumulation unit value at end of period $ 2.254 $ 1.757 $ 1.455b
Number of accumulation units outstanding at
end of period 5,703 9,016 4,605b
VIP II ASSET MANAGER GROWTH
Accumulation unit value at beginning of period $ 1.503 $ 1.222 $ 1.102b
Accumulation unit value at end of period $ 1.774 $ 1.503 $ 1.222b
Number of accumulation units outstanding at
end of period 1,885 9,295 7,234b
a June 10, 1996 (the first date the subaccount received a transfer or had a
purchase payment allotted)
b June 25, 1996 (the first date the subaccount received a transfer or had a
purchase payment allotted)
c July 30, 1996 (the first date the subaccount received a transfer or had a
purchase payment allotted)
14
<PAGE>
CONTRACT
Type of Contract
This Prospectus offers a group unallocated variable annuity contract, which is a
form of Deferred Annuity Contract.
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 15.) If the application cannot be processed within five days after
receipt, we will return your payment. We will credit your initial Purchase Pay-
ment 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. The "free look" period is
not based on the date a Plan Participant receives a Contract. Therefore, the
"free look" period may have expired before a Plan Participant makes his or her
initial contribution to a Plan. We require that Purchase Payments received by us
during the 15-day period after the Date of Issue be allotted to the VIP Money
Market Portfolio. Thereafter, amounts allotted to such subaccount and Purchase
Payments paid are allotted as directed by you. No Surrender Charges are
assessed on refunds.
ALLOCATION OF PURCHASE PAYMENTS
After the "free look" period, Purchase Payments will be allotted to the
subaccounts and the Fixed Account according to 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
Purchase Payments will be used to purchase Accumulation Units in subaccounts
and be allotted to the Fixed Account as the Contractowner has instructed. We
will determine the number of Accumulation Units purchased by dividing the dollar
amount of the Purchase Payment allotted to a subaccount by the Accumulation Unit
value for that subaccount computed following such allocation. Purchase Payments
are not credited until actually received by us. A Plan Participant's
contribution to a Plan will not be credited until the Contractowner forwards
such contribution to us.
DETERMINING ACCUMULATION UNIT VALUES
The Accumulation Unit value of each subaccount reflects the investment perfor-
15
<PAGE>
mance of that subaccount. We calculate Accumulation Unit value on each Valuation
Date by:
. multiplying the per share net asset value of the corresponding Eligible
Portfolio by the number of shares held by the subaccount, after the purchase
or redemption of any shares on the Valuation Date;
. subtracting a charge for the administrative fee, distribution expense charge
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
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 subac-
count, if less.
. A subaccount must have a balance of at least $100 after a transfer.
. Only one transfer from the Fixed Account can be made, and such transfer must
be made during the first thirty (30) days of each Contract Year and cannot
exceed the greater of (1) 25% 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 17.)
We will make transfers and determine values on the later of (1) the date desig-
nated 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.
CHARGES AND DEDUCTIONS
Surrender Charge
Since no sales charge is deducted from Purchase Payments, a Surrender Charge
may be imposed on withdrawals to cover expenses of distributing the Contracts
at a rate of no more than 4% over the first seven Contract Years. (See "Deferred
Sales Load (`Surrender Charge')" on page 8).
OTHER CHARGES
The Contract is subject to certain other charges:
. Administrative Charges
16
<PAGE>
. An administrative asset fee charged daily at an annual rate of 0.10%.
This fee is designed to reimburse us for the cost of administration and is 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
Annuity payments will not decrease because of adverse mortality experience of
Plan Participants as a class or increases in our actual expenses over expense
charges. We assume the risks that Plan Participants 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 continue annuity payments under life contingent annuity options
determined in accordance with the annuity tables and other provisions of the
Contract, to the Plan Participant or other payee for life. 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, we will charge a per annum mortality
risk fee of .40% and an expense risk fee of .45% will be assessed daily
against the Separate Account. We could realize a gain or a loss from such fees
depending on the mortality experienced 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 to
the 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. There is no charge for the one transfer from the Fixed
Account permitted each Contract Year.
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.
17
<PAGE>
DISTRIBUTIONS UNDER THE CONTRACT
Surrenders
If permitted by the Plan for which the Contract was purchased, the
Contractowner may surrender the Contract, in whole or in part, subject to the
following limitations:
. If a partial surrender would leave less than $250 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 for full or partial surrenders can be determined
by:
. multiplying the number of Accumulation Units for each subaccount times the
Accumulation Unit value
. adding any Accumulation Value in the Fixed Account; and
. 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.
ANNUITY PAYMENTS
The Contractowner can apply all or part of the Accumulation Value to any of the
annuity options described below. Such Accumulation Value will be transferred to
the Fixed Account and annuity payments will be based upon the annuity option
selected. Payments will be to the Plan Participant designated by the
Contractowner.
ANNUITY OPTIONS
The following annuity options are available to Contractowners. The Plans will
specify which of these options are available to individual Plan Participants.
. Option 1 - Life Annuity -- monthly payments during the lifetime of an
individual, ceasing with the last annuity payment due before the individual's
death. This option offers the maximum level of monthly annuity payments since
there is no provision for a minimum number of annuity payments or a
18
<PAGE>
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 - 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 4 - 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 4 may be withdrawn as a lump sum or, if that amount is
at least $2,000, may be applied under any one of the first three Options. The
lump sum payment requested will be paid within seven days of receipt of the
request at our home office based on the value computed on the next Valuation
Date after receipt of the request.
. Option 5 - IRC Age Recalculation -- payment based upon the Annuitant's life
expectancy, or the joint life expectancies of the Annuitant and a beneficiary,
at the Annuitant's attained age (and the beneficiary's attained or adjusted
age, if applicable), each year as computed in reference to actuarial tables
prescribed by the U.S. Treasury Secretary, until the amount applied, adjusted
daily by the investment results, is exhausted.
. Other Annuity Forms -- May be agreed upon.
If a beneficiary dies while receiving annuity payments certain under Option 2, 3
or 5 above, the present value of minimum guaranteed payments will be paid in a
lump sum to the estate of the beneficiary.
ANNUITY PROVISIONS
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 Plan Participant 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 and transfers may be postponed whenever: (1) the
NYSE is closed other than customary week-end and holiday closings, or trading
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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 a Year 2000 transition plan and are confirming that our
service providers are doing the same. We have completed the renovation of our
system and are testing for Year 2000 compliance. We expect such testing to be
complete and Year 2000 compliant by the end of the third quarter. 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
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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 fourteen 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 and the Fidelity Funds. We
will furnish you proper forms, materials and reports to enable you to give us
instructions if you choose.
The number of shares of an Eligible Portfolio for which you can give
instructions is determined by dividing the Accumulation Value held in the
corresponding subaccount by the net asset value of one share in such Eligible
Portfolio. Fractional shares will be counted. Shares of an Eligible Portfolio
held in a subaccount for which you have not given timely instructions and other
shares held in a subaccount will be voted by us in the same proportion as those
shares in that subaccount for which timely instructions are received. Voting
instructions to abstain will be applied on a pro rata basis to reduce the votes
eligible to be cast. Should applicable federal securities laws or regulations
permit, we may vote shares of the Eligible Portfolios in our own right.
The Separate Account is not the only separate account that invests in the
Eligible 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 allotted 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
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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 and the Fidelity Funds. 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 thirteen series or portfolios, the
following 10 of which are Eligible Portfolios:
. VIP II INVESTMENT GRADE BOND PORTFOLIO ... seeks as high a level of
current income as is consistent with the preservation of capital. The
portfolio normally invests in U. S. dollar-denominated investment-grade
bonds. The portfolio is managed to have similar overall interest rate risk
to the Lehman Brothers Aggregate Bond Index.
. VIP EQUITY INCOME PORTFOLIO ... seeks reasonable income, while also
considering the potential for capital appreciation. The portfolio seeks a
yield which exceeds the composite yield on the securities comprising the S&P
500. The portfolio normally invests at least 65% of its total assets in
income-producing equity securities. It may also invest in other types of
equity securities and debt securities, including lower-quality debt
securities.
. VIP HIGH INCOME PORTFOLIO ... seeks a high level of current income while
also considering growth of capital. The portfolio normally invests at least
65% of its total assets in income-producing debt securities, preferred
stocks and convertible securities, with an emphasis on lower-quality debt
securities. Many lower-quality debt securities are subject to legal or
contractual restrictions on resale to the general public. The portfolio may
also invest in non-income producing securities, including defaulted
securities and com-
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mon stocks. The portfolio currently intends to limit common stocks to 10%
of the portfolio's assets.
. VIP GROWTH PORTFOLIO ... seeks capital appreciation. The portfolio normally
invests primarily in common stocks, of companies believed to have above-
average growth potential.
. VIP OVERSEAS PORTFOLIO ... seeks long term growth of capital. The portfolio
normally invests at least 65% of its total assets in foreign securities,
primarily common stocks. The portfolio normally diversifies its investments
across different countries and regions.
. VIP MONEY MARKET PORTFOLIO ... seeks as high a level of current income as
is consistent with the preservation of capital and liquidity. The portfolio
will invest in U.S. dollar denominated money market securities of domestic
and foreign issuers, including U.S. government securities and repurchase
agreements.
. VIP II ASSET MANAGER PORTFOLIO ... seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds and
short-term instruments.
. VIP II 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.
. VIP II 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.
. VIP II ASSET MANAGER: GROWTH PORTFOLIO ... seeks to maximize total
return by allocating its assets among stocks, bonds, short-term instruments,
and other investments.
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 ACCOMPANYING PROSPECTUSES SHOULD BE READ IN CONJUNCTION WITH THIS PROSPECTUS
BEFORE INVESTING AND CONTAIN A FULL DESCRIPTION OF THE AMERICAN NATIONAL FUND
AND THE FIDELITY 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 pays us fees. The fees are
based upon an annual percentage of the average aggregate net amount invested by
us in such
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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
You can allot all or a portion of a 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" on page 16).
We guarantee that we will credit interest to the Fixed Account at an effective
annual rate of at least 3.0% compounded daily. We may, at our discretion,
declare higher interest rate(s) for amounts allotted or transferred to the Fixed
Account.
Purchase Payments allotted 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.
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FEDERAL TAX MATTERS
Introduction
The following discussion is general in nature and is not intended as tax advice
for each Contractowner. It does not address the tax consequences resulting from
all situations in which a Contractowner may maintain such a Contract. Tax advice
should be sought from a competent source prior to purchase. The discussion
below is based on American National's understanding of the present federal tax
law as currently interpreted by the Internal Revenue Service. No representation
is made as to the continuation of present federal tax law or its current inter-
pretation. State tax law may also be applicable.
TAXATION OF ANNUITIES IN GENERAL
Since a Group Unallocated Contract is not purchased directly by individuals,
those portions of the Code relating to individual ownership are not applicable
to the Group Unallocated Contractowner. Certain provisions of Section 72 of the
Code would apply if the Contractowner is a corporation or is not a natural
person and the Contract is not maintained under a plan which has favorable tax
treatment under the Code.
The United States Treasury Department has adopted regulations under Section
817(h) of the Code which set standards of diversification for the investment
underlying the Contract, in order for the Contract to be treated as annuities
for income tax purposes. American National intends that these diversification
standards will be satisfied. American National reserves the right to amend the
Contract in any way necessary to maintain compliance with these standards.
QUALIFIED CONTRACTS
The Group Unallocated Contract is designed for use with several types of
qualifying Plans subject to Code sections 401 and 457. The tax rules applicable
to such qualified Plans vary according to the type of Plan and the terms and
conditions of the Plan itself. Participants in qualified Plans may include
business owners (both self-employed and stockholders) and their employees for
whom pension and profit sharing plans have been established and government
employees covered by a section 457 deferred compensation plan.
As a general rule, purchase payments made by or for participants in qualified
Plans are not subject to taxation at the time such payments are made in the
Contract. In their capacity as Plan trustees or administrators, Contractowners
are responsible for the communication of appropriate information about the
operation of the Plan and the tax consequences of distributing benefits.
Distribution of benefits and tax withholding thereon is the sole responsibility
of the Contractowner.
Due to the complexity of the tax rules associated with the sponsorship and
operation of qualified Plans, entities contemplating establishment of such Plans
should seek advice from competent sources with respect to the responsibilities
and obligations associated with such Plans.
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PERFORMANCE
Performance information for the subaccounts may appear in reports and advertis-
ing 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 surren-
dered 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 AN Money Market subaccount may advertise
their current and effective yield. Current yield reflects the income generated
by an investment in the subaccount over a 7-day period. Effective yield is
calculated in a similar manner except that income earned is assumed to be
reinvested. The VIP II Investment Grade Bond and the VIP High Income subaccounts
may advertise a 30-day yield which reflects the income generated by an
investment in the subaccount over a 30-day period.
DISTRIBUTOR OF THE 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 com-
missions aggregating up to 6.1% 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.
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LEGAL MATTERS
Various matters of Texas law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Texas insurance law,
have been reviewed by Greer, Herz and Adams, LLP, General Counsel.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe at the present time no
lawsuits are pending or threatened that are reasonably likely to have a material
adverse impact on the Separate Account or us.
EXPERTS
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 1998 and 1997 and for the years then ended, and
the statements of net assets of American National Variable Annuity Separate
Account as of December 31, 1998 and the related statements of operations for the
year then ended, and the statements of changes in net assets for each of the two
years in the period then ended, included in this prospectus and elsewhere in the
registration statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
A registration statement describing the Contracts has been filed with the
Securities and Exchange Commission under the `33 Act. 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. 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 Contracts. They should not be considered as
bearing on the investment performance of the assets held in the Separate Ac-
count. The financial statements can be found in the Statement of Additional
Information.
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TABLE OF CONTENTS OF STATEMENT OF
ADDITIONAL INFORMATION
Page
The Contract......................................................... 3
Valuation of Accumulation Units...................................... 3
Computation of Variable Annuity Payments............................. 3
Annuity Unit Value................................................... 4
Summary.............................................................. 4
Exceptions to Charges................................................ 5
Assignment........................................................... 5
Minimum Distributions Program........................................ 5
Distribution of the Contract......................................... 6
Tax Matters.......................................................... 7
Records and Reports.................................................. 7
Performance.......................................................... 8
Total Return......................................................... 8
Other Total Return................................................... 9
Yields............................................................... 9
State Law Differences................................................ 10
Separate Account..................................................... 10
Termination of Participating Agreements.............................. 11
Financial Statements................................................. 17
Financials........................................................... 18
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AMERICAN NATIONAL VARIABLE ANNUITY
STATEMENT OF ADDITIONAL INFORMATION
RELATING TO THE PROSPECTUS DATED MAY 1, 1999
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
Home Office One Moody Plaza Galveston TX 77550-7999
1-800-306-2959
CUSTODIAN
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
PRINCIPAL DISTRIBUTOR
Securities Management and Research, Inc.
2450 South Shore Boulevard, Suite 400
League City, Texas 77573
INDEPENDENT AUDITORS
Arthur Andersen LLP
711 Louisiana, Suite 1300
Houston, Texas 77002-2786
This Statement of Additional Information is not a prospectus and should be read
only in conjunction with the prospectuses for the Contracts.
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE
ACCOUNT STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
This Statement of Additional Information expands upon subjects discussed in the
current prospectuses for the Variable Annuity Contracts ("the Contracts")
offered by American National Insurance Company ("American National"). You may
obtain a copy of the prospectuses dated April 30, 2000, 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 prospectuses for
the Contracts are incorporated in this Statement.
Form 5774-SAI Rev. 5-99
<PAGE>
TABLE OF CONTENTS
PAGE
The Contracts.............................................................. 3
Valuation of Accumulation Units............................................ 3
Computation of Variable Annuity Payments................................... 3
Annuity Unit Value......................................................... 3
Summary.................................................................... 4
Exceptions to Charges...................................................... 5
Termination of Contracts................................................... 5
Group Unallocated Contracts................................................ 6
Additional Federal Tax Matters............................................. 6
Limits on Subsequent Purchase Payments
(Under the Internal Revenue Code).......................................... 6
Taxation of American National.............................................. 6
Tax Status of the Contracts................................................ 7
Diversification Requirement................................................ 7
Required Distributions..................................................... 7
Assignment................................................................. 8
Distribution of the Contracts.............................................. 8
Records and Reports........................................................ 8
Performance................................................................ 9
Total Return............................................................... 9
Yields..................................................................... 10
State Law Differences...................................................... 11
Separate Account........................................................... 11
Termination of Participating Agreements.................................... 12
Financial Statements....................................................... 14
Financials................................................................. 15
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THE CONTRACTS
The following provides additional information about the Contracts which supple-
ments the description in the prospectus and which may be of interest to some
Contractowners.
VALUATION OF ACCUMULATION UNITS
The Accumulation Unit Value for a subaccount on any day is equal to (a) divided
by (b), where (a) is the net asset value of the corresponding Eligible Portfolio
of the underlying fund owned by each subaccount less any applicable deductions
and (b) is the number of Accumulation Units of that subaccount at the beginning
of that day.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will depend on
the amount of his/her Accumulation Value applied to affect the variable annuity
as of the tenth day immediately preceding the date annuity payments commence,
the amount of any premium tax owed (if applicable), the annuity option selected,
and the age of the annuitant. The Contracts contain tables indicating the dollar
amount of the first annuity payment under annuity options 1, 2, 3, and 4 for
each $1,000 of Accumulation Value at various ages. These tables are based upon
the 1983 Table a (promulgated by the Society of Actuaries) and an Assumed
Investment Rate (the AIR) of 3.0% per annum.
In any subsequent month, the dollar amount of the variable annuity payment is
determined by multiplying the number of annuity units in the applicable
division(s) by the value of such annuity unit on the tenth day preceding the due
date of such payment. The annuity unit value will increase or decrease in
proportion to the net investment return of the division(s) underlying the
variable annuity since the date of the previous annuity payment, less an
adjustment to neutralize the 3.0% or other AIR referred to above.
Therefore, the dollar amount of variable annuity payments after the first will
vary with the amount by which the net investment return is greater or less than
the 3.0% (or other AIR) per annum. For example, assuming a 3.5% AIR, if an
Eligible Portfolio has a cumulative net investment return of 5% over a one year
period, the first annuity payment in the next year will be approximately 1.5
percentage points greater than the payment on the same date in the preceding
year, and subsequent payments will continue to vary with the investment experi-
ence 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 is calculated at the same time that the value of an
Accu-
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mulation Unit is calculated and is based on the same values for shares of
Eligible Portfolios and other assets and liabilities. The following
illustrations show, by use of hypothetical examples, the method of determining
the annuity unit value and the amount of variable annuity payments.
ILLUSTRATION: CALCULATION OF ANNUITY UNIT VALUE
Annuity at age 65: Life with 120 payments certain
1. Annuity unit value, beginning of period $ .980000
2. Net investment factor for Period 1.001046
3. Daily adjustment for 3.0% Assumed Investment Rate .999919
4. (2) x (3) 1.000965
5. Annuity unit value, end of period (1) x (4) $ .980946
ILLUSTRATION: ANNUITY PAYMENTS
Annuity at age 65: Life with 120 payments certain
1. Number of accumulation units at annuity date 10,000.00
2. Accumulation Unit value
(10 days prior to date of first monthly payment) $ 1.800000
3. Accumulation Value of Contract (1) x (2) $18,000.00
4. First monthly annuity payment per
$1,000 of Accumulation Value $ 5.63
5. First monthly annuity payment (3) x (4) / 1,000 $ 101.34
6. Annuity Unit value
(10 days prior to date of first monthly payment) $ .980000
7. Number of annuity units (5) / (6) 103.408
8. Assume annuity unit value for second month equal to $ .997000
9. Second monthly annuity payment (7) x (8) $ 103.10
10. Assume annuity unit value for third month equal to $ .953000
11. Third monthly annuity payment (7) x (10) $ 98.55
SUMMARY
In conclusion, for a variable annuity the key element to pricing the annuity is
unknown; there is no interest rate guarantee made and interest credited will
depend upon actual future results. The technique used to overcome this obstacle
is the calculation of the premium for the annuity using an AIR. The initial
variable annuity payment is based upon this premium; subsequent payments will
increase or decrease depending upon the relationship between the AIR and the
actual investment performance of Eligible Portfolios to be passed to the
annuitant. Suppose an Eligible Portfolio showed a monthly return of 1% after the
first month, the participant's second monthly payment would be (assuming 30 days
between payments):
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$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.
EXCEPTIONS TO CHARGES
The surrender charges or other administration charges or deductions may be
reduced for sales of Contracts to a trustee, employer or similar entity
representing a group where such sales result in savings of sales or
administrative expenses. The entitlement to such a reduction in surrender
charges or other charges or deductions will be determined by American National
based on the following factors: (1) the size of the group; (2) the total amount
of purchase payments to be received from a group; (3) the purpose for which the
Contracts are being purchased; (4) the nature of the group for which the
Contracts are being purchased; and (5) any other circumstances of which American
National is not presently aware but that could result in reduced sales or
administrative expenses.
