<PAGE>
[LOGO]
P R O S P E C T U S
AMERICAN NATIONAL FUNDS GROUP
APRIL 30, 1997
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
TELEPHONE NUMBER: (409) 763-8272 - TOLL FREE:
1 (800) 231-4639
OFFICERS
Michael W. McCroskey, President and CEO
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
<TABLE>
<S> <C>
INVESTMENT ADVISOR AND MANAGER LEGAL COUNSEL
Securities Management and Research, Inc. Greer, Herz & Adams, L.L.P.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT INDEPENDENT AUDITORS
Securities Management and Research, Inc. KPMG Peat Marwick LLP
One Moody Plaza 700 Louisiana
Galveston, Texas 77550 Houston, Texas 77002
CUSTODIAN TRANSER AGENT, REGISTRAR AND
Securities Management and Research, Inc. DIVIDEND PAYING AGENT
One Moody Plaza Securities Management and Research, Inc.
Galveston, Texas 77550 One Moody Plaza
Galveston, Texas 77550
</TABLE>
This Prospectus concisely sets forth the information a prospective investor
should know about the American National Growth Fund, Inc. ("Growth Fund"), a
long-term growth fund; American National Income Fund, Inc. ("Income Fund"), an
income fund with appreciation secondary and the Triflex Fund, Inc. ("Triflex
Fund") a balanced fund seeking conservation of principal, current income and
long-term capital appreciation, (together "the Funds" or the "American National
Funds Group") before investing. Please read and retain this Prospectus for
future reference. A Statement of Additional Information for each Fund dated
April 30, 1997, has been filed with the Securities and Exchange Commission and
is available free of charge by writing Securities Management and Research, Inc.
("SM&R") at One Moody Plaza, Galveston, Texas 77550 or calling 1-800-231-4639.
The Statements of Additional Information are incorporated herein by reference in
accordance with the Commission's rules.
While the use of this combined Prospectus subjects each Fund to possible
liability as the result of statements or omissions regarding another Fund, the
Board of Directors of each Fund considers the benefits to the respective Fund of
using a combined Prospectus to outweigh the risk.
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or each Fund's Statement of Additional Information referred
to above) and if given or made, such information or representations must not be
relied upon as having been authorized by the Funds or SM&R, the Fund's
investment adviser, manager and principal underwriter. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
SHAREHOLDER INQUIRIES
Shareholder inquiries should be directed to your registered representative,
or to the Funds at the telephone numbers or mailing address listed above.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY ANY BANK. FURTHER, SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY
OTHER AGENCY. SHARES OF THE FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE
POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION,
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Form 9090(4/97)
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
SHAREHOLDER INQUIRIES........................... 1
THE FUNDS AT A GLANCE........................... 3
TABLE OF FEES AND EXPENSES...................... 4
FINANCIAL HIGHLIGHTS............................ 5
PERFORMANCE..................................... 8
PERFORMANCE ILLUSTRATIONS....................... 10
INVESTMENT OBJECTIVES AND POLICIES.............. 21
THE FUNDS AND THEIR MANAGEMENT.................. 24
<CAPTION>
PAGE
-----------
<S> <C>
HOW TO PURCHASE SHARES.......................... 27
WHEN ARE PURCHASES EFFECTIVE?................... 27
DETERMINATION OF OFFERING PRICE................. 28
SPECIAL PURCHASE PLANS.......................... 29
RETIREMENT PLANS................................ 32
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES...... 32
HOW TO REDEEM................................... 33
APPENDIX........................................ 36
</TABLE>
2
<PAGE>
THE FUNDS AT A GLANCE
The Funds were originally incorporated as follows: Growth Fund, State of
Florida, May 5, 1953; Income Fund, State of Texas, May 1, 1970 and the Triflex
Fund, State of Texas, November 20, 1987. The Funds were subsequently
reincorporated in the State of Maryland on November 30, 1989. They are
diversified, open-end management investment companies (mutual funds) which
continuously sell and redeem their shares of common stock at the current per
share offering price.
MINIMUM PURCHASE:--$100 minimum initial investment and $20 minimum for each
subsequent investment as described under "Special Purchase Plans".
INVESTMENT OBJECTIVES AND INVESTOR SUITABILITY PROFILE:
AMERICAN NATIONAL GROWTH FUND, INC. ("GROWTH FUND")
OBJECTIVE:--The Growth Fund seeks long-term capital growth by investing its
assets in securities that provide an opportunity for capital appreciation.
INVESTOR SUITABILITY PROFILE:--The Growth Fund is designed for investors with
modest means who want to invest money over time to build capital to meet
long-range goals. Examples of long-range goals include giving children the
finest education possible, retiring in comfort, or building an estate.
AMERICAN NATIONAL INCOME FUND, INC. ("INCOME FUND")
OBJECTIVE:--The Income Fund seeks current income with a secondary objective of
long-term capital appreciation.
INVESTOR SUITABILITY PROFILE:--The Income Fund is designed for investors seeking
to protect the purchasing power of their money while retaining the potential for
attractive growth and reducing their exposure to the volatility of the market.
TRIFLEX FUND, INC. ("TRIFLEX FUND")
OBJECTIVE:--The Triflex Fund seeks to conserve principal, produce current income
and achieve long-term capital appreciation.
INVESTOR SUITABILITY PROFILE:--The Triflex Fund is designed for retirees, widows
or anyone seeking supplemental income and conservation of the purchasing power
of their capital.
MANAGEMENT:--Securities Management and Research, Inc. ("SM&R") makes the
investment choices for the Funds. SM&R has served as investment adviser, manager
and distributor of mutual funds since 1966. Refer to "THE FUNDS AND THEIR
MANAGEMENT" for additional information.
PORTFOLIO MANAGEMENT PERSONAL INVESTING:--The Funds' Boards of Directors have
approved a Code of Ethics which prescribes policies governing the personal
investment practices of its portfolio management. These policies are stated in
each of the Fund's Statement of Additional Information.
REDEMPTIONS:--Procedures may be found under "HOW TO REDEEM".
DERIVATIVE INVESTMENTS:--The Funds do not invest in interest only (IO) or
principal only (PO) securities. The Triflex Fund may invest in collateralized
mortgage obligations (CMO) from time to time. An explanation of CMO's can be
found in the Triflex Fund's Statement of Additional Information.
RISKS:--Each Fund can be expected to have different investment results based on
its investment objective and different financial and market risks. Financial
risk refers to the ability of an issuer of a debt security to pay principal and
interest, and to the earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the degree to which the
price of a security will react to changes in conditions in securities market in
general, and with particular reference to debt securities, to changes in the
overall level of interest rates. As a result of these and other risks, the value
of the shares owned may be higher or lower than their cost.
PORTFOLIO TURNOVER RATES:--Each Fund's portfolio turnover rates for the last ten
years are included in the Financial Highlights tables herein. A security will be
sold, and the proceeds reinvested, whenever it is considered prudent to do so
from the viewpoint of a Fund's objectives, regardless of the holding period of
the security. A higher rate of portfolio turnover may result in higher
transaction costs. Additionally, higher portfolio turnover may, in some cases,
have adverse tax effects on the Funds and their shareholders. Portfolio
turnovers are expected to be less than 90% per year for each of the Funds. An
explanation of turnover rate calculations and brokerage fees can be found in
each Fund's Statement of Additional Information.
3
<PAGE>
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
The purpose of the following table is to assist the investor in understanding
the various costs and expenses that an investor in the Funds will bear directly
or indirectly. See "HOW TO PURCHASE SHARES" in this Prospectus. The example is
included to provide a means for the investor to compare expense levels of funds
with different fee structures over varying investment periods.
SHAREHOLDER TRANSACTION EXPENSES(1)
<TABLE>
<CAPTION>
Growth Income Triflex
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 5.75% 5.75% 5.75%
Maximum Sales Load Imposed on Reinvested Dividends
(as a percentage of offering price) None None None
Deferred Sales Load None None None
Redemption Fees(1) None None None
Exchange Fees None None None
ANNUAL OPERATING EXPENSES
(as a Percentage of average net assets)
<CAPTION>
Growth Income Triflex
<S> <C> <C> <C>
Investment Advisory Fee After Expense Reimbursement .77% .71% .62%
Service Fee .24% .23% .25%
Other Expenses .14% .16% .34%
Total Operating Expenses After Expense Reimbursement 1.15% 1.10% 1.21%(2)
</TABLE>
The table shows actual expenses paid by shareholders. (See "THE FUNDS AND THEIR
MANAGEMENT" in this Prospectus for more information).
(1) An $8.00 transaction fee is charged for each expedited wire redemption.
(2) Without the reimbursement, the percentages shown for the Triflex Fund's
Investment Advisory Fees and Total Operating Expenses would have been .75%
and 1.34%, respectively.
Investors should be aware that this table is not intended to reflect in detail
the fees and expenses associated with an individual shareholder's own investment
in any of the Funds listed. It is being provided to assist investors in gaining
a more complete understanding of fees, charges and expenses which are discussed
in greater detail in the appropriate sections of this Prospectus.
EXAMPLE OF EXPENSES
The following example illustrates the expenses an investor would pay on a
$1,000 investment in each Fund listed over various time periods assuming (i) 5%
annual return and (ii) redemption at the end of each period. Because the Funds
have no redemption fee, you would pay the same expenses whether or not you
redeemed your investment at the end of each period. An investor should not view
this example as a representation of past or future expenses and actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Growth $ 69 $ 92 $ 117 $ 189
Income 68 90 115 184
Triflex 69 94 120 196
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
AMERICAN NATIONAL GROWTH FUND, INC.
The table that follows, for the periods after October 31, 1988, has been
audited by KPMG Peat Marwick LLP, independent auditors, whose unqualified report
on the Financial Statements appears in the Statement of Additional Information.
This information should be read in conjunction with the related financial
statements and notes included in the Statement of Additional Information. The
information for years prior to October 31, 1989, has been audited by the Funds
former independent Auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 4.39 $ 3.83 $ 4.15 $ 4.51 $ 5.07 $ 3.95 $ 4.25
Investment income--net 0.05 0.08 0.06 0.06 0.08 0.08 0.10
Net realized and unrealized gain (loss)
on investments during the period 0.73 0.88 0.15 0.31 (0.20) 1.38 (0.22)
-------- -------- -------- -------- -------- ---------- ---------
TOTAL FROM INVESTMENT OPERATIONS 0.78 0.96 0.21 0.37 (0.12) 1.46 (0.12)
Less distributions
Distributions from investment
income--net (0.05) (0.08) (0.06) (0.06) (0.08) (0.06) (0.09)
Distributions from capital gains (0.17) (0.32) (0.47) (0.67) (0.36) (0.28) (0.09)
-------- -------- -------- -------- -------- ---------- ---------
TOTAL DISTRIBUTIONS (0.22) (0.40) (0.53) (0.73) (0.44) (0.34) (0.18)
-------- -------- -------- -------- -------- ---------- ---------
Net Asset Value,
End of Period $ 4.95 $ 4.39 $ 3.83 $ 4.15 $ 4.51 $ 5.07 $ 3.95
-------- -------- -------- -------- -------- ---------- ---------
-------- -------- -------- -------- -------- ---------- ---------
TOTAL RETURN 17.64% 25.20% 4.98% 8.17% (2.50)% 36.98% (2.94)%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $152,758 $134,821 $113,250 $113,135 $111,811 $125,837 $97,298
Ratio of expenses to average net assets 1.15 0.98 0.97 1.00 1.07 1.04 1.03
Ratio of net investment income to average
net assets 1.02 1.67 1.46 1.31 1.42 1.63 2.41
Portfolio turnover rate 18.72 37.00 46.26 59.67 92.28 55.95 152.13
Average commission rate paid 7.00
<CAPTION>
Two Months
Ended Dec.
31, Year Ended October 31,
----------- -------------------------------
1989 1989 1988 1987
----------- --------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 4.85 $ 4.48 $ 5.14 $ 5.05
Investment income--net 0.03 0.13 0.09 0.06
Net realized and unrealized gain (loss)
on investments during the period 0.17 0.67 0.13 0.53
----------- --------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.20 0.80 0.22 0.59
Less distributions
Distributions from investment
income--net (0.07) (0.12) (0.10) (0.06)
Distributions from capital gains (0.73) (0.31) (0.78) (0.44)
----------- --------- -------- --------
TOTAL DISTRIBUTIONS (0.80) (0.43) (0.88) (0.50)
----------- --------- -------- --------
Net Asset Value,
End of Period $ 4.25 $ 4.85 $ 4.48 $ 5.14
----------- --------- -------- --------
----------- --------- -------- --------
TOTAL RETURN 4.07%** 19.90% 5.88% 12.57%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $108,058 $104,897 $97,302 $99,413
Ratio of expenses to average net assets 1.06* 1.09 1.23 1.00
Ratio of net investment income to average
net assets 3.24* 2.93 2.07 1.14
Portfolio turnover rate 13.74 70.94 46.79 44.95
Average commission rate paid
</TABLE>
*Ratios annualized
**Returns are not annualized
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
AMERICAN NATIONAL INCOME FUND, INC.
The table that follows, for the periods after July 31, 1988, has been audited
by KPMG Peat Marwick LLP, independent auditors, whose unqualified report on the
Financial Statements appears in the Statement of Additional Information. This
information should be read in conjunction with the related financial statements
and notes included in the Statement of Additional Information. The information
that follows for years prior to July 31, 1989, has been audited by the Funds
former independent Auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
-------- -------- -------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 22.59 $ 18.90 $ 21.66 $ 22.09 $ 22.94 $ 19.35 $ 20.11
Investment income--net 0.58 0.62 0.62 0.56 0.57 0.69 0.79
Net realized and unrealized gain (loss)
on investments during the period 3.10 4.82 (0.75) 1.75 0.17 4.85 (0.67)
-------- -------- -------- --------- --------- --------- --------
TOTAL FROM INVESTMENT OPERATIONS 3.68 5.44 (0.13) 2.31 0.74 5.54 0.12
Less distributions
Distributions from investment
income--net (0.58) (0.63) (0.61) (0.60) (0.53) (0.64) (0.81)
Distributions from capital gains (0.64) (1.12) (2.02) (2.14) (1.06) (1.31) (0.07)
-------- -------- -------- --------- --------- --------- --------
TOTAL DISTRIBUTIONS (1.22) (1.75) (2.63) (2.74) (1.59) (1.95) (0.88)
-------- -------- -------- --------- --------- --------- --------
Net Asset Value,
End of period $ 25.05 $ 22.59 $ 18.90 $ 21.66 $ 22.09 $ 22.94 $ 19.35
-------- -------- -------- --------- --------- --------- --------
-------- -------- -------- --------- --------- --------- --------
TOTAL RETURN 16.46% 29.12% (0.61)% 10.63% 3.31% 29.06% 0.75%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $165,786 $141,058 $114,231 $119,956 $108,076 $99,192 $74,329
Ratio of expenses to average net assets 1.10 1.12 1.12 1.17 1.18 1.23 1.22
Ratio of net investment income to average
net assets 2.42 2.89 2.86 2.51 2.56 3.25 4.14
Portfolio turnover rate 27.07 44.00 52.46 70.71 44.03 40.23 37.51
Average commission rate paid 7.00
<CAPTION>
Five
Months
Ended Dec.
