Document/Exhibit Description Pages Size
1: 485BPOS Wealthquest Va 148 685K
3: EX-99.B10A Consent of Kpmg LLP 1 5K
4: EX-99.B10B Consent of Arthur Anderson LLP 1 5K
5: EX-99.B14 Control List 10 27K
2: EX-99.B9 Opinion of Greer, Herz and Adams LLP 2 9K
| Page | (sequential) | | | | (alphabetic) | Top |
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| | |
- Alternative Formats (Word, et al.)
- Accumulation Unit Values
- Additional Information
- Alger American Fund
- All Contracts
- Allocation of Benefits
- Allocation of Charges and Other Deductions to the Subaccounts and the Fixed Account
- Allocation of Purchase Payments
- American National Insurance Company
- Annuity Options
- Annuity Payments
- Annuity Provisions
- Annuity Unit Value
- Assignment
- Bonds
- Can I Get My Money if I Need It?
- Can I Transfer Amounts Between the Investment Alternatives?
- Changes in Investment Options
- Charges and Deductions Before Annuity Date
- Company, Separate Account, Funds and Fixed Account, The
- Computation of Variable Annuity Payments
- Contract
- Contract Application and Purchase Payments
- Contract Owner Transaction Expenses
- Contract, The
- Crediting of Accumulation Units
- Death Benefit before Annuity Date
- Deduction of Fees
- Deferred Sales Load ("Surrender Charge")
- Determining Accumulation Unit Values
- Directors
- Directors and Officers of the Depositor
- Distribution of the Contract
- Distributions during the Annuity Period
- Distributions under the Contract
- Distributor of the Contract
- Election of Annuity Date and Form of Annuity
- Exceptions to Charges
- Exchanges
- Expenses Before the Annuity Date
- Expenses During the Annuity Period
- Experts
- Federal Tax Matters
- Federated Fund
- Financial Statements
- Financial Statements and Exhibits
- Fixed Account
- Funds, The
- Glossary
- How Can I Receive Annuity Payments?
- How Do I Allocate Purchase Payments?
- How Do I Purchase a Contract?
- If I have Questions, Where Can I Go?
- Indemnification
- Introduction
- Investments
- Lazard Fund
- Legal Matters
- Legal Proceedings
- Location of Accounts and Records
- Management Services
- Mfs Fund
- Minimum Distributions Program
- Mortgage loans
- Multiple Contracts
- Number of Contractowners
- Other Charges
- Other Total Return
- Penalty Tax
- Performance
- Persons Controlled by or Under Common Control with Depositor of Registrant
- Possible Changes in Taxation
- Principal Underwriters
- Records and Reports
- Required Distributions
- Separate Account
- Separate Account, The
- S & P 500
- Special Programs
- State Law Differences
- Summary
- Surrender Charge
- Surrenders
- Systematic Withdrawal Program
- Table of Contents
- Table of Contents of Statement of Additional Information
- Taxation of Annuities in General
- Taxation of Death Benefit Proceeds
- Taxation of Qualified Contracts
- Tax Matters
- Tax Status of the Contracts
- The Company, Separate Account, Funds and Fixed Account
- The Contract
- The Funds
- The Separate Account
- This participation agreement provides for termination:
- Total Return
- Transfers Before Annuity Date
- Transfers or Assignments of a Contract
- Type of Contract
- Undertakings
- Valuation of Accumulation Units
- Value of Variable Annuity Payments: Assumed Investment Rates
- Van Eck Fund
- What are my Investment Options?
- What are the Charges and Deductions under the Contract?
- What are the Tax Consequences Associated with the Contract?
- What is the Death Benefit under the Contract?
- What is the Purpose of the Contract?
- Withdrawals
- Withholding
- Yields
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| 1 | 1st Page - Filing Submission
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| " | American National Insurance Company
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| 3 | Table of Contents
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| 5 | Glossary
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| " | Alger American Fund
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| " | Contract
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| " | Federated Fund
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| " | Fixed Account
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| " | Lazard Fund
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| " | Mfs Fund
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| 6 | Van Eck Fund
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| 7 | Introduction
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| " | What is the Purpose of the Contract?
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| " | What are my Investment Options?
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| 8 | How Do I Purchase a Contract?
|
| " | How Do I Allocate Purchase Payments?
|
| " | Can I Transfer Amounts Between the Investment Alternatives?
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| 9 | What is the Death Benefit under the Contract?
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| " | Can I Get My Money if I Need It?
|
| " | How Can I Receive Annuity Payments?
|
| " | What are the Charges and Deductions under the Contract?
|
| " | What are the Tax Consequences Associated with the Contract?
|
| 10 | If I have Questions, Where Can I Go?
|
| 11 | Contract Owner Transaction Expenses
|
| " | Expenses Before the Annuity Date
|
| " | Deferred Sales Load ("Surrender Charge")
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| 18 | Expenses During the Annuity Period
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| 21 | Accumulation Unit Values
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| 26 | Type of Contract
|
| " | Contract Application and Purchase Payments
|
| " | Allocation of Purchase Payments
|
| " | Crediting of Accumulation Units
|
| " | Allocation of Charges and Other Deductions to the Subaccounts and the Fixed Account
|
| 27 | Determining Accumulation Unit Values
|
| " | Transfers Before Annuity Date
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| " | Special Programs
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| 28 | Charges and Deductions Before Annuity Date
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| " | Surrender Charge
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| 29 | Other Charges
|
| " | Deduction of Fees
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| 30 | Exceptions to Charges
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| 31 | Distributions under the Contract
|
| " | Surrenders
|
| " | Systematic Withdrawal Program
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| 34 | Death Benefit before Annuity Date
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| 36 | Distributions during the Annuity Period
|
| " | Election of Annuity Date and Form of Annuity
|
| " | Allocation of Benefits
|
| " | Annuity Options
|
| 37 | Value of Variable Annuity Payments: Assumed Investment Rates
|
| " | Annuity Provisions
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| 39 | The Company, Separate Account, Funds and Fixed Account
|
| " | The Separate Account
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| 40 | The Funds
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| 41 | S & P 500
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| 44 | Changes in Investment Options
|
| 45 | Federal Tax Matters
|
| " | Tax Status of the Contracts
|
| " | Taxation of Annuities in General
|
| " | Withdrawals
|
| " | Penalty Tax
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| 46 | Annuity Payments
|
| " | Taxation of Death Benefit Proceeds
|
| " | Transfers or Assignments of a Contract
|
| " | Required Distributions
|
| " | Withholding
|
| " | Multiple Contracts
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| 47 | Exchanges
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| " | Taxation of Qualified Contracts
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| 48 | Possible Changes in Taxation
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| " | All Contracts
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| 50 | Performance
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| " | Distributor of the Contract
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| 51 | Legal Matters
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| " | Legal Proceedings
|
| " | Experts
|
| " | Additional Information
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| 52 | Financial Statements
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| 53 | Table of Contents of Statement of Additional Information
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| 56 | The Contract
|
| " | Valuation of Accumulation Units
|
| " | Computation of Variable Annuity Payments
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| 57 | Annuity Unit Value
|
| " | Summary
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| 58 | Assignment
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| " | Minimum Distributions Program
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| " | Distribution of the Contract
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| 60 | Tax Matters
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| " | Records and Reports
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| 61 | Total Return
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| " | Other Total Return
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| 62 | Yields
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| " | State Law Differences
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| " | Separate Account
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| 64 | This participation agreement provides for termination:
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| 103 | Investments
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| 110 | Bonds
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| 112 | Mortgage loans
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| 136 | Items 24. Financial Statements and Exhibits
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| 138 | Item 25. Directors and Officers of the Depositor
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| " | Directors
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| 142 | Item 26. Persons Controlled by or Under Common Control with Depositor of Registrant
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| " | Item 27. Number of Contractowners
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| 143 | Item 28. Indemnification
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| " | Item 29. Principal Underwriters
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| 145 | Item 30. Location of Accounts and Records
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| " | Item 31. Management Services
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| " | Item 32. Undertakings
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Registration Number 333-10581
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-effective Amendment No. 5
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 22
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
(Exact Name of Registrant)
AMERICAN NATIONAL INSURANCE COMPANY
(Exact Name of Depositor)
One Moody Plaza
Galveston, Texas 77550
(Address of Depositor's Principal Executive Offices)
(409) 763-4661
(Depositor's Telephone Number, including Area Code)
Rex Hemme Jerry L. Adams
Vice President, Actuary Greer, Herz & Adams, L.L.P.
American National Insurance Company With copy to: One Moody Plaza
One Moody Plaza Galveston, Texas 77550
Galveston, Texas 77550
(Name and Address of Agent for Service)
Declaration Required by Rule 24f-2(a)(1): An indefinite number of securities of
the Registrant has been registered under the Securities Act of 1933 pursuant to
Rule 24f-2 under the Investment Company Act of 1940. Notice required by Rule
24f-2(b)(1) has been filed in the Office of the Securities and Exchange
Commission on March 30, 2001 for the Registrant's fiscal year ending December
31, 2000.
It is proposed that this filing will become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[x] on May 1, 2001 pursuant to paragraph (b) of Rule 485
[ ] 60 days after filing pursuant to paragraph (a)(i) of Rule 485
[ ] on (date) pursuant to paragraph (a)(i) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(ii) of rule 485
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment
Title of Securities Being Registered: Variable Annuity Contracts
WEALTHQUEST VARIABLE ANNUITY II
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
HOME OFFICE ONE MOODY PLAZA GALVESTON TX 77550-7999
PROSPECTUS MAY 1, 2001 1-800-306-2959
This prospectus describes an individual deferred variable annuity contract.
You can allocate your contract value to American National Variable Annuity
Separate Account, which reflects the investment performance of the following
eligible portfolios selected by you, and our Fixed Account which earns a
guaranteed minimum rate. At this time, you can allocate your contract value to
the following mutual fund portfolios:
AMERICAN NATIONAL FUND
. Growth Portfolio
. Balanced Portfolio
. Equity Income Portfolio
. Money Market Portfolio
. High Yield Bond Portfolio
. International Stock Portfolio
. Small-Cap/Mid-Cap Portfolio
. Government Bond Portfolio
FIDELITY FUND
. Asset Manager Portfolio
. Index 500 Portfolio
. Contrafund Portfolio
. Asset Manager: Growth Portfolio
. Growth Opportunities Portfolio
T. ROWE PRICE FUND
. Equity Income Portfolio
. Mid-Cap Growth Portfolio
. International Stock Portfolio
. Limited-Term Bond Portfolio
MFS FUND
. Capital Opportunities Portfolio
. Emerging Growth Portfolio
. Research Portfolio
. Investors Trust Portfolio
VAN ECK FUND
. Worldwide Hard Assets Portfolio
. Worldwide Emerging Markets Portfolio
FEDERATED FUND
. Utility Fund II Portfolio
. Growth Strategies Portfolio
. U.S. Government Bond Portfolio
. High Income Bond Portfolio
. Equity Income Fund II Portfolio
LAZARD FUND
. Retirement Emerging Markets Portfolio
. Retirement Small Cap Portfolio
ALGER AMERICAN FUND
. Small Capitalization Portfolio
. Growth Portfolio
. MidCap Growth Portfolio
. Leveraged AllCap Portfolio
. Income & Growth Portfolio
. Balanced Portfolio
THIS PROSPECTUS CONTAINS INFORMATION THAT YOU SHOULD KNOW BEFORE PURCHASING A
CONTRACT. ADDITIONAL INFORMATION ABOUT THE CONTRACT IS CONTAINED IN A STATEMENT
OF ADDITIONAL INFORMATION ("SAI") FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION, ("SEC") WHICH IS INCORPORATED BY REFERENCE INTO THIS PROSPECTUS. YOU
MAY OBTAIN A FREE COPY OF THE SAI, WHICH IS DATED THE SAME DATE AS THIS
PROSPECTUS, BY WRITING OR CALLING US AT OUR HOME OFFICE. THE TABLE OF CONTENTS
OF THE SAI IS ON PAGE 57 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.
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. FOR
A FULL DESCRIPTION OF THE AMERICAN NATIONAL FUND, FIDELITY FUNDS, T. ROWE PRICE
FUNDS, MFS FUND, VAN ECK FUND, FEDERATED FUND, LAZARD FUND AND ALGER AMERICAN
FUND, THEIR INVESTMENT POLICIES AND RESTRICTIONS, RISKS, CHARGES AND EXPENSES
AND OTHER ASPECTS OF THEIR OPERATION, SEE THEIR PROSPECTUSES.
Please Read This Prospectus Carefully and Keep it for Future Reference
Form 3934 Rev. 5-01
1
TABLE OF CONTENTS
PAGE
Glossary.......................................................... 4
Introduction...................................................... 6
What is the Purpose of the Contract?............................ 6
What are my Investment Options?................................. 6
How Do I Purchase a Contract?................................... 6
How Do I Allocate Purchase Payments?............................ 7
Can I Transfer Amounts Between the Investment Alternatives?..... 7
What is the Death Benefit under the Contract?................... 8
Can I Get My Money if I Need It?................................ 8
How Can I Receive Annuity Payments?............................. 8
What are the Charges and Deductions under the Contract?......... 8
What are the Tax Consequences Associated with the Contract?..... 9
If I have Questions, Where Can I Go?............................ 9
Contract Owner Transaction Expenses............................... 10
Expenses Before the Annuity Date................................ 10
Sales Load as a Percentage of Purchase Payments................. 10
Deferred Sales Load ("Surrender Charge")........................ 10
Expenses During the Annuity Period.............................. 17
Accumulation Unit Values.......................................... 21
Contract.......................................................... 26
Type of Contract................................................ 26
Contract Application and Purchase Payments...................... 26
Allocation of Purchase Payments................................. 26
Crediting of Accumulation Units................................. 26
Allocation of Charges and Other Deductions to the Subaccounts
and the Fixed Account......................................... 27
Determining Accumulation Unit Values............................ 27
Transfers Before Annuity Date................................... 27
Special Programs................................................ 28
Charges and Deductions Before the Annuity Date.................... 29
Surrender Charge................................................ 29
Other Charges................................................... 30
Deduction of Fees............................................... 30
Exception to Charges............................................ 31
Distributions under the Contract.................................. 32
Distributions before the Annuity Date............................. 32
Surrenders...................................................... 32
Systematic Withdrawal Program................................... 32
2
PAGE
Waiver of Surrender Charge........................................ 33
Death Benefit Before the Annuity Date........................... 35
Distributions during the Annuity Period........................... 37
Election of Annuity Date and Form of Annuity.................... 37
Allocation of Benefits.......................................... 37
Annuity Options................................................. 37
Value of Variable Annuity Payments: Assumed Investment Rates.... 39
Annuity Provisions.............................................. 39
The Company, Separate Account, Funds and Fixed Account............ 40
American National Insurance Company............................. 40
The Separate Account............................................ 40
The Funds....................................................... 41
Changes in Investment Options................................... 47
Fixed Account..................................................... 47
Federal Tax Matters............................................... 48
Introduction.................................................... 48
Tax Status of the Contracts..................................... 48
Taxation of Annuities in General................................ 48
Withdrawals..................................................... 48
Penalty Tax..................................................... 49
Annuity Payments................................................ 49
Taxation of Death Benefit Proceeds.............................. 49
Transfers or Assignments of a Contract.......................... 49
Required Distributions.......................................... 50
Withholding..................................................... 50
Multiple Contracts.............................................. 50
Exchanges....................................................... 50
Taxation of Qualified Contracts................................. 50
Distribution from Qualified Contracts........................... 51
Possible Changes in Taxation.................................... 53
All Contracts................................................... 53
Performance....................................................... 54
Distributor of the Contract....................................... 54
Legal Matters..................................................... 55
Legal Proceedings................................................. 55
Experts........................................................... 55
Additional Information............................................ 55
Financial Statements.............................................. 56
Table of Contents of Statement of Additional Information.......... 57
3
GLOSSARY
ACCUMULATION PERIOD. The time between the date Accumulation Units are first
purchased by us and the earliest of (1) the Annuity Date; (2) the date the
Contract is surrendered; or (3) the date of the Contract Owner's death.
ACCUMULATION UNIT. A unit used by us to calculate a Contract's value during the
Accumulation Period.
ACCUMULATION VALUE. The sum of (1) the value of your Accumulation Units and (2)
value in the Fixed Account.
ALGER AMERICAN FUND. The Alger American Fund
AMERICAN NATIONAL FUND. American National Investment Accounts, Inc.
ANNUITANT. The person or persons who will receive annuity payments involving
life contingencies.
ANNUITY DATE. The date annuity payments begin.
ANNUITY PERIOD. The time during which annuity payments are made.
ANNUITY UNIT. A unit used by us to calculate the dollar amount of annuity
payments.
COMPANY ("WE", "OUR" OR "US" ). American National Insurance Company
CONTRACT. The contract described in this Prospectus.
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 the Contract was issued.
CONTRACT YEAR. A one-year period, commencing on either the date of issue or a
Contract Anniversary.
DATE OF ISSUE. The date a Contract is issued.
ELIGIBLE PORTFOLIO. A Portfolio which corresponds to a subaccount.
FEDERATED FUND. Federated Insurance Series
FIDELITY FUNDS. Variable Insurance Products Fund II and Variable Insurance
Products Fund III
FIXED ACCOUNT. A part of our General Account which will accumulate interest at a
fixed rate.
GENERAL ACCOUNT. All of our assets except those segregated in separate accounts.
LAZARD FUND. Lazard Retirement Series, Inc.
MFS FUND. MFS Variable Insurance Trust
NON-QUALIFIED CONTRACT. A Contract issued in connection with a retirement plan
that does not receive favorable tax treatment under the Internal Revenue Code.
PORTFOLIO. A series of a mutual fund designed to meet specified investment
objectives.
PURCHASE PAYMENT. A payment made to us during the Accumulation Period less any
premium tax charges.
4
QUALIFIED CONTRACT. A Contract issued in connection with a retirement plan that
receives favorable tax treatment under the Internal Revenue Code.
T. ROWE PRICE FUNDS. T. Rowe Price Equity Series, Inc., T. Rowe Price
International Series, Inc. and T. Rowe Price Fixed Income Series, Inc.
VALUATION DATE. Each day the New York Stock Exchange ("NYSE") is open for
regular trading. A redemption, transfer or purchase made only on days that
American National is open. American National will be open on each day the NYSE
is open except for the day after Thanksgiving and Christmas Eve day.
VALUATION PERIOD. The close of business on one Valuation Date to the close of
business on another.
VAN ECK FUND. Van Eck Worldwide Insurance Trust
VARIABLE ANNUITY. An annuity with payments that vary in dollar amount.
5
INTRODUCTION
WHAT IS THE PURPOSE OF THE CONTRACT?
The Contract allows you to accumulate funds, on a tax-deferred basis, that will
increase or decline in value based on the performance of investments you choose.
You should use the Contract for retirement planning or other long-term goals.
WHAT ARE MY INVESTMENT OPTIONS?
You can invest your Purchase Payments in one or more of the following
subaccounts of the Separate Account, each of which invests exclusively in shares
of a corresponding Eligible Portfolio:
. American National Growth
. American National Balanced
. American National 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 Investors Trust
. Van Eck Worldwide Hard Assets
. Van Eck Worldwide Emerging Markets
. Federated Utility Fund II
. Federated Growth Strategies
. Federated U.S. Government Bond
. Federated High Income Bond
. Federated Equity Income Fund II
. Lazard Retirement Emerging Markets
. Lazard Retirement Small Cap
. Alger Small Capitalization
. Alger American MidCap Growth
. Alger American Growth
. Alger American Balanced
. Alger American Leveraged AllCap
. Alger American Income & Growth
6
Each such subaccount and corresponding Eligible Portfolio has its own investment
objective. Some of the Eligible Portfolios have similar investment objectives.
(See "Funds" beginning on page 41.) There is no assurance that Eligible
Portfolios will achieve their investment objectives. Accordingly, you could lose
some or all of your Contract value.
You can also invest in our Fixed Account.
HOW DO I PURCHASE A CONTRACT?
You can purchase a Contract by completing an application and paying the minimum
Purchase Payment to our home office. You must make at least a $5,000 minimum
initial Purchase Payment and at least $2,000 subsequent Purchase Payments. We
may change these amounts.
Without our prior approval, the maximum Purchase Payment under a Contract is
$1,000,000.
For a limited time, usually ten days after you receive the Contract, you can
return the Contract to our home office and receive a refund. (See, "Contract
Application and Purchase Payments" on page 26.)
HOW DO I ALLOCATE PURCHASE PAYMENTS?
Your can allocate your Purchase Payments among the 36 currently available
subaccounts and the Fixed Account. You cannot allocate less than 1% of a
Purchase Payment to any one investment option. The minimum initial deposit in
any subaccount and the Fixed Account is $500.
CAN I TRANSFER AMOUNTS BETWEEN THE INVESTMENT ALTERNATIVES?
You can make transfers between subaccounts and to our Fixed Account at any time.
Transfers from our Fixed Account before the Annuity Date are limited. (See
"Transfers Before Annuity Date" on page 27 for additional limitations.)
Transfers from our Fixed Account after the Annuity Date are not permitted. (See
"Allocation of Benefits" on page 37 for additional limitations.)
Before the Annuity Date, you can make twelve transfers each Contract Year at no
charge. Additional transfers will be subject to a $10.00 exchange fee. Transfers
after the Annuity Date are unlimited and free.
You should periodically review your allocations among the subaccounts and the
Fixed Account to make sure they fit your current situation and financial goals.
You can make allocation changes in writing or during our normal business hours
by telephone if a telephone authorization form is on file with us. We will
employ reasonable procedures to confirm that telephone instructions are genuine.
These procedures may include requiring callers to identify themselves and the
policy owner or others (e.g., beneficiary) by name, social security number, date
of birth, or other identifying information. There are risks associated with
telephone transactions that do not exist if a written request is submitted.
Anyone authorizing or making telephone requests bears those risks. We will not
be liable for any liability or losses resulting from unauthorized or allegedly
unauthorized telephone requests that we believe are genuine. We may record
telephone requests. We can not guarantee that we will be available to accept
telephone transfer instructions.
The contracts are first and foremost annuity policies, designed for retirement
or other long-term financial planning, and are not designed for or appropriate
for market timers or other persons that use programmed, large, or frequent
transfers. The use of such transfers can be disruptive to an underlying
portfolio and harmful to other policy owners invested in the portfolio. We
therefore reserve the right to reject any transfer request (or premium payment)
from any person if, in our judgment, an underlying portfolio or other policy
owners would potentially be adversely affected or if an underlying portfolio
objects to or would reject our transaction order. We may impose
7
severe restrictions on transfers or even prohibit them for particular policy
owners who, in our view, have abused or appear likely to abuse the transfer
privilege.
WHAT IS THE DEATH BENEFIT UNDER THE CONTRACT?
If you or the Annuitant die before the Annuity Date, the death benefit will be
at least that amount of the Accumulation Value on the date notice of death is
received at our home office. The death benefit may be more. (See "Death Benefit
before Annuity Date" on page 35.).
CAN I GET MY MONEY IF I NEED IT?
By written request to us, you can withdraw all or part of your Accumulation
Value at any time before the Annuity Date. Such withdrawal may be subject to a
Surrender Charge, an IRS penalty tax and income tax. If your contract was
purchased in connection with a retirement plan, such withdrawal may also be
subject to plan restrictions. Withdrawals from a Contract qualified under
Section 403(b) of the Internal Revenue Code may be restricted. (See "Taxation of
Qualified Contracts" under "Federal Tax Matters" at page 50.)
HOW CAN I RECEIVE ANNUITY PAYMENTS?
You can choose from a number of annuity payment options, which include
. monthly payments for a number of years
. payments for life
. payments made jointly
You can also choose to receive your Annuity Payments on a fixed or variable
basis. Variable payments will increase or decrease based on the investment
performance of the Eligible Portfolios and the declared rate paid by us on our
Fixed Account. (See "Annuity Options", page 37.)
WHAT ARE THE CHARGES AND DEDUCTIONS UNDER THE CONTRACT?
We do not currently deduct a sales charge when you purchase your Contract. We
may deduct a surrender charge up to 7% of Purchase Payments withdrawn.
You will also be charged an annual contract fee of $35 unless
. all of your Accumulation Value is in the Fixed Account, or
. your Accumulation Value is greater than $50,000 on the last day of a Contract
Year.
We charge a daily amount equal, on an annual basis, a mortality and expense risk
fee of 1.15% of the Contract's daily Accumulation Value to meet our death
benefit obligations and to pay on expenses not covered by the annual contract
fee.
We also charge a daily administrative fee equal, on an annual basis, to 0.10% of
the Contract's daily Accumulation Value.
Additional charges may be made by us for premium taxes when incurred.
WHAT ARE THE TAX CONSEQUENCES ASSOCIATED WITH THE CONTRACT?
You are generally required to pay taxes on amounts earned in a Non-Qualified
Contract only when they are withdrawn. When you take distributions or
withdrawals from a Contract, taxable earnings are considered to be paid out
first, followed by the investment in the Contract. All or a portion of each
annuity payment you receive under a Non-Qualified Contract will be taxable.
Distributions from a Contract are taxed as ordinary income. You may owe a 10%
federal income tax penalty for distributions or withdrawals taken before age
59/1//2.
You are generally required to pay taxes on all amounts withdrawn from a
Qualified Contract because Purchase Payments were made with before-tax dollars.
Restrictions and penalties may apply to withdrawals from Qualified Contracts.
(See "Federal Tax Matters", page 48.)
8
IF I HAVE QUESTIONS, WHERE CAN I GO?
If you have any questions about the Contract, you can contact your registered
representative or write us at P.O. Box 1893, Galveston, Texas, 77553-1893 or
call us at 1-800-306-2959.
9
CONTRACT OWNER TRANSACTION EXPENSES
EXPENSES BEFORE THE ANNUITY DATE
The following table summarizes the charges we will make before the Annuity Date.
The table also summarizes the fees and expenses of the Eligible Portfolios. You
should consider this information with the information under the heading "Charges
and Deductions Before Annuity Date" on page 29.
SALES LOAD AS A PERCENTAGE OF PURCHASE PAYMENTS 0%
DEFERRED SALES LOAD ("SURRENDER CHARGE")
. Free Withdrawal Amount
In any Contract Year, you can withdraw the greater of (1) 10% of your
Accumulation Value or (2) your Accumulation Value less total Purchase
Payments free (the "Free Withdrawal Amount"). The portion of a withdrawal in
excess of the Free Withdrawal Amount is a withdrawal of Purchase Payments and
is subject to a Surrender Charge.
When you make a withdrawal, we will divide such withdrawal by your
Accumulation Value and convert such result to a percentage. We will then
reduce the first part of the formula for calculating the Free Withdrawal
Amount (i.e., the 10% of Accumulation Value) by that percentage and will use
the reduced percentage in the formula for calculating the Free Withdrawal
Amount for additional withdrawals in that same Contract Year.
. Calculation of Surrender Charges
Surrender Charges vary depending on the number of Contract Years since the
Purchase Payment being withdrawn was paid, on a first paid first withdrawn
basis. The Surrender Charge will be deducted from your Accumulation Value, if
sufficient. If your Accumulation Value is not sufficient, your withdrawal
will be reduced accordingly. Surrender Charges will be a percentage of each
Purchase Payment or portion thereof withdrawn as illustrated in the following
table:
CONTRACT YEARS APPLICABLE
SINCE SURRENDER CHARGE
PURCHASE PAYMENT AS A
MADE PERCENTAGE
---------------- ----------------
1 7.0
2 7.0
3 6.0
4 5.0
5 4.0
6 3.0
7 2.0
8 and thereafter 0.0
10
EXCHANGE FEE $ 10
(THERE IS NO EXCHANGE FEE FOR THE FIRST 12 TRANSFERS)
ANNUAL CONTRACT FEE $ 35
SEPARATE ACCOUNT ANNUAL EXPENSES
(AS PERCENTAGE OF AVERAGE NET ASSETS)
Mortality Risk Fees 0.80%
Expense Risk Fees 0.35%
Administrative Asset Fees 0.10%
Total Separate Account
Annual Expenses* 1.25%
*Does not include $35 Annual Contract Fee
PORTFOLIO COMPANY ANNUAL EXPENSES
American National Growth Portfolio Annual Expenses
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Other Expenses after reimbursement * ** 0.37%
Total Portfolio Annual Expenses 0.87%
* Without reimbursement, other expenses would have been 0.42% and the total
portfolio annual expense would have been 0.92%.
AMERICAN NATIONAL BALANCED PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees 0.50%
Other Expenses after reimbursement * ** 0.40%
Total Portfolio Annual Expenses 0.90%
* Without reimbursement, other expenses would have been 0.58% and the total
portfolio annual expense would have been 1.08%.
AMERICAN NATIONAL EQUITY INCOME PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Other Expenses 0.42%
Total Portfolio Annual Expenses 0.92%
AMERICAN NATIONAL HIGH YIELD BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.55%
Other Expenses after reimbursement * ** 0.25%
Total Portfolio Annual Expenses 0.80%
* Without reimbursement, other expenses would have been 0.33% and the total
portfolio annual expense would have been 0.88%.
11
AMERICAN NATIONAL INTERNATIONAL STOCK PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses after reimbursement * ** 0.35%
Total Portfolio Annual Expenses 1.10%
* Without reimbursement, other expenses would have been 0.62% and the total
portfolio annual expense would have been 1.37%.
AMERICAN NATIONAL SMALL-CAP/MID-CAP PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.25%
Other Expenses after reimbursement * ** 0.25%
Total Portfolio Annual Expenses 1.50%
* Without reimbursement, other expenses would have been 0.75% and the total
portfolio annual expense would have been 2.00%.
AMERICAN NATIONAL GOVERNMENT BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Other Expenses after reimbursement * ** 0.30%
Total Portfolio Annual Expenses 0.80%
*Without reimbursement, other expenses would have been 0.46% and the total
portfolio annual expense would have been 0.96%.
AMERICAN NATIONAL MONEY MARKET PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.50%
Other Expenses after reimbursement * ** 0.37%
Total Portfolio Annual Expenses 0.87%
*Without reimbursement, other expenses would have been 0.68% and the total
portfolio annual expense would have been 1.18%.
** 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,
2002, pursuant to which SM&R has agreed to reimburse the American National High
Yield Bond Portfolio and the American National Government Bond Portfolio for
expenses in excess of .80%; 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 .92%; the American
National International Stock Portfolio for expenses in excess of 1.10%; the
American National Small-Cap/Mid-Cap Portfolio for expenses in excess of 1.50%,
of each of such Portfolios' average daily net assets during such period. SM&R,
is under no obligation to renew this undertaking for any Portfolio at the end of
such period.
FIDELITY INDEX 500 PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.24%
Other Expenses after reimbursement * 0.05%
Total Portfolio Annual Expenses 0.29%
*FMR has voluntarily agreed to reimburse the expenses if they exceed a certain
level. Including this reimbursement the other expenses were 0.28%. This
arrangement may be discontinued at any time.
FIDELITY ASSET MANAGER PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.53%
Other Expenses 0.08%
Total Portfolio Annual Expenses 0.61%
12
FIDELITY CONTRAFUND PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees 0.57%
Other Expenses 0.09%
Total Portfolio Annual Expenses** 0.66%
FIDELITY ASSET MANAGER: GROWTH PORTFOLIO ANNUAL EXPENSES
(as a percentage of average net assets)
Management Fees 0.58%
Other Expenses 0.11%
Total Portfolio Annual Expenses** 0.69%
FIDELITY GROWTH OPPORTUNITIES PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.58%
Other Expenses 0.10%
Total Portfolio Annual Expenses** 0.68%
**Other expenses were lower because a portion of the brokerage commissions that
the portfolio paid was used to reduce other expenses; credits realized as a
result of uninvested cash balances were used to reduce a portion of the
portfolio's custodian expenses. See the accompanying fund prospectus for
details.
