<PAGE>
WEALTHQUEST III Variable Annuity
Issued by American National Insurance Company
Home Office One Moody Plaza Galveston TX 77550-7999
PROSPECTUS July 28, 2000 1-800-306-2959
This prospectus describes a deferred variable annuity contract issued to either
individuals or groups depending upon the state in which the contract is issued.
(See "Type of Contract" on page 20.)
You can allocate your contract value to American National Variable Annuity
Separate Account, which reflects the investment performance of mutual fund
portfolios selected by you, and our Fixed Account which earns a guaranteed
minimum rate. At this time, you can allocate your contract value to the
following mutual fund portfolios:
American National Fund
. Growth Portfolio
. Balanced Portfolio
. Equity Income Portfolio
. High Yield Bond Portfolio
. International Stock Portfolio
. Small-Cap/Mid-Cap Portfolio
. Government Bond Portfolio
. Money Market Portfolio
Fidelity Funds
. Asset Manager Portfolio
. Index 500 Portfolio
. Contrafund Portfolio
. Asset Manager: Growth Portfolio
. Growth Opportunities Portfolio
T. Rowe Price Funds
. Equity Income Portfolio
. Mid-Cap Growth Portfolio
. International Stock Portfolio
. Limited-Term Bond Portfolio
MFS Fund
. Capital Opportunities Portfolio
. Emerging Growth Portfolio
. Research Portfolio
. Growth With Income Portfolio
Federated Fund
. Utility Fund II Portfolio
. Growth Strategies Portfolio
. International Small Company Fund II Portfolio
. High Income Bond Portfolio
. Equity Income Fund II Portfolio
Alger American Fund
. Small Capitalization Portfolio
. Growth Portfolio
. MidCap Growth Portfolio
. Leveraged AllCap Portfolio
. Income & Growth Portfolio
. Balanced 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 51 of this prospectus. The SEC maintains an Internet
website (http://www.sec.gov) that contains material incorporated by reference
into this prospectus, SAI, and other information regarding companies that file
electronically with the SEC.
For more information on the American National Fund, Fidelity Funds, T. Rowe
Price Funds, MFS Fund, Federated Fund, and Alger American Fund, see their
prospectuses. 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 4879
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TABLE OF CONTENTS
<TABLE>
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Page
<S> <C>
Glossary.................................................................... 4
Introduction................................................................ 6
What is the Purpose of the Contract?....................................... 6
What are my Investment Options?............................................ 6
How do I Purchase a Contract?.............................................. 7
How do I Allocate Purchase Payments?....................................... 7
Can I Transfer Amounts Between the Investment Alternatives?................ 7
What is the Death Benefit under the Contract?.............................. 7
Can I Get My Money if I need It?........................................... 8
How Can I Receive Annuity Payments?........................................ 8
What are the Charges and Deductions under the Contract?.................... 8
What are the Tax Consequences Associated with the Contract?................ 8
If I have Questions, Where can I Go?....................................... 9
Expenses Before the Annuity Date............................................ 10
Contract Owner Transaction Expenses......................................... 10
Sales Load as a Percentage of Purchase Payments............................ 10
Deferred Sales Load ("Surrender Charge")................................... 10
Expenses During the Annuity Period.......................................... 17
Contract.................................................................... 20
Type of Contract........................................................... 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
Special Programs........................................................... 22
Charges and Deductions Before the Annuity Date.............................. 24
Surrender Charge........................................................... 24
Other Charges.............................................................. 24
Deduction of Fees.......................................................... 25
Exception to Charges....................................................... 25
Distributions Under the Contract............................................ 27
Distributions Before Annuity Date........................................... 27
Surrenders................................................................. 27
</TABLE>
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<TABLE>
<S> <C>
Systematic Withdrawal Program.............................................. 27
Waiver of Surrender Charge................................................. 28
Death Benefit Before Annuity Date.......................................... 29
Distributions During the Annuity Period..................................... 32
Election of Annuity Option................................................. 32
Allocation of Benefits..................................................... 32
Annuity Options............................................................ 32
Value of Variable Annuity Payments: Assumed Investment Rates............... 34
Annuity Provisions......................................................... 34
The Company, Separate Account and Funds..................................... 35
American National Insurance Company........................................ 35
The Separate Account....................................................... 35
The Funds.................................................................. 36
Changes in Investment Options.............................................. 41
Fixed Account............................................................... 42
Federal Tax Matters......................................................... 43
Introduction............................................................... 43
Tax Status of the Contracts................................................ 43
Taxation of Annuities in General........................................... 43
Withdrawals................................................................ 43
Penalty Tax................................................................ 44
Annuity Payments........................................................... 44
Taxation of Death Benefit Proceeds......................................... 44
Transfers or Assignments of a Contract..................................... 44
Required Distributions..................................................... 45
Withholding................................................................ 45
Multiple Contracts......................................................... 45
Exchanges.................................................................. 45
Taxation of Qualified Contracts............................................ 45
Distributions from Qualified Contracts..................................... 46
Possible Changes in Taxation............................................... 48
All Contracts.............................................................. 48
Performance................................................................. 49
Distributor of the Contract................................................. 49
Legal Matters............................................................... 50
Legal Proceedings........................................................... 50
Experts..................................................................... 50
Additional Information...................................................... 50
Financial Statements........................................................ 50
Table of Contents of Statement of Additional Information.................... 51
</TABLE>
<PAGE>
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 Contract Owner's death.
Accumulation Unit. A unit used by us to calculate a Contract's value during the
Accumulation Period.
Accumulation Value. The sum of (1) the value of your Accumulation Units and (2)
value in the Fixed Account.
Alger American Fund. The Alger American Fund.
American National Fund. American National Investment Accounts, Inc.
Annuitant. The person or persons who will receive annuity payments.
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 variable
annuity payments.
Company ("we", "our" or "us"). American National Insurance Company.
Contract. The contract described in this prospectus.
Contract Owner ("you" or "your"). Unless changed by notice to us, the Contract
Owner is as stated in the application.
Contract Anniversary. An anniversary of the Date of Issue.
Contract Year. A one-year period, commencing on either the Date of Issue or a
Contract Anniversary.
Date of Issue. The date a Contract is issued.
Eligible Portfolio. A Portfolio which corresponds to a subaccount.
Enhanced Death Benefit Riders. Optional death benefits available at an
additional cost.
Federated Fund. Federated Insurance Series.
Fidelity Funds. Variable Insurance Products Fund. The Fidelity Fund's
Portfolios offered through the Contract are Service Class II Portfolio's.
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.
MFS Fund. MFS Variable Insurance Trust.
Non-Qualified Contract. A Contract 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 incurred at the time the Purchase Payment is made.
<PAGE>
Qualified Contract. A Contract issued in connection with a retirement plan that
receives favorable tax treatment under the Internal Revenue Code.
T. Rowe Price Funds. T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and T. Rowe Price Fixed Income Series, Inc.
Valuation Date. Each day the New York Stock Exchange ("NYSE") is open for
regular trading. A redemption, transfer, or purchase can be made only on days
that we are open. We will be open on each day the NYSE is open except for the
day after Thanksgiving and the Friday before Christmas Eve.
Valuation Period. The close of business on one Valuation Date to the close of
business on the next.
Variable Annuity. An annuity with payments and value that vary in dollar amount
based on performance of the investments you chose.
<PAGE>
INTRODUCTION
What is the Purpose of the Contract?
The Contract allows you to accumulate funds, on a tax-deferred basis, that will
increase or decline in value based on the performance of investments you choose.
You should use the Contract for retirement planning or other long-term goals.
The Contract is designed for people seeking long-term tax-deferred accumulation
of assets, generally for retirement or other long-term purposes. The tax-
deferred feature is most attractive to people in high federal (and state) tax
brackets. You should not invest in this Contract if you are looking for a short-
term investment or if you cannot take the risk of losing money that you put in.
There are various additional fees and charges associated with variable
annuities. The tax deferral feature of variable annuities is unnecessary when
purchased to fund a qualified plan, since the Plan would already provide tax
deferral in most cases. You should consider whether the other features and
benefits, such as the opportunity for lifetime income benefits, and the
guaranteed level of certain charges, make the Contract appropriate for your
needs.
What are my Investment Options?
You can invest your Purchase Payments in one or more of the following
subaccounts of the separate account, each of which invests exclusively in shares
of a corresponding Eligible Portfolio:
. American National Growth
. American National Balanced
. American National Equity Income
. American National Money Market
. American National High Yield Bond
. American National International Stock
. American National Small-Cap/Mid-Cap
. American National Government Bond
. Fidelity Asset Manager
. Fidelity Index 500
. Fidelity Contrafund
. Fidelity Asset Manager: Growth
. Fidelity Growth Opportunities
. T. Rowe Price Equity Income
. T. Rowe Price Mid-Cap Growth
. T. Rowe Price International Stock
. T. Rowe Price Limited-Term Bond
. MFS Capital Opportunities
. MFS Emerging Growth
. MFS Research
. MFS Growth With Income
. Federated Utility Fund II
. Federated Growth Strategies
. Federated International Small Company Fund II
. Federated High Income Bond
. Federated Equity Income Fund II
<PAGE>
. Alger American Small Capitalization
. Alger American MidCap Growth
. Alger American Growth
. Alger American Balanced
. Alger American Leveraged AllCap
. Alger American Income & Growth
Each such subaccount and corresponding Eligible Portfolio has its own investment
objective. Some of the Eligible Portfolios have similar investment objectives.
(See "Funds" beginning on page 35.) There is no assurance that Eligible
Portfolios will achieve their investment objectives. Accordingly, you could
lose some or all of your Accumulation Value.
You can also invest in our Fixed Account.
How do I Purchase a Contract?
You can purchase a Contract by completing an application and paying the minimum
Purchase Payment to our home office. You must make at least a $5,000 minimum
initial Purchase Payment and any subsequent Purchase Payments must be at least
$2,000. We may change these amounts.
Without our prior approval, the maximum Purchase Payment under a Contract is
$1,000,000. Purchase Payments will not be accepted after you reach age 86.
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 20.)
How do I Allocate Purchase Payments?
Your can allocate your Purchase Payments among the 32 currently available
subaccounts and the Fixed Account. You cannot allocate less than 1% of a
Purchase Payment to any one investment option. The minimum initial deposit in
any subaccount and the Fixed Account is $500.
Can I Transfer Amounts Between the Investment Alternatives?
You can make transfers between subaccounts and to our Fixed Account at any time.
Transfers from our Fixed Account before the Annuity Date are limited. (See
"Transfers Before Annuity Date" on page 22 for additional limitations.)
Transfers from our Fixed Account after the Annuity Date are not permitted. (See
"Allocation of Benefits" on page 32 for additional limitations.) Before the
Annuity Date, you can make twelve transfers each Contract Year at no charge.
Additional transfers will be subject to a $10.00 exchange fee. All transfers
after the Annuity Date are free. You should periodically review your
allocations among the subaccounts and the Fixed Account to make sure they fit
your current situation and financial goals.
You can make allocation changes in writing or during our normal business hours
by telephone if a telephone authorization form is on file with us. We will
employ reasonable procedures to confirm that telephone instructions are genuine.
If we follow those procedures, we will not be liable for losses due to
unauthorized or fraudulent instructions. We may be liable for such losses if we
do not follow those procedures.
What is the Death Benefit under the Contract?
If you or the Annuitant die before the Annuity Date, the death benefit will be
at least the amount of the Accumulation Value on the date notice of death is
received at our home office. The death benefit may be more if you selected an
Enhanced Death Benefit Rider. (See "Death Benefit Before Annuity Date" on page
29.)
<PAGE>
Can I get my Money if I need it?
By written request to us, you can withdraw all or part of your Accumulation
Value at any time before the Annuity Date. Such withdrawal may be subject to a
Surrender Charge, an IRS penalty tax and income tax. If your contract was
purchased in connection with a retirement plan, such withdrawal may also be
subject to plan restrictions. Withdrawals from a Contract qualified under
Section 403(b) of the Internal Revenue Code may be restricted. (See "Taxation
of Qualified Contracts" under "Federal Tax Matters" on page 45.) If the
Accumulation Value is less than $2,000, we will terminate the Contract and pay
the surrender value to you. (See "Surrenders" on page 27.) Depending upon the
annuity option selected, you may also be able to withdraw any amount remaining
during the Annuity Period. (See "Annuity Options" on page 32.)
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. (See "Annuity Options", page 32.)
What are the Charges and Deductions under the Contract?
We do not currently deduct a sales charge when you purchase your Contract. We
may deduct a surrender charge up to 7% of Purchase Payments withdrawn.
You will also be charged an annual contract fee of $35 unless
. all of your Accumulation Value is in the Fixed Account, or
. your Accumulation Value is greater than $50,000 on the last day of a Contract
Year.
We charge a mortality risk fee and an expense risk fee to meet our death benefit
obligations and to pay expenses not covered by the annual contract fee. The
mortality risk fee is 0.80% and the expense risk fee is 0.45% on an annual
basis. If you select an Enhanced Death Benefit Rider, we will charge you a
higher mortality risk fee.
We also charge a daily administrative fee equal, on an annual basis, to 0.10% of
the Contract's daily Accumulation Value.
We may make additional charges for premium taxes when incurred.
What are the Tax Consequences Associated with the Contract?
You are generally required to pay taxes on amounts earned in a Non-Qualified
Contract only when they are withdrawn. When you take distributions or
withdrawals from a Contract, taxable earnings are considered to be paid out
first, followed by the investment in the Contract. All or a portion of each
annuity payment you receive under a Non-Qualified Contract will be taxable.
Distributions from a Contract are taxed as ordinary income. You may owe a 10%
federal income tax penalty for distributions or withdrawals taken before age 59
1/2.
You are generally required to pay taxes on all amounts withdrawn from a
Qualified Contract because Purchase Payments were made with before-tax dollars.
Restrictions and penalties may apply to withdrawals from Qualified Contracts.
(See "Federal Tax Matters", page 43.)
If I have Questions, Where can I go?
<PAGE>
If you have any questions about the Contract, you can contact your registered
representative or write us at One Moody Plaza, Galveston, Texas, 77550-7999 or
call us at 1-800-306-2959.
<PAGE>
EXPENSES BEFORE THE ANNUITY DATE
The following summarizes the charges we will make before the Annuity Date. It
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 24.
CONTRACT OWNER TRANSACTION EXPENSES
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 at the time of the withdrawal or (2) your Accumulation
Value less total Purchase Payments (the "Free Withdrawal Amount") penalty
free. 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. If
you withdraw less than 10% of your Accumulation Value, the free withdrawal
amount available under the 10% option for any subsequent withdrawal in that
Contract Year will be reduced by the percentage previously withdrawn. (See
"Surrender Charge" on page 24.)
[_] Calculation of Surrender Charges
Surrender Charges vary depending on the number of complete years elapsed
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:
<TABLE>
<CAPTION>
Complete Years Applicable
Elapsed Since Surrender Charge
Purchase Payment as a
Made Percentage
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<S> <C>
Less than 1 7.0
1 7.0
2 6.0
3 5.0
4 4.0
5 3.0
6 2.0
7 and thereafter 0.0
</TABLE>
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EXCHANGE FEE $ 10
ANNUAL CONTRACT FEE $ 35
SEPARATE ACCOUNT ANNUAL EXPENSES
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Base Policy Base Policy Plus Enhanced Death Benefit
(as percentage of average net assets) Only Guar. Min.Rider 3%Rider 5% Rider
<S> <C> <C> <C> <C> <C>
Mortality Risk Fee 0.80% 0.92% 1.05% 1.22%
Expense Risk Fee 0.45% 0.45% 0.45% 0.45%
Administrative Asset Fee 0.10% 0.10% 0.10% 0.10%
Total Separate Account
Annual Expenses 1.35% 1.47% 1.60% 1.77%
</TABLE>
PORTFOLIO COMPANY ANNUAL EXPENSES
American National Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement* ** 0.43%
Other Expenses 0.44%
Total Portfolio Annual Expenses 0.87%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 0.94%.
American National Balanced Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement* ** 0.26%
Other Expenses 0.64%
Total Portfolio Annual Expenses 0.90%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.14%.
American National Equity Income Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement* ** 0.49%
Other Expenses 0.44%
Total Portfolio Annual Expenses 0.93%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 0.94%.
American National High Yield Bond Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.55%
Other Expenses 0.30%
Total Portfolio Annual Expenses 0.85%
American National International Stock Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.35%
Total Portfolio Annual Expenses 1.10%
American National Small-Cap/Mid-Cap Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.25%
<PAGE>
Other Expenses 0.25%
Total Portfolio Annual Expenses 1.50%
American National Government Bond Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.50%
Other Expenses 0.30%
Total Portfolio Annual Expenses 0.80%
American National Money Market Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement* ** 0.09%
Other Expenses 0.78%
Total Portfolio Annual Expenses 0.87%
* Without reimbursement, management fees would have been 0.50% and the total
portfolio annual expense would have been 1.28%.
** Under its Administrative Service Agreement with American National
Investment Accounts, Inc., Securities Management and Research, Inc. ("SM&R"),
the fund's Investment Adviser and Manager, has agreed to pay (or to reimburse
each Portfolio for) each Portfolio's expenses (including the advisory fee and
administrative service fee paid to SM&R, but exclusive of interest, commissions
and other expenses incidental to portfolio transactions) in excess of 1.50% per
year of such Portfolio's average daily net assets. In addition, SM&R has entered
into a separate undertaking with the fund effective May 1, 1994 until April 30,
2001, pursuant to which SM&R has agreed to reimburse the American National Money
Market Portfolio and the American National Growth Portfolio for expenses in
excess of .87%; the American National Balanced Portfolio for expenses in excess
of .90% and the American National Equity Income Portfolio for expenses in excess
of .93%, of each of such Portfolios' average daily net assets during such
period. SM&R is under no obligation to renew this undertaking for any Portfolio
at the end of such period.
Fidelity Index 500 Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.24%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 0.11%
Total Portfolio Annual Expenses 0.60%
* FMR has voluntarily agreed to reimburse Service Class 2 of the Index 500 to
the extent that total operating expenses (excluding interest, taxes, securities
lending costs, brokerage commissions and extraordinary expenses), as a
percentage of its average net assets, exceed 0.53%. This arrangement can be
discontinued by FMR at any time.
Fidelity Asset Manager Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.53%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses after reimbursement 0.11%
Total Portfolio Annual Expenses** 0.89%
Fidelity Contrafund Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.58%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses after reimbursement 0.12%
Total Portfolio Annual Expenses** 0.95%
Fidelity Asset Manager: Growth Portfolio Annual Expenses
<PAGE>
(as a percentage of average net assets)
Management Fees 0.58%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses after reimbursement 0.15%
Total Portfolio Annual Expenses** 0.98%
Fidelity Growth Opportunities Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.58%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses after reimbursement 0.13%
Total Portfolio Annual Expenses** 0.96%
** FMR has voluntarily agreed to reimburse Service Class 2 of certain funds to
the extent that total operating expenses (excluding interest, taxes, certain
securities lending costs, brokerage commissions and extraordinary expenses), as
a percentage of their respective average net assets, exceed the following rates:
1.50% for Asset Manager, 1.25% for Contrafund, 1.25% for Asset Manager: Growth,
and 1.75% for Growth Opportunities. These arrangements can be discontinued by
FMR at any time.
T. Rowe Price Equity Income Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.85%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.85%
T. Rowe Price International Stock Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.05%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 1.05%
T. Rowe Price Mid-Cap Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.85%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.85%
T. Rowe Price Limited - Term Bond Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.70%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.70%
* T. Rowe Price Equity Income and Mid-Cap Growth Portfolios pay T. Rowe Price
an annual all-inclusive fee of 0.85% based on such Portfolios' average daily net
assets. T. Rowe Price Limited-Term Bond Portfolio pays T. Rowe Price an annual
all-inclusive fee of 0.70% based on such Portfolios' average daily net assets.