31, Year Ended July 31,
----------- -----------------------------------
1989 1989 1988 1987
----------- --------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 20.75 $ 19.80 $ 23.77 $ 21.52
Investment income--net 0.38 0.74 0.70 0.63
Net realized and unrealized gain (loss)
on investments during the period 1.06 3.09 (3.31) 4.33
----------- --------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.44 3.83 (2.61) 4.96
Less distributions
Distributions from investment
income--net (0.44) (0.74) (0.83) (0.68)
Distributions from capital gains (1.64) (2.14) (0.53) (2.03)
----------- --------- -------- --------
TOTAL DISTRIBUTIONS (2.08) (2.88) (1.36) (2.71)
----------- --------- -------- --------
Net Asset Value,
End of period $ 20.11 $ 20.75 $ 19.80 $ 23.77
----------- --------- -------- --------
----------- --------- -------- --------
TOTAL RETURN 6.99%** 32.31% (11.20)% 25.71%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $69,579 $67,765 $65,789 $85,817
Ratio of expenses to average net assets 1.17* 1.18 1.10 1.00
Ratio of net investment income to average
net assets 3.92* 3.82 3.46 3.00
Portfolio turnover rate 14.62 31.02 56.63 24.71
Average commission rate paid
</TABLE>
* Ratios annualized
** Returns are not annualized
6
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
TRIFLEX FUND, INC.
The table that follows, for the periods after July 31, 1988, has been audited
by KPMG Peat Marwick, LLP, independent auditors, whose unqualified report on the
Financial Statements appears in the Statement of Additional Information. This
information should be read in conjunction with the related financial statements
and notes included in this Statement of Additional Information. The information
that follows for years prior to July 31, 1989, has been audited by the Funds
former independent Auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 1991 1990
--------- --------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 16.85 $ 14.32 $ 15.35 $ 15.81 $ 16.20 $ 13.98 $ 14.62
Investment income--net 0.49 0.49 0.45 0.41 0.46 0.61 0.80
Net realized and unrealized gain (loss)
on investments during the period 1.48 2.67 (0.22) 0.58 0.01 2.79 (0.66)
--------- --------- --------- --------- --------- --------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.97 3.16 0.23 0.99 0.47 3.40 0.14
Less distributions
Distributions from investment
income--net (0.49) (0.49) (0.45) (0.41) (0.35) (0.62) (0.70)
Distributions from capital gains (0.43) (0.14) (0.81) (1.04) (0.51) (0.56) (0.08)
--------- --------- --------- --------- --------- --------- --------
TOTAL DISTRIBUTIONS (0.92) (0.63) (1.26) (1.45) (0.86) (1.18) (0.78)
--------- --------- --------- --------- --------- --------- --------
Net Asset Value,
End of Period $ 17.90 $ 16.85 $ 14.32 $ 15.35 $ 15.81 $ 16.20 $ 13.98
--------- --------- --------- --------- --------- --------- --------
--------- --------- --------- --------- --------- --------- --------
TOTAL RETURN 11.86% 22.29% 1.49% 6.31% 3.00% 24.53% 1.37%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $23,188 $21,757 $19,023 $20,469 $21,482 $21,916 $19,328
Ratio of expenses to average net assets 1.21(1) 1.26(1) 1.25(1) 1.32(1) 1.15(1) 1.28(1) 1.31
Ratio of net investment income to average
net assets 2.83 2.99 2.91 2.49 2.96 3.95 5.57
Portfolio turnover rate 23.78 16.39 46.95 70.98 61.66 104.21 184.54
Average Commission Rate Paid 7.00 -- -- -- -- -- --
<CAPTION>
Five Months
Ended Dec.
31, Year Ended July 31,
------------ -----------------------------------
1989 1989 1988 1987
------------ --------- -------- --------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 15.90 $ 14.90 $ 14.59 $ 15.30
Investment income--net 0.37 0.89 0.88 1.18
Net realized and unrealized gain (loss)
on investments during the period (0.33) 1.34 0.54 (0.67)
------------ --------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.04 2.23 1.42 0.51
Less distributions
Distributions from investment
income--net (0.39) (0.90) (1.11) (1.22)
Distributions from capital gains (0.93) (0.33) 0.00 0.00
------------ --------- -------- --------
TOTAL DISTRIBUTIONS (1.32) (1.23) (1.11) (1.22)
------------ --------- -------- --------
Net Asset Value,
End of Period $ 14.62 $ 15.90 $ 14.90 $ 14.59
------------ --------- -------- --------
------------ --------- -------- --------
TOTAL RETURN 0.32%** 15.94% 10.18% 3.48%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $21,382 $21,002 $19,687 $10,396
Ratio of expenses to average net assets 1.31* 1.28 1.00 0.96
Ratio of net investment income to average
net assets 5.75* 5.99 6.01 7.84
Portfolio turnover rate 116.16 36.93 130.95 27.02
Average Commission Rate Paid -- -- -- --
</TABLE>
The shaded area on the chart represents data for fiscal years prior to the
change in investment objectives of the Fund.
(1) Expenses for these calculations are net of a reimbursement from Securities
Management and Research, Inc. Without these reimbursements, the ratio of
expenses to average net assets would have been 1.34%, 1.46%, 1.45%, 1.39% and
1.32% for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively.
* Ratios annualized
**Returns are not annualized
7
<PAGE>
PERFORMANCE
Each Fund may include in advertisements, sales literature, shareholder reports
or other communications, total rate of return quotations and the Funds rankings
in the relevant fund category from sources such as the Lipper Analytical
Services, Inc. ("Lipper") and Weisenberger Investment Company Service
("Weisenberger"). If any advertised performance data does not reflect the
maximum sales charge, such advertisements will disclose that the sales charge
has not been deducted in computing the performance data, and that, if reflected,
the maximum sales charge would reduce the performance quoted. Additional
performance information is shown on the following pages.
The Funds may also include data comparing their performance with the
performance of non-related investment media, published editorial comments,
publications that monitor the performance of other mutual funds or mutual fund
indexes with similar objectives and policies. (See "COMPARISONS" in each of the
Funds Statement of Additional Information for a list of various media used).
Performance information may be quoted numerically or may be presented in table,
graph or other illustration.
The total return data represents past performance, which may vary for
different periods. Actual total return and principal value of an investment will
fluctuate so that investor's shares, when redeemed, may be worth more or less
than their cost. Returns include the effects of the Growth, Income and Triflex
Fund's maximum sales charge of 5.75% applied to the initial investment amount,
the change in the share price and the reinvestment at net asset value of all
dividends and capital gains (both of which are subject to applicable federal,
state and local income taxes).
AVERAGE ANNUAL RETURN
Each Fund's average annual return during specified time periods reflects the
hypothetical annually compounded return that would equate an initial one
thousand dollar investment by adding one to the computed average annual total
return, raising the sums to a power equal to the number of years covered by the
computation and multiplying the result by the one thousand dollar initial
investment. The calculation assumes deduction of the maximum sales charge from
the initial amount invested and reinvestment of all investment income dividends
and capital gain distributions on the reinvestment dates at the net asset value.
Because average annual returns tend to smooth out variations in each Fund's
return, you should recognize that they are not the same as actual year-by-year
results.
Average Annual Total Return
For the Period Ending 12/31/96
<TABLE>
<CAPTION>
20-year 10-year 5-year 1-year
<S> <C> <C> <C> <C>
Growth Fund 14.11% 11.72% 8.97% 10.83%
Income Fund 13.88% 11.84% 9.99% 9.76%
Triflex Fund -- -- 7.46% 5.42%
</TABLE>
Each Fund's performance will vary from time to time and past results are not
necessarily indicative of future results. Performance is a function of a fund's
portfolio management in selecting the type and quality of portfolio securities
and is affected by operating expenses of a Fund, market conditions and interest
rates.
CUMULATIVE TOTAL RETURN
The charts that follow describe the total return results of a hypothetical
$10,000 investment in each Fund for the 10-year period from January 1, 1987
through December 31, 1996 with a maximum sales charge of 5.75%.
8
<PAGE>
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9
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
For the second consecutive year, the 1996 U.S. stock market showered equity
investors with strong absolute and relative returns. Operating with a nearly
ideal backdrop of slow, steady economic growth and continuing benign inflation,
stocks simply continued to be what the textbooks say they should be and have
always been, which is the best asset class in which to create real financial
wealth over time. The American National Growth Fund returned 17.64% to those
investors who owned the fund for the complete year of '96.
1996 was also a unique year. As the year began, scores of market pundits were
quite sure the equity markets simply could not continue their path upward, and
advised serious caution in the pursuit of investment return. However, history
has shown over and again that efforts to guess the near term direction of the
market are simply futile. Successful investors earn that title by dedicating
themselves and their long term financial assets to nearly lifelong exposure to
the equity markets. That is the only way to assure oneself of always capturing
elusive bull markets. You simply have to already be in the game. Investment
strategies designed to simply avoid bear markets can be expensive undertakings.
The financial markets spent most of 1996 seemingly playing a game that could
have been entitled, "Find the Inflation." The markets spent 1996 holding their
collective breath every time a substantial inflation indicator or meeting of the
Federal Reserve Board approached its reporting date. As soon as the markets
became convinced that inflation was going to become a concern, door number two
was opened and inflation seemed to be nowhere in sight. As it turned out,
inflation, as measured by the Consumer Price Index, advanced by
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL GROWTH FUND, INC. AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C>
American National Growth Fund, Inc. 10,603 11,239 13,974 13,563 18,578 18,113
S&P 500 10,523 12,292 16,163 15,650 20,431 21,999
Past performance is not predictive of future performance.
AVERAGE ANNUAL RETURN
10 YEAR 11.72%
5 YEAR 8.97%
1 YEAR 10.83%
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
American National Growth Fund, Inc. 19,593 20,568 25,752 30,295
S&P 500 24,196 24,513 33,674 41,351
Past performance is not predictive of future performance.
AVERAGE ANNUAL RETURN
10 YEAR
5 YEAR
1 YEAR
</TABLE>
American National Growth Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value, and considers the effect of the Fund's 5.75% maximum sales
charge. All performance figures are as-of December 31 for the applicable year.
The Fund's fiscal year end was as of July 31 for 1987-1989.
10
<PAGE>
3.3% as food and energy prices moved up sharply. However, underlying price
pressures eased last year for both the Producer and Consumer Price Indexes. In
the past year, the core CPI rose by only 2.6%, down from 3% in 1995, matching
the same level of 1994, which is the lowest since 1965. Regardless of the
outcome, the level of uncertainty surrounding the inflation number caused
interest rates to rise, which led to only a 3.5% total rate of return for the
bellwether 30 year U.S. Treasury Bond.
In great contrast to the anemic returns offered by the bond markets in 1996,
the stock market once again enjoyed a banner year. The technology sector, with a
better than 40% gain in 1996, led the bull market, with the very large tech
companies leading the way. Following technology were the finance and capital
goods sectors, both producing returns of over 29%. Stocks held by the Growth
Fund in the basic materials, consumer cyclical, healthcare and utility sectors
outperformed their respective sectors in the overall market. Growth Fund
positions held in capital goods, consumer staples, finance and technology were
drags on performance, as the overall market sectors bettered our selections.
Peering into 1997, we see the economy growing in the 2.5% to 2.7% range.
Although we see a slight decrease in capital spending in 1997, we believe
consumers will spend about 2.5% more than they did in 1996, thanks to gains in
employment, income and consumer confidence. In general, we still believe that a
good worldwide environment for financial assets exists, despite their recent
gains.
On balance, we are pleased that our shareholders have enjoyed strong absolute
returns over the past three years. We are confident that our disciplined
approach to equity investing--buying undervalued companies undergoing a positive
change in fundamentals--can again outperform the market when valuations return
to more realistic levels.
QUARTERLY COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL GROWTH FUND, INC. AND LIPPER ANALYTICAL AVERAGE GROWTH FUND
(LAST THIRTEEN QUARTERS UNDER CURRENT DISCIPLINES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94
<S> <C> <C> <C> <C> <C> <C>
American National Growth Fund, Inc. 10,000 10,804 10,622 10,636 11,317 11,342
Lipper Analytical Average Growth Fund 10,000 10,226 9,875 9,617 10,136 10,001
Past performance is not predictive of future performance.
<CAPTION>
3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
<S> <C> <C>
American National Growth Fund, Inc. 12,230 12,958 13,644 14,198 14780 15316.51
Lipper Analytical Average Growth Fund 10,739 11,741 12,748 13,049 13760.5 14429.22
Past performance is not predictive of future performance.
<CAPTION>
9/30/96 12/31/96
American National Growth Fund, Inc. 15835.7 16700.3
Lipper Analytical Average Growth Fund 14867.9 15629
Past performance is not predictive of future performance.
