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Group Unallocated Variable Annuity Contract
Issued by American National Insurance Company
Home Office One Moody Plaza Galveston TX 77550-7999
Prospectus August 11, 2000 1-800-306-2959
This prospectus describes a group unallocated variable annuity contract being
offered to corporate and non-corporate pension plans. You can allocate contract
value to American National Variable Annuity Separate Account, which reflects the
investment performance of mutual fund portfolios selected by you. At this time,
you can allocate your contract value to the following mutual fund portfolios:
American National Fund
. Growth Portfolio
. Equity Income Portfolio
. Balanced Portfolio
. Money Market Portfolio
. High Yield Bond Portfolio
. International Stock Portfolio
. Small-Cap/Mid-Cap Portfolio
. Government Bond 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 and should be kept for future reference. 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 38 of this prospectus. The
SEC maintains an Internet website (http://www.sec.gov) that contains material
incorporated by reference into this prospectus, SAI, and other information
regarding companies that file electronically with the SEC.
This prospectus is valid only when accompanied by current prospectuses or
prospectus profiles for the American National Fund, the Fidelity Funds, the T.
Rowe Price Funds, the MFS Fund, the Federated Fund, and the Alger American Fund.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense. Interests in the contract are not deposits
or obligations of, or guaranteed or endorsed by any bank, nor is the contract
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other agency. The contract involves investment risk,
including possible loss of principal.
Please read this prospectus carefully and keep it for future reference.
Form 4872 *4872* 8-00
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TABLE OF CONTENTS
Page
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Glossary.............................................................. 4
Introduction.......................................................... 6
What is the Purpose of the Contract?................................ 6
What are the Investment Options?.................................... 6
How Do I Purchase a Contract?....................................... 7
How Do I Allot Purchase Payments?................................... 7
Can I Transfer Amounts Between
the Investment Alternatives?...................................... 7
Can I Make Withdrawals?............................................. 7
Is an Annuity Available?............................................ 7
What are the Charges and Deductions
Under the Contract?............................................... 8
What are the Tax Consequences Associated
with the Contract?................................................ 8
If I Have Questions, Where Can I Go?................................ 8
Contract Owner Transaction Expenses................................... 9
Sales Load as a Percentage of Purchase Payments..................... 9
Deferred Sales Load "Surrender Charge".............................. 9
Exchange Fee........................................................ 10
Annual Contract Fee................................................. 10
Separate Account Annual Expenses.................................... 10
Portfolio Company Annual Expenses................................... 10
Examples.............................................................. 16
Contract.............................................................. 19
Type of Contract.................................................... 19
Contract Application and Purchase Payments.......................... 19
Allocation of Purchase Payments..................................... 19
Crediting of Accumulation Units..................................... 20
Determining Accumulation Unit Values................................ 20
Transfers........................................................... 20
Charges and Deductions................................................ 21
Surrender Charge.................................................... 21
Other Charges....................................................... 21
Distributions Under the Contract...................................... 23
Withdrawals......................................................... 23
Termination of Contract............................................. 23
Annuity Payments...................................................... 25
Annuity Options..................................................... 25
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Page
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Annuity Provisions.................................................... 26
The Company, Separate Account and Funds................................ 27
American National Insurance Company.................................. 27
The Separate Account................................................. 27
The Funds............................................................ 28
Changes in Investment Options........................................ 33
Federal Tax Matters.................................................... 34
Introduction......................................................... 34
Taxation of Annuities in General..................................... 34
Qualified Contracts.................................................. 34
Performance............................................................ 36
Distributor of the Contract............................................ 36
Legal Matters.......................................................... 37
Legal Proceedings...................................................... 37
Experts................................................................ 37
Additional Information................................................. 37
Financial Statements................................................... 37
Table of Contents of Statement
of Additional Information............................................ 38
</TABLE>
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GLOSSARY
Accumulation Period. The time between the date Accumulation Units are first
purchased by us and the date the Contract is terminated.
Accumulation Unit. A unit used by us to calculate a Contract's value during the
Accumulation Period.
Accumulation Value. The sum of the value of your Accumulation Units .
Alger American Fund. The Alger American Fund.
American National Fund. American National Investment Accounts, Inc.
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.
Federated Funds. Federated Insurance Series.
Fidelity Funds. Variable Insurance Products Fund. The Fidelity Fund's
Portfolios offered through the Contract are Service Class II Portfolio.
General Account. All of our assets except those segregated in separate accounts.
MFS Fund. MFS Variable Insurance Trust.
Plan A document or agreement defining retirement or other benefits under section
401(a) or 457 of the Internal Revenue Code and those eligible to receive such
benefits. A Plan is not a part of a Contract and we are not a party to a Plan.
Plan Participant. An individual participating in a Plan.
Portfolio. A series of a mutual fund designed to meet specified investment
objectives.