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%
13
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.05%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 1.05%
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.85%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.85%
T. ROWE PRICE LIMITED - TERM BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.70%
Other Expenses 0.00%
Total Portfolio Annual Expenses* 0.70%
*Management fees include operating expenses.
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%
MFS EMERGING GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.10%
Total Portfolio Annual Expenses 0.85%
MFS RESEARCH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.10%
Total Portfolio Annual Expenses 0.85%
MFS INVESTORS TRUST PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.12%
Total Portfolio Annual Expenses 0.87%
VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
Other Expenses after reimbursement 0.14%
Total Portfolio Annual Expenses* 1.14%
*Excluding interest expense of 0.02%
14
Van Eck Worldwide Emerging Markets Portfolio Annual Expenses
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
Other Expenses after reimbursement 0.26%
Total Portfolio Annual Expenses* 1.26%
*Excluding interest expense of 0.07%
FEDERATED UTILITY FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Shareholder Services Fee after reimbursement 0.00%
Other Expenses 0.16%
Total Portfolio Annual Expenses* 0.91%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, shareholder services fee, other
expenses, and total expenses would have been 0.75%, 0.25%, 0.16% and 1.16%
respectively.
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement 0.67%
Distribution (12b-1) Fee after reimbursement 0.00%
Shareholder Services Fee after reimbursement 0.00%
Other Expenses 0.19%
Total Portfolio Annual Expenses* 0.86%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, distribution (12b-1) fee,
shareholder services fee, other expenses, and total expenses would have been
0.75%, 0.25%, 0.25%, 0.19% and 1.44% respectively.
FEDERATED FUND FOR U.S. GOVERNMENT BOND PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Shareholder Services Fee after reimbursement 0.00%
Other Expenses 0.24%
Total Portfolio Annual Expenses* 0.84%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, other expenses and total expenses
would have been 0.60%, 0.25%, 0.24%, and 1.09% respectively.
15
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.60%
Shareholder Services Fee after reimbursement 0.00%
Other Expenses 0.16%
Total Portfolio Annual Expenses 0.76%
*The portfolio's expenses were voluntarily reduced by the portfolio's investment
advisor. Absent reimbursement, management fee, shareholder services fee, other
expenses and total expenses would have been 0.60%, 0.25%, 0.16%, and 1.01%
respectively.
FEDERATED EQUITY INCOME FUND II PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees after reimbursement 0.71%
Shareholder Services Fee after reimbursement 0.00%
Distribution (12-b1) Fees after reimbursement 0.00%
Other Expenses 0.24%
Total Portfolio Annual Expenses* 0.95%
*The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor. Absent reimbursement, management fee, shareholder services
fee, distribution (12b-1) fee, other expenses, and total expenses would have
been 0.75%, 0.25%, 0.25%, 0.24%, and 1.49% respectively.
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 1.00%
12b-1Fees 0.25%
Other Expenses after reimbursement 0.35%
Total Portfolio Annual Expenses* 1.60%
*The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor.
LAZARD RETIREMENT SMALL CAP PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
12b-1 Fees 0.25%
Other Expenses after reimbursement 0.25%
Total Portfolio Annual Expenses* 1.25%
*The portfolio's expenses were voluntarily reduced by the portfolio's
investment advisor.
ALGER AMERICAN SMALL CAPITALIZATION PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.85%
Other Expenses 0.05%
Total Portfolio Annual Expenses 0.90%
16
ALGER AMERICAN GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.75%
Other Expenses 0.04%
Total Portfolio Annual Expenses 0.79%
ALGER AMERICAN MIDCAP GROWTH PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.80%
Other Expenses 0.04%
Total Portfolio Annual Expenses 0.84%
ALGER AMERICAN LEVERAGED ALLCAP PORTFOLIO ANNUAL EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.85%
Other Expenses* 0.05%
Total Portfolio Annual Expenses 0.90%
*Included in other expenses is .01% 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 0.13%
Total Portfolio Annual Expenses 0.88%
EXPENSES DURING THE ANNUITY PERIOD
During the Annuity Period, we will charge the Separate Account a mortality risk
fee of .80% and an expense risk fee of .35%. We will also charge the Separate
Account with the expenses of the Eligible Portfolios in which you have invested.
No other fees or expenses are charged against the Contract during the Annuity
Period.
17
Example: Deferred Contract
If you surrender your Contract at the end of the applicable time period, you
would pay the following expenses on a $1,000 investment, assuming 5% annual
return on assets (regardless of whether the surrender proceeds are paid to the
Contract Owner, applied under the Systematic Withdrawal Program, or applied
under an annuity option):
[Enlarge/Download Table]
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
--------------------------------------------------------------------------------------------
American National Growth Portfolio $87 $126 $156 $250
American National Balanced Portfolio $87 $127 $158 $253
American National Equity Income Portfolio $87 $128 $159 $255
American National Money Market Portfolio $87 $126 $156 $250
American National High Yield Bond Portfolio $86 $124 $153 $243
American National International Stock Portfolio $89 $133 $168 $273
American National Small-Cap/Mid-Cap Portfolio $93 $144 $188 $312
American National Government Bond Portfolio $86 $124 $153 $243
Fidelity Asset Manager Portfolio $84 $119 $143 $223
Fidelity Index 500 Portfolio $81 $110 $126 $188
Fidelity Contrafund Portfolio $85 $120 $145 $228
Fidelity Asset Manager: Growth Portfolio $85 $121 $147 $231
Fidelity Growth Opportunities Portfolio $85 $121 $147 $230
T. Rowe Price Equity Income Portfolio $87 $126 $155 $248
T. Rowe Price International Stock Portfolio $88 $132 $165 $268
T. Rowe Price Mid-Cap Growth Portfolio $87 $126 $155 $248
T. Rowe Price Limited - Term Bond Portfolio $85 $122 $148 $232
MFS Capital Opportunities Portfolio $87 $128 $158 $254
MFS Emerging Growth Portfolio $87 $126 $155 $248
MFS Research Portfolio $87 $126 $155 $248
MFS Investors Trust Portfolio $87 $126 $156 $250
Van Eck Worldwide Hard Assets Portfolio $89 $134 $170 $277
Van Eck World Wide Emerging Markets Portfolio $90 $138 $176 $289
Federated Utility Fund II Portfolio $87 $128 $158 $254
Federated Growth Strategies Fund II Portfolio $87 $126 $156 $249
Federated Fund for U.S. Government Bond Portfolio $86 $126 $155 $247
Federated High Income Bond Fund II Portfolio $86 $123 $151 $238
Federated Equity Income Fund II Portfolio $87 $129 $160 $258
Lazard Retirement Emerging Markets Portfolio $94 $147 $193 $322
Lazard Retirement Small Cap Portfolio $90 $137 $175 $288
Alger American Small Capitalization Portfolio $87 $127 $158 $253
Alger American Growth Portfolio $86 $124 $152 $242
Alger American MidCap Growth Portfolio $86 $126 $155 $247
Alger American Leveraged AllCap Portfolio $87 $127 $158 $253
Alger American Income & Growth Portfolio $85 $122 $148 $232
Alger American Leveraged Balanced Portfolio $87 $127 $157 $251
18
If you do not surrender your Contract, you would pay the following expenses on a
$1,000 investment, assuming 5% annual return on assets.
[Enlarge/Download Table]
FUND 1 YEAR 3 YEARS 5 YEARS 10 YEARS
---------------------------------------------------------------------------------------------
American National Growth Portfolio $22 $68 $116 $250
American National Balanced Portfolio $22 $69 $118 $253
American National Equity Income Portfolio $22 $69 $119 $255
American National Money Market Portfolio $22 $68 $116 $250
American National High Yield Bond Portfolio $21 $66 $113 $243
American National International Stock Portfolio $24 $75 $128 $273
American National Small-Cap/Mid-Cap Portfolio $28 $87 $148 $312
American National Government Bond Portfolio $21 $66 $113 $243
Fidelity Asset Manager Portfolio $19 $60 $103 $223
Fidelity Index 500 Portfolio $16 $50 $ 86 $188
Fidelity Contrafund Portfolio $20 $61 $105 $228
Fidelity Asset Manager: Growth Portfolio $20 $62 $107 $231
Fidelity Growth Opportunities Portfolio $20 $62 $107 $230
T. Rowe Price Equity Income Portfolio $22 $67 $115 $248
T. Rowe Price International Stock Portfolio $24 $73 $125 $268
T. Rowe Price Mid-Cap Growth Portfolio $22 $67 $115 $248
T. Rowe Price Limited - Term Bond Portfolio $20 $63 $108 $232
MFS Capital Opportunities Portfolio $22 $69 $118 $254
MFS Emerging Growth Portfolio $22 $67 $115 $248
MFS Research Portfolio $22 $67 $115 $248
MFS Investors Trust Portfolio $22 $68 $116 $250
Van Eck Worldwide Hard Assets Portfolio $25 $76 $130 $277
Van Eck World Wide Emerging Markets Portfolio $26 $80 $136 $289
Federated Utility Fund II Portfolio $22 $69 $118 $254
Federated Growth Strategies Fund II Portfolio $22 $67 $116 $249
Federated Fund for U.S. Government Bond Portfolio $22 $67 $115 $247
Federated High Income Bond Fund II Portfolio $21 $64 $111 $238
Federated Equity Income Fund II Portfolio $23 $70 $120 $258
Lazard Retirement Emerging Markets Portfolio $29 $90 $153 $322
Lazard Retirement Small Cap Portfolio $26 $79 $135 $288
Alger American Small Capitalization Portfolio $22 $69 $118 $253
Alger American Growth Portfolio $21 $65 $112 $242
Alger American MidCap Growth Portfolio $22 $67 $115 $247
Alger American Leveraged AllCap Portfolio $22 $69 $118 $253
Alger American Income & Growth Portfolio $20 $63 $108 $232
Alger American Leveraged Balanced Portfolio $22 $68 $117 $251
You should not consider the examples as representative of past or future
expenses. The examples do not include the deduction of state premium taxes
assessed.
The purpose of the preceding table is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly. The table reflects
expenses of the Separate Account and the Eligible Portfolios. The expenses shown
above for the Eligible Portfolios are assessed at the underlying fund level and
are not direct charges against the Separate Account's assets or reductions from
Accumulation Value. These expenses are taken into consideration in computing
each portfolio's net asset value, which is the share price used to calculate the
value of an Accumulation Unit. Actual expenses may be more or less than shown.
As required by the Securities and Exchange Commission, the example assumes a 5%
annual rate of return. This hypothetical rate of return is not intended to be
representative of past or future performance of an Eligible Portfolio. Annual
Contract fees are deducted pro rata from each subaccount and our Fixed Account.
For a more complete description of the various costs and expenses of the
American National Fund, the Fidelity Funds, the T. Rowe Price Funds, the MFS
Fund, the Van Eck Fund, the Federated Fund and the Lazard Fund, see their
Prospectuses.
19
ACCUMULATION UNIT VALUES
(For an accumulation unit outstanding throughout the period)
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
INDIVIDUAL CONTRACTS IN THE
ACCUMULATION PERIOD 2000 1999 1998
--------------------------------------------------------------------------------------------------------
NATIONAL GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.338 $ 1.178 $ --
Accumulation unit value at end of period $ 1.284 $ 1.338 $ 1.178
Number of accumulation units outstanding at
end of period 1,474,406 1,053,733 442,903
American National Money Market Portfolio
Accumulation unit value at beginning of period $ 1.056 $ 1.026 $ --
Accumulation unit value at end of period $ 1.106 $ 1.056 $ 1.026
Number of accumulation units outstanding at
end of period 3,160,844 2,990,678 1,432,629
AMERICAN NATIONAL BALANCED PORTFOLIO
Accumulation unit value at beginning of period $ 1.170 $ 1.096 $ --
Accumulation unit value at end of period $ 1.203 $ 1.170 $ 1.096
Number of accumulation units outstanding at
end of period 1,676,158 1,384,556 496,647
AMERICAN NATIONAL MANAGED PORTFOLIO
Accumulation unit value at beginning of period $ 1.315 $ 1.138 $ --
Accumulation unit value at end of period $ 1.454 $ 1.315 $ 1.138
Number of accumulation units outstanding at
end of period 3,519,625 2,805,851 1,311,739
AMERICAN NATIONAL HIGH YIELD BOND PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.998 $ -- $ --
Number of accumulation units outstanding at
end of period 40,717 -- --
AMERICAN NATIONAL GOVERNMENT BOND PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 1.029 $ -- $ --
Number of accumulation units outstanding at
end of period 10,018 -- --
AMERICAN NATIONAL SMALL CAP/MID CAP PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.614 $ -- $ --
Number of accumulation units outstanding at
end of period 187,421 -- --
FIDELITY ASSET MANAGER PORTFOLIO
Accumulation unit value at beginning of period $ 1.241 $ 1.131 $ --
Accumulation unit value at end of period $ 1.178 $ 1.241 $ 1.131
Number of accumulation units outstanding at
end of period 1,243,974 1,171,411 574,144
20
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
INDIVIDUAL CONTRACTS IN THE
ACCUMULATION PERIOD 2000 1999 1998
--------------------------------------------------------------------------------------------------------
FIDELITY INDEX 500 PORTFOLIO
Accumulation unit value at beginning of period $ 1.495 $ 1.256 $ --
Accumulation unit value at end of period $ 1.339 $ 1.495 $ 1.256
Number of accumulation units outstanding at
end of period 7,150,515 5,449,038 1,961,720
FIDELITY GROWTH OPPORTUNITIES PORTFOLIO
Accumulation unit value at beginning of period $ 1.290 $ 1.253 $ --
Accumulation unit value at end of period $ 1.057 $ 1.290 $ 1.253
Number of accumulation units outstanding at
end of period 2,397,350 2,479,615 1,048,341
FIDELITY CONTRAFUND PORTFOLIO
Accumulation unit value at beginning of period $ 1.472 $ 1.200 $ --
Accumulation unit value at end of period $ 1.357 $ 1.472 $ 1.200
Number of accumulation units outstanding at
end of period 4,555,921 3,299,987 1,280,113
FIDELITY ASSET MANAGER: GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.318 $ 1.158 $ --
Accumulation unit value at end of period $ 1.140 $ 1.318 $ 1.158
Number of accumulation units outstanding at
end of period 1,105,706 756,794 400,709
T. ROWE PRICE EQUITY INCOME PORTFOLIO
Accumulation unit value at beginning of period $ 1.106 $ 1.080 $ --
Accumulation unit value at end of period $ 1.235 $ 1.106 $ 1.080
Number of accumulation units outstanding at
end of period 2,715,138 2,889,871 1,576,949
T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO
Accumulation unit value at beginning of period $ 1.495 $ 1.135 $ --
Accumulation unit value at end of period $ 1.213 $ 1.495 $ 1.135
Number of accumulation units outstanding at
end of period 1,192,816 1,312,141 949,084
T. ROWE PRICE MID-CAP GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ 1.484 $ 1.214 $ --
Accumulation unit value at end of period $ 1.575 $ 1.484 $ 1.214
Number of accumulation units outstanding at
end of period 1,502,063 1,198,960 901,715
T. ROWE PRICE LIMITED - TERM BOND PORTFOLIO
Accumulation unit value at beginning of period $ 1.045 $ 1.049 $ --
Accumulation unit value at end of period $ 1.127 $ 1.045 $ 1.049
Number of accumulation units outstanding at
end of period 1,116,459 967,119 619,170
21
[Enlarge/Download Table]
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------------------------------
INDIVIDUAL CONTRACTS IN THE
ACCUMULATION PERIOD 2000 1999 1998
--------------------------------------------------------------------------------------------------------
MFS CAPITAL OPPORTUNITIES SERIES PORTFOLIO
Accumulation unit value at beginning of period $ 1.658 $ 1.136 $ --
Accumulation unit value at end of period $ 1.578 $ 1.658 $ 1.136
Number of accumulation units outstanding at
end of period 2,096,324 1,503,193 754,320
MFS EMERGING GROWTH SERIES PORTFOLIO
Accumulation unit value at beginning of period $ 2.306 $ 1.321 $ --
Accumulation unit value at end of period $ 1.830 $ 2.306 $ 1.321
Number of accumulation units outstanding at
end of period 2,654,975 2,400,755 1,028,470
MFS RESEARCH SERIES PORTFOLIO
Accumulation unit value at beginning of period $ 1.285 $ 1.049 $ --
Accumulation unit value at end of period $ 1.208 $ 1.285 $ 1.049
Number of accumulation units outstanding at
end of period 2,093,257 1,715,567 842,237
MFS GROWTH WITH INCOME SERIES PORTFOLIO
Accumulation unit value at beginning of period $ 1.115 $ 1.058 $ --
Accumulation unit value at end of period $ 1.100 $ 1.115 $ 1.058
Number of accumulation units outstanding at
end of period 2,269,291 2,196,329 1,101,688
VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO
Accumulation unit value at beginning of period $ 0.849 $ 0.711 $ --
Accumulation unit value at end of period $ 0.934 $ 0.849 $ 0.711
Number of accumulation units outstanding at
end of period 154,350 42,499 42,831
VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO
Accumulation unit value at beginning of period $ 1.360 $ 0.687 $ --
Accumulation unit value at end of period $ 0.779 $ 1.360 $ 0.687
Number of accumulation units outstanding at
end of period 904,357 631,260 344,775
FEDERATED UTILITY FUND II PORTFOLIO
Accumulation unit value at beginning of period $ 1.063 $ 1.059 $ --
Accumulation unit value at end of period $ 0.956 $ 1.063 $ 1.059
Number of accumulation units outstanding at
end of period 477,477 494,700 192,160
FEDERATED GROWTH STRATEGIES FUND II PORTFOLIO
Accumulation unit value at beginning of period $ 1.765 $ 1.037 $ --
Accumulation unit value at end of period $ 1.392 $ 1.765 $ 1.037
Number of accumulation units outstanding at
end of period 1,705,353 690,325 143,890
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YEAR ENDED DECEMBER 31,
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INDIVIDUAL CONTRACTS IN THE
ACCUMULATION PERIOD 2000 1999 1998
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FEDERATED FUND FOR U.S .GOVERNMENT
SECURITIES II PORTFOLIO
Accumulation unit value at beginning of period $ 1.035 $ 1.055 $ --
Accumulation unit value at end of period $ 1.135 $ 1.035 $ 1.055
Number of accumulation units outstanding at
end of period 1,289,091 1,556,125 739,035
FEDERATED HIGH INCOME BOND FUND II PORTFOLIO
Accumulation unit value at beginning of period $ 1.010 $ 1.001 $ --
Accumulation unit value at end of period $ 0.908 $ 1.010 $ 1.001
Number of accumulation units outstanding at
end of period 2,610,965 3,009,658 1,641,013
FEDERATED EQUITY INCOME FUND II PORTFOLIO
Accumulation unit value at beginning of period $ 1.349 $ 1.154 $ --
Accumulation unit value at end of period $ 1.184 $ 1.349 $ 1.154
Number of accumulation units outstanding at
end of period 755,286 749,845 402,944
LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO
Accumulation unit value at beginning of period $ 1.232 $ 0.820 $ --
Accumulation unit value at end of period $ 0.875 $ 1.232 $ 0.820
Number of accumulation units outstanding at
end of period 532,976 340,969 274,166
LAZARD RETIREMENT SMALL CAP PORTFOLIO
Accumulation unit value at beginning of period $ 1.001 $ 0.967 $ --
Accumulation unit value at end of period $ 1.200 $ 1.001 $ 0.967
Number of accumulation units outstanding at
end of period 884,808 944,785 847,132
ALGER AMERICAN BALANCED PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.919 $ -- $ --
Number of accumulation units outstanding at
end of period 23,387 -- --
ALGER AMERICAN GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.845 $ -- $ --
Number of accumulation units outstanding at
end of period 184,068 -- --
ALGER AMERICAN INCOME & GROWTH PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.920 $ -- $ --
Number of accumulation units outstanding at
end of period 238,256 -- --
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YEAR ENDED DECEMBER 31,
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INDIVIDUAL CONTRACTS IN THE
ACCUMULATION PERIOD 2000 1999 1998
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ALGER AMERICAN LEVERAGED PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.731 $ -- $ --
Number of accumulation units outstanding at
end of period 226,219 -- --
ALGER AMERICAN MID CAP PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.936 $ -- $ --
Number of accumulation units outstanding at
end of period 465,622 -- --
ALGER AMERICAN SMALL CAPITAL PORTFOLIO
Accumulation unit value at beginning of period $ -- $ -- $ --
Accumulation unit value at end of period $ 0.796 $ -- $ --
Number of accumulation units outstanding at
end of period 33,875 -- --
24
CONTRACT
TYPE OF CONTRACT
This Prospectus offers an individual deferred variable annuity contract
providing for future annuity payments. You can choose to vary your Purchase
Payments or pay a single Purchase Payment. The Contract can be either Qualified
or Non-Qualified. Certain provisions of the contracts may be different than the
general description in this prospectus, and certain riders and options may not
be available, because of legal restrictions in your state. See your contract
for specific variations since any such state variations will be included in your
contract or in riders or endorsements attached to your contract. See your agent
or contact Us for specific information that may be applicable to your state.
CONTRACT APPLICATION AND PURCHASE PAYMENTS
To purchase a Contract, you must complete an application and send the minimum
Purchase Payment to our home office. (See "Allocation of Purchase Payments",
page 26.) If your application cannot be processed within five days after
receipt, we will request your permission to retain the payment until the
completed application is received. If the application is not completed, and we
do not receive such permission within five days after receipt of the payment, we
will return your payment. We will credit your initial Purchase Payment to the
Contract within two business days after a completed application is received at
our home office.
You have a "free look" period during which you can return the Contract to our
home office and get a refund. The refund will equal the greater of (1) all of
your Purchase Payments or (2) Accumulation Value plus charges deducted by us
during such period. The "free look" period is established by state law and
generally runs ten days after you receive a Contract. We require that Purchase
Payments received by us during the 15-day period after the Date of Issue be
allocated to the American National Money Market Portfolio. Thereafter, amounts
allocated to such subaccount and Purchase Payments paid are allocated as
directed by you. No Surrender Charges are assessed on refunds.
ALLOCATION OF PURCHASE PAYMENTS
After the "free look" period, Purchase Payments will be allocated to the
subaccounts and the Fixed Account according to your instructions in the
application. You can change these allocations at any time by written instruction
to our home office or by telephone, if a properly completed telephone transfer
authorization form is on file with us.
CREDITING OF ACCUMULATION UNITS
Before the Annuity Date, Purchase Payments will be used to purchase Accumulation
Units in subaccounts and be allocated to the Fixed Account as you have
instructed. We will determine the number of Accumulation Units purchased by
dividing the dollar amount of the Purchase Payment allocated to a subaccount by
the Accumulation Unit value for that subaccount computed following such
allocation.
ALLOCATION OF CHARGES AND OTHER DEDUCTIONS TO THE SUBACCOUNTS AND THE FIXED
ACCOUNT
Unless you allocated differently, deductions from the subaccounts and the Fixed
Account will be made, pro rata, to the extent necessary for us to
. collect charges
. pay surrender value
. provide benefits
We will immediately reinvest dividends and capital gain distributions received
from an Eligible Portfolio at net asset value in shares of that Eligible
Portfolio.
25
DETERMINING ACCUMULATION UNIT VALUES
The Accumulation Unit value of each subaccount reflects the investment
performance of that subaccount. We calculate Accumulation Unit value on each
Valuation Date by:
. multiplying the per share net asset value of the corresponding Eligible
Portfolio by the number of shares held by the subaccount, after the purchase
or redemption of any shares on the Valuation Date;
. subtracting a charge for the administrative fee and the mortality and expense
risk fee for that subaccount; and
. dividing by the number of units held in the subaccount on the Valuation Date,
before the purchase or redemption of any units on that date.
We will calculate the Accumulation Unit value for each subaccount at the end of
each Valuation Period. Investment performance of the Eligible Portfolios will
increase or decrease the Accumulation Unit Value for each subaccount, the
Eligible Portfolio expenses and the deduction of certain charges by us will
decrease the Accumulation Unit value for each subaccount.
TRANSFERS BEFORE ANNUITY DATE
You can make transfers among the subaccounts and the Fixed Account subject to
the following restrictions:
. Transfers from subaccounts must be at least $250, or the balance of the
subaccount, if less.
. A subaccount must have a balance of at least $100 after a transfer.
. Transfers from the Fixed Account cannot exceed the greater of (1) 10% of the
amount in the Fixed Account or (2) $1,000.
. The first twelve (12) transfers in a Contract Year are free. A $10.00 fee
will be deducted from the amount transferred for each additional transfer.
(See "Exchange Fee", page 30.)
We will make transfers and determine values on the later of (1) the date
designated in your request or (2) the end of the Valuation Period in which your
transfer request is received.
We may revoke or modify the transfer privilege. For a discussion of transfers
after the Annuity Date, see "Allocation of Benefits" at page 37.
SPECIAL PROGRAMS
. Dollar Cost Averaging Program - If you have at least $10,000 Accumulation
Value in your Contract, you can instruct us to periodically transfer an
amount or percentage from a subaccount or the Fixed Account to any
subaccount(s) or the Fixed Account. The transfers can be monthly, quarterly,
semi-annually or annually. The amount transferred each time must be at least
$1,000. The minimum transfer to each subaccount must be at least $100.
Dollar cost averaging results in the purchase of more Accumulation Units when
Accumulation Unit Value is low, and fewer when Accumulation Unit value is
high. There is no guarantee that dollar cost averaging will result in higher
Accumulation Value or otherwise be successful.
. Asset Allocation Program - If you have at least $10,000 Accumulation Value in
your Contract, you can instruct us to allocate Purchase Payments and
Accumulation Value among the subaccounts and the Fixed Account in accordance
with allocation instructions specified by you or recommended by us. We will
periodically rebalance your investment by allocating Purchase Payments and
transferring Accumulation Value among the subaccounts and the Fixed Account
in conformity with your current allocation instructions. Rebalancing will be
performed on a quarterly, semi-annual or annual basis as you specify.
Transfers of Accumulation Value pursuant to this program will not be counted
in determining whether the Exchange Fee described below applies.
You can request participation in or discontinue such special programs at any
time.
There is no charge for participation in such special programs.
26
CHARGES AND DEDUCTIONS
BEFORE ANNUITY DATE
SURRENDER CHARGE
Since no sales charge is deducted from your Purchase Payments, a Surrender
Charge may be imposed on withdrawals to cover expenses of distributing the
Contract. (See "Deferred Sales Load (`Surrender Charge')" on page 10.)
When you make a withdrawal, we will divide such withdrawal by your Accumulation
Value and convert such result as a percentage. Assume you have $40,000
Accumulation Value, $38,000 of which represents total Purchase Payments and
$2,000 of which represents Accumulation Value less total Purchase Payments.
. Example 1 - Assume you want to withdraw $7,000. You can withdraw the greater
of (1) 10% of your $40,000 Accumulation Value or (2) Accumulation Value
minus total Purchase Payments with no Surrender Charge. Since 10% of your
Accumulation Value, $4,000, is greater than Accumulation Value minus total
Purchase Payments, $2,000, your Free Withdrawal Amount will be your $4,000.
Accordingly, $4,000 of your withdrawal will be free of surrender charge. The
remaining $3,000 is a withdrawal of Purchase Payments and will be subject to
a Surrender Charge.
. Example 2 - Assume you have made a $3,000 withdrawal and want to make an
additional $5,000 withdrawal in the same Contract Year. The first withdrawal
would have been free because it was less than the Free Withdrawal Amount.
However, such withdrawal would have utilized a portion of the Free
Withdrawal Amount available in that Contract Year. The first part of the
formula for calculating the Free Withdrawal Amount will be reduced by 7.5%,
which is the percentage the first surrender was of your Accumulation Value
at that time. If there have been no additional Purchase Payments or
increases in the amount by which your Accumulation Value exceeds your total
Purchase Payments since the first withdrawal, the Free Withdrawal Amount for
the second withdrawal will be the greater of (1) 2.5% of your Accumulation
Value, which is $925.00 or (2) Accumulation Value minus total Purchase
Payments, which is zero (0). Accordingly, $925 of your second withdrawal
will be free of Surrender Charges. The remaining $4,075 will be a withdrawal
of Purchase Payments and will be subject to a Surrender Charge.
Even if your Accumulation Value is less than the total of your Purchase
Payments, your Surrender Charge for a full surrender will be based upon the
total of your Purchase Payments. Assume that you have $30,000 Accumulation
value, but you have paid $38,000 in Purchase Payments. On a full surrender, you
can still withdraw 10% of your Accumulation value, or $3,000, without a
Surrender Charge; however, the applicable Surrender Charge percentage would then
be applied to the total Purchase Payment less the free withdrawal amount, or
$35,000, not the $30,000 in Accumulation Value.
27
OTHER CHARGES
Your Contract is subject to certain other charges:
. Administrative Charges
. A $35 annual contract fee for each Contract Year or portion thereof unless
all of your Accumulation Value is in the Fixed Account or is greater than
$50,000 on the last day of a Contract Year.
. An administrative asset fee charged daily at an annual rate of 0.10%.
These fees are designed to reimburse us for the cost of administration and are
not intended to produce a profit.
. Premium Taxes
Premium taxes (which presently range from 0% to 3.5%) will be deducted if
assessed.
. Mortality and Expense Risk Fee
We assume the risks that Annuitants as a class may live longer than expected
(requiring a greater number of annuity payments) and that fees may not be
sufficient to cover our actual costs. In assuming these risks, we agree to make
annuity payments to the Annuitant or other payee for as long as he or she may
live. In addition, we are at risk for the death benefits payable under the
Contract, to the extent that the death benefit exceeds the Accumulation Value.
For our promises to accept these risks, a 1.15% per annum Mortality and Expense
Risk Fee will be assessed daily against the Separate Account during both, the
Accumulation Period and Annuity Period. Although we could realize a gain or a
loss from such fees depending on the mortality experienced and expenses actually
incurred, we expect to profit from this charge. We may use such profit for any
proper purpose, including distribution expenses.
. Charges for Taxes
None at present. We may, however, make a charge in the future if income or gains
within the Separate Account incur federal, state or local taxes or if our tax
treatment changes. Charges for such taxes, if any, would be deducted from the
Separate Account and the Fixed Account. We would not realize a profit on such
charges.
. Exchange Fee
A $10.00 exchange fee is charged for transfers among the subaccounts and Fixed
Account after twelve transfers per Contract Year. Such fee compensates us for
the costs of effecting the transfers. We do not expect to make a profit from the
exchange fee. The exchange fee will be deducted from the amount transferred.
DEDUCTION OF FEES
Deductions for annual fees will be prorated among the subaccounts and the Fixed
Account.
28
EXCEPTIONS TO CHARGES
We may reduce charges in sales to a trustee, employer or similar entity if we
determine that such sales reduce sales or administrative expenses. We also
reduce charges in sales to directors, officers and bona fide full-time employees
(and their spouses and minor children) of SM&R and the Company.
The Contract may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of the Company
and our affiliated companies, and spouses and immediate family members (i.e.,
children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contract, and spouses and immediate family
members of the foregoing. In such case, a Contract may be credited with some or
all of the cost savings resulting from such direct sale, but only if such credit
will not be unfairly discriminatory to any person.