</TABLE>
11
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 OF
AMERICAN NATIONAL GROWTH FUND, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C>
Fund 10,603 11,239 13,974 13,563 18,578 18,113
Index 10,426 10,803 13,087 12,436 16,833 16,145
$30,295 Total Return
$25,591 Capital Appreciation Assuming Dividends Taken in Cash
$10,000 Purchase Price
$9,425 Net Amount Invested
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Fund 19,593 20,568 25,752 30,295
Index 17,236 17,837 21,965 25,591
$30,295 Total Return
$25,591 Capital Appreciation Assuming Dividends Taken in Cash
$10,000 Purchase Price
$9,425 Net Amount Invested
</TABLE>
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid and
reinvested during year $ 180 $ 255 $ 346 $ 293 $ 198 $ 286 $ 244 $ 288 $ 405 $ 278
Capital gains distributions reinvested
during year 1,646 788 2,018 292 954 1,311 2,705 2,219 1,746 973
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 10,603 11,239 13,974 13,563 18,578 18,113 19,593 20,568 25,752 30,295
Value of investment at year end assuming
investment income dividends taken in
cash $10,426 $10,803 $13,087 $12,436 $16,833 $16,145 $17,236 $17,837 $21,965 $25,591
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 1.80% 2.40% 3.08% 2.10% 1.46% 1.54% 1.35% 1.47% 1.97% 1.08%
Appreciation 4.23% 3.60% 21.25% -5.04% 35.52% -4.03% 6.82% 3.51% 23.23% 16.56%
----------------------------------------------------------------------------------------
Total Return 6.03% 6.00% 24.33% -2.94% 36.98% -2.49% 8.17% 4.98% 25.20% 17.64%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 12.50%
</TABLE>
All performance figures are as of December 31 for the applicable year. Growth
Fund's fiscal year was as of October 31 for 1987-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$2,773
Capital Gains Paid and Reinvested.......$14,652
Appreciation (Unrealized Capital
Gains)...................................$2,870
Total Value.............................$30,295
</TABLE>
12
<PAGE>
AMERICAN NATIONAL GROWTH FUND
ILLUSTRATION OF MONTHLY INVESTMENT PROGRAM
The table below shows the results of assumed investments of $250 per month in
the American National Growth Fund, with all dividend and capital gains
distributions reinvested. No adjustment has been made for any income tax
liability.
The illustration covers the 10-year period from January 1, 1987 to December
31, 1996. The maximum sales charge of 5.75% was applied to all purchases.
Dividend and capital gains distribution were reinvested at net asset value.
While this period, on the whole, was one of generally rising stock prices, it
also included some interim periods of substantial market decline. The results
shown should not be considered as a representation of the dividend income or
capital gain or loss which may be realized from an investment made in the Fund
today. A program of the type illustrated does not assure a profit or protect
against a loss in declining markets.
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $250 PER MONTH
FOR THE PERIOD 1/1/87 TO 12/31/96
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
CUMULATIVE CUMULATIVE TOTAL COST VALUE OF VALUE OF VALUE OF
YEAR-END CUMULATIVE DIVIDEND CAPITAL OF CUMULATIVE CUMULATIVE CUMULATIVE TOTAL
12/31 INVESTMENT INCOME GAINS INVESTMENT* INVESTMENT DIV. INC. CAP. GN. VALUE
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1987 $ 3,000 $ 31 $ 330 $ 3,362 $ 2,185 $ 30 $ 335 $ 2,550
1988 6,000 140 705 6,845 4,731 135 697 5,563
1989 9,000 365 2,115 11,481 7,477 357 2,131 9,965
1990 12,000 614 2,380 14,994 9,703 571 2,247 12,521
1991 15,000 820 3,418 19,238 15,599 953 3,926 20,478
1992 18,000 1,166 5,058 24,225 16,567 1,194 5,122 22,883
1993 21,000 1,498 8,862 31,361 17,846 1,418 8,499 27,763
1994 24,000 1,934 12,294 38,229 19,029 1,731 11,257 32,018
1995 27,000 2,600 15,211 44,812 24,717 2,656 15,854 43,227
1996 30,000 3,087 16,937 50,025 30,857 3,496 19,599 53,952
</TABLE>
*Includes the amount invested plus the cumulative dollar amount of reinvested
dividend and capital gains distributions.
<TABLE>
<S> <C> <C>
SUMMARY
Total Invested..........................$30,000
Total Cost--including reinvested dividends and
capital gains...........................$50,025
Total Value 12/31/96....................$53,952
</TABLE>
13
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INCOME FUND
Sown in the fertile soil of benign inflation and low interest rates, the stock
market in 1996 once again boldly affirmed its dominance. Thus, the experience of
most stock mutual fund investors was quite positive as well. Shareholders of the
American National Income Fund reaped a bountiful harvest as well, as the fund
returned 16.47% over 1996.
While 1996 may have been the year of the Ox in China, 1996 could very well
have been dubbed the year of the large capitalization growth stock in America.
1996's market action was dominated by large, brand name companies that trade at
very high price to earnings ratios. In fact, rarely have the 100 largest of the
Standard & Poors 500 stocks so far outpaced the smallest stocks in the same
index. Additionally, the Russell 2000, a popular measure of the stock price
performance of smaller companies, only returned about 60% of what large stocks
gained over 1996.
Obviously, a hallmark of the Income Fund is that its assets are managed in a
very conservative way. The companies we purchase, typically, are well
established companies that pay an above market dividend. More specifically, the
goal is to purchase companies at historically reasonable valuation levels after
they have demonstrated evidence of a positive change in fundamentals. In other
words, we hope to identify improving companies before the market does, so that
valuations are favorable.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC. AND S&P 500
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991
<S> <C> <C> <C> <C> <C> <C>
American National Income Fund, Inc. 9425 9,778 10,762 13,788 13,892 17,928
S&P 500 10000 10,523 12,292 16,163 15,650 20,431
Past performance is not predictive of future performance.
AVERAGE ANNUAL RETURN
10 YEAR 11.84%
5 YEAR 9.99%
1 YEAR 9.76%
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
American National Income Fund, Inc. 18,522 20,490 20,365 26,295 30,624
S&P 500 21,999 24,196 24,513 33,674 41,351
Past performance is not predictive of future performance.
AVERAGE ANNUAL RETURN
10 YEAR
5 YEAR
1 YEAR
</TABLE>
American National Income Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value and considers the effect of the Fund's 5.75% maximum sales
charge. All performance figures are as of December 31 for the applicable year.
The Fund's fiscal year end was as of July 31 for 1987-1989.
14
<PAGE>
Recent "momentum" strategies of investing, in which stocks are purchased on
the assumption of tremendous earnings growth rates, and dumped at the hint of
disappointment, have attracted vast sums of money, and have fueled a growth
stock environment which is in contrast to our value based investment
disciplines. In our view, paying nearly any price for earnings growth is akin to
climbing a ladder that is burning beneath you. For a while you are going to go
higher, but the higher you get, the more the foundation beneath you is
weakening. And the higher you climb, the greater the potential for severe damage
when you do fall. Like climbing a burning ladder, holding large quantities of
richly valued growth stocks can be disastrous when the stocks begin falling
short of earnings expectations. The defensive nature of the Income Fund does not
permit this kind of speculation.
Where did the Fund make money during 1996? Our decision to carry an above
market weighting in the finance sector proved to be a good one, as the finance
sector was an astounding performer in the overall market last year, with better
than a 35% return. The Fund's holdings in the basic materials sector, including
such companies as chemical, paper and metal producers, were also a bright spot.
Disappointing was the Fund's underweighting of the capital goods and healthcare
sectors, both strong performers in 1996. Also, because many companies in the
technology sector--which led the market--pay little or no dividends, they simply
do not lend themselves to the Income Fund's investment criteria.
Yearly economic outlooks are beginning to seem somewhat predictable, sort of
like a trusted annual bulb that reveals itself every spring. We are continuing
our view of a slow, steadily growing economy, in the 2.5% to 2.8% range, with
inflation remaining relatively dormant. This does, by and large, represent the
consensus view of the industry. This scenario, it can be argued, combined with
healthy corporate profits, is the rich, black soil in which bull markets thrive.
Thank you for your continued confidence in the American National Income Fund.
We will do our best to reward your trust.
QUARTERLY COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC. AND LIPPER ANALYTICAL AVERAGE EQUITY
INCOME FUND (LAST THIRTEEN QUARTERS UNDER CURRENT DISCIPLINES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
9/30/93 12/31/93 3/31/94 6/30/94 9/30/94 12/31/94
<S> <C> <C> <C> <C> <C> <C>
American National Income Fund, Inc. 10,000 10,402 10,029 10,081 10,433 10,339
Lipper Analytical Average Equity Income Fund 10,000 10,126 9,752 9,764 10,145 9,885
Past performance is not predictive of future performance.
<CAPTION>
3/31/95 6/30/95 9/30/95 12/31/95 3/31/96 6/30/96
<S> <C> <C>
American National Income Fund, Inc. 11,179 11,918 12,785 13,346 14079.8 14382.5
Lipper Analytical Average Equity Income Fund 10,616 11,317 12,137 12,827 13434 13827.7
Past performance is not predictive of future performance.
<CAPTION>
9/30/96 12/31/96
American National Income Fund, Inc. 14631.3 15534
Lipper Analytical Average Equity Income Fund 14207.7 15266.4
Past performance is not predictive of future performance.
</TABLE>
15
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF AMERICAN NATIONAL INCOME FUND, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C>
Fund 9,778 10,762 13,788 13,892 17,928 18,522
Index 9,417 9,989 12,303 11,882 14,897 15,028
$30,624 Total Return
$22,324 Capital Appreciation Assuming Dividends Taken in Cash
$10,000 Purchase Price
$9,425 Net Amount Invested
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Fund 20,490 20,365 26,295 30,624
Index 16,195 15,641 19,627 22,324
$30,624 Total Return
$22,324 Capital Appreciation Assuming Dividends Taken in Cash
$10,000 Purchase Price
$9,425 Net Amount Invested
</TABLE>
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid and
reinvested during year $ 393 $ 389 $ 494 $ 563 $ 464 $ 419 $ 506 $ 580 $ 689 $ 678
Capital gains distributions reinvested
during year 265 1,153 1,030 50 962 842 1,834 1,955 1,228 757
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 9,778 10,762 13,788 13,892 17,928 18,522 20,490 20,365 26,295 30,624
Value of investment at year end assuming
investment income dividends taken in
cash $ 9,417 $ 9,989 $12,303 $11,882 $14,897 $15,028 $16,195 $15,641 $19,627 $22,324
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 3.93% 3.98% 4.59% 4.08% 3.34% 2.34% 2.73% 2.83% 3.38% 2.58%
Appreciation -6.15% 6.09% 23.53% -3.33% 25.72% 0.98% 7.90% -3.44% 25.74% 13.88%
----------------------------------------------------------------------------------------
Total Return -2.22% 10.07% 28.12% 0.75% 29.06% 3.32% 10.63% -0.61% 29.12% 16.46%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 3.77%
</TABLE>
All performance figures are as of December 31 for the applicable year. Income
Fund's fiscal year was as of July 31 for 1987-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,175
Capital Gains Paid and Reinvested.......$10,076
Appreciation (Unrealized Capital
Gains)...................................$5,373
Total Value.............................$30,624
</TABLE>
16
<PAGE>
AMERICAN NATIONAL INCOME FUND--WITHDRAWAL ACCOUNT ILLUSTRATION
ASSUMED INVESTMENT OF $50,000 MADE ON 1/1/87
WITHDRAWALS OF $500 PER MONTH FOR THE SUBSEQUENT
10-YEAR PERIOD ENDING 12/31/96
WITHDRAWAL ACCOUNT ILLUSTRATION
The table below illustrates an assumed Withdrawal Account for the 10-year
period January 1, 1987 to December 31,1996. While this period, on the whole, was
one of generally rising stock prices, it also included some interim periods of
substantial market decline. It is assumed that $50,000 was invested at the
beginning of the period with the applicable sales charge of 4.5% applied and
that $417 was withdrawn each month ($5,000 annually) during the entire period.
No adjustment has been made for any income tax liability.
HOW A WITHDRAWAL ACCOUNT WORKS
The investor selects the amount of monthly or quarterly check desired and then
sufficient shares are liquidated each period to cover the check. There are no
charges for this service and the amount of the check may be changed or
discontinued at the option of the investor. All dividends and capital gains
distributions earned by the account are automatically reinvested without charge.
Since all dividend and capital gains distributions, once reinvested, tend to
lose their identity, it is advisable for the investor to assume that all
withdrawal checks come from principal.
A WORD OF CAUTION
Although the investor has complete discretion in determining the amount of the
withdrawal check, a word of caution is in order. An excessive amount of
withdrawal will reduce an account's value faster than it can be restored by
capital appreciation and dividends. Considerable attention should be paid to any
reduction in the value of the account, and to the rate of any such reduction.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------
YEAR-END TOTAL COST OF ANNUAL CUMULATIVE VALUE OF
12/31 INVESTMENT* WITHDRAWAL WITHDRAWALS REMAINING SHARES
- ---------------------------------------------------------------------
<S> <C> <C> <C> <C>
1987 $ 53,019 $ 5,000 $ 5,000 $ 44,829
1988 59,333 5,000 10,000 44,098
1989 64,901 5,000 15,000 50,390
1990 66,910 5,000 20,000 45,454
1991 71,076 5,000 25,000 52,353
1992 74,396 5,000 30,000 48,764
1993 79,922 5,000 35,000 48,361
1994 85,297 5,000 40,000 43,183
1995 88,902 5,000 45,000 49,468
1995 91,338 5,000 50,000 51,941
</TABLE>
*Includes the initial investment of $50,000 plus the cumulative dollar amount of
reinvested dividend and capital gains distributions.
<TABLE>
<S> <C> <C>
SUMMARY
Total invested................................. $50,000
Total Cost--including reinvested dividends and
capital gains.................................. $91,338
Total Withdrawals.............................. $50,000
Value of account 12/31/96...................... $51,941
</TABLE>
17
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
TRIFLEX FUND
The across-the-board run-up enjoyed by the financial markets in 1995 was not
to be repeated in 1996, but the fruits borne by the markets were, at least in
part, still sweet. Stocks enjoyed strong returns for the second consecutive year
in 1996, but bonds, due to increasing interest rates, offered anemic returns at
best. Within this environment, the Triflex Fund produced a total return of
11.86% for the year.
Balanced funds, like Triflex, always carry ample supplies of stocks, bonds and
cash. They can be thought of as the ultimate contingency plan investment, since
parts of the portfolio may react differently to the same economic environment.
This was the case in 1996. Early-year fears of robust economic growth leading to
inflation, immediately shook the bond market. Stocks, however, continued to move
higher. Diversification across the asset classes, a constant for Triflex, buoyed
the Fund on the positive side of total return.
In reviewing equity market action, the finance and technology sectors were the
clear leaders in 1996. These sectors benefited from continuing strong corporate
earnings, ongoing strong sector fundamentals, and strong institutional
following. Other top performing sectors included capital goods and healthcare.