Purchase Payment. A payment made to us during the Accumulation Period.
Qualified Plan. A Contract issued in connection with a Plan that receives
favorable tax treatment under the Internal Revenue Code of 1986.
T. Rowe Price Funds. T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and T. Rowe Price Fixed Income Series, Inc.
Valuation Date. Each day the New York Stock Exchange is open for regular
trading. 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.
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Valuation Period. The close of business on one Valuation Date to the close of
business on another.
Variable Annuity. An annuity with value that varies in dollar amount based on
performance of the investments you choose.
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INTRODUCTION
What is the Purpose of the Contract?
The Contract allows the accumulation of funds, at rates that will increase or
decline in value based on the performance of investments you choose. 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 the Investment Options?
You can invest Purchase Payments in one or more of the following subaccounts of
the separate account, each of which invests exclusively in shares of a
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
. Federated High Income Bond
. Federated Equity Income Fund II
. 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 (See "The Funds" on page 28). There is no assurance that Eligible
Portfolios will achieve their investment objectives. Accordingly, you could lose
some or all of the Accumulation Value.
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How do I purchase a contract?
You can purchase a Contract by completing an application and paying a Purchase
Payment and submitting these to our home office. (See "Contract Application and
Purchase Payments" on page 19.) Purchase Payments must be for the purpose of
providing for Plan benefits.
Without our prior approval, the maximum Purchase Payment under a Contract is
$1,000,000.
The contract may not be available in some states. You should rely only on the
information contained or incorporated by reference in this prospectus. We have
not authorized anyone to provide you with information that is different.
How do I allocate purchase payments?
You can allocate Purchase Payments among the 32 currently available subaccounts.
You cannot allocate less than 1% of a Purchase Payment to any one-investment
option.
Can I transfer amounts between the investment alternatives?
You can make transfers between subaccounts at any time. (See "Transfers" on page
20.)
All transfers among the subaccounts are free.
You should periodically review allocations among the subaccounts to make sure
they fit the 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.
Can I make withdrawals?
By written request to us, you can withdraw all or part of the Accumulation Value
at any time. (See "Withdrawals" on page 23.) Such withdrawal may be subject to a
Surrender Charge. Such withdrawal may also be subject to Plan restrictions.
Surrender charges are waived for any withdrawal to fund a distribution under a
Plan. Proof of such Plan benefit must be provided. Distributions to Plan
Participants may be subject to income tax and penalty tax.
Is an annuity available?
In order to fund plan distributions, you can select from a number of fixed
annuity options, each of which provides a different level and number of annuity
payments. The annuity options include payments:
. for the life of a Plan Participant
. for the life of a Plan Participant, with a guarantee that such payments will
continue for at least 10 or 20 years
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. made jointly to a Plan Participant and spouse, with a right of survivorship.
(See "Annuity Options," page 25.)
What are the charges and deductions under the contract?
We do not currently deduct a sales charge when you purchase a Contract. We may
deduct a surrender charge up to 7% of Accumulation Value withdrawn. We also
charge a daily administrative asset fee. Such expense charge equals, on an
annual basis, 0.10% of the Contract's daily Accumulation Value.
We charge a daily amount equal to, on an annual basis, a mortality and expense
risk fee of 1.15% of the Contract's daily Accumulation Value to meet our death
benefit obligations and to pay expenses.
What are the tax consequences associated with the contract?
You generally are required to pay taxes on all amounts withdrawn from a
Qualified Contract. Restrictions and penalties may apply to withdrawals from a
Qualified Contract.
If I have questions, where can I go?
If you or the Plan administrator have any questions about the Contract, you or
the Plan administrator can contact your registered representative or write us at
One Moody Plaza, Galveston, Texas 77550-7999. You can call us at 1-800-306-2959.
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CONTRACT OWNER TRANSACTION EXPENSES
The following table summarizes the charges we will make. The table also
summarizes the fees and expenses of the Eligible Portfolios. You should consider
this information with the information under the heading "Charges and Deductions"
on page 21.
Sales Load as a Percentage of Purchase Payments 0%
Deferred Sales Load ("Surrender Charge")
Contract Year Surrender Charge
of as a
Withdrawal Percentage of
Each Withdrawal
--------------------------------------------------------------------------------
1 7
2 7
3 6
4 5
5 4
6 3
7 2
8 and thereafter 0
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EXCHANGE FEE $ 0
ANNUAL CONTRACT FEE $ 0
SEPARATE ACCOUNT ANNUAL EXPENSES
(as a percent of average net assets)
Mortality and Expense Risk Fee 1.15%
Other Account Fees (administrative asset fee) 0.10%
Total Separate Account Annual Expense 1.25%
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%
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American National Small-Cap/Mid-Cap Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 1.25%
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 with reimbursement 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 0.11%
Total Portfolio Annual Expenses** 0.89%
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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 0.12%
Total Portfolio Annual Expenses** 0.95%
Fidelity Asset Manager: Growth Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees 0.58%
Distribution and Service (12b-1) Fees 0.25%
Other Expenses 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 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%
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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%
* The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, other expense and total
expense 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 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.