Directors, officers and bona fide full-time employees (and their spouses and
minor children) of Securities Management and Research, Inc. and American
National are permitted to purchase contracts with substantial reduction of
surrender charges or other administrative charges or deductions. No sales
commission will be paid on such contracts.
TERMINATION OF CONTRACTS
American National reserves the right to terminate any Group Unallocated Contract
under the following circumstances:
. the contract value is less than $2,000 after the end of the first contract
year, or $5,000 after the end of the third contract year;
. the Plan pursuant to which the Contract is issued is terminated for any
reason or becomes disqualified under Section 401 or 403 of the Internal
Revenue Code or
. for any reason after the eighth policy year.
American National may also terminate individual Contracts during the
Accumulation Period if certain conditions exist. These conditions are that
. no purchase payments have been received by American National for the
Contract for three full years;
. the Accumulation Value of the Contract is less than $200; and
. the value of the Contract allocated to the Fixed Account, projected to the
maturity date, would produce installments of less than $20 per month using
contractual guarantees.
Termination of a Contract may have adverse tax consequences. (See the prospec-
tus at "Federal Tax Matters," page 39.)
5
<PAGE>
GROUP UNALLOCATED CONTRACTS
Group Unallocated Contract is a contract between the Contractowner and American
National. Individual accounts are not established for Plan Participants unless
the one of the annuity payment options is selected.
ADDITIONAL FEDERAL TAX MATTERS
LIMITS ON SUBSEQUENT PURCHASE PAYMENTS
(Under The Internal Revenue Code)
The amount of subsequent Purchase Payments may be increased or decreased on
any date, and submission of a Purchase Payment different from the previous
Purchase Payment will automatically effect such an increase or decrease.
However, U.S. Treasury Regulations currently permit only one change to a salary
deduction agreement in any taxable year for contracts issued to qualify under
Section 403(b) of the Internal Revenue Code (the Code). Contracts issued under
Section 408(b) of the Code provide that the maximum Purchase Payments for
each Participant for a taxable year shall be $2,000 or other such amount as may
become permissible under amended laws. Contracts issued to qualify under
Section 408(k) of the Code provide that the maximum annual Purchase Payment
by an employer for each employee shall be the lesser of 25% of the employee's
compensation or $30,000 or such other amount as may become permissible
under amended law.
Contracts issued to qualify under Section 457 of the Code provide that the
maximum Purchase Payment in any taxable year shall be $7,500 for each
Participant or such other amount as may become permissible under amended law.
Such contracts further provide for an increase in Purchase Payments for one or
more of the Participant's last three taxable years ending before normal
retirement age in accordance with the provisions of the applicable Plan
agreement.
Purchase Payments pursuant to the salary deduction agreements to contracts
issued under Section 403(b), 408(k), 401(k) or 457 of the Code that are in
excess of $7,000 in a taxable year ($9,500 in the case of Section 403(b)
contracts and the lesser of $7,000 or 1/3 of employee's compensation for 457)
may be subject to adverse tax treatment.
TAXATION OF AMERICAN NATIONAL
American National is taxed as a life insurance company under Part 1 of
Subchapter L of the Code. Since the Separate Account is not an entity separate
from American National and its operations form a part of American National, it
will not be taxed separately as a "regulated investment company" under
Subchapter M of the code. Investment income and realized net capital gains on
Separate Account assets are reinvested and are taken into account in determining
the contract values. As a result, such investment income and realized net
capital gains
6
<PAGE>
are automatically retained as part of the reserves under the Contract. Under
existing federal income tax law, American National believes that the Separate
Account's investment income and realized net capital gains should not be taxed
to the extent that such income and gains are retained as part of the reserves
under the Contract.
TAX STATUS OF THE CONTRACTS
To comply with regulations under 817(h) of the Code, the investment of the
Separate Account must be "adequately diversified" in order for the Contracts to
qualify as annuity contracts under section 72 of the code. The Separate Account,
through the underlying funds, intends to comply with the diversification
requirements prescribed by the Treasury which affect how the Separate Account's
assets may be invested. American National will monitor compliance with this
requirement. Thus, American National believes that the Contracts will be
treated as annuity contracts for federal tax purposes.
DIVERSIFICATION REQUIREMENT
The Code requires that the investments underlying a separate account be
"adequately diversified" in order for an annuity contract 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 Contractowners 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:
(1) 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
(2) 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 (1) payable as annuity payments which begin
7
<PAGE>
within one year of the Contractowner's death, and (2) 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.
ASSIGNMENT
The Contracts may be assigned by the Contractowner except when issued to
plans or trusts qualified under Section 403(b) or 408 of the Internal Revenue
Code. 401(k) Contracts are not assignable.
DISTRIBUTION OF THE CONTRACTS
Subject to arrangements with American National, the Contracts are sold as part
of a continuous offering by independent broker-dealers who are members of the
National Association of Security Dealers, Inc., and who become licensed to sell
variable annuities for American National. Pursuant to a Distribution and
Administrative Services Agreement, Securities Management and Research, Inc.
("SM&R") acts as the principal underwriter on behalf of American National for
distribution of the Contracts. Under the Agreement, SM&R is to sell Contracts
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.
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
8
<PAGE>
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, or
. the Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in a contact.
Unmanaged indices may assume the reinvestment of dividends but generally do
not reflect deductions for annuity charges and investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including:
. the ranking of any subaccount derived from rankings of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Series or by rating services, companies, publications or other persons who
rank separate accounts or other investment products on overall performance or
other criteria, and
. the effect of tax deferred compounding on a subaccount's investment returns,
or returns in general, which may be illustrated by graphs, charts, or
otherwise, and which may include a comparison, at various points in time, of
the return from an investment in a Contract (or returns in general) on a tax-
deferred basis (assuming one or more tax rates) with the return on a taxable
basis.
TOTAL RETURN
Total Return quoted in advertising reflects all aspects of a subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady rate
that would
9
<PAGE>
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 that reflect neither
the annual contract fee nor the Surrender Charge. These are calculated in
exactly the same way as the average annual total returns described above, except
that the ending redeemable value of the hypothetical account for the period is
replaced with an ending value for the period that does not take into account the
annual contract fee and any charges or amounts surrendered.
YIELDS
Some subaccounts may also advertise yields. Yields quoted in advertising reflect
the change in value of a hypothetical investment in the subaccount over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized and stated as a percentage. Yields do not reflect the impact of any
contingent deferred sales load. Yields quoted in advertising may be based on
historical seven day periods. Current yield for the FID Money Market Subaccount
and the AN Money Market Subaccount will reflect the income generated by a
Subaccount over a 7-day period. Current yield is calculated by determining the
net change, exclusive of capital changes, in the value of a hypothetical account
having one Accumulation Unit at the beginning of the period and dividing the
difference by the value of the account at the beginning of the base period to
obtain the base period return, and multiplying the base period return by
(365/7). The resulting yield figure will be carried to the nearest hundredth of
a percent. Effective yield for the FID Money Market Subaccount and the AN Money
Market Subaccount is calculated in a similar manner to current yield except that
investment income is assumed to be reinvested throughout the year at the 7-day
rate. Effective yield is obtained by taking the base period returns as computed
above, and then compounding the base period return by adding 1, raising the sum
to a power equal to (365/7) and subtracting one from the result, according to
the formula Effective Yield = [(Base Period Return +1)/365/7/] - 1. Since the
reinvestment of income is assumed in the calculation of effective yield, it will
generally be higher than current yield.
A 30-day yield for bond subaccounts will reflect the income generated by a
subaccount over a 30-day period. Yield will be computed by dividing the net
10
<PAGE>
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.
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:
11
<PAGE>
. operate the Separate Account as a management company,
. de-register the Separate Account if registration is no longer required,
. combine the Separate Account with other separate accounts,
. restrict or eliminate any voting rights associated with the Separate Account,
or
. transfer the assets of the Separate Account relating to the 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;
. 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;
12
<PAGE>
. 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 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;
13
<PAGE>
. by the T. Rowe Price Funds or the underwriter, upon a determination by either,
that American National has suffered a material adverse change in its business,
operations, financial condition, or prospects, or is the subject of material
adverse publicity;
. by American National upon a determination by American National that either
the T. Rowe Price Funds or the underwriter has suffered a material adverse
change in its business, operations, financial condition, or prospects, or is
the subject of material adverse publicity;
. by the T. Rowe Price Funds or the underwriter sixty days after American
National gives the T. Rowe Price Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts if at the time such notice was given, no
other notice of termination of the T. Rowe Price participation agreement was
then outstanding; or
. 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.
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.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors and Contract Owners of American National
Variable Annuity Separate Account:
We have audited the accompanying statements of net assets of the
American National Variable Annuity Separate Account (comprised of
American National (AN) Growth, AN Money Market, AN Balanced, AN
Managed, Fidelity VIP II Investment Grade Bond, Fidelity VIP II Asset
Manager, Fidelity VIP II Index 500, Fidelity VIP Money Market, Fidelity VIP
Equity Income, Fidelity VIP High Income, Fidelity VIP Growth, Fidelity VIP
Overseas, Fidelity VIP II Contra Fund and Fidelity VIP II Asset Manager
Growth Portfolio Subaccounts) (collectively, the Account) as of December
31, 1998, and the related statements of operations for the year then ended
and the statements of changes in net assets for each of the two years in the
period then ended. These financial statements are the responsibility of the
Account's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
Our procedures included confirmation of securities owned as of December
31, 1998 by correspondence with the custodians. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December
31, 1998 and the results of its operations for the period then ended, and
the changes in net assets for each of the two years in the period then ended,
in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
April 12, 1999
15
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 4,049 $ 194 $ 1,669 $ 5,391
====================================================================================================================================
LIABILITIES:
Individual contract owner reserves $ 4,043 $ 194 $ 1,663 $ 5,390
Group contract owner reserves 6 0 6 1
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 4,049 $ 194 $ 1,669 $ 5,391
====================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 2,237,285 194,043 1,083,803 3,080,802
Cost $ 3,571 $ 194 $ 1,558 $ 4,846
====================================================================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
FIDELITY
VIP II FIDELITY FIDELITY FIDELITY
INVESTMENT VIP II VIP II VIP
GRADE ASSET INDEX MONEY
BOND MANAGER 500 MARKET
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 488 $ 1,410 $ 6,250 $ 617
====================================================================================================================================
LIABILITIES:
Individual contract owner reserves $ 480 $ 1,244 $ 6,242 $ 607
Group contract owner reserves 8 166 8 10
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 488 $ 1,410 $ 6,250 $ 617
====================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 37,648 77,618 44,249 616,832
Cost $ 479 $ 1,291 $ 5,060 $ 617
====================================================================================================================================
</TABLE>
16
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
FIDELITY FIDELITY
VIP II VIP
EQUITY HIGH FIDELITY FIDELITY
INCOME INCOME VIP VIP
FUND FUND GROWTH OVERSEAS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 4,587 $ 609 $ 3,874 $ 521
====================================================================================================================================
LIABILITIES:
Individual contract owner reserves $ 4,401 $ 600 $ 3,837 $ 443
Group contract owner reserves 186 9 37 78
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 4,587 $ 609 $ 3,874 $ 521
====================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 180,440 52,786 86,327 25,990
Cost $ 4,135 $ 677 $ 2,858 $ 490
====================================================================================================================================
</TABLE>
STATEMENTS OF NET ASSETS
December 31, 1998
(In thousands, except for number of shares)
<TABLE>
<CAPTION>
FIDELITY
FIDELITY VIP II
VIP II ASSET
CONTRA MANAGER
FUND GROWTH
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in shares of mutual funds, at market $ 2,300 $ 778
==================================================================================================
LIABILITIES:
Individual contract owner reserves $ 2,287 $ 775
Group contract owner reserves 13 3
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES $ 2,300 $ 778
==================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 94,118 45,692
Cost $ 1,879 $ 728
==================================================================================================
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
AN
AN MONEY AN AN
GROWTH MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 34 $ 45 $ 39 $ 64
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (48) (3) (17) (65)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (14) $ 42 $ 22 $ (1)
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments $ 99 $ -- $ 22 $ 132
Capital gains distributions from mutual funds 129 -- 37 93
Net unrealized appreciation of investments during the period 310 -- 77 333
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS $ 538 $ -- $ 136 $ 558
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 524 $ 42 $ 158 $ 557
==================================================================================================================================
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY
VIPII FIDELITY FIDELITY
INVESTMENT VIPII FIDELITY VIP
GRADE ASSET VIPII MONEY
BOND MANAGER INDEX 500 MARKET
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend from mutual funds $ 7 $ 33 $ 48 $ 31
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (3) (17) (74) (7)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 4 $ 16 $ (26) $ 24
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments $ 6 $ 27 $ 317 $ --
Capital gains distributions from mutual funds 1 100 112 --
Net unrealized appreciation of investments during the period 7 10 827 --
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS $ 14 $ 137 $1,256 $ --
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 18 $ 153 $1,230 $ 24
==================================================================================================================================
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
(In thousands)
- ----------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP VIP
EQUITY HIGH FIDELITY FIDELITY
INCOME INCOME VIP VIP
FUND FUND GROWTH OVERSEAS
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INVESTMENT INCOME
Dividend from mutual funds $ 51 $ 44 $ 12 $ 9
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (58) (9) (42) (7)
- ----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (7) $ 35 $ (30) $ 2
- ----------------------------------------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments $ 98 $ 5 $ 63 $ 3
Capital gains distributions from mutual funds 182 28 326 26
Net unrealized appreciation (depreciation)
of investments during the period 101 (108) 638 18
- ----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS $ 381 $ (75) $ 1,027 $ 47
- ----------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 374 $ (40) $ 997 $ 49
==================================================================================================================================
STATEMENTS OF OPERATIONS
For the year ended December 31, 1998
(In thousands)
- -----------------------------------------------------------------------------------------------------
FIDELITY
FIDELITY VIPII
VIPII ASSET
CONTRA MANAGER
FUND GROWTH
- -----------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend from mutual funds $ 11 $ 15
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (26) (10)
- -----------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (15) $ 5
- -----------------------------------------------------------------------------------------------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments $ 110 $ (16)
Capital gains distributions from mutual funds 80 71
Net unrealized appreciation of investments during the period 343 31
- -----------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS $ 533 $ 86
- -----------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 518 $ 91
=====================================================================================================
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
For the year ended December 31:
- ----------------------------------------------------------------------------------------------------------------------------------
AN AN AN AN
GROWTH MONEY MARKET BALANCED MANAGED
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (14)$ 10 $ 42 $ 4 $ 22 $ 16 $ (1)$ 18
Net realized gain on investments 99 87 -- -- 22 13 132 159
Capital gains distributions from mutual funds 129 194 -- -- 37 41 93 181
Net unrealized appreciation
of investments during the year 310 65 -- -- 77 26 333 94
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 524 $ 356 $ 42 $ 4 $ 158 $ 96 $ 557 $ 452
- -----------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 967 $ 1,242 $ (54) $ 178 $ 732 $ 446 $ 1,850 $ 1,615
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (285) (104) (10) (1) (102) (26) (481) (210)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets resulting
from policy related transactions $ 682 $ 1,138 $ (64) $ 177 $ 630 $ 420 $ 1,369 $ 1,405
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets $ 1,206 $ 1,494 $ (22) $ 181 $ 788 $ 516 $ 1,926 $ 1,857
Net assets, beginning of period $ 2,843 $ 1,349 $ 216 $ 35 $ 881 $ 365 $ 3,465 $ 1,608
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 4,049 $ 2,843 $ 194 $ 216 $ 1,669 $ 881 $ 5,391 $ 3,465
===================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 1,622,115 911,104 195,843 32,515 558,223 287,278 1,937,161 1,100,338
Purchase payments 700,246 1,053,001 61,955 388,429 400,515 428,643 1,067,368 1,316,439
Policy withdrawals and charges (326,343) (341,990) (87,175) (225,101) (9,751) (157,698) (353,850) (479,616)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,996,018 1,622,115 170,623 195,843 948,987 558,223 2,650,679 1,937,161
===================================================================================================================================
Accumulation unit value $ 2.026 $ 1.731 $ 1.137 $ 1.101 $ 1.689 $ 1.469 $ 2.011 $ 1.758
- -----------------------------------------------------------------------------------------------------------------------------------
Group contract owners
Accumulation units beginning of year 17,443 14,363 -- 71 3,587 3,330 465 1,498
Purchase payments (31,544) 42,586 -- -- (9,286) 10,408 (446) 1,433
Policy withdrawals and charges 16,847 (39,506) -- (71) 9,099 (10,151) 435 (2,466)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 2,746 17,443 -- -- 3,400 3,587 454 465
===================================================================================================================================
Accumulation unit value $ 2.302 $ 1.968 $ -- $ -- $ 1.729 $ 1.504 $ 2.178 $ 1.903
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred individual annuity contract in the annuity period
Accumulation units beginning of year -- -- -- -- 37,684 -- 31,811 --
Purchase payments -- -- -- -- -- 38,829 -- 32,778
Policy withdrawals and charges -- -- -- -- (1,717) (1,145) (1,449) (967)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- -- -- 35,967 37,684 30,362 31,811
===================================================================================================================================
Accumulation unit value $ -- $ -- $ -- $ -- $ 1.689 $ 1.492 $ 2.011 $ 1.871
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
For the year ended December 31:
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY FIDELITY
VIP II VIP II FIDELITY
INVESTMENT ASSET VIP II FIDELITY VIP
GRADE BOND MANAGAER INDEX 500 MONEY MARKET
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ 4 $ 6 $ 16 $ 10 $ (26)$ (18) $ 24 $ 24
Net realized gain on investments 6 2 27 23 317 272 -- --
Capital gains distributions from mutual
funds 1 -- 100 53 112 25 -- --
Net unrealized appreciation
of investments during the year 7 -- 10 44 827 222 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets
resulting from operations $ 18 $ 8 $ 153 $ 130 $ 1,230 $ 501 $ 24 $ 24
- -----------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 359 $ 28 $ 327 $ 347 $ 1,481 $ 2,404 $ (234) $ 659
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (24) (8) (108) (40) (267) (159) (57) (4)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from policy related
transactions $ 335 $ 20 $ 219 $ 307 $ 1,214 $ 2,245 $ (291) $ 655
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets $ 353 $ 28 $ 372 $ 437 $ 2,444 $ 2,746 $ (267) $ 679
Net assets, beginning of period 135 $ 107 1,038 $ 601 3,806 $ 1,060 884 205
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 488 $ 135 $ 1,410 $ 1,038 $ 6,250 $ 3,806 $ 617 $ 884
===================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation
period
Individual contract owners
Accumulation units beginning of year 93,192 72,929 602,425 426,424 1,753,242 636,107 774,056 179,947
Purchase payments 444,221 121,137 102,638 400,627 865,596 1,788,625 5,541,357 15,492,455
Policy withdrawals and charges (183,626) (100,874) 16,275 (224,626) (330,214) (671,490) (5,797,256) (14,898,346)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 353,787 93,192 721,338 602,425 2,288,624 1,753,242 518,157 774,056
===================================================================================================================================
Accumulation unit value $ 1.357 $ 1.263 $ 1.724 $ 1.518 $ 2.727 $ 2.154 $ 1.172 $ 1.127
- -----------------------------------------------------------------------------------------------------------------------------------
Group contract owners
Accumulation units beginning of year 13,768 17,859 78,051 42,474 11,675 6,327 10,040 8,304
Purchase payments (26,636) 31,140 18,783 38,094 (20,802) 26,207 (31,572) 47,990
Policy withdrawals and charges 18,474 (35,231) (4,501) (2,517) 11,831 (20,859) 29,163 (46,254)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 5,606 13,768 92,333 78,051 2,704 11,675 7,631 10,040
===================================================================================================================================
Accumulation unit value $ 1.378 $ 1.283 $ 1.798 $ 1.583 $ 3.148 $ 2.487 $ 1.242 $ 1.196
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred individual annuity contract in
the annuity period
Accumulation units beginning of year -- -- -- -- -- -- -- --
Purchase payments -- -- -- -- -- -- -- --
Policy withdrawals and charges -- -- -- -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- -- -- -- -- -- --
===================================================================================================================================
Accumulation unit value $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
For the year ended December 31:
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIP FIDELITY VIP
EQUITY INCOME FUND HIGH INCOME FUND FIDELITY VIP GROWTH FIDELITY VIP OVERSEAS
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997 1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (7) $ (6) $ 35 $ 20 $ (30)$ (17) $ 2 $ --
Net realized gain on investments 98 191 5 26 63 42 3 15
Capital gains distributions from mutual
funds 182 133 28 3 326 44 26 16
Net unrealized appreciation (depreciation)
of investments during the year 101 207 (108) 20 638 285 18 (6)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in net assets
resulting from operations $ 374 $ 525 $ (40)$ 69 $ 997 $ 354 $ 49 $ 25
- -----------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 950 $ 1,758 $ 70 $ 188 $ 705 $ 767 $ 120 $ 163
Surrenders of accumulation units by
terminations, withdrawals, and
maintenance fees (264) (268) (33) (3) (209) (127) (35) (31)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 686 $ 1,490 $ 37 $ 185 $ 496 $ 640 $ 85 $ 132
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase (decrease) in net assets $ 1,060 $ 2,015 $ (3)$ 254 $ 1,493 $ 994 $ 134 $ 157
Net assets, beginning of period $ 3,527 $ 1,512 $ 612 $ 358 $ 2,381 $ 1,387 $ 387 $ 230
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 4,587 $ 3,527 $ 609 $ 612 $ 3,874 $ 2,381 $ 521 $ 387
===================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation
period
Individual contract owners
Accumulation units beginning of year 1,805,034 971,692 365,784 259,931 1,263,215 895,058 233,047 170,694
Purchase payments 648,749 1,601,106 495 362,629 337,316 656,314 87,376 168,571
Policy withdrawals and charges (311,810) (767,764) 24,016 (256,776) (85,294) (288,157) (32,602) (106,218)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 2,141,973 1,805,034 390,295 365,784 1,515,237 1,263,215 287,821 233,047
===================================================================================================================================
Accumulation unit value $ 2.054 $ 1.869 $ 1.460 $ 1.546 $ 2.532 $ 1.840 $ 1.427 $ 1.283
- -----------------------------------------------------------------------------------------------------------------------------------
Group contract owners
Accumulation units beginning of year 77,128 47,017 8,122 8,006 28,010 20,557 43,013 25,842
Purchase payments (4,697) 57,299 (22,661) 28,336 (52,683) 63,945 8,344 24,146
Policy withdrawals and charges 13,207 (27,188) 20,331 (28,220) 38,149 (56,492) 1,455 (6,975)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 85,638 77,128 5,792 8,122 13,476 28,010 52,812 43,013
===================================================================================================================================
Accumulation unit value $ 2.176 $ 1.980 $ 1.545 $ 1.635 $ 2.743 $ 1.994 $ 1.468 $ 1.319
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred individual annuity contract
in the annuity period
Accumulation units beginning of year -- -- 21,337 -- -- -- 24,025 --
Purchase payments -- -- -- 21,985 -- -- -- 24,755
Policy withdrawals and charges -- -- (972) (648) -- -- (1,095) (730)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year -- -- 20,365 21,337 -- -- 22,930 24,025
===================================================================================================================================
Accumulation unit value $ -- $ -- $ 1.460 $ 1.570 $ -- $ -- $ 1.427 $ 1.295
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
STATEMENTS OF CHANGES IN NET ASSETS
(In thousands except for unit information)
For the year ended December 31:
- ------------------------------------------------------------------------------------------------------------------------------------
FIDELITY VIPII ASSET
FIDELITY VIPII CONTRA FUND MANAGER GROWTH
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operations:
Net investment income (loss) $ (15) $ (7) $ 5 $ (4)
Net realized gain (loss) on investments 110 95 (16) 37
Capital gains distributions from mutual funds 80 9 71 --
Net unrealized appreciation of investments during the year 343 39 31 15
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from operations $ 518 $ 136 $ 91 $ 48
- -----------------------------------------------------------------------------------------------------------------------------------
From policy related transactions:
Purchase payments and other transfers $ 685 $ 836 $ 89 $ 575
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees (206) (27) (73) (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Increase in net assets resulting from
policy related transactions $ 479 $ 809 $ 16 $ 572
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets $ 997 $ 945 $ 107 $ 620
Net assets, beginning of period $ 1,303 $ 358 $ 671 $ 51
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period $ 2,300 $ 1,303 $ 778 $ 671
===================================================================================================================================
Change in units outstanding:
Deferred contracts in the accumulation period
Individual contract owners
Accumulation units beginning of year 748,156 259,582 441,436 34,541
Purchase payments 558,438 844,976 314,604 636,101
Policy withdrawals and charges (257,885) (356,402) (306,797) (229,206)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 1,048,709 748,156 449,243 441,436
===================================================================================================================================
Accumulation unit value $ 2.126 $ 1.657 $ 1.725 $ 1.487
- -----------------------------------------------------------------------------------------------------------------------------------
Group contract owners
Accumulation units beginning of year 9,016 4,605 9,295 7,234
Purchase payments (17,695) 22,649 (21,477) 25,784
Policy withdrawals and charges 14,383 (18,238) 14,068 (23,723)
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 5,704 9,016 1,886 9,295
===================================================================================================================================
Accumulation unit value $ 2.255 $ 1.757 $ 1.774 $ 1.530
- -----------------------------------------------------------------------------------------------------------------------------------
Deferred individual annuity contract in the annuity period
Accumulation units beginning of year 28,293 -- -- --
Purchase payments -- 29,153 -- --
Policy withdrawals and charges (1,289) (860) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of year 27,004 28,293 -- --
===================================================================================================================================
Accumulation unit value $ 2.126 $ 1.688 $ -- $ --
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
- -------------------------------------------------------------------------------
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL ... American National Variable Annuity Separate Account (Separate
Account) was established on July 30,1991 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on April 20, 1994. The assets of the Separate
Account are segregated from the Sponsor's other assets and are used only to
support variable annuity products issued by the Sponsor. The Separate Account is
registered under the Investment Company Act of 1940, as amended, as a unit
investment trust. These financial statements report the results of the
subaccounts for the Variable Annuity Contracts. There are currently fourteen
subaccounts within the Separate Account which are active for the Variable
Annuity Contracts. Each of the subaccounts is invested only in a corresponding
portfolio of the American National (AN) or Fidelity Funds. The American National
Funds were organized and are managed for a fee by Securities Management &
Research, Inc. (SM&R) which is a wholly-owned subsidiary of the Sponsor.