T. Rowe Price International Stock Portfolio pays Rowe-Price-Flemming
International, Inc. an annual all-inclusive fee of 1.05% based on such
Portfolios' average daily net assets. These fees pay for investment management
services and other operating costs of the Portfolios.
MFS Capital Opportunities Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses (after fee reduction) 0.16%
Total Portfolio Annual Expenses* 0.91%
<PAGE>
* The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, other expenses and total
expenses would have been 0.75%, 0.27%, and 1.02%, respectively.
MFS Emerging Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.09%
Total Portfolio Annual Expenses 0.84%
MFS Research Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.11%
Total Portfolio Annual Expenses 0.86%
MFS Growth With Income Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.13%
Total Portfolio Annual Expenses 0.88%
Federated Utility Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses after reimbursement 0.19%
Total Portfolio Annual Expenses* 0.94%
* The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, other expenses, and total
expenses would have been 0.75%, 0.44%, and 1.19% respectively.
Federated Growth Strategies Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement 0.55%
Other Expenses after reimbursement 0.30%
Total Portfolio Annual Expenses* 0.85%
* The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, other expenses and total
expenses would have been 0.75%, 0.55%, and 1.30% respectively.
Federated International Small Company Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.25%
Other Expenses 0.00%
Total Portfolio Annual Expenses 1.25%
Federated High Income Bond Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.60%
Other Expenses after reimbursement 0.19%
Total Portfolio Annual Expenses* 0.79%
* The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, other expenses, and total
expenses would have been 0.60%, 0.44%, and 1.04% respectively.
Federated Equity Income Fund II Portfolio Annual Expenses
<PAGE>
(as a percentage of average net assets)
Management Fees after reimbursement 0.55%
12-b1 Fees after reimbursement 0.00%
Other Expenses after reimbursement 0.39%
Total Portfolio Annual Expenses* 0.94%
*The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, 12-b1 fee, other expenses and
total expenses would have been 0.75%, 0.25%, 0.64%, and 1.64% respectively.
Alger American Small Capitalization Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.85%
Other Expenses 0.04%
Total Portfolio Annual Expenses 0.89%
Alger American Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.04%
Total Portfolio Annual Expenses 0.79%
Alger American MidCap Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.80%
Other Expenses 0.04%
Total Portfolio Annual Expenses 0.84%
Alger American Leveraged AllCap Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.85%
Other Expenses* 0.11%
Total Portfolio Annual Expenses 0.96%
*Included in other expenses is 0.03% of interest expense.
Alger American Income & Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.625%
Other Expenses 0.075%
Total Portfolio Annual Expenses 0.70%
Alger American Balanced Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.75%
Other Expenses 0.17%
Total Portfolio Annual Expenses 0.92%
EXPENSES DURING THE ANNUITY PERIOD
<PAGE>
During the Annuity Period, we will charge the separate account a mortality risk
fee of .80% and an expense risk fee of .45%. The Eligible Portfolios in which
you have invested will charge the portfolio annual expenses described above. No
other fees or expenses are charged against the Contract during the Annuity
Period.
Example: Accumulation Period
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets (regardless of whether the surrender proceeds are paid to the
Contract Owner, applied under the Systematic Withdrawal Program, or applied
under an annuity option):
Fund 1 Year 3 Years
--------------------------------------------------------------------------------
American National Growth Portfolio $92 $142
American National Balanced Portfolio $92 $143
American National Equity Income Portfolio $92 $143
American National Money Market Portfolio $92 $142
American National High Yield Bond Portfolio $92 $141
American National International Stock Portfolio $94 $148
American National Small-Cap/Mid-Cap Portfolio $98 $159
American National Government Bond Portfolio $91 $140
Fidelity Asset Manager Portfolio $92 $142
Fidelity Index 500 Portfolio $89 $134
Fidelity Contrafund Portfolio $93 $144
Fidelity Asset Manager: Growth Portfolio $93 $145
Fidelity Growth Opportunities Portfolio $93 $144
T. Rowe Price Equity Income Portfolio $92 $141
T. Rowe Price International Stock Portfolio $93 $147
T. Rowe Price Mid-Cap Growth Portfolio $92 $141
T. Rowe Price Limited - Term Bond Portfolio $90 $137
MFS Capital Opportunities Portfolio $92 $143
MFS Emerging Growth Portfolio $92 $141
MFS Research Portfolio $92 $141
MFS Growth With Income Portfolio $92 $142
Federated Utility Fund II Portfolio $92 $144
Federated Growth Strategies Fund II Portfolio $92 $141
Federated International Small Co. Fund II Portfolio $91 $139
Federated High Income Bond Fund II Portfolio $91 $139
Federated Equity Income Fund II Portfolio $92 $144
Alger American Small Capitalization Portfolio $92 $142
Alger American Growth Portfolio $91 $139
Alger American MidCap Growth Portfolio $92 $141
Alger American Leveraged AllCap Portfolio $93 $144
Alger American Income & Growth Portfolio $90 $137
Alger American Balanced Portfolio $92 $143
If you do not surrender your Contract, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets.
Fund 1 Year 3 Years
--------------------------------------------------------------------------------
<PAGE>
American National Growth Portfolio $27 $ 84
American National Balanced Portfolio $28 $ 85
American National Equity Income Portfolio $28 $ 86
American National Money Market Portfolio $27 $ 84
American National High Yield Bond Portfolio $27 $ 83
American National International Stock Portfolio $30 $ 91
American National Small-Cap/Mid-Cap Portfolio $34 $102
American National Government Bond Portfolio $27 $ 82
Fidelity Asset Manager Portfolio $28 $ 84
Fidelity Index 500 Portfolio $25 $ 76
Fidelity Contrafund Portfolio $28 $ 86
Fidelity Asset Manager: Growth Portfolio $28 $ 87
Fidelity Growth Opportunities Portfolio $28 $ 87
T. Rowe Price Equity Income Portfolio $27 $ 83
T. Rowe Price International Stock Portfolio $29 $ 89
T. Rowe Price Mid-Cap Growth Portfolio $27 $ 83
T. Rowe Price Limited - Term Bond Portfolio $26 $ 79
MFS Capital Opportunities Portfolio $28 $ 85
MFS Emerging Growth Portfolio $27 $ 83
MFS Research Portfolio $27 $ 84
MFS Growth With Income Portfolio $27 $ 84
Federated Utility Fund II Portfolio $28 $ 86
Federated Growth Strategies Fund II Portfolio $27 $ 83
Federated International Small Co. Fund II Portfolio $26 $ 81
Federated High Income Bond Fund II Portfolio $27 $ 82
Federated Equity Income Fund II Portfolio $28 $ 86
Alger American Small Capitalization Portfolio $28 $ 84
Alger American Growth Portfolio $27 $ 82
Alger American MidCap Growth Portfolio $27 $ 83
Alger American Leveraged AllCap Portfolio $28 $ 87
Alger American Income & Growth Portfolio $26 $ 79
Alger American Balanced Portfolio $28 $ 85
You should not consider the examples as representative of past or future
expenses. The examples do not include the deduction of state premium taxes
assessed.
The purpose of the preceding tables is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly. For
purposes of computing the expense of the annual contract fee, the dollar amounts
shown in the examples are based on a single Purchase Payment of $1,000. The
tables reflect expenses of the separate account and the Eligible Portfolios. The
examples assume that any waiver or reimbursement policies for the Eligible
Portfolios are in effect for the time periods presumed. 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. For a
more complete description of the management fees for the American National Fund,
the Fidelity Funds, the T. Rowe Price Funds, the MFS Fund, the Federated Fund
and the Alger American Fund, see their prospectuses.
<PAGE>
The separate account charges reflected in the examples include the maximum
mortality risk fee which accompanies the 5% guaranteed death benefit rider. If
no or a different Enhanced Death Benefit Rider is elected, the actual expenses
incurred will be less than those represented in the examples.
CONTRACT
Type of Contract
This prospectus offers an individual deferred variable annuity Contract
providing for future annuity payments. You can choose to vary your Purchase
Payments or pay a single Purchase Payment. The Contract can be either Qualified
or Non-Qualified.
In certain states, the Contract may be offered as a group contract with
individual ownership represented by certificates. The discussion of Contracts
in this prospectus applies equally to certificates under group contracts, unless
the content specifies otherwise.
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. All additional Purchase Payments will be
credited with an effective date on the date the additional Purchase Payment is
received in 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 plus any charges for premium taxes deducted therefrom or
(2) Accumulation Value plus any expenses deducted 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 be
allocated to the AN Money Market Portfolio until the end of the 15 day period
after the Date of Issue. Thereafter, amounts allocated to such subaccount and
Purchase Payments paid are allocated as directed by you. We will credit
Purchase Payments received by us after the 15-day period effective when such
payments are received at our home office. No Surrender Charges are assessed on
refunds.
Allocation of Purchase Payments
After the end of the 15 day period after the Date of Issue , Purchase Payments
will be allocated to the subaccounts and the Fixed Account according to your
instructions in the application. You can change these allocations at any time
by written instruction to our home office or by telephone, if a properly
completed telephone transfer authorization form is on file with us.
Crediting of Accumulation Units
Before the Annuity Date, Purchase Payments will be used to purchase Accumulation
Units in subaccounts and be allocated to the Fixed Account as you have
instructed. We will determine the number of Accumulation Units purchased by
dividing the dollar amount of the Purchase Payment allocated to a subaccount by
the Accumulation Unit value for that subaccount computed following such
allocation.
Allocation of Charges and Other Deductions to the Subaccounts and the Fixed
Account
Unless you instruct differently, deductions from the subaccounts and the Fixed
Account will be made, pro rata, to the extent necessary for us to
. collect charges (except annual contract fee, which is allocated pro-rata only
among the subaccounts)
. pay surrender value
. provide benefits
<PAGE>
We will immediately reinvest dividends and capital gain distributions received
from an Eligible Portfolio at net asset value in shares of that Eligible
Portfolio.
Determining Accumulation Unit Values
The Accumulation Unit value of each subaccount reflects the investment
performance of that subaccount. We calculate Accumulation Unit value on each
Valuation Date by multiplying the Accumulation Unit value for the preceding
Valuation Date by a net investment factor for that subaccount. The net
investment factor is determined on each subaccount on each Valuation Date as
follows:
. add the per share amount of any dividends or capital gains distributions
declared by the Eligible Portfolio during the Valuation Period to the net
asset value of a share in the corresponding Eligible Portfolio at the close
of business on such Valuation Date;
. divide by the net asset value of a share in the Eligible Portfolio on the
preceding Valuation Date; and
. subtract the applicable administrative asset fee and mortality and expense
risk fees.
We will calculate the Accumulation Unit value for each subaccount at the end of
each Valuation Period. Investment performance of the Eligible Portfolios will
increase or decrease the Accumulation Unit value for each subaccount, the
Eligible Portfolio expenses and the deduction of certain charges by us will
decrease the Accumulation Unit value for each subaccount.
Transfers Before Annuity Date
You can make transfers among the subaccounts and the Fixed Account subject to
the following restrictions:
. Transfers from subaccounts must be at least $250, or the balance of the
subaccount, if less.
. The minimum amount which may remain in a subaccount after a transfer is
$1,000.
. Each Contract year, the total amount transferred from the Fixed Account
cannot exceed the greater of (1) 10% of the amount in the Fixed Account or
(2) $1,000.
. The first twelve (12) transfers in a Contract Year are free. A $10.00 fee
will be deducted from the amount transferred for each additional transfer.
(See "Exchange Fee", page 11.)
We will make transfers and determine values at the end of the Valuation Period
in which your transfer request is received, unless you designate a later date.
We may revoke or modify the transfer privilege. You cannot transfer to the
dollar cost averaging fixed account. For a discussion of transfers after the
Annuity Date, see "Allocation of Benefits" at page 32.
Payment of withdrawal amounts and transfers may be postponed whenever: (1) the
NYSE is closed other than customary weekend 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 Contract Owners; 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.
Special Programs
. Dollar Cost Averaging Program - If you have at least $10,000 Accumulation
Value in your Contract, you can instruct us to periodically transfer an
amount or percentage from a subaccount or the Fixed Account to any
subaccount(s) or the Fixed Account. The transfers can be made monthly,
quarterly, semi-annually or annually. The amount transferred each time must
be at least $1,000. The minimum transfer to each subaccount must be at least
$100. Transfers of Accumulation Value pursuant to this program will not be
counted in determining whether the exchange fee applies. The program will be
stopped if, on a transfer date, the Accumulation Value is less than $5,000.
You can change the allocation instructions or stop the program by sending
written notice or calling us by telephone. You can request participation in
or discontinue the dollar cost averaging program at any time.
<PAGE>
. Fixed Account Dollar Cost Averaging Program - If you participate in the fixed
account dollar cost averaging program, you may designate an amount to be held
in one of the dollar cost averaging fixed account options until it is
transferred to the subaccounts or the Fixed Account as selected by you. The
two options you must select from are a six-month or a twelve-month dollar
cost averaging period. When you make an allocation to one of the dollar cost
averaging fixed accounts for this purpose, we will set an interest rate
applicable to that amount. We will then credit interest at that rate to that
amount until it has been entirely transferred to your chosen subaccounts or
the Fixed Account. Consistent with the option selected by you, we will
complete the transfers within either six or twelve months of the allocation
date, which will be the Date of Issue. In our discretion, we may change the
rate that we set for new allocations to the dollar cost averaging fixed
accounts. We will never, however, set a rate less than an effective annual
rate of 3%. The program is available only for Purchase Payments received on
or prior to the Date of Issue. The minimum Purchase Payment to participate in
the program is $10,000.
Dollar cost averaging results in the purchase of more Accumulation Units when
Accumulation Unit Value is low, and fewer when Accumulation Unit value is high.
There is no guarantee that dollar cost averaging, will result in higher
Accumulation Value or otherwise be successful.
. Rebalancing Program - Under the rebalancing program, you can instruct us to
allocate Purchase Payments and Accumulation Value among the subaccounts and
Fixed Account. In accordance with allocation instructions specified by you,
we will rebalance your Accumulation Value by allocating Purchase Payments and
transferring Accumulation Value among the subaccounts and the Fixed Account.
Rebalancing will be performed on a quarterly, semi-annual or annual basis as
specified in the application. Transfers of Accumulation Value pursuant to
this program will not be counted in determining whether the exchange fee
applies. At the time the program begins, there must be at least $10,000 of
Accumulation Value under the Contract. The program will be stopped if, on a
rebalancing date, the Accumulation Value is less than $ 5,000. You can change
the allocation instructions or stop the program by sending written notice or
calling us by telephone. You can request participation in or discontinue such
special program at any time.
There is no charge for participation in such special programs.
<PAGE>
CHARGES AND DEDUCTIONS
BEFORE ANNUITY DATE
Surrender Charge
Since no sales charge is deducted from your Purchase Payments, a Surrender
Charge may be imposed on withdrawals to cover expenses of distributing the
Contract. (See "Deferred Sales Load (`Surrender Charge')" on page 10.)
Assume you have $40,000 Accumulation Value, $38,000 of which represents total
Purchase Payments and $2,000 of which represents Accumulation Value less total
Purchase Payments.
. Example 1 - Assume you want to withdraw $7,000. You can withdraw the greater
of (1) 10% of your $40,000 Accumulation Value or (2) Accumulation Value
minus total Purchase Payments with no Surrender Charge. Since 10% of your
Accumulation Value, $4,000, is greater than Accumulation Value minus total
Purchase Payments, $2,000, your Free Withdrawal Amount will be $4,000.
Accordingly, $4,000 of your withdrawal will be free of surrender charge. The
remaining $3,000 is a withdrawal of Purchase Payments and will be subject to
a Surrender Charge.
. Example 2 - Assume you have made a $3,000 withdrawal and want to make an
additional $5,000 withdrawal in the same Contract Year. The first withdrawal
would have been free because it was less than the Free Withdrawal Amount.
However, such withdrawal would have utilized a portion of the Free
Withdrawal Amount available in that Contract Year. The first part of the
formula for calculating the Free Withdrawal Amount will be reduced by 7.5%,
which is the percentage the first surrender was of your Accumulation Value
at that time. If there have been no additional Purchase Payments or
increases in the amount by which your Accumulation Value exceeds your total
Purchase Payments since the first withdrawal, the Free Withdrawal Amount for
the second withdrawal will be the greater of (1) 2.5% of your Accumulation
Value, which is $925.00 or (2) Accumulation Value minus total Purchase
Payments, which is zero (0). Accordingly, $925 of your second withdrawal
will be free of Surrender Charges. The remaining $4,075 will be a withdrawal
of Purchase Payments and will be subject to a Surrender Charge.
Other Charges
Your Contract is subject to certain other charges:
. Administrative Charges
A $35 annual contract fee for each Contract Year unless all of your
Accumulation Value is in the Fixed Account or is greater than $50,000 on the
last day of a Contract Year.
An administrative asset fee charged daily against the separate account at an
annual rate of 0.10%.
. Premium Taxes
Premium taxes (which presently range from 0% to 3.5%) will be deducted from
Purchase Payments if assessed by a state.
. Mortality and Expense Risk Fees
We assume the risks that Annuitants as a class may live longer than expected
and that fees may not be sufficient to cover our actual costs. In assuming
these risks, we agree to make annuity payments to the Annuitant or other
payee for as long as he or she may live. In addition, we are at risk for the
death benefits payable under the Contract.
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 during both the Accumulation Period and Annuity Period.
If you select one of our optional Enhanced Death Benefit Riders, we will
charge you a higher mortality risk fee during the Accumulation Period. The
mortality risk fee will be 0.92% for Contracts which include the minimum
guaranteed death benefit rider. The mortality risk fee will be 1.05% for
Contracts which include the 3% guaranteed death benefit rider. The mortality
risk fee will be 1.22% for
<PAGE>
Contracts which include the 5% guaranteed death benefit rider. We will
calculate a separate Accumulation Unit value for the Contracts without an
Enhanced Death Benefit Rider, and for Contracts with each type of Rider, in
order to reflect the differences in the mortality risk fees.
. 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.
. 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. The exchange fee will be
deducted from the amount transferred.
Deduction of Fees
Deductions for annual contract fees will be prorated among the subaccounts.
Exceptions to Charges
We may reduce charges in sales to a trustee, employer, or similar entity if we
determine that such sales reduce sales or administrative expenses. We also
reduce charges in sales to directors, officers and bona fide full-time employees
(and their spouses and minor children) of SM&R and the Company.
The Contract may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of the Company
and our affiliated companies, and spouses and immediate family members (i.e.,
children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contract, and spouses and immediate family
members of the foregoing. In such case, a Contract may be credited with some or
all of the cost savings resulting from such direct sale, but only if such credit
will not be unfairly discriminatory to any person.
<PAGE>
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 $2,000 Accumulation Value, the
Contract must be fully surrendered.
. A partial surrender request should specify the allocation of that surrender
among the subaccounts and the Fixed Account. If not specified, we will
prorate the surrender among the subaccounts and the Fixed Account. Surrender
Charges will be deducted from the Accumulation Value remaining after a
partial surrender.
The Accumulation Unit value for Surrenders will be the applicable Accumulation
Unit value determined on the Valuation Date following receipt by us at our home
office of your surrender request.