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Federated Growth Strategies Fund II Portfolio Annual Expenses
(as a percentage of average net assets)
Management Fees after reimbursement 0.55%
Other Expenses 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 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
(as a percentage of average net assets)
Management Fees after reimbursement 0.55%
Distribution (12b-1) Fees after reimbursement 0.00%
Other Expenses 0.39%
Total Portfolio Annual Expenses* 0.94%
* The portfolio's investment advisor voluntarily reduced the portfolio's
expenses. Absent reimbursement, management fee, distribution 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%
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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%
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EXAMPLES
If you terminate 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, and assuming none of the proceeds is used to fund Plan
benefits. Should any of the proceeds be used to fund Plan benefits, the actual
expenses incurred will be less than those represented in the example.
Fund 1 Year 3 Years
-----------------------------------------------------------------------
American National Growth Portfolio $86 $125
American National Balanced Portfolio $87 $126
American National Equity Income Portfolio $87 $127
American National Money Market Portfolio $86 $125
American National High Yield Bond Portfolio $86 $125
American National International Stock Portfolio $88 $132
American National Small-Cap/Mid-Cap Portfolio $92 $143
American National Government Bond Portfolio $86 $123
Fidelity Asset Manager Portfolio $87 $126
Fidelity Index 500 Portfolio $84 $117
Fidelity Contrafund Portfolio $87 $127
Fidelity Asset Manager: Growth Portfolio $87 $127
Fidelity Growth Opportunities Portfolio $87 $128
T. Rowe Price Equity Income Portfolio $86 $125
T. Rowe Price International Stock Portfolio $88 $130
T. Rowe Price Mid-Cap Growth Portfolio $86 $125
T. Rowe Price Limited - Term Bond Portfolio $85 $120
MFS Capital Opportunities Portfolio $87 $126
MFS Emerging Growth Portfolio $86 $124
MFS Research Portfolio $86 $125
MFS Growth With Income Portfolio $86 $125
Federated Utility Fund II Portfolio $87 $127
Federated Growth Strategies Fund II Portfolio $86 $125
Federated International Small Co. Fund II Portfolio $85 $123
Federated High Income Bond Fund II Portfolio $86 $123
Federated Equity Income Fund II Portfolio $87 $127
Alger American Small Capitalization Portfolio $87 $126
Alger American Growth Portfolio $86 $123
Alger American MidCap Growth Portfolio $86 $124
Alger American Leveraged AllCap Portfolio $87 $128
Alger American Income & Growth Portfolio $85 $120
Alger American Balanced Portfolio $87 $127
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If you do not terminate your Contract, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets.
Fund 1 Year 3 Years
----------------------------------------------------------------------
American National Growth Portfolio $22 $66
American National Balanced Portfolio $22 $67
American National Equity Income Portfolio $22 $68
American National Money Market Portfolio $22 $66
American National High Yield Bond Portfolio $21 $66
American National International Stock Portfolio $24 $73
American National Small-Cap/Mid-Cap Portfolio $28 $85
American National Government Bond Portfolio $21 $64
Fidelity Asset Manager Portfolio $22 $67
Fidelity Index 500 Portfolio $19 $58
Fidelity Contrafund Portfolio $22 $69
Fidelity Asset Manager: Growth Portfolio $23 $70
Fidelity Growth Opportunities Portfolio $22 $69
T. Rowe Price Equity Income Portfolio $21 $66
T. Rowe Price International Stock Portfolio $23 $72
T. Rowe Price Mid-Cap Growth Portfolio $21 $66
T. Rowe Price Limited - Term Bond Portfolio $20 $61
MFS Capital Opportunities Portfolio $22 $68
MFS Emerging Growth Portfolio $21 $65
MFS Research Portfolio $21 $66
MFS Growth With Income Portfolio $22 $67
Federated Utility Fund II Portfolio $22 $69
Federated Growth Strategies Fund II Portfolio $21 $66
Federated International Small Co. Fund II Portfolio $21 $64
Federated High Income Bond Fund II Portfolio $21 $64
Federated Equity Income Fund II Portfolio $22 $69
Alger American Small Capitalization Portfolio $22 $67
Alger American Growth Portfolio $21 $64
Alger American MidCap Growth Portfolio $21 $65
Alger American Leveraged AllCap Portfolio $22 $69
Alger American Income & Growth Portfolio $20 $61
Alger American Balanced Portfolio $22 $68
You should not consider the examples as representative of past or future
expenses.
The purpose of the preceding tables is to assist you in understanding the
various costs and expenses that you will bear directly or indirectly. 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 affect 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
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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 of 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.