29
DISTRIBUTIONS UNDER THE CONTRACT
DISTRIBUTIONS BEFORE ANNUITY DATE
SURRENDERS
You can surrender your Contract, in whole or in part, before the Annuity Date
subject to the following limitations:
. If a partial surrender would leave less than $1,000 Accumulation Value, the
Contract must be fully surrendered.
. A partial surrender request should specify the allocation of that surrender
among the subaccounts and the Fixed Account. If not specified, we will
prorate the surrender among the subaccounts and the Fixed Account. Surrender
Charges will be deducted from the Accumulation Value remaining after a
partial surrender.
The Accumulation Unit value for Surrenders will be the applicable Accumulation
Unit value determined on the Valuation Date following receipt by us at our home
office of your surrender request.
Accumulation Value available upon full or partial surrenders can be determined
by:
. multiplying the number of Accumulation Units for each subaccount times the
Accumulation Unit value
. adding any Accumulation Value in the Fixed Account
. deducting pro-rata annual administrative fees and any surrender charge
We expect to pay surrenders within seven days of receipt of your written request
in proper form. We may delay payment of a partial surrender from the Fixed
Account for up to six (6) months.
Unless you provide us a written election not to have federal and state income
taxes withheld, we are required by law to withhold such taxes from the taxable
portion of any surrender, and to remit that amount to the federal and/or state
government.
SYSTEMATIC WITHDRAWAL PROGRAM
Under the Systematic Withdrawal Program, you can instruct us to make payments of
a predetermined dollar amount of Accumulation Value from one or more subaccounts
and the Fixed Account monthly, quarterly, semi-annually or annually. The total
minimum systematic withdrawal payment is $100. The minimum systematic withdrawal
from any one subaccount or the Fixed Account is $50. Systematic withdrawals can
be started at any time. We must receive written notification from you specifying
the amount and frequency and timing of payment. You can specify the subaccount
from which systematic withdrawals will be made. If you do not specify,
withdrawals will be taken pro-rata from each subaccount. Surrender Charges will
apply.
Because distributions may be taxable, you should consult your tax adviser before
requesting systematic withdrawals. (See "Federal Tax Matters," page 48.)
Under the Systematic Withdrawal Program, you can participate in the Minimum
Distributions Program by instructing us to calculate and make minimum
distributions required if the Contract is used with a qualified plan. (See
"Taxation of Qualified Contracts," page 50.) We will determine the amount
required to be distributed based on information you provide and choices you
make. To participate in the Minimum Distributions Program, you must notify us of
such election in writing in the calendar year during which you attain age
70/1//2. The Minimum Distributions Program is subject to all rules applicable to
the Systematic Withdrawal Program. In addition, certain rules apply only to the
Minimum Distributions Program. For a description of the requirements applicable
to the Minimum Distributions Program, see "Minimum Distributions Program" in the
Statement of Additional Information, page 5. Numerous special tax rules apply to
Contract Owners whose Contract is used with a qualified plan. You should consult
a tax advisor before electing to participate in the Minimum Distributions
Program.
WAIVER OF SURRENDER CHARGES
We will waive Surrender Charges in the following situations:
30
. Nursing Home Waiver -The surrender charge will be waived upon written proof
from a licensed physician that you have been confined in any of the following
facilities for at least 60 consecutive days
. a hospital which
. is licensed or recognized by the state in which it is located
. provides or operates diagnostic and major surgery facilities for medical
care and treatment of injured and sick persons on an inpatient basis
. charges for its services
. provides 24-hour nursing service by or under the supervision of a graduate
registered nurse (R.N.)
. a convalescent care facility which
. is licensed by the state in which it is located as a convalescent nursing
facility, a skilled nursing facility, a convalescent hospital, a
convalescent unit of a hospital, an intermediate care facility, or a
custodial care facility
. provides continuous nursing service by or under the supervision of a
physician or a graduate registered nurse (R.N.)
. maintains a daily record of each patient which is available for review by us
. administers a planned program of observation and treatment by a physician in
accordance with existing standards of medical practice
. a hospice facility which
. is licensed, certified or registered by the state in which it is located as
a hospice facility
. provides a formal care program for terminally ill patients whose life
expectancy is less than 6 months
. provides services on an inpatient basis as directed by a physician
31
This waiver is not available
(1) if you are confined in a hospital, nursing home or hospice facility on
the Date of Issue
(2) if the application is signed by power of attorney
(3) if you are more than age 80 on the Date of Issue
(4) if you enter the hospital, convalescent care facility or hospice facility
within 90 days from the Date of Issue
(5) in connection with surrenders or withdrawals requested more than 90 days
after the last day of confinement in such facility
. Disability Waiver - The surrender charge will be waived while you are
physically disabled. Such waiver is subject to the following limitations
. we require proof of disability, including written confirmation of receipt of
Social Security Disability Benefits
. we will require proof of continued disability
. we may have a Contract Owner claiming disability examined by a licensed
physician chosen by us
This waiver is not available
(1) if you are receiving Social Security Disability Benefits on the Date of
Issue
(2) if you are age 65 or older
(3) in some states
. Involuntary Unemployment Waiver - We will waive the surrender charge while
you are involuntarily unemployed. Such waiver is subject to the following
limitations
. you must furnish us a letter from a state Department of Labor indicating you
were employed at least 60 days before the election of such waiver
. the waiver may be utilized only once
. the waiver is not available if any Contract Owner or Annuitant is receiving
unemployment benefits on the Date of Issue
. the waiver may not be available in some states
. Terminal Illness Waiver - We will waive the surrender charge if you are
diagnosed with a terminal illness. We will require proof of such illness
including written confirmation from a licensed physician chosen by us.
This waiver is not available
(1) if any Contract Owner is diagnosed with a terminal illness before or on
the Date of Issue
(2) in some states
32
DEATH BENEFIT BEFORE ANNUITY DATE
If you or the Annuitant die before the Annuity Date, we will pay a death benefit
equal to the greater of:
. Accumulation Value, or
. The Minimum Guaranteed Death Benefit.
We recalculate the "minimum guaranteed death benefit" of your Contract each time
you make a partial surrender and at the end of each, six Contract Years. During
the first six Contract Years, the minimum guaranteed death benefit will equal
all Purchase Payments made less reductions to reflect partial surrenders, if
any, during such period. In subsequent six Contract Year periods, the minimum
guaranteed death benefit will equal the greater of:
(1) the Accumulation Value at the end of the preceding six Contract Year
period; or
(2) the minimum guaranteed death benefit at the end of the preceding six
Contract Year period, plus Purchase Payments made and minus reductions to
reflect partial surrenders, if any, after such date.
A reduction in the minimum guaranteed death benefit is made each time you make a
partial surrender. The reduction is calculated by dividing the minimum
guaranteed death benefit immediately before a partial surrender by the
Accumulation Value on the same date and multiplying such amount times the amount
of the partial surrender.
Example 1 - Assume you have made $4,000 in total Purchase Payments during the
first six Contract Year period and have made no partial surrenders. Your
minimum guaranteed death benefit at the end of the first six Contract Year
period would be $4,000.
Example 2 - Assume you make a $2,000 partial surrender in the third Contract
Year of the first six Contract Year period, at which time you have made $4,000
in total Purchase Payments, and your Contract's Accumulation Value is $8,000.
Your minimum guaranteed death benefit would be recalculated and reduced at the
time of such partial surrender. The amount of such reduction would be $1,000,
which is calculated by:
. dividing the minimum guaranteed death benefit immediately before the partial
surrender ($4,000) by Accumulation Value at that time ($8,000); and
. multiplying such amount ($4,000 divided by $8,000, or .5) times the amount
of the partial surrender ($2,000).
Your minimum guaranteed death benefit before the partial surrender ($4,000)
would be reduced by the amount necessary to reflect the partial surrender
($1,000) which would result in a new minimum guaranteed death benefit of $3,000.
Example 3 - Assume you make a $4,000 partial surrender in the second Contract
Year of the second six Contract Year period. Assume further that you have made
$1,000 in total Purchase Payments since the end of the first six Contract Year
period; that your Contract Accumulation Value is $10,000 and that the minimum
guaranteed death benefit at the end of the first six Contract Year period is
$8,000. Your minimum guaranteed death benefit would be recalculated and reduced
at the time of such partial surrender. The amount of such reduction would be
$3,600, which is calculated by
. dividing the minimum guaranteed death benefit immediately before the partial
surrender ($9,000) ($8,000 for the minimum guaranteed death benefit at the
end of the last six Contract Year period plus $1,000 in Purchase Payments
made since the end of the last six Contract Year period) by Accumulation
Value at that time ($10,000); and
. multiplying such amount ($9,000 divided by $10,000, or .9) times the amount
of the partial surrender ($4,000).
Your minimum guaranteed death benefit before the partial surrender ($9,000)
would be reduced by the amount necessary to reflect the partial surrender
($3,600) which would result in a new minimum guaranteed death benefit of $5,400.
33
We expect to pay the death benefit in a lump sum to the beneficiary named in the
Contract within seven business days of receipt of proof of death in proper form.
In lieu of payment in a lump sum, you can elect that the death benefit be
applied under one of the annuity options described on page 37. If you do not
make such election, the beneficiary can do so. The person selecting the annuity
option settlement may also designate contingent beneficiaries to receive any
amounts due after death of the first beneficiary. The manner in which annuity
payments to the beneficiary are determined and may vary are described below
under "Distributions During the Annuity Period".
34
DISTRIBUTIONS DURING THE ANNUITY PERIOD
All or part of any amount payable at the Annuity Date may be applied to any of
the Annuity Options. We will discharge in a single sum any liability under an
assignment of the Contract and any applicable federal, state, municipal or other
taxes, fees or assessments based on or predicated on the Purchase Payments which
have not otherwise been deducted or offset. The remaining amount is the net sum
payable. The minimum amount that we will apply to an Annuity Option is $5,000.
Our consent is required for any payment to a corporation, association,
partnership, or trustee.
ELECTION OF ANNUITY DATE AND FORM OF ANNUITY
. Non-Qualified Contracts - Annuity Date and form of annuity are elected in the
application. A Contract cannot be purchased after the Annuitant's age 85 and
annuity payments must begin not later than Annuitant's age 95.
. Qualified Contracts - Annuity Payment Date and form of annuity are elected in
the application. A Contract cannot be purchased after age 85 and, under the
Internal Revenue Code, annuity payments must begin not later than age 95, or
in some cases, the later of April 1st of the calendar year following the
calendar year in which the Annuitant reaches 70/1//2 or retires.
If you have not elected an Annuity Date, we will begin fixed basis payments at
age 95 under Option 2, Life Annuity with 120 monthly payments certain. (See
"Federal Tax Matters" on page 48.)
Once an annuity payment is made, the Annuity Option cannot be changed to another
Annuity Option.
ALLOCATION OF BENEFITS
Unless you elect to the contrary, the Accumulation Units of each subaccount will
be changed to Annuity Units and applied to provide a Variable Annuity based on
that subaccount.
In lieu of this allocation, you may elect to transfer your Accumulation Units to
either one or more Eligible Portfolios or to the Fixed Account. After the
Annuity Date, you can only make twelve transfers among subaccounts each Contract
year. You can transfer Annuity Units of one subaccount to Annuity Units of
another subaccount and to the Fixed Account at any time other than during the
five-day interval before and including any annuity payment date.
No election can be made unless such election would produce an initial annuity
payment of at least $100.
ANNUITY OPTIONS
The following annuity options are available.
. Option 1 - Life Annuity - monthly payments during the lifetime of an
individual, ceasing with the last annuity payment due before the death of the
individual. This option offers the maximum level of monthly annuity payments
since there is no provision for a minimum number of annuity payments or a
death benefit for beneficiaries. It would be possible under this option for
an individual to receive only one annuity payment if death occurred before
the due date of the second annuity payment, two if death occurred before the
third annuity payment date, etc.
. Option 2 - Life Annuity with ten or 20 Years Certain - monthly payments
during the lifetime of an individual with payments made for a period certain
of not less than ten or 20 years, as elected. The annuity payments will be
continued to a designated beneficiary until the end of the period certain.
. Option 3 - Unit Refund Life Annuity - monthly payments during the lifetime of
an individual with annuity payments made for a period certain not less than
the number of months determined by dividing (1) the amount applied under this
option by (2) the amount of the first monthly annuity payment. This option
guarantees that the Annuity Units, but not the dollar value applied under a
Variable Annuity payout, will be repaid to the Annuitant or his beneficiary.
. Option 4 - Joint and Survivor Annuity - monthly payments during the joint
lifetime of an individual and another named individual and thereafter during
the lifetime of the survivor,
35
ceasing with the last annuity payment due before the survivor's death. It
would be possible under this option for only one annuity payment to be made
if both individuals under the option died before the second annuity payment
date, or only two annuity payments if both died before the third annuity
payment date, etc.
. Option 5 - Installment Payments, Fixed Period - monthly payments for a
specified number of years of at least 5, but not exceeding 30. The amount of
each Variable Annuity payment will be determined by multiplying the Annuity
Unit value on the day the annuity payment is made by the number of Annuity
Units applied under this Option divided by the number of remaining monthly
annuity payments.
. Option 6 - Equal Installment Payments, Fixed Amount - monthly installments
(not less than $6.25 per $1,000 applied) until the amount applied, adjusted
daily by the investment results, is exhausted. The final annuity payment will
be the remaining sum left with us.
. Option 7 - Deposit Option - The amount due may be left on deposit with us for
placement in our Fixed Account with interest not less than 3.0% per annum.
Interest will be paid annually, semiannually, quarterly or monthly as
elected. This option may not be available under certain Qualified Contracts.
. Other Annuity Forms - May be agreed upon.
Any amount remaining under Option 5, 6 or 7 may be withdrawn as a lump sum or,
if that amount is at least $5,000, may be applied under any one of the first
four Options. The lump sum payment requested will be paid within seven days of
receipt of the request at our home office based on the value computed on the
next Valuation Date after receipt of the request.
If the beneficiary dies while receiving annuity payments certain under Option 2,
3, 5, or 6 above, the present value of minimum guaranteed payments will be paid
in a lump sum to the estate of the beneficiary.
VALUE OF VARIABLE ANNUITY PAYMENTS:
ASSUMED INVESTMENT RATES
The annuity tables in the Contract used to calculate the annuity payments are
based on an "assumed investment rate" of 3.0%. If the actual investment
performance of the particular subaccount selected is such that the net
investment return is 3.0% per annum, the annuity payments will remain constant.
If the actual net investment return exceeds 3.0%, the annuity payments will
increase. If the actual net investment return is less than 3.0%, the annuity
payments will decline.
Annuity payments will be greater for shorter guaranteed periods than for longer
guaranteed periods. Annuity payments will be greater for life annuities than for
joint and survivor annuities, because the life annuities are expected to be made
for a shorter period.
At your election, where state law permits, an Immediate Annuity Contract may
provide annuity benefits based on an assumed investment rate other than 3.0%.
The annuity rates for Immediate Annuity Contracts are available upon request to
us.
ANNUITY PROVISIONS
We determine non-qualified life contingent annuity payments based on the
mortality table (1983 Table "a" with Projection Scale G, and 3.0% interest)
which generally reflects the age and sex of the Annuitant and the type of
annuity option selected. The annuity payment will also vary with the investment
performance of Eligible Portfolios you choose.
We determine qualified life contingent annuity payments based on the mortality
table [1983 Table "a" (female) projected to 1993, and 3.0% interest] which
generally reflects the age of the Annuitant and type of annuity option selected
and will vary with the investment performance of Eligible Portfolios you
choose. The attained age at settlement will be adjusted downward by one year for
each full five-year period that has lapsed since January 1, 1993. The effect of
this adjustment is a reduction in the annuity payment provided.
Payment of surrender amounts, policy loans and benefits payable in connection
with death, annuity payments and transfers may be postponed whenever: (1) the
NYSE is closed other than customary week-end and holiday closings, or trading on
the NYSE is restricted as determined by the SEC; (2)
36
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.
37
THE COMPANY, SEPARATE ACCOUNT, FUNDS AND FIXED ACCOUNT
AMERICAN NATIONAL INSURANCE COMPANY
The Company is a stock life insurance company chartered in 1905 in the State of
Texas. We write individual and group life and accident and health insurance and
annuities. Our home office is located in the American National Insurance
Building, One Moody Plaza, Galveston, Texas 77550-7999. The Moody Foundation, a
charitable foundation, owns approximately 23.7% and the Libbie S. Moody Trust, a
private trust, owns approximately 37.6% of our common stock.
We are regulated by the Texas Department of Insurance and are subject to the
insurance laws and regulations of other states where we operate. Each year, we
file a National Association of Insurance Commissioners convention blank with the
Texas Department of Insurance. Such convention blank covers our operations and
reports on our financial condition and the Separate Account's financial
condition as of December 31 of the preceding year. Periodically, the Texas
Department of Insurance examines and certifies the adequacy of the Separate
Account's and our liabilities and reserves. A full examination of our operations
is also conducted periodically by the National Association of Insurance
Commissioners.
Obligations under the Contract are our obligations.
THE SEPARATE ACCOUNT
We established the Separate Account under Texas law on July 30, 1991. The
Separate Account's assets are held exclusively for the benefit of persons
entitled to payments under variable annuity contracts issued by us. We are the
legal holder of the Separate Account's assets and will cause the total market
value of such assets to be at least equal to the Separate Account's reserve and
other contract liabilities. Such assets are held separate and apart from our
General Account assets. We maintain records of all purchases and redemptions of
shares of Eligible Portfolios by each of the subaccounts. Liabilities arising
out of any other business we conduct cannot be charged against the assets of the
Separate Account. Income, as well as both realized and unrealized gains or
losses from the Separate Account's assets, is credited to or charged against the
Separate Account without regard to income, gains or losses arising out of other
business that we conduct. However, if the Separate Account's assets exceed its
liabilities, the excess is available to cover the liabilities of our General
Account.
The Separate Account is registered with the Securities and Exchange Commission
("SEC") as a unit investment trust, which is a type of investment company. Such
registration does not involve any SEC supervision of management or investment
policies or practices. There are currently 36 subaccounts within the Separate
Account available to Contract Owners and each invests only in a corresponding
Eligible Portfolio.
Since we are the legal holder of the Eligible Portfolio shares in the Separate
Account, we have the right to vote such shares at shareholders' meetings. To the
extent required by law, we will vote in accordance with instructions from
Contract Owners. The number of votes for which a Contract Owner has the right to
provide instructions will be determined as of the record date selected by the
Board of Directors of the American National Fund, the Fidelity Funds, the T.
Rowe Price Funds, the MFS Fund, the Van Eck Fund, the Federated Fund and the
Lazard Fund. We will furnish you proper forms, materials, and reports to enable
you to give us instructions if you choose.
The number of shares of an Eligible Portfolio for which you can give
instructions is determined by dividing the Accumulation Value held in the
corresponding subaccount by the net asset value of one share in such Eligible
Portfolio. Fractional shares will be counted. Shares of an Eligible Portfolio
held in a subaccount for which you have not given timely instructions and other
shares held in a subaccount will be voted by us in the same proportion as those
shares in that subaccount for which timely instructions are received. Voting
instructions to abstain will be applied on a pro-rata basis to reduce the votes
eligible to be cast. Should applicable federal securities laws or regulations
permit, we may vote shares of the Eligible Portfolios in our own right.
The Separate Account is not the only separate account that invests in the
Eligible Portfolios. Other separate accounts, including those funding other
variable annuity contracts, variable life policies
38
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 Van Eck Fund, the Federated Fund and the Lazard Fund. The investment
objectives and policies of each Eligible Portfolio are summarized below. You
will be notified of and have an opportunity to instruct us how to vote on any
proposed material change in the investment policy of any Eligible Portfolio in
which you have an interest.
. The American National Fund - currently has the following series or
portfolios, each of which is an Eligible Portfolio:
. AMERICAN NATIONAL MONEY MARKET PORTFOLIO ... seeks the highest current
income consistent with the preservation of capital and maintenance of
liquidity.
. AMERICAN NATIONAL GROWTH PORTFOLIO ... seeks to achieve capital
appreciation.
. AMERICAN NATIONAL BALANCED PORTFOLIO ... seeks to conserve principal,
produce reasonable current income, and achieve long-term capital
appreciation.
. AMERICAN NATIONAL EQUITY INCOME PORTFOLIO ... seeks to achieve growth of
capital and/or current income.
. AMERICAN NATIONAL GOVERNMENT BOND PORTFOLIO ... seeks to provide as high a
level of current income, liquidity, and safety of principal as is consistent
with prudent investment risks through investment in a portfolio consisting
primarily of securities issued or guaranteed by the U.S. Government, its
agencies, or instrumentalities.
. AMERICAN NATIONAL SMALL-CAP/MID-CAP PORTFOLIO ... seeks to provide long-term
capital growth by investing primarily in stocks of small to medium-sized
companies.
. AMERICAN NATIONAL HIGH YIELD BOND PORTFOLIO ... seeks to provide a high
level of current income. As a secondary investment objective, the 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"), one of Our wholly owned
subsidiaries, 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 16 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
39
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 also invest in other types of securities, including bonds,
which may be lower-quality debt securities.
The Fidelity Management & Research Company ("FMR") is the Fidelity Funds'
investment adviser. FMR provides a number of mutual funds and other clients with
investment research and portfolio management services. Fidelity Management &
Research (U.K.) Inc. and Fidelity Management & Research (Far East), wholly-owned
subsidiaries of FMR, provide research with respect to foreign securities. FMR
maintains a large staff of experienced investment personnel and a full
complement of related support facilities.
. The T. Rowe Price Funds - currently have the following series or portfolios,
each of which are Eligible Portfolios:
. T. ROWE PRICE EQUITY INCOME PORTFOLIO ... seeks to provide substantial
dividend income as well as long-term growth of capital through investments
in common stocks of established companies. The portfolio will normally
invest at least 65% of its assets in the common stocks of well-established
companies paying above-average dividends.
. T. ROWE PRICE MID-CAP GROWTH PORTFOLIO ... seeks to achieve long term
capital appreciation by investing in mid-cap stocks with potential for
above-average earnings growth. The portfolio will invest at least 65% of its
assets in diversified portfolio of common stocks of mid-cap companies whose
earnings are expected to grow at a faster rate than the average company. The
portfolio considers "mid-cap companies" as companies with market
capitalizations (number of shares outstanding multiplied by share price)
between $300 million and $5 billion. Most of the portfolio's assets will be
invested in U. S. common stocks.
. T. ROWE PRICE INTERNATIONAL STOCK PORTFOLIO ... seeks to provide long-term
growth of capital through investments primarily in common stocks of
established non-U.S. companies. The portfolio expects to invest
substantially all of the portfolio's assets (with a minimum of 65%) in
established companies beyond U.S. borders. The portfolio's focus will
typically be on large and, to a lesser extent, medium-sized companies.
. T. ROWE PRICE LIMITED-TERM BOND PORTFOLIO ... seeks a high level of income
consistent with modest price fluctuation by investing primarily in
investment grade debt securities.
T. Rowe Price Associates, Inc. is responsible for selection and management of
the portfolio investments of T. Rowe Price Equity Securities and T. Rowe Price
Fixed Income Securities. Rowe Price-Fleming International, Inc., a joint venture
between T. Rowe Price Associates, Inc. and Robert Fleming Holdings Limited, is
responsible for selection and management of the portfolio investments of T. Rowe
Price International Series.
. The MFS Fund - currently has the following series or portfolios, each of
which are Eligible Portfolios:
. MFS CAPITAL OPPORTUNITIES PORTFOLIO ... seeks capital appreciation. Dividend
income, if any, is a consideration incidental to the Series' objective of
capital appreciation. While the Series' policy is to invest primarily in
common stocks, it may seek appreciation in other types of securities such as
fixed income securities (which may be unrated), convertible bonds,
convertible preferred stocks and warrants when relative values make such
purchases appear attractive either as individual issues or as types of
securities in certain economic
40
environments. The Series 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 Series 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 INVESTORS TRUST PORTFOLIO ... seeks long-term growth of capital with a
secondary objective to seek reasonable current income.
Massachusetts Financial Service Company is responsible for selection and
management of the portfolio investments of the MFS Variable Series.
. The Van Eck Fund - currently has the following series or portfolios, each of
which are Eligible Portfolios:
. VAN ECK WORLDWIDE HARD ASSETS PORTFOLIO ... seeks long-term capital
appreciation by investing primarily in "Hard Asset Securities." Income is a
secondary consideration. Hard Asset Securities include equity securities of
"Hard Asset Companies" and securities, including structured notes, whose
value is linked to the price of a Hard Asset commodity or a commodity index.
"Hard Asset Companies" includes companies that are directly or indirectly
(whether through supplier relationships, servicing agreements or otherwise)
engaged to a significant extent in the exploration, development, production
or distribution or one or more of the following (together "Hard Assets"):
(1) precious metals, (2) ferrous and non-ferrous metals, (3) gas, petroleum,
petrochemicals and other hydrocarbons, (4) forest products, (5) real estate
and (6) other basic non-agricultural commodities.
. VAN ECK WORLDWIDE EMERGING MARKETS PORTFOLIO ... seeks long-term capital
appreciation by investing primarily in equity securities in emerging markets
around the world.
Van Eck Associates Corporation serves as investment advisor and manages the
investment operations of the Van Eck Portfolios and furnishes the Portfolios
with a continuous investment program which includes determining which securities
should be brought, sold or held.
. The Federated Fund - currently has the following series or portfolios, each
of which are Eligible Portfolios:
. FEDERATED UTILITY FUND II PORTFOLIO ... seeks to achieve high current income
and moderate capital appreciation. The Portfolio invests primarily in equity
and debt securities of utility companies.
. FEDERATED GROWTH STRATEGIES PORTFOLIO ... seeks capital appreciation. The
Portfolio invests at least 65% of its assets in equity securities of
companies with prospects for above average growth in earnings and dividends.
. FEDERATED U.S. GOVERNMENT BOND PORTFOLIO ... seeks current income by
investing in a diversified portfolio limited to U.S. government securities.
. FEDERATED HIGH INCOME BOND PORTFOLIO ... seeks high current income. The
Portfolio invests in fixed income securities, which are lower rated
corporate debt obligations, which are commonly referred to as "junk bonds."
The risk in investing in junk bonds is described in the prospectus for the
Insurance Management Series, which should be read carefully before
investing.
. FEDERATED EQUITY INCOME FUND II PORTFOLIO ... seeks to provide above average
income and capital appreciation by investing in income producing equity
securities including
41
common stocks, preferred stocks, and debt securities that are convertible
into common stocks, in cash and cash items during times of unusual
conditions to maintain liquidity. Cash items may include commercial paper,
Europaper, certificates of deposit, obligations of the U.S. Government,
repurchase agreements and other short-term instruments.
Federated Advisors makes all investment decisions for the Federated Insurance
Series, subject to direction by the Federated insurance Series Trustees.
. The Lazard Fund - currently has the following series or portfolios, each of
which are Eligible Portfolios:
. LAZARD RETIREMENT EMERGING MARKETS PORTFOLIO ... seeks capital appreciation.
This portfolio invests primarily in equity securities of non-United States
issuers located, or doing significant business, in emerging market countries
considered to be inexpensively priced relative to the return on total
capital or equity.
. LAZARD RETIREMENT SMALL CAP PORTFOLIO ... seeks capital appreciation. This
Portfolio invests primarily in equity securities of companies with market
capitalization under $1 billion considered to be inexpensively priced
relative to the return on total capital or equity.
Lazard Freres Asset Management serves as investment advisor and continually
furnishes an investment program for each Portfolio consistent with its
investment objectives and policies, including the purchase, retention, and
disposition of securities.
. THE ALGER AMERICAN FUND - currently has the following series or portfolios,
each of which is an Eligible Portfolio:
. 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.
. 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.
. MidCap Growth Portfolio ... seeks long-term capital appreciation. It focuses
on midsize companies with promising growth potential.
. 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 in the money borrowed.
. Income & Growth Portfolio ... primarily seeks to provide a high level of
divided 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 managers believe also offer
opportunities for capital appreciation.
. Balanced Portfolio ... seeks current income and long-term capital
appreciation. It focuses on stocks of companies with growth potential and
fixed-income securities, with emphasis on income-producing securities that
appear to have some potential for capital appreciation.
Fred Alger Management, Inc. is the Alger American Fund's investment adviser.
Fred Alger Management, Inc. also provides investment advisory and Portfolio
management services to us and to other clients. Fred Alger Management, Inc.
maintains a staff of experienced investment personnel and related support
facilities.
The accompanying prospectuses should be read in conjunction with this prospectus
before investing and contain a full description of the above funds, their
investment policies and restrictions, risks, charges and expenses and other
aspects of their operation.
We have arrangements to provide services to certain Eligible Portfolios for
which the advisor or distributor of such, portfolios, pay us fees. The fees are
based upon an annual percentage of the
42
average aggregate net amount invested by us in such Eligible Portfolios. Some
advisors or distributors pay us higher fees than others.
The Eligible Portfolios and the mutual funds of which they are a part are sold
only to registered separate accounts, of insurance companies offering variable
annuity and variable life insurance contracts and, in some cases, to certain
qualified pension and retirement plans. The Eligible Portfolios and mutual funds
are not sold to the general public and should not be mistaken for other mutual
funds offered by the same sponsor or that have similar names.
CHANGES IN INVESTMENT OPTIONS
We may establish additional subaccounts, which would invest in portfolios of
other mutual funds chosen by us. We may also, from time to time, discontinue the
availability of existing subaccounts. If we do, we may, by appropriate
endorsement, make such changes to the Contract, as we believe are necessary or
appropriate. In addition, if a subaccount is discontinued, we may redeem shares
in the corresponding Eligible Portfolio and substitute shares of another mutual
fund. We will not do so, or make other changes without prior notice to you and
without complying with other applicable laws. Such laws may require approval by
the SEC and the Texas Department of Insurance.
If we deem it to be in your best interest, and subject to any required
approvals, we may combine the Separate Account with another of our separate
accounts.
FIXED ACCOUNT
Before the Annuity Date, you can allocate all or a portion of your Purchase
Payment to the Fixed Account. Subject to certain limitations, you can also
transfer Accumulation Value from the subaccounts to the Fixed Account. Transfers
from the Fixed Account to the subaccounts are restricted. (See "Transfers Before
Annuity Date", page 27.)
Purchase Payments allocated to and transfers from a subaccount to the Fixed
Account are placed in our General Account. We have sole discretion regarding the
investment of and bear the investment risk with respect to the assets in our
General Account. You bear the risk that the declared rate will fall to a lower
rate after the expiration of a declared rate period. Because of exemptive and
exclusionary provisions, interests in the General Account have not been
registered under the Securities Act of 1933 (the "'33 Act") and the General
Account has not been registered as an investment company under the Investment
Company Act of 1940 (the "'40 Act"). Accordingly, neither the General Account
nor any interest therein is generally subject to the provisions of the '33 Act
or '40 Act. We understand that the staff of the SEC has not reviewed the
disclosures in this Prospectus relating to the Fixed Account portion of the
Contract. However, disclosures regarding the Fixed Account portion of the
Contract may be subject to generally applicable provisions of the federal
securities laws regarding the accuracy and completeness of statements made in
prospectuses.
43
FEDERAL TAX MATTERS
THE FOLLOWING DISCUSSION IS GENERAL AND IS NOT TAX ADVICE
INTRODUCTION
The following summary describes some of the federal income tax rules that apply
to a Contract. This summary is not complete and does not cover all tax
situations. Special tax rules, not discussed here, may apply to certain
individuals. This discussion is not tax advice. You should consult a competent
tax adviser for more complete information. This discussion is based upon our
understanding of the present federal income tax laws. We do not know if these
laws will change or how the Internal Revenue Service (the "IRS") will interpret
them. Moreover, the discussion below does not consider any applicable state or
other tax laws. We have included additional discussion regarding taxes in the
Statement of Additional Information.