Surrender value is determined by:
. multiplying the number of Accumulation Units for each subaccount times the
Accumulation Unit value
. adding any Accumulation Value in the Fixed Account
. deducting any surrender charge
We expect to pay surrenders within seven days of receipt of your written request
in proper form. We may delay payment of a partial surrender from the Fixed
Account for up to six (6) months.
Unless you provide us a written election not to have federal and state income
taxes withheld, we are required by law to withhold such taxes from the taxable
portion of any surrender, and to remit that amount to the federal and/or state
government.
Systematic Withdrawal Program
Under the Systematic Withdrawal Program, you can instruct us to make payments of
a predetermined dollar amount of Accumulation Value from one or more subaccounts
and the Fixed Account monthly, quarterly, semi-annually or annually. The total
minimum systematic withdrawal payment is $100. The minimum systematic
withdrawal from any one subaccount or the Fixed Account is $50. Systematic
withdrawals can be started at any time. We must receive written notification
from you specifying the amount and frequency and timing of payment. You can
specify the subaccount from which systematic withdrawals will be made. If you do
not specify, withdrawals will be taken pro-rata 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 43.)
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 45.) We will determine the amount
required to be distributed based on information you provide and choices you
make. To participate in the Minimum Distributions Program, you must notify us
of such election in writing in the calendar year during which you attain age
70 1/2. The Minimum Distributions Program is subject to all rules applicable
to the Systematic Withdrawal Program. In addition, certain rules apply only to
the Minimum Distributions Program. For a description of the requirements
applicable to the Minimum Distributions Program, see "Minimum Distributions
Program" in the Statement of Additional Information, page 4. Numerous special
tax rules apply to Contract Owners whose Contract is used with a qualified plan.
You should consult a tax advisor before electing to participate in the Minimum
Distributions Program.
Waiver of Surrender Charges
We will waive Surrender Charges in the following situations:
<PAGE>
[_] Confinement Waiver-The surrender charge will be waived upon written proof
from a licensed physician that you have been confined in any of the
following facilities for at least 60 consecutive days
. a hospital which
(1) is licensed or recognized by the state in which it is located
(2) provides or operates diagnostic and major surgery facilities for
medical care and treatment of injured and sick persons on an inpatient
basis
(3) charges for its services
(4) provides 24-hour nursing service by or under the supervision of a
graduate registered nurse (R.N.)
. a convalescent care facility which
(1) is licensed by the state in which it is located as a convalescent
nursing facility, a skilled nursing facility, a convalescent hospital,
a convalescent unit of a hospital, an intermediate care facility, or a
custodial care facility
(2) provides continuous nursing service by or under the supervision of a
physician or a graduate registered nurse (R.N.)
(3) maintains a daily record of each patient and makes your record
available for review by us
(4) administers a planned program of observation and treatment by a
physician in accordance with existing standards of medical practice
. a hospice facility which
(1) is licensed, certified or registered by the state in which it is
located as a hospice facility
(2) provides a formal care program for terminally ill patients whose life
expectancy is less than 6 months
(3) provides services on an inpatient basis as directed by a physician
This waiver is not available
(1) if you are confined in a hospital, nursing home or hospice facility
on the Date of Issue;
(2) if the application is signed by power of attorney;
(3) if you are more than age 80 on the Date of Issue;
(4) if you enter the hospital, convalescent care facility or hospice
facility within 90 days from the Date of Issue; or
(5) concerning surrenders or withdrawals requested more than 90 days
after the last day of confinement in such facility.
[_] Disability Waiver - The surrender charge will be waived while you are
physically disabled or diagnosed with a disabling terminal illness. Such
waiver is subject to the following limitations
. we require proof of disability or disabling terminal illness, including
written confirmation of receipt of Social Security Disability Benefits
. we will require proof of continued disability
. we may have a Contract Owner claiming disability or disabling terminal
illness examined by a licensed physician chosen by us
This waiver is not available
(1) if you are receiving Social Security Disability Benefits on the Date
of Issue;
(2) if you are age 65 or older;
(3) or if you were diagnosed with a terminal illness before the Date of
Issue; or
(4) if you reside in certain states.
Death Benefit Before Annuity Date
If you or the Annuitant die before the Annuity Date, we will pay a standard
death benefit equal to the Accumulation Value.
<PAGE>
When you purchase your Contract, you may select an Enhanced Death Benefit Rider.
The Enhanced Death Benefit Rider provides a minimum guaranteed death benefit
should you or the Annuitant die before the Annuity Date. If you are not an
individual, the enhanced death benefit applies to the Annuitant's death. If you
select this rider, the death benefit will be the greater of the Accumulation
Value or that provided by the Enhanced Death Benefit Rider. We will charge a
higher mortality risk fee if you select one of these riders. An Enhanced Death
Benefit Rider can only be selected at the Date of Issue. If selected, the rider
can not be changed or terminated unless the entire Contract is terminated. The
rider expires on the Annuity Date. We offer three optional Enhanced Death
Benefit Riders:
(1) minimum guaranteed death benefit rider:
(2) 3% guaranteed death benefit rider; and
(3) 5% guaranteed death benefit rider.
Minimum Guaranteed Death Benefit Rider
We recalculate the minimum guaranteed death benefit of your Contract each time
you make a partial surrender, systematic withdrawal, 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 and systematic withdrawals, if any, during such period. At
the start of each subsequent six Contract Year period, the minimum guaranteed
death benefit will equal the greater of:
(1) the Accumulation Value at the start of such six Contract Year period;
or
(2) the minimum guaranteed death benefit at the start of the immediately
preceding six Contract Year period prior to you attaining age 85, plus
Purchase Payments less a reduction to reflect partial surrenders and
systematic withdrawals, made since the start of such immediately
preceding six Contract Year period.
For all other dates, the minimum guaranteed death benefit will equal the minimum
guaranteed death benefit at the start of such six Contract Year period, plus
Purchase Payments and less a reduction to reflect partial surrenders or
systematic withdrawals made during such period. A reduction in the minimum
guaranteed death benefit is made each time you make a partial surrender or
systematic withdrawal. The reduction is calculated by dividing the minimum
guaranteed death benefit on the date immediately before a partial surrender or
systematic withdrawal by the Accumulation Value on the date immediately prior to
the surrender or withdrawal and multiplying the result by the amount of the
partial surrender or systematic withdrawal. (inclusive of any related surrender
charge).
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 or
systematic withdrawals. Your minimum guaranteed death benefit at the end of
the first six Contract Year period would be $4,000.
Example 2 - Assume you make a $2,000 partial surrender in the third Contract
Year of the first six Contract Year period, at which time you have made $4,000
in total Purchase Payments, and your Contract's Accumulation Value is $8,000.
Your minimum guaranteed death benefit would be recalculated and reduced at the
time of such partial surrender. The amount of such reduction would be $1,000,
which is calculated by:
. dividing the minimum guaranteed death benefit immediately before the
partial surrender ($4,000) by Accumulation Value at that time ($8,000); and
. multiplying such amount ($4,000 divided by $8,000, or .5) times the amount
of the partial surrender ($2,000).
Your minimum guaranteed death benefit before the partial surrender ($4,000)
would be reduced by the amount necessary to reflect the partial surrender
($1,000) which would result in a new minimum guaranteed death benefit of
$3,000.
Example 3 - Assume you make a $4,000 partial surrender in the second Contract
Year of the second six Contract Year period. Assume further that you have made
$1,000 in total Purchase Payments since the end of the first six Contract Year
period; that your Contract Accumulation Value is $10,000 and that the minimum
guaranteed death benefit at the start of the second six
<PAGE>
Contract Year period is $8,000. Your minimum guaranteed death benefit would be
recalculated and reduced at the time of such partial surrender. The amount of
such reduction would be $3,600, which is calculated by
. dividing the minimum guaranteed death benefit immediately before the
partial surrender of $9,000 ($8,000 for the minimum guaranteed death
benefit at the end of the last six Contract Year period plus $1,000 in
Purchase Payments made since the end of the last six Contract Year period)
by Accumulation Value at that time ($10,000); and
. multiplying such amount ($9,000 divided by $10,000, or .9) times the amount
of the partial surrender ($4,000).
Your minimum guaranteed death benefit before the partial surrender ($9,000)
would be reduced by the amount necessary to reflect the partial surrender
($3,600) which would result in a new minimum guaranteed death benefit of
$5,400.
3% Guaranteed Death Benefit Rider
The 3% guaranteed death benefit is equal to (a) your total Purchase Payments,
(b) less reductions to reflect any partial surrenders and systematic
withdrawals, (c) plus interest at an annual effective rate of 3%. In no event
will the 3% guaranteed death benefit exceed 200% of the net of Purchase Payments
reduced by any partial surrenders and systematic withdrawals. Interest will
accrue to the earlier of the date we receive proof of death or;
(1) the day of the oldest Contract Owner's 85/th/ birthday, or
(2) if the Contract Owner is a not a natural person, the oldest Annuitant's
85/th/ birthday.
After the 85/th/ birthday of the oldest Owner, or if the Contract Owner is not a
natural person, the oldest Annuitant, we will only adjust the 3% guaranteed
death benefit for subsequent Purchase Payments, and for reductions to reflect
subsequent partial surrenders or systematic withdrawals.
5% Guaranteed Death Benefit Rider
The 5% guaranteed death benefit is calculated in the same manner as the 3%
guaranteed death benefit except that the interest is accrued at an annual
effective rate of 5%, instead of 3%.
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 32. 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".
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DISTRIBUTIONS DURING THE ANNUITY PERIOD
All or part of any amount payable at the Annuity Date may be applied to any of
the annuity options. We will discharge in a single sum any liability under an
assignment of the Contract and any applicable federal, state, municipal or other
taxes, fees or assessments based on or predicated on the Purchase Payments which
have not otherwise been deducted or offset. The remaining amount is the net sum
payable. The minimum amount that we will apply to an Annuity Option is $5,000.
Our consent is required for any payment to a corporation, association,
partnership, or trustee.
Election of Annuity Option
. Non-Qualified Contracts The form of annuity is 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 - The form of annuity is elected in the application. A
Contract cannot be purchased after age 85 and, under the Internal Revenue
Code, annuity payments must begin not later than age 95, or in some cases,
the later of April 1st of the calendar year following the calendar year in
which the Annuitant reaches 70 1/2 or retires.
If you have not elected an annuity option, we may transfer your Accumulation
Value to the General Account and automatically begin fixed basis payments at age
95 under Option 2, Life Annuity with 120 monthly payments certain. (See
"Federal Tax Matters" on page 43.)
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 subaccounts 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 any annuity payment date. Transfers from the Fixed Account to
the subaccounts are not permitted during the Annuity Period.
No election can be made unless such election would produce an initial annuity
payment of at least $100.
Annuity Options
The following annuity options are available.
. Option 1 - Life Annuity - Annuity payment payable monthly, during the
lifetime of an individual, ceasing with the last annuity payment due before
the death of the individual. This option offers the maximum level of monthly
annuity payments since there is no provision for a minimum number of annuity
payments or a death benefit for beneficiaries. It would be possible under
this option for an individual to receive only one annuity payment if death
occurred before the due date of the second annuity payment, two if death
occurred before the third annuity payment date, etc.
. Option 2 - Life Annuity with ten or 20 Years Certain and Life Thereafter - An
annuity payable monthly during the lifetime of an individual with payments
made for a period certain of not less than ten or 20 years, as elected. The
annuity payments will be continued to a designated beneficiary until the end
of the period certain upon the death of the individual.
. Option 3 - Unit Refund Life Annuity - Available on varible basis payments
only. An annuity payable monthly during the lifetime of an individual with
annuity payments made for a period certain not less than the number of months
determined by dividing (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 this payout, will be
repaid to the payee or his beneficiary.
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. Option 4 - Joint and Survivor Annuity - An annuity payable monthly during the
joint lifetime of two named individuals 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 - An amount payable monthly,
for a fixed number of years not exceeding 30. Fixed basis annuity payments
will include interest at the effective rate of 2.5% per year.
. Option 6 - Equal Installment Payments, Fixed Amount - An amount payable in
equal monthly installments (not less than $6.25 per $1,000 applied) until the
amount applied, adjusted by subaccount investment results (variable basis
payments) or interest at an effective rate of 2.5% per year (fixed basis
payments), is exhausted. The final annuity payment will be the remaining
balance.
. Option 7 - Deposit Option - The amount due may be left on deposit with us for
placement in the General Account with interest at the rate of not less than
2.5% per year . Interest will be paid annually, semiannually, quarterly or
monthly as elected. Other Annuity Forms - May be agreed upon.
At any time, any amount remaining under Option 5, 6, or 7 may be withdrawn or,
if that amount is at least $5,000, may be applied under any one of the first
four options. No withdrawals of remaining amounts are permitted under Options
1, 2, or 3. Under Option 5 and 6, you will receive present value of any
remaining payments using a discount rate equal to the effective interest rate
used to compute the benefit plus 1%. For Option 7, you will receive the
remaining balance.
The lump sum payment requested will be paid within seven days of receipt of the
request at our home office based on the value computed on the next Valuation
Date after receipt of the request. If the beneficiary dies while receiving
annuity payments certain under Option 2, 3, 5, or 6 above, the present value of
any remaining certain payments will be paid in a lump sum to the estate of the
beneficiary. If the beneficiary dies after option 7 has started, the balance
held by Us will be paid to the beneficiary's estate.
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 2.5%. If the actual investment
performance of the particular subaccount selected is such that the net
investment return is 2.5% per annum, the annuity payments will be as shown in
the tables. If the actual net investment return exceeds 2.5%, the annuity
payments will be higher than as shown in the tables. If the actual net
investment return is less than 2.5%, the annuity payments will be lower than in
the tables.
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 2.5%.
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 Annuity
2000 Mortality Table and 2.5% interest which reflects the age and sex of the
Annuitant and the type of annuity option selected. The attained age at
settlement will be adjusted downward by one year for each full five year period
that has elapsed since January 1, 2000. 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 Annuity
2000 Mortality Table (50% male and 50% female blend) and 2.5% interest which
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, 2000.
<PAGE>
THE COMPANY, SEPARATE ACCOUNT, AND FUNDS
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.
Obligations under the Contract are our obligations.
The Separate Account
We established the separate account under Texas law on July 30, 1991. The
separate account's assets are held exclusively for the benefit of persons
entitled to payments under variable annuity contracts issued by us. We are the
legal holder of the separate account's assets and will cause the total market
value of such assets to be at least equal to the separate account's reserve and
other contract liabilities. Such assets are held separate and apart from our
General Account assets. We maintain records of all purchases and redemptions of
shares of Eligible Portfolios by each of the subaccounts. Liabilities arising
out of any other business we conduct cannot be charged against the assets of the
separate account. Income, as well as both realized and unrealized gains or
losses from the separate account's assets, is credited to or charged against the
separate account without regard to income, gains or losses arising out of other
business that we conduct. However, if the separate account's assets exceed its
liabilities, the excess is available to cover the liabilities of our General
Account.
The separate account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust, which is a type of investment-company. Such
registration does not involve any SEC supervision of management or investment
policies or practices. There are currently 32 subaccounts within the separate
account available to Contract Owners 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
Contract Owners. The number of votes for which a Contract Owner has the right
to provide instructions will be determined as of the record date selected by the
Boards of Directors of the American National Fund, the Fidelity Funds, the T.
Rowe Price Funds, the MFS Fund, the Federated Fund and the Alger American Fund.
We will furnish you proper forms, materials, and reports to enable you to give
us instructions if you choose.
The number of shares of an Eligible Portfolio for which you can give
instructions is determined by dividing the Accumulation Value held in the
corresponding subaccount by the net asset value of one share in such Eligible
Portfolio. Fractional shares will be counted. Shares of an Eligible Portfolio
held in a subaccount for which you have not given timely instructions and other
shares held in a subaccount will be voted by us in the same proportion as those
shares in that subaccount for which timely instructions are received. Voting
instructions to abstain will be applied on a pro rata basis to reduce the votes
eligible to be cast. Should applicable federal securities laws or regulations
permit, we may vote shares of the Eligible Portfolios in our own right.
The separate account is not the only separate account that invests in the
Eligible 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
<PAGE>
material conflict of interest could arise with owners of variable life insurance
policies funded by the separate account and owners of other variable annuity
contracts whose values are allocated to other separate accounts investing in the
Eligible Portfolios. There is also a theoretical possibility that a material
conflict could arise between the interests of Contract Owners or owners of other
contracts and the retirement plans, which invest in the Eligible Portfolios or
their participants. If a material conflict arises, we will take any necessary
steps, including removing the Eligible Portfolio from the separate account, to
resolve the matter. The Board of Directors of each Eligible Portfolio will
monitor events in order to identify any material conflicts that may arise and
determine what action, if any, to take in response to those events or conflicts.
See the accompanying prospectuses for the Eligible Portfolios for more
information.
The Funds
Each subaccount invests in shares of a corresponding Eligible Portfolio of the
American National Fund, the Fidelity Funds, the T. Rowe Price Funds, the MFS
Fund, the Federated Fund, and the Alger American Fund. The investment
objectives and policies of each Eligible Portfolio are summarized below. You
will be notified of and have an opportunity to instruct us how to vote on any
proposed material change in the investment policy of any Eligible Portfolio in
which you have an interest.
[_] The American National Fund - currently has the following series or
Portfolios, each of which is an Eligible Portfolio:
. American National Money Market Portfolio ... seeks the highest current
income consistent with the preservation of capital and maintenance of
liquidity.
. American National Growth Portfolio ... seeks to achieve capital
appreciation.
. American National Balanced Portfolio ... seeks to conserve principal,
produce reasonable current income, and achieve long-term capital
appreciation.
. American National Equity Income Portfolio ... seeks to achieve growth of
capital and/or current income.
. American National Government Bond Portfolio ... seeks to provide as high
a level of current income, liquidity, and safety of principal as is
consistent with prudent investment risks through investment in a
portfolio consisting primarily of securities issued or guaranteed by the
U.S. Government, its agencies, or instrumentalities.
. American National Small-Cap/Mid-Cap Portfolio ... seeks to provide long-
term capital growth by investing primarily in stocks of small to medium-
sized companies.
. American National High Yield Bond Portfolio ... seeks to provide a high
level of current income. As a secondary investment objective, the fund
seeks capital appreciation.
. American National International Stock Portfolio ... seeks to obtain
long-term growth of capital through investments primarily in the equity
securities of established, non-U.S. companies.
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 14 series or Portfolios, the following
five of which are Eligible Portfolios:
. Fidelity Asset Manager Portfolio ... seeks high total return with
reduced risk over the long-term by allocating its assets among stocks,
bonds, and short-term instruments.
. Fidelity Index 500 Portfolio ... seeks investment results that
correspond to the total return of common stocks publicly traded in the
United States, as represented by the S&P 500. The Portfolio normally
invests at least 80% of its assets in common stocks included in the S&P
500. The Portfolio seeks to achieve a 98% or better correlation between
its total return and the total return of the index.
<PAGE>
. Fidelity Contrafund Portfolio ... seeks long-term capital appreciation.
The Portfolio normally invests primarily in common stocks. The Portfolio
invests in securities of companies whose value the Portfolio believes is
not fully recognized by the public.
. Fidelity Asset Manager: Growth Portfolio ... seeks to maximize total
return by allocating its assets among stocks, bonds, short-term
instruments, and other investments.
. Fidelity Growth Opportunities Portfolio ... seeks to provide capital
growth. The Portfolio normally invests its assets primarily in common
stocks. The Portfolio may also invest in other types of securities,
including bonds, which may be lower-quality debt securities.