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CONTRACT
Type of Contract
This prospectus offers a group unallocated variable annuity Contract, and our
obligations are strictly limited to those set forth in this prospectus. Neither
the Plan Participant, nor any person deriving any rights or benefits from a Plan
Participant, will at any time have any right, or interest in the Accumulation
Value. We incur no liability or obligation to any Plan Participant until there
has been a benefit purchased on behalf of a Plan Participant or person deriving
rights from a Plan Participant, in accordance with the provisions of the
Contract. Our sole responsibility to any such Plan Participant or person
deriving rights from a Plan Participant will be the payment of such benefits
purchased on his behalf.
If the Plan maintains individual accounts for each Plan Participant or
beneficiary, the Plan should have accounting procedures to allocate among those
accounts the gains, losses and charges under this Contract.
The terms of the Contracts may only be changed by mutual agreement between
American National and each Contract Owner, unless:
. the change is as described in the section entitled "Changes in Investment
Options" on page 33;
. American National is making the change in order to comply with a law or
regulation to which American National or the Contracts are subject; or
. American National is making the change in order to maintain the tax status of
the Contracts as described in the section entitled "Federal Tax Matters" on
page 34.
Contract Application and Purchase Payments
To purchase a Contract, you must complete an application and send a Purchase
Payment to our home office. (See "Allocation of Purchase Payments", page 19.) If
the 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 received by us are effective
when such Purchase Payments are received at our home office.
Purchase Payments paid are allocated as directed by you. Purchase Payments must
be for the purpose of providing for Plan benefits. We assume no liability as to
the sufficiency of the Accumulation Value to provide benefits according to the
provisions of the Plan.
Allocation of Purchase Payments
Purchase Payments will be allocated to the subaccounts according to instructions
in the application. You can change these allocations at any time by written
instruction to our home office, or if a properly completed telephone transfer
authorization form is on file with us, by telephone.
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Crediting of Accumulation Units
Purchase Payments will be used to purchase Accumulation Units in subaccounts as
the Contract Owner has 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. Purchase Payments are not credited until actually
received by us. A Plan Participant's contribution to a Plan will not be credited
until the Contract Owner forwards such contribution to us.
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. The Accumulation Unit value on each Valuation Date is equal to
the Accumulation Unit value for the preceding Valuation Date, multiplied by the
net investment factor for that subaccount on that Valuation Date.
A net investment factor is determined for each subaccount on a Valuation Date as
follows. First, we take the net asset value of a share in the corresponding
Eligible Portfolio at the close of business that day, and we add the per share
amount of any dividends or capital gains distributions declared by the Eligible
Portfolio during the Valuation Period. We divide this amount by the per share
net asset value on the preceding Valuation Date. Then we reduce the result for
the administrative asset fee and the mortality and expense risk fee.
We will calculate the Accumulation Unit value for each subaccount at the end of
each Valuation Period. Investment performance of the Eligible Portfolios, their
expenses and the deduction of certain charges by us affect the Accumulation Unit
value for each subaccount.
Transfers
You can make transfers among the subaccounts at any time. There are no
restrictions.
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.
Payment of withdrawal amounts and transfers may be postponed whenever: (1) the
NYSE is closed other than customary week-end and holiday closings, or trading on
the NYSE is restricted as determined by the SEC; (2) the SEC by order permits
postponement for the protection of the 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.
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CHARGES AND DEDUCTIONS
Surrender Charge
During the first seven Contract Years, a Surrender Charge may be imposed on
withdrawals at a rate of no more than 7% of the amount withdrawn. (See "Deferred
Sales Load (`Surrender Charge')" on page 9 for the table of surrender charges
rates).
We will deduct a surrender charge from the Accumulation Value for withdrawals of
all or a portion of Accumulation Value. However, no surrender charge will apply
to any such withdrawal:
a) if you request a lump sum cash distribution and give us proof that benefits
in the amount of the lump sum cash distribution are payable under the Plan
to a Plan Participant or beneficiary due to the death, disability,
termination of employment or retirement of a Plan Participant; or
b) if you request that such withdrawal be applied to purchase from us any of
the annuity options available under the Contract. (See "Annuity Options,
page 25.)
For termination, the surrender charge will be equal to the surrender charge
percentage multiplied by the Accumulation Value. The surrender charge percentage
will be determined by the Contract Year in which the termination occurs.
For withdrawals not exempt from the surrender charge, a surrender charge will be
assessed consistent with that for termination. The surrender charge percentage
will be determined by the Contract Year in which the withdrawal occurs.
Other Charges
The Contract is subject to certain other charges:
. Administrative Asset Fee
An administrative asset fee at an annual rate of 0.10% is assessed daily
against the separate account.
. Mortality and Expense Risk Fee
Annuity payments will not decrease because of adverse mortality experience of
Plan Participants as a class or increases in our actual expenses over expense
charges. We assume the risks that Plan Participants as a class may live
longer than expected (requiring a greater number of annuity payments) and
that fees may not be sufficient to cover our actual costs.