BASIS OF PRESENTATION ... The financial statements of the Separate Account
have been prepared on an accrual basis in accordance with generally accepted
accounting principles.
INVESTMENTS ... Investments in shares of the separate investment portfolios
are stated at market value which is the net asset value per share as determined
by the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the basis
of identified cost. Capital gain distributions from mutual funds are recorded
and reinvested upon receipt. Dividends received from mutual funds are reinvested
daily in additional shares of the portfolios and are recorded as dividend income
on the record date.
FEDERAL TAXES ... The operations of the Separate Account form a part of, and
are taxed with, the operations of the Sponsor. Under the Internal Revenue Code,
all ordinary income and capital gains allocated to the contract owners are not
taxed to the Sponsor. As a result, the net asset values of the subaccounts are
not affected by federal income taxes on distributions received by the
subaccounts. Accordingly, no provision for income taxes is required in the
accompanying financial statements.
USE OF ESTIMATES ... The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements and the reported amounts
of income and expenses during the period. Operating results in the future could
vary from the amounts derived from management's estimates.
RECLASSIFICATIONS ... Certain items in the 1997 financial statements have been
reclassified to conform with the 1998 presentation.
(2) SECURITY PURCHASES AND SALES
For the year ended December 31, 1998, the aggregate cost of purchases
(including reinvestment of dividend distributions) and proceeds from sales of
investments in the mutual fund portfolios were as follows (in thousands):
PURCHASES SALES
- -----------------------------------------------------------------------------
AN Growth Portfolio $ 1,242 $ 444
AN Money Market Portfolio 479 500
AN Balanced Portfolio 819 132
AN Managed Portfolio 1,965 504
Fidelity VIPII Investment Grade Bond 569 230
Fidelity VIPII Asset Manager 409 75
Fidelity VIPII Index 500 2,041 743
Fidelity VIP Money Market 4,705 4,972
Fidelity VIP Equity Income Fund 1,363 503
Fidelity VIP High Income Fund 193 94
Fidelity VIP Growth 1,023 231
Fidelity VIP Overseas 155 42
Fidelity VIPII Contra Fund 600 57
Fidelity VIPII Asset Manager Growth 587 495
- -----------------------------------------------------------------------------
Totals $16,150 $9,022
=============================================================================
(3) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES ... Mortality risk and expense risk
charges, at an effective annual rate of 1.25%, are assessed daily against the
Separate Account's net asset value for both qualified and non-qualified Flexible
Purchase Payment Annuity Contracts. These charges are assessed at a rate of
0.85% for the Group Unallocated Deferred Annuity Contracts. This fee is assessed
during both the accumulation period and the annuity period.
MONTHLY ADMINISTRATIVE CHARGES ... American National's administrative charges
consist of an annual contract fee and a daily administrative asset fee. The
annual contract fee is $25 for non-qualified Flexible Purchase Payment Annuity
Contracts and $30 for all qualified Flexible Purchase Payment Annuity Contracts.
At the time of full surrender, the annual contract fee will be deducted on a pro
rata basis. Immediate Annuity Contracts have a one time contract fee of $100
when the single purchase payment is paid. The Group Unallocated Deferred Annuity
Contracts have no annual contract fee. The administrative asset fee is 0.10%
annually for all contracts. These charges are deducted through termination of
units of interest from applicable contract owners' accounts.
SURRENDER CHARGE ... On withdrawals of that portion of the accumulation value
representing purchase payments, a surrender charge is imposed based upon the
number of years since the year in which the purchase payments withdrawn were
paid, on a first paid, first withdrawn basis. For Flexible Purchase Payment
Deferred
24
<PAGE>
Annuities in the first policy year, the surrender charge is a maximum of 7% of
the purchase payment withdrawn and grades down to zero in the eighth contract
year after the purchase payment being withdrawn was made. For Group Unallocated
Deferred Annuity Contracts the surrender charge is a maximum of 4% and grades
down to zero in the eighth policy year.
TRANSFER CHARGE ... A $10 transfer charge is imposed after the first twelve
transfers in any one policy year for transfers made among the subaccounts.
PREMIUM CHARGES ... Premium taxes for certain jurisdictions are deducted from
premiums paid at rates ranging from zero to 3.5%. American National's current
practice is to deduct any state imposed premium tax from Purchase Payments. If a
state only imposes premium taxes upon annuitization, American National will
deduct these taxes from the contract value upon annuitization.
DISTRIBUTION EXPENSE CHARGE..A distribution expense is assessed daily to each
Subaccount. The distribution expense charge is 0.05% annually for Flexible
Purchase Payment Deferred Annuity Contracts. Group Unallocated Deferred Annuity
Contracts do not incur a distribution expense charge. The sum of all surrender
charges and the distribution expense charges assessed will at no time exceed
9.0% of all Purchase Payments paid.
25
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company
We have audited the accompanying consolidated statements of financial
position of American National Insurance Company and subsidiaries (the Company)
as of December 31, 1998 and 1997, and the related consolidated statements of
income, changes in stockholders' equity and cash flows for the years then ended.
These consolidated financial statements (pages 27 through 47) are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
National Insurance Company and subsidiaries as of December 31, 1998 and 1997,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 22,1999
26
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREMIUMS AND OTHER REVENUE
Life and annuity premiums $ 340,286 $ 348,973
Accident and health premiums 393,602 378,621
Property and casualty premiums 354,820 312,987
Other policy revenue 105,041 99,930
Net investment income 475,242 472,895
Gain from sale of investments 49,768 103,320
Other income 25,906 23,178
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenue 1,744,665 1,739,904
- -----------------------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life and annuity 259,010 246,855
Accident and health 289,553 280,376
Property and casualty 280,036 233,887
Increase/(decrease) in liability for future policy benefits:
Life and annuity 162,049 185,827
Accident and health (262) (4,862)
Commissions for acquiring and servicing policies 247,015 239,633
Other operating costs and expenses 199,294 176,988
Decrease/(increase) in deferred policy acquisition costs, net of amortization 9,795 (12,267)
Taxes, licenses and fees 32,334 29,778
- -----------------------------------------------------------------------------------------------------------------------------------
Total benefits and expenses 1,478,824 1,376,215
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY IN EARNINGS OF
UNCONSOLIDATED AFFILIATES AND FEDERAL INCOME TAXES 265,841 363,689
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES 8,048 9,333
- -----------------------------------------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES 273,889 373,022
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current 77,707 134,271
Deferred (1,216) (9,606)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 197,398 $ 248,357
===================================================================================================================================
NET INCOME PER COMMON SHARE - BASIC & DILUTED $ 7.45 $ 9.38
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost $ 3,565,974 $ 3,605,927
Bonds available-for-sale, at market 720,818 600,380
Marketable equity securities, at market:
Preferred stocks 41,664 40,744
Common stocks 1,051,926 882,864
Mortgage loans on real estate 1,025,683 1,103,333
Policy loans 296,109 300,574
Investment real estate, net of
accumulated depreciation of $109,415 and $100,298 238,714 258,210
Short-term investments 90,368 126,786
Other invested assets 112,207 63,081
- -----------------------------------------------------------------------------------------------------------------------------------
Total investments 7,143,463 6,981,899
Cash 22,228 5,497
Investments in unconsolidated affiliates 120,098 100,888
Accrued investment income 104,405 102,361
Reinsurance ceded receivables 65,667 49,499
Prepaid reinsurance premiums 171,116 141,270
Premiums due and other receivables 91,518 84,275
Deferred policy acquisition costs 731,703 748,341
Property and equipment 40,860 32,142
Other assets 94,302 58,577
Separate account assets 230,292 179,027
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 8,815,652 $ 8,483,776
===================================================================================================================================
LIABILITIES
Policyholder funds
Future policy benefits:
Life and annuity $ 2,029,396 $ 1,993,723
Accident and health 60,113 60,589
Policy account balances 2,324,310 2,422,828
Policy and contract claims 359,953 326,985
Other policyholder funds 510,130 457,952
- -----------------------------------------------------------------------------------------------------------------------------------
Total policyholder liabilities 5,283,902 5,262,077
Current federal income taxes (20,515) 14,340
Deferred federal income taxes 259,243 215,606
Other liabilities 148,118 107,309
Separate account liabilities 230,292 179,027
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 5,901,040 5,778,359
- -----------------------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock 30,832 30,832
Additional paid-in capital 211 211
Accumulated other comprehensive income 299,176 215,883
Retained earnings 2,687,120 2,561,218
Treasury stock, at cost (102,727) (102,727)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 2,914,612 2,705,417
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 8,815,652 $ 8,483,776
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ADDITIONAL OTHER
CAPITAL PAID-IN COMPREHENSIVE RETAINED TREASURY
STOCK CAPITAL INCOME EARNINGS STOCK TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996 $ 30,832 $ 211 $ 163,352 $ 2,382,238 $ (102,727) $2,473,906
Comprehensive income (net of taxes):
Net income 248,357 248,357
Unrealized gains on marketable securities 52,531 52,531
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 300,888
Dividends to stockholders
($2.62 per share) (69,377) (69,377)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1997 $ 30,832 $ 211 $ 215,883 $ 2,561,218 $ (102,727) $2,705,417
Comprehensive income (net of taxes):
Net income 197,398 197,398
Unrealized gains on marketable securities 83,293 83,293
- -----------------------------------------------------------------------------------------------------------------------------------
Comprehensive income 280,691
Dividends to stockholders
($2.70 per share) (71,496) (71,496)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1998 $ 30,832 $ 211 $ 299,176 $ 2,687,120 $ (102,727) $2,914,612
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 197,398 $ 248,357
Adjustments to reconcile net income to net cash provided by operating activities:
Increase in liabilities for policyholders' funds 121,016 145,663
Charges to policy account balances (104,059) (99,625)
Interest credited to policy account balances 126,914 135,478
Deferral of policy acquisition costs (140,707) (151,891)
Amortization of deferred policy acquisition costs 149,116 138,710
Deferred federal income tax benefit (1,216) (9,606)
Depreciation 19,073 20,454
Accrual and amortization of discounts (69,760) (34,416)
Gain from sale of investments (49,768) (103,320)
Equity in earnings of unconsolidated affiliates (8,048) (9,333)
Increase in premiums receivable (7,243) (15,023)
Increase in accrued investment income (2,044) (4,478)
Capitalization of interest on policy and mortgage loans (16,750) (14,475)
Other changes, net (52,366) (26,937)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 161,556 219,558
- -----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds 316,067 196,807
Stocks 247,951 331,679
Real estate 33,186 89,448
Other invested assets 171 5,706
Principal payments received on:
Mortgage loans 154,333 168,603
Policy loans 40,069 40,207
Purchases of investments:
Bonds (373,401) (424,721)
Stocks (237,868) (279,690)
Real estate (7,462) (1,537)
Mortgage loans (35,420) (151,471)
Policy loans (21,988) (23,023)
Other invested assets (79,081) (15,250)
Decrease (increase) in short-term investments, net 36,418 (121,262)
Decrease in investment in unconsolidated affiliates, net (19,210) (4,281)
Increase in property and equipment, net (5,721) (3,173)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 48,044 (191,958)
- -----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances 288,984 391,607
Policyholders' withdrawals from policy account balances (410,357) (357,878)
Dividends to stockholders (71,496) (69,377)
- -----------------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (192,869) (35,648)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 16,731 (8,048)
Cash:
Beginning of the year 5,497 13,545
- -----------------------------------------------------------------------------------------------------------------------------------
End of the year $ 22,228 $ 5,497
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(1) NATURE OF OPERATIONS
American National Insurance Company (American National) is a multiple line
insurance company offering a broad line of insurance coverages, including
individual and group life, health, and annuities; personal lines property and
casualty; and credit insurance. In addition, through subsidiaries, American
National also offers mutual funds and real estate management services. The
majority (99%) of revenues is generated by the insurance business. With the
exception of New York, business is conducted in all states, as well as Puerto
Rico, Guam and American Samoa. American National is also authorized to sell its
products to American military personnel in Western Europe. Various distribution
systems are utilized, including home service, multiple line ordinary, group
brokerage, credit and independent third party marketing organizations.
American National's insurance subsidiaries are American National Life
Insurance Company of Texas (ANTEX), Garden State Life Insurance Company,
Standard Life and Accident Insurance Company, American National Property and
Casualty Company (ANPAC), American National General Insurance Company (ANGIC)
and American National Lloyds Insurance Company (ANPAC Lloyds). The major non-
insurance subsidiaries are Securities Management and Research, Inc.;
Comprehensive Investment Services, Inc.; Alternative Benefit Management, Inc.;
ANTAC, Inc.; and ANREM Corporation. As part of its investment portfolio,
American National also owns interests in unconsolidated affiliates, primarily
several real estate joint ventures and partnerships.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES AND PRACTICES
PRINCIPLES OF CONSOLIDATION AND BASIS OF PRESENTATION--The consolidated
financial statements include the accounts of American National Insurance Company
and its wholly owned subsidiaries. All significant intercompany transactions
have been eliminated in consolidation. Investments in unconsolidated affiliates
are shown at cost plus equity in undistributed earnings since the dates of
acquisition.
The consolidated financial statements have been prepared on the basis of
generally accepted accounting principles which, for the insurance companies,
differs from the basis of accounting followed in reporting to insurance
regulatory authorities. (See Note 14.)
Certain reclassifications have been made to the 1997 financial information to
conform to the 1998 presentation.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from reported results using
those estimates.
ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE--As of December 31, 1997, American National adopted FAS No.
128, "Earnings per Share." This statement establishes standards for computing
and presenting earnings per share. As American National has a simple capital
structure, the adoption of this new standard did not have any effect on the
calculation of earnings per share.
REPORTING COMPREHENSIVE INCOME--Effective January 1, 1998, American National
adopted FAS No. 130, "Reporting Comprehensive Income." This statement
establishes standards for presenting comprehensive income and its components
prominently in the financial statements. American National has elected to
display comprehensive income as part of the consolidated statements of changes
in stockholders' equity. Additional information regarding the components of
comprehensive income is reported in Note 11.
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION--Effective
January 1, 1998, American National adopted FAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for presenting information about operating segments in financial
statements. The statement requires disclosure of information on operating
segments that are evaluated regularly by the chief operating decision maker in
deciding how to allocate resources and assess performance. It also establishes
standards for related disclosures about products and services, geographic areas
and major customers. The adoption of this new standard required the restatement
of prior period segment disclosures to conform with the new format, but had no
effect on American National's financial position or results from operations. The
segment disclosures are presented in Note 13.
31
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
PENSION AND OTHER POSTRETIREMENT BENEFIT DISCLOSURES--As of December 31, 1998,
American National adopted FAS No. 132, "Employers' Disclosures about Pensions
and Other Postretirement Benefits." This statement establishes revised standards
for disclosures about pensions and other postretirement benefit plans. The
adoption of this new standard required the restatement of prior period
disclosures to conform with the new requirements, but had no effect on American
National's financial position or results from operations. The retirement
benefits disclosures are presented in Note 15.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS--FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," is effective for all quarters beginning
after June 15, 1999. This statement establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for hedging activities. The statement requires
that entities recognize all derivatives as either assets or liabilities in the
statement of financial position and measure those instruments at fair value.
American National will adopt FAS No. 133 on July 1, 1999. Management believes
that the adoption of FAS No. 133 will not have a significant effect on American
National's financial position or results from operations.
INVESTMENTS
DEBT SECURITIES--Bonds that are intended to be held-to-maturity are carried at
amortized cost. American National has the ability and intent to hold these
securities until maturity.
Bonds held as available-for-sale are carried at market.