Also key in 1996's stock market was size. It seemed that bigger was indeed
better last year, as the large capitalization stock indexes well outperformed
their smaller counterparts.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TRIFLEX FUND, INC., S&P 500 AND LEHMAN INTERMEDIATE GOVERNMENT/CORP INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C>
Triflex Fund, Inc. 9,599 10,596 12,043 12,209 15,204 15,659
S&P 500 10,000 11,681 15,359 14,872 19,416 20,905
Lehman Intermediate Gov't/Corp. Index 10,000 10,668 12,030 13,133 15,054 16,133
Past performance is not predictive of future performance.
AVERAGE ANNUAL RETURN
5 YEAR 7.46%
1YEAR 5.42%
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Triflex Fund, Inc. 16,647 16,895 20662 23114
S&P 500 22,994 23,295 32,000 39,296
Lehman Intermediate Gov't/Corp. Index 17,566 17,227 19,867 20,662
Past performance is not predictive of future performance.
AVERAGE ANNUAL RETURN
5 YEAR
1YEAR
</TABLE>
Triflex Fund, Inc.'s performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions, changes in net asset value and
considers the effect of the Fund's 5.75% maximum sales charge. All performance
figures are as of December 31 for the applicable year. The Fund's fiscal year
end was as of July 31 for 1988-1989.
18
<PAGE>
The Triflex Fund greatly benefited from its above market weighting in the
strong healthcare sector. The stocks of basic materials companies and the
economically sensitive consumer cyclicals area were also key to the fund's
performance. The areas that proved costly were our underweighting of the finance
sector, and our below market performance from the technology, capital goods and
consumer staples sector.
Within the bond portion, while we generally are happy to own bonds in the five
to ten year maturity range, we took advantage of price opportunities and
lengthened maturities as long term interest rates moved above the 7%. Our
feeling that interest rates were more likely to go down than up proved to be on
track, and the Fund benefited from the move. In fact, the bond portion of the
portfolio outperformed broad market indices. We are comfortable that the fixed
income portion of the portfolio is well positioned in this slow growth, low
inflation environment that we foresee continuing.
Our 1997 outlook is quite simply put...more of the same. We foresee moderate
growth and benign inflation, which is generally good for financial assets. This
worldwide phenomenon of generally lower inflation and reasonable worldwide
growth rates demonstrates the truly global village in which we live. It's a
world of expanding markets, opportunity and economic possibility. We invest with
an underlying theme of tapping into this secular worldwide growth phenomenon.
On balance, we are pleased that our portfolios have demonstrated strong
absolute returns over the past three years. As we go about our business each day
of managing shareholder assets, we operate under a set of tried and true
investment disciplines that are designed to outperform the market over time. We
will continually seek to buy undervalued companies undergoing a positive change
in fundamentals. Over complete market cycles, we are convinced that our
disciplines can reward investors quite handsomely.
We appreciate the confidence you have placed in us with your investment in the
Triflex Fund.
QUARTERLY COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TRIFLEX FUND, INC. AND LIPPER ANALYTICAL AVERAGE BALANCED FUND
(LAST THIRTEEN QUARTERS UNDER CURRENT DISCIPLINES)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
09/30/1993 12/31/1993 03/31/1994 06/30/1994 09/30/1994
<S> <C> <C> <C> <C> <C>
Lipper Analytical Avg. Balanced Fund 10,000 10,246 10,038 10,059 10,429
Triflex Fund, Inc. 10,000 10,119 9,791 9,679 9,972
Past performance is not predictive of future performance.
<CAPTION>
12/31/1994 03/31/1995 06/30/1995 09/30/1995 12/31/1995
<S> <C> <C> <C> <C>
Lipper Analytical Avg. Balanced Fund 10,399 11,054 11,749 12,229 12,714
Triflex Fund, Inc. 9,862 10,463 11,206 11,825 12,325
Past performance is not predictive of future performance.
<CAPTION>
03/31/1996 06/30/1996 09/30/1996 12/31/1996
Lipper Analytical Avg. Balanced Fund 13076.63 13262.32 13567.35 14218.52
Triflex Fund, Inc. 12999.65 13588.53 14005.7 15184.92
Past performance is not predictive of future performance.
</TABLE>
19
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF TRIFLEX FUND, INC.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1987 1988 1989 1990 1991 1992
<S> <C> <C> <C> <C> <C> <C>
Fund 9,599 10,596 12,043 12,209 15,204 15,659
Index 9,499 9,925 10,676 10,290 12,318 12,492
$23,114 Total Return
$16,346 Capital Appreciation Assuming Dividends Taken in Cash
$10,000 Purchase Price
$9,425 Net Amount Invested
<CAPTION>
1993 1994 1995 1996
<S> <C> <C> <C> <C>
Fund 16,647 16,895 20662 23114
Index 12,852 12,662 15,024 16,346
$23,114 Total Return
$16,346 Capital Appreciation Assuming Dividends Taken in Cash
$10,000 Purchase Price
$9,425 Net Amount Invested
</TABLE>
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid and
reinvested during year $ 99 $ 565 $ 632 $ 589 $ 548 $ 334 $ 411 $ 497 $ 582 $ 610
Capital gains distributions reinvested
during year -0- 230 715 69 501 493 1,046 892 169 543
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 9,599 10,596 12,043 12,209 15,204 15,659 16,647 16,895 20,662 23,114
Value of investment at year end assuming
investment income dividends taken in
cash $9,499 $ 9,925 $10,676 $10,290 $12,318 $12,492 $12,852 $12,662 $15,024 $16,346
PERCENTAGES
- ---------------------------------------------------------------------------------------------------------------------------------
Income Return 0.98% 5.88% 5.97% 4.90% 4.49% 2.20% 2.62% 2.99% 3.44% 2.95%
Appreciation -4.99% 4.50% 7.69% -3.53% 20.04% .80% 3.69% -1.50% 18.85% 8.91%
---------------------------------------------------------------------------------------
Total Return -4.01% 10.38% 13.66% 1.37% 24.53% 3.00% 6.31% 1.49% 22.29% 11.86%
---------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------
</TABLE>
All performance figures are as of December 31 for the applicable year. Triflex
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$4,867
Capital Gains Paid and Reinvested........$4,658
Appreciation (Unrealized Capital
Gains)...................................$3,589
Total Value.............................$23,114
</TABLE>
20
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each Fund has different investment objectives which it pursues through the
investment policies and techniques described below. These policies and
techniques are not fundamental and may be changed by the Board of Directors of
the Funds without shareholder approval. Each Fund has adopted certain
restrictions as fundamental policies which will not be changed unless approved
by the vote, at a special meeting of stockholders, of (i) 67% of the shares
present at a meeting, at which more than 50% of each Fund's outstanding shares
are present or represented by proxy, or (ii) more than 50% of each Fund's
outstanding shares. Each Fund's investment restrictions adopted as fundamental
policies are stated in each Fund's Statement of Additional Information.
GROWTH FUND
The Growth Fund's portfolio investments and the composition of its total
portfolio are considered from the viewpoint of potential capital appreciation.
This composition will be adjusted from time to time to best accomplish its
investment objective under current conditions. In pursuing its objective, the
Growth Fund will invest primarily in common stocks selected in accordance with
its investment objective.
The Growth Fund may invest in convertible preferred stocks rated at least "B"
by Standard and Poor's Corporation ("S&P") or at least "b" by Moody's Investors
Service, Inc. ("Moody's") preferred stock ratings, and convertible debentures
and notes rated at least "B" by S&P's and Moody's corporate bond ratings
("convertible securities").(1) Investments in convertible securities having
these ratings may involve greater risks than convertible securities having
higher ratings. Common stocks and convertible securities purchased will be of
companies which are believed by SM&R to provide an opportunity for capital
appreciation. The proportion of assets invested in any particular type of
security can be expected to vary, depending on SM&R's appraisal of market and
economic conditions. Under normal conditions at least 50% of the Growth Fund's
total assets will be invested in common stocks. On a temporary basis the Growth
Fund may invest, in commercial paper which at the date of such investment, is
rated in one of the two top categories by one or more of the nationally
recognized statistical rating organizations ("NRSRO's"), in certificates of
deposit in domestic banks and savings institutions having at least $1 billion of
total assets and in repurchase agreements which are discussed under "Other
Investment Strategies".
INCOME FUND
The Income Fund's portfolio investments and the composition of its total
portfolio are considered not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. This
composition of portfolio investments will be adjusted from time to time to best
accomplish its investment objectives under current conditions.
In pursuit of its objectives, the Income Fund will invest in common stocks,
preferred stocks and marketable debt securities selected in accordance with the
Income Fund's investment objectives. Common and preferred stocks purchased will
generally be of companies with consistent and increasing dividend payment
histories which are believed by SM&R to have further earnings potential
sufficient to continue such dividend payments. Debt securities will include
publicly traded corporate bonds, debentures, notes, commercial paper, repurchase
agreements, and certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets. The proportion of
assets invested in any particular type of security can be expected to vary,
depending on SM&R's appraisal of market and economic conditions. Under normal
conditions at least 50% of the Income Fund's assets will be invested in equity
securities rather than debt securities.
Corporate debt obligations purchased by the Income Fund will consist only of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will
(1) See Appendix for a description of these ratings
21
<PAGE>
consist only of direct obligations of corporations whose bonds and/or debentures
are rated as set forth above.
TRIFLEX FUND
The Triflex Fund seeks to achieve its objectives by flexibly managing a
balanced portfolio of fixed-income securities such as bonds, commercial paper,
preferred stock and short-term obligations combined with common stocks and
securities convertible into common stocks. The Triflex Fund will only purchase
common stocks and convertible securities of corporations having a market
capitalization of at least $100 million, an operating history of at least three
(3) years and a listing on the New York Stock Exchange, American Stock Exchange
or Over-The-Counter markets. Corporate bonds purchased will consist of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above. The
Triflex Fund may also invest in repurchase agreements. This balanced investment
policy is intended to reduce risk and to obtain results in keeping with its
objectives.
The Triflex Fund's investments will be in fixed-income securities and equity
securities as described above. However, the Triflex Fund will sometimes be more
heavily invested in equity securities and at other times it will be more heavily
invested in fixed-income securities, depending on management's appraisal of
market and economic conditions. SM&R believes that a fund that is wholly
invested in fixed-income securities carries a large interest rate risk. Interest
rate risk is the uncertainty about losses due to changes in the rate of interest
on debt instruments. The major interest rate risk for investors, however, is not
in the interest rate itself, but in the change in the market price of bonds that
results from changes in the prevailing interest rate. Higher interest rates
would mean lower bond prices and lower net asset value for the Triflex Fund's
shareholders assuming no change in its current investment objective and
portfolio. Diversifying the Triflex Fund's portfolio with investments such as
commercial paper, convertible securities and common stocks may reduce the
decline in value attributable to the increase in interest rate and resulting
decrease in the market value of bonds and will reduce the interest rate risk.
However, stock prices also fluctuate in response to a number of factors,
including, changes in general level of interest rates, economic and political
developments and other factors which impact individual companies or specific
types of companies. Such market risks cannot be avoided but can be limited
through a program of diversification and a careful and consistent evaluation of
trends in the capital market and fundamental analysis of individual equity
holdings.
The Triflex Fund's goal of preservation of capital while owning common stocks
is dependent upon various factors, including the sustained long-term growth of
the United States economy. SM&R recognizes that recessions occur but also
recognizes that the economy historically has come back from those recessions.
Therefore, SM&R believes that the United States economy will continue to grow,
that the political environment will continue to be relatively stable and that
the financial markets will continue to function in a reasonably orderly fashion.
As long as these factors occur, SM&R believes that there is a reasonable
likelihood the Triflex Fund can reach its goal of preservation of capital while
at the same time investing in common stock.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity holding consistent with SM&R's outlook and
evaluation of trends in the economy and the financial markets. The Triflex
Fund's level of commitment to common stocks and specific common stock
investments will be determined as a result of this process. For example, within
an environment of rising inflation, common stocks historically have preserved
their value better than bonds; therefore, inclusion of common stocks could tend
to conserve principal better than a portfolio consisting entirely of bonds and
other debt obligations. In addition, within an environment of accelerating
growth in the economy, common stocks historically have conserved
22
<PAGE>
their value better than bonds in part due to a rise in interest rates that occur
coincidentally with accelerating growth and profitability of the companies.
The Triflex Fund will not purchase a security if as a result of such purchase
less than 25% of its total assets will be in fixed-income senior securities
(including short and long-term securities, preferred stocks and convertible debt
securities and preferred stocks to the extent their value is attributable to
their fixed-income characteristics).
OTHER INVESTMENT STRATEGIES
Each Fund, consistent with its objectives and policies, may employ one or more
of the following strategies to enhance investment results.
COMMERCIAL PAPER--Commercial paper is short-term unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. The Fund will not invest in variable amount master demand
notes which are demand obligations that permit the investment of fluctuating
amounts at varying market rates of interest pursuant to arrangements between the
issuer and a commercial bank acting as agent for the payees of such notes,
whereby both parties have the right to buy the amount of the outstanding
indebtedness on the notes.
REPURCHASE AGREEMENTS--Each Fund may occasionally purchase repurchase agreements
in which a Fund purchases a U.S. government security subject to resale to a bank
or dealer at an agreed upon price and date. These repurchase agreements will be
entered into only with government securities dealers recognized by the Federal
Reserve Board or with member banks of the Federal Reserve System. During the
holding period, the seller must provide additional collateral if the market
value of the obligation falls below the repurchase price. The custodian for the
Fund purchasing such agreement will take title to, or actual delivery of the
security. A default by the seller might cause a Fund to experience a loss or
delay in the liquidation of the collateral securing the repurchase agreement. A
Fund might also incur disposition costs in liquidating the collateral. The Funds
will purchase only repurchase agreements maturing in seven (7) days or less of
such purchase.
CERTIFICATE OF DEPOSIT--A certificate of deposit is generally a short-term,
interest-bearing negotiable certificate issued by a commercial bank or savings
and loan association against funds deposited in the issuing institution. The
interest rate may be fixed for the stated term or may be periodically adjusted
prior to the instrument's stated maturity, based upon a specified market rate. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction to finance
the import, export, transfer or storage of goods. The borrower is liable for
payment, as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have maturities
of six months or less and are traded in secondary markets prior to maturity.
Savings and loan associations whose certificates of deposit may be purchased
by the Funds are subject to regulation and examination by the Office of Thrift
Supervision. Such certificates of deposit held by the Funds do not benefit
materially from insurance from the Federal Deposit Insurance Corporation.