For our promises to accept these risks, a mortality and expense risk fee at
an annual rate of 1.15% will be assessed daily against the separate account.
. 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.
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. Portfolio Expenses
The Eligible portfolios in which you have invested will charge the portfolio
company annual expenses described on pages 10 - 15. For a more complete
description of those expenses, see the prospectuses for the Eligible
Portfolios.
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DISTRIBUTIONS UNDER THE CONTRACT
Withdrawals
The Contract Owner may make withdrawals under the Contract, in whole or in part,
subject to the following limitations:
. The request must be made in writing.
. If a partial withdrawal would leave less than $1,200 Accumulation Value, we
may terminate the Contract.
. A partial withdrawal request should specify the allocation of that withdrawal
among the subaccounts. If not specified, we will prorate the withdrawal among
the subaccounts. Surrender charges will be deducted from the Accumulation
Value remaining after a partial withdrawal.
. Additional limitations apply to withdrawals, as explained in, "Termination of
Contract".
The Accumulation Unit value for withdrawals will be the applicable Accumulation
Unit value determined on the Valuation Date following receipt by us at our home
office of your withdrawal request.
Accumulation Value can be determined by multiplying the number of Accumulation
Units for each subaccount times the Accumulation Unit value and summing the
results. The amount available for withdrawal equals the Accumulation Value less
any applicable surrender charge. Accumulation Value will be reduced by the
amount of any withdrawal and applicable surrender charge.
We expect to pay surrenders within seven days of receipt of your written request
in proper form, however payment of surrenders may be delayed under certain
circumstances. (See "Transfers" on page 20.)
Termination of Contract
You may terminate the Contract at any time by giving us written notice. Such
notice will specify a date of termination, which may not be earlier than 30 days
after receipt at our home office.
We may terminate the Contract by giving you written notice, if any one or more
of the following events occurs:
a) the Accumulation Value is less than $1,200; or
b) you failed to provide any information or render any performance required by
the terms of this Contract.
Such termination notice will specify a date of termination, which will not be
earlier than six months after the date you receive such notice.
Upon termination, no further Purchase Payment will be accepted, and you shall
designate a party to receive the amounts due on termination. We shall transfer
the balance of the Accumulation Value less any applicable surrender charge to
the designated party. We
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shall have no obligation or duty to verify that such party has the right to
receive such payment, nor that the Plan is or will continue to be qualified
under the Internal Revenue Code, nor that such payments will be properly applied
by the designated party. Such payment or payments will fully and finally
discharge us of all liability under this Contract, except for the payment of
annuity benefits previously purchased. (See "Annuity Options, page 25).
Termination of this Contract will have no effect upon the payments to be made by
us to any person for whom an annuity has been purchased prior to the date of
termination.
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ANNUITY PAYMENTS
You can apply all or part of the Accumulation Value to any of the annuity
options described below. These annuity options provide for fixed payments;
accordingly, Accumulation Value will be transferred to the General Account and
annuity payments will be based upon the annuity option selected. Annuity
payments can begin at any time. Such payments must be for the exclusive benefit
of a Plan Participant or beneficiary or for a person designated by you for the
exclusive benefit of such Plan Participant or beneficiary.
Annuity Options
The following annuity options are available to Contract Owners. The Plans will
specify which of these options are available to individual Plan Participants.
. Option 1 - Life Annuity -- monthly payments during the lifetime of an
individual, ceasing with the last annuity payment due before the individual's
death. This option offers the maximum level of monthly annuity payments since
there is no provision for a minimum number of annuity payments or a death
benefit for beneficiaries. It would be possible under this option for an
individual to receive only one annuity payment if death occurred before the
due date of the second annuity payment, two if death occurred before the
third annuity payment date, etc.
. Option 2 - Life Annuity with ten or 20 Years Certain -- monthly payments
during the lifetime of an individual with payments made for a period certain
of not less than ten or 20 years, as elected. The annuity payments will be
continued to a designated beneficiary until the end of the period certain.
. Option 3 - Joint and Survivor Annuity -- monthly payments during the joint
lifetime of an individual and another named individual and thereafter during
the lifetime of the survivor, ceasing with the last annuity payment due
before the survivor's death. It would be possible under this option for only
one annuity payment to be made if both individuals under the option died
before the second annuity payment date, or only two annuity payments if both
died before the third annuity payment date, etc.
. Option 4 - Installment Payments, Fixed Period --monthly payments for
specified number of years of at least 5, but not exceeding 30. Payments will
include interest at the effective rate of 2.5% per year.
. Option 5 - Equal Installment Payments, Fixed Amount -- monthly installments
(not less than $6.25 per $1,000 applied) until the amount applied, plus
interest at an effective rate of 2.5% per year, is exhausted. The final
annuity payment will be the remaining sum left with us. It may be more or
less than the other payments.