PREFERRED STOCKS--All preferred stocks are classified as available-for-sale,
and are carried at market.
COMMON STOCKS--All common stocks are classified as available-for-sale, and are
carried at market.
UNREALIZED GAINS--For all investments carried at market, the unrealized gains
or losses (differences between amortized cost and market value), net of
applicable federal income taxes, are reflected in stockholders' equity as a
component of accumulated other comprehensive income.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized cost,
less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of loan
and property information, such as debt service coverage, annual operating
statements and property inspection reports. This information is evaluated in
light of current economic conditions and other factors, such as geographic
location and property type. As a result of this review, impaired loans are
identified and valuation allowances are established. Impaired loans are loans
where, based on current information and events, it is probable that American
National will be unable to collect all amounts due according to the contractual
terms of the loan agreement.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowance for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years), using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through the
review of operating information and periodic inspections. This information is
evaluated in light of current economic conditions and other factors, such as
geographic location and property type. As a result of this review, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial paper)
are carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less
allowance for valuation impairments. Valuation allowances for other invested
assets are considered on an individual basis in accordance with the same
procedures used for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation
allowances are established for impairments of mortgage loans, real estate and
other assets in accordance with the policies established for each class of
invested asset. The increase in the valuation allowances is reflected in current
period income as a realized loss.
32
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Management believes that the valuation allowances are adequate. However, it is
possible that a significant change in economic conditions in the near term could
result in losses exceeding the amounts established.
CASH AND CASH EQUIVALENTS--American National considers cash on hand and in
banks as cash for purposes of the consolidated statements of cash flows.
INVESTMENTS IN UNCONSOLIDATED AFFILIATES--These assets are primarily
investments in real estate joint ventures, and are accounted for under the
equity method of accounting.
PROPERTY AND EQUIPMENT--These assets consist of buildings occupied by the
companies, electronic data processing equipment, and furniture and equipment.
These assets are carried at cost, less accumulated depreciation. Depreciation is
provided using straight-line and accelerated methods over the estimated useful
lives of the assets (three to 50 years).
INSURANCE SPECIFIC ASSETS AND LIABILITIES
DEFERRED POLICY ACQUISITION COSTS--Certain costs of acquiring new insurance
business have been deferred. For life, annuity, and accident and health
business, such costs consist of inspection report and medical examination fees,
commissions, related fringe benefit costs and the cost of insurance in force
gained through acquisitions. The amount of commissions deferred includes first-
year commissions and certain subsequent year commissions that are in excess of
ultimate level commission rates.
The deferred policy acquisition costs on traditional life and health products
are amortized with interest over the anticipated premium-paying period of the
related policies, in proportion to the ratio of annual premium revenue to be
received over the life of the policies. Expected premium revenue is estimated by
using the same mortality and withdrawal assumptions used in computing
liabilities for future policy benefits. The amount of deferred policy
acquisition costs is reduced by a provision for possible inflation of
maintenance and settlement expenses in the determination of such amounts by
means of grading interest rates.
Costs deferred on universal life, limited pay and investment-type contracts
are amortized as a level percentage of the present value of anticipated gross
profits from investment yields, mortality, and surrender charges. The effect on
the deferred policy acquisition costs that would result from realization of
unrealized gains (losses) is recognized with an offset to net unrealized gains
(losses) in consolidated stockholders' equity as of the balance sheet date. It
is possible that a change in interest rates could have a significant impact on
the deferred policy acquisition costs calculated for these contracts.
Deferred policy acquisition costs associated with property and casualty
insurance business consist principally of commissions, underwriting and issue
costs. These costs are amortized over the coverage period of the related
policies, in relation to premium revenue recognized.
FUTURE POLICY BENEFITS--For traditional products, liabilities for future
policy benefits have been provided on a net level premium method based on
estimated investment yields, withdrawals, mortality, and other assumptions that
were appropriate at the time that the policies were issued. Estimates used are
based on the companies' experience, as adjusted to provide for possible adverse
deviation. These estimates are periodically reviewed and compared with actual
experience. When it is determined that future expected experience differs
significantly from the assumed, the estimates are revised for current and future
issues.
Future policy benefits for universal life and investment type contracts
reflect the current account value before applicable surrender charges. In the
near term, it is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
RECOGNITION OF PREMIUM REVENUE AND POLICY BENEFITS
TRADITIONAL ORDINARY LIFE AND HEALTH--Life and accident and health premium is
recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
ANNUITIES--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in the
case of variable annuities, administrative fees. Policy account balances for
annuities represent the
33
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
premiums received plus accumulated interest less applicable accumulated
administrative fees. It is possible that a change in interest rates could have a
significant impact on the values calculated for these contracts.
UNIVERSAL LIFE AND SINGLE PREMIUM WHOLE LIFE--Revenues from universal life
policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges actually paid, and earned policy service fees. Policyholder
account balances consist of the premiums received plus credited interest, less
accumulated policyholder assessments. Amounts included in expense represent
benefits in excess of account balances returned to policyholders.
PROPERTY AND CASUALTY--Property and casualty premiums are recognized
proportionately as revenue over the contract period. Policy benefits consist of
actual claims and the change in reserves for losses and loss adjustment
expenses. The reserves for losses and loss adjustment expenses are estimates of
future payments of reported and unreported claims, and the related expenses with
respect to insured events that have occurred. These reserves are calculated
using case basis estimates for reported losses and experience for claims
incurred but not reported. These loss reserves are reported net of an allowance
for salvage and subrogation. Management believes that American National's
reserves have been appropriately calculated, based on available information as
of December 31, 1998. However, it is possible that the ultimate liabilities may
vary significantly from these estimated amounts.
PARTICIPATING INSURANCE POLICIES--The allocation of dividends to participating
policyowners is based upon a comparison of experienced rates of mortality,
interest and expenses, as determined periodically for representative plans of
insurance, issue ages and policy durations, with the corresponding rates assumed
in the calculation of premiums. Participating business comprised approximately
2.7% of the life insurance in force at December 31, 1998 and 5.1% of life
premiums in 1998.
FEDERAL INCOME TAXES--American National and all but one of its subsidiaries
will file a consolidated life/non-life federal income tax return for 1998.
Alternative Benefit Management, Inc files a separate return. In 1997, Garden
State Life Insurance Company filed a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
SEPARATE ACCOUNT ASSETS AND LIABILITIES--The separate account assets and
liabilities represent funds maintained to meet the investment objectives of
contract holders who bear the investment risk. The investment income and
investment gains and losses from these separate funds accrue directly to the
contract holders of the policies supported by the separate accounts. The assets
of each separate account are legally segregated, and are not subject to claims
that arise out of any other business of American National. The assets of these
accounts are carried at market value. Deposits, net investment income and
realized investment gains and losses for these accounts, are excluded from
revenues, and related liability increases are excluded from benefits and
expenses in this report.
NET INCOME PER COMMON SHARE--Net income per common share is based on the
weighted average number of shares outstanding (26,479,165 shares for 1998 and
1997).
34
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(3) INVESTMENTS
The amortized cost and estimated market values of investments in held-
to-maturity and available-for-sale securities are shown below (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1998
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 166,206 $ 5,503 $ -- $ 171,709
States and political subdivisions 39,427 692 (24) 40,095
Foreign governments 106,924 9,436 -- 116,360
Public utilities 1,210,677 73,784 (135) 1,284,326
All other corporate bonds 1,914,950 132,731 (491) 2,047,190
Mortgage-backed securities 127,790 8,344 (1) 136,133
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,565,974 230,490 (651) 3,795,813
- ------------------------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 71,579 1,368 -- 72,947
Foreign governments 42,780 4,758 -- 47,538
Public utilities 230,534 16,738 -- 247,272
All other corporate bonds 328,132 25,310 (381) 353,061
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 673,025 48,174 (381) 720,818
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,238,999 278,664 (1,032) 4,516,631
- ------------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,264 2,427 (27) 41,664
Common stock 619,197 473,099 (40,370) 1,051,926
- ------------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities 658,461 475,526 (40,397) 1,093,590
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments in securities $ 4,897,460 $ 754,190 $ (41,429) $ 5,610,221
====================================================================================================================================
DECEMBER 31, 1997
Debt securities
Bonds held-to-maturity:
U. S. government and agencies $ 180,156 $ 5,662 $ (220) $ 185,598
States and political subdivisions 11,367 261 (15) 11,613
Foreign governments 121,643 7,147 -- 128,790
Public utilities 1,198,814 39,353 (2,374) 1,235,793
All other corporate bonds 1,885,700 85,963 (1,925) 1,969,738
Mortgage-backed securities 208,247 12,809 (2) 221,054
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity 3,605,927 151,195 (4,536) 3,752,586
- ------------------------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U. S. government and agencies 49,990 1,348 -- 51,338
Foreign governments 47,141 4,328 -- 51,469
Public utilities 185,078 12,330 -- 197,408
All other corporate bonds 280,860 19,311 (6) 300,165
- ------------------------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale 563,069 37,317 (6) 600,380
- ------------------------------------------------------------------------------------------------------------------------------------
Total debt securities 4,168,996 188,512 (4,542) 4,352,966
- ------------------------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock 39,313 1,510 (79) 40,744
Common stock 575,058 331,280 (23,474) 882,864
- ------------------------------------------------------------------------------------------------------------------------------------
Total marketable equity securities 614,371 332,790 (23,553) 923,608
- ------------------------------------------------------------------------------------------------------------------------------------
Total investments in securities $ 4,783,367 $ 521,302 $ (28,095) $ 5,276,574
====================================================================================================================================
</TABLE>
35
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
DEBT SECURITIES--The amortized cost and estimated market value, by
contractual maturity of debt securities at December 31, 1998, are shown below
(in thousands). Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
BONDS-HELD- BONDS-AVAILABLE-
TO-MATURITY FOR-SALE
- ------------------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less $ 20,555 $ 20,665 $ -- $ --
Due after one year through five years 781,869 823,428 198,820 212,534
Due after five years through ten years 2,600,777 2,780,095 448,940 481,640
Due after ten years 34,984 35,494 25,265 26,644
- ------------------------------------------------------------------------------------------------------
3,438,185 3,659,682 673,025 720,818
Without single maturity date 127,789 136,131 -- --
- ------------------------------------------------------------------------------------------------------
$3,565,974 $3,795,813 $673,025 $720,818
======================================================================================================
</TABLE>
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) were $317,556,000 for 1998. Gross gains of
$71,935,000 and gross losses of $36,975,000 were realized on those sales.
Included in the proceeds from sales of available-for-sale securities are
$40,454,000 of proceeds from the sale of bonds that had been reclassified from
bonds held-to-maturity. The bonds had been reclassified due to evidence of a
significant deterioration in the issuer's credit-worthiness. The net gain from
the sale of these bonds was $1,073,000.
Bonds were called by the issuers during 1998, which resulted in proceeds
of $89,205,000 from the disposal. Gross gains of $747,000 were realized on those
disposals.
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) were $331,679,000 for 1997. Gross gains of
$118,985,000 and gross losses of $12,301,000 were realized on those sales. Bonds
were called by the issuers during 1997, which resulted in proceeds from the
disposal of $11,442,000. Gross gains of $531,000 were realized on those
disposals.
All gains and losses were determined using specific identification of
the securities sold.
UNREALIZED GAINS ON SECURITIES--Unrealized gains on marketable equity
securities and bonds available-for-sale, presented in the stockholders' equity
section of the consolidated statements of financial position, are net of
deferred tax liabilities of $160,912,000 and $116,062,000 for 1998 and 1997,
respectively.
The change in the net unrealized gains on investments for the years
ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Bonds available-for-sale $ 10,482 $ 13,391
Preferred stocks 969 352
Common stocks 124,923 71,152
Amortization of deferred policy acquisition costs (8,229) (3,863)
- --------------------------------------------------------------------------------
128,145 81,032
Provision for federal income taxes (44,852) (28,501)
- --------------------------------------------------------------------------------
$ 83,293 $ 52,531
================================================================================
</TABLE>
MORTGAGE LOANS--In general, mortgage loans are secured by first liens on
income-producing real estate. The loans are expected to be repaid from the cash
flows or proceeds from the sale of real estate. American National generally
allows a maximum loan-to-collateral-value ratio of 75% to 90% on newly funded
mortgage loans. As of December 31, 1998, mortgage loans have both fixed rates
from 5.75% to 12.5% and variable rates from 6.25% to 10.25%. The majority of the
mortgage loan contracts require periodic payments of both principal and
interest, and have amortization periods of 3 to 31 years.
American National has investments in first lien mortgage loans on real
estate with carried values of $1,025,683,000 and $1,103,333,000 at December 31,
1998 and 1997, respectively. Problem loans, on which impairment allowances were
established, totaled $2,995,000 and $6,493,900 at December 31, 1998 and 1997,
respectively.
POLICY LOANS--Policy loans have interest rates ranging from 2.75% to 8%.
Approximately 99% of the policy loan portfolio carried interest rates of 5% to
8% at December 31, 1998.
36
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
INVESTMENT INCOME AND REALIZED GAINS (LOSSES)--Investment income and
realized gains (losses) from disposals of investments, before federal income
taxes, for the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
INVESTMENT GAINS (LOSSES) FROM
INCOME DISPOSALS OF INVESTMENTS
- ------------------------------------------------------------------------------------
1998 1997 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bonds $317,481 $303,426 $ 2,614 $ 530
Preferred stocks 2,584 3,173 1 21
Common stocks 16,774 18,977 33,092 106,662
Mortgage loans 97,871 109,165 1,248 (1,277)
Real estate 80,138 84,344 1,338 (5,977)
Other invested assets 29,123 26,872 (564) (83)
Investment in unconsolidated
affiliates -- -- 29 (79)
- ------------------------------------------------------------------------------------
543,971 545,957 37,758 99,797
Investment expenses (68,729) (73,062) -- --
Decrease in valuation allowances -- -- 12,010 3,523
- ------------------------------------------------------------------------------------
$475,242 $472,895 $ 49,768 $103,320
====================================================================================
</TABLE>
(4) CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest
return possible commensurate with sound and prudent underwriting practices to
ensure a well-diversified investment portfolio.
BONDS:
American National's bond portfolio is of high investment quality and is
well diversified. The bond portfolio distributed by quality rating at December
31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
AAA 9% 8%
AA 14% 13%
A 55% 56%
BBB & below 22% 23%
- --------------------------------------------------------------------------------
100% 100%
================================================================================
</TABLE>
COMMON STOCK:
American National's stock portfolio by market sector distribution at
December 31 is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Basic materials 4% 8%
Capital goods 7% 10%
Consumer goods 18% 18%
Energy 5% 7%
Finance 11% 9%
Technology 16% 12%
Health care 24% 21%
Miscellaneous 15% 15%
- --------------------------------------------------------------------------------
100% 100%
================================================================================
</TABLE>
MORTGAGE LOANS AND INVESTMENT REAL ESTATE:
American National invests primarily in the commercial sector in areas
that offer the potential for property value appreciation. Generally, mortgage
loans are secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution
at December 31 are summarized as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings 21% 21% 19% 19%
Shopping centers 56% 56% 40% 40%
Commercial 3% 3% 14% 15%
Apartments 1% 2% 3% 3%
Hotels/motels 3% 3% 16% 16%
Industrial 13% 12% 4% 4%
Other 3% 3% 4% 3%
- --------------------------------------------------------------------------------
100% 100% 100% 100%
================================================================================
</TABLE>
37
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
American National has a well-diversified portfolio of mortgage loans and
real estate properties. Mortgage loans and real estate investments by geographic
distribution at December 31 are as follows:
<TABLE>
<CAPTION>
INVESTMENT
MORTGAGE REAL
LOANS ESTATE
- --------------------------------------------------------------------------------
1998 1997 1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Texas 18% 18% 41% 45%
South Central, except Texas 2% 2% 1% 1%
California 11% 11% 8% 7%
Western, except California 7% 6% 4% 4%
Southeastern 9% 10% 22% 22%
North Central U.S. 8% 10% 15% 14%
North Eastern U.S. 45% 43% 9% 7%
- --------------------------------------------------------------------------------
100% 100% 100% 100%
================================================================================
</TABLE>
(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated market values of financial instruments have been determined
using available market information and appropriate valuation methodologies.
However, considerable judgment is required in developing the estimates of fair
value. Accordingly, these estimates are not necessarily indicative of the
amounts that could be realized in a current market exchange, or the amounts that
may ultimately be realized. The use of different market assumptions or
estimating methodologies may have a material effect on the estimated market
values.
DEBT SECURITIES:
The estimated market values for bonds represent quoted market values
from published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Market values for preferred and common stocks represent quoted market
prices obtained from independent pricing services.
MORTGAGE LOANS:
The market value for mortgage loans is estimated using discounted cash
flow analyses based on interest rates currently being offered for comparable
loans. Loans with similar characteristics are aggregated for purposes of the
analyses.
POLICY LOANS:
The carrying amounts for policy loans approximates their market value.
SHORT-TERM INVESTMENTS:
The carrying amounts for short-term investments approximates their
market value.
INVESTMENT CONTRACTS:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in
duration, and the market value was not significant at December 31, 1998 or 1997.
VALUES:
The carrying amounts and estimated market values of financial
instruments at December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- -----------------------------------------------------------------------------------------------
ESTIMATED ESTIMATED
CARRYING MARKET CARRYING MARKET
AMOUNT VALUE AMOUNT VALUE
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds:
Held-to-maturity $3,565,974 $3,795,813 $3,605,927 $3,752,586
Available-for-sale 720,818 720,818 600,380 600,380
Preferred stock 41,664 41,664 40,744 40,744
Common stock 1,051,926 1,051,926 882,864 882,864
Mortgage loans on real estate 1,025,683 1,158,033 1,103,333 1,229,078
Policy loans 296,109 296,109 300,574 300,574
Short-term investments 90,368 90,368 126,786 126,786
Financial liabilities:
Investment contracts 1,736,223 1,736,223 1,867,233 1,867,233
- ------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended
December 31, 1998 and 1997, are summarized as follows (in thousands):
<TABLE>
<CAPTION>
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at
December 31, 1996 $624,012 $107,192 $ 7,819 $ 739,023
- ------------------------------------------------------------------------------------------------
Additions 105,268 21,373 24,336 150,977
Amortization (92,830) (23,553) (22,327) (138,710)
Effect of change in unrealized gains on
available-for-sale securities (3,863) (3,863)
- ------------------------------------------------------------------------------------------------
Net change 8,575 (2,180) 2,009 8,404
Acquisitions 752 162 -- 914
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1997 633,339 105,174 9,828 748,341
- ------------------------------------------------------------------------------------------------
Additions 87,660 25,897 25,764 139,321
Amortization (98,017) (26,940) (24,159) (149,116)
Effect of change in unrealized gains on
available-for-sale securities (8,229) (8,229)
- ------------------------------------------------------------------------------------------------
Net change (18,586) (1,043) 1,605 (18,024)
Acquisitions 782 604 -- 1,386
- ------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $615,535 $104,735 $ 11,433 $ 731,703
================================================================================================
1998 premiums $340,286 $393,602 $354,820 $1,088,708
================================================================================================
1997 premiums $348,973 $378,621 $312,987 $1,040,581
================================================================================================
</TABLE>
Commissions comprise the majority of the additions to deferred policy
acquisition costs for each year.
Acquisitions relate to the acquisition of various insurance portfolios
under assumption reinsurance agreements.
(7) FUTURE POLICY BENEFITS
LIFE INSURANCE:
Interest assumptions used in the calculation of future policy benefits
for life policies are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
- --------------------------------------------------------------------------------
<C> <S> <C>
ORDINARY--
1996-1998 7.5% for years 1 through 5, graded to 5.5% at the
end of year 25, and level thereafter 2%
1981-1995 8% for years 1 through 5, graded to 6% at the end
of year 25, and level thereafter 20%
1976-1981 7% for years 1 through 5, graded to 5% at the end
of year 25, and level thereafter 22%
1972-1975 6% for years 1 through 5, graded to 4% at the end
of year 25, and level thereafter 9%
1969-1971 6% for years 1 through 5, graded to 3.5% at the
end of year 30, and level thereafter 7%
1962-1968 4.5% for years 1 through 5, graded to 3.5% at the
end of year 15, and level thereafter 13%
1948-1961 4% for years 1 through 5,graded to 3.5% at the
end of year 10, and level thereafter 13%
1947 and prior Statutory rates of 3% or 3.5% 2%
INDUSTRIAL--
1948-1967 4% for years 1 through 5, graded to 3.5% at the end
of year 10, and level thereafter 6%
1947 and prior Statutory rates of 3% 6%
- --------------------------------------------------------------------------------
100%
================================================================================
</TABLE>
Future policy benefits for universal life are calculated from the
current account value.
Future policy benefits for other policies have been calculated using
level interest rates principally as follows: annuities at 6% and group at 4%.
Mortality and withdrawal assumptions are based on American National's
experience.
HEALTH INSURANCE:
Interest assumptions used for future policy benefits on health policies
are calculated using a level interest rate of 6%.
Morbidity and termination assumptions are based on American National's
experience.