TAX STATUS OF THE CONTRACTS
The following discussion assumes that the Contract will qualify as annuity
contracts for federal income tax purposes. The Statement of Additional
Information explains the requirements for qualifying as an annuity contract.
TAXATION OF ANNUITIES IN GENERAL
If you are a natural person, you generally will not be taxed on increases in the
Accumulation Value until you receive payments under the Contract. Any
distribution of payments, including a full or partial surrender of a Contract,
may subject you to income tax. If you assign or pledge (or agree to assign or
pledge) any portion of a Contract's Accumulation Value, this generally will be
considered a distribution of payments to you and may be taxable.
Corporations, partnerships, trusts, and other entities that own a Contract
generally must include in income increases in the excess of the Accumulation
Value over the investment in the contract. There are some exceptions to this
rule and such a prospective Contract Owner should discuss these with a tax
adviser.
The "investment in the contract" generally equals the amount, if any, of
Purchase Payments paid with after-tax dollars (that is, purchase payments that
were not excluded from the individual's gross income) less any amounts withdrawn
that were not taxable.
The following discussion applies to Contracts owned by natural persons.
WITHDRAWALS
If you make a partial surrender from a Non-Qualified Contract (including
Systematic Withdrawals), the amount received will be taxed as ordinary income,
up to an amount equal to the excess (if any) of the Accumulation Value
immediately before the distribution over the investment in the Contract at that
time. In the case of a full surrender under a Non-Qualified Contract, the amount
received generally will be taxable as ordinary income to the extent it exceeds
the investment in the Contract.
PENALTY TAX
For all distributions from Non-Qualified Contracts, there is a federal penalty
tax equal to 10% of the amount treated as taxable income. However, in general,
there is no penalty tax on distributions:
. made after the taxpayer reaches age 59/1//2;
. made as a result of the death of the Contract Owner;
. attributable to the taxpayer becoming disabled; or
. made as part of a series of substantially equal periodic payments for the
life, or life expectancy, of the taxpayer.
There are other exceptions and special rules may apply to the exceptions listed
above. You should consult a tax adviser with regard to exceptions from the
penalty tax.
44
ANNUITY PAYMENTS
Although the tax consequences may vary depending on the annuity payment method
elected under the contract, generally only the portion of the annuity payment
that represents the amount by which the Accumulation Value exceeds the
investment in the contract will be taxed.
. For variable annuity payments, in general the taxable portion of each annuity
payment is determined by a formula which establishes a specific non-taxable
dollar amount of each annuity payment. This dollar amount is determined by
dividing the investment in the contract by the total number of expected
annuity payments.
. For fixed annuity payments, in general there is no tax on the portion of each
annuity payment which reflects the ratio that the investment in the contract
bears to the total expected value of annuity payments for the term of the
payments; however, the remainder of each annuity payment is taxable.
In all cases, after the investment in the Contract is recovered, the full amount
of any additional annuity payments is taxable.
TAXATION OF DEATH BENEFIT PROCEEDS
Amounts may be distributed from a Contract because of your death or the death of
the Annuitant. Generally, such amounts are taxable to the recipient as follows:
. if distributed in a lump sum, they are taxed in the same manner as a full
surrender of the Contract; or
. if distributed under an annuity option, they are taxed in the same way as
annuity payments, as described above.
TRANSFERS OR ASSIGNMENTS OF A CONTRACT
A transfer or assignment of a Contract, the designation of certain Annuitants,
or the selection of certain Annuity Dates may result in tax consequences that
are not discussed herein. You should consult a tax advisor as to the tax
consequences of any such transaction.
REQUIRED DISTRIBUTIONS
In order to be treated as an annuity contract for federal income tax purposes,
the Code requires any non-qualified annuity contract to contain certain
provisions concerning how an interest in the contract is distributed on the
owner's death. The Non-Qualified Contracts contain provisions that are intended
to comply with these Code requirements, although no regulations interpreting
these requirements have yet been issued. We may modify the Contracts if
necessary to assure that they comply with the applicable requirements when such
requirements are clarified by regulation or otherwise.
WITHHOLDING
Annuity distributions generally are subject to withholding for the recipient's
federal income tax liability. Recipients can generally elect, however, not to
have tax withheld from distributions. Withholding is mandatory for certain
Qualified Contracts.
MULTIPLE CONTRACTS
All non-qualified, deferred annuity contracts that are issued by us (or our
affiliates) to the same owner during any calendar year are treated as one
annuity contract for purposes of determining the amount includible in income
when a taxable distribution occurs. In addition, there may be other situations
in which the U.S. Treasury Department may conclude that it would be appropriate
to aggregate two or more annuity contracts purchased by the same owner (it has
authority to issue regulations on aggregating multiple contracts). Accordingly,
you should consult a tax advisor before purchasing more than one annuity
contract.
45
EXCHANGES
Section 1035 of the Internal Revenue Code (the "Code") provides generally for
tax-free exchanges of one annuity contract for another. A number of special
rules and procedures apply to section 1035 exchanges. Anyone wishing to take
advantage of section 1035 should consult a tax advisor.
TAXATION OF QUALIFIED CONTRACTS
The Qualified Contracts are designed for retirement plans that qualify for
special income tax treatment under Sections 401(a), 403(b), 408, (408A) or 457
of the Code. Certain requirements apply to the purchase of a Qualified Contract
and to distributions therefrom in order for you to receive favorable tax
treatment. The following discussion assumes that Qualified Contracts qualify for
the intended special federal income tax treatment.
The tax rules applicable to participants in these qualified plans vary according
to the type of plan and the terms and conditions of the plan itself. In general,
adverse tax consequences may result from:
. contributions made in excess of specified limits;
. distributions received prior to age 59/1//2 (subject to certain exceptions);
. distributions that do not conform to specified commencement and minimum
distribution rules;
. aggregate distributions in excess of a specified annual amount; and
. contributions or distributions made in other circumstances.
The terms and conditions of the retirement plans may limit the rights otherwise
available to you under a Qualified Contract. You are responsible for determining
that contributions, distributions, and other transactions with respect to a
Qualified Contract comply with applicable law. If you are considering purchasing
an annuity contract for use with any qualified retirement plan, you should get
legal and tax advice.
DISTRIBUTIONS FROM QUALIFIED CONTRACTS
Annuity payments from Qualified Contracts are generally taxed in the same manner
as under a Non-Qualified Contract. When a withdrawal from a Qualified Contract
occurs, all or some of the amount received is taxable. For Qualified Contracts,
the investment in the contract can be zero; in that case, the full amount of all
distributions would be taxable. Distributions from certain qualified plans are
generally subject to mandatory withholding.
For qualified plans under Sections 401(a), 403(b), and 457, the Code requires
that distributions generally must begin by the later of April 1 of the calendar
year following the calendar year in which the Contract Owner (or plan
participant): (a) reaches age 70/1//2; or (b) retires. Distributions must be
made in a specified form and manner. If the participant is a "5 percent owner"
(as defined in the Code), distributions generally must begin no later than April
1 of the calendar year following the calendar year in which the policy owner (or
plan participant) reaches age 70/1//2. For Individual Retirement Annuities
(IRAs) described in Section 408 of the Code, distributions generally must begin
no later than April 1 of the calendar year following the calendar year in which
the policy owner (or plan participant) reaches age 70/1//2.
. CORPORATE AND SELF EMPLOYED PENSION AND PROFIT SHARING PLANS - Section 401(a)
of the Code permits employers to establish retirement plans for employees and
permits self-employed individuals to establish retirement plans for
themselves and their employees. Adverse tax or other legal consequences to
the plan, to the Plan Participant, or to both may result if this Contract is
purchased by a 401(a) plan and later assigned or transferred to any
individual. Employers intending to use the Contract with such plans should
consult a tax advisor.
. TAX SHELTERED ANNUITIES - Under Code Section 403(b), public school systems
and certain tax-exempt organizations may purchase annuity contracts for their
employees. Generally, payments to Section 403(b) annuity contracts will be
excluded from the gross income of the employee, subject to certain
limitations. However, these payments may be subject to FICA (Social Security)
taxes. Under Section 403(b) annuity contracts, the following amounts may only
be distributed upon death of the employee, attainment of age 59/1//2,
separation from service, disability, or financial hardship:
46
(a) elective contributions made in years beginning after December 31, 1988;
(b) earnings on those contributions; and
(c) earnings in such years on amounts held as of the last year beginning before
January 1, 1989.
In addition, income attributable to elective contributions may not be
distributed in the case of hardship.
. INDIVIDUAL RETIREMENT ANNUITIES - Section 408 of the Code permits certain
eligible individuals to contribute to an individual retirement program known
as an "Individual Retirement Annuity" or "IRA." Section 408 of the Code
limits the amount which may be contributed to an IRA each year to the lesser
of $2,000 or 100% of the Contract Owner's adjusted gross income. These
contributions may be deductible in whole or in part depending on the
individual's income. The limit on the amount contributed to an IRA does not
apply to distributions from certain other types of qualified plans that are
"rolled over" on a tax-deferred basis into an IRA. Amounts in the IRA (other
than non-deductible contributions) are taxed when distributed from the IRA.
Distributions prior to age 59/1//2 (unless certain exceptions apply) are
subject to a 10% penalty tax.
[Roth IRAs. Effective January 1, 1998, section 408A of the Code permits
certain eligible individuals to contribute to a Roth IRA. Contributions to a
Roth IRA, which are subject to certain limitations, are not deductible, and
must be made in cash or as a rollover or transfer from another IRA. A
rollover from or conversion of an IRA to a Roth IRA may be subject to tax,
and other special rules may apply. Distributions from a Roth IRA generally
are not taxed, except that, once aggregate distributions exceed contributions
to the Roth IRA, income tax and a 10% penalty tax may apply to distributions
made (1) before age 59/1//2 (subject to certain exceptions) or (2) during the
five taxable years starting with the year in which the first contribution is
made to the Roth IRA.]
. SIMPLE INDIVIDUAL RETIREMENT ANNUITIES - Certain small employers may
establish SIMPLE plans (Savings Incentive Match Plans) as provided by Section
408(p) of the Code. Under these plans, employees may defer a percentage of
compensation of up to certain dollar amount. The sponsoring employer is
required to make a matching contribution. Distributions from a SIMPLE plan
are subject to the same restrictions that apply to IRA distributions and are
taxed as ordinary income. Subject to certain exceptions, distributions prior
to age 59/1//2 are subject to a 10% penalty tax, which increases to 25% if
the distribution occurs during the first two years the employee participates
in the plan.
. DEFERRED COMPENSATION PLANS - Section 457 of the Code provides for certain
deferred compensation plans available with respect to service for state
governments, local governments, political subdivisions, agencies,
instrumentalities and certain affiliates of such entities, and tax-exempt
organizations. These plans are subject to various restrictions on
contributions and distributions. Under non-governmental plans, all amounts
are subject to the claims of general creditors of the employer and depending
on the terms of the particular plan, the employer may be entitled to draw on
deferred amounts for purposes unrelated to its Section 457 plan obligations.
In general, distributions from a deferred compensation plan are prohibited
unless made after the Plan Participant attains age 70/1//2, separates from
service, dies, or suffers an unforeseeable financial emergency. Distributions
under these plans are taxable as ordinary income in the year paid or made
available. Adverse tax consequences may result from certain distributions
that do not conform to applicable commencement and minimum distribution
rules.
POSSIBLE CHANGES IN TAXATION
Although the likelihood of legislative change is uncertain, there is always the
possibility that the tax treatment of the contract could change by legislation
or other means (such as U.S. Treasury Department regulations, Internal Revenue
Service revenue rulings, and judicial decisions). It is possible that any change
could be retroactive (that is, effective prior to the date of the change). You
should consult a tax advisor regarding such developments and their effect on the
Contract.
ALL CONTRACTS
As noted above, the foregoing comments about the federal tax consequences under
the Contracts are not exhaustive, and special rules may apply with respect to
other tax situations not discussed in
47
this prospectus. Further, the federal income tax consequences discussed herein
reflect our understanding of current law, and the law may change. Federal estate
and state and local estate, inheritance and other tax consequences of ownership
or receipt of distributions under a Contract depend on the individual
circumstances of each Contract Owner or recipient of a distribution. A tax
adviser should be consulted for further information.
48
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 of time. An
average annual total return reflects the hypothetical annually compounded return
that would have produced the same cumulative total return if the performance had
been constant over the entire period. Because average annual total returns tend
to smooth out variations in a subaccount's returns, you should recognize that
they are not the same as actual year-by-year results.
Some subaccounts may also advertise yield. These measures reflect the income
generated by an investment in the subaccount over a specified period of time.
This income is annualized and shown as a percentage. Yields do not take into
account capital gains or losses or the contingent deferred sales load.
The American National Money Market subaccount may advertise their current and
effective yield. Current yield reflects the income generated by an investment in
the subaccount over a 7-day period. Effective yield is calculated in a similar
manner except that income earned is assumed to be reinvested.
DISTRIBUTOR OF THE CONTRACT
Securities Management and Research, Inc. ("SM&R"), 2450 South Shore Boulevard,
Suite 400, League City, Texas 77573, our wholly-owned subsidiary, is the
principal underwriter of the Contract. SM&R was organized under the laws of the
State of Florida in 1964; is a registered broker/dealer; and is a member of the
National Association of Securities Dealers.
SM&R's registered representatives selling a Contract will receive commissions
from SM&R. After issuance of the Contract, broker-dealers will receive
commissions aggregating up to 8.0% of the Purchase Payments. In addition, after
the first Contract Year, broker-dealers who have distribution agreements with us
may receive an annual commission of up to 0.25% of the Contract's Accumulation
Value.
49
LEGAL MATTERS
Various matters of Texas law pertaining to the Contract, including the validity
of the Contract and our right to issue the Contract under Texas insurance law,
have been reviewed by Greer, Herz and Adams, LLP, General Counsel.
LEGAL PROCEEDINGS
The Company and its affiliates, like other life insurance companies, are
involved in lawsuits, including class action lawsuits. In some class action and
other lawsuits involving insurers, substantial damages have been sought and
material settlement payments have been made. Although the outcome of any
litigation cannot be predicted with certainty, we believe at the present time no
lawsuits are pending or threatened that are reasonably likely to have a material
adverse impact on the Separate Account or us.
EXPERTS
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 2000 and for the year then ended and the
statements of net assets of American National Variable Annuity Separate Account
as of December 31, 2000 and the related statements of operations for the year
then ended, and the statements of changes in net assets for the year then ended,
included in this prospectus and elsewhere in the registration statement, have
been audited by KPMG LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
The consolidated financial statements of American National Insurance Company and
subsidiaries as of December 31, 1999 and 1998 and for the years then ended and
the statements of changes in net assets of American National Variable Annuity
Separate Account for the year ended December 31, 1999, included in this
prospectus and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
ADDITIONAL INFORMATION
A registration statement describing the Contract has been filed with the
Securities and Exchange Commission, under the Securities Act of 1933. This
Prospectus does not contain all information in the registration statement, to
which reference is made for further information concerning us, the Separate
Account and the Contract offered hereby. The omitted information may be obtained
at the SEC's principal office in Washington, D.C. by paying the SEC's prescribed
fees. Statements contained in this Prospectus as to the terms of the Contract
and other legal instruments are summaries. For a complete statement of such
terms reference is made to such instruments as filed.
50
FINANCIAL STATEMENTS
Our financial statements should be considered only as bearing on our ability to
meet our obligations under the Contract. They should not be considered as
bearing on the investment performance of the assets held in the Separate
Account. The financial statements can be found in the Statement of Additional
Information.
51
TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION
PAGE
The Contract............................................... 3
Valuation of Accumulation Units............................ 3
Computation of Variable Annuity Payments................... 3
Annuity Unit Value......................................... 4
Summary.................................................... 4
Exceptions to Charges...................................... 5
Assignment................................................. 5
Minimum Distributions Program.............................. 5
Distribution of the Contract............................... 6
Tax Matters................................................ 7
Records and Reports........................................ 7
Performance................................................ 8
Total Return............................................... 8
Other Total Return......................................... 9
Yields..................................................... 9
State Law Differences...................................... 10
Separate Account........................................... 10
Termination of Participating Agreements.................... 11
Financial Statements....................................... 20
Financials................................................. 21
52
AMERICAN NATIONAL VARIABLE ANNUITY II
STATEMENT OF ADDITIONAL INFORMATION
ISSUED BY AMERICAN NATIONAL INSURANCE COMPANY
HOME OFFICE ONE MOODY PLAZA GALVESTON TX 77550-7999
1-800-306-2959
RELATING TO THE PROSPECTUS DATED MAY 1, 2001
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
KPMG LLP
700 Louisiana
Houston, Texas 77002-2786
This Statement of Additional Information is not a prospectus and should be read
only in conjunction with the Prospectus for the Contract.
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT STATEMENT OF ADDITIONAL
INFORMATION
MAY 1, 2001
This Statement of Additional Information expands upon subjects discussed in the
current prospectus for the Variable Annuity Contract II ("the Contract") offered
by American National Insurance Company ("American National"). You may obtain a
copy of the prospectus dated May 1, 2000, by calling 1-800-306-2959, or writing
to American National Insurance Company, P.O. Box 1893, Galveston, Texas 77553-
1893. 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 3934-SAI Rev. 5-01
53
TABLE OF CONTENTS
PAGE
The Contract............................... 3
Valuation of Accumulation Units............ 3
Computation of Variable Annuity Payments... 3
Annuity Unit Value......................... 4
Summary.................................... 4
Exceptions to Charges...................... 5
Assignment................................. 5
Minimum Distributions Program.............. 5
Distribution of the Contract............... 6
Tax Matters................................ 7
Records and Reports........................ 7
Performance................................ 8
Total Return............................... 8
Other Total Return......................... 9
Yields..................................... 9
State Law Differences...................... 10
Separate Account........................... 10
Termination of Participating Agreements.... 11
Financial Statements....................... 20
Financials................................. 21
54
THE CONTRACT
The following provides additional information about the Contract which
supplements the description in the prospectus and which may be of interest to
some Contractowners.
VALUATION OF ACCUMULATION UNITS
The Accumulation Unit Value for a Subaccount on any day is equal to (a) divided
by (b), where (a) is the net asset value of the corresponding Eligible Portfolio
of the underlying fund owned by each Subaccount less any applicable deductions
and (b) is the number of Accumulation Units of that subaccount at the beginning
of that day.
COMPUTATION OF VARIABLE ANNUITY PAYMENTS
The amount of the first variable annuity payment to the Annuitant will depend on
the amount of his/her Accumulation Value applied to effect the variable annuity
as of the tenth day immediately preceding the date annuity payments commence,
the amount of any premium tax owed (if applicable), the annuity option selected,
and the age of the Annuitant. The Contract contains tables indicating the dollar
amount of the first annuity payment under annuity options 1, 2, 3, and 4 for
each $1,000 of Accumulation Value at various ages. These tables are based upon
the 1983 Table "a" (promulgated by the Society of Actuaries) and an Assumed
Investment Rate (the "AIR") of 3.0% per annum.
In any subsequent month, the dollar amount of the variable annuity payment is
determined by multiplying the number of annuity units in the applicable
division(s) by the value of such annuity unit on the tenth day preceding the due
date of such payment. The annuity unit value will increase or decrease in
proportion to the net investment return of the division(s) underlying the
variable annuity since the date of the previous annuity payment, less an
adjustment to neutralize the 3.0% or other AIR referred to above.
Therefore, the dollar amount of variable annuity payments after the first will
vary with the amount by which the net investment return is greater or less than
the 3.0% (or other AIR) per annum. For example, assuming a 3.5% AIR, if an
Eligible Portfolio has a cumulative net investment return of 5% over a one year
period, the first annuity payment in the next year will be approximately 1.5
percentage points greater than the payment on the same date in the preceding
year, and subsequent payments will continue to vary with the investment
experience of the Eligible Portfolio.
If such net investment return is 1% over a one year period, the first annuity
payment in the next year will be approximately 2.5 percentage points less than
the payment on the same date in the preceding year, and subsequent payments will
continue to vary with the investment experience of the applicable division.
55
ANNUITY UNIT VALUE
The value of an annuity unit is calculated at the same time that the value of an
Accumulation Unit is calculated and is based on the same values for shares of
Eligible Portfolios and other assets and liabilities. The following
illustrations show, by use of hypothetical examples, the method of determining
the annuity unit value and the amount of variable annuity payments.
ILLUSTRATION: CALCULATION OF ANNUITY UNIT VALUE
Annuity at age 65: Life with 120 payments certain
1. Annuity unit value, beginning of period $ .980000
2. Net investment factor for Period 1.001046
3. Daily adjustment for 3.0% Assumed Investment Rate .999919
4. (2) x (3) 1.000965
5. Annuity unit value, end of period (1) x (4) $ .980946
ILLUSTRATION: ANNUITY PAYMENTS
Annuity at age 65: Life with 120 payments certain
1. Number of accumulation units at annuity date 10,000.00
2. Accumulation Unit value (10 days prior to date of
first monthly payment) $ 1.800000
3. Accumulation Value of Contract (1) x (2) $18,000.00
4. First monthly annuity payment per $1,000 of
Accumulation Value $ 5.63
5. First monthly annuity payment (3) x (4) / 1,000 $ 101.34
6. Annuity Unit value (10 days prior to date of first
monthly payment) $ .980000
7. Number of annuity units (5) / (6) 103.408
8. Assume annuity unit value for second month equal to $ .997000
9. Second monthly annuity payment (7) x (8) $ 103.10
10. Assume annuity unit value for third month equal to $ .953000
11. Third monthly annuity payment (7) x (10) $ 98.55
SUMMARY
In conclusion, for a variable annuity the key element to pricing the annuity is
unknown; there is no interest rate guarantee made and interest credited will
depend upon actual future results. The technique used to overcome this obstacle
is the calculation of the premium for the annuity using an AIR. The initial
variable annuity payment is based upon this premium; subsequent payments will
increase or decrease depending upon the relationship between the AIR and the
actual investment performance of Eligible Portfolios to be passed to the
annuitant. Suppose an Eligible Portfolio showed a monthly return of 1% after the
first month, the participant's second monthly payment would be (assuming 30 days
between payments):
$100 x [1.01/(1.03)/30/365/] = $100.75
We have shown that the AIR methodology means that at each payment date the value
in a participant's annuity is updated to reflect actual investment results to
date, but continued assumption of the AIR for the remainder of the Annuity
Period.
EXCEPTIONS TO CHARGES
The surrender charges, mortality and expense risk fees and administrative
charges may be reduced for, or additional amounts credited on, sales of
Contracts to a trustee, employer, or similar entity representing a group where
American National determines that such sales result in savings of sales
56
or administrative expenses. In addition, directors, officers and bona fide full-
time employees (and their spouses and minor children) of SM&R and American
National are permitted to purchase Contracts with substantial reduction of the
surrender charges, mortality and expense risk fees, or administrative charges.
The Contract may be sold directly, without compensation, to a registered
representative, to employees, officers, directors, and trustees of American
National and its affiliated companies, and spouses and immediate family members
(i.e., children, siblings, parents, and grandparents) of the foregoing, and to
employees, officers, directors, trustees and registered representatives of any
broker-dealer authorized to sell the Contracts, and spouses and immediate family
members of the foregoing. If sold under these circumstances, a Contract may be
credited with in part or in whole any cost savings resulting from the Contract
being sold directly, rather than through an agent with an associated commission,
but only if such credit will not be unfairly discriminatory to any person.
ASSIGNMENT
The Contract may be assigned by the Contractowner except when issued to plans or
trusts qualified under Section 403(b) or 408 of the Internal Revenue Code.
401(k) Contracts are not assignable.
MINIMUM DISTRIBUTIONS PROGRAM
Under the Systematic Withdrawal Program, the Contractowner can elect to
participate in the "Minimum Distributions Program" by instructing American
National to calculate and make minimum distributions that may be required if the
Contract is used with a tax qualified plan. American National calculates such
amounts assuming the minimum distribution amount is based soley on the value of
the Contractowner's Contract. However, the required minimum distribution amounts
applicable to the Contractowner's particular situation may depend on other
annuities, savings, or investments of which American National is not aware, so
that the required amount may be greater than the minimum distribution amount
American National calculates based on the Contractowner's Contract. The Minimum
Distributions Program is subject to all the rules applicable to the Systematic
Withdrawal Program. In addition, certain rules apply only to the Minimum
Distributions Program. These rules are described below.
In order to participate in the Minimum Distributions Program, the Contractowner
must notify American National of such election in writing in the calendar year
in which the Contractowner attains age 70/1//2. If the Contractowner is taking
payments under the Systematic Withdrawal Program when the Minimum Distributions
Program is elected, the existing Systematic Withdrawal Program will be
discontinued.
American National will determine the amount that is required to be distributed
from a Contract each year based on the information provided by the Contractowner
and elections made by the Contractowner. The Contractowner specifies whether the
withdrawal amount will be based on a life expectancy calculated on a single life
basis, or on a joint life basis. American National calculates a required
distribution amount each year based on the Internal Revenue Code's minimum
distribution rules.
Minimum Distributions Program is based on American National's understanding of
the present federal income tax laws, as they are currently interpreted by the
IRS. Numerous special tax rules apply to Contractowners whose Contracts are used
with qualified plans. Contractowners should consult a tax advisor before
electing to participate in the Minimum Distributions Programs.
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:
57
. compliance with the requirements of any applicable state broker-dealer
regulations and the Securities Exchange Act of 1934,
. keeping correct records and books of account in accordance with Rules 17a-3
and 17a-4 of the Securities Exchange Act,
. training agents of American National for the sale of Contracts, and
. forwarding all purchase payments under the Contracts directly to American
National.
SM&R is not entitled to any renumeration for its services as underwriter under
the Distribution and Administrative Services Agreement; however, SM&R is
entitled to reimbursement for all reasonable expenses incurred in connection
with its duties as underwriter.
The sum of surrender charges under a Contract will never exceed 8.5% of Purchase
Payments.
58
TAX MATTERS
Diversification Requirements. The Code requires that the investments underlying
a separate account be "adequately diversified" in order for annuity contracts to
be treated as annuity contracts for federal income tax purposes. We intend that
the Separate Account, through the Eligible Portfolios, will satisfy these
diversification requirements.
In certain circumstances, owners of variable annuity contracts may be considered
for federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. When this is the case, the contract owners would be
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features of the Contracts, such
as the flexibility of a Contractowner to allocate premium payments and transfer
Accumulation Value, have not been explicitly addressed in published rulings.
While we believe that the Contracts do not give Contractowners investment
control over Separate Account assets, we reserve the right to modify the
Contracts as necessary to prevent a Contractowner from being treated as the
owner of the Separate Account assets supporting a Contract.
Required Distributions. In order to be treated as an annuity contract for
federal income tax purposes, each non-qualified deferred annuity contract must
provide that:
(i) if a Contractowner dies on or after the Annuity Date but before the entire
interest in the Contract has been distributed, the remaining interest in
the Contract will be distributed at least as rapidly as under the
distribution method that was used immediately before the Contractowner
died; and
(ii) if a Contractowner dies before the Annuity Date, the entire interest in
the Contract will be distributed within five years after the Contractowner
dies.
These requirements are considered satisfied as to any portion of the
Contractowner's interest that is (i) payable as annuity payments which begin
within one year of the Contractowner's death, and (ii) which are made over the
life of the Beneficiary or over a period not extending beyond the Beneficiary's
life expectancy.
If the Beneficiary is the surviving spouse of the Contractowner, the Contract
may be continued with the surviving spouse as the new Contractowner and no
distribution is required.
Other rules may apply to Qualified Contracts.
RECORDS AND REPORTS
Reports concerning each Contract will be sent annually to each Contractowner.
Contractowners will additionally receive annual and semiannual reports
concerning the underlying funds and annual reports concerning the Separate
Account.
Contractowners will also receive confirmations of receipt of purchase payments,
changes in allocation of purchase payments and transfer of Accumulation Units
and Annuity Units.
PERFORMANCE
Performance information for any subaccount may be compared, in reports and
advertising to:
. the Standard & Poor's 500 Composite Stock Price Index ("S & P 500"),
. Dow Jones Industrial Average ("DJIA"),
. Donoghue's Money Market Institutional Averages;
. other variable annuity separate accounts or other investment products tracked
by Lipper Analytical Services, Lehman-Brothers, Morningstar, or the Variable
Annuity Research and Data Service, widely used independent research firms
which rank mutual funds and other investment companies by overall
performance, investment objectives, and assets, and
. the Consumer Price Index (measure for inflation) to assess the real rate of
return from an investment in a contact.
59
Unmanaged indices may assume the reinvestment of dividends but generally do not
reflect deductions for annuity charges and investment management costs.
Total returns, yields and other performance information may be quoted
numerically or in a table, graph, or similar illustration. Reports and
advertising may also contain other information including:
. the ranking of any subaccount derived from rankings of variable annuity
separate accounts or other investment products tracked by Lipper Analytical
Series or by rating services, companies, publications or other persons who
rank separate accounts or other investment products on overall performance or
other criteria, and
. the effect of tax deferred compounding on a subaccount's investment returns,
or returns in general, which may be illustrated by graphs, charts, or
otherwise, and which may include a comparison, at various points in time, of
the return from an investment in a Contract (or returns in general) on a tax-
deferred basis (assuming one or more tax rates) with the return on a taxable
basis.
TOTAL RETURN
Total Return quoted in advertising reflects all aspects of a subaccount's
return, including the automatic reinvestment by the Separate Account of all
distributions and any change in the subaccount's value over the period. Average
annual returns are calculated by determining the growth or decline in value of a
hypothetical historical investment in the Subaccount over a stated period, and
then calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had been
constant over the period. For example, a cumulative return of 100% over ten
years would produce an average annual return of 7.18%, which is the steady rate
that would equal 100% growth on a compounded basis in ten years. While average
annual returns are a convenient means of comparing investment alternatives,
investors should realize that the subaccount's performance is not constant over
time, but changes from year to year, and that average annual returns represent
averaged figures as opposed to the actual year-to-year performance of a
subaccount.
Average annual total returns are computed by finding the average annual
compounded rates of return over the periods shown that would equate the initial
amount invested to the withdrawal value, in accordance with the following
formula:
P(1+T)/n/ = ERV
where P is a hypothetical investment payment of $1,000, T is the average annual
total return, n is the number of years, and ERV is the withdrawal value at the
end of the periods shown. Since the Contract is intended as a long-term product,
the average annual total returns assume that no money was withdrawn from the
Contract prior to the end of the period.
In addition to average annual returns, the subaccounts may advertise unaveraged
or cumulative total returns reflecting the simple change in value of an
investment over a stated period.
From time to time, sales literature or advertisements may also quote average
annual total returns for periods prior to the date the Separate Account
commenced operations. Such performance information for the subaccounts will be
calculated based on the performance of the Eligible Portfolios and the
assumption that the subaccounts were in existence for the same periods as those
indicated for the Eligible Portfolios, with the level of Contract charges
currently in effect.
OTHER TOTAL RETURN
From time to time, sales literature or advertisements may also quote average
annual total returns that reflect neither the annual contract fee nor the
Surrender Charge. These are calculated in exactly the same way as the average
annual total returns described above, except that the ending redeemable value of
the hypothetical account for the period is replaced with an ending value for the
period that does not take into account the annual contract fee and any charges
on amounts surrendered. Sales literature or advertisements may also quote
average annual total returns for periods prior to the date the Separate Account
commenced operations, calculated based on the performance of the Eligible
Portfolios and the assumption that the subaccounts were in existence
60
for the same periods as those indicated for the Eligible Portfolios, with the
level of Contract charges currently in effect except for the annual contract fee
and the Surrender Charge.