. Other Annuity Forms -- May be agreed upon.
If a beneficiary dies while receiving annuity payments certain under Option 2, 4
or 5 above, the present value of minimum guaranteed payments will be paid in a
lump sum to the estate of the beneficiary.
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The value of the annuity payment will vary based upon the amount of Accumulation
Value applied to the annuity option. In addition, the annuity payment will be
greater for shorter guaranteed periods than for longer guaranteed periods, and
greater for life annuities than joint and survivor annuities.
Annuity Provisions
We determine life contingent annuity payments based on the Annuity 2000
Mortality Table (50% male, 50% female blend) and 2.5% interest which generally
reflects the age of the payee and type of annuity option selected. The payee's
attained age at settlement will be adjusted downward by one year for each full
five-year period that has lapsed since January 1, 2000.
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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, 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
accounts 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 American National Variable Annuity 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 thirty-two 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
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votes for which a Contract Owner has the right to provide instructions will be
determined as of the record date selected by the Board of Directors of the
American National Fund, the Fidelity Funds, the T. Rowe Price Funds, the MFS
Fund, the 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 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.
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. 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 Portfolio
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 13 series or Portfolios, the following
five of which are Eligible Portfolios:
. Fidelity Asset Manager Portfolio ... seeks high total return with reduced
risk over the long-term by allocating its assets among stocks, bonds, and
short-term instruments.
. 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.
. 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
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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 Portfolio's
objective of capital
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appreciation. While the Portfolio's 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.
. 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
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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.
. 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.
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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.
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FEDERAL TAX MATTERS
Introduction
The following discussion is general in nature and is not intended as tax advice
for each Contract Owner. It does not address the tax consequences resulting
from all situations in which a Contract Owner may maintain such a Contract. Tax
advice should be sought from a competent source prior to purchase. The
discussion below is based on American National's understanding of the present
federal tax law as currently interpreted by the Internal Revenue Service. No
representation is made as to the continuation of present federal tax law or its
current interpretation. No attempt is made to consider any applicable state tax
or other tax laws, or to address any federal estate, or state and local estate,
inheritance and other tax consequences of ownership or receipt of distributions
under a Contract.
Taxation of Annuities in General
Since a group unallocated Contract is not purchased directly by individuals,
those portions of the Code relating to individual ownership of annuities are not
applicable to the group unallocated Contract Owner. Certain provisions of
section 72 of the Code would apply if the Contract Owner is a corporation or is
not a natural person and the Contract is not maintained under a plan which has
favorable tax treatment under the Code.
Qualified Contracts
The group unallocated Contract is designed for use with several types of
qualifying Plans subject to Code sections 401 and 457. The tax rules applicable
to such qualified Plans vary according to the type of Plan and the terms and
conditions of the Plan itself. Plan Participants in qualified Plans may include
business owners (both self-employed and stockholders) and their employees for
whom pension and profit sharing plans have been established and government
employees covered by a section 457 deferred compensation plan.
As a rule, Purchase Payments made by or for Plan Participants in qualified Plans
are not subject to taxation at the time such payments are made in the Contract.
In their capacity as Plan trustees or administrators, Contract Owners are
responsible for the communication of appropriate information about the operation
of the Plan and the tax consequences of making contributions to the Plan,
purchasing this Contract under the Plan, and distributing Plan benefits.
Distribution of benefits and tax withholding thereon is the sole responsibility
of the Contract Owner. Adverse tax consequences may result if contributions,
distributions, and other transactions with respect to the Contract do not comply
with the law.
Corporate pension and profit-sharing plans under section 401(a) of the Code
allow corporate employers to establish various types of retirement plans for
employees, and self-employed individuals to establish qualified plans for
themselves and their employees. A Contract Owner that uses the Contract in
conjunction with a defined contribution plan under section 401(a) of the Code
(which is also known as an
34
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"individual account plan") is solely responsible for allocating the assets of
the Contract with respect to participant's individual accounts.
Plans established under section 457 of the Code, while not actually providing
for a qualified plan as that term is normally used, provide for certain deferred
compensation plans with respect to service for state governments, local
governments, political subdivisions, agencies, instrumentalities and certain
affiliates of such entities, and tax exempt organizations. Under a section 457
Plan, a participant may usually specify the form of investment in which his or
her participation will be made. All such investments are, however, owned by and
are subject to the claims of the general creditors of the non-governmental
sponsoring employer. In general, all amounts received under a section 457 Plan
are taxable and are subject to federal income tax withholding as wages.
Due to the complexity of the tax rules associated with the sponsorship and
operation of qualified Plans, entities contemplating establishment of such Plans
should seek advice from competent sources with respect to the responsibilities
and obligations associated with such Plans.