The Fidelity Management & Research Company ("FMR") is the Fidelity Funds'
investment adviser. FMR provides a number of mutual funds and other clients
with investment research and portfolio management services. Fidelity Management
& Research (U.K.) Inc. and Fidelity Management & Research (Far East), wholly-
owned subsidiaries of FMR, provide research with respect to foreign securities.
FMR maintains a large staff of experienced investment personnel and a full
complement of related support facilities.
[_] The T. Rowe Price Funds - currently have the following series or
Portfolios, each of which are Eligible Portfolios:
. T. Rowe Price Equity Income Portfolio ... seeks to provide substantial
dividend income as well as long-term growth of capital through
investments in common stocks of established companies. The Portfolio
will normally invest at least 65% of its assets in the common stocks of
well-established companies paying above-average dividends.
. T. Rowe Price Mid-Cap Growth Portfolio ... seeks to achieve long term
capital appreciation by investing in mid-cap stocks with potential for
above-average earnings growth. The Portfolio will invest at least 65% of
its assets in a 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 capitalization (number of shares outstanding
multiplied by share price) between $300 million and $5 billion. Most of
the Portfolio's assets will be invested in U.S. common stocks.
. T. Rowe Price International Stock Portfolio ... seeks to provide long-
term growth of capital through investments primarily in common stocks of
established non-U.S. companies. The Portfolio expects to invest
substantially all of the Portfolio's assets (with a minimum of 65%) in
established companies beyond U.S. borders. The Portfolio's focus will
typically be on large and, to a lesser extent, medium-sized companies.
. T. Rowe Price Limited-Term Bond Portfolio ... seeks a high level of
income consistent with modest price fluctuation by investing primarily
in investment grade debt securities.
T. Rowe Price Associates, Inc. is responsible for selection and management of
the Portfolio investments of T. Rowe Price Equity Securities and T. Rowe Price
Fixed Income Securities. Rowe Price-Fleming International, Inc., a joint
venture between T. Rowe Price Associates, Inc. and Robert Fleming Holdings
Limited, is responsible for selection and management of the Portfolio
investments of T. Rowe Price International Series.
[_] The MFS Fund - currently has the following Portfolios, each of which are
Eligible Portfolios:
. MFS Capital Opportunities Portfolio ... seeks capital appreciation.
Dividend income, if any, is a consideration incidental to the
Portfolios' objective of capital appreciation. While the Portfolios'
policy is to invest primarily in common stocks, it may seek appreciation
in other types of securities such as fixed income securities (which may
be unrated), convertible bonds, convertible preferred stocks and
warrants when relative values make such purchases appear attractive
either as individual issues or as types of securities in certain
economic environments. The Portfolio may invest in lower rated fixed
income securities or comparable unrated securities.
. MFS Emerging Growth Portfolio ... seeks to provide long-term growth of
capital through investing primarily in common stocks of emerging growth
companies, which involves greater risk than is customarily associated
with investments in more established companies. The Portfolio may invest
in a limited extent in lower rated fixed income securities or comparable
unrated securities.
<PAGE>
. MFS Research Portfolio ... seeks to provide long-term growth of capital
and future income by investing a substantial proportion of its assets in
the common stocks or securities convertible into common stocks of
companies believed to possess better than average prospects for long-
term growth. No more than 5% of the Portfolio's convertible securities,
if any, will consist of securities in lower rated categories or
securities believed to be of similar quality to lower rated securities.
The Portfolio may invest in a limited extent in lower rated fixed income
securities or comparable unrated securities.
. MFS Growth With Income Portfolio ... seeks to provide reasonable current
income and long-term growth and income. Under normal market conditions,
the Portfolio will invest at least 65% of its assets in common stocks or
securities convertible into common stocks that are believed to have
long-term prospects for growth and income. The Portfolio may also invest
up to 75% of its net assets in foreign securities, which are not traded
on an U.S. exchange.
Massachusetts Financial Service Company is responsible for selection and
management of the Portfolio investments of the MFS Variable Series.
[_] The Federated Fund - currently has the following Portfolios, each of which
are Eligible Portfolios:
. Federated Utility Fund II Portfolio ... seeks to achieve high current
income and moderate capital appreciation. The Portfolio invests
primarily in equity and debt securities of utility companies.
. Federated Growth Strategies Portfolio ... seeks capital appreciation.
The Portfolio invests at least 65% of its assets in equity securities of
companies with prospects for above average growth in earnings and
dividends.
. Federated International Small Company Fund II Portfolio ... seeks long
term growth of capital by investing primarily in equity securities of
foreign companies that have a market capitalization at the time of
purchase of $1.5 billion or less.
. Federated High Income Bond Portfolio ... seeks high current income. The
Portfolio invests in fixed income securities, which are lower rated
corporate debt obligations, which are commonly referred to as "junk
bonds." The risk in investing in junk bonds is described in the
prospectus for the Federated Insurance Series, which should be read
carefully before investing.
. Federated Equity Income Fund II Portfolio ... seeks to provide above
average income and capital appreciation by investing in income producing
equity securities including common stocks, preferred stocks, and debt
securities that are convertible into common stocks, in cash and cash
items during times of unusual conditions to maintain liquidity. Cash
items may include commercial paper, Europaper, certificates of deposit,
obligations of the U.S. Government, repurchase agreements, and other
short-term instruments.
Federated Advisors makes all investment decisions for the Federated Insurance
Series, subject to direction by the Federated Insurance Series Trustees.
[_] The Alger American Fund - currently has the following series or Portfolios,
each of which is an Eligible Portfolio:
. Alger American Small Capitalization Portfolio ... seeks long-term
capital appreciation. It focuses on small, fast growing companies that
offer innovative products, services, or technologies to a rapidly
expanding marketplace.
. Alger American Growth Portfolio ... seeks to achieve long-term capital
appreciation. It focuses on growing companies that generally have broad
product lines, markets, financial resources, and depth of management.
. Alger American MidCap Growth Portfolio ... seeks long-term capital
appreciation. It focuses on midsize companies with promising growth
potential.
. Alger American Leveraged AllCap Portfolio ... seeks to achieve long-term
capital appreciation. Under normal circumstances, the Portfolio invests
in the equity securities of companies of any size which demonstrate
promising growth potential. The Portfolio can leverage, that is, borrow
money, up to one-third of its total assets to buy additional securities.
By borrowing money, the Portfolio has the potential to increase its
returns if the increase in the value of the securities purchased exceeds
the cost of borrowing, including interest paid on the money
borrowed.
<PAGE>
. Alger American Income & Growth Portfolio ... primarily seeks to provide
a high level of dividend income; its secondary goal is to provide
capital appreciation. The Portfolio invests in dividend paying equity
securities, such as common or preferred stocks, preferably those that
the manager believes also offer opportunities for capital appreciation.
. Alger American Balanced Portfolio ... seeks current income and long-term
capital appreciation. It focuses on stocks of companies with growth
potential and fixed-income securities, with emphasis on income-producing
securities that appear to have some potential for capital appreciation.
Fred Alger Management, Inc. is the Alger American Fund's investment adviser.
Fred Alger Management, Inc. also provides investment advisory and portfolio
management services to us and to other clients. Fred Alger Management, Inc.
maintains a staff of experienced investment personnel and related support
facilities.
The accompanying prospectuses should be read in conjunction with this prospectus
before investing and contain a full description of the above funds, their
investment policies and restrictions, risks, charges and expenses and other
aspects of their operation.
We have arrangements to provide services to certain Eligible Portfolios for
which the advisor or distributor of such Portfolios 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 do.
The Eligible Portfolios and the mutual funds of which they are a part are sold
only to 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.
<PAGE>
FIXED ACCOUNT
Before the Annuity Date, you can allocate all or a portion of your Purchase
Payment to the Fixed Account. In addition, if you participate in our fixed
account dollar cost averaging program, you may designate amounts to be held in
dollar cost averaging fixed account options. Subject to certain limitations,
you can also transfer Accumulation Value from the subaccounts to the Fixed
Account. Transfers from the Fixed Account and from either of the dollar cost
averaging fixed account options to the subaccounts are restricted. (See
"Transfers Before Annuity Date", page 22 and "Special Programs", page 22.)
Purchase Payments allocated to and transfers from a subaccount to the Fixed
Account are placed in our General Account. Purchase Payments allocated to one
of the dollar cost averaging fixed account options 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 Fixed Account declared rate would 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 or any of the dollar cost averaging
fixed account options portion of the Contract. However, disclosures regarding
the Fixed Account or any of the dollar cost averaging fixed account options
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.
<PAGE>
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 an annuity
contract for federal income tax purposes. The Statement of Additional
Information explains the requirements for qualifying as an annuity contract.
Taxation of Annuities in General
If you are a natural person, you generally will not be taxed on increases in the
Accumulation Value until you receive payments under the Contract. Any
distribution of payments, including a full or partial surrender of a Contract,
may subject you to income tax. If you assign or pledge (or agree to assign or
pledge) any portion of a Contract's Accumulation Value, this generally will be
considered a distribution of payments to you and may be taxable.
Corporations, partnerships, trusts, and other entities that own a Contract
generally must include in income increases in the excess of the Accumulation
Value over the investment in the contract. There are some exceptions to this
rule and such a prospective Contract Owner 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 because of the death of the Contract Owner;
. 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.
<PAGE>
Annuity Payments
Although the tax consequences may vary depending on the annuity payment method
elected under the contract, generally only the portion of the annuity payment
that represents the amount by which the Accumulation Value exceeds the
investment in the contract will be taxed.
. For variable annuity payments, in general the taxable portion of each annuity
payment is determined by a formula which establishes a specific non-taxable
dollar amount of each annuity payment. This dollar amount is determined by
dividing the investment in the contract by the total number of expected
annuity payments.
. For fixed annuity payments, in general there is no tax on the portion of each
annuity payment which reflects the ratio that the investment in the contract
bears to the total expected value of annuity payments for the term of the
payments; however, the remainder of each annuity payment is taxable.
In all cases, after the investment in the Contract is recovered, the full amount
of any additional annuity payments is taxable.
Taxation of Death Benefit Proceeds
Amounts may be distributed from a Contract because of your death or the death of
the Annuitant. Generally, such amounts are taxable to the recipient as follows:
. if distributed in a lump sum, they are taxed in the same manner as a full
surrender of the Contract; or
. if distributed under an annuity option, they are taxed in the same way as
annuity payments, as described above.
Transfers or Assignments of a Contract
A transfer or assignment of a Contract, the designation of certain Annuitants,
or the selection of certain Annuity Dates may result in tax consequences that
are not discussed herein. You should consult a tax advisor as to the tax
consequences of any such transaction.
Required Distributions
In order to be treated as an annuity contract for federal income tax purposes,
the Code requires any non-qualified annuity contract to contain certain
provisions concerning how an interest in the contract is distributed on the
owner's death. The Non-Qualified Contracts contain provisions that are intended
to comply with these Code requirements, although no regulations interpreting
these requirements have yet been issued. We may modify the Contracts if
necessary to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
Withholding
Annuity distributions generally are subject to withholding for the recipient's
federal income tax liability. Recipients can generally elect, however, not to
have tax withheld from distributions. Withholding is mandatory for certain
Qualified Contracts.
Multiple Contracts
All non-qualified, deferred annuity contracts that are issued by us (or our
affiliates) to the same owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in income
when a taxable distribution occurs. In addition, there may be other situations
in which the U.S. Treasury Department may conclude that it would be appropriate
to aggregate two or more annuity contracts purchased by the same owner (it has
authority to issue regulations on aggregating multiple contracts). Accordingly,
you should consult a tax advisor before purchasing more than one annuity
contract.
Exchanges
Section 1035 of the Internal Revenue Code (the "Code") provides generally for
tax-free exchanges of one annuity contract for another. A number of special
rules and procedures apply to section 1035 exchanges. Anyone wishing to take
advantage of section 1035 should consult a tax advisor.
<PAGE>
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 Contract Owner (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 Contract Owner
(or plan participant) reaches age 70 1/2. For Individual Retirement Annuities
(IRAs) described in Section 408 of the Code, distributions generally must begin
no later than April 1 of the calendar year following the calendar year in which
the Contract 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, and 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.
<PAGE>
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 Contract Owner's adjusted gross income.
These contributions may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA
(other than non-deductible contributions) are taxed when distributed from
the IRA. Distributions prior to age 59 1/2 (unless certain exceptions
apply) are subject to a 10% penalty tax.
Roth IRAs. Effective January 1, 1998, section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to
a Roth IRA, which are subject to certain limitations, are not deductible,
and must be made in cash or as a rollover or transfer from another IRA. A
rollover from or conversion of an IRA to a Roth IRA may be subject to tax,
and other special rules may apply. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed
contributions to the Roth IRA, income tax and a 10% penalty tax may apply
to distributions made (1) before age 59 1/2 (subject to certain exceptions)
or (2) during the five taxable years starting with the year in which the
first contribution is made to the Roth IRA.
[_] SIMPLE Individual Retirement Annuities - Certain small employers may
establish SIMPLE plans (Savings Incentive Match Plans) as provided by
Section 408(p) of the Code. Under these plans, employees may defer a
percentage of compensation of up to certain dollar amount. The sponsoring
employer is required to make a matching contribution. Distributions from a
SIMPLE plan are subject to the same restrictions that apply to IRA
distributions and are taxed as ordinary income. Subject to certain
exceptions, distributions prior to age 59 1/2 are subject to a 10% penalty
tax, which increases to 25% if the distribution occurs during the first two
years the employee participates in the plan.
[_] Deferred Compensation Plans - Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on
contributions and distributions. Under non-governmental plans, all amounts
are subject to the claims of general creditors of the employer and
depending on the terms of the particular plan, the employer may be entitled
to draw on deferred amounts for purposes unrelated to its Section 457 plan
obligations. In general, distributions from a deferred compensation plan
are prohibited unless made after the plan participant attains age 70 1/2,
separates from service, dies, or suffers an unforeseeable financial
emergency. Distributions under these plans are taxable as ordinary income
in the year paid or made available. Adverse tax consequences may result
from certain distributions that do not conform to applicable commencement
and minimum distribution rules.
Possible Changes in Taxation
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the Contract could change by legislation
or other means (such as U.S. Treasury Department regulations, Internal Revenue
Service revenue rulings, and judicial decisions). It is possible that any
change could be retroactive (that is, effective prior to the date of the
change). You should consult a tax advisor regarding such developments and their
effect on the Contract.
All Contracts
As noted above, the foregoing comments about the federal tax consequences under
the Contracts are not exhaustive, and special rules may apply with respect to
other tax situations not discussed in this prospectus. Further, the federal
income tax consequences discussed herein reflect our understanding of current
law, and the law may change. Federal estate and state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract depend on the individual circumstances of each Contract Owner
or recipient of a distribution. A tax adviser should be consulted for further
information.
<PAGE>
PERFORMANCE
Performance information for the subaccounts may appear in reports and
advertising to current and prospective Contract Owners. 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 Contract Owner
surrendered the Contract at the end of the period indicated). Quotations of
total return may also be shown that do not take into account certain contractual
charges such as a contingent deferred sales load. The total return percentage
will be higher under this method than under the standard method described above.
A cumulative total return reflects performance over a stated period. An average
annual total return reflects the hypothetical annually compounded return that
would have produced the same cumulative total return if the performance had been
constant over the entire period. Because average annual total returns tend to
smooth out variations in a subaccount's returns, you should recognize that they
are not the same as actual year-by-year results.
Some subaccounts may also advertise yield. These measures reflect the income
generated by an investment in the subaccount over a specified period of time.
This income is annualized and shown as a percentage. Yields do not take into
account capital gains or losses or the contingent deferred sales load.
The American National Money Market subaccount may advertise their current and
effective yield. Current yield reflects the income generated by an investment
in the subaccount over a 7-day period. Effective yield is calculated in a
similar manner except that income earned is assumed to be reinvested.
DISTRIBUTOR OF THE CONTRACT
Securities Management and Research, Inc. ("SM&R"), 2450 South Shore Boulevard,
Suite 400, League City, Texas 77573, our wholly-owned subsidiary, is the
principal underwriter of the Contract. SM&R was organized under the laws of the
State of Florida in 1964; is a registered broker/dealer; and is a member of the
National Association of Securities Dealers.
SM&R's registered representatives selling a Contract will receive commissions
from SM&R. After issuance of the Contract, broker-dealers will receive
commissions aggregating up to 7.0% of the Purchase Payments. In addition, after
the first Contract Year, broker-dealers who have distribution agreements with us
may receive an annual commission of up to 0.25% of the Contract's Accumulation
Value.
LEGAL MATTERS
Various matters of Texas law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Texas insurance law,
have been reviewed by Greer, Herz and Adams, LLP, General Counsel.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe at the present time no
lawsuits are pending or threatened that are reasonably likely to have a material
adverse impact on the separate account or us.
EXPERTS
<PAGE>
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 1999, 1998 and 1997 and for the years then
ended, included in this prospectus and elsewhere in the registration statement
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said reports.
ADDITIONAL INFORMATION
A registration statement describing the Contract has been filed with the
Securities and Exchange Commission, under the Securities Act of 1933. This
Prospectus does not contain all information in the registration statement, to
which reference is made for further information concerning us, the separate
account and the Contract offered hereby. The omitted information may be
obtained at the SEC's principal office in Washington, D.C. by paying the SEC's
prescribed fees. Statements contained in this prospectus as to the terms of the
Contract and other legal instruments are summaries. For a complete statement of
such terms, reference is made to such instruments as filed.
FINANCIAL STATEMENTS
Our financial statements should be considered only as bearing on our ability to
meet our obligations under the Contract. The financial statements can be found
in the Statement of Additional Information.
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
The Contract............................................... 2
Computation of Variable Annuity Payments................... 2
Annuity Unit Value......................................... 3
Summary.................................................... 4
Exceptions to Charges...................................... 4
Assignment................................................. 4
Minimum Distributions Program.............................. 4
Distribution of the Contract............................... 5
Tax Matters................................................ 6
Records and Reports........................................ 6
Performance................................................ 7
Total Return............................................... 7
Other Total Return......................................... 8
Yields..................................................... 8
State Law Differences...................................... 9
Separate Account........................................... 9
Termination of Participating Agreements.................... 10
Financial Statements....................................... 14
Financials................................................. 16
</TABLE>
<PAGE>
WealthQuest III Variable Annuity
Statement of Additional Information
Issued by American National Insurance Company
Home Office One Moody Plaza Galveston TX 77550-7999
1-800-306-2959
Relating to the Prospectus dated July 28, 2000
Custodian
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550-7999
Principal Distributor
Securities Management and Research, Inc.
2450 South Shore Boulevard, Suite 400
League City, Texas 77573
Independent Auditors
Arthur Andersen LLP
711 Louisiana, Suite 1300
Houston, Texas 77002-2786
This Statement of Additional Information is not a prospectus and should be read
only in conjunction with the prospectus for the Contract ("the Contract").
American National Variable Annuity Separate Account Statement of Additional
Information
July 28, 2000
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the WealthQuest III Variable Annuity offered by American
National Insurance Company ("American National"). You may obtain a copy of the
prospectus dated July 28, 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 prospectus for the Contract are incorporated in
this Statement. All terms not specifically defined in this statement shall have
the meaning set forth in the current prospectus.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C>
The Contract......................................................... 2
Computation of Variable Annuity Payments............................. 2
Annuity Unit Value................................................... 3
Summary.............................................................. 4
Exceptions to Charges................................................ 4
Assignment........................................................... 4
Minimum Distributions Program........................................ 4
Distribution of the Contract......................................... 5
Tax Matters.......................................................... 6
Records and Reports.................................................. 6
Performance.......................................................... 7
Total Return......................................................... 7
Other Total Return................................................... 8
Yields............................................................... 8
State Law Differences................................................ 9
Separate Account..................................................... 9
Termination of Participating Agreements.............................. 10
Financial Statements................................................. 14
Financials........................................................... 16
</TABLE>
2
<PAGE>
The Contract
The following provides additional information about the Contract which
supplements the description in the prospectus and which may be of interest to
some Contract Owners.