YIELDS
Some subaccounts may also advertise yields. Yields quoted in advertising reflect
the change in value of a hypothetical investment in the subaccount over a stated
period of time, not taking into account capital gains or losses. Yields are
annualized and stated as a percentage. Yields do not reflect the impact of any
contingent deferred sales load. Yields quoted in advertising may be based on
historical seven day periods. Current yield for the American National Money
Market subaccount will reflect the income generated by a Subaccount over a 7-
day period. Current yield is calculated by determining the net change, exclusive
of capital changes, in the value of a hypothetical account having one
Accumulation Unit at the beginning of the period and dividing the difference by
the value of the account at the beginning of the base period to obtain the base
period return, and multiplying the base period return by (365/7). The resulting
yield figure will be carried to the nearest hundredth of a percent. Effective
yield for the American National Money Market subaccount is calculated in a
similar manner to current yield except that investment income is assumed to be
reinvested throughout the year at the 7-day rate. Effective yield is obtained by
taking the base period returns as computed above, and then compounding the base
period return by adding 1, raising the sum to a power equal to (365/7) and
subtracting one from the result, according to the formula
Effective Yield = [(Base Period Return +1)/365/7/] - 1.
Since the reinvestment of income is assumed in the calculation of effective
yield, it will generally be higher than current yield.
A 30-day yield for bond subaccounts will reflect the income generated by a
subaccount over a 30-day period. Yield will be computed by dividing the net
investment income per Accumulation Unit earned during the period by the maximum
offering price per Accumulation Unit on the last day of the period, according to
the following formula:
Yield = 2[((a - b)/cd + 1)/6/ - 1]
where a = net investment income earned by the applicable portfolio, b = expenses
for the period including expenses charged to the contract owner accounts, c =
the average daily number of Accumulation Units outstanding during the period,
and d = the maximum offering price per Accumulation Unit on the last day of the
period.
STATE LAW DIFFERENCES
Differences in state laws may require American National to offer a Contract in
one or more states which is more favorable to a Contractowner than that offered
in other states.
SEPARATE ACCOUNT
The Separate Account will purchase and redeem shares of the Eligible Portfolios
at net asset value. The net asset value of a share is equal to the total assets
of the portfolio less the total liabilities of the portfolio divided by the
number of shares outstanding.
American National will redeem shares in the Eligible Portfolios as needed to:
. collect charges,
. pay the surrenders,
. secure Policy loans,
. provide benefits, or
. transfer assets from one subaccount to another, or to the Fixed Account.
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.
61
The Separate Account may include other subaccounts that are not available under
the Policy. American National may from time to time discontinue the
availability of some of the subaccounts. If the availability of a subaccount is
discontinued, American National may redeem any shares in the corresponding
Eligible Portfolio and substitute shares of another registered, open-end
management company.
American National may also establish additional subaccounts. Each new
subaccount would correspond to a portfolio of a registered, open-end management
company. American National would establish the terms upon which existing
Policyowners could purchase shares in such portfolios.
If any of these substitutions or changes are made, American National may change
the Policy by sending an endorsement. American National may:
. operate the Separate Account as a management company,
. de-register the Separate Account if registration is no longer required,
. combine the Separate Account with other separate accounts,
. restrict or eliminate any voting rights associated with the Separate Account,
or
. transfer the assets of the Separate Account relating to the Contracts to
another separate account.
American National would, of course, not make any changes to the menu of Eligible
Portfolios or to the Separate Account without complying with applicable laws and
regulations. Such laws and regulations may require notice to and approval from
the Contractowners, the SEC and state insurance regulatory authorities.
TERMINATION OF PARTICIPATION AGREEMENTS
The participation agreements pursuant to which the Funds sell their shares to
the Variable Account contain varying provisions regarding termination. The
following generally summarizes those provisions:
THE 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 Contractowners having an
interest in a particular subaccount to substitute the shares of another
investment company for the corresponding American National Fund shares, and
. by American National upon institution of formal proceedings against the
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,
62
. by American National with respect to any Fidelity Portfolio if such Fidelity
Portfolio ceases to be qualified as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code (the "Code"), or if American
National reasonably believes the Fidelity Funds may fail to so qualify,
. by American National with respect to any Fidelity Portfolio if such Fidelity
Portfolio fails to meet the diversification requirements specified in the
Fidelity participation agreement,
. by the Fidelity Funds or the underwriter, upon a determination by either,
that American National has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by American National upon a determination by American National that either
the Fidelity Funds or the underwriter has suffered a material adverse change
in its business, operations, financial condition, or prospects, or is the
subject of material adverse publicity,
. by the Fidelity Funds or the underwriter forty-five days after American
National gives the Fidelity Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts, if at the time such notice was given, no
other notice of termination of the Fidelity participation agreement was then
outstanding, or
. upon a determination that a material irreconcilable conflict exists between
the interests of the Contractowners and other investors in the Fidelity Funds
or between American National's interests in the Fidelity Funds and the
interests of other insurance companies invested in the Fidelity Funds.
THE VAN ECK FUND
This participation agreement provides for termination:
. upon sixty days advance written notice by any party,
. by American National with respect to any Van Eck Portfolio if American
National determines that shares of such Van Eck Portfolio are not reasonably
available to meet the requirements of the Contracts,
. by American National with respect to any Van Eck Portfolio if any of the
shares of such Van Eck Portfolio are not registered, issued, or sold in
accordance with applicable state or federal law or such law precludes the use
of such shares as the underlying investment media of the Contracts,
. by American National with respect to any Van Eck Portfolio if such Van Eck
Portfolio ceases to qualify as a Regulated Investment Company under
Subchapter M of the Code, or if American National reasonably believes the Van
Eck Fund will fail to so qualify,
. by American National with respect to any Van Eck Portfolio if such Van Eck
Portfolio fails to meet the diversification requirements specified in the Van
Eck participation agreement,
. by the Van Eck Fund or the underwriter, upon a determination by either, that
American National or its affiliated companies has suffered a material adverse
change in its business, operations, financial condition, or prospects, or is
the subject of material adverse publicity,
. by American National upon a determination by American National that either
the Van Eck Fund or the underwriter has suffered a material adverse change in
its business, operations, financial condition, or prospects, or is the
subject of material adverse publicity,
. by the Van Eck Fund or the underwriter forty-five days after American
National gives the Van Eck Fund and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts, if at the time such notice was given, no
other notice of termination of the Van Eck participation agreement was then
outstanding, or
. upon a determination that a material irreconcilable conflict exits between
the interests of the Contractowners and other investors or between American
National's interests in the Van Eck Fund and the interests of other insurance
companies invested in the Van Eck Fund.
63
THE T. ROWE PRICE FUNDS
This participation agreement provides for termination:
. upon six months advance written notice by any party,
. by American National with respect to any T. Rowe Price Portfolio if American
National determines that shares of such T. Rowe Price Portfolio are not
reasonably available to meet the requirements of the Contracts,
. by American National with respect to any T. Rowe Price Portfolio if any of
the shares of such T. Rowe Price Portfolio are not registered, issued, or
sold in accordance with applicable state or federal law or such law precludes
the use of such shares as the underlying investment media of the Contracts,
. by the T. Rowe Price Funds or the underwriter upon the institution of formal
proceedings against American National by the SEC, NASD, or any other
regulatory body regarding American National's duties under the T. Rowe Price
participation agreement or related to the sale of the Contracts, the
operation of the Separate Account, or the purchase of T. Rowe Price Funds
shares, if the T. Rowe Price Funds or the underwriter determines that such
proceedings will have a material adverse effect on American National's
ability to perform under the T. Rowe Price participation agreement,
. by American National upon the institution of formal proceedings against the
T. Rowe Price Funds or the underwriter by the SEC, NASD, or any other
regulatory body, if American National determines that such proceedings will
have a material adverse effect upon the ability of the T. Rowe Price Funds or
the underwriter to perform its obligations under the T. Rowe Price
participation agreement,
. by American National with respect to any T. Rowe Price Portfolio if such T.
Rowe Price Portfolio ceases to qualify as a Regulated Investment Company
under Subchapter M of the Code, or if American National reasonably believes
the T. Rowe Price Funds may fail to so qualify,
. by American National with respect to any T. Rowe Price Portfolio if such T.
Rowe Price Portfolio fails to meet the diversification requirements specified
in the T. Rowe Price participation agreement, or American National reasonably
believes the T. Rowe Price Portfolio may fail to so comply,
. by the T. Rowe Price Funds or the underwriter, upon a determination by
either, that American National has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. by American National upon a determination by American National that either
the T. Rowe Price Funds or the underwriter has suffered a material adverse
change in its business, operations, financial condition, or prospects, or is
the subject of material adverse publicity,
. by the T. Rowe Price Funds or the underwriter sixty days after American
National gives the T. Rowe Price Funds and the underwriter written notice of
American National's intention to make another investment company available as
a funding vehicle for the Contracts if at the time such notice was given, no
other notice of termination of the T. Rowe Price participation agreement was
then outstanding,
. upon a determination that a material irreconcilable conflict exists between
the Contractowners and other investors in the T. Rowe Price Funds or between
American National's interests in the T. Rowe Price Funds and interests of
other insurance companies invested in the T. Rowe Price Funds.
THE FEDERATED FUND
This participation agreement provides for termination:
. upon one hundred eighty days advance written notice by any party,
64
. at American National's option if American National determines that shares of
the Federated Portfolios are not reasonably available to meet the
requirements of the Contracts,
. at the option of the Federated Fund or the underwriter upon the institution
of formal proceedings against American National by the SEC, NASD, or any
other regulatory body regarding American National's duties under the
Federated participation agreement or related to the sale of the Contracts,
the operation of the Separate Account, or the purchase of Federated Fund
shares,
. at American National's option upon the institution of formal proceedings
against the Federated Fund or the underwriter by the SEC, NASD, or any other
regulatory body,
. upon a requisite vote of the Contractowners to substitute shares of another
fund for shares of the Federated Fund,
. if any of the shares of a Federated Portfolio are not registered, issued, or
sold in accordance with applicable state or federal law or such law precludes
the use of such shares as the underlying investment media of the Contracts,
. by any party upon a determination by the Federated Fund that an
irreconcilable conflict exists between the Contractowners and other investors
in the Federated Fund or between American National's interests in the
Federated Fund and the interests of other insurance companies invested in the
Federated Fund,
. at American National's option if the Federated Fund or a Federated Portfolio
ceases to qualify as a Regulated Investment Company under Subchapter M of the
Code, or
. at American National's option if the Federated Fund or a Federated Portfolio
fails to meet the diversification requirements specified in the Federated
participation agreement.
65
THE LAZARD FUND
This participation agreement provides for termination:
. upon one hundred eighty days advance written notice by any party, unless a
shorter period is agreed upon by the parties,
. at American National's option if shares of any Lazard Portfolio are not
reasonably available to meet the requirements of the Contracts or are not
"appropriate funding vehicles" for the Contracts, as determined by American
National,
. at American National's option upon the institution of formal proceedings
against the Lazard Fund or the underwriter by the SEC, NASD, or any other
regulatory body, if American National determines that such proceedings will
have a material adverse effect upon the Lazard Fund's ability to perform its
obligations under the Lazard participation agreement,
. at the option of the Lazard Fund upon the institution of formal proceedings
against American National by the SEC, NASD, or any other regulatory body if
the Lazard Fund determines that such proceedings will have a material adverse
effect on American National's ability to perform under the Lazard
participation agreement,
. at the option of the Lazard Fund upon a determination by the Lazard Fund that
American National has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity and such
change or publicity is likely to have a material adverse impact on the
business and operation of American National, if, after the expiration of
sixty days written notice of such determination, American National has not
cured the situation to the satisfaction of the Lazard Fund,
. at American National's option upon a determination by American National that
the Lazard Fund has suffered a material adverse change in its business or
financial condition or is the subject of material adverse publicity and such
change or publicity is likely to have a material adverse impact on the
business and operation of the Lazard Fund, if, after the expiration of sixty
days written notice of such determination, the Lazard Fund has not cured the
situation to the satisfaction of American National,
. upon the termination of the Investment Management Agreement between the
Lazard Fund and its investment advisor, unless American National specifically
approves selection of a new investment advisor, or upon the sale, acquisition
or change of control of the investment advisor,
. if any of the shares of a Lazard Portfolio are not registered, issued, or
sold in accordance with applicable federal law, or such law precludes the use
of such shares as the underlying investment media of the Contracts,
. at the option of the Lazard Fund upon a determination by the Lazard Fund's
Board of Trustees that it is no longer in the best interest of the
shareholders for the Lazard Fund to operate under the Lazard participation
agreement,
. at the option of the Lazard Fund if the Contracts cease to qualify as annuity
contracts or life insurance policies under the Code, or the Lazard Fund
reasonably believes the Contracts may fail to so qualify,
. at the option of either party upon one party's breach of a material provision
of the Lazard participation agreement, which breach has not been cured to the
satisfaction of the non-breaching party within ten days after receipt of
written notice of the breach,
. at the Lazard Fund's option if the Contracts are not registered, issued, or
sold in accordance with applicable federal or state law,
. upon assignment of the Lazard participation agreement, unless made with the
written consent of the non-assigning party,
. at the option of either party upon a determination by a majority of the
Trustees of the Lazard Fund that an irreconcilable conflict exists between
the interests of the Contractowners and other investors in the Lazard Fund or
between American National's interests in the Lazard Fund and the interests of
other insurance companies invested in the Lazard Fund, or
66
. upon a requisite vote of the Contractowners, or obtaining a SEC order or no-
action letter, to substitute the shares of another fund for the shares of one
or more Lazard Portfolios upon 60 days written notice to the Lazard Fund.
THE MFS FUND
This participation agreement provides for termination:
. upon six months advance written notice by any party,
. at American National's option to the extent the shares of any MFS Portfolio
are not reasonably available to meet the requirements of the Contracts or are
not "appropriate funding vehicles" for the Contracts, as determined by
American National,
. at the option of the MFS Fund or the underwriter upon the institution of
formal proceedings against American National by the SEC, NASD, or any other
regulatory body regarding American National's duties under the MFS
participation agreement or related to the sale of the Contracts, the
operation of the Separate Account, or the purchase of shares of the MFS Fund,
. at American National's option upon the institution of formal proceedings
against the MFS Fund by the SEC, NASD, or any other regulatory body regarding
the MFS Fund's or the underwriter's duties under the MFS participation
agreement or related to the sale of shares of the MFS Fund,
. at the option of any party upon receipt of any necessary regulatory approvals
or the vote of the Contractowners to substitute shares of another fund for
the shares of the MFS Fund, provided American National gives the MFS Fund and
the underwriter thirty days advance written notice of any proposed vote or
other action taken to replace the shares of the MFS Fund,
. by the MFS Fund or the underwriter upon a determination by either that
American National has suffered a material adverse change in its business,
operations, financial condition, or prospects, or is the subject of material
adverse publicity
. by American National upon a determination by American National that the MFS
Fund or the underwriter has suffered a material adverse change in its
business, operations, financial condition, or prospects, or is the subject of
material adverse publicity,
. at the option of any party, upon another party's material breach of any
provision of the MFS participation agreement, or
. 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
67
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.
68
FINANCIAL STATEMENTS
The financial statements of American National should be considered only as
bearing on the ability of American National to meet its obligations under the
Contracts. They should not be considered as bearing on the investment
performance of the assets held in the Separate Account.
69
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of American National Insurance Company and Contract
Owners of American National Variable Annuity Separate Account:
We have audited the accompanying statements of net assets of the American
National Variable Annuity Separate Account (comprised of American National (AN)
Growth, AN Money Market, AN Balanced, AN Equity Income, AN High Yield Bond, AN
Government Bond, AN Small-Cap/Mid-Cap, Fidelity Asset Manager, Fidelity Index
500, Fidelity Growth Opportunities, Fidelity Contrafund, Fidelity Asset Manager:
Growth, T. Rowe Price (TRP) Limited-Term Bond, TRP Equity Income, TRP
International Stock, TRP Mid-Cap Growth, MFS Research, MFS Capital
Opportunities, MFS Emerging Growth, MFS Growth with Income, Van Eck (VE)
Worldwide Emerging Markets, VE Worldwide Hard Assets, Lazard (LAZ) Retirement
Emerging Markets, LAZ Retirement Small Cap, Federated Growth Strategies,
Federated U.S. Government Bond, Federated High Income Bond, Federated Equity
Income Fund II, Federated Utility Fund II, Alger American Balanced, Alger
American Growth, Alger American Income & Growth, Alger American Leveraged
AllCap, Alger American MidCap Growth, Alger American Small Capitalization
Portfolio Subaccounts) (collectively, the Account) as of December 31, 2000, and
the related statements of operations and changes in net assets for the year then
ended. These financial statements are the responsibility of the Account's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 2000 by correspondence with the underlying mutual funds or their
transfer agent. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Account as of December 31,
2000 and the results of its operations and changes in net assets for the year
then ended, in conformity with accounting principles generally accepted in the
United States of America.
KPMG LLP
Houston, Texas
April 11, 2001
70
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Contract Owners of American National Variable
Annuity Separate Account:
We have audited the accompanying statement of changes in net assets of the
American National Variable Annuity Separate Account (comprised of American
National (AN) Growth, AN Money Market, AN Balanced, AN Equity Income, Fidelity
Asset Manager, Fidelity Index 500, Fidelity Growth Opportunities, Fidelity
Contra Fund, Fidelity Asset Manager Growth, T. Rowe Price Equity Income, T. Rowe
Price International Stock, T. Rowe Price Midcap Growth, T. Rowe Price Limited
Term Bond, MFS Capital Opportunities Series, MFS Emerging Growth Series, MFS
Research Series, MFS Growth w/ Income Series, Van Eck Worldwide Hard Assets, Van
Eck Worldwide Emerging Markets, Federated Utility Fund II, Federated Growth
Strategies, Federated US Government Bond, Federated High Income Bond, Federated
Equity Income Fund II, Lazard Retirement Emerging Markets, and Lazard Retirement
Small Cap Portfolio Subaccounts) (collectively, the Account) for the year ended
December 31,1999. This financial statement is the responsibility of the
Account's management. Our responsibility is to express an opinion on this
financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31,1999 by
correspondence with the custodians. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the changes in net assets of the Account for the year
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
Houston, Texas
April 21, 2000
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[Enlarge/Download Table]
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
AN
AN AN MONEY AN AN AN HIGH AN GOV'T SMALL-CAP/
GROWTH MARKET BALANCED EQUITY INCOME YIELD BOND BOND MID-CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of
mutual funds, at market $ 1,892,960 $ 3,494,810 $ 2,016,059 $ 5,118,601 $ 40,625 $ 10,309 $ 115,071
====================================================================================================================================
LIABILITIES:
Contract owner reserves $ 1,892,960 $ 3,494,810 $ 2,016,059 $ 5,118,601 $ 40,625 $ 10,309 $ 115,071
====================================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 980,822 3,494,810 1,390,388 2,694,000 42,763 9,912 174,351
Cost $ 1,894,229 $ 3,494,810 $ 2,122,304 $ 4,916,599 $ 42,399 $ 10,403 $ 164,097
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
[Enlarge/Download Table]
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
FIDELITY
FIDELITY FIDELITY FIDELITY ASSET
ASSET INDEX GROWTH FIDELITY MANAGER:
MANAGER 500 OPPORTUNITIES CONTRAFUND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 1,464,834 $ 9,572,394 $ 2,533,896 $ 6,184,654 $ 1,259,965
=========================================================================================================================
LIABILITIES:
Contract owner reserves $ 1,464,834 $ 9,572,394 $ 2,533,896 $ 6,184,654 $ 1,259,965
=========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 91,552 64,017 142,835 260,516 87,437
Cost $ 1,545,546 $ 9,703,238 $ 3,121,232 $ 6,612,768 $ 1,417,893
-------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
72
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STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
TRP TRP TRP TRP
LIMITED- EQUITY INTERNATIONAL MID-CAP
TERM BOND INCOME STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 1,258,647 $ 3,353,320 $ 1,446,825 $ 2,365,093
=================================================================================================================
LIABILITIES:
Contract owner reserves $ 1,258,647 $ 3,353,320 $ 1,446,825 $ 2,365,093
=================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 255,304 171,525 96,007 128,328
Cost $ 1,228,590 $ 3,291,884 $ 1,521,112 $ 2,142,771
-----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
[Enlarge/Download Table]
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
MFS MFS MFS
MFS CAPITAL EMERGING GROWTH
RESEARCH OPPORTUNITIES GROWTH W/INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 2,528,569 $ 3,307,144 $ 4,857,614 $ 2,495,521
=================================================================================================================
LIABILITIES:
Contract owner reserves $ 2,528,569 $ 3,307,144 $ 4,857,614 $ 2,495,521
=================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 121,566 171,710 168,433 118,778
Cost $ 2,566,336 $ 3,339,524 $ 5,011,324 $ 2,414,443
-----------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
73
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STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
VE VE LAZ
WORLDWIDE WORLDWIDE RETIREMENT LAZ
EMERGING HARD EMERGING RETIREMENT
MARKETS ASSETS MARKETS SMALL CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 704,842 $ 144,190 $ 466,366 $ 1,061,865
===========================================================================================================
LIABILITIES:
Contract owner reserves $ 704,842 $ 144,190 $ 466,366 $ 1,061,865
===========================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 85,023 11,946 61,445 90,371
Cost $ 1,141,922 $ 127,845 $ 623,472 $ 918,241
-----------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
[Enlarge/Download Table]
STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
FEDERATED FEDERATED FEDERATED
FEDERATED U.S. HIGH EQUITY FEDERATED
GROWTH GOVERNMENT INCOME INCOME UTILITY
STRATEGIES BOND BOND FUND II FUND II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of mutual funds, at market $ 2,373,589 $ 1,462,767 $ 2,370,511 $ 893,968 $ 456,501
=========================================================================================================================
LIABILITIES:
Contract owner reserves $ 2,373,589 $ 1,462,767 $ 2,370,511 $ 893,968 $ 456,501
==========================================================================================================================
INVESTMENT PORTFOLIO INFORMATION:
Number of shares 102,531 131,662 280,202 62,428 36,696
Cost $ 3,090,721 $ 1,398,244 $ 2,776,344 $ 962,284 $ 514,814
--------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
74
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STATEMENTS OF NET ASSETS
AS OF DECEMBER 31, 2000
ALGER AMER.
ALGER AMER. ALGER AMER. ALGER AMER. SMALL
ALGER AMER. ALGER AMER. INCOME & LEVERAGED MID CAP CAPITAL-
BALANCED GROWTH GROWTH ALLCAP GROWTH IZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Investment in shares of
mutual funds, at market $ 21,492 $ 155,511 $ 219,299 $ 165,374 $ 435,928 $ 26,960
===============================================================================================================================
LIABILITIES:
Contract owner reserves $ 21,492 $ 155,511 $ 219,299 $ 165,374 $ 435,928 $ 26,960
===============================================================================================================================
INVESTMENT PORTFOLIO
INFORMATION:
Number of shares 1,561 3,290 16,538 4,262 14,237 1,148
Cost $ 22,597 $ 171,798 $ 227,891 $ 193,176 $ 478,383 $ 30,191
-------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
75
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
AN AN MONEY AN AN AN HIGH AN GOV'T
GROWTH MARKET BALANCED EQUITY INCOME YIELD BOND BOND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 27,364 $ 154,816 $ 71,917 $ 92,760 $ 2,390 $ 409
EXPENSES
Charges to contract owners for
assuming mortality and expense
risks (22,918) (35,479) (23,813) (54,104) (64) (23)
------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME $ 4,446 $ 119,337 $ 48,104 $ 38,656 $ 2,326 $ 386
------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS)
ON INVESTMENTS
Net realized gain on sale
of investments $ 31,761 $ -- $ 12,840 $ 57,037 $ (2) $ --
Capital gains distributions
from mutual funds 40,902 -- 96,942 286,478 -- --
Net unrealized appreciation
(depreciation) of investments
during the period (149,717) 13,430 (109,100) 37,178 (1,774) (95)
------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN
ON INVESTMENTS $ (77,054) $ 13,430 $ 682 $ 380,693 $ (1,776) $ (95)
------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (72,608) $ 132,767 $ 48,786 $ 419,349 $ 550 $ 291
========================================================================================================================
See accompanying notes to financial statements.
76
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 FIDELITY
FIDELITY FIDELITY FIDELITY ASSET
ASSET INDEX GROWTH FIDELITY MANAGER:
MANAGER 500 OPPORTUNITIES CONTRAFUND GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 46,315 $ 89,219 $ 39,840 $ 17,885 $ 23,749
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (19,490) (123,460) (37,424) (76,826) (16,145)
------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 26,825 $ (34,241) $ 2,416 $ (58,941) $ 7,604
------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on sale of investments $ (22,540) $ 224,153 $ (35,597) $ 133,842 $ (8,629)
Capital gains distributions from mutual funds 109,115 39,000 202,046 649,225 96,282
Net unrealized appreciation (depreciation)
of investments during the period (192,679) (1,293,659) (752,590) (1,243,597) (280,099)
------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $(106,104) $(1,030,506) $(586,141) $ (460,530) $(192,446)
------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (79,279) $(1,064,747) $(583,725) $ (519,471) $(184,842)
==============================================================================================================================
See accompanying notes to financial statements.
77
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
TRP TRP TRP TRP
LIMITED- EQUITY INTERNATIONAL MID-CAP
TERM BOND INCOME STOCK GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 70,668 $ 62,189 $ 9,047 $ --
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (14,804) (38,953) (20,771) (27,414)
------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ 55,864 $ 23,236 $ (11,724) $ (27,414)
------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on sale of investments $ (24,402) $ (32,241) $ 194,500 $ 229,021
Capital gains distributions from mutual funds - 187,778 43,424 41,950
Net unrealized appreciation (depreciation)
of investments during the period 60,694 162,593 (567,932) (129,934)
------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ 36,292 $ 318,130 $ (330,008) $ 141,037
------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ 92,156 $ 341,366 $ (341,732) $ 113,623
==================================================================================================================
See accompanying notes to financial statements.
78
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
MFS MFS MFS
MFS CAPITAL EMERGING GROWTH
RESEARCH OPPORTUNITIES GROWTH W/INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ 941 $ -- $ -- $ 11,431
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (31,777) (39,982) (73,646) (31,133)
-----------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (30,836) $ (39,982) $ (73,646) $ (19,702)
-----------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on sale of investments $ 145,661 $ 311,894 $ 928,572 $ 100,037
Capital gains distributions from mutual funds 161,474 246,763 324,335 20,757
Net unrealized appreciation (depreciation)
of investments during the period (453,901) (749,131) (2,504,505) (134,800)
-----------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $ (146,766) $ (190,474) $ (1,251,598) $ (14,006)
-----------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (177,602) $ (230,456) $ (1,325,244) $ (33,708)
=================================================================================================================
See accompanying notes to financial statements.
79
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 VE VE LAZ LAZ
WORLDWIDE WORLDWIDE RETIREMENT RETIREMENT
EMERGING HARD EMERGING SMALL
MARKETS ASSETS MARKETS CAP
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ - $ 768 $ 836 $ 2,526
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (11,092) (1,520) (6,412) (12,402)
-------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (11,092) $ (752) $ (5,576) $ (9,876)
-------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain on sale of investments $ 262,724 $ 3,452 $ 66,443 $ 98,490
Capital gains distributions from mutual funds - - 18,345 9,597
Net unrealized appreciation (depreciation)
of investments during the period (773,923) 12,630 (267,178) 86,579
-------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN
ON INVESTMENTS $ (511,199) $ 16,082 $ (182,390) $ 194,666
-------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (522,291) $ 15,330 $ (187,966) $ 184,790
=============================================================================================================
See accompanying notes to financial statements.
80
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000 FEDERATED FEDERATED FEDERATED
FEDERATED U.S. HIGH EQUITY FEDERATED
GROWTH GOVERNMENT INCOME INCOME UTILITY
STRATEGIES BOND BOND FUND II FUND II
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
--------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ - $ 78,153 $ 278,691 $ 11,678 $ 15,074
EXPENSES
Charges to contract owners for assuming
mortality and expense risks (29,216) (18,150) (34,150) (12,879) (6,261)
--------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (29,216) $ 60,003 $ 244,541 $ (1,201) $ 8,813
--------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain (loss) on sale of investments $ 202,116 $(49,439) $(208,631) $ 71,285 $ (6,485)
Capital gains distributions from mutual funds 162,902 - - - 10,019
Net unrealized appreciation (depreciation)
of investments during the period (1,040,229) 117,994 (316,103) (199,435) (61,019)
--------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS $ (675,211) $ 68,555 $(524,734) $(128,150) $(57,485)
--------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS $ (704,427) $128,558 $(280,193) $(129,351) $(48,672)
==========================================================================================================================
See accompanying notes to financial statements.
81
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STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2000
ALGER AMER ALGER AMER. ALGER AMER.
ALGER AMER. ALGER AMER. INCOME & LEVERAGED MID CAP
BALANCED GROWTH GROWTH ALLCAP GROWTH
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME
Dividends from mutual funds $ -- $ -- $ -- $ -- $ --
EXPENSES
Charges to contract owners
for assuming
mortality and expense
risks (74) (442) (722) (456) (1,535)
-----------------------------------------------------------------------------------------------------------------------------------
NET INVESTMENT INCOME (LOSS) $ (74) $ (442) $ (722) $ (456) $ (1,535)
-----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN (LOSS) ON INVESTMENTS
Net realized gain on sale
of investments $ (37) $ (101) $ (8) $ (97) $ 90
Capital gains
distributions from mutual
funds -- -- -- -- --
Net unrealized
appreciation
(depreciation)
of investments during the
period (1,105) (16,287) (8,592) (27,802) (42,456)
-----------------------------------------------------------------------------------------------------------------------------------
NET REALIZED AND UNREALIZED
GAIN ON INVESTMENTS $ (1,142) $ (16,388) $ (8,600) $ (27,899) $ (42,366)
-----------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
OPERATIONS $ (1,216) $ (16,830) $ (9,322) $ (28,355) $ (43,901)
===================================================================================================================================
See accompanying notes to financial statements.