We have the right to modify the Contract in response to legislative changes that
could otherwise diminish the favorable tax treatment of the group unallocated
Contract. We make no guarantee regarding the tax status of the Contract and do
not intend the above discussion as tax advice.
35
<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% 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 0.50% of the Contract's Accumulation
Value.
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<PAGE>
LEGAL MATTERS
Various matters of Texas law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Texas insurance law,
have been reviewed by Greer, Herz and Adams, LLP, General Counsel.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe at the present time no
lawsuits are pending or threatened that are reasonably likely to have a material
adverse impact on the separate account or us.
EXPERTS
The financial statements 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 giving
said reports.
ADDITIONAL INFORMATION
A registration statement describing the Contracts 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. Statements contained in this
prospectus as to the terms of the Contract and other legal instruments are
summaries. For a complete statement of such terms, reference is made to such
instruments as filed.
FINANCIAL STATEMENTS
Our financial statements should be considered only as bearing on our ability to
meet our obligations under the Contracts. They should not be considered as
bearing on the investment performance of the assets held in the separate
account. The financial statements can be found in the Statement of Additional
Information.
37
<PAGE>
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
The Contract............................................................. 3
Assignment............................................................... 3
Distribution of the Contract............................................. 3
Tax Matters.............................................................. 3
Records and Reports...................................................... 4
Performance.............................................................. 4
Total Return............................................................. 4
Other Total Return....................................................... 5
Yields................................................................... 5
State Law Differences.................................................... 6
Separate Account......................................................... 6
Termination of Participating Agreements.................................. 7
Financial Statements..................................................... 12
Financials............................................................... 13
</TABLE>
38
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This page left blank intentionally.
39
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[LOGO]
AMERICAN NATIONAL INSURANCE COMPANY
One Moody Plaza Galveston, Texas 77550-7999
40
<PAGE>
Group Unallocated Variable Annuity Contract
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 August 11, 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
August 11, 2000
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Group Unallocated Variable Annuity Contract offered
by American National Insurance Company ("American National"). You may obtain a
copy of the prospectus dated August 11, 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.
Form 4872-SAI
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
The Contract.............................................................. 3
Assignment................................................................ 3
Distribution of the Contract.............................................. 3
Tax Matters............................................................... 3
Records and Reports....................................................... 4
Performance............................................................... 4
Total Return............................................................ 4
Other Total Return...................................................... 5
Yields.................................................................. 5
State Law Differences..................................................... 6
Separate Account.......................................................... 6
Termination of Participating Agreements................................... 7
Financial Statements...................................................... 12
Financials................................................................ 13
</TABLE>
2
<PAGE>
The Contract
The following provides additional information about the Contract which
supplements the description in the prospectus.
Assignment
The Contract may not be assigned
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.
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
3
<PAGE>
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.
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.
Performance
Performance information for any subaccount may be compared, in reports and
advertising to:
. the Standard & Poor's 500 Composite Stock Price Index ("S & P 500"),
. Dow Jones Industrial Average ("DJIA"),
. Donoghue's Money Market Institutional Averages;
. other variable annuity separate accounts or other investment products tracked
by Lipper Analytical Services, Lehman-Brothers, Morningstar, or the Variable
Annuity Research and Data Service, widely used independent research firms
which rank mutual funds and other investment companies by overall
performance, investment objectives, and assets, and
. the Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in a Contact.
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges and investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including:
. the ranking of any subaccount derived from rankings of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Series or by rating services, companies, publications or other persons who
rank separate accounts or other investment products on overall performance or
other criteria, and
. the effect of tax deferred compounding on a subaccount's investment returns,
or returns in general, which may be illustrated by graphs, charts, or
otherwise, and which may include a comparison, at various points in time, of
the return from an
4
<PAGE>
investment in a Contract (or returns in general) on a tax-deferred basis
(assuming one or more tax rates) with the return on a taxable basis.
Total Return
Total return quoted in advertising reflects all aspects of a subaccount's
return, including the automatic reinvestment by the separate account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady rate
that would equal 100% growth on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
Average annual total returns are computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula:
P(1+T)/n/ = ERV
where P is a hypothetical investment payment of $1,000, T is the average annual
total return, n is the number of years, and ERV is the withdrawal value at the
end of the periods shown. Since the Contract is intended as a long-term
product, the average annual total returns assume that no money was withdrawn
from the Contract prior to the end of the period.
In addition to average annual returns, the subaccounts may advertise unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period.
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the separate account
commenced operations. Such performance information for the subaccounts will be
calculated based on the performance of the Eligible Portfolios and the
assumption that the subaccounts were in existence for the same periods as those
indicated for the Eligible Portfolios, with the level of Contract charges
currently in effect.