Computation of Variable Annuity Payments
The amount of the first variable annuity payment to the Annuitant will depend on
the amount of his/her Accumulation Value applied to effect the variable annuity
as of the tenth day immediately preceding the date annuity payments commence,
the amount of any premium tax owed (if applicable), the annuity option selected,
and the age of the Annuitant. The Contract contains tables indicating the dollar
amount of the first annuity payment under annuity options 1, 2, 4, and 5 for
each $1,000 of Accumulation Value at various ages. These tables are based upon
the Annuity 2000 Mortality Table (promulgated by the Society of Actuaries) and
an Assumed Investment Rate (the "AIR") of 2.5% 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
subaccount(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 subaccount(s) underlying the
Variable Annuity since the date of the previous annuity payment, less an
adjustment to neutralize the 2.50% or other AIR referred to above.
Therefore, the dollar amount of variable annuity payments after the first will
vary depending on whether the net investment return is greater or less than the
2.5% (or other AIR) per annum. For example, assuming a 2.5% AIR, if subaccounts
underlying the Contract have a cumulative net investment return of 4% over a one
year period, the first annuity payment in the next year will be approximately
1.5 percentage points greater than the payment on the same date in the preceding
year, and subsequent payments will continue to vary with the investment
experience of the applicable subaccount(s). If such net investment return is 1%
over a one year period, the first annuity payment in the next year will be
approximately 1.5 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 subaccount(s).
Annuity Unit Value
The value of an Annuity Unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for shares of
Eligible Portfolios. The following illustrations show, by use of hypothetical
examples, the method of determining the Annuity Unit value and the amount of
Variable Annuity payments.
3
<PAGE>
Illustration: Calculation of Annuity Unit Value
Annuity of 120 monthly payments certain
1. Annuity Unit value, beginning of period $ .980000
2. Net investment factor for period 1.001046
3. Daily adjustment for 2.5% assumed investment rate .999932
4. (2) x (3) 1.000978
5. Annuity Unit value, end of period (1) x (4) $ .980958
Illustration: Annuity Payments
Annuity of 120 monthly 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 net
sum payable (assume equal to Accumulation Value) $ 9.39
5. First monthly annuity payment (3) x (4) / 1,000 $ 169.02
6. Annuity Unit value (10 days prior to date of first
monthly payment) $ .980000
7. Number of Annuity Units (5)/(6) 172.469
8. Assume Annuity Unit value for second month equal to $ .997000
9. Second monthly annuity payment (7) x (8) $ 171.95
10. Assume Annuity Unit value for third month equal to $ .953000
11. Third monthly annuity payment (7) x (10) $ 164.36
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 subaccounts to be passed to the annuitant.
Suppose the underlying subaccounts showed a monthly return of 1% after the first
month, the payee's second monthly payment would be (assuming 30 days between
payments and an initial annuity payment of $100):
$100 x [1.01/(1.025)/30/365/] = $100.80
The AIR methodology means that at each payment date the value in an annuity is
updated to reflect actual investment results to date, but continued assumption
of the AIR for the remainder of the Annuity Period.
4
<PAGE>
Exceptions to Charges
The surrender charges, mortality and expense risk fees and administrative
charges may be reduced for, or additional amounts credited on, sales of
Contracts to a trustee, employer, or similar entity representing a group where
American National determines that such sales result in savings of sales or
administrative expenses. In addition, directors, officers and bona fide full-
time employees (and their spouses and minor children) of SM&R and American
National are permitted to purchase Contracts with substantial reduction of the
surrender charges, mortality and expense risk fees, or administrative charges.
The Contract may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of American
National and its affiliated companies, and spouses and immediate family members
(i.e., children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contracts, and spouses and immediate family
members of the foregoing. If sold under these circumstances, a Contract may be
credited with in part or in whole any cost savings resulting from the Contract
being sold directly, rather than through an agent with an associated commission,
but only if such credit will not be unfairly discriminatory to any person.
Assignment
The Contract may be assigned by the Contract Owner except when issued to plans
or trusts qualified under Section 403(b) or 408 of the Internal Revenue Code.
401(k) Contracts are also not assignable.
Minimum Distributions Program
Under the Systematic Withdrawal Program, the Contract Owner can elect to
participate in the "Minimum Distributions Program" by instructing American
National to calculate and make minimum distributions that may be required if the
Contract is used with a tax qualified plan. American National calculates such
amounts assuming the minimum distribution amount is based solely on the value of
the Contract Owner's Contract. However, the required minimum distribution
amounts applicable to the Contract Owner's particular situation may depend on
other annuities, savings, or investments of which American National is not
aware, so that the required amount may be greater than the minimum distribution
amount American National calculates based on the Contract Owner's Contract. The
Minimum Distributions Program is subject to all the rules applicable to the
Systematic Withdrawal Program. In addition, certain rules apply only to the
Minimum Distributions Program. These rules are described below.
In order to participate in the Minimum Distributions Program, the Contract Owner
must notify American National of such election in writing in the calendar year
in which the Contract Owner attains age 70 1/2. If the Contract Owner is taking
payments
5
<PAGE>
under the Systematic Withdrawal Program when the Minimum Distributions Program
is elected, the existing Systematic Withdrawal Program will be discontinued.
American National will determine the amount that is required to be distributed
from a Contract each year based on the information provided by the Contract
Owner and elections made by the Contract Owner. The Contract Owner specifies
whether the withdrawal amount will be based on a life expectancy calculated on a
single life basis, or on a joint life basis. American National calculates a
required distribution amount each year based on the Internal Revenue Code's
minimum distribution rules.
Minimum Distributions Program is based on American National's understanding of
the present federal income tax laws, as the IRS currently interprets them.
Numerous special tax rules apply to Contract owners whose Contracts are used
with qualified plans. Contract Owners should consult a tax advisor before
electing to participate in the Minimum Distributions Programs.
Distribution of the Contract
Subject to arrangements with American National, the Contract is sold as part of
a continuous offering by independent broker-dealers who are members of the
National Association of Security Dealers, Inc., and who become licensed to sell
life insurance and variable annuities for American National. Pursuant to a
Distribution and Administrative Services Agreement, Securities Management and
Research, Inc. ("SM&R") acts as the principal underwriter on behalf of American
National for distribution of the Contract. Under the Agreement, SM&R is to use
commercially reasonable efforts to sell the Contract through registered
representatives. In connection with these sales activities, SM&R is responsible
for:
. compliance with the requirements of any applicable state broker-dealer
regulations and the Securities Exchange Act of 1934,
. keeping correct records and books of account in accordance with Rules 17a-3
and 17a-4 of the Securities Exchange Act,
. training agents of American National for the sale of Contracts, and
. forwarding all Purchase Payments under the Contracts directly to American
National.
SM&R is not entitled to any renumeration for its services as underwriter under
the Distribution and Administrative Services Agreement; however, SM&R is
entitled to reimbursement for all reasonable expenses incurred in connection
with its duties as underwriter.
Tax Matters
Diversification Requirements. The Code requires that the investments underlying
a separate account be "adequately diversified" in order for contracts to be
treated as annuities for federal income tax purposes. We intend that the
separate account, through the Eligible Portfolios, will satisfy these
diversification requirements.
6
<PAGE>
In certain circumstances, owners of variable annuity contracts may be considered
for federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. When this is the case, the contract owners would be
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features of the Contracts, such
as the flexibility of a Contract Owner to allocate Purchase Payments and
transfer Accumulation Value, have not been explicitly addressed in published
rulings. While we believe that the Contracts do not give Contract Owners
investment control over separate account assets, we reserve the right to modify
the Contracts as necessary to prevent a Contract Owner from being treated as the
owner of the separate account assets supporting a Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, each non-qualified deferred annuity Contract must
provide that:
(i) if a Contract Owner 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 Contract
Owner died; and
(ii) if a Contract Owner dies before the Annuity Date, the entire interest in
the Contract will be distributed within five years after the Contract
Owner dies.
These requirements are considered satisfied as to any portion of the Contract
Owner's interest that is (i) payable as annuity payments which begin within one
year of the Contract Owner's death, and (ii) which are made over the life of the
Beneficiary or over a period not extending beyond the Beneficiary's life
expectancy.
If the Beneficiary is the surviving spouse of the Contract Owner, the Contract
may be continued with the surviving spouse as the new Contract Owner and no
distribution is required.
Other rules may apply to Qualified Contracts.
Records and Reports
Reports concerning each Contract will be sent annually to each Contract Owner.
Contract Owners will additionally receive annual and semiannual reports
concerning the underlying funds and annual reports concerning the separate
account. Contract Owners will also receive confirmations of receipt of Purchase
Payments, changes in allocation of Purchase Payments and transfer of
Accumulation Units and Annuity Units.
Performance
Performance information for any subaccount may be compared, in reports and
advertising to:
. the Standard & Poor's 500 Composite Stock Price Index ("S & P 500"),
. Dow Jones Industrial Average ("DJIA"),
7
<PAGE>
. Donoghue's Money Market Institutional Averages;
. other variable annuity separate accounts or other investment products tracked
by Lipper Analytical Services, Lehman-Brothers, Morningstar, or the Variable
Annuity Research and Data Service, widely used independent research firms
which rank mutual funds and other investment companies by overall
performance, investment objectives, and assets, and
. the Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in a Contact.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges and investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including:
. the ranking of any subaccount derived from rankings of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Series or by rating services, companies, publications or other persons who
rank separate accounts or other investment products on overall performance or
other criteria, and
. the effect of tax deferred compounding on a subaccount's investment returns,
or returns in general, which may be illustrated by graphs, charts, or
otherwise, and which may include a comparison, at various points in time, of
the return from an investment in a Contract (or returns in general) on a tax-
deferred basis (assuming one or more tax rates) with the return on a taxable
basis.
Total Return
Total Return quoted in advertising reflects all aspects of a subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady rate
that would equal 100% growth on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
Average annual total returns are computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula:
P(1+T)/n/ = ERV
8
<PAGE>
where P is a hypothetical investment payment of $1,000, T is the average annual
total return, n is the number of years, and ERV is the withdrawal value at the
end of the periods shown. Since the Contract is intended as a long-term product,
the average annual total returns assume that no money was withdrawn from the
Contract prior to the end of the period.
In addition to average annual returns, the subaccounts may advertise unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period.
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the separate account
commenced operations. Such performance information for the subaccounts will be
calculated based on the performance of the Eligible Portfolios and the
assumption that the subaccounts were in existence for the same periods as those
indicated for the Eligible Portfolios, with the level of Contract charges
currently in effect.
Other Total Return
From time to time, sales literature or advertisements may also quote average
annual total returns that reflect 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
on amounts surrendered. Sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Separate Account
commenced operations, calculated based on the performance of the Eligible
Portfolios and the assumption that the subaccounts were in existence for the
same periods as those indicated for the Eligible Portfolios, with the level of
Contract charges currently in effect except for the annual contract fee and the
Surrender Charge.
Yields
Some subaccounts may also advertise yields. Yields quoted in advertising reflect
the change in value of a hypothetical investment in the subaccount over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized 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 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 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
9
<PAGE>
returns as computed above, and then compounding the base period return by adding
1, raising the sum to a power equal to (365/7) and subtracting one from the
result, according to the formula
Effective Yield = [(Base Period Return +1)/365/7/] - 1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
A 30-day yield for bond subaccounts will reflect the income generated by a
subaccount over a 30-day period. Yield will be computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Accumulation Unit on the last day of the period, according to
the following formula:
Yield = 2[((a - b)/cd + 1)/6/ - 1]
where a = net investment income earned by the applicable Portfolio, b = expenses
for the period including expenses charged to the Contract Owner accounts, c =
the average daily number of Accumulation Units outstanding during the period,
and d = the maximum offering price per Accumulation Unit on the last day of the
period.
State Law Differences
Differences in state laws may require American National to offer a Contract in
one or more states which is more favorable to a Contract Owner 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 surrenders,
. 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 subaccounts that are not available under the
Contract. 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.
10
<PAGE>
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 Contract Owners
could purchase units of a new subaccount.
If any of these substitutions or changes are made, American National may change
the Contract by sending an endorsement. American National may:
. operate the separate account as a management company,
. de-register the separate account if registration is no longer required,
. combine the separate account with other separate accounts,
. restrict or eliminate any voting rights associated with the separate account,
or
. transfer the assets of the separate account relating to the Contracts to
another separate account.
American National would, of course, not make any changes to the menu of Eligible
Portfolios or to the separate account without complying with applicable laws and
regulations. Such laws and regulations may require notice to and approval from
the Contract Owners, the SEC, and state insurance regulatory authorities.
Termination of Participation Agreements
The participation agreements pursuant to which the funds sell their shares to
the separate 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,
11
<PAGE>
. by the Fidelity Funds or the underwriter, upon a determination by either,
that American National has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by American National upon a determination by American National that either
the Fidelity Funds or the underwriter has suffered a material adverse change
in its business, operations, financial condition, or prospects, or is the
subject of material adverse publicity,
. by the Fidelity Funds or the underwriter forty-five days after American
National gives the Fidelity Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts, if at the time such notice was given, no
other notice of termination of the Fidelity participation agreement was then
outstanding, or
. upon a determination that a material irreconcilable conflict exists between
the interests of the Contract Owners 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
12
<PAGE>
Subchapter M of the Code, or if American National reasonably believes
the T. Rowe Price Funds may fail to so qualify,
. by American National with respect to any T. Rowe Price Portfolio if such T.
Rowe Price Portfolio fails to meet the diversification requirements specified
in the T. Rowe Price participation agreement, or American National reasonably
believes the T. Rowe Price Portfolio may fail to so comply,
. by the T. Rowe Price Funds or the underwriter, upon a determination by
either, that American National has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by American National upon a determination by American National that either
the T. Rowe Price Funds or the underwriter has suffered a material adverse
change in its business, operations, financial condition, or prospects, or is
the subject of material adverse publicity,
. by the T. Rowe Price Funds or the underwriter sixty days after American
National gives the T. Rowe Price Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts if at the time such notice was given, no
other notice of termination of the T. Rowe Price participation agreement was
then outstanding, or
. upon a determination that a material irreconcilable conflict exists between
the Contract Owners and other investors in the T. Rowe Price Funds or between
American National's interests in the T. Rowe Price Funds and interests of
other insurance companies invested in the T. Rowe Price Funds.
The Federated Fund
This participation agreement provides for termination:
. upon one hundred eighty days advance written notice by any party,
. at American National's option if American National determines that shares of
the Federated Portfolios are not reasonably available to meet the
requirements of the Contracts,
. at the option of the Federated Fund or the underwriter upon the institution
of formal proceedings against American National by the SEC, NASD, or any
other regulatory body regarding American National's duties under the
Federated participation agreement or related to the sale of the Contracts,
the operation of the separate account, or the purchase of Federated Fund
shares,
. at American National's option upon the institution of formal proceedings
against the Federated Fund or the underwriter by the SEC, NASD, or any other
regulatory body,
. upon a requisite vote of the Contract Owners to substitute shares of another
fund for shares of the Federated Fund,
13
<PAGE>
. if any of the shares of a Federated Portfolio are not registered, issued, or
sold in accordance with applicable state or federal law or such law precludes
the use of such shares as the underlying investment media of the Contracts,
. by American National upon a determination by American National that the
Federated Fund has an irreconcilable conflict between the Contract Owners and
other investors in the Federated Fund or between American National's
interests in the Federated Fund and the interests of other insurance
companies invested in the Federated Fund,
. at American National's option if the Federated Fund or a Federated Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of the
Code, or
. at American National's option if the Federated Fund or a Federated Portfolio
fails to meet the diversification requirements specified in the Federated
participation agreement.
The MFS Fund
This participation agreement provides for termination:
. upon six months advance written notice by any party,
. at American National's option to the extent the shares of any MFS Portfolio
are not reasonably available to meet the requirements of the Contracts or are
not "appropriate funding vehicles" for the Contracts, as determined by
American National,
. at the option of the MFS Fund or the underwriter upon the institution of
formal proceedings against American National by the SEC, NASD, or any other
regulatory body regarding American National's duties under the MFS
participation agreement or related to the sale of the Contracts, the
operation of the separate account, or the purchase of shares of the MFS Fund,
. at American National's option upon the institution of formal proceedings
against the MFS Fund by the SEC, NASD, or any other regulatory body regarding
the MFS Fund's or the underwriter's duties under the MFS participation
agreement or related to the sale of shares of the MFS Fund,
. at the option of any party upon receipt of any necessary regulatory approvals
or the vote of the Contract Owners to substitute shares of another fund for
the shares of the MFS Fund, provided American National gives the MFS Fund and
the underwriter thirty days advance written notice of any proposed vote or
other action taken to replace the shares of the MFS Fund,
. by the MFS Fund or the underwriter upon a determination by either that
American National has suffered a material adverse change in its business,
operations, financial condition, or prospects, or is the subject of material
adverse publicity,
. by American National upon a determination by American National that the MFS
Fund or the underwriter has suffered a material adverse change in its
business,
14
<PAGE>
operations, financial condition, or prospects, or is the subject of material
adverse publicity,
. at the option of any party, upon another party's material breach of any
provision of the MFS participation agreement, or
. upon assignment of the MFS participation agreement, unless made with the
written consent of the parties to the MFS participation agreement.
The Alger American Fund
This participation agreement provides for termination:
. upon six months advance written notice by any party,
. at American National's option to the extent the shares of any Alger American
Portfolio are not reasonably available to meet the requirements of the
Contracts or are not "appropriate funding vehicles" for the Contracts, as
determined by American National,
. at the option of the Alger American Fund or the underwriter upon the
institution of formal proceedings against American National by the SEC, NASD,
or any other regulatory body regarding American National's duties under the
Alger American participation agreement or related to the sale of the
Contracts, the operation of the separate account, or the purchase of shares
of the Alger American Fund,
. at American National's option upon the institution of formal proceedings
against the Alger American Fund by the SEC, NASD, or any other regulatory
body regarding the Alger American Fund's or the underwriter's duties under
the Alger American participation agreement or related to the sale of shares
of the Alger American Fund,
. at the option of any party upon receipt of any necessary regulatory approvals
or the vote of the Contract Owners to substitute shares of another fund for
the shares of the Alger American Fund, provided American National gives the
Alger American Fund and the underwriter thirty days advance written notice of
any proposed vote or other action taken to replace the shares of the Alger
American Fund,
. by the Alger American Fund or the underwriter upon a determination by either
that American National has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by American National upon a determination by American National that the Alger
American Fund or the underwriter has suffered a material adverse change in
its business, operations, financial condition, or prospects, or is the
subject of material adverse publicity,
. at the option of any party, upon another party's material breach of any
provision of the Alger American participation agreement, or
. upon assignment of the Alger American participation agreement, unless made
with the written consent of the parties to the Alger American participation
agreement.
15
<PAGE>
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.