82
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
AN GROWTH AN MONEY MARKET AN BALANCED AN EQUITY INCOME
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ 4,446 $ 875 $ 119,337 $ 63,135 $ 48,104 $ 28,051 $ 38,656 $ 11,991
Net realized gain (loss) on
investments 31,761 55,541 -- -- 12,840 9,782 57,037 42,806
Capital gains distributions
from mutual funds 40,902 809 -- -- 96,942 95,638 286,478 299,859
Net unrealized appreciation
(depreciation)
of investments during the
period (149,717) 100,200 13,430 -- (109,100) (35,491) 37,178 71,426
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ (72,608) $ 157,425 $ 132,767 $ 63,135 $ 48,786 $ 97,980 $ 419,349 $ 426,082
------------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 676,213 $ 761,911 $ 784,102 $ 2,085,453 $ 554,151 $ 993,193 $1,331,698 $1,986,896
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (120,205) (31,373) (580,878) (459,196) (206,261) (16,253) (321,572) (216,257)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 556,008 $ 730,538 $ 203,224 $ 1,626,257 $ 347,890 $ 976,940 $1,010,126 $1,770,639
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 483,400 $ 887,963 $ 335,991 $ 1,689,392 $ 396,676 $1,074,920 $1,429,475 $2,196,721
NET ASSETS, BEGINNING OF
PERIOD 1,409,560 521,597 3,158,819 1,469,427 1,619,383 544,463 3,689,126 1,492,405
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $1,892,960 $1,409,560 $ 3,494,810 $ 3,158,819 $2,016,059 $1,619,383 $5,118,601 $3,689,126
====================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 1,053,733 442,903 2,990,678 1,432,629 1,384,556 496,647 2,805,851 1,311,739
Purchase payments 702,663 941,364 21,950,575 32,536,955 671,851 1,000,713 1,127,917 2,102,055
Policy withdrawals and
charges (281,990) (330,534) (21,780,409) (30,978,906) (380,249) (112,804) (414,143) (607,943)
------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 1,474,406 1,053,733 3,160,844 2,990,678 1,676,158 1,384,556 3,519,625 2,805,851
====================================================================================================================================
Accumulation unit value $ 1.284 $ 1.338 $ 1.106 $ 1.056 $ 1.203 $ 1.170 $ 1.454 $ 1.315
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
83
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STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
AN
AN HIGH AN GOV'T SMALL-CAP/
YIELD BOND BOND MID-CAP
PORTFOLIO PORTFOLIO PORTFOLIO
-------------------------------------------
2000 2000 2000
--------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS RESULTING FROM OPERATIONS:
Net investment income (loss) $ 2,326 $ 386 $ (364)
Net realized gain (loss) on investments (2) -- (31)
Capital gains distributions from mutual funds -- -- --
Net unrealized appreciation (depreciation)
of investments during the period (1,774) (95) (49,026)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from operations $ 550 $ 291 $ (49,421)
--------------------------------------------------------------------------------------------------
FROM POLICY RELATED TRANSACTIONS:
Purchase payments and other transfers, net $40,075 $10,018 $ 164,916
Surrenders of accumulation units by terminations,
withdrawals, and maintenance fees -- -- (424)
--------------------------------------------------------------------------------------------------
Net increase (decrease) in net assets
resulting from policy related transactions $40,075 $10,018 $ 164,492
--------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $40,625 $10,309 $ 115,071
NET ASSETS, BEGINNING OF PERIOD -- -- --
--------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $40,625 $10,309 $ 115,071
==================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the accumulation period
Contract owners
Accumulation units beginning of year -- -- --
Purchase payments 40,717 10,018 187,830
Policy withdrawals and charges -- -- (409)
--------------------------------------------------------------------------------------------------
Accumulation units end of year 40,717 10,018 187,421
==================================================================================================
Accumulation unit value $0.998 $1.029 $0.614
--------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
84
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
FIDELITY ASSET FIDELITY GROWTH
MANAGER FIDELITY INDEX 500 OPPORTUNITIES FIDELITY CONTRAFUND
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ 26,825 $ 11,734 $ (34,241) $ (36,503) $ 2,416 $ (14,733) $ (58,941) $ (29,820)
Net realized gain (loss) on
investments (22,540) 7,247 224,153 117,279 (35,597) 32,208 133,842 81,922
Capital gains distributions
from mutual funds 109,115 31,552 39,000 20,464 202,046 27,667 649,225 64,222
Net unrealized appreciation
(depreciation)
of investments during the
period (192,679) 58,788 (1,293,659) 880,437 (752,590) 14,173 (1,243,597) 599,293
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ (79,279) $ 109,321 $(1,064,747) $ 981,677 $ (583,725) $ 59,315 $ (519,471) $ 715,617
------------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 201,788 $ 713,617 $ 3,131,446 $4,906,036 $ 429,724 $1,920,035 $ 2,111,914 $2,839,987
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (111,525) (18,449) (638,314) (207,221) (511,649) (93,029) (265,663) (233,191)
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 90,263 $ 695,168 $ 2,493,132 $4,698,815 $ (81,925) $1,827,006 $ 1,846,251 $2,606,796
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE (DECREASE) IN
NET ASSETS $ 10,984 $ 804,489 $ 1,428,385 $5,680,492 $ (665,650) $1,886,321 $ 1,326,780 $3,322,413
NET ASSETS, BEGINNING OF
PERIOD 1,453,850 649,361 8,144,009 2,463,517 3,199,546 1,313,225 4,857,874 1,535,461
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $1,464,834 $1,453,850 $ 9,572,394 $8,144,009 $ 2,533,896 $3,199,546 $ 6,184,654 $4,857,874
====================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 1,171,411 574,144 5,449,038 1,961,720 2,479,615 1,048,341 3,299,987 1,280,113
Purchase payments 414,501 654,113 2,884,238 4,272,532 928,677 1,811,669 1,955,340 2,684,105
Policy withdrawals and
charges (341,938) (56,846) (1,182,761) (785,214) (1,010,942) (380,395) (699,406) (664,231)
------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 1,243,974 1,171,411 7,150,515 5,449,038 2,397,350 2,479,615 4,555,921 3,299,987
====================================================================================================================================
Accumulation unit value $ 1.178 $ 1.241 $ 1.339 $ 1.495 $ 1.057 $ 1.290 $ 1.357 $ 1.472
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
85
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
FIDELITY ASSET TRP LIMITED- TRP EQUITY
MANAGER TERM BOND INCOME TRP STOCK
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ 7,604 $ 3,448 $ 55,864 $ 38,462 $ 23,236 $ 20,710 $ (11,724) $ (11,040)
Net realized gain (loss) on
investments (8,629) 9,129 (24,402) (11,774) (32,241) (16,215) 194,500 39,879
Capital gains distributions
from mutual funds 96,282 19,995 -- -- 187,778 132,954 43,424 22,548
Net unrealized appreciation
(depreciation)
of investments during the
period (280,099) 71,233 60,694 (30,121) 162,593 (111,195) (567,932) 423,938
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ (184,842) $103,805 $ 92,156 $ (3,433) $ 341,366 $ 26,254 $ (341,732) $ 475,325
------------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 544,694 $446,863 $ 218,564 $ 522,110 $ 68,402 $1,555,407 $ 262,776 $ 620,613
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (97,452) (17,017) (62,614) (157,803) (253,151) (87,670) (435,596) (211,654)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 447,242 $429,846 $ 155,950 $ 364,307 $ (184,749) $1,467,737 $ (172,820) $ 408,959
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 262,400 $533,651 $ 248,106 $ 360,874 $ 156,617 $1,493,991 $ (514,552) $ 884,284
NET ASSETS, BEGINNING OF
PERIOD 997,565 463,914 1,010,541 649,667 3,196,703 1,702,712 1,961,377 1,077,093
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $1,259,965 $997,565 $1,258,647 $1,010,541 $3,353,320 $3,196,703 $1,446,825 $1,961,377
====================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 756,794 400,709 967,119 619,170 2,889,871 1,576,949 1,312,141 949,084
Purchase payments 715,916 425,419 514,780 802,591 687,599 1,900,913 479,382 876,691
Policy withdrawals and
charges (367,004) (69,334) (365,440) (454,642) (862,332) (587,991) (598,707) (513,634)
------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 1,105,706 756,794 1,116,459 967,119 2,715,138 2,889,871 1,192,816 1,312,141
====================================================================================================================================
Accumulation unit value $ 1.140 $ 1.318 $ 1.127 $ 1.045 $ 1.235 $ 1.106 $ 1.213 $ 1.495
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
86
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
MFS CAPITAL
TRP MID-CAP GROWTH MFS RESEARCH OPPORTUNITIES
PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
----------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ (27,414) $ (18,313) $ (30,836) $ (16,185) $ (39,982) $ (18,521)
Net realized gain (loss) on
investments 229,021 103,056 145,661 44,341 311,894 92,966
Capital gains distributions
from mutual funds 41,950 17,563 161,474 13,511 246,763 3,752
Net unrealized appreciation
(depreciation)
of investments during the
period (129,934) 221,020 (453,901) 333,905 (749,131) 593,975
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ 113,623 $ 323,326 $ (177,602) $ 375,572 $ (230,456) $ 672,172
----------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 723,626 $ 613,366 $ 801,659 $ 996,478 $1,326,477 $1,170,589
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (251,817) (252,068) (300,753) (50,428) (280,540) (207,570)
----------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 471,809 $ 361,298 $ 500,906 $ 946,050 $1,045,937 $ 963,019
----------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 585,432 $ 684,624 $ 323,304 $1,321,622 $ 815,481 $1,635,191
NET ASSETS, BEGINNING OF
PERIOD 1,779,661 1,095,037 2,205,265 883,643 2,491,663 856,472
----------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $2,365,093 $1,779,661 $2,528,569 $2,205,265 $3,307,144 $2,491,663
======================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 1,198,960 901,715 1,715,567 842,237 1,503,193 754,320
Purchase payments 779,781 896,882 905,295 1,233,593 971,329 1,174,892
Policy withdrawals and
charges (476,678) (599,637) (527,605) (360,263) (378,198) (426,019)
----------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 1,502,063 1,198,960 2,093,257 1,715,567 2,096,324 1,503,193
======================================================================================================================
Accumulation unit value $1.575 $1.484 $1.208 $1.285 $1.578 $1.658
----------------------------------------------------------------------------------------------------------------------
MFS EMERGING
GROWTH
PORTFOLIO
------------------------------------
2000 1999
---------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ (73,646) $ (34,471)
Net realized gain (loss) on
investments 928,572 109,086
Capital gains distributions
from mutual funds 324,335 --
Net unrealized appreciation
(depreciation)
of investments during the
period (2,504,505) 2,130,085
-----------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $(1,325,244) $ 2,204,700
-----------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 1,857,447 $ 2,127,867
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (1,210,356) (155,482)
-----------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 647,091 $ 1,972,385
-----------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ (678,153) $ 4,177,085
NET ASSETS, BEGINNING OF
PERIOD 5,535,767 1,358,682
-----------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 4,857,614 $ 5,535,767
=================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 2,400,755 1,028,470
Purchase payments 1,215,215 1,661,424
Policy withdrawals and
charges (960,995) (289,139)
-----------------------------------------------------------------
Accumulation units end of
year 2,654,975 2,400,755
=================================================================
Accumulation unit value $1.830 $2.306
-----------------------------------------------------------------
See accompanying notes to financial statements.
87
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
VE WORLDWIDE VE WORLDWIDE
MFS GROWTH W/INCOME EMERGING MARKETS HARD ASSETS
PORTFOLIO PORTFOLIO PORTFOLIO
----------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ (19,702) $ (17,381) $ (11,092) $ (5,733) $ (752) $ (360)
Net realized gain (loss) on
investments 100,037 53,302 262,724 28,531 3,452 (3,104)
Capital gains distributions
from mutual funds 20,757 7,308 -- -- -- 463
Net unrealized appreciation
(depreciation)
of investments during the
period (134,800) 72,477 (773,923) 343,111 12,630 8,193
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ (33,708) $ 115,706 $(522,291) $ 365,909 $ 15,330 $ 5,192
------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 242,296 $1,425,017 $ 561,981 $ 307,975 $ 92,858 $ 467
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (162,246) (257,337) (193,444) (52,161) (81) (16)
------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 80,050 $1,167,680 $ 368,537 $ 255,814 $ 92,777 $ 451
------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 46,342 $1,283,386 $(153,754) $ 621,723 $108,107 $ 5,643
NET ASSETS, BEGINNING OF
PERIOD 2,449,179 1,165,793 858,596 236,873 36,083 30,440
------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $2,495,521 $2,449,179 $ 704,842 $ 858,596 $144,190 $ 36,083
========================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 2,196,329 1,101,688 631,260 344,775 42,499 42,831
Purchase payments 534,565 1,763,954 970,401 504,499 128,642 23,172
Policy withdrawals and
charges (461,603) (669,313) (697,304) (218,014) (16,791) (23,504)
------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 2,269,291 2,196,329 904,357 631,260 154,350 42,499
========================================================================================================================
Accumulation unit value $ 1.100 $1.115 $ 0.779 $ 1.360 $ 0.934 $ 0.849
------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
88
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
LAZ RETIREMENT LAZ RETIREMENT FED GROWTH
EMERGING MARKETS SMALL CAP STRATEGIES
PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
-------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ (5,576) $ (2,920) $ (9,876) $ (10,120) $ (29,216) $ (5,147)
Net realized gain (loss) on
investments 66,443 31,250 98,490 17,362 202,116 43,572
Capital gains distributions
from mutual funds 18,345 -- 9,597 16,012 162,902 --
Net unrealized appreciation
(depreciation)
of investments during the
period (267,178) 109,349 86,579 17,475 (1,040,229) 307,311
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $(187,966) $ 137,679 $ 184,790 $ 40,729 $ (704,427) $ 345,736
-------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 279,468 $ 165,862 $ 185,824 $ 293,254 $ 2,343,280 $ 744,680
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (45,115) (108,299) (254,095) (207,533) (483,809) (21,038)
-------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 234,353 $ 57,563 $ (68,271) $ 85,721 $ 1,859,471 $ 723,642
-------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 46,387 $ 195,242 $ 116,519 $ 126,450 $ 1,155,044 $1,069,378
NET ASSETS, BEGINNING OF
PERIOD 419,979 224,737 945,346 818,896 1,218,545 149,167
-------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 466,366 $ 419,979 $1,061,865 $ 945,346 $ 2,373,589 $1,218,545
=========================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 340,969 274,166 944,785 847,132 690,325 143,890
Purchase payments 467,969 245,953 474,015 692,597 1,611,020 658,271
Policy withdrawals and
charges (275,962) (179,150) (533,992) (594,944) (595,992) (111,836)
-------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 532,976 340,969 884,808 944,785 1,705,353 690,325
=========================================================================================================================
Accumulation unit value $ 0.875 $ 1.232 $ 1.200 $ 1.001 $ 1.392 $ 1.765
-------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
89
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
[Enlarge/Download Table]
FEDERATED U.S. FEDERATED HIGH FEDERATED EQUITY
GOVERNMENT BOND INCOME BOND INCOME FUND II FEDERATED UTILITY
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
------------------------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999 2000 1999
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ 60,003 $ 22,501 $ 244,541 $ 143,803 $ (1,201) $ 934 $ 8,813 $ 2,141
Net realized gain (loss) on
investments (49,439) (2,212) (208,631) (53,349) 71,285 44,492 (6,485) 324
Capital gains distributions
from mutual funds -- 7,639 -- 15,309 -- 8,627 10,019 15,028
Net unrealized appreciation
(depreciation)
of investments during the
period 117,994 (70,116) (316,103) (111,608) (199,435) 81,600 (61,019) (9,192)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ 128,558 $ (42,188) $ (280,193) $ (5,845) $ (129,351) $ 135,653 $ (48,672) $ 8,301
====================================================================================================================================
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 7,841 $ 937,592 $ 212,232 $1,549,754 $ 286,383 $ 518,231 $ 14,412 $ 318,623
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (284,758) (64,257) (602,652) (145,149) (274,978) (106,889) (35,208) (4,358)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ (276,917) $ 873,335 $ (390,420) $1,404,605 $ 11,405 $ 411,342 $ (20,796) $ 314,265
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ (148,359) $ 831,147 $ (670,613) $1,398,760 $ (117,946) $ 546,995 $ (69,468) $ 322,566
NET ASSETS, BEGINNING OF
PERIOD 1,611,126 779,979 3,041,124 1,642,364 1,011,914 464,919 525,969 203,403
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $1,462,767 $1,611,126 $2,370,511 $3,041,124 $ 893,968 $1,011,914 $ 456,501 $ 525,969
====================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year 1,556,125 739,035 3,009,658 1,641,013 749,845 402,944 494,700 192,160
Purchase payments 473,355 1,120,201 941,434 2,308,454 293,764 510,740 51,526 430,275
Policy withdrawals and
charges (740,389) (303,111) (1,340,127) (939,809) (288,323) (163,839) (68,749) (127,735)
------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 1,289,091 1,556,125 2,610,965 3,009,658 755,286 749,845 477,477 494,700
====================================================================================================================================
Accumulation unit value $ 1.135 $ 1.035 $ 0.908 $ 1.010 $ 1.184 $ 1.349 $ 0.956 $ 1.063
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
90
[Enlarge/Download Table]
STATEMENTS OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED DECEMBER 31, 2000 AND 1999
ALGER AMER.
ALGER AMER ALGER AMER. ALGER AMER. SMALL
ALGER AMER. ALGER AMER. INCOME & LEVERAGED MID CAP CAPITAL-
BALANCED GROWTH GROWTH ALLCAP GROWTH IZATION
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
-----------------------------------------------------------------------------------------------
2000 2000 2000 2000 2000 2000
------------------------------------------------------------------------------------------------------------------------------------
INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS:
Net investment income (loss) $ (74) $ (442) $ (722) $ (456) $ (1,535) $ (72)
Net realized gain (loss) on
investments (37) (101) (8) (97) 90 (10)
Capital gains distributions
from mutual funds -- -- -- -- -- --
Net unrealized appreciation
(depreciation)
of investments during the
period (1,105) (16,287) (8,592) (27,802) (42,456) (3,231)
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from operations $ (1,216) $ (16,830) $ (9,322) $ (28,355) $ (43,901) $ (3,313)
------------------------------------------------------------------------------------------------------------------------------------
FROM POLICY RELATED
TRANSACTIONS:
Purchase payments and other
transfers, net $ 23,163 $ 172,776 $ 232,378 $ 194,905 $ 484,951 $ 30,273
Surrenders of accumulation
units by terminations,
withdrawals, and
maintenance fees (455) (435) (3,757) (1,176) (5,122) --
------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease)
in net assets
resulting from policy
related transactions $ 22,708 $ 172,341 $ 228,621 $ 193,729 $ 479,829 $ 30,273
------------------------------------------------------------------------------------------------------------------------------------
TOTAL INCREASE IN NET ASSETS $ 21,492 $ 155,511 $ 219,299 $ 165,374 $ 435,928 $ 26,960
NET ASSETS, BEGINNING OF
PERIOD -- -- -- -- -- --
------------------------------------------------------------------------------------------------------------------------------------
NET ASSETS, END OF PERIOD $ 21,492 $ 155,511 $ 219,299 $ 165,374 $ 435,928 $ 26,960
====================================================================================================================================
CHANGE IN UNITS OUTSTANDING:
Deferred contracts in the
accumulation period
Contract owners
Accumulation units
beginning of year -- -- -- -- -- --
Purchase payments 23,882 184,582 248,629 227,421 520,922 33,875
Policy withdrawals and
charges (495) (514) (10,373) (1,202) (55,300) --
------------------------------------------------------------------------------------------------------------------------------------
Accumulation units end of
year 23,387 184,068 238,256 226,219 465,622 33,875
====================================================================================================================================
Accumulation unit value $ 0.919 $ 0.845 $ 0.920 $ 0.731 $ 0.936 $ 0.796
------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to financial statements.
91
AMERICAN NATIONAL VARIABLE ANNUITY SEPARATE ACCOUNT
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GENERAL ... American National Variable Annuity Separate Account (Separate
Account) was established on July 30,1991 under Texas law as a separate
investment account of American National Insurance Company (the Sponsor). The
Separate Account began operations on April 20, 1994. The assets of the Separate
Account are segregated from the Sponsor's other assets and are used only to
support variable annuity products issued by the Sponsor. The Separate Account
is registered under the Investment Company Act of 1940, as amended, as a unit
investment trust.
These financial statements report the results of the subaccounts for the
Wealthquest Variable Annuity II product. There are currently 35 subaccounts
within the Separate Account. Each of the subaccounts is invested only in a
corresponding portfolio of the American National (AN) Funds, the Fidelity Funds,
the MFS Funds, the T. Rowe Price Funds, the Van Eck Funds, the Federated Funds
or the Lazard Funds. The American National Funds were organized and are managed
for a fee by Securities Management & Research, Inc. (SM&R) which is a wholly-
owned subsidiary of the Sponsor.
BASIS OF PRESENTATION ... The financial statements of the Separate Account have
been prepared on an accrual basis in accordance with accounting principles
generally accepted in the United States of America.
INVESTMENTS ... Investments in shares of the separate investment portfolios are
stated at market value which is the net asset value per share as determined by
the respective portfolios. Investment transactions are accounted for on the
trade date. Realized gains and losses on investments are determined on the
basis of identified cost. Capital gain distributions and dividends from mutual
funds are recorded and reinvested upon receipt.
FEDERAL TAXES ... The operations of the Separate Account form a part of, and are
taxed with, the operations of the Sponsor. Under the Internal Revenue Code, all
ordinary income and capital gains allocated to the contract owners are not taxed
to the Sponsor. As a result, the net asset values of the subaccounts are not
affected by federal income taxes on distributions received by the subaccounts.
Accordingly, no provision for income taxes is required in the accompanying
financial statements.
USE OF ESTIMATES ... The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the date of the financial statements and
the reported amounts of income and expenses during the period. Operating
results in the future could vary from the amounts derived from management's
estimates.
REPORTING PERIODS ... Several funds became investment choices as of May 1, 2000
and accordingly only one period is presented in the statement of changes in net
assets for those funds.
92
(2) SECURITY PURCHASES AND SALES
For the year ended December 31, 2000, the aggregate cost of purchases (including
reinvestment of dividend distributions and transfers between funds) and proceeds
from sales of investments in the mutual fund portfolios were as follows:
PURCHASES SALES
--------- -----
AN Growth $ 886,520 $ 285,164
AN Money Market 15,137,360 14,801,369
AN Balanced 841,009 348,073
AN Equity Income 1,899,902 564,642
AN High Yield Bond 42,463 62
AN Government Bond 10,426 23
AN Small-Cap/Mid-Cap 164,788 660
Fidelity Asset Manager 641,990 415,787
Fidelity Index 500 3,698,683 1,200,792
Fidelity Growth Opportunities 1,225,995 1,103,458
Fidelity Contrafund 3,212,903 776,368
Fidelity Asset Manager: Growth 969,764 418,636
T. Rowe Price Limited-Term Bond 744,847 533,033
T. Rowe Price Equity Income 923,894 897,629
T. Rowe Price International Stock 531,143 672,263
T. Rowe Price Mid-Cap Growth 1,158,214 671,869
MFS Research Series 1,121,481 489,937
MFS Capital Opportunities Series 1,939,099 686,381
MFS Emerging Growth Series 2,738,153 1,840,373
MFS Growth With Income Series 589,916 508,811
Van Eck Worldwide Emerging Markets 1,149,316 791,871
Van Eck Worldwide Hard Assets 108,679 16,654
Lazard Retirement Emerging Markets 569,359 322,237
Lazard Retirement Small Cap 447,754 516,304
Federated Growth Strategies 2,760,242 767,085
Federated US Government Bond 655,162 872,076
Federated High Income Bond 1,144,928 1,290,807
Federated Equity Income Fund II 363,201 352,997
Federated Utility Fund II 75,299 77,264
Alger American Balanced 23,159 525
Alger American Growth Portfolio 172,636 737
Alger American Income & Growth 231,859 3,960
Alger American Leveraged AllCap 193,669 396
Alger American MidCap Growth 484,546 6,253
Alger American Small Capitalization 30,269 68
----------- -----------
TOTALS $46,888,628 $31,234,564
(3) POLICY CHARGES AND DEDUCTIONS
MORTALITY AND EXPENSE RISK CHARGES ... Mortality risk and expense risk charges,
at an effective annual rate of 1.15%, are assessed daily against the Separate
Account's net asset value. This fee is assessed during both the accumulation
period and the annuity period.
MONTHLY ADMINISTRATIVE CHARGES ... American National's administrative charges
consist of an annual contract fee and a daily administrative asset fee. The
annual contract fee is $35 for Flexible Purchase Payment Annuity Contracts. At
the time of full surrender, the annual contract fee will be deducted on a pro
rata basis. The administrative asset fee is 0.10% annually for all contracts.
These charges are deducted through termination of units of interest from
applicable contract owners' accounts.
SURRENDER CHARGE ... On withdrawals of that portion of the accumulation value
representing purchase payments, a surrender charge is imposed based upon the
number of years since the year in which the purchase payments withdrawn were
paid, on a first paid, first withdrawn basis. For
93
Flexible Purchase Payment Deferred Annuities in the first policy year, the
surrender charge is a maximum of 7% of the purchase payment withdrawn and grades
down to zero in the eighth contract year after the purchase payment being
withdrawn was made.
TRANSFER CHARGE ... A $10 transfer charge is imposed after the first twelve
transfers in any one policy year for transfers made among the subaccounts.
PREMIUM CHARGES ... Premium taxes for certain jurisdictions are deducted from
premiums paid at rates ranging form zero to 3.5%. American National's current
practice is to deduct any state imposed premium tax from Purchase Payments. If
a state only imposes premium taxes upon annuitization, American National will
deduct these taxes from the contract value upon annuitization.
94
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
American National Insurance Company:
We have audited the accompanying consolidated statement of financial position of
American National Insurance Company and subsidiaries as of December 31, 2000,
and the related consolidated statements of income and comprehensive income,
changes in stockholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. 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 audit provides 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, 2000, and the results of
their operations and their cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America.
KPMG LLP
February 5, 2001, except for note 17,
which is February 27, 2001
Houston, Texas
95
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 the related consolidated statements of income, changes in
stockholders' equity, comprehensive income and cash flows for the years ended
December 31, 1999 and 1998. 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 auditing standards generally accepted
in the United States. 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 the results of
their operations and their cash flows for the years ended December 31, 1999 and
1998 in conformity with accounting principles generally accepted in the United
States.
ARTHUR ANDERSEN LLP
Houston, Texas
February 11, 2000
96
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except for per share data)
--------------------------------------------------------------------------------
[Enlarge/Download Table]
2000 1999 1998
------ ------ ------
PREMIUMS AND OTHER REVENUE
Premiums
Life......................................................... $ 301,440 $ 300,326 $ 295,207
Annuity...................................................... 55,504 41,704 45,079
Accident and health.......................................... 404,973 396,072 393,602
Property and casualty........................................ 426,786 392,576 354,820
Other policy revenues.......................................... 103,323 100,258 105,041
Net investment income.......................................... 479,089 473,949 475,242
Gain from sale of investments, net............................. 22,571 149,061 49,768
Other income................................................... 40,795 35,668 25,906
TOTAL REVENUES............................................... 1,834,481 1,889,614 1,744,665
BENEFITS AND EXPENSES
Death and other benefits:
Life......................................................... 218,652 218,109 217,122
Annuity...................................................... 53,180 45,464 41,888
Accident and health.......................................... 316,965 290,846 289,553
Property and casualty........................................ 374,671 311,723 280,036
Increase (decrease) in liability for future policy benefits:
Life......................................................... 15,539 15,546 13,304
Annuity...................................................... 18,991 9,748 21,831
Accident and health.......................................... 2,127 4,787 (262)
Interest credited to policy account balances................... 107,358 117,411 126,914
Commissions for acquiring and servicing policies............... 256,146 264,808 247,015
Other operating costs and expenses............................. 222,458 210,877 199,294
Decrease (increase) in deferred policy acquisition costs,
net of amortization........................................... 7,807 (2,188) 9,795
Taxes, licenses and fees....................................... 36,694 33,744 32,334
TOTAL BENEFITS AND EXPENSES.................................. 1,630,588 1,520,875 1,478,824
INCOME FROM OPERATIONS BEFORE EQUITY
IN EARNINGS OF UNCONSOLIDATED AFFILIATES
AND FEDERAL INCOME TAXES........................................ 203,893 368,739 265,841
EQUITY IN EARNINGS OF UNCONSOLIDATED AFFILIATES.................. 3,049 19,942 8,048
INCOME FROM OPERATIONS BEFORE FEDERAL INCOME TAXES............... 206,942 388,681 273,889
PROVISION (BENEFIT) FOR FEDERAL INCOME TAXES
Current........................................................ 83,255 132,128 77,707
Deferred....................................................... (16,487) (10,060) (1,216)
NET INCOME....................................................... $ 140,174 $ 266,613 $ 197,398
NET INCOME PER COMMON SHARE - BASIC AND DILUTED $ 5.29 $ 10.07 $ 7.45
See accompanying notes to consolidated financial statements.
97
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(In thousands)
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DECEMBER 31,
--------------------------
2000 1999
------- ------
ASSETS
Investments, other than investments in unconsolidated affiliates
Debt securities:
Bonds held-to-maturity, at amortized cost..................... $3,534,465 $3,636,786
Bonds available-for-sale, at market........................... 749,268 838,161
Marketable equity securities, at market:
Preferred stocks.............................................. 24,113 39,752
Common stocks................................................. 844,852 963,337
Mortgage loans on real estate................................... 1,024,312 1,033,330
Policy loans.................................................... 294,313 293,287
Investment real estate, net of
accumulated depreciation of $103,807 and $110,658.............. 243,263 251,529
Short-term investments.......................................... 140,518 95,352
Other invested assets........................................... 134,857 102,001
Total investments............................................. 6,989,961 7,253,535
Cash............................................................... 156,785 14,376
Investments in unconsolidated affiliates........................... 158,229 119,372
Accrued investment income.......................................... 107,573 110,161
Reinsurance ceded receivables...................................... 228,062 104,216
Prepaid reinsurance premiums....................................... 191,899 194,969
Premiums due and other receivables................................. 152,218 96,703
Deferred policy acquisition costs.................................. 747,884 758,796
Property and equipment, net........................................ 51,194 50,132
Other assets....................................................... 183,992 103,443
Separate account assets............................................ 302,590 284,823
TOTAL ASSETS.................................................. $9,270,387 $9,090,526
LIABILITIES
Policyholder funds
Future policy benefits:
Life.......................................................... $1,890,103 $1,872,066
Annuity....................................................... 203,948 186,650
Accident and health........................................... 67,026 64,901
Policy account balances......................................... 2,206,888 2,283,428
Policy and contract claims...................................... 573,742 403,984
Other policyholder funds........................................ 647,911 557,103
Total policyholder liabilities................................ 5,589,618 5,368,132
Current federal income taxes....................................... (21,818) 9,218
Deferred federal income taxes...................................... 148,691 221,341
Other liabilities.................................................. 227,649 143,866
Separate account liabilities....................................... 302,590 284,823
TOTAL LIABILITIES............................................. 6,246,730 6,027,380
STOCKHOLDERS' EQUITY
Capital stock...................................................... 30,832 30,832
Additional paid-in capital......................................... 2,850 211
Accumulated other comprehensive income............................. 150,402 254,820
Retained earnings.................................................. 2,944,453 2,880,010
Treasury stock, at cost............................................ (100,862) (102,727)
Restricted stock................................................... (4,018) --
TOTAL STOCKHOLDERS' EQUITY.................................... 3,023,657 3,063,146
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................... $9,270,387 $9,090,526
See accompanying notes to consolidated financial statements.