39
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(8) LIABILITY FOR UNPAID CLAIMS AND CLAIM ADJUSTMENT EXPENSES
Activity in the liability for accident and health, and property and
casualty unpaid claims and claim adjustment expenses is summarized as follows
(in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Balance at January 1 $249,639 $222,996
Less reinsurance recoverables 2,567 2,439
- --------------------------------------------------------------------------------
Net balance at January 1 247,072 220,557
- --------------------------------------------------------------------------------
Incurred related to:
Current year 598,681 515,202
Prior years (6,592) (1,098)
- --------------------------------------------------------------------------------
Total incurred 592,089 514,104
- --------------------------------------------------------------------------------
Paid related to:
Current year 411,352 343,333
Prior years 158,879 144,256
- --------------------------------------------------------------------------------
Total paid 570,231 487,589
- --------------------------------------------------------------------------------
Net balance at December 31 268,930 247,072
Plus reinsurance recoverables 11 2,567
- --------------------------------------------------------------------------------
Balance at December 31 $268,941 $249,639
================================================================================
</TABLE>
The balances at December 31 are included in policy and contract claims
on the consolidated statement of financial position.
(9) REINSURANCE
As is customary in the insurance industry, the companies reinsure
portions of certain insurance policies they write, thereby providing a greater
diversification of risk and managing exposure on larger risks. The maximum
amount that would be retained by one company (American National) would be
$700,000 individual life, $250,000 individual accidental death, $100,000 group
life and $125,000 credit life (total $1,175,000). If individual, group and
credit were in force in all companies at the same time, the maximum risk on any
one life could be $1,875,000.
The companies remain contingently liable with respect to any reinsurance
ceded, and would become actually liable if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
American National evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar geographic
regions, activities, or economic characteristics of the reinsurers to minimize
its exposure to significant losses from reinsurer insolvencies. At December 31,
1998, amounts recoverable from reinsurers, with a carrying value of $93,551,000,
were associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos. American
National holds collateral related to these credit reinsurers totaling
$71,554,000. This collateral is in the form of custodial accounts controlled by
American National, which can be drawn on for amounts that remain unpaid for more
than 120 days. American National believes that the failure of any single
reinsurer to meet its obligations would not have a significant effect on its
financial position or results of operations.
Premiums, premium-related reinsurance amounts and reinsurance recoveries
for the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Direct premiums $1,201,189 $1,134,615
Reinsurance premiums assumed from other companies 42,403 25,146
Reinsurance premiums ceded to other companies (154,884) (119,180)
- --------------------------------------------------------------------------------
Net premiums $1,088,708 $1,040,581
================================================================================
Reinsurance recoveries $ 88,240 $ 56,535
================================================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31
are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Direct life insurance in force $44,134,974 $43,143,187
Reinsurance risks assumed from other companies 713,200 662,171
- --------------------------------------------------------------------------------
Total life insurance in force 44,848,174 43,805,358
Reinsurance risks ceded to other companies (7,965,042) (6,985,956)
- --------------------------------------------------------------------------------
Net life insurance in force $36,883,132 $36,819,402
================================================================================
</TABLE>
(10) FEDERAL INCOME TAXES
The federal income tax provisions vary from the amounts computed when
applying the statutory federal income tax rate. A reconciliation of the
effective tax rate of the companies to the statutory federal income tax rate
follows (in thousands, except percentages):
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income tax on pre-tax income $95,861 35.00 % $130,558 35.00 %
Tax-exempt investment income (971) (0.35)% (383) (0.10)%
Dividend exclusion (5,044) (1.84)% (3,046) (0.82)%
Exempted losses on sale of assets (9,856) (3.60)% -- -- %
Miscellaneous tax credits, net (1,467) (0.54)% (1,238) (0.33)%
</TABLE>
40
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1998 and December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Investment in bonds, real estate and other invested
assets, principally due to investment valuation
allowances $ 10,656 $ 11,858
Policyowner funds, principally due to policy reserve
discount 78,279 81,935
Policyowner funds, principally due to unearned premium
reserve 10,020 9,527
Other assets 2,649 6,701
- --------------------------------------------------------------------------------
Total gross deferred tax assets $ 101,604 $ 110,021
Less valuation allowance (3,000) (3,000)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 98,604 $ 107,021
- --------------------------------------------------------------------------------
DEFERRED TAX LIABILITIES:
Marketable equity securities, principally due to net
unrealized gains on stock $(151,396) $(107,767)
Investment in bonds, principally due to accrual of
discount on bonds (17,390) (16,312)
Deferred policy acquisition costs, due to difference
between GAAP and tax (177,057) (185,903)
Property, plant and equipment, principally due to
difference between GAAP and tax depreciation methods (12,004) (12,563)
Other liabilities -- (82)
- --------------------------------------------------------------------------------
Net deferred tax liabilities $(357,847) $(322,627)
- --------------------------------------------------------------------------------
Total deferred tax $(259,243) $(215,606)
================================================================================
</TABLE>
Through 1983, under the provision of the Life Insurance Company Income
Tax Act of 1959, life insurance companies were permitted to defer from taxation
a portion of their income (within certain limitations) until and unless it is
distributed to stockholders, at which time it was taxed at regular corporate tax
rates. No provision for deferred federal income taxes applicable to such untaxed
income has been made, because management is of the opinion that no distributions
of such untaxed income (designated by federal law as "policyholders' surplus")
will be made in the foreseeable future. There was no change in the
"policyholders' surplus" between December 31, 1997 and December 31, 1998, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $111,465,000 and
$136,212,000 were paid to the Internal Revenue Service in 1998 and 1997, respec-
tively. The statute of limitations for examination by the Internal Revenue
Service of federal income tax returns through 1994 for American National and its
subsidiaries has expired. All prior year deficiencies have been paid or provided
for, and American National has filed appropriate claims for refunds through
1995. In the opinion of management, adequate provision has been made for any tax
deficiencies that may be sustained.
(11) COMPONENTS OF COMPREHENSIVE INCOME
The only item included in comprehensive income, other than net income,
is unrealized gains. The details on the unrealized gains included in
comprehensive income, and the related tax effects thereon are as follows:
<TABLE>
<CAPTION>
FEDERAL
INCOME NET OF
BEFORE TAX FEDERAL
FEDERAL EXPENSE INCOME
TAX (BENEFIT) TAX
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
DECEMBER 31, 1998
Unrealized gains 163,103 57,086 106,017
Less: reclassification adjustment for gains
realized in net income (34,960) (12,236) (22,724)
- --------------------------------------------------------------------------------
Net unrealized gains component of comprehensive
income 128,143 44,850 83,293
DECEMBER 31, 1997
Unrealized gains 187,501 65,625 121,876
Less: reclassification adjustment for gains
realized in net income (106,684) (37,339) (69,345)
- --------------------------------------------------------------------------------
Net unrealized gains component of comprehensive
income 80,817 28,286 52,531
================================================================================
</TABLE>
41
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
(12) STOCKHOLDERS' EQUITY
American National has only one class of common stock, no preferred stock
and no options which could be converted into common or preferred stock. At
December 31, 1998 and 1997, American National had 50,000,000 authorized shares
of $1.00 par value common stock. At December 31, 1998 and 1997, issued shares
were 30,832,449; treasury shares were 4,353,284; and outstanding shares were
26,479,165.
American National's payment of dividends to stockholders is restricted
by statutory regulations. Generally, the restrictions require life insurance
companies to maintain minimum amounts of capital and surplus, and limit the
payment of dividends to statutory net gain from operations on an annual,
noncumulative basis in the absence of special approval. Additionally, insurance
companies are not permitted to distribute the excess of stockholders' equity, as
determined on a GAAP basis over that determined on a statutory basis.
Generally, the same restrictions apply to American National's insurance
subsidiaries regarding amounts that can transfer in the form of dividends,
loans, or advances to the parent company.
At December 31, 1998, approximately $571,986,000 of American National's
consolidated stockholders' equity represents net assets of its insurance
subsidiaries. Any transfer of these net assets to American National would be
subject to statutory restrictions and approval.
(13) SEGMENT INFORMATION
American National and its subsidiaries are engaged principally in the
insurance business. Management organizes the business around its marketing
distribution channels. Separate management of each segment is required because
each business unit is subject to different marketing strategies. There are eight
operating segments based on the company's marketing distribution channels.
The operating segments are as follows:
MULTIPLE LINE MARKETING - This segment derives its revenues from the
sale of individual life, annuity, accident and health, and property and casualty
products marketed through American National Insurance Company, ANTEX, ANPAC,
ANGIC, and ANPAC Lloyds.
HOME SERVICE DIVISION -- This segment derives its revenues from the sale
of individual life, annuity, and accident and health insurance using a system
where the AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES agents collect
the premiums.
INDEPENDENT MARKETING -- This segment derives its revenues mainly from
the sale of life and annuity lines marketed through independent marketing
organizations.
HEALTH DIVISION -- This segment derives its revenues primarily from the
sale of accident and health insurance, plus group life insurance marketed
through group brokers and third party marketing organizations.
CREDIT INSURANCE DIVISION -- This segment derives its revenues
principally from the sale of credit life and credit accident and health
insurance.
SENIOR AGE MARKETING -- This segment derives its revenues primarily from
the sale of Medicare supplement plans, individual life, annuities, and accident
and health insurance marketed through Standard Life and Accident Insurance
Company.
DIRECT MARKETING -- This segment derives its revenues principally from
the sale of individual life insurance, marketed through Garden State Life
Insurance Company, using direct selling methods.
CAPITAL AND SURPLUS -- This segment derives its revenues principally
from investment instruments.
ALL OTHER -- This category comprises segments that are too small to show
individually. This category includes noninsurance, reinsurance assumed, and
retirement benefits.
All income and expense amounts specifically attributable to policy
transactions are recorded directly to the appropriate line of business within
each segment. Income and expenses, which are not specifically attributable to
policy transactions, are allocated to the lines within each segment as follows:
Net investment income from fixed income assets (bonds and mortgage loans
on real estate) is allocated based on the funds generated by each line at the
average yield available from these fixed income assets at the time such funds
become available. Net investment income from all other assets is allocated to
capital and surplus to arrive at an underwriting gain from operations. A portion
of the income allocated to capital and surplus is then reallocated to the
other segments in accordance with the amount of equity invested in each segment.
Expenses are allocated to the lines based upon
42
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
Gain or loss on the sale of investments and equity in earnings of
unconsolidated affiliates is allocated to capital and surplus.
Federal income taxes have been applied to the net earnings of each
segment, based on a fixed tax rate. Any difference between the amount allocated
to the segments and the total federal income tax amount is allocated to capital
and surplus.
The following tables summarize net income and various components of net
income by operating segment for the years ended December 31, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
GAIN FROM
OPERATIONS
INVESTMENT BEFORE FEDERAL
PREMIUM EXPENSES INCOME EQUITY IN FEDERAL INCOME TAX
AND OTHER INTEREST AND GAIN FROM ON UNCONSOLIDATED INCOME EXPENSES
REVENUE REVENUE BENEFITS OPERATIONS EQUITY AFFILIATES TAXES (BENEFIT) NET INCOME
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Multiple Line Marketing $ 452,146 $ 72,110 $ 488,842 $ 35,414 $ 22,953 $ -- $ 58,367 $ 19,261 $ 39,106
Home Service 203,975 88,759 252,445 40,289 33,429 -- 73,718 24,327 49,391
Independent Marketing 69,714 109,604 184,655 (5,337) 12,675 -- 7,338 2,422 4,916
Health 211,249 3,175 240,194 (25,770) 4,674 -- (21,096) (6,962) (14,134)
Credit Insurance 57,727 5,743 61,181 2,289 9,472 -- 11,761 3,881 7,880
Senior Age Marketing 162,161 10,132 169,929 2,364 7,628 -- 9,992 3,297 6,695
Direct Marketing 26,619 3,050 24,035 5,634 539 -- 6,173 2,037 4,136
Capital and Surplus 81,471 123,520 761 204,230 (96,272) 8,048 116,006 24,390 91,616
All other 38,851 24,659 56,782 6,728 4,902 -- 11,630 3,838 7,792
- ------------------------------------------------------------------------------------------------------------------------------------
$1,303,913 $440,752 $1,478,824 $265,841 $ -- $8,048 $273,889 $ 76,491 $197,398
====================================================================================================================================
1997
Multiple Line Marketing $ 408,184 $ 72,259 $ 427,132 $ 53,311 $ 21,229 $ -- $ 74,540 $ 24,598 $ 49,942
Home Service 209,082 89,638 249,127 49,593 33,064 -- 82,657 27,277 55,380
Independent Marketing 70,590 112,032 178,419 4,203 13,604 -- 17,807 5,876 11,931
Health 185,057 3,088 200,797 (12,652) 3,966 -- (8,686) (2,866) (5,820)
Credit Insurance 54,363 5,677 57,847 2,193 8,895 -- 11,088 3,659 7,429
Senior Age Marketing 168,685 15,030 182,914 801 8,298 -- 9,099 3,003 6,096
Direct Marketing 26,615 2,972 26,712 2,875 542 -- 3,417 1,128 2,289
Capital and Surplus 145,403 109,104 3,430 251,077 (94,679) 9,333 165,731 56,258 109,473
All other 36,859 25,266 49,837 12,288 5,081 -- 17,369 5,732 11,637
- ------------------------------------------------------------------------------------------------------------------------------------
$1,304,838 $435,066 $1,376,215 $363,689 $ -- $9,333 $373,022 $124,665 $248,357
====================================================================================================================================
</TABLE>
43
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
There were no significant non-cash items to report. Substantially all of
the Company's revenues are derived in the U.S.
The majority of the operating segments provide essentially the same
types of products. The following tables provide revenues within each segment by
line of business for the years ended December 31, 1998 and 1997 (in thousands):
TOTAL REVENUES (INCLUDING INTEREST INCOME)
<TABLE>
<CAPTION>
ACCIDENT & PROPERTY & ALL TOTAL
LIFE ANNUITY HEALTH CASUALTY CREDIT OTHER REVENUES
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998
Multiple Line Marketing $ 121,829 $ 16,826 $ 20,232 $ 365,369 $ -- $ -- $ 524,256
Home Service 279,531 4,410 8,793 -- -- -- 292,734
Independent Marketing 5,328 173,990 -- -- -- -- 179,318
Health Insurance 3,802 -- 210,622 -- -- -- 214,424
Credit Insurance -- -- -- -- 63,470 -- 63,470
Senior Age Marketing 32,821 1,583 137,889 -- -- -- 172,293
Direct Marketing 29,042 165 462 -- -- -- 29,669
Capital and Surplus -- -- -- -- -- 204,991 204,991
All other 31,996 18,962 1,977 -- -- 10,575 63,510
- ------------------------------------------------------------------------------------------------------------------------------------
$504,349 $215,936 $379,975 $365,369 $63,470 $215,566 $1,744,665
- ------------------------------------------------------------------------------------------------------------------------------------
1997
Multiple Line Marketing $120,083 $ 16,728 $ 20,008 $323,624 $ -- $ -- $ 480,443
Home Service 284,698 4,675 9,347 -- -- -- 298,720
Independent Marketing 3,525 179,097 -- -- -- -- 182,622
Health Insurance 3,224 -- 184,920 -- -- -- 188,144
Credit Insurance -- -- -- -- 60,040 -- 60,040
Senior Age Marketing 34,583 1,549 147,583 -- -- -- 183,715
Direct Marketing 28,901 176 510 -- -- -- 29,587
Capital and Surplus -- -- -- -- -- 254,507 254,507
All other 33,331 17,684 2,791 -- -- 8,319 62,125
- ------------------------------------------------------------------------------------------------------------------------------------
$508,345 $219,909 $365,159 $323,624 $60,040 $262,826 $1,739,903
====================================================================================================================================
</TABLE>
Within all operating segments, to the extent required for reserves,
fixed income assets and policy loans have been directly assigned to the
insurance lines. Equity type assets, such as stocks, real estate and other
invested assets, have been allocated to the segments, based on the equity
invested in each. Assets of the non-insurance companies are specifically
associated with those companies in the "All other" segment. Any assets not
allocated are assigned to Capital and Surplus.
44
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The following table summarizes assets by operating segment for the years
ended December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Multiple Line Marketing $1,513,396 $1,425,919
Home Service 1,760,415 1,741,155
Independent Marketing 1,761,832 1,874,000
Health 170,301 140,179
Credit Insurance 372,787 355,789
Senior Age Marketing 330,631 326,235
Direct Marketing 83,759 76,939
Capital and surplus 2,232,612 2,066,779
All other 589,919 476,781
- --------------------------------------------------------------------------------
Total assets $8,815,652 $8,483,776
================================================================================
</TABLE>
The net assets of the Capital and Surplus segment include investments in
unconsolidated affiliates. Substantially all of the company's assets are
located in the U.S.
The amount of each segment item reported is the measure reported to the
chief operating decision maker for purposes of making decisions about allocating
resources to the segment and assessing its performance. Adjust-ments and
eliminations made in preparing the financial statements and allocations of
revenues, expenses and gains or losses have been included in determining
reported segment profit or loss.
The reported measures are determined in accordance with the measurement
principles most consistent with those used in measuring the corresponding
amounts in the consolidated financial statements.
The results of the operating segments of the business are affected by
economic conditions and customer demands. A significant portion of American
National's insurance business is written through one third-party marketing
organization. During 1998, approximately 11% of the total premium revenues and
policy account deposits were written through that organization, which is
included in the Independent Marketing operating segment. This compares with 18%
in 1997. Of the total business written by this one organization, the majority
was annuities.
(14) RECONCILIATION TO STATUTORY ACCOUNTING
American National and its insurance subsidiaries are required to file
statutory financial statements with state insurance regulatory authorities.
Accounting principles used to prepare these statutory financial statements
differ from those used to prepare financial statements on the basis of generally
accepted accounting principles.
Reconciliations of statutory net income and capital and surplus, as
determined using statutory accounting principles, to the amounts included in the
accompanying consolidated financial statements, as of and for the years ended
December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Statutory net income of insurance companies $ 155,368 $ 207,998
Net gain of non-insurance companies 15,240 2,592
- --------------------------------------------------------------------------------
Combined net income 170,608 210,590
Increases/(decreases):
Deferred policy acquisition costs (9,795) 12,267
Policyholder funds 18,702 7,963
Deferred federal income tax benefit 1,216 9,606
Premiums deferred and other receivables (84) 602
Gain (loss) on sale of investments (292) 79
Change in interest maintenance reserve 2,773 1,532
Asset valuation allowances 11,492 3,524
Other adjustments, net 2,854 2,218
Consolidating eliminations and adjustments (76) (24)
- --------------------------------------------------------------------------------
Net income reported herein $ 197,398 $ 248,357
================================================================================
</TABLE>
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Statutory capital and surplus of insurance
companies $2,163,593 $2,011,016
Stockholders equity of non-insurance companies 305,920 77,725
- --------------------------------------------------------------------------------
Combined capital and surplus 2,469,513 2,088,741
Increases/(decreases):
Deferred policy acquisition costs 731,703 748,341
Policyholder funds 154,445 135,262
Deferred federal income taxes (259,243) (215,606)
Premiums deferred and other receivables (78,139) (77,629)
Reinsurance in "unauthorized companies" 38,748 34,010
Statutory asset valuation reserve 344,926 370,102
Statutory interest maintenance reserve 10,762 7,989
Asset valuation allowances (28,489) (44,899)
Investment market value adjustments 48,656 39,050
Non-admitted assets and other adjustments, net 173,877 135,680
Consolidating eliminations and adjustments (692,147) (515,624)
- --------------------------------------------------------------------------------
Stockholders' equity reported herein $2,914,612 $2,705,417
================================================================================
</TABLE>
In accordance with various government and state regulations, American
National and its insurance subsidiaries had bonds with an amortized value of
$74,021,000 on deposit with appropriate regulatory authorities.
(15) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension
plan, which has three separate programs. One of the programs is contributory
and covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home
45
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
collective bargaining agreement. The program covering salaried and management
employees provides pension benefits that are based on years of service and the
employee's compensation during the five years before retirement. The programs
covering hourly employees and agents generally provide benefits that are based
on the employee's career average earnings and years of service. American
National also sponsors two non-tax-qualified pension plans for key executives.
These plans restore benefits that would otherwise be curtailed by statutory
limits on qualified plan benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974.
Actuarial computations of pension expense (before income taxes) produced
a pension debit of $3,051,000 for 1998 and $2,474,000 for 1997.
The pension debit is made up of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Service cost--benefits earned during period $ 5,629 $ 5,402
Interest cost on projected benefit obligation 7,661 7,221
Expected return on plan assets (8,887) (8,795)
Amortization of past service cost 473 490
Amortization of transition asset (2,619) (2,619)
Amortization of actuarial loss 794 775
- --------------------------------------------------------------------------------
Total pension debit $ 3,051 $ 2,474
================================================================================
</TABLE>
The following table sets forth the funded status and amounts recognized
in the consolidated statements of financial position at December 31 for the
companies' pension plans.