16
<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, 1999 and 1998, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements 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, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1999, in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Houston, Texas
February 11, 2000
17
<PAGE>
<TABLE>
<CAPTION>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
------------------------------------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PREMIUMS AND OTHER REVENUE
Premiums
Life ........................................................... $ 300,326 $ 295,207 $ 298,351
Annuity......................................................... 41,704 45,079 50,622
Accident and health............................................. 396,072 393,602 378,621
Property and casualty........................................... 392,576 354,820 312,987
Other policy revenues............................................... 100,258 105,041 99,930
Net investment income............................................... 473,949 475,242 472,895
Gain from sale of investments....................................... 149,061 49,768 103,320
Other income........................................................ 35,668 25,906 23,178
------------------------------------------------------------------------------------------------------------------
Total revenues.................................................. 1,889,614 1,744,665 1,739,904
------------------------------------------------------------------------------------------------------------------
BENEFITS AND EXPENSES
Death and other benefits:
Life ........................................................... 218,109 217,122 217,433
Annuity......................................................... 45,464 41,888 29,422
Accident and health............................................. 290,846 289,553 280,376
Property and casualty........................................... 311,723 280,036 233,887
Increase (decrease) in liability for future policy benefits:
Life ........................................................... 15,546 13,304 13,267
Annuity......................................................... 9,748 21,831 37,747
Accident and health............................................. 4,787 (262 (4,862)
Interest credited to policy account balances........................ 117,411 126,914 134,813
Commissions for acquiring and servicing policies.................... 264,808 247,015 239,633
Other operating costs and expenses.................................. 210,877 199,294 176,988
Increase (decrease) in deferred policy acquisition costs,
net of amortization............................................ (2,188) 9,795 (12,267)
Taxes, licenses and fees............................................ 33,744 32,334 29,778
------------------------------------------------------------------------------------------------------------------
Total benefits and expenses..................................... 1,520,875 1,478,824 1,376,215
------------------------------------------------------------------------------------------------------------------
INCOME FROM OPERATIONS BEFORE EQUITY
IN EARNINGS OF UNCONSOLIDATED AFFILIATES
AND FEDERAL INCOME TAXES............................................... 368,739 265,841 363,689
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES.......................... 19,942 8,048 9,333
------------------------------------------------------------------------------------------------------------------
GAIN FROM OPERATIONS BEFORE FEDERAL INCOME TAXES......................... 388,681 273,889 373,022
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current ........................................................... 132,128 77,707 134,271
Deferred ........................................................... (10,060) (1,216) (9,606)
------------------------------------------------------------------------------------------------------------------
NET INCOME ........................................................... $ 266,613 $ 197,398 $ 248,357
==================================================================================================================
NET INCOME PER COMMON SHARE - BASIC AND DILUTED.......................... $ 10.07 $ 7.45 $ 9.38
==================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
------------------------------------------------------------------------------------------------------------------
December 31,
------------------------------------------------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, other than investments in unconsolidated affiliates Debt
securities:
Bonds held-to-maturity, at amortized cost........................... $ 3,636,786 $ 3,565,974
Bonds available-for-sale, at market................................. 838,161 720,818
Marketable equity securities, at market:
Preferred stocks.................................................... 39,752 41,664
Common stocks....................................................... 963,337 1,051,926
Mortgage loans on real estate............................................ 1,033,330 1,025,683
Policy loans............................................................. 293,287 296,109
Investment real estate, net of
accumulated depreciation of $110,658 and $109,415...................... 251,529 238,714
Short-term investments................................................... 95,352 90,368
Other invested assets.................................................... 102,001 112,207
------------------------------------------------------------------------------------------------------------------
Total investments................................................... 7,253,535 7,143,463
Cash......................................................................... 14,376 22,228
Investments in unconsolidated affiliates..................................... 119,372 120,098
Accrued investment income.................................................... 110,161 104,405
Reinsurance ceded receivables................................................ 104,216 65,667
Prepaid reinsurance premiums................................................. 194,969 171,116
Premiums due and other receivables........................................... 96,703 91,518
Deferred policy acquisition costs............................................ 758,796 731,703
Property and equipment, net.................................................. 50,132 40,860
Other assets................................................................. 103,443 94,302
Separate account assets...................................................... 284,823 230,292
------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS........................................................ $ 9,090,526 $ 8,815,652
==================================================================================================================
LIABILITIES
Policyholder funds Future policy benefits:
Life................................................................ $ 1,872,066 $ 1,853,759
Annuity............................................................. 186,650 175,637
Accident and health................................................. 64,901 60,113
Policy account balances.................................................. 2,283,428 2,324,310
Policy and contract claims............................................... 403,984 359,953
Other policyholder funds................................................. 557,103 510,130
------------------------------------------------------------------------------------------------------------------
Total policyholder liabilities...................................... 5,368,132 5,283,902
Current federal income taxes................................................. 9,218 (20,515)
Deferred federal income taxes................................................ 221,341 259,243
Other liabilities............................................................ 143,866 148,118
Separate account liabilities................................................. 284,823 230,292
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES................................................... 6,027,380 5,901,040
------------------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY
Capital stock................................................................ 30,832 30,832
Additional paid-in capital................................................... 211 211
Accumulated other comprehensive income....................................... 254,820 299,176
Retained earnings............................................................ 2,880,010 2,687,120
Treasury stock, at cost...................................................... (102,727) (102,727)
------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY.......................................... 3,063,146 2,914,612
------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.......................... $ 9,090,526 $ 8,815,652
==================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
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
Change in 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
Change in 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
Comprehensive income (net of taxes):
Net income 266,613 266,613
Change in unrealized gains
on marketable securities (44,328) (44,328)
Foreign exchange adjustments (28) (28)
------------
Comprehensive income 222,257
Dividends to stockholders
($2.78 per share) (73,723) (73,723)
-------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999 $ 30,832 $ 211 $ 254,820 $ 2,880,010 $ (102,727) $ 3,063,146
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
-------------------------------------------------------------------------------------------------------------------
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.......................................................... $ 266,613 $ 197,398 $ 248,357
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in liabilities for policyholders' funds................ 125,112 120,343 146,466
Charges to policy account balances.............................. (101,739) (105,111) (98,959)
Interest credited to policy account balances.................... 117,411 126,914 135,478
Deferral of policy acquisition costs............................ (141,450) (140,707) (151,891)
Amortization of deferred policy acquisition costs............... 135,385 149,116 138,710
Deferred federal income tax benefit............................. (10,060) (1,216) (9,606)
Depreciation.................................................... 19,598 17,351 20,454
Accrual and amortization of discounts and premiums.............. (15,183) (13,993) (7,777)
Gain from sale of investments................................... (149,061) (49,768) (103,320)
Equity in earnings of unconsolidated affiliates................. (19,942) (8,048) (9,333)
Increase in premiums receivable................................. (5,185) (7,243) (15,023)
Increase in accrued investment income........................... (5,756) (2,044) (4,478)
Capitalization of interest on policy and mortgage loans......... (17,099) (15,365) (14,475)
Other changes, net.............................................. (25,883) (98,634) (32,991)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities.................. 172,761 168,993 241,612
-------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds........................................................... 257,398 316,067 196,807
Stocks.......................................................... 374,615 247,951 331,679
Real estate..................................................... 32,921 33,186 89,448
Other invested assets........................................... 96,670 171 5,706
Principal payments received on:
Mortgage loans.................................................. 176,394 154,333 168,603
Policy loans.................................................... 37,594 42,093 40,207
Purchases of investments:
Bonds........................................................... (508,205) (373,401) (424,721)
Stocks.......................................................... (160,465) (237,868) (279,690)
Real estate..................................................... (29,124) (7,462) (1,537)
Mortgage loans.................................................. (146,513) (35,420) (151,471)
Policy loans.................................................... (22,461) (24,034) (23,023)
Other invested assets........................................... (137,683) (79,081) (15,250)
Decrease (increase) in short-term investments, net.................. (4,984) 36,418 (121,262)
Decrease (increase) in investment in unconsolidated affiliates, net. 726 (19,210) (4,281)
Increase in property and equipment, net............................. (17,219) (14,188) (11,227)
-------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities........ (50,336) 39,555 (200,012)
-------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances.................. 309,885 289,654 391,607
Policyholders' withdrawals from policy account balances............. (366,439) (409,975) (371,878)
Dividends to stockholders........................................... (73,723) (71,496) (69,377)
-------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities...................... (130,277) (191,817) (49,648)
-------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH.......................................... (7,852) 16,731 (8,048)
Cash:
Beginning of the year........................................... 22,228 5,497 13,545
-------------------------------------------------------------------------------------------------------------------
End of the year................................................. $ 14,376 $ 22,228 $ 5,497
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
21
<PAGE>
(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 its subsidiaries, American
National offers mutual funds and invests in real estate. 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 and, through subsidiaries, business is
conducted in Mexico. Various distribution systems are utilized, including home
service, multiple line ordinary, group brokerage, credit, independent third
party marketing organizations and direct sales to the public.
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), American National
Lloyds Insurance Company (ANPAC Lloyds) and American National de Mexico. 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 real estate
and equity fund 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 (GAAP) 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 1998 and 1997 financial
information to conform to the 1999 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.
Recent Accounting Pronouncements
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. The 1997 amounts have been restated
to comply with this requirement.
22
<PAGE>
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 standard had no effect on American
National's financial position or results from operations. The segment
disclosures are presented in Note 13. The 1997 amounts have been restated to
comply with this requirement.
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 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," as amended by FAS No. 137, is effective for
all quarters of all fiscal years beginning after June 15, 2000. 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 intends to adopt FAS No. 133, as amended, on January 1, 2001.
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. The carrying value of these debt securities is expected to be
realized, due to American National's ability and intent to hold these securities
until maturity.
Bonds held as available-for-sale are carried at market.
Preferred stocks--All preferred stocks are classified as available-for-sale and
are carried at market.
Common stocks--All common stocks are classified as available-for-sale and are
carried at market.
Unrealized gains--For all investments carried at market, the unrealized gains or
losses (differences between amortized cost and market value), net of applicable
federal income taxes, are reflected in stockholders' equity as a component of
accumulated other comprehensive income.
23
<PAGE>
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 measured
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 other than temporary impairments of mortgage loans, real
estate and other assets in accordance with the policies established for each
class of asset. The increase in the valuation allowances is reflected in current
period income as a realized loss.
Management believes that the valuation allowances are adequate. However, it is
possible that a significant change in economic conditions in the near term could
result in losses exceeding the amounts established.
Cash and cash equivalents
American National considers cash on-hand and in-banks plus amounts invested in
money market funds as cash for purposes of the consolidated statements of cash
flows.
24
<PAGE>
Investments in unconsolidated affiliates
These assets are primarily investments in real estate and equity fund 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 measured using straight-
line and accelerated methods over the estimated useful lives of the assets (3 to
50 years).
Foreign currencies
Assets and liabilities recorded in foreign currencies are translated at the
exchange rate on the balance sheet date. Revenue and expenses are translated at
average rates of exchange prevailing during the year. Translation adjustments
resulting from this process are charged or credited to other accumulated
comprehensive income.
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 accumulated other
comprehensive income 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
25
<PAGE>
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 existing assumptions, the estimates are revised for current
and future policy 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 premiums are
recognized as revenue when due. Benefits and expenses are associated with earned
premiums to result in recognition of profits over the life of the policy
contracts. This association is accomplished by means of the provision for
liabilities for future policy benefits and the amortization of deferred policy
acquisition costs.
Annuities--Revenues from annuity contracts represent amounts assessed against
contract holders. Such assessments are principally surrender charges and, in the
case of variable annuities, administrative fees. Policy account balances for
annuities represent the premiums received plus accumulated interest less
applicable accumulated administrative fees. It is possible that a change in
interest rates could have a significant impact on the values calculated for
these contracts.
Universal life and single premium whole life--Revenues from universal life
policies and single premium whole life policies represent amounts assessed
against policyholders. Included in such assessments are mortality charges,
surrender charges actually paid, and earned policy service fees. Policyholder
account balances consist of the premiums received plus credited interest, less
accumulated policyholder assessments. Amounts included in expense represent
benefits in excess of account balances returned to policyholders.
Property and casualty--Property and casualty premiums are recognized as revenue
proportionately over the contract period. Policy benefits consist of actual
claims and the change in reserves for losses and loss adjustment expenses. The
reserves for losses and loss adjustment expenses are estimates of future
payments of reported and unreported claims and the related expenses with respect
to insured events that have occurred. These reserves are calculated using case
basis estimates for reported losses and experience for claims incurred but not
reported. These loss reserves are reported net of an allowance for salvage and
subrogation. Management believes that American National's reserves have been
appropriately calculated, based on available information as of December 31,
1999. 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
2.6% of the life insurance in force at December 31, 1999 and 5.5% of life
premiums in 1999.
26
<PAGE>
Federal income taxes
American National and all but one of its subsidiaries will file a consolidated
life/non-life federal income tax return for 1999. Alternative Benefit
Management, Inc. files a separate return.
Deferred federal income tax assets and liabilities have been recognized to
reflect the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled.
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.
27
<PAGE>
(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
December 31, 1999: Cost Gains Losses Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Debt securities
Bonds held-to-maturity:
U.S. Government and agencies................. $ 141,247 $ 286 $ (1,891) $ 139,642
States, and political subdivisions........... 44,624 52 (3,858) 40,818
Foreign governments.......................... 107,250 1,279 (636) 107,893
Public utilities............................. 1,126,456 4,833 (29,482) 1,101,807
All other corporate bonds.................... 2,118,267 11,476 (70,222) 2,059,521
Mortgage-backed securities................... 98,942 3,570 (70) 102,442
-------------------------------------------------------------------------------------------------------------------
Total bonds held-to-maturity............... 3,636,786 21,496 (106,159) 3,552,123
-------------------------------------------------------------------------------------------------------------------
Bonds available-for-sale:
U.S. Government and agencies................. 54,506 -- (651) 53,855
States, and political subdivisions........... 38,538 -- (3,836) 34,702
Foreign governments.......................... 27,469 1,023 (15) 28,477
Public utilities............................. 184,126 1,728 (2,298) 183,556
All other corporate bonds.................... 552,529 5,477 (20,435) 537,571
-------------------------------------------------------------------------------------------------------------------
Total bonds available-for-sale............. 857,168 8,228 (27,235) 838,161
-------------------------------------------------------------------------------------------------------------------
Total debt securities.......................... 4,493,954 29,724 (133,394) 4,390,284
-------------------------------------------------------------------------------------------------------------------
Marketable equity securities:
Preferred stock.............................. 39,145 1,287 (680) 39,752
Common stock................................. 551,064 413,522 (1,249) 963,337
-------------------------------------------------------------------------------------------------------------------
Total marketable equity securities........... 590,209 414,809 (1,929) 1,003,089
-------------------------------------------------------------------------------------------------------------------
Total investments in securities.................... $ 5,084,163 $ 444,533 $ (135,323) $ 5,393,373
===================================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
December 31, 1998: Cost Gains Losses Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
===================================================================================================================
</TABLE>
Debt Securities--The amortized cost and estimated market value, by contractual
maturity of debt securities at December 31, 1999, 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-to-Maturity Bonds Available-for-Sale
-------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in one year or less............................. $ 56,902 $ 57,441 $ -- $ --
Due after one year through five years............... 963,942 958,745 319,676 322,278
Due after five years through ten years.............. 2,470,818 2,391,315 485,431 468,007
Due after ten years................................. 46,182 42,180 52,061 47,876
-------------------------------------------------------------------------------------------------------------------
3,537,844 3,449,681 857,168 838,161
Without single maturity date........................ 98,942 102,442 -- --
-------------------------------------------------------------------------------------------------------------------
$ 3,636,786 $ 3,552,123 $ 857,168 $ 838,161
===================================================================================================================
</TABLE>
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) totaled $466,899,000 for 1999. Gross gains
of $148,762,000 and gross losses of $6,043,000 were realized on those sales.
Included in the proceeds from sales of available-for-sale securities are
$33,813,000 of proceeds from the sale of bonds that had been reclassified from
bonds held-to-maturity. The bonds had been reclassified due to evidence of a
significant deterioration in the issuer's creditworthiness. The net gain from
the sale of these bonds was $5,314,000.
Proceeds from sales of investments in securities classified as
available-for-sale (bonds and stocks) totaled $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
29
<PAGE>
from sales of available-for-sale securities are $40,454,000 of proceeds from the
sale of bonds that had been reclassified from bonds held-to-maturity. The bonds
had been reclassified due to evidence of a significant deterioration in the
issuer's creditworthiness. The net gain from the sale of these bonds was
$1,073,000.
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 or otherwise redeemed by the issuers during 1999, which
resulted in proceeds of $163,596,000 from the disposal. Gross gains of $688,000
were realized on those disposals. 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. 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 stockholder's equity section of
the consolidated statements of financial position, are net of deferred tax
liabilities of $137,222,000, $160,912,000 and $166,062,000 for 1999, 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>
1999 1998 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bonds available-for-sale............................................... $ (66,800) $ 10,482 $ 13,391
Preferred stocks....................................................... (1,793) 969 352
Common stocks.......................................................... (20,456) 124,921 71,152
Amortization of deferred policy acquisition costs...................... 21,028 (8,229) (3,863)
-----------------------------------------------------------------------------------------------------------------
(68,021) 128,143 81,032
Provision for federal income taxes..................................... 23,693 (44,850) (28,501)
-----------------------------------------------------------------------------------------------------------------
$ (44,328) $ 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, 1999, mortgage loans have both fixed rates
from 5.75% to 12.25% and variable rates from 6.39% to 10.25%. The majority of
the mortgage loan contracts require periodic payments of both principal and
interest, and have amortization periods of 5 to 33 years.
American National has investments in first lien mortgage loans on real estate
with carried values of $1,033,330,000 and $1,025,683,000 at December 31, 1999
and 1998, respectively. Problem loans, on which valuation allowances were
established, totaled $41,446,000 and $43,049,000 at December 31, 1999 and 1998,
respectively.
Policy loans--All of the Company's policy loans carried interest rates ranging
from 5% to 8% at December 31, 1999.
30
<PAGE>
Investment income and realized gains (losses)--Investment income and realized
gains (losses) from disposals of investments, before federal income taxes, for
the years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Gains (Losses) from
Investment Income Disposals of Investments
--------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1999 1998 1997
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonds.......................................... $ 318,898 $ 317,481 $ 303,426 $ (5,327) $ 2,614 $ 530
Preferred stocks............................... 2,599 2,584 3,173 (1,212) 1 21
Common stocks.................................. 16,284 16,774 18,977 149,946 33,092 106,662
Mortgage loans................................. 98,111 97,871 109,165 1,206 1,248 (1,277)
Real estate.................................... 65,027 80,138 84,344 6,417 1,338 (5,977)
Other invested assets.......................... 36,819 29,123 26,872 2,793 (564) (83)
Investment in unconsolidated affiliates........ -- -- -- -- 29 (79)
--------------------------------------------------------------------------------------------------------------------
537,738 543,971 545,957 153,823 37,758 99,797
Investment expenses............................ (63,789) (68,729 (73,062) -- -- --
Decrease (increase) in valuation allowances.... -- -- -- (4,762) 12,010 3,523
--------------------------------------------------------------------------------------------------------------------
$ 473,949 $ 475,242 $ 472,895 $ 149,061 $ 49,768 $ 103,320
====================================================================================================================
</TABLE>
(4) OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
To ensure a well-diversified investment portfolio, American National employs a
strategy to invest funds at the highest possible rate of return commensurate
with sound and prudent underwriting practices.