AMERICAN DEPOSITORY RECEIPTS ("ADRS")--ADRs are U.S. dollar-denominated
securities of foreign corporations which are traded in the U.S. on national
securities exchanges or over-the-counter and are issued by domestic banks. The
banks act as custodian of the shares of the foreign stock and collect dividends
on the stock which are either reinvested or distributed to the ADR holder in
U.S. dollars. While ADRs are not considered foreign securities, they may entail
certain political, economic and regulatory risks. Such risks may include
political or social instability, excessive taxation and limitations on the
removal of funds or other assets which could adversely affect the value of a
Fund's investments. The economies of many countries in which a Fund may invest
may not be as developed as the U.S. economy and may be subject to significantly
different forces. Foreign companies are not registered with the commission and
are not generally subject
23
<PAGE>
to the regulatory controls imposed on U.S. issuers. Consequently, there is
generally less public information available on foreign securities. Foreign
companies are not subject to uniform accounting, auditing, and financial
reporting standards. Income from foreign securities owned may be reduced by a
withholding tax at the source, which tax would reduce income payable to a Fund's
shareholders.
These strategies and other investment restrictions are more fully discussed in
each Fund's Statement of Additional Information under "INVESTMENT OBJECTIVES AND
POLICIES."
THE FUNDS AND THEIR MANAGEMENT
A Board consisting of seven directors has overall responsibility for
overseeing the affairs of each Fund in a manner reasonably believed to be in the
best interest of each Fund. The Boards have delegated to SM&R, the adviser, the
management of each Fund's day to day business and affairs. In addition, SM&R
invests each Fund's assets, provides administrative services and serves as
transfer agent, dividend payment agent and underwriter.
SM&R, is a wholly-owned subsidiary of American National Insurance Company
("American National"). The Moody Foundation, a private foundation, owns
approximately 23.7% of American National's common stock and the Moody National
Bank as trustee of the Libbie Shearn Moody Trust, a private trust, owns
approximately 37.6% of such shares. SM&R was incorporated in 1964 and has
managed investment companies since 1966. SM&R is also investment adviser to
American National, a Texas insurance company having its principal office in
Galveston, Texas, the American National Investment Accounts, Inc. an investment
company used to fund benefits under variable contracts issued by American
National, SM&R Capital Funds, Inc., an investment company and for the Moody
National Bank of Galveston (the "Bank"), a national bank. SM&R may, from time to
time, serve as investment adviser to other clients including banks, employee
benefit plans, other investment companies, foundations and endowment funds.
The following persons are affiliated with SM&R and the Funds as officers:
Michael W. McCroskey, Gordon D. Dixon, Emerson V. Unger, Teresa E. Axelson and
Brenda T. Koelemay.
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in
providing investment advisory services to the Funds. While the following
individuals are primarily responsible for the day-to-day portfolio management of
their respective Fund, all accounts are reviewed on a regular basis by SM&R's
Investment Committee to ensure that they are being invested in accordance with
investment policies.
GORDON D. DIXON, DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER
OF SECURITIES MANAGEMENT AND RESEARCH, INC., VICE PRESIDENT, PORTFOLIO MANAGER
OF THE GROWTH FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Dixon joined
Securities Management and Research, Inc. in 1993. He graduated from the
University of South Dakota with a B.A. in Finance and Accounting and from
Northwestern University in 1972 with an M.B.A in Finance and Accounting. Mr.
Dixon began his investment career in 1972 as an Administrative and Research
Manager with Penmark Investments. In 1979 he began working for American Airlines
in the management of the $600 million American Airlines Pension Portfolio, of
which approximately $100 million was equities. In 1984 he was employed by C&S/
Sovran Bank in Atlanta, Georgia as Director of Equity Strategy where he had
responsibility for all research, equity trading and quantitative services groups
as well as investment policy input of a portfolio of approximately $7 billion,
of which $3.5 billion was equities.
WILLIAM R. BERGER, C.F.A., VICE PRESIDENT, PORTFOLIO MANAGER OF THE TRIFLEX
FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Berger joined Securities Management
and Research, Inc. in 1993. He graduated from Miami University, Oxford, Ohio in
1985 with a B.S. with Honors in Accounting and Finance and from The Wharton
School, University of Pennsylvania in 1988 with an M.B.A. in Finance and
Investment Management. Mr. Berger began his investment career in 1989 with
Trinity Investment
24
<PAGE>
Management Corporation as an equity and balanced portfolio manager for various
discretionary accounts worth more than $80 million for corporate, endowment,
religious and public funds. Prior to joining Trinity Investment Management
Corporation Mr. Berger was a Senior Auditor for Coopers & Lybrand. Mr. Berger is
a Chartered Financial Analyst and a Certified Public Accountant.
ADVISORY AGREEMENTS
GROWTH FUND
Under the Growth Fund Investment Advisory Agreement ("Advisory Agreement"),
dated November 30, 1989, SM&R receives a basic advisory fee (the "Basic Advisory
Fee") which is adjusted for an upward or downward movement in the investment
performance during the previous thirty-six (36) monthly periods of the Fund as
compared to the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. This Basic Advisory Fee is computed each month
by applying to the average daily net asset value of the Fund (computed by adding
the daily net asset values for the month and dividing the resulting total by the
number of days in the month) one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 .750 of 1%
Exceeding $100,000,000 but
not exceeding $200,000,000 .625 of 1%
Exceeding $200,000,000 but
not exceeding $300,000,000 .500 of 1%
Exceeding $300,000,000 .400 of 1%
</TABLE>
The Basic Advisory Fee annual rate is adjusted each month by adding to or
subtracting from such rate, when appropriate, the applicable performance
adjustment amount percentage shown in the table below. The resulting advisory
fee rate is then applied to the average daily net asset value of the Fund for
the succeeding month. The advisory fee for such month will be one-twelfth
(1/12th) of the resulting dollar figure.
The performance adjustment amount will vary with the Fund's performance as
compared to the Lipper Index as shown by the following table:
<TABLE>
<CAPTION>
Performance Performance
Compared To Lipper Adjustment
Index Amount
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
<CAPTION>
Performance Performance
Compared To Lipper Adjustment
Index Amount
<S> <C>
0.10% to 0.99% below -0.02%
1.00% to 1.99% below -0.04%
2.00% to 2.99% below -0.06%
3.00% to 3.99% below -0.08%
4.00% to 4.99% below -0.10%
5.00% to 5.99% below -0.12%
6.00% to 6.99% below -0.14%
7.00% to 7.99% below -0.16%
8.00% to 8.99% below -0.18%
9.00% and below -0.20%
</TABLE>
See "INVESTMENT ADVISORY AND OTHER SERVICES" in the Growth Fund's Statement of
Additional Information for a more detailed description of the method used in
calculating the performance adjustment.
25
<PAGE>
INCOME FUND AND TRIFLEX FUND--Under the Income and Triflex Funds Advisory
Agreements dated November 30, 1989, SM&R receives from each Fund an investment
advisory fee computed by applying to the average daily net asset value of each
Fund each month one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 .750 of 1%
Exceeding $100,000,000 but not
exceeding $200,000,000 .625 of 1%
Exceeding $300,000,000 .400 of 1%
</TABLE>
As compensation for its services, SM&R is paid an investment advisory fee,
which is calculated as indicated above for each Fund. SM&R received total
advisory fees from the Growth, Income and Triflex Funds for the fiscal year
ended December 31, 1996 which represented .77%, .71%, and .62%, respectively of
each Fund's average daily net assets. The ratio of total expenses to average net
assets for each Fund for the same period are 1.15%, 1.10%, and 1.21%,
respectively.
The fees payable under each Fund's Advisory Agreement are higher than the fees
paid by most other mutual funds.
Consistent with the Conduct Rules (formerly the Rules of Fair Practice) of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Funds may give consideration to sales of their shares
as a factor in the selection of brokers and dealers to execute each Fund's
portfolio transactions when it is believed by SM&R that this can be done without
causing the Funds to pay more in brokerage commissions than they would
otherwise.
ADMINISTRATIVE SERVICE AGREEMENTS
The administrative service agreements with the Funds provide for payment of an
administrative service fee to SM&R which is computed by applying to the average
daily net asset value of each Fund each month one-twelfth of the annual rate as
follows:
<TABLE>
<CAPTION>
On the Portion of of the Administrative
Fund's Average Daily Service Fee Annual
Net Assets Rate
<S> <C>
Not exceeding $100,000,000 .25 of 1%
Exceeding $100,000,000 but not
exceeding $200,000,000 .20 of 1%
Exceeding $200,000,000 but not
exceeding $300,000,000 .15 of 1%
Exceeding $300,000,000 .10 of 1%
</TABLE>
SM&R has agreed in each Fund's administrative service agreement to pay (or to
reimburse each Fund for) the Fund's expenses (including the advisory fee and
administrative service fee, if any, paid to SM&R, but exclusive of interest,
taxes, commissions and other expenses incidental to portfolio transactions) in
excess of 1.25% per year of each Fund's average daily net assets. Such
reimbursement obligation is more restrictive than required by California, the
only state still having an expense reimbursement provision applicable to the
Funds. (See "Administrative Service Agreement" in each Fund's Statement of
Additional Information for the fees paid by the Funds thereunder.)
26
<PAGE>
HOW TO PURCHASE SHARES
Shares of the Funds may be purchased from registered representatives of SM&R,
through certain other authorized broker-dealers or directly from SM&R. Such
purchases will be at the offering price for such shares determined as provided
under the caption "DETERMINATION OF OFFERING PRICE" in this Prospectus. A
monthly confirmation will be sent to the investor. Initial and subsequent
purchases are to be sent directly to SM&R at the following address:
Securities Management and Research, Inc.,
One Moody Plaza, 14th Floor
Galveston, Texas 77550
Each Fund's shares of authorized capital stock are all common stock, are
nonassessable and fully transferable, and each has one vote.
Certificates are not normally issued for shares of the Funds in an effort to
minimize the risk of loss or theft. However, purchases are confirmed to
investors and credited to their accounts on the books maintained by SM&R and an
investor has the same rights of share ownership as if certificates had been
issued. Furthermore, a lost, stolen or destroyed certificate cannot be replaced
without obtaining a sufficient indemnity bond. The cost of such a bond is borne
by the investor and can be 2% or more of the value of the lost, stolen or
destroyed certificate.
OPENING AN ACCOUNT
Initial purchases must include a completed Fund application and completed
Investor Suitability Form. Special forms are required when establishing an
IRA/SEP or 403(b) plan. Call Investor Services at (800) 231-4639 and request
forms for establishing these plans.
SUBSEQUENT PURCHASES BY MAIL
Investors must include their name, the account number and the name of the Fund
being purchased. The investor can use the account identification form detached
from the investor's confirmation statement.
PURCHASED BY WIRE
To ensure proper crediting of the investment, an investor must have an
executed Application and Investor Suitability Form on file with the transfer
agent. The investor may then wire his investment using the following
instructions:
The Moody National Bank of Galveston
2302 Postoffice Street
Galveston, Texas 77550
For the Account of Securities Management and Research, Inc.
ABA 113100091, Wire Account #035 868 9
FBO Name of Fund/Account Number
Investor's Name
If wires are received after 3:00 p.m. Central Time or during a bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day.
PURCHASE AMOUNTS
The minimum initial purchase amount for each Fund is $100 and $20 for
subsequent purchases (except certain systematic investment programs, see
"SPECIAL PURCHASE PLANS" for additional information on reduction of the
minimums). The Funds reserve the right to reject any purchase.
IMPORTANT: The Funds reserve the right to (1) refuse to open an account for any
person failing to provide a taxpayer identification number, certified as correct
and (2) close an account by redeeming its shares in full, at the then current
net asset value upon receipt of notice from the IRS that the taxpayer
identification number certified as correct by the shareholder is in fact
incorrect.
WHEN ARE PURCHASES EFFECTIVE?
Purchases received in proper form by SM&R prior to the close of the New York
Stock Exchange (currently 3:00 p.m., Central Time) (the "Exchange") on any SM&R
business day, or received prior thereto on any SM&R business day by a securities
dealer having a dealer contract with SM&R and reported to SM&R prior to SM&R's
close of business (currently 4:30 p.m., Central Time) on the same day, will be
effective and executed at the applicable Offering Price determined at the close
of the Exchange on that day. It is the responsibility of any such
27
<PAGE>
dealer, and not SM&R, to establish procedures to assure that purchases received
before the close of the Exchange on an SM&R business day will be reported to
SM&R before SM&R's close of business on that same day. Purchases received after
the close of the Exchange, or customary national business holidays, or on an
SM&R holiday will be effective upon and made at the Offering Price determined as
of the close of the Exchange on SM&R's next business day that such Exchange is
open for trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange or on an
SM&R holiday, will be effective on and made at the Offering Price determined on
SM&R's next business day. Procedures for transmitting Federal Funds by wire are
available at any national bank, or any state bank which is a member of the
Federal Reserve System.
SM&R's business holidays are Good Friday, Memorial Day, Labor Day,
Thanksgiving Day and the Friday following Thanksgiving Day and New Years Day.
For calendar year 1997, SM&R's Christmas holidays will be observed on December
24, 25 and 26.
DETERMINATION OF OFFERING PRICE
The offering price of each Fund's shares is equal to the net asset value of
such shares plus a sales charge computed at the rates set forth in the
applicable tables below. Net asset value per share is determined by dividing the
market value of the securities owned by each Fund, plus any cash or other assets
(including dividends accrued but not collected), less all liabilities (including
accrued expenses but excluding capital and surplus), by the number of each
Fund's shares outstanding. Net asset value is currently determined as of 3:00
p.m., Central Time on each business day and on any other day in which there is a
sufficient degree of trading in each Fund's investment securities that the
current net asset value of each Fund's shares might be materially affected by
changes in the value of its portfolio of investment securities. Each Fund
reserves the right to compute its net asset value at a different time, or to
compute such value more often than once daily as provided in the Funds Group
current prospectus.
For a more complete description of the procedures involved in valuing various
Fund assets, see "Offering Price" in the Growth, Income and Triflex Funds'
Statements of Additional Information.