Other Total Return
From time to time, sales literature or advertisements may also quote average
annual total returns that do not reflect the Surrender Charge. These are
calculated in exactly the same way as the average annual total returns described
above, except that the ending redeemable value of the hypothetical account for
the period is replaced with
5
<PAGE>
an ending value for the period that does not take into account any charges on
amounts surrendered. Sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Separate Account
commenced operations, calculated based on the performance of the Eligible
Portfolios and the assumption that the subaccounts were in existence for the
same periods as those indicated for the Eligible Portfolios, with the level of
Contract charges currently in effect except for the Surrender Charge.
Yields
Some subaccounts may also advertise yields. Yields quoted in advertising
reflect the change in value of a hypothetical investment in the subaccount over
a stated period of time, not taking into account capital gains or losses.
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 of a money market
subaccount will reflect the income generated 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 a money
market subaccount is calculated in a similar manner to current yield except that
investment income is assumed to be reinvested throughout the year at the 7-day
rate. Effective yield is obtained by taking the base period returns as computed
above, and then compounding the base period return by adding 1, raising the sum
to a power equal to (365/7) and subtracting one from the result, according to
the formula
Effective Yield = [(Base Period Return +1)/365/7/] - 1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
A 30-day yield for bond subaccounts will reflect the income generated by a
subaccount over a 30-day period. Yield will be computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Accumulation Unit on the last day of the period, according to
the following formula:
Yield = 2[((a - b)/cd + 1)/6/ - 1]
where a = net investment income earned by the applicable Portfolio, b = expenses
for the period including expenses charged to the Contract Owner accounts, c =
the average daily number of Accumulation Units outstanding during the period,
and d = the maximum offering price per Accumulation Unit on the last day of the
period.
State Law Differences
6
<PAGE>
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.
7
<PAGE>
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, or
. provide benefits.
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.
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 is 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.
8
<PAGE>
The American National Fund
The participation agreement for the American National Fund provides for
termination:
. upon sixty days advance written notice by any party,
. by American National if any of the American National Fund's shares are not
reasonably available to meet the requirements of the Contracts,
. by American National if any of the shares of the American National Fund are
not registered, issued or sold in accordance with applicable state and/or
federal law or such law precludes use of such shares as the underlying
investment medium of the Contracts,
. by American National upon the requisite vote of the Contract Owners having an
interest in a particular subaccount to substitute the shares of another
investment company for the corresponding American National Fund shares, or
. by American National upon institution of formal proceedings against the
American National Fund by the SEC.
The Fidelity Funds
All participation agreements for the Fidelity Funds provide for termination:
. upon sixty days advance written notice by any party,
. by American National with respect to any Fidelity Portfolio if American
National determines that shares of such Fidelity Portfolio are not reasonably
available to meet the requirements of the Contracts,
. by American National with respect to any Fidelity Portfolio if any of the
shares of such Fidelity Portfolio are not registered, issued, or sold in
accordance with applicable state or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts,
. by American National with respect to any Fidelity Portfolio if such Fidelity
Portfolio ceases to be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code (the "Code"), or if American
National reasonably believes the Fidelity Funds may fail to so qualify,
. by American National with respect to any Fidelity Portfolio if such Fidelity
Portfolio fails to meet the diversification requirements specified in the
Fidelity participation agreement,
. by the Fidelity Funds or the underwriter, upon a determination by either,
that American National has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by American National upon a determination by American National that either
the Fidelity Funds or the underwriter has suffered a material adverse change
in its
9
<PAGE>
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 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.
10
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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,
. 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,
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<PAGE>
. upon a determination by the Federated Fund that an irreconcilable conflict
exists 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, 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
12
<PAGE>
. 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.
Financial Statements
13
<PAGE>
The financial statements of American National should be considered only as
bearing on the ability of American National to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the separate account.
14
<PAGE>
Report of Independent Public Accountants
To the 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
15
<PAGE>
AMERICAN NATIONAL INSURANCE COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
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
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
16
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------
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
===================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
17
<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
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
18
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
<S> <C> <C> <C>
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
==================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
19
<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.
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.
20
<PAGE>
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.
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
21
<PAGE>
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.
22
<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 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.
23
<PAGE>
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.
24
<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.
25
<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>
26
<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 from sales of available-for-
27
<PAGE>
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.
28
<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>
29
<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.
30
<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>
31
<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.
32
<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.
33
<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.
34
<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>
35
<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.
36
<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.
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
37
<PAGE>
(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.
38
<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.
39
<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.
40
<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):
Total Revenues
<TABLE>
<CAPTION>
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.
41
<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.
42
<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
-------------------------------------------------------------------------------------------------------------------
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.
43
<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>
44
<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.
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'
45
<PAGE>
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.
46
<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
47
<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
==================================================================================================
</TABLE>
(a) Original cost of equity securities and, as to fixed maturities, original
cost reduced by repayments and valuation write-downs and adjusted for
amortization of premiums or accrual of discounts.
48
<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> <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 A 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.
49
<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>
50
<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.
51