Bonds:
American National's bond portfolio is of high investment quality and is
diversified. The bond portfolio distributed by quality rating at December 31 is
summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
AAA........................................................................................... 8% 9%
AA............................................................................................ 14% 14%
A............................................................................................. 57% 55%
BBB and below................................................................................. 21% 22%
------------------------------------------------------------------------------------------------------------------
100% 100%
==================================================================================================================
</TABLE>
Common stock:
American National's stock portfolio by market sector distribution at December 31
is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Basic materials............................................................................... 4% 4%
Capital goods................................................................................. 7% 7%
Consumer goods................................................................................ 20% 18%
Energy........................................................................................ 7% 5%
Finance....................................................................................... 10% 11%
Technology.................................................................................... 24% 16%
Health care................................................................................... 10% 24%
Miscellaneous................................................................................. 12% 10%
Mutual funds.................................................................................. 6% 5%
------------------------------------------------------------------------------------------------------------------
100% 100%
==================================================================================================================
</TABLE>
31
<PAGE>
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>
Mortgage Investment
Loans Real Estate
------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Office buildings....................................................... 17% 21% 15% 19%
Shopping centers....................................................... 52% 56% 42% 41%
Commercial............................................................. 4% 3% 5% 7%
Apartments............................................................. 1% 1% 3% 3%
Hotels/motels.......................................................... 6% 3% 13% 16%
Industrial............................................................. 16% 13% 21% 13%
Other.................................................................. 4% 3% 1% 1%
------------------------------------------------------------------------------------------------------------------
100% 100% 100% 100%
------------------------------------------------------------------------------------------------------------------
</TABLE>
American National has a 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>
Mortgage Investment
Loans Real Estate
------------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
New England............................................................ 9% 9% - -
Middle Atlantic........................................................ 16% 13% - -
East North Central..................................................... 10% 12% 18% 11%
West North Central..................................................... 3% 3% 17% 9%
South Atlantic......................................................... 19% 19% 7% 8%
East South Central..................................................... 1% 1% 13% 15%
West South Central..................................................... 25% 21% 36% 42%
Mountain............................................................... 7% 9% 3% 7%
Pacific................................................................ 10% 13% 6% 8%
------------------------------------------------------------------------------------------------------------------
100% 100% 100% 100%
==================================================================================================================
</TABLE>
For discussion of other off-balance sheet risks, see Note 5.
(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 could 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.
32
<PAGE>
Marketable equity securities:
Market values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
Mortgage loans:
The market value for mortgage loans is estimated using discounted cash flow
analyses based on interest rates currently being offered for comparable loans.
Loans with similar characteristics are aggregated for purposes of the analyses.
Policy loans:
The carrying amount for policy loans approximates their market value.
Short-term investments:
The carrying amount for short-term investments approximates their market value.
Investment contracts:
The market value of investment contract liabilities is estimated using a
discounted cash flow model, assuming the companies' current interest rates on
new products. The carrying value for these contracts approximates their market
value.
Investment commitments:
American National's investment commitments are all short-term in duration, and
the market value was not significant at December 31, 1999 or 1998.
Values:
The carrying amounts and estimated market values of financial instruments at
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Carrying Market Carrying Market
Amount Value Amount Value
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Bonds:
Held-to-maturity........................... $ 3,636,786 $ 3,552,123 $ 3,565,974 $ 3,795,813
Available-for-sale......................... 838,161 838,161 720,818 720,818
Preferred stock.............................. 39,752 39,752 41,664 41,664
Common stock................................. 963,337 963,337 1,051,926 1,051,926
Mortgage loans on real estate................ 1,033,330 1,044,146 1,025,683 1,158,033
Policy loans................................. 293,287 293,287 296,109 296,109
Short-term investments....................... 95,352 95,352 90,368 90,368
Financial liabilities:
Investment contracts......................... 1,639,348 1,639,348 1,736,223 1,736,223
-------------------------------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE>
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December 31,
1999, 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
---------------------------------------------------------------------------------------------------------------
Additions..................................... 82,708 25,315 29,550 137,573
Amortization.................................. (87,701) (21,263) (26,421) (135,385)
Effect of change in unrealized gains
on available-for-sale securities........... 21,028 -- -- 21,028
---------------------------------------------------------------------------------------------------------------
Net change....................................... 16,035 4,052 3,129 23,216
Acquisitions..................................... 3,652 225 -- 3,877
---------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999........................ $ 635,222 $ 109,012 $ 14,562 $ 758,796
===============================================================================================================
1999 premiums....................................... $ 342,030 $ 396,072 $ 392,576 $ 1,130,678
===============================================================================================================
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 purchase of various insurance portfolios under
assumption reinsurance agreements.
34
<PAGE>
(7) FUTURE POLICY BENEFITS AND POLICY ACCOUNT BALANCES
Life insurance:
Assumptions used in the calculation of future policy benefits or policy account
balances for individual life policies are as follows:
<TABLE>
<CAPTION>
Percentage of
Future Policy
Policy Issue Interest Benefits
Year Rate So Valued
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Ordinary--
1996-1999 7.5% for years 1 through 5, graded to 5.5% at the end of year 25, and level thereafter 3%
1981-1995 8% for years 1 through 5, graded to 6% at the end of year 25, and level thereafter 18%
1976-1981 7% for years 1 through 5, graded to 5% at the end of year 25, and level thereafter 15%
1972-1975 6% for years 1 through 5, graded to 4% at the end of year 25, and level thereafter 6%
1969-1971 6% for years 1 through 5, graded to 3.5% at the end of year 30, and level thereafter 5%
1962-1968 4.5% for years 1 through 5, graded to 3.5% at the end of year 15, and level thereafter 9%
1948-1961 4% for years 1 through 5,graded to 3.5% at the end of year 10, and level thereafter 9%
1947 and prior Statutory rates of 3% or 3.5% 1%
Industrial--
1948-1967 4% for years 1 through 5, graded to 3.5% at the end of year 10, and level thereafter 4%
1947 and prior Statutory rates of 3% 4%
Universal Life Future policy benefits for universal life are equal to the current account value 26%
-----------------------------------------------------------------------------------------------------------------------
100%
=======================================================================================================================
</TABLE>
Future policy benefits for group life policies have been calculated using a
level interest rate of 4%. Mortality and withdrawal assumptions are based on
American National's experience.
Annuities:
Fixed annuities included in future policy benefits are calculated using a level
interest rate of 6%. Policy account balances for interest-sensitive annuities
are equal to the current gross account balance. 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.
35
<PAGE>
(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>
1999 1998 1997
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at January 1.......................................... $ 266,832 $ 247,564 $ 222,736
Less reinsurance recoverables............................... 11 2,567 2,439
-----------------------------------------------------------------------------------------------------------------
Net balance at January 1...................................... 266,821 244,997 220,297
-----------------------------------------------------------------------------------------------------------------
Incurred related to:
Current year................................................ 654,222 598,379 513,388
Prior years................................................. (16,322) (6,324) (1,099)
-----------------------------------------------------------------------------------------------------------------
Total incurred................................................ 637,900 592,055 512,289
-----------------------------------------------------------------------------------------------------------------
Paid related to:
Current year................................................ 457,279 411,352 343,333
Prior years................................................. 169,292 158,879 144,256
-----------------------------------------------------------------------------------------------------------------
Total paid.................................................... 626,571 570,231 487,589
-----------------------------------------------------------------------------------------------------------------
Net balance at December 31.................................... 278,150 266,821 244,997
Plus reinsurance recoverables............................... 3,988 11 2,567
-----------------------------------------------------------------------------------------------------------------
Balance at December 31........................................ $ 282,138 $ 266,832 $ 247,564
=================================================================================================================
</TABLE>
The balances at December 31 are included in policy and contract claims on the
consolidated statements 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.
To minimize its exposure to significant losses from reinsurer insolvencies, the
company evaluates the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers. At December 31, 1999,
amounts recoverable from reinsurers with a carrying value of $90,399,000 were
associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos Islands. The
company holds collateral related to these credit reinsurers totaling
$70,918,000. This collateral is in the form of custodial accounts controlled by
the company, which can be drawn on for amounts that remain unpaid for more than
120 days. American National believes that the failure of any single reinsurer to
meet its obligations would not have a significant effect on its financial
position or results of operations.
36
<PAGE>
Premiums, premium-related reinsurance amounts and reinsurance recoveries for the
years ended December 31 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct premiums............................................. $ 1,268,129 $ 1,201,189 $ 1,134,615
Reinsurance premiums assumed from other companies........... 110,180 42,403 25,146
Reinsurance premiums ceded to other companies............... (247,631 (154,884) (119,180)
-------------------------------------------------------------------------------------------------------------------
Net premiums................................................ $ 1,130,678 $ 1,088,708 $ 1,040,581
===================================================================================================================
Reinsurance recoveries...................................... $ 162,863 $ 88,240 $ 56,535
===================================================================================================================
</TABLE>
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Direct life insurance in force.............................. $ 46,156,190 $ 44,134,974 $ 43,143,187
Reinsurance risks assumed from other companies.............. 797,059 713,200 662,171
-------------------------------------------------------------------------------------------------------------------
Total life insurance in force............................... 46,953,249 44,848,174 43,805,358
Reinsurance risks ceded to other companies.................. (9,629,707) (7,965,042) (6,985,956)
-------------------------------------------------------------------------------------------------------------------
Net life insurance in force................................. $ 37,323,542 $ 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>
1999 1998 1997
-----------------------------------------------------------------------------------------------------------------
Amount Rate Amount Rate Amount Rate
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income tax on pre-tax income.......... $ 136,038 35.00 % $ 95,861 35.00 % $ 130,558 35.00 %
Tax-exempt investment income.......... (1,691) (0.44) (971) (0.35) (383) (0.10)
Dividend exclusion.................... (3,414) (0.88) (5,044) (1.84) (3,046) (0.82)
Exempted losses on sale of assets..... (4,470) (1.15) (9,856) (3.60) -- --
Miscellaneous tax credits, net........ (1,467) (0.38) (1,467) (0.54) (1,238) (0.33)
Other items, net...................... (2,928) (0.75) (2,032) (0.74) (1,226) (0.33)
-----------------------------------------------------------------------------------------------------------------
$ 122,068 31.40 % $ 76,491 27.93 % $ 124,665 33.42 %
=================================================================================================================
</TABLE>
37
<PAGE>
The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1999 and
December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
-------------------
Investment in bonds, real estate and other invested assets,
principally due to investment valuation allowances....................... $ 17,750 $ 10,656
Policyowner funds, principally due to policy reserve discount............... 87,650 78,279
Policyowner funds, principally due to unearned premium reserve.............. 11,219 10,020
Other assets................................................................ 4,689 2,649
--------------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets................................................ 121,308 101,604
Less valuation allowance.................................................... (3,000) (3,000)
--------------------------------------------------------------------------------------------------------------------
Net deferred tax assets........................................................ $ 118,308 $ 98,604
--------------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
------------------------
Marketable equity securities, principally due to
net unrealized gains on stock............................................ $ (131,347) $ (151,396)
Investment in bonds, principally due to
accrual of discount on bonds............................................. (20,941) (17,390)
Deferred policy acquisition costs, due to
difference between GAAP and tax.......................................... (184,217) (177,057)
Property, plant and equipment, principally due to
difference between GAAP and tax depreciation methods..................... (3,144) (12,004)
--------------------------------------------------------------------------------------------------------------------
Net deferred tax liabilities................................................... (339,649) (357,847)
--------------------------------------------------------------------------------------------------------------------
Total deferred tax................................................................ $ (221,341) $ (259,243)
====================================================================================================================
</TABLE>
Management believes that a sufficient level of taxable income will be achieved
to utilize the net deferred tax assets.
Through 1983, under the provision of the Life Insurance Company Income Tax Act
of 1959, life insurance companies were permitted to defer from taxation a
portion of their income (within certain limitations) until and unless it is
distributed to stockholders, at which time it was taxed at regular corporate tax
rates. No provision for deferred federal income taxes applicable to such untaxed
income has been made, because management is of the opinion that no distributions
of such untaxed income (designated by federal law as "policyholders' surplus")
will be made in the foreseeable future. There was no change in the
"policyholders' surplus" between December 31, 1998 and December 31, 1999, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $108,060,000, $111,465,000 and
$136,212,000 were paid to the Internal Revenue Service in 1999, 1998 and 1997,
respectively. The statute of limitations for the examination of federal income
tax returns through 1995 for American National and its subsidiaries by the
Internal Revenue Service has expired. All prior year deficiencies have been paid
or provided for, and American National has filed appropriate claims for refunds
through 1995. In the opinion of management, adequate provision has been made for
any tax deficiencies that may be sustained.
38
<PAGE>
(11) COMPONENTS OF COMPREHENSIVE INCOME
The items included in comprehensive income, other than net income, are
unrealized gains on available-for-sale securities, unrealized gains on deferred
acquisition costs and foreign exchange adjustments.
The details on the unrealized gains included in comprehensive income, and the
related tax effects thereon are as follows:
<TABLE>
<CAPTION>
Before Federal Net of
Federal Income Tax Federal
Income Expense Income
Tax (Benefit) Tax
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1999
-----------------
Unrealized gains......................................................... $ 80,700 $ 28,359 $ 52,341
Less: reclassification adjustment for
gains realized in net income.......................................... (148,721) (52,052) (96,669)
-------------------------------------------------------------------------------------------------------------------
Net unrealized loss component of
comprehensive income.................................................. $ (68,021) $ (23,693) $ (44,328)
===================================================================================================================
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>
(12) COMMON STOCK AND EARNINGS PER SHARE
American National has only one class of common stock and no preferred stock. At
December 31, 1999, 1998 and 1997, American National had 50,000,000 authorized
shares of $1.00 par value common stock with 30,832,449 shares issued. At
December 31, 1999, treasury shares were 4,274,284, restricted shares were 79,000
and unrestricted shares outstanding were 26,479,165. At December 31, 1998 and
1997 there were no restricted shares, treasury shares were 4,353,284; and total
outstanding shares were 26,479,165.
Stock-Based Compensation--During 1999, American National's stockholders approved
the "1999 Stock and Incentive Plan." Under this plan, American National can
grant Non-Qualified Stock Options, Stock Appreciation Rights, Restricted Stock
Awards, Performance Rewards, Incentive Awards and any combination of these. The
number of shares available for grants under the plan cannot exceed 900,000
shares, and no more than 50,000 shares may be granted to any one individual in
any calendar year. Subsequent to the close of 1999, the plan was amended to
adjust the grant price of awards made during 1999.
39
<PAGE>
On August 1, 1999, American National granted Stock Appreciation Rights (SAR) on
81,500 shares to selected officers. These SARs were granted at a stated price of
$70.50 per share (subsequently amended in 2000 to $57 per share), vest at a rate
of 20% per year for 5 years and expire 5 years after the vesting period. None of
these SARs were exercisable during 1999, none of them terminated, and all were
outstanding at the end of the year.
Also, on August 1, 1999, American National granted Restricted Stock Awards to
directors and consultants. A total of 79,000 shares were granted, with 19,000
granted at an exercise price of $70.50 per share (subsequently amended in 2000
to $57 per share), and 60,000 granted at an exercise price of zero. The
restrictions on these awards lapse after 10 years, and feature a graded vesting
schedule in the case of the retirement of an award holder. All of the Restricted
Stock was outstanding at the end of the year.
American National uses a Black-Scholes option pricing model to calculate the
fair value and compensation expense for SARs and Restricted Stock Awards, in
accordance with FAS No. 123 "Accounting for Stock-Based Compensation." The fair
value per share of the SARs and the Restricted Stock Awards that were originally
granted at $70.50 per share was zero at December 31, 1999. The fair value of the
Restricted Stock Awards granted at a price of zero was $70.50 per share at
December 31, 1999. The following assumptions were used in these computations for
1999: dividend yield of 4.5%; expected volatility of 32%; risk-free interest
rate of 6.79%; and expected lives of 5 years for the SARs and 10 years for the
Restricted Stock Awards. Compensation expense calculated for 1999 on these
awards was not material.
The plan amendment made in February, 2000 will increase compensation expense in
the future, but the effect is not material on American National's financial
position or results from operations in 1999.
Earnings Per Share--Earnings per share for 1999, 1998 and 1997 were calculated
using a weighted average number of shares outstanding of 26,479,165. There were
no potentially dilutive items outstanding in 1998 or 1997. In 1999, the average
market price, since the grant date of the SARs and Restricted Stock Awards, was
less than the exercise price. As a result, diluted earnings per share is equal
to the basic earnings per share.
Dividends--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, in
the absence of special approval, limit the payment of dividends to statutory net
gain from operations on an annual, noncumulative basis. 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 on amounts that can transfer in the form of
dividends, loans, or advances to the parent company apply to American National's
insurance subsidiaries .
At December 31, 1999, approximately $606,699,000 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.
40
<PAGE>
(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, 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. In this segment, the
agent collects the premiums. This segment includes business in the United States
and Mexico.
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.
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.
Credit Insurance Division -- This segment derives its revenues principally from
the sale of credit life and credit accident and health insurance.
Capital and Surplus -- This segment derives its revenues principally from
investment instruments.
All Other -- This category comprises segments which are too small to show
individually. This category includes non-insurance, reinsurance assumed, and
retirement benefits.
All income and expense amounts specifically attributable to policy transactions
are recorded directly to the appropriate line of business within each segment.
Income and expenses 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 re-allocated to the other
segments in accordance with the amount of equity invested in each
segment.
41
<PAGE>
. Expenses are allocated to the lines based upon various factors, including
premium and commission ratios within the respective operating segments.
. Gain or loss on the sale of investments is allocated to capital and surplus.
. Equity in earnings of unconsolidated affiliates is allocated to the segment
that provided the funds to invest in the affiliate.
. 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, 1999, 1998 and 1997 (in
thousands):
<TABLE>
<CAPTION>
Gain From
Premiums Net Operations Federal
and Investment Equity Before Income
Other Income Expenses in Federal Tax
Policy and and Unconsolidated Income Expense Net
Revenue Realized Gains Benefits Affiliates Taxes (Benefit) Income
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
----
Multiple Line Marketing $ 489,263 $ 95,821 $ 530,321 $ -- $ 54,763 $ 18,072 $ 36,691
Home Service Division 209,033 118,978 263,945 -- 64,066 21,142 42,924
Independent Marketing 60,574 118,960 162,052 -- 17,482 5,769 11,713
Health Division 237,446 7,406 256,390 -- (11,538) (3,808) (7,730)
Credit Insurance Division 63,262 16,094 65,903 -- 13,453 4,439 9,014
Senior Age Marketing 148,368 18,013 162,209 -- 4,172 1,377 2,795
Direct Marketing 26,857 3,734 24,823 -- 5,768 1,903 3,865
Capital and Surplus 1,087 211,453 256 12,249 224,533 67,900 156,633
All other 30,714 32,551 54,976 7,693 15,982 5,274 10,708
--------------------------------------------------------------------------------------------------------------------
$1,266,604 $ 623,010 $1,520,875 $19,942 $ 388,681 $ 122,068 $ 266,613
====================================================================================================================
1998
----
Multiple Line Marketing $ 452,146 $ 95,063 $ 488,842 $ -- $ 58,367 $ 19,261 $ 39,106
Home Service Division 203,976 122,188 252,446 -- 73,718 24,327 49,391
Independent Marketing 69,714 122,279 184,655 -- 7,338 2,422 4,916
Health Division 211,249 7,850 240,195 -- (21,096) (6,962) (14,134)
Credit Insurance Division 57,727 15,215 61,181 -- 11,761 3,881 7,880
Senior Age Marketing 162,161 17,760 169,929 -- 9,992 3,297 6,695
Direct Marketing 26,619 3,588 24,034 -- 6,173 2,037 4,136
Capital and Surplus 982 107,737 761 8,048 116,006 24,390 91,616
All other 35,081 33,330 56,781 -- 11,630 3,838 7,792
--------------------------------------------------------------------------------------------------------------------
$1,219,655 $ 525,010 $1,478,824 $ 8,048 $ 273,889 $ 76,491 $ 197,398
====================================================================================================================
1997
----
Multiple Line Marketing $ 408,184 $ 93,488 $ 427,132 $ -- $ 74,540 $ 24,598 $ 49,942
Home Service Division 209,082 122,702 249,127 -- 82,657 27,277 55,380
Independent Marketing 70,590 125,636 178,419 -- 17,807 5,876 11,931
Health Division 185,057 7,054 200,797 -- (8,686) (2,866) (5,820)
Credit Insurance Division 54,363 14,572 57,847 -- 11,088 3,659 7,429
Senior Age Marketing 168,685 23,328 182,914 -- 9,099 3,003 6,096
Direct Marketing 26,615 3,514 26,712 -- 3,417 1,128 2,289
Capital and Surplus 8 159,820 3,430 9,333 165,731 56,258 109,473
All other 35,066 32,140 49,837 -- 17,369 5,732 11,637
--------------------------------------------------------------------------------------------------------------------
$1,157,650 $ 582,254 $1,376,215 $ 9,333 $ 373,022 $ 124,665 $ 248,357
====================================================================================================================
</TABLE>
There were no significant non-cash items to report. Almost all of the
consolidated revenues were derived in the U.S.