98
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(In thousands, except for per share data)
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2000 1999 1998
------ ------ ------
COMMON STOCK Balance at beginning and end of year........... $ 30,832 $ 30,832 $ 30,832
ADDITIONAL Balance at beginning of year................... 211 211 211
PAID-IN CAPITAL Issuance of treasury shares as restricted stock 2,639 -- --
Balance at end of year......................... 2,850 211 211
ACCUMULATED Balance at beginning of year................... 254,820 299,176 215,883
OTHER Change in unrealized gains on
COMPREHENSIVE marketable securities, net..................... (104,313) (44,328) 83,293
INCOME Foreign exchange adjustments................... (105) (28) --
Balance at end of year......................... 150,402 254,820 299,176
RETAINED Balance at beginning of year................... 2,880,010 2,687,120 2,561,218
EARNINGS Net income..................................... 140,174 266,613 197,398
Cash dividends to stockholders
($2.86, $2.78, $2.70 per share)................ (75,731) (73,723) (71,496)
Balance at end of year......................... 2,944,453 2,880,010 2,687,120
TREASURY Balance at beginning of year................... (102,727) (102,727) (102,727)
STOCK Issuance of treasury shares as restricted stock 1,865 -- --
Balance at end of year......................... (100,862) (102,727) (102,727)
RESTRICTED Balance at beginning of year................... -- -- --
STOCK Issuance of treasury shares as restricted stock (4,504) -- --
Amortization of restrictions................... 486 -- --
Balance at end of year......................... (4,018) -- --
STOCKHOLDERS'
EQUITY Balance at end of year......................... $3,023,657 $3,063,146 $2,914,612
99
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
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2000 1999 1998
------ ------ ------
Net income.............................. $ 140,174 $ 266,613 $ 197,398
Other comprehensive income
Change in unrealized gains on marketable securities, net (104,313) (44,328) 83,293
Foreign exchange adjustments........... (105) (28) --
Total................................. (104,418) (44,356) 83,293
Comprehensive income.................... $ 35,756 $ 222,257 $ 280,691
See accompanying notes to consolidated financial statements.
100
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
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2000 1999 1998
------ ------ ------
OPERATING ACTIVITIES
Net income............................................................ $ 140,174 $ 266,613 $ 197,398
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in liabilities for policyholders' funds................... 298,026 125,112 120,343
Charges to policy account balances................................. (100,422) (101,739) (105,111)
Interest credited to policy account balances....................... 107,358 117,411 126,914
Deferral of policy acquisition costs............................... (229,171) (141,450) (140,707)
Amortization of deferred policy acquisition costs.................. 236,789 135,385 149,116
Deferred federal income tax benefit................................ (16,487) (10,060) (1,216)
Depreciation....................................................... 21,564 19,598 17,351
Accrual and amortization of discounts and premiums................. (17,319) (15,183) (13,993)
Gain from sale of investments, net................................. (22,571) (149,061) (49,768)
Equity in earnings of unconsolidated affiliates.................... (3,049) (19,942) (8,048)
Increase in premiums receivable.................................... (55,515) (5,185) (7,243)
Decrease (increase) in accrued investment income................... 2,588 (5,756) (2,044)
Capitalization of interest on policy and mortgage loans............ (14,395) (17,099) (15,365)
Other changes, net................................................. (152,092) (25,883) (98,634)
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 195,478 172,761 168,993
INVESTING ACTIVITIES
Proceeds from sale or maturity of investments:
Bonds.............................................................. 243,016 257,398 316,067
Stocks............................................................. 198,901 374,615 247,951
Real estate........................................................ 18,766 32,921 33,186
Other invested assets.............................................. 18,146 96,670 171
Principal payments received on:
Mortgage loans..................................................... 89,585 176,394 154,333
Policy loans....................................................... 36,940 37,594 42,093
Purchases of investments:
Bonds.............................................................. (99,701) (508,205) (373,401)
Stocks............................................................. (143,828) (160,465) (237,868)
Real estate........................................................ (2,039) (29,124) (7,462)
Mortgage loans..................................................... (34,095) (146,513) (35,420)
Policy loans....................................................... (24,217) (22,461) (24,034)
Other invested assets.............................................. (99,023) (137,683) (79,081)
Decrease (increase) in short-term investments, net.................... (45,166) (4,984) 36,418
Decrease (increase) in investment in unconsolidated affiliates, net... (38,857) 726 (19,210)
Increase in property and equipment, net............................... (12,291) (17,219) (14,188)
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES.............. 106,137 (50,336) 39,555
FINANCING ACTIVITIES
Policyholders' deposits to policy account balances.................... 324,881 309,885 289,654
Policyholders' withdrawals from policy account balances............... (408,356) (366,439) (409,975)
Dividends to stockholders............................................. (75,731) (73,723) (71,496)
NET CASH USED IN FINANCING ACTIVITIES............................ (159,206) (130,277) (191,817)
NET INCREASE (DECREASE) IN CASH......................................... 142,409 (7,852) 16,731
Cash:
Beginning of the year.............................................. 14,376 22,228 5,497
End of the year.................................................... $ 156,785 $ 14,376 $ 22,228
See accompanying notes to consolidated financial statements.
101
(1) NATURE OF OPERATIONS
American National Insurance Company and its consolidated subsidiaries
(collectively "American National") operate primarily in the insurance industry.
Operating on a multiple line basis, American National offers 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
non-insurance subsidiaries, American National offers mutual funds and invests in
real estate. The majority (99%) of revenues is generated by the insurance
business. 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.
(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 1999 financial
information to conform to the 2000 presentation.
USE OF ESTIMATES--The preparation of consolidated financial statements in
conformity with Generally Accepted Accounting Principles requires management to
make estimates and assumptions that affect the amounts reported in the
consolidated financial statements and accompanying notes. Actual results could
differ from reported results using those estimates.
ACCOUNTING CHANGES
ACCOUNTING FOR DERIVATIVE INSTRUMENTS--FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended by FAS No. 137 and FAS No. 138,
is effective for all quarters 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 adopted FAS No. 133, as amended, on January 1, 2001. The
adoption of FAS No. 133 did 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.
102
UNREALIZED GAINS--For all investments carried at market, the unrealized gains or
losses (differences between amortized cost and market value), net of applicable
federal income taxes, are reflected in stockholders' equity as a component of
accumulated other comprehensive income.
MORTGAGE LOANS--Mortgage loans on real estate are carried at amortized cost,
less allowance for valuation impairments.
The mortgage loan portfolio is closely monitored through the review of loan and
property information, such as debt service coverage, annual operating statements
and property inspection reports. This information is evaluated in light of
current economic conditions and other factors, such as geographic location and
property type. As a result of this review, impaired loans are identified and
valuation allowances are established. Impaired loans are loans where, based on
current information and events, it is probable that American National will be
unable to collect all amounts due according to the contractual terms of the loan
agreement.
POLICY LOANS--Policy loans are carried at cost.
INVESTMENT REAL ESTATE--Investment real estate is carried at cost, less
allowance for depreciation and valuation impairments. Depreciation is provided
over the estimated useful lives of the properties (15 to 50 years) using
straight-line and accelerated methods.
American National's real estate portfolio is closely monitored through the
review of operating information and periodic inspections. This information is
evaluated in light of current economic conditions and other factors, such as
geographic location and property type. As a result of this review, if there is
any indication of an adverse change in the economic condition of a property, a
complete cash flow analysis is performed to determine whether or not an
impairment allowance is necessary. If a possible impairment is indicated, the
fair market value of the property is estimated using a variety of techniques,
including cash flow analysis, appraisals and comparison to the values of similar
properties. If the book value is greater than the estimated fair market value,
an impairment allowance is established.
SHORT-TERM INVESTMENTS--Short-term investments (primarily commercial paper) are
carried at amortized cost.
OTHER INVESTED ASSETS--Other invested assets are carried at cost, less allowance
for valuation impairments. Valuation allowances for other invested assets are
considered on an individual basis in accordance with the same procedures used
for investment real estate.
INVESTMENT VALUATION ALLOWANCES AND IMPAIRMENTS--Investment valuation allowances
are established for 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 in the gain from sale of investments, net.
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.
103
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.
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 provided 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 issues.
104
Future policy benefits for universal life and investment-type contracts reflect
the current account value before applicable surrender charges.
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 deposits received plus accumulated interest less
applicable accumulated administrative fees.
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,
2000. 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
2.5% of the life insurance in force at December 31, 2000 and 5.4% of life
premiums in 2000.
FEDERAL INCOME TAXES
American National and all but one of its subsidiaries will file a consolidated
life/non-life federal income tax return for 2000. 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.
105
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.
(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):
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GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 2000: COST GAINS LOSSES VALUE
Debt securities
Bonds held-to-maturity:
U. S. Government and agencies....... $ 58,765 $ 689 $ (201) $ 59,253
States and political subdivisions... 49,906 591 (145) 50,352
Foreign governments................. 108,541 3,854 -- 112,395
Public utilities.................... 998,042 12,715 (19,676) 991,081
All other corporate bonds........... 2,226,709 40,791 (27,481) 2,240,019
Mortgage-backed securities.......... 92,502 4,512 (3) 97,011
Total bonds held-to-maturity...... 3,534,465 63,152 (47,506) 3,550,111
Bonds available-for-sale:
U. S. Government and agencies....... 19,646 336 -- 19,982
States and political subdivisions... 38,563 225 (74) 38,714
Foreign governments................. 27,571 2,007 -- 29,578
Public utilities.................... 221,886 3,809 (9,098) 216,597
All other corporate bonds........... 500,045 7,501 (63,149) 444,397
Total bonds available-for-sale.... 807,711 13,878 (72,321) 749,268
Total debt securities................. 4,342,176 77,030 (119,827) 4,299,379
Marketable equity securities:
Preferred stock..................... 23,970 881 (738) 24,113
Common stock........................ 549,721 372,866 (77,735) 844,852
Total marketable equity securities.... 573,691 373,747 (78,473) 868,965
Total investments in securities........... $4,915,867 $450,777 $(198,300) $5,168,344
106
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GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1999: COST GAINS LOSSES VALUE
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
DEBT SECURITIES--The amortized cost and estimated market value, by contractual
maturity of debt securities at December 31, 2000, 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.
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BONDS-HELD-TO-MATURITY BONDS-AVAILABLE-FOR-SALE
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
Due in one year or less.................. $ 98,003 $ 97,589 $ 44,944 $ 45,014
Due after one year through five years.... 1,772,771 1,792,009 426,682 390,565
Due after five years through ten years... 1,515,379 1,506,273 290,045 267,131
Due after ten years...................... 55,811 57,230 46,040 46,558
3,441,964 3,453,101 807,711 749,268
Without single maturity date............. 92,501 97,010 -- --
$3,534,465 $3,550,111 $807,711 $749,268
107
Proceeds from sales of investments in securities classified as available-for-
sale (bonds and stocks) totaled $234,477,000 for 2000. Gross gains of
$68,605,000 and gross losses of $48,761,000 were realized on those sales.
Included in the proceeds from sales of available-for-sale securities are
$8,893,000 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 loss from
the sale of these bonds was $7,941,000.
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 loss 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-sale securities are
$40,454,000 of proceeds from the sale of bonds that had been reclassified from
bonds held-to-maturity. The bonds had been reclassified due to evidence of a
significant deterioration in the issuer's creditworthiness. The net gain from
the sale of these bonds was $1,073,000.
Bonds were called or otherwise redeemed by the issuers during 2000, which
resulted in proceeds of $125,271,000 from the disposal. Gross gains of $379,000
were realized on those disposals. Bonds were called 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 from the disposal of $89,205,000. Gross
gains of $747,000 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 $81,060,000, $137,222,000 and $160,912,000 for 2000, 1999, and
1998, respectively.
The change in the net unrealized gains on investments for the years ended
December 31 are summarized as follows (in thousands):
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2000 1999 1998
Bonds available-for-sale............................ $ (39,436) $(66,800) $ 10,482
Preferred stocks.................................... (464) (1,793) 969
Common stocks....................................... (117,142) (20,456) 124,921
Index options....................................... (139) -- --
Amortization of deferred policy acquisition costs... (3,294) 21,028 (8,229)
(160,475) (68,021) 128,143
Provision for federal income taxes.................. 56,162 23,693 (44,850)
$(104,313) $(44,328) $ 83,293
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, 2000, mortgage loans have both fixed rates from 6.00%
to 12.25% and variable rates from 6.39% to 10.25%. The majority of the
108
mortgage loan contracts require periodic payments of both principal and
interest, and have amortization periods of 3 months to 32 years.
American National has investments in first lien mortgage loans on real estate
with carrying values of $1,024,312,000 and $1,033,330,000 at December 31, 2000
and 1999, respectively. Impaired loans, on which valuation allowances were
established, totaled $42,465,000 and $41,446,000 at December 31, 2000 and 1999,
respectively. The valuation allowances on those loans totaled $4,838,000 and
$11,412,000 at December 31, 2000 and 1999, respectively.
POLICY LOANS--All of the Company's policy loans carry interest rates ranging
from 5% to 8% at December 31, 2000.
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):
[Enlarge/Download Table]
GAINS (LOSSES) FROM
INVESTMENT INCOME DISPOSALS OF INVESTMENTS
2000 1999 1998 2000 1999 1998
-------------------------------------------------------------------
Bonds........................ $322,204 $318,898 $317,481 $(17,759) $ (5,327) $ 2,614
Preferred stocks............. 1,879 2,599 2,584 (36) (1,212) 1
Common stocks................ 14,802 16,284 16,774 38,018 149,946 33,092
Mortgage loans............... 94,287 98,111 97,871 (7,874) 1,206 1,248
Real estate.................. 71,613 65,027 80,138 3,848 6,417 1,338
Other invested assets........ 37,832 36,819 29,123 (2,015) 2,793 (564)
Investment in
unconsolidated affiliates... -- -- -- -- -- 29
542,617 537,738 543,971 14,182 153,823 37,758
Investment expenses.......... (63,528) (63,789) (68,729) -- -- --
Decrease (increase) in
valuation allowances........ -- -- -- 8,389 (4,762) 12,010
$479,089 $473,949 $475,242 $ 22,571 $149,061 $49,768
(4) OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF CREDIT RISK ON INVESTMENTS
American National employs a strategy to invest funds at the highest return
possible commensurate with sound and prudent underwriting practices to ensure a
well-diversified investment portfolio.
BONDS:
Management believes American National's bond portfolio is of investment grade
and is diversified. The bond portfolio distributed by quality rating at December
31 is summarized as follows:
2000 1999
----------------
AAA............................. 6% 8%
AA.............................. 14% 14%
A............................... 57% 57%
BBB............................. 19% 18%
Below BBB....................... 4% 3%
100% 100%
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COMMON STOCK:
American National's stock portfolio by market sector distribution at December 31
is summarized as follows:
2000 1999
------------
Basic materials......................... 1% 4%
Capital goods........................... 9% 7%
Consumer goods.......................... 18% 20%
Energy.................................. 8% 7%
Finance................................. 18% 10%
Technology.............................. 16% 24%
Health care............................. 13% 10%
Miscellaneous........................... 10% 12%
Mutual funds............................ 7% 6%
100% 100%
MORTGAGE LOANS AND INVESTMENT REAL ESTATE:
American National invests primarily in the commercial sector in areas that offer
the potential for property value appreciation. Generally, mortgage loans are
secured by first liens on income-producing real estate.
Mortgage loans and investment real estate by property type distribution at
December 31 are summarized as follows:
MORTGAGE INVESTMENT
LOANS REAL ESTATE
2000 1999 2000 1999
----------------------------
Office buildings... 17% 17% 15% 15%
Shopping centers... 49% 52% 41% 42%
Commercial......... 4% 4% 6% 5%
Apartments......... 1% 1% 3% 3%
Hotels/motels...... 8% 6% 13% 13%
Industrial......... 16% 16% 21% 21%
Other.............. 5% 4% 1% 1%
100% 100% 100% 100%
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:
MORTGAGE INVESTMENT
LOANS REAL ESTATE
2000 1999 2000 1999
----------------------------
New England.......... 9% 9% -- --
Middle Atlantic...... 16% 16% -- --
East North Central... 9% 10% 18% 18%
West North Central... 2% 3% 17% 17%
South Atlantic....... 22% 19% 7% 7%
East South Central... 1% 1% 13% 13%
West South Central... 25% 25% 37% 36%
Mountain............. 6% 7% 2% 3%
Pacific.............. 10% 10% 6% 6%
100% 100% 100% 100%
For discussion of other off-balance sheet risks, see Note 5.
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(5) FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimated fair 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 fair values.
DEBT SECURITIES:
The estimated fair values for bonds represent quoted market values from
published sources or bid prices obtained from securities dealers.
MARKETABLE EQUITY SECURITIES:
Fair values for preferred and common stocks represent quoted market prices
obtained from independent pricing services.
MORTGAGE LOANS:
The fair 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 fair value.
SHORT-TERM INVESTMENTS:
The carrying amount for short-term investments approximates their fair value.
INVESTMENT CONTRACTS:
The fair 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 fair
value.
INVESTMENT COMMITMENTS:
American National's investment commitments are all short-term in duration, and
the fair value was not significant at December 31, 2000 or 1999.
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VALUES:
The carrying amounts and estimated fair values of financial instruments at
December 31 are as follows (in thousands):
[Enlarge/Download Table]
2000 1999
---------------------------------------------------
ESTIMATED ESTIMATED
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
Financial assets:
Bonds:
Held-to-maturity............... $3,534,465 $3,550,111 $3,636,786 $3,552,123
Available-for-sale............. 749,268 749,268 838,161 838,161
Preferred stock................. 24,113 24,113 39,752 39,752
Common stock.................... 844,852 844,852 963,337 963,337
Mortgage loans on real estate... 1,024,312 1,071,438 1,033,330 1,044,146
Policy loans.................... 294,313 294,313 293,287 293,287
Short-term investments.......... 140,518 140,518 95,352 95,352
Financial liabilities:
Investment contracts............ 1,494,353 1,494,353 1,639,348 1,639,348
(6) DEFERRED POLICY ACQUISITION COSTS
Deferred policy acquisition costs and premiums for the years ended December 31,
2000, 1999, and 1998 are summarized as follows (in thousands):
[Enlarge/Download Table]
LIFE ACCIDENT PROPERTY &
& ANNUITY & HEALTH CASUALTY TOTAL
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
Additions.............................. 132,720 60,838 35,424 228,982
Amortization........................... (141,591) (63,518) (31,680) (236,789)
Effect of change in unrealized gains
on available-for-sale securities..... (3,294) -- -- (3,294)
Net change............................... (12,165) (2,680) 3,744 (11,101)
Acquisitions............................. 123 66 -- 189
Balance at December 31, 2000.............. $ 623,180 $106,398 $ 18,306 $ 747,884
2000 Premiums............................ $ 356,944 $404,973 $426,786 $1,188,703
1999 Premiums............................ $ 342,030 $396,072 $392,576 $1,130,678
1998 Premiums............................ $ 340,286 $393,602 $354,820 $1,088,708
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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.
(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:
[Enlarge/Download Table]
PERCENTAGE OF
FUTURE POLICY
POLICY ISSUE INTEREST BENEFITS
YEAR RATE SO VALUED
ORDINARY--
1996-2000 7.5% for years 1 through 5, graded to 5.5% at the end of year 25, and level thereafter 4%
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 8%
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% 3%
UNIVERSAL LIFE Future policy benefits for universal life are equal to the current account value 27%
100%
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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%. Mortality and withdrawal assumptions are based on American
National's experience. Policy account balances for interest-sensitive annuities
are equal to the current gross account balance.
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.
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(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):
2000 1999 1998
-------------------------------
Balance at January 1.............. $282,138 $266,832 $247,564
Less reinsurance recoverables... 3,988 11 2,567
Net Balance at January 1.......... 278,150 266,821 244,997
Incurred related to:
Current year.................... 703,225 654,222 598,379
Prior years..................... 1,746 (16,322) (6,324)
Total incurred.................... 704,971 637,900 592,055
Paid related to:
Current year.................... 456,971 457,279 411,352
Prior years..................... 182,662 169,292 158,879
Total paid........................ 639,633 626,571 570,231
Net Balance at December 31........ 343,488 278,150 266,821
Plus reinsurance recoverables... 8,842 3,988 11
Balance at December 31............ $352,330 $282,138 $266,832
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.
American National remains primarily liable with respect to any reinsurance
ceded, and would bear the entire loss if the assuming companies were unable to
meet their obligations under any reinsurance treaties.
To minimize its exposure to significant losses from reinsurer insolvencies,
American National evaluates the financial condition of its reinsurers and
monitors concentrations of credit risk arising from similar geographic regions,
activities, or economic characteristics of the reinsurers. At December 31, 2000,
amounts recoverable from reinsurers with a carrying value of $101,537,000 were
associated with various auto dealer credit insurance program reinsurers
domiciled in the Caribbean islands of Nevis or the Turks and Caicos Islands.
American National holds collateral related to these credit reinsurers totaling
$77,296,000. 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
90 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.
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Premiums, premium-related reinsurance amounts and reinsurance recoveries for the
years ended December 31 are summarized as follows (in thousands):
[Enlarge/Download Table]
2000 1999 1998
--------------------------------------
Direct premiums..................................... $1,297,995 $1,268,129 $1,201,189
Reinsurance premiums assumed from other companies... 260,214 110,180 42,403
Reinsurance premiums ceded to other companies....... (369,506) (247,631) (154,884)
Net premiums........................................ $1,188,703 $1,130,678 $1,088,708
Reinsurance recoveries.............................. $ 256,731 $ 162,863 $ 88,240
Life insurance in force and related reinsurance amounts at December 31 are
summarized as follows (in thousands):
[Enlarge/Download Table]
2000 1999 1998
-------------------------------------------
Direct life insurance in force................... $ 47,902,590 $46,156,190 $44,134,974
Reinsurance risks assumed from other companies... 873,996 797,059 713,200
Total life insurance in force.................... 48,776,586 46,953,249 44,848,174
Reinsurance risks ceded to other companies....... (12,573,404) (9,629,707) (7,965,042)
Net life insurance in force...................... $ 36,203,182 $37,323,542 $36,883,132
(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):
[Enlarge/Download Table]
2000 1999 1998
------------------------------------------------------------------------
AMOUNT RATE AMOUNT RATE AMOUNT RATE
Income tax on pre-tax income........ $72,430 35.00% $136,038 35.00% $ 95,861 35.00%
Tax-exempt investment income........ (3,956) (1.91) (1,691) (0.44)% (971) (0.35)%
Dividend exclusion.................. (1,247) (0.60) (3,414) (0.88)% (5,044) (1.84)%
Exempted losses on sale of assets... (2,604) (1.26) (4,470) (1.15)% (9,856) (3.60)%
Miscellaneous tax credits, net...... (1,467) (0.71) (1,467) (0.38)% (1,467) (0.54)%
Other items, net.................... 3,612 1.74 (2,928) (0.75)% (2,032) (0.74)%
$66,768 32.26% $122,068 31.40% $76,491 27.93%
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The tax effects of temporary differences that gave rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 2000 and
December 31, 1999 are as follows (in thousands):
[Enlarge/Download Table]
2000 1999
-----------------------
DEFERRED TAX ASSETS:
Investment in bonds, real estate and other invested
assets, principally due to investment valuation allowances...... $ 10,024 $ 17,750
Policyowner funds, principally due to policy reserve discount.... 103,866 87,650
Policyowner funds, principally due to unearned premium reserve... 12,843 11,219
Other assets..................................................... 5,892 4,689
Total gross deferred tax assets.................................... 132,625 121,308
Less valuation allowance......................................... (3,000) (3,000)
Net deferred tax assets............................................ $ 129,625 $ 118,308
DEFERRED TAX LIABILITIES:
Marketable equity securities, principally due to
net unrealized gains on stock................................... $ (81,060) $(131,347)
Investment in bonds, principally due to
accrual of discount on bonds.................................... (13,190) (20,941)
Deferred policy acquisition costs, due to
difference between GAAP and tax................................. (178,788) (184,217)
Property, plant and equipment, principally due to
difference between GAAP and tax depreciation methods............ (5,278) (3,144)
Other liabilities................................................ -- --
Net deferred tax liabilities....................................... (278,316) (339,649)
Total deferred tax.................................................. $(148,691) $(221,341)
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, 1999 and December 31, 2000, and
the cumulative balance was approximately $63,000,000 at both dates.
Federal income taxes totaling approximately $114,415,000, $108,060,000 and
$111,465,000 were paid to the Internal Revenue Service in 2000, 1999 and 1998,
respectively. The statute of limitations for the examination of federal income
tax returns through 1996 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 1996. In the opinion of management, adequate provision has been made for
any tax deficiencies that may be sustained.
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(11) COMPONENTS OF COMPREHENSIVE INCOME
The items included in comprehensive income, other than net income, are
unrealized gains on available-for-sale securities, net of 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 (in thousands):
[Download Table]
BEFORE FEDERAL NET OF
FEDERAL INCOME TAX FEDERAL
INCOME TAX EXPENSE INCOME TAX
DECEMBER 31, 2000
Unrealized Losses....................... $(139,180) $(48,709) $ (90,471)
Less: reclassification adjustment for
gains realized in net income........... (21,295) (7,453) (13,842)
Net unrealized loss component
of comprehensive income................ $(160,475) $(56,162) $(104,313)
DECEMBER 31, 1999
Unrealized Gains/(Losses)............... $ 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/(Losses)............... $ 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
(12) COMMON STOCK AND EARNINGS PER SHARE
American National has only one class of common stock and no preferred stock. At
December 31, 2000, 1999 and 1998, American National had 50,000,000 authorized
shares of $1.00 par value common stock with 30,832,449 shares issued. At
December 31, 2000 and 1999, treasury shares were 4,274,284, restricted shares
were 79,000 and unrestricted shares outstanding were 26,479,165. At December 31,
1998 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
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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. During 2000, the plan was
amended to adjust the grant price of awards made during 1999.
The Plan provides for the award of Restricted Stock. Restricted Stock Awards
entitle the participant to full dividend and voting rights. Unvested shares are
restricted as to disposition and are subject to forfeiture under certain
circumstances. Compensation expense is recognized over the vesting period.
Awards of 79,000 shares were granted to directors and board consultants on
August 1, 1999, 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. During 2000 and 1999, none of the restrictions on these shares lapsed
and all of the Restricted Stock was outstanding at the end of the year. The
amount of compensation expense recorded was $486,000 in 2000.
On August 1, 1999, American National granted Stock Appreciation Rights (SAR) on
81,500 shares to selected officers. These SARs were granted at a stated price of
$70.50 per share (subsequently amended in 2000 to $57 per share), vest at a rate
of 20% per year for 5 years and expire 5 years after the vesting period.
American National uses the average of the high and low price on the last trading
day of the period to calculate the fair value and compensation expense for SARs.
The fair value and compensation expense of the SARs was $709,000 at December 31,
2000 and zero at December 31, 1999.
Stock Appreciation Right information for 2000 and 1999 follows:
WEIGHTED
AVERAGE
PRICE PER
SHARES SHARE
Outstanding at December 31, 1998 -- --
Granted 81,500 $57.0000
Outstanding at December 31, 1999 81,500 57.0000
Granted 3,000 61.8125
Exercised (1,100) 57.0000
Canceled (1,208) 57.0000
Outstanding at December 31, 2000 82,192 57.1757
The weighted-average contractual remaining life for the 82,192 shares
outstanding as of December 31, 2000 is 8.5 years. The weighted-average exercise
price for these shares is $57.18 per share. Of the shares outstanding, 15,192
are exercisable at a weighted-average exercise price of $57.00 per share.
EARNINGS PER SHARE--Earnings per share for 2000, 1999, and 1998 were calculated
using a weighted-average number of shares outstanding of 26,479,165. There were
no potentially dilutive items outstanding in 1998. In 1999, the average market
price, since the grant date of the Restricted Stock Awards, was less than the
exercise price. In 2000, the incremental number of shares to be added to number
of shares outstanding was approximately 7,000 shares and had no effect on the
earnings per share calculation. As a result, diluted earnings per share is
equal to the basic earnings per share for 2000 and 1999.
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, non-cumulative basis. Additionally,
119
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, 2000, approximately $611,088,000 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.
120
(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.
. 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.
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. 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, 2000, 1999 and 1998 (in
thousands):
[Enlarge/Download Table]
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
2000
Multiple Line Marketing $ 518,271 $ 95,629 $ 596,098 $ -- $ 17,802 $ 5,874 $ 11,928
Home Service Division 212,951 119,543 276,686 -- 55,808 18,417 37,391
Independent Marketing 76,236 113,107 176,196 -- 13,147 4,339 8,808
Health Division 253,820 8,779 281,837 -- (19,238) (6,349) (12,889)
Credit Insurance Division 63,412 17,010 68,466 -- 11,956 3,945 8,011
Senior Age Marketing 148,565 18,292 156,970 -- 9,887 3,263 6,625
Direct Marketing 28,076 3,906 28,678 -- 3,304 1,090 2,214
Capital & Surplus 938 94,795 (264) 100 96,097 30,190 65,907
All Other 30,553 30,599 45,922 2,949 18,179 5,999 12,180
$1,332,822 $501,660 $1,630,589 $ 3,049 $206,942 $ 66,768 $140,174
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
There were no significant non-cash items to report. Substantially all of the
consolidated revenues were derived in the United States.
122
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, 2000, 1999 and 1998 (in thousands):
TOTAL REVENUES
[Enlarge/Download Table]
ACCIDENT & PROPERTY & TOTAL
LIFE ANNUITY HEALTH CASUALTY CREDIT ALL OTHER REVENUES
2000
----
Multiple Line Marketing $122,302 $ 17,392 $ 17,853 $450,894 $ -- $ -- $ 608,441
Home Service Division 287,057 4,477 9,317 -- -- -- 300,851
Independent Marketing 14,549 162,592 -- -- -- -- 177,141
Health Division 4,055 -- 253,274 -- -- -- 257,329
Credit Insurance Division -- -- -- -- 69,346 -- 69,346
Senior Age Marketing 30,487 1,675 125,541 -- -- -- 157,703
Direct Marketing 31,188 -- 219 -- -- -- 31,407
Capital & Surplus -- -- -- -- -- 173,478 173,478
All Other 29,311 1,671 937 -- -- 26,866 58,785
$518,949 $187,807 $407,141 $450,894 $69,346 $200,344 $1,834,481
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
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.
123
The following table summarizes assets by operating segment for the years ended
December 31, 2000 and 1999 (in thousands):
2000 1999
Multiple Line Marketing..... $1,687,541 $1,598,043
Home Service Division....... 1,815,757 1,789,073
Independent Marketing....... 1,650,600 1,719,508
Health Division............. 376,246 193,018
Credit Insurance Division... 408,780 387,669
Senior Age Marketing........ 340,324 326,163
Direct Marketing............ 91,173 82,799
Capital & Surplus........... 2,275,332 2,400,368
All Other................... 624,634 593,885
$9,270,387 $9,090,526
The net assets of the Capital and Surplus and All Other segments include
investments in unconsolidated affiliates. Almost all of American National's
assets are located in the United States of America.
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 consolidated 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 2000,
approximately 10% 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 8% and 11% in 1999 and 1998,
respectively. Of the total business written by this one organization, the
majority was annuities.
124
(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. Effective January 1, 2001 new codified statutory
accounting principles are required to be adopted. Management believes that the
adoption of these new principles will not have a material effect on the
statutory capital and surplus as reported in the following tables.