<TABLE>
<CAPTION>
Total Sales Charge
-----------------------------------------------------------------------------------
Dealer Concession as
Amount of Investment as a Percentage of as a Percentage of a Percentage of
at Offering Price Offering Price Net Amount Invested Offering Price
- --------------------------------------------- --------------------- ----------------------------- -----------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.1% 4.75%
$50,000 but less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over* None None None
</TABLE>
28
<PAGE>
*In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers from its own profits and resources, a per
annum percent of the amount invested as follows: Year 1 - 0.35% and Year 2 -
0.25%. In the third and subsequent years, SM&R may pay 0.075% per annum, in
quarterly installments, to those representatives and broker-dealers with
accounts in the aggregate totaling $1 million or more.
The above breakpoints apply to purchases made at one time by the following:
(1) Any individual; (2) Any individual, his or her spouse, and trusts or
custodial agreements for their minor children; (3) A trustee or fiduciary of a
single trust estate or single fiduciary account; (4) Tax-exempt organizations
specified in Sections 501(c)(3) or (13) of the Internal Revenue Code, or
employees' trusts, pension, profit-sharing, or other employee benefit plans
qualified under Section 401 of the Internal Revenue Code; and (5) Employees or
employers on behalf of employees under any employee benefit plan not qualified
under Section 401 of the Internal Revenue Code.
Purchases by any "company" or employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the Fund will realize economies of scale in sales effort and
sales related expenses as a result of the employer's or the plan's bearing the
expense of any payroll deduction plan, making the Funds prospectus available to
individual investors or employees, forwarding investments by such employees to
the Funds, and the like.
THE EDUCATION FUNDING INVESTMENT ACCOUNT PROGRAM
The following breakpoints apply to purchases made by individuals investing in
the Funds through the use of The Education Funding Investment Account Program.
<TABLE>
<CAPTION>
Total Sales Charge
-------------------------------------------------------------------------------------
Dealer Concession as a
Amount of Investment as a Percentage of as a Percentage of Percentage of Offering
as Offering Price Offering Price Net Amount Invested Price
- ------------------------------------------- --------------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over* None None None
</TABLE>
*In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers from its own profits and resources, a per
annum percent of the amount invested as follows: Year 1 - 0.35% and Year 2 -
0.25%. In the third and subsequent years, SM&R may pay 0.075% per annum, in
quarterly installments, to those representatives and broker-dealers with
accounts in the aggregate totaling $1 million or more.
The Education Funding Investment Account Program is a service expressly
created to help investors accumulate funds for their children's or
grandchildren's college education. The maximum sales charge is 4.5% on the
purchase of shares of the Funds. To participate in this special plan, investors
must complete the special Education Funding Investment Account application
designed specifically for the Program.
All direct sales expenses, including the cost of prospectuses for prospective
shareholders, are paid by SM&R, and no sales expense is borne by any of the
Funds.
SPECIAL PURCHASE PLANS
The Funds offer the following services to their shareholders to facilitate
investment in the Funds. At this time, there is no charge to the shareholder for
these services. For additional information contact your registered
representative or SM&R. A shareholder considering any of the plans described
below should consult a tax advisor before beginning a plan.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION--If you already own shares of any of
the American National Funds Group, the American National Government Income Fund
Series, and/or the American National Tax Free Fund Series (collectively these
Funds and
29
<PAGE>
Series shall hereinafter be referred to as the "Group"), you may be able to
receive a discount when you buy additional shares. The offering value of the
shares you already own may be "accumulated"--i.e. combined together with the
offering value of the new shares you plan to buy--to achieve quantities eligible
for discount. See "SPECIAL PURCHASE PLANS" in the Statement of Additional
Information for further information about certain rules that apply when taking
advantage of the right of accumulation.
LETTER OF INTENT--An investor may immediately qualify for a reduced sales charge
on purchases of shares of the Group by completing the Letter of Intent section
of the application. Under a Letter of Intent an investor expresses an intention
to invest during the next 13 months a specified amount in the Group which, if
made at one time, would qualify for a reduced sales charge. A minimum initial
investment equal to ten percent (10%) of the amount necessary for the applicable
reduced sales charge is required when a Letter of Intent is executed. Five
percent (5%) of the total intended purchase amount will be held in escrow in
shares of the Group registered in the investor's name to assure that the full
applicable sales charge will be paid if the intended purchase is not completed.
Shares held in escrow under a Letter of Intent are not subject to the exchange
privilege until the Letter of Intent is completed or canceled. A Letter of
Intent does not represent a binding obligation on the part of the investor to
purchase or the Group to sell the full amount of shares specified. (See the
Investor's Letter of Intent on the Application and "SPECIAL PURCHASE PLANS" in
the Statement of Additional Information.)
GROUP SYSTEMATIC INVESTMENT PLAN--A group of 5 or more employees may initially
invest a minimum of $100 ($20 per individual) in the Funds followed by
additional payments of at least $20 for each individual investing under a single
payroll deduction plan. Any such plan may be terminated by SM&R or the
Shareholder at any time upon sixty (60) days written notice.
PURCHASES AT NET ASSET VALUE--Shares of the Group may be sold without a sales
charge to: (a) present and retired directors, officers and full-time employees
of the Group; (b) present and retired directors, officers, registered
representatives and full-time employees of SM&R and their spouses; (c) present
and retired officers, directors, insurance agents and full-time employees and
their spouses of American National and its subsidiaries and its "affiliated
persons", as defined in the Investment Company Act of 1940, and of any
corporation or partnership for which any of American National's present
directors serve as a director or partner, and their spouses; (d) present and
retired partners and full-time employees of legal counsel to SM&R and officers
and directors of any professional corporations which are partners of such legal
counsel and their spouses; (e) any child, step-child, grandchild, parent,
grandparent, brother or sister of any person named in (a), (b), (c) or (d) above
and their spouses; (f) any trust, pension, profit-sharing, IRA or other benefit
plan for any of such persons mentioned in (a), (b), (c), (d), or (e) above; (g)
custodial accounts for minor children of such persons mentioned in (a), (b),
(c), (d), or (e) pursuant to the Uniform Gifts to Minors or Uniform Transfers to
Minors Acts; (h) persons who have received a distribution from a pension
profit-sharing or other benefit plan to the extent such distribution represents
the proceeds of a redemption of shares of any fund in the Group; (i) persons
receiving rebated amounts through ANPAC's "Cash Back Program" to the extent the
proceeds represent the amount of the rebate; (j) trust companies and bank trust
departments for funds over which they exercise exlusive discretionary investment
authority or they serve as a directed trustee and which are held in a fiduciary,
agency, advisory, custodial or similar capacity; (k) accounts managed by
Securities Management and Research, Inc.; (l) stockholders of American National
Insurance Company; (m) policyholders of American National subsidiaries who have
entered into an NAV agreement with SM&R; (n) registered representatives and
employees of securities dealers with whom SM&R has a selling agreement; and (o)
officers, directors, trustees, employees and members of any non-profit business,
trade, professional charitable, civic or similar associations and clubs with an
active membership of at least 100 persons which have entered into an NAV
Agreement with SM&R.
30
<PAGE>
Neither the Funds nor SM&R are responsible for determining whether or not a
prospective investor qualifies under any of the above categories for purchases
without a sales charge. A prospective investor must make this determination and
submit a written request to SM&R to make such purchases without a sales charge.
PRE-AUTHORIZED CHECK PLANS--An investor may invest in shares of the Funds
through a pre-authorized check plan ($20 or more). Such purchases are processed
on or about the 7th and 21st of each month and each investor may invest in up to
five different accounts in the Group on either date. Such purchases enable the
investor to lower his or her average cost per share through the principle of
"dollar cost averaging". (See "SPECIAL PURCHASE PLANS" in each Fund's Statement
of Additional Information.)
WEALTH ACCUMULATION ACCOUNT--Shareholders having account balances of at least
$5,000 in the SM&R Capital Funds American National Primary Fund Series ("Primary
Series") may open a Wealth Accumulation Account, which will provide them with an
automatic dollar cost averaging plan. Automatic monthly purchases of the shares
of other funds in the American National Funds Group will be made by exchanges
from the shareholder's Primary Series Wealth Accumulation Account. Purchases of
the other funds must be at least $100 and, unless terminated by the shareholder,
will continue as long as the balance of the Primary Series Wealth Accumulation
Account is sufficient. Additional investments may be made to a Primary Series
account designated as a Wealth Accumulation Account to extend the purchase
period under the plan. However, if additional investments are received by SM&R
less than fifteen (15) days prior to the 20th of the month, such investments
will not be available for use under the Wealth Accumulation Account until the
20th of the following month. If the 20th of the month is an SM&R holiday, the
purchase will be processed on the next business day.
Purchases made will be subject to the applicable sales charge of the fund
whose shares are being purchased. Changes in amounts to be purchased, the funds
being purchased, and termination of a Wealth Accumulation Account will be made
within five (5) business days after written instructions are received by SM&R in
proper form (ie: signed by the owner(s) of record exactly as registered).
Shareholders' rights to make additional investments in any of the American
National Funds Group, to exchange shares within the American National Funds
Group, and to redeem shares are not affected by a shareholder's participation in
a Wealth Accumulation Account. However, check writing privileges and expedited
redemption by telephone are not available for the Primary Series accounts
designated as a part of the Wealth Accumulation Account.
EXCHANGE PRIVILEGE--SM&R desires to make it convenient for all shareholders of
the American National Funds Group and the SM&R Capital Funds, Inc. to exchange
from one Fund or Series without the payment of an exchange fee. However, some
members of the American National Funds Group and some Series have no sales
charge and/or variable sales charges which complicates the exchange process. In
an effort to simplify the procedure, but at the same time consistently treat all
investors the same, the following rules and procedures have been adopted.
Shares held in accounts opened for more than one (1) year may be exchanged on
the basis of their respective net asset values, without a sales charge. This
privilege is only available in states where the various members of the Group are
registered and the exchange may be legally made. The net asset value privilege
applies to shares exchanged from the Primary Series through re-exchange and
reinvestment as described below.
Shares of any Fund or Series in the two groups held in escrow under a Letter
of Intent are not subject to the exchange privilege and will not be released
unless the Letter of Intent balance invested during the period equals or exceeds
the Letter of Intent amount or the shareholder requests, in writing, that the
Letter of Intent be canceled and adjustments made prior to the exchange.
Shares of the Primary Series acquired through an exchange from one of the
members of the two
31
<PAGE>
groups and all additional shares acquired through reinvested dividends on such
exchanged shares may be RE-EXCHANGED for shares of the members of the two
groups. RE-EXCHANGES may not be effected through the use of the Primary Series'
check writing options (See "Check Writing Option"). The RE-EXCHANGE privilege
may not be used to avoid payment of a differential in sales charge between the
members of a group.
To effect an exchange or re-exchange (a) a prospectus must be provided to the
investor covering the shares to be taken in exchange or re-exchange; (b) written
authorization requesting the exchange or re-exchange and advising that such
exchange or re-exchange is eligible for reduced or no sales charge must be
received by SM&R; (c) an appropriate application must be completed if the new
shares are to be registered differently than the shares being exchanged; and (d)
the amount being exchanged or re-exchanged must at least equal the minimum
initial or subsequent investment amounts, whichever is applicable. SM&R reserves
the right, upon sixty (60) days prior written notice, to restrict the frequency
of or to otherwise modify, condition, terminate or impose additional charges
upon the exchange privilege. Furthermore, the exchange or re-exchange of shares
between a fund or a series in the groups may constitute a sale of shares which
represents a taxable event.
Any gain or loss realized on an exchange or re-exchange may have tax
consequences, therefore an investor should consult a tax advisor for information
on the tax treatment of exchanges.
RETIREMENT PLANS
An account may be established in Individual Retirement Accounts (IRAs);
Simplified Employee Pension Plans (SEPs); 403(b)(7) Custodial Accounts (TSAs)
and corporate retirement plans. These plans allow you to shelter investment
income from federal income tax while saving for retirement. The minimum initial
purchase for the Funds is $100 (if investing by Pre-Authorized Check $20). SM&R
acts as trustee or custodian for IRAs, SEPs and TSAs for the Funds. An annual
custodial fee of $7.50 will be charged for any part of a calendar year in which
an investor has an IRA, SEP or TSA in the Funds and will be automatically
deducted from each account. Documents and forms containing detailed information
regarding these plans are available from your representative or SM&R. An
individual considering a retirement plan may also wish to consult with an
attorney or tax advisor.
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES
The Income and Triflex Funds will pay dividends from investment income, if
any, quarterly, during the months of March, June, September and December, and
distribute capital gains, if any, in December. The Growth Fund will pay
dividends from investment income, if any, semi-annually during the months of
June and December and distribute capital gains, if any, in December. Dividends
from net investment income may include net short-term capital gains, if any.
Dividends and capital gains distributions may also be made at such other times
as may be necessary to comply with the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
Dividends and capital gains distributions will be automatically reinvested in
shares at net asset value unless SM&R is instructed otherwise in writing.
Dividends and capital gains declared in December to shareholders of record in
December and paid the following January will be taxable to shareholders as if
received in December.
After a dividend or capital gains distribution is paid, each Fund's share
price will drop by the amount of the dividend or distribution. Thus, a dividend
or capital gains distribution paid shortly after purchasing shares would
represent, in substance, a return of capital (to the extent it is paid on the
shares purchased), even though subject to income taxes as discussed below.
Shareholders and the IRS will be furnished an annual statement detailing federal
tax information, including information relative to dividends and distributions
paid to such shareholder during the preceding year.
INFORMATION COMMON TO THE FUNDS
Each Fund has qualified and intends to continue to qualify for treatment as a
"regulated investment company" under Subchapter M of the Internal Revenue Code.
Each Fund intends to distribute all of its net investment income and net
realized capital
32
<PAGE>
gains to shareholders in a timely manner, therefore, it is not expected that the
Funds will be required to pay any federal income taxes.
Each Fund intends to distribute substantially all of its ordinary income and
net realized short-term and long-term capital gains, if any, before the end of
the calendar year in accordance with minimum distribution requirements of the
Code. In the event the Funds fail to do so, the Funds will be subject to a four
percent (4%) excise tax on a portion of their undistributed income and capital
gains.
The Funds or the securities dealer effecting a redemption transaction is
required to file an informational return (1099-B) with the Internal Revenue
Service ("IRS") with respect to each sale of Funds shares by a shareholder. The
year-end statement provided to each shareholder will serve as a substitute
1099-B for purposes of reporting any gain or loss on the tax return filed by the
shareholder.