42
<PAGE>
Most of the operating segments provide essentially the same types of products.
The following table provides revenues within each segment by line of business
for the years ended December 31, 1999, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
Total Revenues
Accident & Property & Total
Life Annuity Health Casualty Credit All Other Revenues
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
----
Multiple Line Marketing $ 121,753 $ 17,637 $ 19,736 $ 403,029 $ -- $ -- $ 562,155
Home Service Division 283,566 4,576 8,778 -- -- -- 296,920
Independent Marketing 8,938 157,569 -- -- -- -- 166,507
Health Division 3,920 -- 236,559 -- -- -- 240,479
Credit Insurance Division -- -- -- -- 69,007 -- 69,007
Senior Age Marketing 31,577 1,692 125,609 -- -- -- 158,878
Direct Marketing 29,501 146 427 -- -- -- 30,074
Capital and Surplus -- -- -- -- -- 306,797 306,797
All other 30,120 1,878 1,709 -- -- 25,090 58,797
--------------------------------------------------------------------------------------------------------------------
$ 509,375 $ 183,498 $ 392,818 $ 403,029 $ 69,007 $ 331,887 $ 1,889,614
====================================================================================================================
1998
----
Multiple Line Marketing $ 121,829 $ 16,826 $ 20,232 $ 365,369 $ -- $ -- $ 524,256
Home Service Division 279,531 4,410 8,793 -- -- -- 292,734
Independent Marketing 5,328 173,990 -- -- -- -- 179,318
Health Division 3,802 -- 210,622 -- -- -- 214,424
Credit Insurance Division -- -- -- -- 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 Division 284,698 4,675 9,347 -- -- -- 298,720
Independent Marketing 3,525 179,097 -- -- -- -- 182,622
Health Division 3,224 -- 184,920 -- -- -- 188,144
Credit Insurance Division -- -- -- -- 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 -- -- -- -- -- 254,508 254,508
All other 33,331 17,684 2,791 -- -- 8,319 62,125
--------------------------------------------------------------------------------------------------------------------
$ 508,345 $ 219,909 $ 365,159 $ 323,624 $ 60,040 $ 262,827 $ 1,739,904
====================================================================================================================
</TABLE>
The operating segments are supported by the fixed income assets and policy
loans. Equity type assets, such as stocks, real estate and other invested
assets, are investments of the Capital and Surplus segment. Assets of the
non-insurance companies are specifically associated with those companies in the
"All other" segment. Any assets not used in support of the operating segments
are assigned to Capital and Surplus.
43
<PAGE>
The following table summarizes assets by operating segment for the years ended
December 31, 1999, and 1998 (in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Multiple Line Marketing......................................................... $ 1,598,043 $ 1,513,396
Home Service Division........................................................... 1,789,073 1,760,415
Independent Marketing........................................................... 1,719,508 1,761,832
Health Division................................................................. 193,018 170,301
Credit Insurance Division....................................................... 387,669 372,787
Senior Age Marketing............................................................ 326,163 330,631
Direct Marketing................................................................ 82,799 83,759
Capital and Surplus............................................................. 2,400,368 2,232,612
All other....................................................................... 593,885 589,919
--------------------------------------------------------------------------------------------------------------------
$ 9,090,526 $ 8,815,652
====================================================================================================================
</TABLE>
The net assets of the Capital and Surplus segment include investments in
unconsolidated affiliates. Almost all of American National's assets are located
in the U.S.
The amount of each segment item reported is the measure reported to the chief
operating decision-maker for purposes of making decisions about allocating
resources to the segment and assessing its performance. Adjustments and
eliminations are made when preparing the financial statements, and allocations
of revenues, expenses and gains or losses have been included when 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 portion of American National's insurance
business is written through one third-party marketing organization. During 1999,
approximately 8% 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 11% and 18% in 1998 and 1997,
respectively. Of the total business written by this one organization, the
majority was annuities.
44
<PAGE>
(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>
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory net income of insurance companies........................... $ 159,375 $ 155,368 $ 207,998
Net gain of non-insurance companies................................... 97,782 15,240 2,592
-------------------------------------------------------------------------------------------------------------------
Combined net income................................................... 257,157 170,608 210,590
Increases (decreases):
Deferred policy acquisition costs.................................. 2,188 (9,795) 12,267
Policyholder funds................................................. 4,288 18,702 7,963
Deferred federal income tax benefit................................ 10,060 1,216 9,606
Premiums deferred and other receivables............................ (2,315) (84) 602
Gain from sale of investments...................................... 416 (292) 79
Change in interest maintenance reserve............................. (1,033) 2,773 1,532
Asset valuation allowances......................................... (4,762) 12,010 3,524
Other adjustments, net................................................ 948 2,336 2,218
Consolidating eliminations and adjustments............................ (334) (76) (24)
-------------------------------------------------------------------------------------------------------------------
Net income reported herein............................................ $ 266,613 $ 197,398 $ 248,357
===================================================================================================================
<CAPTION>
1999 1998 1997
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory capital and surplus of insurance companies.................. $ 2,377,589 $ 2,163,593 $ 2,011,016
Stockholders equity of non-insurance companies........................ 523,550 524,630 77,725
-------------------------------------------------------------------------------------------------------------------
Combined capital and surplus.......................................... 2,901,139 2,688,223 2,088,741
Increases (decreases):
Deferred policy acquisition costs.................................. 758,796 731,703 748,341
Policyholder funds................................................. 159,394 154,445 135,262
Deferred federal income taxes...................................... (221,341) (259,243) (215,606)
Premiums deferred and other receivables............................ (80,453) (78,139) (77,629)
Reinsurance in "unauthorized companies"............................ 37,376 38,748 34,010
Statutory asset valuation reserve.................................. 370,191 344,926 370,102
Statutory interest maintenance reserve............................. 9,729 10,762 7,989
Asset valuation allowances......................................... (38,285) (28,489) (44,899)
Investment market value adjustments................................ (9,556) 48,656 39,050
Non-admitted assets and other adjustments, net........................ 158,876 173,877 135,680
Consolidating eliminations and adjustments............................ (982,720) (910,857) (515,624)
-------------------------------------------------------------------------------------------------------------------
Stockholders' equity reported herein.................................. $ 3,063,146 $ 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 $74,543,000
on deposit with appropriate regulatory authorities.
45
<PAGE>
(15) RETIREMENT BENEFITS
American National and its subsidiaries have one tax-qualified pension plan,
which has three separate programs. One of the programs is contributory and
covers home service agents and managers. The other two programs are
noncontributory, with one covering salaried and management employees and the
other covering home office clerical employees subject to a 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 for key executives two non-tax-qualified pension
plans that restore benefits that would otherwise be curtailed by statutory
limits on qualified plan benefits.
The companies' funding policy for the pension plans is to make annual
contributions in accordance with the minimum funding standards of the Employee
Retirement Income Security Act of 1974. The unfunded plans will be funded out of
general corporate assets when necessary.
Actuarial computations of pension expense (before income taxes) produced a
pension debit of $3,954,000 for 1999 and $3,051,000 for 1998 and $2,474,000 for
1997.
The pension debit is made up of the following (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost--benefits earned during period.................................. $ 5,833 $ 5,629 $ 5,402
Interest cost on projected benefit obligation................................ 8,175 7,661 7,221
Expected return on plan assets............................................... (8,946) (8,887) (8,795)
Amortization of past service cost............................................ 534 473 490
Amortization of transition asset............................................. (2,619) (2,619) (2,619)
Amortization of actuarial loss............................................... 977 794 775
---------------------------------------------------------------------------------------------------------------------
Total pension debit.................................................... $ 3,954 $ 3,051 $ 2,474
=====================================================================================================================
</TABLE>
46
<PAGE>
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>
1999 1998
--------------------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
Exceed Benefits Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Vested benefit obligation.............................. $ (72,591) $ (24,781) $ (76,916) $ (19,136)
====================================================================================================================
Accumulated benefit obligation......................... $ (75,578) $ (24,781) $ (79,405) $ (19,136)
====================================================================================================================
Projected benefit obligation........................... $ (91,897) $ (27,189) $ (96,812) $ (26,340)
====================================================================================================================
Plan assets at fair value (long-term securities)....... 130,363 -- 137,543 --
====================================================================================================================
Funded status:
Plan assets in excess of projected
benefit obligation............................... 38,466 (27,189) 40,731 (26,340)
Unrecognized net loss............................... 1,981 1,554 2,341 3,729
Prior service cost not yet recognized
in periodic pension cost......................... -- 497 -- 1,028
Unrecognized net transition asset at
January 1 being recognized over 15 years......... (5,239) -- (7,858) --
--------------------------------------------------------------------------------------------------------------------
Accrued pension cost included in
other assets or other liabilities................... $ 35,208 $ (25,138) $ 35,214 $ (21,583)
====================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Assumptions used at December 31: 1999 1998
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Weighted-average discount rate on benefit obligation....................................... 7.30% 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.
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.
47
<PAGE>
The accrued post-retirement benefit obligation, included in other liabilities,
was $13,221,000 and $12,989,000 at December 31, 1999 and 1998, 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
Commitments--American National and its subsidiaries lease insurance sales office
space in various cities. The long-term lease commitments at December 31, 1999
were approximately $6,356,000.
In the ordinary course of their operations, the companies also had commitments
outstanding at December 31, 1999 to purchase, expand or improve real estate, and
to fund mortgage loans aggregating $96,000,000, all of which are expected to be
funded in 2000. As of December 31, 1999, all of the mortgage loan commitments
have interest rates that are fixed.
Contingencies--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. After reviewing these matters with legal
counsel, management is of the opinion that the ultimate resultant liability, if
any, 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.
48
<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 11, 2000. 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 11, 2000
49
<PAGE>
American National Insurance Company and Subsidiaries
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
(IN THOUSANDS)
December 31, 1999
<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 $ 141,247 $ 139,642 $ 141,247
States, municipalities and political subdivisions 44,624 40,818 44,624
Foreign governments 107,250 107,893 107,250
Public utilities 1,126,456 1,101,807 1,126,456
All other corporate bonds 2,217,209 2,161,963 2,217,209
Bonds Available-for-Sale:
United States Government and government agencies
and authorities 54,506 53,855 53,855
States, municipalities and political subdivisions 38,538 34,702 34,702
Foreign governments 27,469 28,477 28,477
Public utilities 184,125 183,556 183,556
All other corporate bonds 552,529 537,571 537,571
Redeemable preferred stock 39,145 39,752 39,752
-------------------------------------------------------------------------------------------------------------------
Total fixed maturities 4,533,098 4,430,036 4,514,699
-------------------------------------------------------------------------------------------------------------------
Equity Securities:
Common stocks:
Public utilities 10,669 9,420 9,420
Banks, trust and insurance companies 59,822 82,739 82,739
Industrial, miscellaneous and all other 480,573 871,178 871,178
-------------------------------------------------------------------------------------------------------------------
Total equity securities 551,064 963,337 963,337
-------------------------------------------------------------------------------------------------------------------
Mortgage loans on real estate 1,033,330 XXXXXX 1,033,330
Investment real estate 242,801 XXXXXX 242,801
Real estate acquired in satisfaction of debt 8,728 XXXXXX 8,728
Policy loans 293,287 XXXXXX 293,287
Other long-term investments 102,001 XXXXXX 102,001
Short-term investments 95,352 XXXXXX 95,352
-------------------------------------------------------------------------------------------------------------------
Total investments $ 6,859,661 XXXXXX $ 7,253,535
===================================================================================================================
(a) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and valuation write-downs and adjusted for
amortization of premiums or accrual of discounts.
</TABLE>
50
<PAGE>
American National Insurance Company and Subsidiaries
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G Column H
-------- -------- -------- -------- -------- -------- -------- --------
Future Policy Benefits,
Deferred Benefits, Other Policy Claims, Losses
Policy Losses, Claims Claims and Net and
Acquisition and Loss Unearned Benefits Premium Investment Settlement
Segment Costs Expenses Premiums Payable Revenue Income (a) Expenses
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1999
----
Multiple Line Marketing $ 126,950 $ 867,916 $ 239,825 $ 201,544 $441,299 $ 95,820 $ 375,364
Home Service 233,883 1,419,161 5,060 30,171 189,449 119,065 118,638
Independent Marketing 161,578 1,562,493 21 11,302 36,729 118,961 30,575
Health Insurance 18,658 22,612 14,121 91,518 223,638 7,398 165,525
Credit Insurance 65,801 -- 235,200 45,074 55,294 16,094 21,859
Senior Age Marketing 76,359 160,815 35,908 41,321 149,142 18,021 111,573
Direct Marketing 33,656 43,911 291 3,934 25,929 3,734 14,584
Capital and Surplus -- -- -- -- -- 62,305 --
All other 41,911 330,137 394 5,403 9,198 32,551 28,024
------------------------------------------------------------------------------------------------------------------------------
Total $ 758,796 $4,407,045 $ 530,820 $ 430,267 $1,130,678 $ 473,949 $ 866,142
==============================================================================================================================
1998
----
Multiple Line Marketing $ 115,981 $ 857,532 $ 200,675 $ 183,998 $406,317 $ 95,063 $ 343,841
Home Service 230,216 1,396,059 4,630 27,640 183,189 122,188 114,292
Independent Marketing 156,334 1,603,818 5 11,214 40,535 122,279 26,903
Health Insurance 16,087 22,092 11,999 69,186 210,502 7,849 158,388
Credit Insurance 61,575 -- 229,371 42,803 50,391 15,215 22,942
Senior Age Marketing 75,818 154,625 36,525 37,776 162,060 17,760 116,297
Direct Marketing 31,392 41,992 266 8,228 25,588 3,589 13,626
Capital and Surplus -- -- -- -- -- 57,969 --
All other 44,300 337,701 437 5,330 10,126 33,330 32,310
-------------------------------------------------------------------------------------------------------------------------------
Total $ 731,703 $4,413,819 $ 483,908 $ 386,175 $1,088,708 $ 475,242 $ 828,599
===============================================================================================================================
1997
----
Multiple Line Marketing $ 111,679 $ 845,232 $ 157,908 $ 168,600 $365,628 $ 92,488 $ 296,468
Home Service 230,827 1,374,110 5,715 30,404 187,237 122,702 117,592
Independent Marketing 176,548 1,703,279 -- 11,736 45,649 125,636 16,264
Health Insurance 14,201 22,860 7,381 52,481 184,409 7,054 141,645
Credit Insurance 60,585 -- 222,643 40,967 47,483 14,572 22,308
Senior Age Marketing 77,475 148,391 41,217 36,145 173,626 18,288 124,409
Direct Marketing 30,126 40,888 285 4,008 25,385 3,514 16,677
Capital and Surplus -- -- -- -- -- 56,500 --
All other 46,900 342,380 596 4,851 11,164 32,141 25,755
------------------------------------------------------------------------------------------------------------------------------
Total $ 748,341 $4,477,140 $ 435,745 $ 349,192 $1,040,581 $ 472,895 $ 761,118
==============================================================================================================================
<CAPTION>
Column I Column J Column K
-------- -------- --------
Amortization
of Deferred
Policy Other
Acquisition Operating Premiums
Segment Costs Expenses (b) Written
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999
----
Multiple Line Marketing $ 39,863 $ 84,284 $404,817
Home Service 27,921 94,825 --
Independent Marketing 33,419 17,089 --
Health Insurance 21,475 67,902 --
Credit Insurance 6,209 37,834 --
Senior Age Marketing 3,039 43,751 --
Direct Marketing 3,459 5,179 --
Capital and Surplus -- 225 --
All other -- 20,767 --
--------------------------------------------------------------------------------------------------
Total $ 135,385 $ 371,856 $404,817
==================================================================================================
1998
----
Multiple Line Marketing $ 37,772 $ 81,041 $373,506
Home Service 34,149 83,438 --
Independent Marketing 25,940 29,219 --
Health Insurance 14,119 68,437 --
Credit Insurance 21,100 17,680 --
Senior Age Marketing 5,696 44,816 --
Direct Marketing 3,787 4,817 --
Capital and Surplus -- (1,200) --
All other 6,553 11,074 --
--------------------------------------------------------------------------------------------------
Total $ 149,116 $ 339,322 $373,506
==================================================================================================
1997
----
Multiple Line Marketing $ 35,310 $ 71,153 $326,789
Home Service 32,016 81,724 --
Independent Marketing 26,135 10,677 --
Health Insurance 9,618 50,917 --
Credit Insurance 19,016 16,524 --
Senior Age Marketing 6,326 53,533 --
Direct Marketing 3,795 3,808 --
Capital and Surplus -- (1,610) --
All other 6,494 8,696 --
--------------------------------------------------------------------------------------------------
Total $ 138,710 $ 295,422 $326,789
==================================================================================================
</TABLE>
(a) Net investment income from fixed income assets (bonds and mortgage loans on
real estate) is allocated to insurance lines based on the funds generated
by each line at the average yield available from these fixed income assets
at the time such funds become available. Net investment income from policy
loans is allocated to the insurance lines according to the amount of loans
made by each line. Net investment income from all other assets is allocated
to 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.
51
<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>
1999
----
Life insurance in force $ 46,156,190 $ 9,629,707 $ 797,059 $ 37,323,542 2.1%
==========================================================================================================================
Premiums:
Life insurance $ 393,410 $ 65,761 $ 14,381 $ 342,030 4.2%
Accident and health insurance 451,614 144,298 88,756 396,072 22.4%
Property and liability insurance 423,105 37,572 7,043 392,576 1.8%
--------------------------------------------------------------------------------------------------------------------------
Total premiums $ 1,268,129 $ 247,631 $ 110,180 $ 1,130,678 9.7%
==========================================================================================================================
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>
52
<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>
1999
----
Investment valuation allowances:
Mortgage loans on real estate $12,800 $ 8,953 $ -- $ 1,920 $ 19,833
Investment real estate 21,718 3,528 5,799 -- 19,447
Investment in unconsolidated
affiliates 5,006 -- -- -- 5,006
Other assets 1,800 -- -- -- 1,800
----------------------------------------------------------------------------------------------------------
Total $41,324 $12,481 $ 5,799 $ 1,920 $ 46,086
==========================================================================================================
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
==========================================================================================================
</TABLE>
(a) Amounts written off due to disposal represent reductions or (additions) in
the balance due to sales, transfers or other disposals of the asset with
which the allowance is associated.
(b) Amounts commuted represent reductions in the allowance balance due to
changes in requirements or investment conditions.
53