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):
[Enlarge/Download Table]
2000 1999 1998
Statutory net income of insurance companies... $ 132,682 $ 159,375 $ 155,368
Net gain (loss) of non-insurance companies.... (17,524) 97,782 15,240
Combined net income........................... 115,158 257,157 170,608
Increases/(decreases):
Deferred policy acquisition costs............ (7,807) 2,188 (9,795)
Policyholder funds........................... 15,851 4,288 18,702
Deferred federal income tax benefit.......... 16,487 10,060 1,216
Premiums deferred and other receivables...... (2,134) (2,315) (84)
Gain on sale of investments.................. (752) 416 (292)
Change in interest maintenance reserve....... (5,904) (1,033) 2,773
Asset valuation allowances................... 8,388 (4,762) 12,010
Other adjustments, net........................ (240) 948 2,336
Consolidating eliminations and adjustments.... 1,127 (334) (76)
Net income reported herein.................... $ 140,174 $ 266,613 $ 197,398
2000 1999 1998
Statutory capital and
surplus of insurance companies............... $ 2,309,259 $2,377,589 $2,163,593
Stockholders equity
of non-insurance companies................... 517,805 523,550 524,630
Combined capital and surplus.................. 2,827,064 2,901,139 2,688,223
Increases/(decreases):
Deferred policy acquisition costs............ 747,884 758,796 731,703
Policyholder funds........................... 174,874 159,394 154,445
Deferred federal income taxes................ (148,691) (221,341) (259,243)
Premiums deferred and other receivables...... (82,583) (80,453) (78,139)
Reinsurance in "unauthorized companies"...... 45,769 37,376 38,748
Statutory asset valuation reserve............ 339,963 370,191 344,926
Statutory interest maintenance reserve....... 4,308 9,729 10,762
Asset valuation allowances................... (30,062) (38,285) (28,489)
Investment market value adjustments.......... (56,087) (9,556) 48,656
Non-admitted assets and
other adjustments, net....................... 204,393 158,876 173,877
Consolidating eliminations and adjustments.... (1,003,175) (982,720) (910,857)
Stockholders' equity reported herein.......... $ 3,023,657 $3,063,146 $2,914,612
In accordance with various government and state regulations, American National
and its insurance subsidiaries had bonds with an amortized value of $74,432,000
on deposit with appropriate regulatory authorities.
125
(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 $4,071,000 for 2000, $3,954,000 for 1999 and $3,051,000 for
1998.
The pension debit for the years ended December 31, is made up of the following
(in thousands):
[Download Table]
2000 1999 1998
Service cost-benefits earned during period...... $ 5,212 $ 5,833 $ 5,629
Interest cost on projected benefit obligation... 8,927 8,175 7,661
Expected return on plan assets.................. (8,940) (8,946) (8,887)
Amortization of past service cost............... 289 534 473
Amortization of transition asset................ (2,619) (2,619) (2,619)
Amortization of actuarial loss.................. 1,202 977 794
Total pension debit.................. $ 4,071 $ 3,954 $ 3,051
126
The following table sets forth the funded status and amounts recognized in the
consolidated statements of financial position at December 31 for the pension
plans.
Actuarial present value of benefit obligation:
[Enlarge/Download Table]
2000 1999
-------------------------------------------------------
ASSETS ACCUMULATED ASSETS ACCUMULATED
EXCEED BENEFITS EXCEED BENEFITS
ACCUMULATED EXCEED ACCUMULATED EXCEED
BENEFITS ASSETS BENEFITS ASSETS
Vested benefit obligation............................. $(77,961) $(28,064) $(72,591) $(24,781)
Accumulated benefit obligation........................ $(80,947) $(28,064) $(75,578) $(24,781)
Projected benefit obligation........................... $(98,531) $(29,349) $(91,897) $(27,189)
Plan assets at fair value
(long term securities)................................ 131,439 -- 130,363 --
Funded status:
Plan assets in excess of
projected benefit obligation........................ 32,908 (29,349) 38,466 (27,189)
Unrecognized net loss................................. 4,698 545 1,981 1,554
Prior service cost not yet recognized in
periodic pension cost............................... -- 208 -- 497
Unrecognized net transition asset at January 1
being recognized over 15 years...................... (2,619) -- (5,239) --
Prepaid pension cost included in other assets
or other liabilities.................................. $ 34,987 $(28,596) $ 35,208 $(25,138)
ASSUMPTIONS USED AT DECEMBER 31: 2000 1999
Weighted-average discount rate on benefit obligation... 7.40% 7.30%
Rate of increase in compensation levels................ 4.80% 4.80%
Expected long-term rate of return on plan assets....... 7.00% 7.00%
OTHER BENEFITS
Under American National and its subsidiaries' various group benefit plans for
active employees, a $2,500 paid-up life insurance certificate is provided upon
retirement for eligible participants who meet certain age and length of service
requirements.
American National has one health benefit plan for retirees of all companies in
the consolidated group. Participation in this plan 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 this plan in the future.
The retiree health benefit plan provides major medical benefits for participants
under the age of 65 and Medicare supplemental benefits for those over 65.
Prescription drug benefits are provided to
127
both age groups. The plan is 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 American National,
are to be contributed by the retirees.
The accrued post-retirement benefit obligation, included in other liabilities,
was $5,888,000 and $13,221,000 at December 31, 2000 and 1999, respectively.
These amounts were approximately equal to the unfunded accumulated post-
retirement benefit obligation. Since American Nationals 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, 2000
were approximately $5,508,000.
In the ordinary course of their operations, the companies also had commitments
outstanding at December 31, 2000 to purchase, expand or improve real estate, to
fund mortgage loans and to purchase other invested assets aggregating
$77,626,000, all of which are expected to be funded in 2001. As of December 31,
2000, all of the mortgage loan commitments have interest rates that are fixed.
CONTINGENCIES--American National and its subsidiaries 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.
In recent years, various life insurance companies have been named as defendants
in class action lawsuits relating to life insurance pricing and sales practices.
A number of these lawsuits have resulted in substantial settlements across the
life insurance industry. American National is a defendant in similar class
action lawsuits. After reviewing these cases with legal counsel, management
believes that American National has meritorious defenses against these lawsuits.
Therefore, no provision for possible losses on these cases has been recorded in
the consolidated financial statements. Based on information currently available,
management also believes that any amounts that may be ultimately paid, if any,
arising from these cases would not have a material effect on the company's
results of operations and financial position. However, it should be noted that
the frequency of large damage awards, that bear little or no relation to the
economic damages incurred by plaintiffs in some jurisdictions, continue to
create the potential for an unpredictable judgement in any given lawsuit. It is
possible that, if the defenses in these lawsuits are not successful, and the
judgement is greater than management can anticipate, the resulting liability
could have a material impact on the consolidated financial results.
(17) SUBSEQUENT EVENT
On October 31, 2000, American National entered into a definitive merger
agreement with Farm Family Holdings, Inc. (FFH) under which American National
will acquire FFH. The acquisition price was set at $44 per share for the common
stock of FFH and $35.72 per share for the preferred stock outstanding plus any
accrued and unpaid dividends as of the closing date.
The merger was valued at approximately $280 million to be paid in cash and
funded by a combination of cash on hand and debt financing. The merger was also
subject to certain closing conditions. On February 27, 2001, the stockholders of
FFH approved the merger. Subsequently the only significant closing condition
remaining was the approval of the New York Insurance Department. American
National expects to close this acquisition by the end of the first quarter of
2001.
128
INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION
To the Stockholders and Board of Directors
American National Insurance Company:
We have audited and reported separately herein on the consolidated financial
statements of American National Insurance Company and subsidiaries as of and for
the year ended December 31, 2000.
Our audit was made for the purpose of forming an opinion on the basic
consolidated financial statements of American National Insurance Company and
subsidiaries taken as a whole. The supplementary information included in
Schedules I, III, IV and V as of December 31, 2000 and the year then ended, is
presented for the purposes of complying with the Securities and Exchange rules
and is not a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the audits
of he basic consolidated financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic consolidated financial
statements taken as a whole.
KPMG LLP
Houston, Texas
February 5, 2001
129
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors,
American National Insurance Company:
We have audited in accordance with auditing standards generally accepted in the
United States, the 1999 and 1998 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. The 1999 and 1998
information presented in 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
130
American National Insurance Company and Subsidiaries
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
(IN THOUSANDS)
December 31, 2000
[Enlarge/Download Table]
Column A Column B Column C Column D
Amount at Which
Market Shown in the
Type of Investment Cost(a) Value Balance Sheet
------------------ ------- ------- ----------------
Fixed Maturities:
Bonds Held-to-Maturity:
United States Government and government agencies
and authorities $ 58,765 $ 59,253 $ 58,765
States, municipalities and political subdivisions 49,906 50,352 49,906
Foreign governments 108,541 112,395 108,541
Public utilities 998,042 991,081 998,042
All other corporate bonds 2,319,211 2,337,030 2,319,211
Bonds Available-for-Sale:
United States Government and government agencies
and authorities 19,646 19,982 19,982
States, municipalities and political subdivisions 38,563 38,714 38,714
Foreign governments 27,571 29,578 29,578
Public utilities 221,886 216,597 216,597
All other corporate bonds 500,045 444,397 444,397
Redeemable preferred stock 23,970 24,113 24,113
---------- ---------- ----------
Total fixed maturities $4,366,146 $4,323,492 $4,307,846
---------- ---------- ----------
Equity Securities:
Common stocks:
Public utilities $ 11,778 $ 19,654 $ 19,654
Banks, trust and insurance companies 60,204 112,122 112,122
Industrial, miscellaneous and all other 477,739 713,076 713,076
---------- ---------- ----------
Total equity securities $ 549,721 $ 844,852 $ 844,852
---------- ---------- ----------
Mortgage loans on real estate $1,024,312 XXXXXX $1,024,312
Investment real estate 234,908 XXXXXX 234,908
Real estate acquired in satisfaction of debt 8,355 XXXXXX 8,355
Policy loans 294,313 XXXXXX 294,313
Other long-term investments 134,857 XXXXXX 134,857
Short-term investments 140,518 XXXXXX 140,518
---------- ----------- ----------
Total investments $6,753,130 XXXXXX $6,989,961
---------- ----------- ----------
(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.
156
American National Insurance Company and Subsidiaries
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
[Enlarge/Download Table]
Column A Column B Column C Column D Column E Column F Column G
Future
Policy Other
Benefits, Policy
Deferred Losses, Claims
Policy Claims and Net
Acquisition and Loss Unearned Benefits Premium Investments
Segment Cost Expenses Premiums Payable Revenue Income (a)
------- ----------- --------- -------- -------- -------- ---------------
2000
----
Multiple Line Marketing $132,540 $ 875,128 $251,972 $244,187 $ 470,240 $ 95,630
Home Service 232,075 1,438,917 4,560 34,316 193,252 119,694
Independent Marketing 144,708 1,491,296 32 17,750 49,784 113,107
Health Insurance 15,493 20,392 14,111 219,774 231,347 8,722
Credit Insurance 67,544 -- 245,056 51,037 55,300 17,010
Senior Age Marketing 76,480 170,082 36,465 90,326 153,148 18,349
Direct Marketing 39,289 45,901 223 4,837 27,268 3,906
Capital and Surplus -- -- -- -- -- 72,891
All other 39,755 326,249 316 6,691 8,364 29,780
-------- ---------- -------- -------- ---------- --------
Total $747,884 $4,367,965 $552,735 $668,918 $1,188,703 $479,089
======== ========== ======== ======== ========== ========
1999
----
Multiple Line Marketing $126,950 $ 867,916 $239,825 $201,544 $ 441,299 $ 95,820
Home Service 233,883 1,419,161 5,060 30,171 189,449 119,065
Independent Marketing 161,578 1,562,493 21 11,302 36,729 118,961
Health Insurance 18,658 22,612 14,121 91,518 223,638 7,398
Credit Insurance 65,801 -- 235,200 45,074 55,294 16,094
Senior Age Marketing 76,359 160,815 35,908 41,321 149,142 18,021
Direct Marketing 33,656 43,911 291 3,934 25,929 3,734
Capital and Surplus -- -- -- -- -- 62,305
All other 41,911 330,137 394 5,403 9,198 32,551
-------- ---------- -------- -------- ---------- --------
Total $758,796 $4,407,045 $530,820 $430,267 $1,130,678 $473,949
======== ========== ======== ======== ========== ========
1998
----
Multiple Line Marketing $115,981 $ 857,532 $200,675 $183,998 $ 406,317 $ 95,063
Home Service 230,216 1,396,059 4,630 27,640 183,189 122,188
Independent Marketing 156,334 1,603,818 5 11,214 40,535 122,279
Health Insurance 16,087 22,092 11,999 69,186 210,502 7,849
Credit Insurance 61,575 -- 229,371 42,803 50,391 15,215
Senior Age Marketing 75,818 154,625 36,525 37,776 162,060 17,760
Direct Marketing 31,392 41,992 266 8,228 25,588 3,589
Capital and Surplus -- -- -- -- -- 57,969
All other 44,300 337,701 437 5,330 10,126 33,330
-------- ---------- -------- -------- ---------- --------
Total $731,703 $4,413,819 $483,908 $386,175 $1,088,708 $475,242
======== ========== ======== ======== ========== ========
Column A Column H Column I Column J Column K
Benefits,
Claims, Amortization
Losses of Deferred
and Policy Other
Settlement Acquisition Operating Premiums
Segment Expenses Costs Expenses(b) Written
------- ---------- ----------- ----------- --------
2000
----
Multiple Line Marketing $436,080 $ 46,560 $ 86,528 $441,035
Home Service 115,877 30,253 107,485 --
Independent Marketing 39,832 33,433 22,482 --
Health Insurance 193,593 61,454 22,680 --
Credit Insurance 22,776 55,998 (10,309) --
Senior Age Marketing 110,897 5,041 39,157 --
Direct Marketing 16,524 4,050 6,190 --
Capital and Surplus -- -- (318) --
All other 27,889 -- 16,387 --
-------- -------- ------- --------
Total $963,468 $236,789 $290,282 $441,035
======== ======== ======= ========
1999
----
Multiple Line Marketing $375,364 $ 39,863 $ 84,284 $404,817
Home Service 118,638 27,921 94,825 --
Independent Marketing 30,575 33,419 17,089 --
Health Insurance 165,525 21,475 67,902 --
Credit Insurance 21,859 6,209 37,834 --
Senior Age Marketing 111,573 3,039 43,751 --
Direct Marketing 14,584 3,459 5,179 --
Capital and Surplus -- -- 225 --
All other 28,024 -- 20,767 --
-------- -------- ------- --------
Total $866,142 $135,385 $371,856 $404,817
======== ======== ======= ========
1998
----
Multiple Line Marketing $343,841 $ 37,772 $ 81,041 $373,506
Home Service 114,292 34,149 83,438 --
Independent Marketing 26,903 25,940 29,219 --
Health Insurance 158,388 14,119 68,437 --
Credit Insurance 22,942 21,100 17,680 --
Senior Age Marketing 116,297 5,696 44,816 --
Direct Marketing 13,626 3,787 4,817 --
Capital and Surplus -- -- (1,200) --
All other 32,310 6,553 11,074 --
-------- -------- ------- --------
Total $828,599 $149,116 $339,322 $373,506
======== ======== ======= ========
(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.
157
American National Insurance Company and Subsidiaries
SCHEDULE IV - REINSURANCE
(IN THOUSANDS)
[Enlarge/Download Table]
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
------ --------- ---------- ------ --------------
2000
----
Life insurance in force $47,902,590 $12,573,404 $873,996 $36,203,182 2.4%
=========== =========== ======== ===========
Premiums:
Life insurance 405,161 61,820 13,603 356,944 3.8%
Accident and health insurance 435,354 267,238 236,857 404,973 58.5%
Property and liability insurance 457,480 40,448 9,754 426,786 2.3%
----------- ----------- -------- -----------
Total premiums $ 1,297,995 $ 369,506 $260,214 $ 1,188,703 21.9%
=========== =========== ======== ===========
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%
=========== =========== ======== ===========
158
American National Insurance Company and Subsidiaries
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
[Enlarge/Download Table]
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
----------- ------------ ---------- --------------- ----------- ----------
2000
----
Investment valuation allowances:
Mortgage loans on real estate $19,833 $ -- $ 7,214 $ 485 $12,134
Investment real estate 19,447 1,711 $ 1,745 $ -- 19,413
Investment in unconsolidated
affiliates 5,006 122 -- -- 5,128
Other assets 1,800 1,022 1,800 -- 1,022
------- ------- ------- ------- -------
Total $46,086 $ 2,855 $10,759 $ 485 $37,697
======= ======= ======= ======= =======
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
======= ======= ======= ======= =======
(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.
159
PART C ITEM AND CAPTION
Items 24. Financial Statements and Exhibits.
(a) Financial Statements FINANCIAL STATEMENTS and FINANCIAL STATEMENT
SCHEDULES sections of Statement of Additional
Information
(b) Exhibits
Exhibit "1" - Copy of the resolutions of the Board of
Directors of the Depositor authorizing the
establishment of the Registrant (incorporated
herein by reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "2" - Not applicable
Exhibit "3" - Distribution and Administrative Services
Agreement (incorporated herein by reference to
the Registrant's initial registration statement
filed with the Securities and Exchange
Commission on August 21, 1996)
Exhibit "4" - Form of each variable annuity contract
(incorporated herein by reference to the
Registrant's pre-effective amendment number one
filed with the Securities and Exchange
Commission on July 2, 1997)
Exhibit "5" - Form of application used with any variable
annuity contract (incorporated herein by
reference to the Registrant's pre-effective
amendment number one filed with the Securities
and Exchange Commission on July 2, 1997)
Exhibit "6a" - Copy of the Articles of Incorporation of the
Depositor (incorporated herein by reference to
the Registrant's initial registration statement
filed with the Securities and Exchange
Commission on August 21, 1996)
Exhibit "6b" - Copy of the By-laws of the Depositor
(incorporated herein by reference to the
Registrant's initial registration statement
filed with the Securities and Exchange
Commission on August 21, 1996)
Exhibit "7" - Not applicable
Exhibit "8a" Form of American National Investment Account,
Inc. Participation Agreement (incorporated
herein by reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8b" Form of Variable Insurance Products Fund
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8c" Form of Variable Insurance Products Fund II
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8d" Form of Variable Insurance Products Fund III
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8e" Form of Lazard Retirement Series, Inc. Fund
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8f" Form of Van Eck Worldwide Insurance Trust
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8g" Form of T. Rowe Price International Series, Inc.
T. Rowe Price Equity Series, Inc., and T. Rowe
Price Fixed Income Series, Inc. (incorporated
herein by reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8h" Form of MFS Variable Insurance Trust
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8i" Form of Federated Insurance Series Fund
Participation Agreement (incorporated herein by
reference to the Registrant's initial
registration statement filed with the Securities
and Exchange Commission on August 21, 1996)
Exhibit "8j" Form of Alger American Fund Participation
Agreement (incorporated herein by reference to
Registrant's post-effective amendment number 4
filed with the Securities and Exchange
Commission on May 1, 2000)
Exhibit "9" - An opinion of counsel and consent to its use as to the
legality of the securities being registered, indicating
whether they will be legally issued and will represent
binding obligations of the depositor
Exhibit "10a" - Consent of independent accountants for KPMG LLP
Exhibit "10b" - Consent of independent accountants for Arthur Andersen
LLP
Exhibit "11" - Not applicable
Exhibit "12" - Not applicable
Exhibit "13" - Not Applicable
Exhibit "14" - Control chart of Depositor
Item 25. Directors and Officers of the Depositor.
Directors
Name Business Address
G. Richard Ferdinandtsen American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Irwin M. Herz, Jr. Greer, Herz & Adams, L.L.P.
One Moody Plaza, 18th Floor
Galveston, Texas 77550
R. Eugene Lucas Gal-Tex Hotel Corporation
2302 Postoffice, Suite 504
Galveston, Texas 77550
E. Douglas McLeod The Moody Foundation
2302 Postoffice, Suite 704
Galveston, Texas 77550
Frances Anne Moody 7031 Inwood
Dallas, Texas 75209
Robert L. Moody 2302 Postoffice, Suite 702
Galveston, Texas 77550
Russell S. Moody 6016 Mount Bonnell Hollow
Austin, Texas 78731
W.L. Moody, IV 2302 Postoffice, Suite 502
Galveston, Texas 77550
Joe Max Taylor Galveston County Sheriff's Department
715 19th Street
Galveston, Texas 77550
Officers
The principal business address of the officers, unless indicated otherwise
in the "Directors" section, or unless indicated by an asterisk (*), is American
National Insurance Company, One Moody Plaza, Galveston, Texas 77550. Those
officers with an asterisk by their names have a principal business address of
2450 South Shore Boulevard, League City, Texas 77573.
Name Office
R.L. Moody Chairman of the Board and Chief Executive Officer
G.R. Ferdinandtsen President and Chief Operating Officer
D.A. Behrens Executive Vice President, Independent Marketing
R.A. Fruend Executive Vice President, Director of Multi Line Special
Markets
B.J. Garrison Executive Vice President, Director of Home Service Division
M.W. McCroskey * Executive Vice President, Investments
G.V. Ostergren Executive Vice President, Director of Multiple Line
J.E. Pozzi Executive Vice President, Corporate Planning
R.J. Welch Executive Vice President and Chief Actuary
C.H. Addison Senior Vice President, Systems Planning and Computing
A.L. Amato, Jr. Senior Vice President, Life Policy Administration
G.C. Langley Senior Vice President, Human Resources
S.E. Pavlicek Senior Vice President and Controller
S.H. Schouweiler Senior Vice President, Health Insurance Operations
J.R. Thomason Senior Vice President, Credit Insurance Services
G.W. Tolman Senior Vice President, Corporate Affairs
V.E. Soler, Jr. Vice President, Secretary & Treasurer
J.J. Antkowiak Vice President, Director of Computing Services
D.M. Azur Vice President, Claims
P. Barber Vice President, Human Resources
S.F. Brast * Vice President, Real Estate Investments
D. D. Brichler * Vice President, Mortgage Loan Production
F.V. Broll, Jr. Vice President & Actuary
W.F. Carlton Vice President & Assistant Controller, Financial Reports
K.M. Collier Vice President, Alternative Distribution
R.T. Crawford Vice President & Assistant Controller, General Accounting
G.C. Crume Vice President, Independent Marketing
D.A. Culp Vice President, Independent Marketing
G.D. Dixon * Vice President, Stocks
S.L. Dobbe Vice President, Independent Marketing
D.S. Fuentes Vice President, Health Claims
F.J. Gerren Vice President, Independent Marketing
J.F. Grant, Jr. Vice President, Group Actuary
R.D. Hemme Vice President and Actuary
M.E. Hogan Vice President, Credit Insurance Operations
D.M. Jensen Vice President, Multiple Line Marketing
C.J. Jones Vice President, Health Administration
D.D. Judy Vice President, Financial Marketing
Dr. H.B. Kelso, Jr. Vice President & Medical Director
G.W. Kirkham Vice President, Director of Planning and Support
George A. Macke Vice President, General Auditor
G.W. Marchand Vice President, Life Underwriting
D.N. McDaniel Vice President, Home Service Administration
J.W. Pangburn Vice President, Credit Insurance/Special Markets
E.B. Pavelka Vice President, Life Premium Accounting & Policy Service
R.A. Price Vice President, Director of Training and Market Development
J.T. Smith Vice President, 401(K) Pension Sales
G.A. Sparks, Sr. Vice President, Director of Field Services
W.H. Watson III Vice President, Health Actuary
G.W. Williamson Vice President, Assistant Director, Home Service Division
J.L. Broadhurst Asst. Vice President, Director Individual Health/Group
Systems
J.J. Cantu Asst. Vice President and Illustration Actuary
J.D. Ferguson Asst. Vice President, Creative Services
J.M. Flippin Asst. Vice President; Director, Life Marketing
D.N. Fullilove Asst. Vice President, Director, Agents Employment
K.E. Johnston Asst. Vice President, Asst. Director of Financial Marketing
K.J. Juneau Asst. Vice President, Director, Advisory Systems Engineer
P.E. Kennedy Asst. Vice President, Human Resources
C.A. Kratz Asst. Vice President, Human Resources
C.H. Lee Asst. Vice President and Actuary
D.L. Leining Asst. Vice President, Life Underwriting
R.G. McCrary Asst. Vice President, Application Development Division
M. Mitchell Asst. Vice President, Director Insurance Systems
M.S. Nimmons Asst. Vice President; Associate General Auditor, Home Office
R.J. Ostermayer Asst. Vice President, Director of Group Quality Assurance
M.C. Paetz Asst. Vice President, Director of Group Underwriting
R.E. Pittman, Jr. Asst. Vice President, Director of Marketing/Career
Development
G.A. Schillaci Asst. Vice President & Actuary
M.J. Soler Asst. Vice President, Health Marketing Administration
J.P. Stelling Asst. Vice President, Health Compliance
C.E. Tipton Asst. Vice President & Assistant Actuary
D.G. Trevino Asst. Vice President, Director, Computing Services
J.A. Tyra Asst. Vice President, Life Insurance Systems
M.L. Waugh, Jr. Asst. Vice President, Claims
R.M. Williams Life Product Actuary
J.E. Cernosek Asst. Secretary
V.J. Krc Asst. Treasurer
Item 26. Persons Controlled by or Under Common Control with Depositor of
Registrant.
Exhibit "14" - control chart of depositor
Item 27. Number of Contractowners.
As of December 31, 2000, the Registrant had 1,368 Contractowners of the
Flexible Purchase Payment Deferred Annuity Contracts.
Item 28. Indemnification.
The following provision is in the Distribution and Administrative Services
Agreement:
"American National agrees to indemnify SM&R for any liability that
SM&R may incur to a Contractowner or party-in-interest under a
Contract (i) arising out of any act or omission in the course of, or
in connection with, rendering services under this Agreement, or (ii)
arising out of the purchase, retention or surrender of a Contract;
provided, however, that American National will not indemnify SM&R for
any such liability that results from the willful misfeasance, bad
faith or gross negligence of SM&R, or from the reckless disregard, by
SM&R, of its duties and obligations arising under this Agreement."
The officers and directors of American National are indemnified by American
National in the American National By-Laws for liability incurred by reason of
the officer and directors serving in such capacity. This indemnification would
cover liability arising out of the variable annuity sales of American National
Insofar as indemnification for liability arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefor, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question of whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
Item 29. Principal Underwriters.
(a) SM&R Equity Funds consisting of SM&R Growth Fund, Inc., SM&R Equity
Income Fund, Inc. and SM&R Balanced Fund, Inc.; SM&R Investments, Inc.
consisting of SM&R Government Bond Fund, SM&R Tax Free Fund, SM&R Primary Fund
and SM&R Money Market Fund; American National Investment Accounts, Inc.
(b) The Registrant's principal underwriter is Securities Management and
Research, Inc. The following are the officers and directors of Securities
Management and Research, Inc.
Principal Business
Name Position Address
---- ------------------ -------
Gordon D. Dixon Director, Securities Management
Senior Vice and Research, Inc.
President 2450 South Shore Boulevard
and Chief League City, Texas 77573
Investment
Officer
G. Richard Ferdinandtsen Director American National
Insurance Company
One Moody Plaza
Galveston, Texas 77550
Robert A. Fruend, C.L.U. Director American National
Insurance Company
One Moody Plaza
Galveston, Texas 77550
R. Eugene Lucas Director Gal-Tenn Hotel Corporation
504 Moody National Bank
Tower
Galveston, Texas 77550
Michael W. McCroskey Director, Securities Management
President and Research, Inc.
and Chief 2450 South Shore Boulevard
Executive League City, Texas 77573
Officer
Ronald J. Welch Director American National
Insurance Company
One Moody Plaza
Galveston, Texas 77550
K. David Wheeler Senior Vice President Securities Management and
Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Teresa E. Axelson Vice President and Securities Management and
Secretary Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Brenda T. Koelemay Vice President, Securities Management and
Chief Administrative Research, Inc.
Officer and Chief 2450 South Shore Boulevard
Financial Officer League City, Texas 77573
Emerson V. Unger Vice President Securities Management and
Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Vicki R. Douglas Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Steven Douglas Geib Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
T. Brett Harrington Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Sally F. Praker Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
Michele S. Lord Assistant Vice Securities Management and
President Research, Inc.
2450 South Shore Boulevard
League City, Texas 77573
(c) Not Applicable
Item 30. Location of Accounts and Records.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained at the offices of American National Insurance
Company, One Moody Plaza, Galveston, Texas 77550.
Item 31. Management Services.
Not Applicable
Item 32. Undertakings.
(a) Registrant undertakes to file a post-effective amendment to this
registration statement as frequently as is necessary to ensure that the audited
financial statements in the registration statement are never more than 16 months
old for so long as payments under the variable annuity contracts may be
accepted.
(b) Registrant undertakes to include as part of any application to purchase
a contract offered by the prospectus, a space that an applicant can check to
request a Statement of Additional Information.
(c) Registrant undertakes to deliver any Statement of Additional
Information and any financial statements required to be made available under
this Form promptly upon written or oral request.
(d) The Registrant hereby represents that it is relying upon a No Action
Letter issued to the American Council of Life Insurance dated November 28, 1988
(Commission ref. IP-6-88) and that the following provisions have been complied
with:
(i) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b) (11) in each
registration statement, including the prospectus, used in
connection with the offer of the contract;
(ii) Include appropriate disclosure regarding the redemption
restrictions imposed by Section 403 (b) (11) in any sales
literature used in connection with the offer of the
contract;
(iii) Instruct sales representatives who solicit participants to
purchase the contract specifically to bring the redemption
restrictions imposed by Section 403(b) (11) to the attention
of the potential participants;
(iv) Obtain from each plan participant who purchases a Section
403 (b) annuity contract, prior to or at the time of such
purchase, a signed statement acknowledging the participant's
understanding of (1) the restrictions on redemption imposed
by Section 403 (b) (11), and (2) other investment
alternatives available under the employer's Section 403 (b)
arrangement to which the participant may elect to transfer
his contract value.
(e) Representation pursuant to Section 26(e)(2)(A). American National
Insurance Company hereby represents that the fees and charges deducted under the
contracts described in this pre-effective amendment are, in the aggregate,
reasonable in relationship to the services rendered, the expenses expected to be
incurred, and the risks assumed by American National Insurance Company.
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant certifies that it meets all of the requirements of
Securities Act Rule 485(b) for effectiveness of this Post-Effective Amendment
and has caused this amended Registration Statement to be signed on its behalf,
in the City of Galveston, and the State of Texas on the 26th day of April, 2001.
AMERICAN NATIONAL VARIABLE ANNUITY
SEPARATE ACCOUNT (Registrant)
By: AMERICAN NATIONAL INSURANCE COMPANY
By: /s/ Robert L. Moody
--------------------------
Robert L. Moody, Chairman of the
Board and Chief Executive Officer
AMERICAN NATIONAL INSURANCE COMPANY
(Sponsor)
By: /s/ Robert L. Moody
-------------------------
Robert L. Moody, Chairman of the
Board and Chief Executive Officer
ATTEST:
/s/ Vincent E. Soler, Jr.
---------------------------------------
Vincent E. Soler, Jr.,
Vice President, Secretary and Treasurer
As required by the Securities Act of 1933, this amended Registration Statement
has been signed by the following persons in their capacities and on the dates
indicated:
Signature Title Date
--------- ----- ----
/s/ Michael W. McCroskey Executive Vice President - April 26, 2001
-------------------------- Investments
Michael W. McCroskey (Principal Financial Officer)
/s/ Stephen E. Pavlicek Senior Vice President and April 26, 2001
-------------------------- Controller
Stephen E. Pavlicek (Principal Accounting Officer)
Signature Title Date
--------- ----- ----
/s/ Robert L. Moody Chairman of the Board, April 26, 2001
----------------------------- Director, and Chief
Robert L. Moody Executive Officer
/s/ G. Richard Ferdinandtsen Director, President April 26, 2001
----------------------------- and Chief Operating
G. Richard Ferdinandtsen Officer
/s/ Irwin M. Herz, Jr. Director April 26, 2001
-----------------------------
Irwin M. Herz, Jr.
/s/ R. Eugene Lucas Director April 26, 2001
-----------------------------
R. Eugene Lucas
/s/ E. Douglas McLeod Director April 26, 2001
-----------------------------
E. Douglas McLeod
----------------------------- Director
Frances Anne Moody
----------------------------- Director
Russell S. Moody
----------------------------- Director
W. L. Moody IV
----------------------------- Director
Joe Max Taylor
Dates Referenced Herein and Documents Incorporated by Reference
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