Actuarial present value of benefit obligation:
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation $(76,916) $(19,136) $(71,811) $(22,468)
====================================================================================================================================
Accumulated benefit obligation $(79,405) $(19,136) $(75,492) $(22,468)
====================================================================================================================================
Projected benefit obligation $(96,812) $(26,340) $(92,422) $(22,616)
Plan assets at fair value (long-term securities) 137,543 -- 129,380 --
- ------------------------------------------------------------------------------------------------------------------------------------
Funded status:
Plan assets in excess of projected benefit obligation 40,731 (26,340) 36,958 (22,616)
Unrecognized net loss 2,341 3,729 8,305 2,614
Prior service cost not yet recognized in periodic pension cost -- 1,028 -- 1,505
Unrecognized net transition asset at January 1 being recognized
over 15 years (7,858) -- (10,477) --
- ------------------------------------------------------------------------------------------------------------------------------------
Prepaid pension cost included in other assets or other liabilities $ 35,214 $(21,583) $ 34,786 $(18,497)
====================================================================================================================================
</TABLE>
Assumptions used at December 31:
<TABLE>
<CAPTION>
1998 1997
- --------------------------------------------------------------------------------
<S> <C> <C>
Weighted average discount rate on benefit obligation 6.50% 6.50%
Rate of increase in compensation levels 4.80% 4.80%
Expected long-term rate of return on plan assets 7.00% 7.00%
</TABLE>
OTHER BENEFITS
Under American National and its subsidiaries' various group benefit
plans for active employees, a $2,500 paid-up life insurance certificate is
provided upon retirement for eligible participants who meet certain age and
length of service requirements.
American National has one retiree health benefit plan for retirees of
all companies in the consolidated group, with the exception of Standard Life and
Accident Insurance Company (Standard). The retirees of Standard are covered
under a separate health plan. Participation in either of these plans is limited
to current retirees and their dependents and those employees and their
dependents who met certain age and length of service requirements as of December
31, 1993. No new participants will be added to these plans in the future.
46
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
The retiree health benefit plans provide major medical benefits for participants
under the age of 65 and Medicare supplemental benefits for those over 65.
Prescription drug benefits are provided to both age groups. The plans are
contributory, with the company's contribution limited to $80 per month for
retirees and spouses under the age of 65, and $40 per month for retirees and
spouses over the age of 65. All additional contributions necessary, over the
amount to be contributed by the companies, are to be contributed by the
retirees.
The accrued post-retirement benefit obligation, included in other
liabilities, was $12,989,000 and $12,970,000 at December 31, 1998 and 1997,
respectively. These amounts were approximately equal to the unfunded
accumulated post-retirement benefit obligation. Since the companies'
contributions to the cost of the retiree benefit plans are fixed, the health
care cost trend rate will have no effect on the future expense or the
accumulated post-retirement benefit obligation.
(16) COMMITMENTS AND CONTINGENCIES
American National and its subsidiaries lease office space in various
cities for their insurance sales offices. The long-term lease commitments at
December 31, 1998 were approximately $5,620,000.
In the ordinary course of their operations, the companies also had
commitments outstanding at December 31, 1998 to purchase, expand or improve real
estate, and to fund mortgage loans aggregating $120,922,000, all of which are
expected to be funded in 1999. As of December 13, 1998, all of the mortgage loan
commitments have interest rates that are fixed.
The companies are defendants in various lawsuits concerning alleged
failure to honor certain loan commitments, alleged breach of certain agency and
real estate contracts, various employment matters, allegedly deceptive
insurance sales and marketing practices, and other litigation arising in the
ordinary course of operations. Certain of these lawsuits include claims for
compensatory and punitive damages. Management is of the opinion, after reviewing
the above matters with legal counsel, that the ultimate liability, if any,
resulting from any of or all of the above matters would not have a material
adverse effect on the companies' consolidated financial position or results of
operations. However, these lawsuits are in various stages of development, and
future facts and circumstances could result in management changing its
conclusions.
47
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of American National Insurance Company and
subsidiaries included in this registration statement and have issued our report
thereon dated February 22, 1999. Our audit was made for the purpose of forming
an opinion on the basic consolidated financial statements taken as a whole. The
accompanying schedules are the responsibility of the Company's management and
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not a required part of the basic consolidated
financial statements. These schedules have been subjected to the auditing
procedures applied in our audit of the basic consolidated financial statements
and, in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic consolidated financial
statements taken as a whole.
ARTHUR ANDERSEN LLP
Houston, Texas
February 22, 1999
48
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
December 31, 1998
(In thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D
AMOUNT AT WHICH
MARKET SHOWN IN THE
TYPE OF INVESTMENT COST (A) VALUE BALANCE SHEET
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed Maturities:
Bonds Held-to-Maturity:
United States Government and government
agencies and authorities $ 166,206 $ 171,709 $ 166,206
States, municipalities and political subdivisions 39,427 40,095 39,427
Foreign governments 106,924 116,360 106,924
Public utilities 1,210,677 1,284,326 1,210,677
All other corporate bonds 2,042,740 2,183,323 2,042,740
Bonds Available-for-Sale:
United States Government and government agencies
and authorities 34,964 35,874 35,874
States, municipalities and political subdivisions 36,615 37,073 37,073
Foreign governments 42,780 47,538 47,538
Public utilities 230,534 247,272 247,272
All other corporate bonds 328,132 353,061 353,061
Redeemable preferred stock 39,264 41,664 41,664
- --------------------------------------------------------------------------------------------------------
Total fixed maturities 4,278,263 4,558,295 4,328,456
- --------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks:
Public utilities 19,185 25,183 25,183
Banks, trust and insurance companies 80,916 116,283 116,283
Industrial, miscellaneous and all other 519,096 910,460 910,460
- --------------------------------------------------------------------------------------------------------
Total equity securities 619,197 1,051,926 1,051,926
- --------------------------------------------------------------------------------------------------------
Mortgage loans on real estate 1,025,683 XXXXXX 1,025,683
Investment real estate 215,477 XXXXXX 215,477
Real estate acquired in satisfaction of debt 23,237 XXXXXX 23,237
Policy loans 296,109 XXXXXX 296,109
Other long-term investments 112,207 XXXXXX 112,207
Short-term investments 90,368 XXXXXX 90,368
- --------------------------------------------------------------------------------------------------------
Total investments $6,660,541 XXXXXX $7,143,463
========================================================================================================
</TABLE>
(a) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and valuation write-downs and adjusted for
amortization of premiums or accrual of discounts.
49
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
- ------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F COLUMN G COLUMN H COLUMN I COLUMN J COLUMN K
AMORTI-
ZATION OF
FUTURE POLICY BENEFITS, DEFERRED
DEFERRED BENEFITS, OTHER POLICY CLAIMS, POLICY
POLICY LOSSES, CLAIMS CLAIMS AND NET AND ACQUISI- OTHER
ACQUISITION AND LOSS UNEARNED BENEFITS PREMIUM INVESTMENT SETTLEMENT TION OPERATING PREMIUMS
SEGMENT COST EXPENSES PREMIUMS PAYABLE REVENUE INCOME(a) EXPENSES COSTS EXPENSES(b) WRITTEN
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1998
Multiple Line Marketing $115,981 $ 857,532 $200,675 $183,998 $ 406,317 $ 95,063 $343,841 $ 37,772 $ 81,041 $373,506
Home Service 230,216 1,396,059 4,630 27,640 183,189 122,188 114,292 34,149 83,438 --
Independent Marketing 156,334 1,603,818 5 11,214 40,535 122,279 26,903 25,940 29,219 --
Health Insurance 16,087 22,092 11,999 69,186 210,502 7,849 158,388 14,119 68,437 --
Credit Insurance 61,575 -- 229,371 42,803 50,391 15,215 22,942 21,100 17,680 --
Senior Age Marketing 75,818 154,625 36,525 37,776 162,060 17,760 116,297 5,696 44,816 --
Direct Marketing 31,392 41,992 266 8,228 25,588 3,589 13,626 3,787 4,817 --
Capital and Surplus -- -- -- -- -- 57,969 -- -- (1,200) --
All Other 44,300 337,701 437 5,330 10,126 33,330 32,310 6,553 11,074 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total $731,703 $4,413,819 $483,908 $386,175 $1,088,708 $475,242 $828,599 $149,116 $339,322 $373,506
==================================================================================================================================
1997
Multiple Line Marketing $111,679 $ 845,232 $157,908 $168,600 $ 365,628 $ 92,488 $296,468 $ 35,310 $ 71,153 $326,789
Home Service 230,827 1,374,110 5,715 30,404 187,237 122,702 117,592 32,016 81,724 --
Independent Marketing 176,548 1,703,279 -- 11,736 45,649 125,636 16,264 26,135 10,677 --
Health Insurance 14,201 22,860 7,381 52,481 184,409 7,054 141,645 9,618 50,917 --
Credit Insurance 60,585 -- 222,643 40,967 47,483 14,572 22,308 19,016 16,524 --
Senior Age Marketing 77,475 148,391 41,217 36,145 173,626 18,288 124,409 6,326 53,533 --
Direct Marketing 30,126 40,888 285 4,008 25,385 3,514 16,677 3,795 3,808 --
Capital and Surplus -- -- -- -- -- 56,500 -- -- (1,610) --
All Other 46,900 342,380 596 4,851 11,164 32,141 25,755 6,494 8,696 --
- ----------------------------------------------------------------------------------------------------------------------------------
Total $748,341 $4,477,140 $435,745 $349,192 $1,040,581 $ 472,895 $761,118 $138,710 $295,422 $326,789
==================================================================================================================================
(a) Net investment income from fixed income assets (bonds and mortgage loans on real estate) is allocated to insurance lines based
on the funds generated by each line at the average yield available from these fixed income assets at the time such funds become
available. Net investment income from policy loans is allocated to the insurance lines according to the amount of loans made by
each line. Net investment income from all other assets is allocated to the insurance lines as necessary to support the equity
assigned to that line with the remainder allocated to capital & surplus.
(b) Identifiable commissions and expenses are charged directly to the appropriate line of business. The remaining expenses are
allocated to the lines based upon various factors including premium and commission ratios within the respective lines.
</TABLE>
50
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
CEDED TO ASSUMED PERCENTAGE OF
GROSS OTHER FROM OTHER NET AMOUNT ASSUMED
AMOUNT COMPANIES COMPANIES AMOUNT TO NET
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Life insurance in force $44,134,974 $7,965,042 $713,200 $36,883,132 1.9%
====================================================================================================================================
Premiums:
Life insurance 386,554 55,700 9,432 340,286 2.8%
Accident and health insurance 442,233 73,256 24,625 393,602 6.3%
Property and liability insurance 372,402 25,928 8,346 354,820 2.4%
- ------------------------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,201,189 $ 154,884 $ 42,403 $ 1,088,708 3.9%
====================================================================================================================================
1997
Life insurance in force $43,143,187 $6,985,956 $662,171 $36,819,402 1.8%
====================================================================================================================================
Premiums:
Life insurance 391,024 51,776 9,725 348,973 2.8%
Accident and health insurance 418,860 48,963 8,724 378,621 2.3%
Property and liability insurance 324,731 18,441 6,697 312,987 2.1%
- ------------------------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,134,615 $ 119,180 $ 25,146 $ 1,040,581 2.4%
====================================================================================================================================
</TABLE>
51
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
DEDUCTIONS - DESCRIBE
BALANCE AT ADDITIONS AMOUNTS BALANCE AT
BEGINNING OF CHARGED TO WRITTEN OFF DUE AMOUNTS END OF
DESCRIPTION PERIOD EXPENSE TO DISPOSAL (a) COMMUTED (b) PERIOD
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1998
Investment valuation allowances:
Mortgage loans on real estate $15,230 $ -- $ -- $ 2,430 $12,800
Investment real estate 22,577 1,038 1,379 518 21,718
Investment in unconsolidated affiliates 3,727 1,279 -- -- 5,006
Other assets 11,800 -- -- 10,000 1,800
- ------------------------------------------------------------------------------------------------------------------------------------
Total $53,334 $2,317 $1,379 $12,948 $41,324
====================================================================================================================================
1997
Investment valuation allowances:
Mortgage loans on real estate $14,846 $ 707 $ 323 $ -- $15,230
Investment real estate 28,561 1,400 6,607 777 22,577
Investment in unconsolidated affiliates 2,327 1,400 -- -- 3,727
Other assets 11,900 -- 100 -- 11,800
- ------------------------------------------------------------------------------------------------------------------------------------
Total $57,634 $3,507 $7,030 $ 777 $53,334
====================================================================================================================================
(a) Amounts written off due to disposal represent reductions or (additions) in the balance due to sales, transfers or other
disposals of the asset with which the allowance is associated.
(b) Amounts commuted represent reductions in the allowance balance due to changes in requirements or investment conditions.
</TABLE>
52
<PAGE>
PART C ITEM AND CAPTION
Items 24. Financial Statements and Exhibits.
(a) Financial Statements FINANCIAL STATEMENTS and FINANCIAL
STATEMENT SCHEDULES sections of Statement
of Additional Information
(b) Exhibits
Exhibit "1" - Copy of the resolutions of the Board of
Directors of the Depositor authorizing
the establishment of the Registrant
(previously filed on April 26, 1996 in
Registrant's Post-Effective Amendment
No. 6)
Exhibit "2" - Not applicable
Exhibit "3" - Distribution and Administrative Services
Agreement (previously filed on April 26,
1996 in Registrant's Post-Effective
Amendment No. 6)
Exhibit "4" - Form of each variable annuity contract
(previously filed on April 26, 1996 in
Registrant's Post-Effective Amendment
No. 6)
Exhibit "5" - Form of application used with any
variable annuity contract (previously
filed on April 26, 1996 in Registrant's
Post-Effective Amendment No. 6)
Exhibit "6a" - Copy of the Articles of Incorporation of
the Depositor (previously filed on April
26, 1996 in Registrant's Post-Effective
Amendment No. 6)
Exhibit "6b" - Copy of the By-laws of the Depositor
(previously filed on April 26, 1996 in
Registrant's Post-Effective Amendment
No. 6)
Exhibit "7" - Not applicable
Exhibit "8a" Form of American National Investment
Account, Inc. Participation Agreement
(previously filed on April 26, 1996 in
Registrant's Post-Effective Amendment
No. 6)
Exhibit "8b" Form of Fidelity Investments' Variable
Insurance Products Fund Participation
Agreement (previously filed on April 26,
1996 in Registrant's Post-Effective
Amendment No. 6)
<PAGE>
Exhibit "8c" Form of Variable Insurance Products Fund
II Participation Agreement (previously
filed on April 26, 1996 in Registrant's
Post-Effective Amendment No. 6)
Exhibit "8d" Form of T. Rowe Price Participation
Agreement
Exhibit "9" - An opinion of counsel and consent to its
use as to the legality of the securities
being registered, indicating whether they
will be legally issued and will represent
binding obligations of the depositor
Exhibit "10" - Consent of independent accountants
Exhibit "11" - Not applicable
Exhibit "12" - Not applicable
Exhibit "13" - Not applicable
Exhibit "14" - Control chart of Depositor
Exhibit "27" - Financial data schedule
Item 25. Directors and Officers of the Depositor.
Directors
Name Business Address
- ---- ----------------
G. Richard Ferdinandtsen American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Irwin M. Herz, Jr. Greer, Herz & Adams, L.L.P.
One Moody Plaza, 18th Floor
Galveston, Texas 77550
R. Eugene Lucas Gal-Tex Hotel Corporation
2302 Postoffice, Suite 504
Galveston, Texas 77550
E. Douglas McLeod The Moody Foundation
2302 Postoffice, Suite 704
Galveston, Texas 77550
Frances Anne Moody 7031 Inwood
Dallas, Texas 75209
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
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
<PAGE>
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
Item 27. Number of Contractowners.
As of December 31, 1998, the Registrant had 1322 Contractowners of the
Flexible Purchase Payment Deferred Annuity Contracts, 1 Contractowner of the
Single Premium Immediate Annuity Contracts, and 2 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 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
<PAGE>
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.
Principal Business
Name Position Address
- ---- -------- -------
Gordon D. Dixon Director, Securities Management
Senior Vice and Research, Inc.
President 2450 South Shore Boulevard
and Chief League City, Texas 77573
Investment
Officer
Robert A. Fruend, C.L.U. Director American National
Insurance Company
One Moody Plaza
Galveston, Texas 77550
R. Eugene Lucas Director Gal-Tenn Hotel Corporation
504 Moody National Bank
Tower
Galveston, Texas 77550
Michael W. McCroskey Director, Securities Management
President and Research, Inc.
and Chief 2450 South Shore Boulevard
Executive League City, Texas 77573
Officer
<PAGE>
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
(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.
<PAGE>
Not Applicable
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include as part of any application to
purchase a contract offered by the prospectus, a space that an applicant can
check to request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) The Registrant hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. 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.
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
and has caused this amended Registration Statement to be signed on its behalf,
in the City of Galveston, and the State of Texas on the 30/th/ day of April,
1999.
AMERICAN NATIONAL VARIABLE ANNUITY
SEPARATE ACCOUNT (Registrant)
By: AMERICAN NATIONAL INSURANCE COMPANY
-------------------------------------
By: /s/ Robert L. Moody
-------------------------------------
Robert L. Moody, Chairman of the
Board, President and Chief Executive Officer
AMERICAN NATIONAL INSURANCE COMPANY
(Sponsor)
By: /s/ Robert L. Moody
-------------------------------------
Robert L. Moody, Chairman of the
Board, President and Chief Executive Officer
ATTEST:
/s/ Vincent E. Soler, Jr.
- -------------------------------
Vincent E. Soler, Jr.,
Vice President, Secretary and Treasurer
As required by the Securities Act of 1933, this amended Registration
Statement has been signed by the following persons in their capacities and on
the dates indicated:
Signature Title Date
- --------- ----- ----
/s/ Michael W. McCroskey Executive Vice President - April 30, 1999
- -------------------------- Investments
Michael W. McCroskey (Principal Financial Officer)
/s/ Stephen E. Pavlicek Senior Vice President and April 30, 1999
- -------------------------- Controller
Stephen E. Pavlicek (Principal Accounting Officer)
<PAGE>
Signature Title Date
- --------- ----- ----
/s/ Robert L. Moody Chairman of the Board, April 30, 1999
- --------------------------- Director, President and Chief
Robert L. Moody Executive Officer
/s/ G. Richard Ferdinandtsen Director, Senior Executive Vice April 30, 1999
- ---------------------------- President and Chief Operating
G. Richard Ferdinandtsen Officer
/s/ Irwin M. Herz, Jr. Director April 30, 1999
- ----------------------------
Irwin M. Herz, Jr.
/s/ R. Eugene Lucas Director April 30, 1999
- ----------------------------
R. Eugene Lucas
Director
- ----------------------------
E. Douglas McLeod
Director
- ----------------------------
Frances Anne Moody
Director
- ----------------------------
Russell S. Moody
Director
- ----------------------------
W. L. Moody IV
/s/ Joe Max Taylor Director April 30, 1999
- ----------------------------
Joe Max Taylor
<PAGE>
EXHIBIT 8d
PARTICIPATION AGREEMENT
- -----------------------
AMONG
T. ROWE PRICE INTERNATIONAL SERIES, INC.,
T. ROWE PRICE EQUITY SERIES, INC.,
T. ROWE PRICE FIXED INCOME SERIES, INC.,
T. ROWE PRICE INVESTMENT SERVICES, INC.,
AND
AMERICAN NATIONAL LIFE
THIS AGREEMENT, made and entered into as of this _____ day of
_________________, 1997 by and among American National Life (hereinafter, the
"Company"), a Texas insurance company, on its own behalf and on behalf of each
segregated asset account of the Company set forth on Schedule A hereto as may be
amended from time to time (each account hereinafter referred to as the
"Account"), and the undersigned funds, each, a corporation organized under the
laws of Maryland (hereinafter referred to as the "Fund") and T. Rowe Price
Investment Services, Inc. (hereinafter the "Underwriter"), a Maryland
corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is or will be available to act as the investment vehicle for
separate accounts established for variable life insurance and variable annuity
contracts (the "Variable Insurance Products") to be offered by insurance
companies which have entered into participation agreements with the Fund and
Underwriter (hereinafter "Participating Insurance Companies"); and
WHEREAS, the beneficial interest in the Fund is divided into several series
of shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC") granting Participating Insurance Companies and variable
annuity and variable life insurance separate accounts exemptions from the
provisions of sections 9(a), 13(a), 15(a), and 15(b) of the Investment Company
Act of 1940, as amended, (hereinafter the "1940 Act") and Rules 6e-2(b)(15) and
6e-3(T) (b)(15) thereunder, to the extent necessary to permit shares of the Fund
to be sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the 1940 Act and shares of the Portfolios are registered under the
Securities Act of 1933, as amended (hereinafter the "1933 Act"); and
WHEREAS, T. Rowe Price Associates, Inc. and Rowe Price-Fleming
International, Inc. (each hereinafter referred to as the "Adviser") are each
duly registered as an investment adviser under the federal Investment Advisers
Act of 1940, as amended, and any applicable state securities laws; and
WHEREAS, the Company has registered or will register certain variable life
insurance or variable annuity contracts supported wholly or partially by the
Account (the "Contracts") under the 1933 Act, and said Contracts are listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement; and
<PAGE>
WHEREAS, the Account is duly established and maintained as a segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule A hereto, to set aside
and invest assets attributable to the aforesaid Contracts; and
WHEREAS, the Company has registered or will register the Account as a unit
investment trust under the 1940 Act; and
WHEREAS, the Underwriter is registered as a broker dealer with the SEC
under the Securities Exchange Act of 1934, as amended (hereinafter the "1934
Act"), and is a member in good standing of the National Association of
Securities Dealers, Inc. (hereinafter "NASD"); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in the Portfolios listed in
Schedule A hereto, as it may be amended from time to time by mutual written
agreement (the "Designated Portfolios") on behalf of the Account to fund the
aforesaid Contracts, and the Underwriter is authorized to sell such shares to
unit investment trusts such as the Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Underwriter agrees to sell to the Company those shares of the
Designated Portfolios which the Account orders, executing such orders on a daily
basis at the net asset value next computed after receipt by the Fund or its
designee of the order for the shares of the Designated Portfolios.