IRS WITHHOLDING INFORMATION--Each Fund and other payers are required, according
to IRS regulations), to withhold 31% of redemption payments and reportable
dividends paid to shareholders who have failed to provide a Fund with a TIN and
a certification that he is not subject to backup withholding. You will be asked
to certify on your account application or on a separate W-9 form that the tax
identification number you provided is correct and that you are exempt from
backup withholding for previous underreporting to the IRS.
Retirement plan distributions may be subject to federal income tax
withholding. Therefore, you should consult with your tax advisor prior to making
withdrawals from your account.
The foregoing description relates only to federal income tax consequences for
shareholders who are U.S. citizens or corporations. You should consult your own
tax advisor regarding state, local and other applicable tax laws. Information as
to the federal tax status of distributions will be provided to shareholders
annually.
NON-RESIDENT ALIENS--Shareholders who are classified as non-resident alien's for
purposes of federal income taxation and do not furnish a valid and effective
Form W-8 will be subject to backup withholding at a rate of 31% on dividends
received from the Funds and on proceeds from redemptions of their shares. Form
W-8 may be obtained from your local IRS office and remains in effect for three
calendar years beginning in the calendar year in which it is received by the
Fund. Regardless of whether a valid and effective Form W-8 is furnished,
non-resident aliens may be subject to U.S. withholding taxes on their account
unless such withholding taxes are reduced or eliminated under the terms of an
applicable U.S. income tax treaty and the shareholder complies with all
procedures for claiming the benefits of such a treaty. Non-resident shareholders
should consult with their financial or tax advisors with respect to the
specifications and applicability of this tax.
HOW TO REDEEM
Shares of the Funds will be redeemed at the net asset value determined on the
date the request is received in "Proper Form" as defined in "Proper Form" below,
at no extra charge. A redemption request should be addressed to Securities
Management and Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas
77550.
If uncertain of the redemption requirements investors should call or write
SM&R. Payment will be made as soon as practicable and normally within seven days
after receipt of a redemption request in Proper Form.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be
available immediately. For shares purchased by non-guaranteed funds (such as a
personal check), the Funds reserve the right to hold the proceeds until such
time as the Funds have received assurance that an investment check has cleared
the bank on which it was drawn.
SYSTEMATIC WITHDRAWAL PLAN--Each Fund has a "Systematic Withdrawal Plan"
("Withdrawal Account"), which permits shareholders having an account value of
$5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter on or about the 20th of the applicable month. The Funds and
SM&R discourage shareholders from maintaining a Withdrawal Account
33
<PAGE>
while concurrently purchasing shares of the Funds because of the sales charge
involved in additional purchases. Dividends and capital gains distributions will
automatically be reinvested in additional shares at net asset value. As with
other redemptions, a withdrawal payment is a sale for federal income tax
purposes. The Systematic Withdrawal Plan will automatically terminate if all
shares are liquidated or withdrawn from the account. Certifi-
cates are not issued for shares held in a withdrawal account and certificates
held, if any, must be surrendered when shares are transferred to a Withdrawal
Account. No account covered by a Letter of Intent can be changed to a Systematic
Withdrawal Plan until such time as the Letter of Intent is fulfilled or
terminated, nor can an account under a Systematic Withdrawal Plan be placed
under a Letter of Intent.
REINVESTMENT PRIVILEGE--Within ninety (90) days of a redemption (sixty (60) days
for qualified plans), a shareholder may invest all or part of the redemption
proceeds in shares of any of the Funds managed by SM&R at the net asset value
next computed after receipt of the proceeds to be reinvested by SM&R. The
shareholder must ask SM&R for this privilege at the time of reinvestment. Prior
to reinvestment of redemption proceeds, a shareholder is encouraged to consult
with his accountant or tax advisor to determine any possible tax ramifications
of such a transaction. Each Fund managed by SM&R may amend, suspend, or cease
offering this privilege at any time as to shares redeemed after the date of the
amendment, suspension or cessation.
For further information about the "Systematic Withdrawal Plan" and
"Reinvestment Privilege", contact a registered representative or SM&R.
Any gain or loss on the redemption of the shares is recognized for income tax
purposes, whether or not the proceeds are reinvested in accordance with this
privilege, subject, however to the "wash sale" rule described under "Exchange
Privilege" in the Statement of Additional Information.
"PROPER FORM"--means the request for redemption must include: 1) your share
certificates, if issued; 2) your letter of instruction or a stock assignment
specifying the Fund, account number, and number of shares or dollar amount to be
redeemed. Both share certificates and stock powers, if any, must be endorsed and
executed exactly as the Fund shares are registered. It is suggested that
certificates be returned by certified mail for your protection; 3) any required
signature guarantees (see "Signature Guarantees" below); and 4) other supporting
legal documents, if required in the case of estates, trusts, guardianships,
divorce, custodianships, corporations, partnerships, pension or profit sharing
plans, retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
requests are submitted to the Funds' transfer agent in Proper Form for
processing.
TEXAS OPTIONAL RETIREMENT PROGRAM--Shares in an account established under the
Texas Optional Retirement Program may not be redeemed unless satisfactory
evidence is received by SM&R from the State that one of the following conditions
exists: (1) death of the employee; (2) termination of service with the employer;
or (3) retirement of the employee.
SIGNATURE GUARANTEES--This guarantee carries with it certain statutory
warranties which are relied upon by the transfer agent. This guarantee is
designed to protect the investor, the Fund, SM&R and its representatives through
the signature verification of each investor wishing to redeem or exchange
shares. Signature guarantees are required when: (1) the proceeds of the
redemption exceed $25,000; (2) the proceeds (in any amount) are to be paid to
someone OTHER THAN the registered owner(s) of the account; (3) the proceeds (in
any amount) are to be sent to any address OTHER THAN the shareholder's address
of record, pre-authorized bank account or exchanged to one of the other funds
managed by SM&R; (4) in transactions involving share certificates, if the
redemption proceeds are in excess of $25,000; or (5) the Fund or its transfer
agent believes a signature would protect against potential claims based on the
transfer instructions, including, when (a) the current address of one or more
joint owners of an account cannot be confirmed, (b) multiple owners have a
dispute or give inconsistent instructions, (c) the Fund or transfer agent have
been notified of an adverse claim,
34
<PAGE>
(d) the instructions received by the Fund or transfer agent are given by an
agent, not the actual registered owner, (e) it is determined that joint owners
who are married to each other are separated or may be subject to divorce
proceedings, or (f) the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
satisfaction of the Fund or transfer agent.
Acceptable guarantees can be obtained from an "eligible guarantor institution"
as defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions include banks, brokers, dealers, municipal securities
dealers or brokers, government securities dealers or brokers, credit unions (if
authorized under state law), national securities exchanges, registered
securities associations and institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program or an SM&R representative who has executed an
agreement and received authorization from SM&R. IMPORTANT: Witnessing or
notarization is not sufficient.
REDEMPTION OF SMALL ACCOUNTS--If your account balance falls below $100 as a
result of redeeming shares, you will be notified that the value of your account
is less than the required minimum indicated above and allowed (60) days' to make
an additional investment to increase the value of your account above the
required minimum.
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<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------
BOND RATINGS
Description of Standard & Poor's Corporation's bond rating:
AAA Bonds rated "AAA" have the highest rating assigned by Standard & Poor's to
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in small degree.
A Bonds rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB Bonds rated "BBB" are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing cir-
cumstances are more likely to lead to a weakened capacity to pay interest
and repay principal for bonds in this category than for bonds in higher
rated categories.
BB,B Bonds rated "BB,B" are regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance
with the terms of the obligation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Description of Moody's Investor's Service, Inc.'s bond ratings:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds be-
cause margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack
36
<PAGE>
<TABLE>
<S> <C>
outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
</TABLE>
PREFERRED STOCK RATING.
Description of Standard & Poor's Corporation's preferred stock rating:
B Preferred stock rated "B" are regarded on balance, as predominately
speculative with respect to the issuer's capacity to pay preferred stock
obligations. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Description of Moody's Investors Service, Inc.'s preferred stock rating:
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
FEDERAL FUNDS
As used in this Prospectus and in each Fund's Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.
37
<PAGE>
PRE-AUTHORIZED CHECK PLAN AUTHORIZATION
I hereby authorize _____________________________________________________________
Name of bank Branch
of ____________________________________________________________________ to honor
City State
ABA Routing # _________________________ Bank account # _________________________
pre-authorized checks drawn on me by SECURITIES MANAGEMENT & RESEARCH, INC., One
Moody Plaza, Galveston, Texas 77550, and to charge such checks against my
checking account until further notice to you from me. I agree there will be no
liability incurred by you for payment or non-payment of any such checks drawn on
me.
______________________________________ ______________________________________
Depositor's Name (Please print) Signature (exactly as appearing on bank records)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(To be completed by SM&R Home Office)
------------------------------------------------------ ------------------------
Date first check to be deposited by SM&R Transit Number
32 31 30 29 28 27 26 25 24 23 22 21
<CAPTION>
Date firs
32 20 19 18 17 16 15 14 13
</TABLE>
- --------------------------------------------------------------------------------
Securities Management & Research, Inc. - One Moody Plaza - Galveston, Texas
77550
AUTHORIZATION
I hereby authorize SECURITIES MANAGEMENT & RESEARCH, INC. to deposit
pre-authorized checks:
<TABLE>
<S> <C>
/ / Monthly / / New Account
/ / Quarterly / / Existing Account
/ / 7th / / Bank Change
/ / 21st / / Accumulation Account
/ / Growth Fund $ ------------ / / IRA Account
/ / Income Fund $ ------------ / / Profit Sharing Account
/ / Triflex Fund $ ------------ / / Pension Account
/ / Government Income Series $ ------------
/ / Tax Free Series $ ------------
$20 minimum per Fund.
/ / Primary Series $ ------------
$100 minimum investment.
</TABLE>
Credit to the Account of:
- ------------------------------------ ---------------------------
Exact Name on Registration Fund Account No.(s), if known
I agree that if, at any time, such checks are not honored for payment by said
bank, the pre-authorized check plan shall be discontinued. I further understand
that all shares purchased and credited to the above named are conditional, being
subject to checks being honored for payment by said bank.
- ------------------ ---------------------------------------
Date Signature of Customer
A "VOIDED" CHECK MUST BE ATTACHED
TO REVERSE OF BOTTOM HALF OF AUTHORIZATION.
38
<PAGE>
Form 8006
Rev. 4/97
39
<PAGE>
40
<PAGE>
<TABLE>
<S> <C>
Securities Management & Research, Inc. BULK RATE
One Moody Plaza U.S. POSTAGE
Galveston, TX 77550 PAID
PERMIT NO. 1
HOUSTON, TEXAS
</TABLE>
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
Dated APRIL 30, 1997
- -------------------------------------------------------------------------------
TRIFLEX FUND, INC.
(a balanced fund seeking conservation of principal,
current income and long-term capital appreciation)
Mailing and Street Address: Telephone Number: (409) 763-8272
One Moody Plaza Toll Free 1-(800) 231-4639
Galveston, Texas 77550
- -------------------------------------------------------------------------------
This Statement of Additional Information is NOT a prospectus, but should be
read in conjunction with the American National Funds Group Prospectus (the
"Prospectus") dated April 30, 1997. A copy of the Prospectus may be obtained
from your registered representative or Securities Management and Research, Inc.
("SM&R"), One Moody Plaza, Galveston, Texas 77550 (Telephone No. (409) 763-8272
or Toll Free 1-(800)-231-4639). Prior to November 20, 1987, the name of the
Fund was the American National Bond Fund, Inc. and it had a different investment
objective.
-----------------------------------------------------------------------
| No dealer, sales representative, or other person has been |
| authorized to give any information or to make any representations |
| other than those contained in this Statement of Additional |
| Information (and/or the Prospectus referred to above), and if given |
| or made, such information or representations must not be relied |
| upon as having been authorized by the Fund or SM&R. Neither the |
| American National Funds Group Prospectus nor this Statement of |
| Additional Information constitutes an offer or solicitation by |
| anyone in any state in which such offer or solicitation is not |
| authorized, or in which the person making such offer or |
| solicitation is not qualified to do so, or to any person to whom it |
| is unlawful to make such offer or solicitation. |
-----------------------------------------------------------------------
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVE AND POLICIES . . . . . . . . . . . . . . 2
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . 6
POLICY ON PERSONAL INVESTING . . . . . . . . . . . . . . . . . 8
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . 9
INVESTMENT ADVISORY AND OTHER SERVICES . . . . . . . . . . . . 9
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. . . . . . . . 11
CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . 12
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED . 12
SPECIAL PURCHASE PLANS . . . . . . . . . . . . . . . . . . . . 15
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . 17
TAX STATUS . . . . . . . . . . . . . . . . . . . . . . . . . . 18
THE UNDERWRITER. . . . . . . . . . . . . . . . . . . . . . . . 19
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . 19
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . 19
COUNSEL AND AUDITORS . . . . . . . . . . . . . . . . . . . . . 20
TRANSFER AGENT AND DIVIDEND PAYING AGENT . . . . . . . . . . . 20
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . 20
COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . . 21
EXHIBIT "1" TO STATEMENT OF ADDITIONAL INFORMATION
</TABLE>
1
<PAGE>
THE FUND
On August 23, 1989, the Board of Directors of the Triflex Fund, Inc.
(the "Predecessor Fund"), a Texas corporation incorporated on January 9,
1978, caused the Fund to be incorporated under the laws of the State of
Maryland. The purpose of forming the Fund was to permit the Predecessor Fund
to change its domiciliary state from Texas to Maryland by merging into the
Fund. On November 16, 1989, the Predecessor Fund's stockholders approved
such merger and it was consummated on November 30, 1989. At that time, the
Fund, as the survivor of the merger, succeeded to all of the assets and
assumed all of the liabilities of the Predecessor Fund, which was then
dissolved. The Predecessor Fund's investment objective and policies and
investment restrictions were unchanged and are now the Fund's investment
objective and policies and the Fund is now subject to such investment
restrictions. Accordingly, and because the Fund is essentially the same as
the Predecessor Fund, no distinction is made in this Prospectus between the
two and, unless required by the context thereof, disclosures are made as
though the change of domicile had not occurred.
Prior to November 1987, the name of the Predecessor Fund was the
American National Bond Fund, Inc. and its objective was to seek the highest
level of current income consistent with preservation of capital and
maintenance of liquidity.