1.2 The Fund agrees to make shares of the Designated Portfolios available
for purchase at the applicable net asset value per share by the Company and the
Account on those days on which the Fund calculates its net asset value pursuant
to rules of the SEC, and the Fund shall use its best efforts to calculate such
net asset value on each day which the New York Stock Exchange is open for
trading. Notwithstanding the foregoing, the Board of Directors of the Fund
(hereinafter the "Board") may refuse to sell shares of any Designated Portfolio
to any person, or suspend or terminate the offering of shares of any Designated
Portfolio if such action is required by law or by regulatory authorities having
jurisdiction, or is, in the sole discretion of the Board acting in good faith
and in light of their fiduciary duties under federal and any applicable state
laws, necessary in the best interests of the shareholders of such Designated
Portfolio.
1.3 The Fund and the Underwriter agree that shares of the Fund will be
sold only to Participating Insurance Companies and their separate accounts. No
shares of any Designated Portfolios will be sold to the general public. The
Fund and the Underwriter will not sell Fund shares to any insurance company or
separate account unless an agreement containing provisions substantially the
same as Articles I and VII of this Agreement is in effect to govern such sales.
1.4 The Fund agrees to redeem, on the Company's request, any full or
fractional shares of the Designated Portfolios held by the Company, executing
such requests on a daily basis at the net asset value next computed after
receipt by the Fund or its designee of the request for redemption, except that
the Fund reserves the right to
<PAGE>
suspend the right of redemption or postpone the date of payment or satisfaction
upon redemption consistent with Section 22(e) of the 1940 Act and any sales
thereunder, and in accordance with the procedures and policies of the Fund as
described in the then current prospectus.
1.5 For purposes of Sections 1.1 and 1.4, the Company shall be the
designee of the Fund for receipt of purchase and redemption orders from the
Account, and receipt by such designee shall constitute receipt by the Fund;
provided that the Company receives the order by 4:00 p.m. Baltimore time and the
Fund receives notice of such order by 9:30 a.m. Baltimore time on the next
following Business Day. "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading and on which the Fund calculates its net
asset value pursuant to the rules of the SEC.
1.6 The Company agrees to purchase and redeem the shares of each
Designated Portfolio offered by the then current prospectus of the Fund and in
accordance with the provisions of such prospectus.
1.7 The Company shall pay for Fund shares on the next Business Day after
receipt of an order to purchase Fund shares. Payment shall be in federal funds
transmitted by wire by 4:00 p.m. Baltimore time. If payment in Federal Funds
for any purchase is not received or is received by the Fund after 4:00 p.m.
Baltimore time on such Business Day, the Company shall promptly, upon the Fund's
request, reimburse the Fund for any charges, costs, fees, interest or other
expenses incurred by the Fund in connection with any advances to, or borrowings
or overdrafts by, the Fund, or any similar expenses incurred by the Fund, as a
result of portfolio transactions effected by the Fund based upon such purchase
request. For purposes of Section 2.8 and 2.9 hereof, upon receipt by the Fund
of the federal funds so wired, such funds shall cease to be the responsibility
of the Company and shall become the responsibility of the Fund.
1.8 Issuance and transfer of the Fund's shares will be by book entry
only. Stock certificates will not be issued to the Company or any Account.
Shares ordered from the Fund will be recorded in an appropriate title for each
Account or the appropriate subaccount of each Account.
1.9 The Fund shall furnish same day notice (by wire or telephone,
followed by written confirmation) to the Company of any income, dividends or
capital gain distributions payable on the Designated Portfolios' shares. The
Company hereby elects to receive all such income, dividends, and capital gain
distributions as are payable on Designated Portfolio shares in additional shares
of that Portfolio. The Company reserves the right to revoke this election and to
receive all such income dividends and capital gain distributions in cash. The
Fund shall notify the Company of the number of shares so issued as payment of
such dividends and distributions. The Fund shall use its best efforts to furnish
advance notice of the day such dividends and distributions are expected to be
paid.
1.10 The Fund shall make the net asset value per share for each Designated
Portfolio available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated (normally by 6:30
p.m. Baltimore time) and shall use its best efforts to make such net asset value
per share available by 7 p.m. Baltimore time.
1.11 The Parties hereto acknowledge that the arrangement contemplated by
this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies (subject to Section 1.3 and Article VI hereof) and the cash
value of the Contracts may be invested in other investment companies, provided,
however,
<PAGE>
that (a) such other investment company, or series thereof, has investment
objectives or policies that are different from the investment objectives and
policies of the Fund; or (b) the Company gives the Fund and the Underwriter 45
days written notice of its intention to make such other investment company
available as a funding vehicle for the Contracts; or (c) such other investment
company was available as a funding vehicle for the Contracts prior to the date
of this Agreement and the Company so informs the Fund and Underwriter prior to
their signing this Agreement; or (d) the Fund or Underwriter consents to the use
of such other investment company, such consent not to be unreasonably withheld.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established the Account
prior to any issuance or sale thereof as a segregated asset account under the
Texas insurance laws and has registered or, prior to any issuance or sale of the
Contracts, will register the Account as a unit investment trust in accordance
with the provisions of the 1940 Act to serve as a segregated investment account
for the Contracts.
2.2 The Fund represents and warrants that Fund shares sold pursuant to
this Agreement shall be registered under the 1933 Act, duly authorized for
issuance and sold in compliance with the laws of the state of Texas and all
applicable federal and state securities laws and that the Fund is and shall
remain registered under the 1940 Act. The Fund shall amend the Registration
Statement for its shares under the 1933 Act and the 1940 Act from time to time
as required in order to effect the continuous offering of its shares. The Fund
shall register and qualify the shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by the Fund or the
Underwriter.
2.3 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act, although it may
make such payments in the future. To the extent that it decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund will undertake to have a
Board, a majority of whom are not interested persons of the Fund, formulate and
approve any plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses.
2.4 The Fund makes no representations as to whether any aspect of its
operations, including but not limited to, investment policies, fees and
expenses, complies with the insurance and other applicable laws of the various
states, except that the Fund represents that the Fund's investment policies,
fees and expenses are and shall at all times remain in compliance with the laws
of the state of Texas to the extent required to perform this Agreement.
2.5 The Fund represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and will
comply in all material respects with the 1940 Act.
2.6 The Underwriter represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Underwriter further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Texas and any applicable state and
federal securities laws.
<PAGE>
2.7 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered under all applicable federal and state securities laws
and that the Adviser shall perform its obligations for the Fund in compliance in
all material respects with the laws of the State of Texas and any applicable
state and federal securities laws.
2.8 The Fund and the Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other individuals or
entities dealing with the money and/or securities of the Fund are and shall
continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage as required currently by Rule 17g-1 of the 1940 Act or related
provisions as may be promulgated from time to time. The aforesaid bond shall
include coverage for larceny and embezzlement and shall be issued by a reputable
bonding company.
2.9 The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Fund are covered by
a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond includes coverage for larceny and embezzlement and
is issued by a reputable bonding company. The Company agrees that any amounts
received under such bond in connection with claims that arise from the
arrangements described in this Agreement will be held by the Company for the
benefit of the Fund. The Company agrees to make all reasonable efforts to see
that this bond or another bond containing these provisions is always in effect,
and agrees to notify the Fund and the Underwriter in the event that such
coverage no longer applies. The Company agrees to exercise its best efforts to
ensure that other individuals/entities not employed or controlled by the Company
and dealing with the money and/or securities of the Fund maintain a similar bond
or coverage in a reasonable amount.
ARTICLE III. Prospectuses, Statements of Additional Information, and Proxy
Statements; Voting
3.1 The Underwriter shall provide the Company (at the Company's expense)
with as many copies of the Fund's current prospectus (describing only the
Designated Portfolios listed on Schedule A) as the Company may reasonably
request. If requested by the Company in lieu thereof, the Fund shall provide
such documentation (including a final copy of the new prospectus as set in type
at the Fund's expense) and other assistance as is reasonably necessary in order
for the Company once each year (or more frequently if the prospectus for the
Fund is amended) to have the prospectus for the Contracts and the Fund's
prospectus printed together in one document.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Company (or,
in the Fund's discretion, from the Fund), and the Underwriter (or the Fund), at
its expense, shall print, or otherwise reproduce, and provide a copy of such SAI
free of charge to the Company for itself and for any owner of a Contract who
requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of
its proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners.
3.4 The Company shall:
<PAGE>
(i) solicit voting instructions from Contract owners;
(ii) vote the Fund shares in accordance with instructions received
from Contract owners; and
(iii) vote Fund shares for which no instructions have been received
in the same proportion as Fund shares of such Designated
Portfolio for which instructions have been received, so long as
and to the extent that the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable
contract owners or to the extent otherwise required by law. The
Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent
permitted by law.
3.5 Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive Order
and consistent with any reasonable standards that the Fund may adopt.
3.6 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular the Fund will either provide for
annual meetings or comply with Section 16(c) of the 1940 Act (although the Fund
is not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will act
in accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of directors or trustees and with whatever
rules the SEC may promulgate with respect thereto.
ARTICLE IV. Sales Material and Information
4.1 The Company shall furnish, or shall cause to be furnished, to the
Fund or its designee, each piece of sales literature or other promotional
material that the Company develops or uses and in which the Fund (or a Portfolio
thereof) or the Adviser or the Underwriter is named, at least fifteen calendar
days prior to its use. No such material shall be used if the Fund or its
designee reasonably object to such use within fifteen calendar days after
receipt of such material. The Fund or its designee reserves the right to
reasonably object to the continued use of such material, and no such material
shall be used if the Fund or its designee so object.
4.2 The Company shall not give any information or make any
representations or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information or
representations contained in the registration statement or prospectus or SAI for
the Fund shares, as such registration statement and prospectus or SAI may be
amended or supplemented from time to time, or in reports or proxy statements for
the Fund, or in sales literature or other promotional material approved by the
Fund or its designee or by the Underwriter, except with the permission of the
Fund or the Underwriter or the designee of either.
4.3 The Fund, Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company, each piece of sales literature or other
promotional material in which the Company, and/or its Account, is named at least
fifteen calendar days prior to its use. No such material shall be used if the
Company reasonably objects to such use within fifteen calendar days after
receipt of such material. The Company reserves the right to reasonably object
to the continued use of such material and no such material shall be used if the
Company so objects.
<PAGE>
4.4. The Fund and the Underwriter shall not give any information or make
any representations on behalf of the Company or concerning the Company, the
Account, or the Contracts other than the information or representations
contained in a registration statement, prospectus, or SAI for the Contracts, as
such registration statement, prospectus or SAI may be amended or supplemented
from time to time, or in published reports for the Account which are in the
public domain or approved by the Company for distribution to Contract owners, or
in sales literature or other promotional material approved by the Company or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of
all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Fund or its shares, contemporaneously with the filing of such
document(s) with the SEC or other regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, SAIs, reports, solicitations for
voting instructions, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and all amendments
to any of the above, that relate to the Contracts or the Account,
contemporaneously with the filing of such document(s) with the SEC or other
regulatory authorities.
4.7 For purposes of this Article IV, the phrase "sales literature and
other promotional materials" includes, but is not limited to, any of the
following that refer to the Fund or any affiliate of the Fund: advertisements
(such as material published, or designed for use in, a newspaper, magazine, or
other periodical, radio, television, telephone or tape recording, videotape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars, reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and registration statements, prospectuses,
SAIs, shareholder reports, proxy materials, and any other communications
distributed or made generally available with regard to the Funds.
ARTICLE V. Fees and Expenses
5.1 The Fund and the Underwriter shall pay no fee or other compensation
to the Company under this Agreement, except that if the Fund or any Portfolio
adopts and implements a plan pursuant to Rule 12b-1 to finance distribution
expenses, then the Underwriter may make payments to the Company or to the
underwriter for the Contracts if and in amounts agreed to by the Underwriter in
writing, and such payments will be made out of existing fees otherwise payable
to the Underwriter, past profits of the Underwriter, or other resources
available to the Underwriter. No such payments shall be made directly by the
Fund. Currently, no such payments are contemplated.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, except as otherwise provided herein. The Fund shall
see to it that all its shares are registered and authorized for issuance in
accordance with applicable federal law and, if and to the extent deemed
advisable by the Fund, in accordance with applicable state laws prior to their
sale. The Fund shall bear the expenses for the cost of
<PAGE>
registration and qualification of the Fund's shares, preparation and filing of
the Fund's prospectus and registration statement, proxy materials and reports,
setting the prospectus in type, setting in type and printing the proxy materials
and reports to shareholders (including the costs of printing a prospectus that
constitutes an annual report), the preparation of all statements and notices
required by any federal or state law, and all taxes on the issuance or transfer
of the Fund's shares.
5.3 The Company shall bear the expenses of printing the Fund's prospectus
(in accordance with 3.1) and of distributing the Fund's prospectus, proxy
materials, and reports to Contract owners and prospective Contract owners.
ARTICLE VI. Diversification and Qualification
6.1 Subject to the Company's maintaining the treatment of the Contracts
as life insurance, endowment, or annuity contracts under applicable provisions
of the Internal Revenue Code of 1986, as amended (the "Code") and the
regulations issued thereunder (or any successor provisions), the Fund will
invest its assets in such a manner as to ensure that the Contracts will be
treated as annuity, endowment, or life insurance contracts, whichever is
appropriate, under the Code and the regulations issued thereunder (or any
successor provisions). Without limiting the scope of the foregoing, the Fund
will comply with Section 817(h) of the Code and Treasury Regulation (S)1.817-5,
and any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts, and
any amendments or other modifications or successor provisions to such Section or
Regulations. In the event of a breach of this Article VI by the Fund, it will
take all reasonable steps (a) to notify the Company of such breach and (b) to
adequately diversify the Fund so as to achieve compliance within the grace
period afforded by Regulation 817.5.
6.2 The Fund represents that it is or will be qualified as a Regulated
Investment Company under Subchapter M of the Code, and that it will make every
effort to maintain such qualification (under Subchapter M or any successor or
similar provisions) and that it will notify the Company immediately upon having
a reasonable basis for believing that it has ceased to so qualify or that it
might not so qualify in the future.
6.3 Subject to the Fund's compliance with Section 817(h) of the Code and
Treasury Regulation (S)1.817-5, and any Treasury interpretations thereof,
relating to the diversification requirements for variable annuity, endowment, or
life insurance contracts, any amendments or other modifications or successor
provisions to such Sections or Regulations, the Company represents that the
Contracts are currently, and at the time of issuance shall be, treated as life
insurance, endowment contracts, or annuity insurance contracts, under applicable
provisions of the Code, and that it will make every effort to maintain such
treatment, and that it will notify the Fund and the Underwriter immediately upon
having a reasonable basis for believing the Contracts have ceased to be so
treated or that they might not be so treated in the future. The Company agrees
that any prospectus offering a contract that is a "modified endowment contract"
as that term is defined in Section 7702A of the Code (or any successor or
similar provision), shall identify such contract as a modified endowment
contract.
ARTICLE VII. Potential Conflicts. The following provisions apply effective
upon investment in the Fund by a separate account of a Participating Insurance
Company supporting variable life insurance contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material
<PAGE>
conflict may arise for a variety of reasons, including: (a) an action by any
state insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar action
by insurance, tax, or securities regulatory authorities; (c) an administrative
or judicial decision in any relevant proceeding; (d) the manner in which the
investments of any Portfolio are being managed; (e) a difference in voting
instructions given by variable annuity contract and variable life insurance
contract owners; or (f) a decision by an insurer to disregard the voting
instructions of contract owners. The Board shall promptly inform the Company if
it determines that an irreconcilable material conflict exists and the
implications thereof.
7.2. The Company will report any potential or existing conflicts of which
it is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense and
to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different investment
medium, including (but not limited to) another Portfolio of the Fund, or
submitting the question whether such segregation should be implemented to a vote
of all affected contract owners and, as appropriate, segregating the assets of
any appropriate group (i.e., annuity contract owners, life insurance contract
owners, or variable contract owners of one or more Participating Insurance
Companies) that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (2), establishing a new
registered management investment company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by
the Company to disregard contract owner voting instructions and that decision
represents a minority position or would preclude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such Account
provided, however, that such withdrawal and termination shall be limited to the
extent required by the foregoing material irreconcilable conflict as determined
by a majority of the disinterested members of the Board. Any such withdrawal
and termination must take place within six (6) months after the Fund gives
written notice that this provision is being implemented, and until the end of
that six month period the Fund shall continue to accept and implement orders by
the Company for the purchase (and redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with
the majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company in
writing that it has determined that such decision has created an irreconcilable
material conflict; provided, however, that such withdrawal and termination shall
be limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the Board.
Until the end of the foregoing six month period, the Fund shall continue to
accept and implement orders by the company for the purchase (and redemption) of
shares of the Fund.
<PAGE>
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority
of the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Contracts.
The Company shall not be required by Section 7.3 to establish a new funding
medium for the Contract if an offer to do so has been declined by vote of a
majority of Contract owners materially adversely affected by the irreconcilable
material conflict. In the event that the Board determines that any proposed
action does not adequately remedy any irreconcilable material conflict, then the
Company will withdraw the Account's investment in the Fund and terminate this
Agreement within six (6) months after the Board informs the Company in writing
of the foregoing determination; provided, however, that such withdrawal and
termination shall be limited to the extent required by any such material
irreconcilable conflict as determined by a majority of the disinterested members
of the Board.
7.7 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or Rule
6e-3 is adopted, to provide exemptive relief from any provision of the 1940 Act
or the rules promulgated thereunder with respect to mixed or shared funding (as
defined in the Shared Funding Exemptive Order) on terms and conditions
materially different from those contained in the Shared Funding Exemptive Order,
then (a) the Fund and/or the Participating Insurance Companies, as appropriate,
shall take such steps as may be necessary to comply with Rules 6e-2 and 6e-3(T),
as amended, and Rule 6e-3, as adopted, to the extent such rules are applicable;
and (b) Sections 3.4, 3.5, 3.6, 7.1., 7.2, 7.3, 7.4, and 7.5 of this Agreement
shall continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such Rule(s) as so
amended or adopted.
ARTICLE VIII. Indemnification
8.1 Indemnification By the Company
8.1(a). The Company agrees to indemnify and hold harmless the Fund
and the Underwriter and each of their officers and directors and each person, if
any, who controls the Fund or the Underwriter within the meaning of Section 15
of the 1933 Act (collectively, the "Indemnified Parties" for purposes of this
Section 8.1) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of the Company) or
litigation (including legal and other expenses), to which the Indemnified
Parties may become subject under any statute or regulation, at common law or
otherwise, insofar as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i) arise out of or are based upon any untrue statements or alleged
untrue statements of any material fact contained in the Registration Statement,
prospectus, or statement of additional information for the Contracts or
contained in the Contracts or sales literature for the Contracts (or any
amendment or supplement to any of the foregoing), or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not apply as to any
Indemnified Party if such statement or omission or such alleged statement or
omission was made in reliance upon and in conformity with information furnished
to the Company by or on behalf of the Fund for use in the Registration
Statement, prospectus or statement of additional information for the Contracts
or in the Contracts or sales literature (or any amendment or supplement)
<PAGE>
or otherwise for use in connection with the sale of the Contracts or Fund
shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature of the Fund not supplied by the
Company or persons under its control) or wrongful conduct of the Company or
persons under its authorization or control, with respect to the sale or
distribution of the Contracts or Fund Shares; or
(iii) arise out of any untrue statement or alleged untrue statement
of a material fact contained in a Registration Statement, prospectus, or sales
literature of the Fund or any amendment thereof or supplement thereto or the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading if
such a statement or omission was made in reliance upon information furnished to
the Fund by or on behalf of the Company; or
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials under the terms of this Agreement
(including a failure, whether unintentional or in good faith or otherwise, to
comply with the qualification requirements specified in Article VI of this
Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Company in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Company,
as limited by and in accordance with the provisions of Sections 8.1(b) and
8.1(c) hereof.
8.1(b). The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of its obligations or duties under this Agreement.
8.1(c). The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Company in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Company of any
such claim shall not relieve the Company from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against an Indemnified Party, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel satisfactory to the party
named in the action and to settle the claim at its own expense; provided,
however, that no such settlement shall, without the Indemnified Parties' written
consent, include any factual stipulation referring to the Indemnified Parties or
their conduct. After notice from the Company to such party of the Company's
election to assume the defense thereof, the Indemnified Party shall bear the
fees and expenses of any additional counsel retained by it, and the Company will
not be liable to such party under this Agreement for any legal or other expenses
subsequently incurred by such party independently in connection with the defense
thereof other than reasonable costs of investigation.
<PAGE>
8.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Fund Shares or the Contracts or the operation of the
Fund.
8.2 Indemnification by the Underwriter
8.2(a). The Underwriter agrees to indemnify and hold harmless the Company
and each of it directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Underwriter) or litigation (including legal and other
expenses) to which the Indemnified Parties may become subject under any statute
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or expenses (or actions in respect thereof) or settlements
are related to the sale or acquisition of the Fund's shares or the Contracts;
and
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement or prospectus or SAI or sales literature of the Fund (or any amendment
or supplement to any of the foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged statement or omission was
made in reliance upon and in conformity with information furnished to the
Underwriter or Fund by or on behalf of the Company for use in the Registration
Statement or prospectus for the Fund or in sales literature (or any amendment or
supplement) or otherwise for use in connection with the sale of the Contracts or
Fund shares; or
(ii) arise out of or as a result of statements or representations
(other than statements or representations contained in the Registration
Statement, prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the Fund or
Underwriter or persons under their control, with respect to the sale or
distribution of the Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a Registration Statement, prospectus
or sales literature covering the Contracts, or any amendment thereof or
supplement thereto, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statement
or statements therein not misleading, if such statement or omission was made in
reliance upon information furnished to the Company by or on behalf of the Fund;
or
(iv) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements specified in Article VI
of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Underwriter in this Agreement or
arise out of or result from any other material breach of this Agreement by the
Underwriter;
<PAGE>
as limited by and in accordance with the provisions of Sections 8.2(b) and
8.2(c) hereof.
8.2(b). The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
to which an Indemnified Party would otherwise be subject by reason of such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
8.2(c). The Underwriter shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party unless
such Indemnified Party shall have notified the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claim shall have been served upon such
Indemnified Party (or after such Indemnified Party shall have received notice of
such service on any designated agent), but failure to notify the Underwriter of
any such claim shall not relieve the Underwriter from any liability which it may
have to the Indemnified Party against whom such action is brought otherwise than
on account of this indemnification provision. In case any such action is
brought against the Indemnified Party, the Underwriter will be entitled to
participate, at its own expense, in the defense thereof. The Underwriter also
shall be entitled to assume the defense thereof, with counsel satisfactory to
the party named in the action and to settle the claim at its own expense;
provided, however, that no such settlement shall, without the Indemnified
Parties' written consent, include any factual stipulation referring to the
Indemnified Parties or their conduct. After notice from the Underwriter to such
party of the Underwriter's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and the Underwriter will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof other than reasonable costs
of investigation.
8.2(d). The Company agrees promptly to notify the Underwriter of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
8.3 Indemnification By the Fund
8.3(a). The Fund agrees to indemnify and hold harmless the Company and
each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 8.3) against any and all
losses, claims, expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Fund) or litigation (including legal
and other expenses) to which the Indemnified Parties may be required to pay or
may become subject under any statute or regulation, at common law or otherwise,
insofar as such losses, claims, expenses, damages, liabilities or expenses (or
actions in respect thereof) or settlements, are related to the operations of the
Fund and:
(i) arise as a result of any failure by the Fund to provide the
services and furnish the materials under the terms of this Agreement (including
a failure, whether unintentional or in good faith or otherwise, to comply with
the diversification and other qualification requirements specified in Article VI
of this Agreement); or
<PAGE>
(ii) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this Agreement or arise out
of or result from any other material breach of this Agreement by the Fund;
as limited by and in accordance with the provisions of Sections 8.3(b) and
8.3(c) hereof.
8.3(b). The Fund shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to the
Company, the Fund, the Underwriter or the Account, whichever is applicable.
8.3(c). The Fund shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified the Fund in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such indemnified Party shall have received notice of such service on any
designated agent), but failure to notify the Fund of any such claim shall not
relieve the Fund from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, the Fund will be entitled to participate, at its own
expense, in the defense thereof. The Fund also shall be entitled to assume the
expense thereof, with counsel satisfactory to the party named in the action and
to settle the claim at its own expense; provided, however, that no such
settlement shall, without the Indemnified Parties' written consent, include any
factual stipulation referring to the Indemnified Parties or their conduct.
After notice from the Fund to such party of the Fund's election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof other than
reasonable costs of investigation.
8.3(d). The Company and the Underwriter agree promptly to notify the Fund
of the commencement of any litigation or proceeding against it or any of its
respective officers or directors in connection with the Agreement, the issuance
or sale of the Contracts, the operation of the Account, or the sale or
acquisition of shares of the Fund.
ARTICLE IX. Applicable Law
9.1 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2 This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder, including
such exemptions from those statutes, rules and regulations as the SEC may grant
(including, but not limited to, any Shared Funding Exemptive Order) and the
terms hereof shall be interpreted and construed in accordance therewith.
ARTICLE X. Termination
<PAGE>
10.1 This Agreement shall continue in full force and effect until the
first to occur of:
(a) termination by any party, for any reason with respect to some or
all Designated Portfolios, by six (6) months' advance written notice delivered
to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio based upon the Company's
determination that shares of the Fund are not reasonably available to meet the
requirements of the Contracts; provided that such termination shall apply only
to the Designated Portfolio not reasonably available; or
(c) termination by the Company by written notice to the Fund and the
Underwriter in the event any of the Designated Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
law or such law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d) termination by the Fund or Underwriter in the event that formal
administrative proceedings are instituted against the Company by the NASD, the
SEC, the Insurance Commissioner or like official of any state or any other
regulatory body regarding the Company's duties under this Agreement or related
to the sale of the Contracts, the operation of any Account, or the purchase of
the Fund shares, provided, however, that the Fund or Underwriter determines in
its sole judgment exercised in good faith, that any such administrative
proceedings will have a material adverse effect upon the ability of the Company
to perform its obligations under this Agreement; or
(e) termination by the Company in the event that formal administrative
proceedings are instituted against the Fund or Underwriter by the NASD, the SEC,
or any state securities or insurance department or any other regulatory body,
provided, however, that the Company determines in its sole judgment exercised in
good faith, that any such administrative proceedings will have a material
adverse effect upon the ability of the Fund or Underwriter to perform its
obligations under this Agreement; or
(f) termination by the Company by written notice to the Fund and the
Underwriter with respect to any Designated Portfolio in the event that such
Designated Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M or fails to comply with the Section 817(h) diversification
requirements specified in Article VI hereof, or if the Company reasonably
believes that such Designated Portfolio may fail to so qualify or comply; or
(g) termination by the Fund or Underwriter by written notice to the
Company in the event that the Contracts fail to meet the qualifications
specified in Article VI hereof; or
(h) termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in good faith,
that the Company has suffered a material adverse change in its business,
operations, financial condition, or prospects since the date of this Agreement
or is the subject of material adverse publicity; or
(i) termination by the Company by written notice to the Fund and the
Underwriter, if the Company
<PAGE>
shall determine, in its sole judgment exercised in good faith, that 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
(j) termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the written notice
specified in Section 1.11 hereof and at the time such notice was given there was
no notice of termination outstanding under any other provision of this
Agreement; provided, however, any termination under this Section 10.1(j) shall
be effective sixty days after the notice specified in Section 1.11 was given.
10.2 Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter shall, at the option of the Company,
continue to make available additional shares of the Fund pursuant to the terms
and conditions of this Agreement, for all Contracts in effect on the effective
date of termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, the owners of the Existing Contracts may be
permitted to reallocate investments in the Fund, redeem investments in the Fund
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 10.2 shall not
apply to any termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement. The parties
further agree that this Section 10.2 shall not apply to any termination under
Section 10.1(g) of this Agreement.
10.3 The Company shall not redeem Fund shares attributable to the
Contracts (as opposed to Fund shares attributable to the Company's assets held
in the Account) except (i) as necessary to implement Contract Owner initiated or
approved transactions, (ii) as required by state and/or federal laws or
regulations or judicial or other legal precedent of general application
(hereinafter referred to as a "Legally Required Redemption"), or (iii) as
permitted by an order of the SEC pursuant to Section 26(b) of the 1940 Act. Upon
request, the Company will promptly furnish to the Fund and the Underwriter the
opinion of counsel for the Company (which counsel shall be reasonably
satisfactory to the Fund and the Underwriter) to the effect that any redemption
pursuant to clause (ii) above is a Legally Required Redemption. Furthermore,
except in cases where permitted under the terms of the Contracts, the Company
shall not prevent Contract Owners from allocating payments to a Portfolio that
was otherwise available under the Contracts without first giving the Fund or the
Underwriter 90 days notice of its intention to do so.
10.4 Notwithstanding any termination of this Agreement, each party's
obligation under Article VIII to indemnify the other parties shall survive.
10.5 Any successor by law of the parties hereto shall be entitled to the
benefits of the indemnification provisions contained in Article VIII.
<PAGE>
ARTICLE XI. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
If to the Fund:
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202
Attention: Henry H. Hopkins, Esq.
If to the Company:
If to Underwriter:
T. Rowe Price Investment Services
100 East Pratt Street
Baltimore, Maryland 21202
Attention: John Cammack
Copy to: Henry H. Hopkins, Esq.
ARTICLE XII. Miscellaneous
12.1 All persons dealing with the Fund must look solely to the property
of such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the enforcement
of any claims against the Fund. The parties agree that neither the Board,
officers, agents or shareholders assume any personal liability or responsibility
for obligations entered into by or on behalf of the Fund.
12.2 Subject to the requirements of legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written consent
of the affected party until such time as such information may come into the
public domain.
12.3 The captions in this Agreement are included for convenience of
reference only and in no way
<PAGE>
define or delineate any of the provisions hereof or otherwise affect their
construction or effect.
12.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
12.5 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
12.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Texas Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable annuity
operations of the Company are being conducted in a manner consistent with Texas
variable annuity laws and regulations and any other applicable law or
regulations.
12.7 The rights, remedies and obligations contained in this Agreement
are cumulative and are in addition to any and all rights, remedies, and
obligations, at law or in equity, which the parties hereto are entitled to under
state and federal laws.
12.8 This Agreement or any of the rights and obligations hereunder may
not be assigned by any party without the prior written consent of all parties
hereto.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative and
its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: AMERICAN NATIONAL LIFE
By its authorized officer
By:________________________________
Title:_____________________________
Date:______________________________
FUND: T. ROWE PRICE INTERNATIONAL SERIES, INC.
By its authorized officer
By:________________________________
Title:_____________________________
Date:______________________________
FUND: T. ROWE PRICE EQUITY SERIES, INC.
By its authorized officer
By:________________________________
Title:_____________________________
Date:______________________________
<PAGE>
FUND: T. ROWE PRICE FIXED INCOME SERIES, INC.
By its authorized officer
By:________________________________
Title:_____________________________
Date:______________________________
UNDERWRITER: T. ROWE PRICE INVESTMENT SERVICES, INC.
By its authorized officer
By:________________________________
Title:_____________________________
Date:______________________________
<PAGE>
SCHEDULE A
- ----------
Name of Separate Account and
Date Established by Contracts Funded by
Board of Directors Separate Account Designated Portfolios
------------------ ---------------- ---------------------
T. Rowe Price International Series, Inc.
----------------------------------------
T. Rowe Price International Stock Portfolio
T. Rowe Price Equity Series, Inc.
---------------------------------
T. Rowe Price Equity Income Portfolio
T. Rowe Price Mid-Cap Growth Portfolio
T. Rowe Price Fixed Income Series, Inc.
---------------------------------------
T. Rowe Price Limited-Term Bond Portfolio
<PAGE>
Exhibit 99.B9
Law Offices
Greer, Herz & Adams, L.L.P.
a registered limited liability partnership
including professional corporations
One Moody Plaza
Galveston, Texas 77550
Galveston (409) 765-5525
Houston (713) 480-5278
Telecopier (409) 766-6424
April 30, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Judicial Plaza
Washington, D.C. 20549
RE: American National Variable Annuity Separate Account ("Separate
Account") Post-Effective Amendment No. 10 to Form N-4; File No. 33-
60442; Opinion and Consent of Counsel
- ------------------------------
Gentlemen:
We are counsel to American National Insurance Company ("ANICO"), the
depositor of the Separate Account. As such, we participated in the formation of
the Separate Account and the registration of such separate account with the
Securities and Exchange Commission. Accordingly, we are familiar with the
corporate records, certificates, and consents of officers of ANICO as we have
deemed necessary or appropriate for the purpose of this opinion.
Based upon the foregoing, and our consideration of such other matters of
fact and questions of law as we have deemed necessary and proper in the
circumstances, we are of the opinion that:
1. ANICO is a duly organized and existing corporation under the laws of the
State of Texas and that its principal business is to be an insurer.
2. The Separate Account is a duly organized and existing separate account
of ANICO under the laws of the State of Texas and is registered as a unit
investment trust under the Investment Company Act of 1940.
3. The Variable Annuity Contracts registered by this Registration Statement
under the Securities Act of 1933 and the Investment Company Act of 1940 (File
No. 33-60442) will, upon issuance thereof, be validly
<PAGE>
authorized and issued.
We hereby consent to the use of our opinion of counsel in the Post-
Effective Amendment No. 10 to Form N-4 Registration Statement (File No. 33-
60442) filed on behalf of the Separate Account. We further consent to the
statements made regarding us and to the use of our name under the caption "Legal
Matters" in the prospectuses constituting a part of such Post-Effective
Amendment No. 10 to such Registration Statement.
Yours very truly,
GREER, HERZ & ADAMS, L.L.P.
/s/ Jerry L. Adams
---------------------------------
Jerry L. Adams
<PAGE>
Exhibit 99.B10
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
-------------------
Houston, Texas
April 30, 1999
<PAGE>
Exhibit 99.B14
CONTROL LIST
The Registrant, American National Variable Annuity Separate Account, is a
separate account of American National Insurance Company, a Texas insurance
company The Libbie Shearn Moody Trust owns approximately 37.58% of the
outstanding stock of American National Insurance Company. The Moody Foundation,
which has a 75% contingent remainder interest in the Libbie Shearn Moody Trust,
owns approximately 23.7% of the outstanding stock of American National Insurance
Company.
The Trustees of The Moody Foundation are Mrs. Frances Moody Newman, Robert
L. Moody and Ross Rankin Moody. Robert L. Moody is a life income beneficiary of
the Libbie Shearn Moody Trust and Chairman of the Board, Director, President and
Chief Executive Officer of American National Insurance Company. Robert L. Moody
has assigned his interest in the Libbie Shearn Moody Trust to National Western
Life Insurance Company, a Colorado insurance company of which he is also
Chairman of the Board, a Director and controlling shareholder.
The Moody National Bank of Galveston is the trustee of the Libbie Shearn
Moody Trust and various other trusts which, in the aggregate, own approximately
44% of the outstanding stock of American National Insurance Company. Moody Bank
Holding Company, Inc. owns approximately 97% of the outstanding shares of The
Moody National Bank of Galveston. Moody Bank Holding Company, Inc. is a wholly
owned subsidiary of Moody Bancshares, Inc. The Three R Trusts, trusts created by
Robert L. Moody for the benefit of his children, are controlling stockholders of
Moody Bancshares, Inc.
The Moody Foundation owns 33.0% and the Libbie Shearn Moody Trust owns
51.0% of the outstanding stock of Gal-Tex Hotel Corporation, a Texas
corporation. Gal-Tex Hotel Corporation has the following wholly-owned
subsidiaries, listed in alphabetical order:
Gal-Tenn Hotel Corporation
Gal-Tex Management Company
Gal-Tex Woodstock, Inc.
GTG Corporation
New Paxton Hotel Corporation
American National owns a direct or indirect interest in the following
entities, listed in alphabetical order:
Entity: Alternative Benefit Management, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: ANTAC, Inc. owns all of the outstanding
common stock.
Entity: American Hampden Joint Venture
Entity Form: a Texas joint venture
<PAGE>
Ownership or Other Basis of Control: American National Insurance Company owns a
98% interest.
Entity: American National of Delaware Corporation
Entity Form: a Delaware corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company
Entity: American National Financial Corporation
Entity Form: a Texas corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: American National Financial Corporation (Delaware)
Entity Form: a Delaware corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: American National Financial Corporation (Nevada)
Entity Form: a Nevada corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: American National General Insurance Company
Entity Form: a Missouri insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: American National Insurance Service Company
Entity Form: a Missouri corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
<PAGE>
Entity: American National Investment Accounts, Inc.
Entity Form: a Maryland corporation - registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own all of the outstanding
stock of the Company.
Entity: American National Life Insurance Company of Texas
Entity Form: a Texas insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company
Entity: American National Lloyds Insurance Company
Entity Form: a Texas corporation
Ownership or Other Basis for Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: American National Property and Casualty Company
Entity Form: a Missouri insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANDV 97, Inc.
Entity Form: a Texas company
Ownership or Other Basis of Control: Wholly owned subsidiary of ANTAC, Inc.
Entity: ANMEX International, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANMEX International Services, Inc.
Entity Form: a Nevada corporation
<PAGE>
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANPAC General Agency of Texas
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: ANPAC Lloyds Insurance Management, Inc.
Entity Form: a Texas corporation
Ownership or Other Basis for Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: ANREM Corporation
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of Securities
Management and Research, Inc.
Entity: ANTAC, Inc.
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Beechwood Business Park Joint Venture.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: ANDV 97, Inc. owns a 50% limited
partnership interest.
<PAGE>
Entity: Comprehensive Investment Services, Inc.
Entity Form: a Nevada corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Fairway Plaza Associates, L.P.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: ANREM Corporation owns a 50% limited
partnership interest.
Entity: Galveston Health Network, Inc.
Entity Form: a Texas corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Garden State Life Insurance Company
Entity Form: a New Jersey insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Gateway Park Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: South Shore Harbour Development, Ltd. has
a 50% interest.
Entity: Harbour Title Company
Entity Form: a Texas corporation
Ownership or Other Basis of Control: South Shore Harbour Development, Ltd. owns
50% of the outstanding stock.
Entity: IAH 97 Joint Venture
<PAGE>
Entity Form: a Texas general partnership
Ownership or Other Basis of Control: ANDV 97, Inc. has a 50% interest.
Entity: Kearns Building Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: American National owns a 85% interest.
Entity: MR/SA Partnership
Entity Form: a Nevada general partnership
Ownership or Other Basis of Control: ANTAC, Inc. owns a 50% interest.
Entity: Pacific Property and Casualty Company
Entity Form: a California corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: Panther Creek Limited Partnership
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
99% limited partnership interest
Entity: Rutledge Partners, L.P.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
50% interest.
Entity: Securities Management and Research, Inc.
Entity Form: a Florida corporation - a registered broker-dealer and investment
adviser
<PAGE>
Ownership or Other Basis of Control: wholly-owned subsidiary of American
National Insurance Company
Entity: SM&R Balanced Fund, Inc.
Entity Form: a Maryland corporation - a registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: SM&R Equity Income Fund, Inc.
Entity Form: a Maryland corporation - registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: SM&R Growth Fund, Inc.
Entity Form: a Maryland corporation - registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: SM&R Investments, Inc.
Entity Form: a Maryland corporation - a registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
Entity: South Shore Harbour Development, Ltd.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: ANTAC, Inc. owns a 95% limited partnership
interest. ANREM Corp. owns a 5% general partnership interest.
<PAGE>
Entity: Standard Life and Accident Insurance Company
Entity Form: an Oklahoma insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: Terra Venture Bridgeton Project Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: Wholly owned by American National
Insurance Company.
Entity: Third and Catalina, Ltd.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
49% limited partnership interest.
Entity: Timbermill, Ltd.
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: American National Insurance Company owns a
99% limited partnership interest.
Entity: Town and Country Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: ANDV 97, Inc. owns a 99% limited
partnership interest.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 28,383
<INVESTMENTS-AT-VALUE> 32,737
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 32,737
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 0
<TOTAL-LIABILITIES> 0
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 32,737
<DIVIDEND-INCOME> 443
<INTEREST-INCOME> 0
<OTHER-INCOME> 1,185
<EXPENSES-NET> 386
<NET-INVESTMENT-INCOME> 1,242
<REALIZED-GAINS-CURRENT> 866
<APPREC-INCREASE-CURRENT> 2,587
<NET-CHANGE-FROM-OPS> 4,695
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,588
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> 0
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