The Fund is a diversified open-end investment company commonly known as
a mutual fund. A mutual fund is a company in which a number of persons
invest which in turn invests in the securities of other companies. The Fund
is an open-end investment company because it generally must redeem an
investor's shares upon request. The Fund is a diversified investment company
because it offers investors an opportunity to minimize the risk inherent in
all investments in securities by spreading their investment over a number of
companies in various industries. However, diversification cannot eliminate
such risks.
INVESTMENT OBJECTIVES AND POLICIES
The investment objectives of the Fund are conservation of principal,
current income and long-term capital appreciation. The Fund has adopted, as
a fundamental policy, that it will be a "balanced fund" which will not be
changed unless approved by the vote, at a special meeting of stockholders of
(i) 67% of the voting securities present at such meeting, if the holders of
more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding voting
securities, whichever is less.
As a balanced fund, the Fund has adopted an investment policy that it
will not purchase a security if as a result of such purchase less than 25% of
its total assets would be in fixed-income senior securities (including short
and long-term debt securities, preferred stocks and convertible debt
securities and preferred stocks).
Subject to the restriction noted above, the percentage of the Fund's
assets invested in each type of security at any time shall be in accordance
with the judgment of the investment adviser.
The Fund's assets are to be invested in bonds, whether convertible or
nonconvertible, commercial paper, preferred stocks, whether convertible or
nonconvertible and common stocks in such proportions and of such type as are
deemed best adapted to the current economic and market outlooks. However,
only that portion of the value of convertible securities attributable to
their fixed-income characteristics shall be used for purposes of meeting the
25% fixed-income securities requirement.
The Fund may also invest in United States Government obligations. These
instruments are debt obligations issued by agencies or authorities controlled
or supervised by and acting as instrumentalities of the U.S. Government
established under authority granted by Congress. Such obligations include,
but are not limited to, Government National Mortgage Association, The
Tennessee Valley Authority, The Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks, Federal Land Banks and The Federal
National Mortgage Association. Some obligations of U.S. Government
agencies, authorities and other instrumentalities are supported by the full
faith and credit of the U.S. Treasury; others by the rights of the issuer to
borrow
2
<PAGE>
from the Treasury; and others only by the credit of the issuer. Obligations
of the Government National Mortgage Association are supported by the full
faith and credit of the U.S. Treasury; obligations of the other agencies,
authorities and other instrumentalities shown above are supported only by the
credit of the issuers.
The Fund's adviser will invest in U.S. obligations not backed by the
"full faith and credit" of the U.S. government only when, in its opinion, the
risk is minimal. SM&R does not presently intend to invest any significant
amount in such obligations and would do so in the future only to increase the
Fund's liquidity on a short-term basis during adverse and unusual market
conditions.
Subject to market conditions, the Fund may also try to realize income by
writing covered call options listed on a domestic securities exchange. In so
doing, the Fund forgoes the opportunity to profit from an increase in the
market price in the underlying security above the exercise price of the
option in return for the premium it received from the sale of the option.
The Fund's management believes that such premiums will increase the Fund's
distributions without subjecting it to substantial risks.
The Fund engages primarily in holding securities for investment and not
for trading purposes. Purchases and sales of portfolio securities are made
at such times and in such amounts as are deemed advisable in light of market,
economic and other conditions, irrespective of the volume of portfolio
turnover.
Portfolio turnover is calculated by dividing the lesser of annual
purchases or sales of portfolio securities by the monthly average of the
value of the Fund's portfolio securities excluding securities whose
maturities at the time of purchase are one year or less. A 100% portfolio
turnover rate would occur, for example, if all of the Fund's portfolio
securities were replaced within one year.
INVESTMENT RESTRICTIONS
The Fund is also subject to the following restrictions in implementing
its investment policies which may be changed only by vote of a "majority" of
the Fund's outstanding shares, which are used herein, means the lesser of (i)
67% of the Fund's outstanding shares present at a meeting of the holders if
more than 50% of the outstanding shares are present in person or by proxy or
(ii) more than 50% of the Fund's outstanding shares.
The Fund does not:
1. Issue senior securities.
2. Make short sales of securities.
3. Purchase securities on margin.
4. Purchase or sell commodities or commodity contracts;
5. Invest in other companies for the purpose of exercising control of
management;
6. Invest in oil, gas or other mineral leases, rights on royalty
contracts or in real estate or real estate limited partnerships.
7. Underwrite securities issued by other persons;
8. Purchase any securities as to which it would be deemed a statutory
underwriter under the Securities Act of 1933;
9. Borrow money except that the Fund may borrow an amount up to 10% of
its total assets to meet redemption requests and for the clearance of
purchases and sales of portfolio securities (this borrowing provision
is not for investment leverage but solely to facilitate management of
the portfolio to enable the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient and to obtain such short-term credits as may be necessary
for the clearance of purchases and sales of portfolio securities; all
borrowings at any time outstanding will be repaid before any
additional investments are made; the Fund will not mortgage, pledge or
hypothecate any assets in connection with any such borrowing in excess
of 15% of the Fund's total assets);
10. Make loans to other persons except certain call loans upon collateral
security (the Fund does not intend to make such loans; the acquisition
of
3
<PAGE>
publicly distributed bonds, debentures and other debt securities is
not considered a loan);
11. Purchase the securities of any one issuer (other than those issued or
guaranteed by the U.S. Government), if immediately after and as a
result of such purchase the market value of the Fund's holding in the
securities of such issuer exceeds 5% of the market value of the Fund's
total assets.
12. Purchase the securities of an issuer if the purchase will cause the
Fund to own more than 10% of the outstanding voting securities of the
issuer.
13. Purchase the securities of any one issuer (other than those issued or
guaranteed by the U.S. Government), if immediately after and as a
result of such purchase the market value of the Fund's holding in the
securities of such issuer exceeds 5% of the market value of the Fund's
total assets.
14. Purchase the securities of any issuer the business of which has been
in continuous operation for less than three (3) years (however, it is
the Fund's operating policy not to invest in any business which has
not been in continuous operation for at least five (5) years);
15. Retain investments in the securities of any issuer if directors or
officers of the Fund or certain other "interested" persons own more
than 5% of such securities;
16. Purchase the securities of any other investment company except in a
regular transaction in the open market. Such purchases may cause the
Fund to indirectly incur additional advisory and administrative fees;
17. Any warrants purchased by the Fund must be marketable warrants and the
Fund's investment in warrants, valued at the lower of cost or market,
may not exceed 5% of the Fund's total assets. Not more than 2% of the
Fund's total assets may be invested in warrants which are not listed
on the New York or American Stock Exchanges.
Should the Fund decide to do so in the future, it will only invest in
securities which are readily marketable, listed on a recognized domestic or
foreign exchange and in other assets for which there is a bona fide market.
The same policy is applicable to the investment practice described in
Restriction 9 above.
The Fund has adopted a policy whereby it does not presently invest in
securities which have been acquired through private placement transactions or
in real estate mortgage loans although it may invest in securities which are
secured by real estate mortgages and securities of issues which invest or
deal in real estate and/or real estate mortgages provided such securities
meet the criteria set forth in the Prospectus under "What are the Funds
Investment Objectives and Policies?"
INVESTMENT IN COVERED CALL OPTIONS
Although there is no present intent to do so, the Fund may write covered
call option contracts provided that the option is listed on a domestic
securities exchange and that no option will be written if, as a result, more
than 25% of the Fund's assets are subject to call options. A covered call
option is an option on a security which the Fund owns or can acquire by
converting a convertible security it owns. The purchaser of the option
acquires the right to buy the security from the Fund at a fixed exercise
price at any time prior to the expiration of the option, regardless of the
market price of the security at that time. A security on which an option has
been written will be held in escrow by the Fund's custodian until the option
expires, is exercised, or a closing purchase transaction is made. The Fund
thus foregoes the opportunity to profit from an increase in the market price
in the underlying security above the exercise price, in return for the
premium it receives from the purchaser of the option. The Fund's management
believes that such premiums will maximize the Fund's return without
subjecting it to substantial risks.
The Fund will purchase call options only to close out a position in an
option written by it. In order to close out a position the Fund will make a
"closing purchase transaction" if such is available. In such a transaction,
the Fund will purchase a call option on the same security with the same
exercise price and expiration date as the call option which it has previously
written. When a security is sold from the Fund's portfolio against which a
call option has been written, the Fund will effect a closing purchase
transaction so as to close out any existing call option on that security.
The Fund will realize a profit or loss from a closing purchase transaction if
the amount paid to purchase a call option is less or more than the amount
received
4
<PAGE>
as a premium from the writing thereof. A closing purchase transactions
cannot be made if trading in the option has been suspended.
The premium received by the Fund upon writing a call option will
increase the Fund's assets, and a corresponding liability will be recorded
and subsequently adjusted from day to day to the current value of the option
written. For example, if the current value of the option exceeds the premium
received, the excess would be an unrealized loss and, conversely, if the
premium exceeds the current value, such excess would be an unrealized gain.
The current value of the option will be the last sales price on the principal
exchange on which the option is traded or, in the absence of any
transactions, the mean between the closing bid and asked price.
COLLATERALIZED MORTGAGE OBLIGATIONS - The Triflex Fund may invest a portion
of its assets in collateralized mortgage obligations or "CMOs", which are
debt obligations collateralized by a portfolio or pool of mortgages,
mortgage-backed securities or U.S. Government securities. Collateralized
obligations in which the Triflex Fund may invest are issued or guaranteed by
a U.S. Government agency or instrumentality, such as the FHLMC. A variety of
types of collateralized obligations are currently available and others may
become available in the future. One should keep in mind that during periods
of rapid interest rate fluctuation, the price of a security, such as a CMO,
could either increase or decrease based on inherent interest rate risk.
Additionally, the risk of maturities shortening or lenghtening in conjunction
with interest rate movement, could magnify the overall effect of the price
fluctuation.
A CMO is often issued in multiple classes with varying maturities and
interest rates. As a result the investor may obtain greater predictability
of maturity than with direct investments in mortgage-backed securities.
Thus, classes with shorter maturities may have lower volatility and lower
yield while those with longer maturities may have higher volatility and
higher yields. This provides the investor with greater control over the
characteristics of the investment in a changing interest rate environment.
REPURCHASE AGREEMENTS
Although there is no present intent to do so, the Fund may invest in
repurchase agreements with commercial banks, brokers or dealers either for
defensive purposes due to market conditions or to generate income from its
excess cash balances. A repurchase agreement is an agreement under which the
Fund acquires a money market instrument (generally a security issued by the
United States Government or any agency thereof, a banker's acceptance or a
certificate of deposit) from a commercial bank, broker or dealer, subject to
resale to the seller at an agreed upon price and date (normally, the next
business day). A repurchase agreement may be considered a loan
collateralized by securities. The resale price reflects an agreed upon
interest rate effective for the period the instrument is held by the Fund and
is unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by the Fund (including accrued interest
earned thereon) must have a total value in excess of the value of the
repurchase agreement and are held by the Fund's Custodian Bank until
repurchased.
The use of repurchase agreements involves certain risks. For example,
if the other party to the agreement defaults on its obligations to repurchase
the underlying security at a time when the value of the security has
declined, the Fund may incur a loss upon disposition of the security. If the
other party to the agreement becomes insolvent and subject to liquidation or
reorganization under the Bankruptcy Code or other laws, a court may determine
that the underlying security is collateral for a loan by the Fund not within
the control of the Fund and therefore the realization by the Fund on such
collateral may be automatically stayed. Finally, it is possible that the
Fund may not be able to substantiate its interest in the underlying security
and may be deemed an unsecured creditor of the other party to the agreement.
While the Fund's management acknowledges these risks, it is expected that
they can be controlled through careful monitoring procedures.
5
<PAGE>
LENDING OF SECURITIES
Although there is no present intent to do so, the Fund may lend its
portfolio securities to qualified institutional investors who need to borrow
securities in order to complete certain transactions, such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its portfolio securities, the Fund attempts to
increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Fund. The Fund may lend its
portfolio securities to qualified brokers, dealers, banks or other financial
institutions, so long as the terms the structure and the aggregate amount of
such loans are not inconsistent with the Investment Company Act of 1940, or
the Rules and Regulations or interpretations of the Commission thereunder,
which currently require that (a) the borrower pledge and maintain with the
Fund collateral consisting of cash, a letter of credit issued by a domestic
United States bank, or securities issued or guaranteed by the United States
Government having a value at all times not less than 100% of the value of the
securities loans, (b) the borrower add to such collateral whenever the price
of the securities loaned rises (i.e., the borrower "marks to the market" on a
daily basis), (c) the loans be made subject to termination by the Fund at any
time, and (d) the Fund receive reasonable interest on the loans (which may
include the Fund's investing any cash collateral in interest bearing
short-term investments), any distribution on the loaned securities and any
increase in their market value. Loan arrangements made by the Fund will
comply with all other applicable regulatory requirements, including the rules
of the New York Stock Exchange, which rules presently require the borrower,
after notice, to redeliver the securities within the normal settlement time
of five (5) business days. All relevant facts and circumstances, including
the credit worthiness of the broker, dealer or institution, will be
considered in making decisions with respect to the lending of securities,
subject to review by the Fund's board of directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's directors. In addition, voting rights
may pass with the loaned securities, but if a material event should occur
affecting an investment on loans, the loans must be called and the securities
voted.
MANAGEMENT OF THE FUND
The names, addresses, principal occupations, and other affiliations of
the Fund's directors and executive officers are given below. Unless
otherwise specifically noted, each has had the same or similar employment or
position for at least the past five years and occupies the identical position
with the American National Growth Fund, Inc. and the American National Income
Fund, Inc., (hereinafter, sometimes collectively referred to as the "American
National Funds Group" or the "American National family of funds").
(1)(2)RALPH S. CLIFFORD (715 24TH AVE. COURT, MOLINE, ILLINOIS), Director
of the Fund; Retired attorney, Clifford, Clifford & Olson ; Retired
Director of Henry County Bank; Retired Director of Illini Beef
Packers, Inc.; Retired Director of Industrial Relations of
Deere & Company.
(2)PAUL D. CUMMINGS (3102 BELAIRE DRIVE, OKLAHOMA CITY, OKLAHOMA), Director
of the Fund; Retired President and Director of Globe Life and Accident
Insurance Company.
(1)JACK T. CURRIE (515 POST OAK BOULEVARD, SUITE 750, HOUSTON, TEXAS), Director
of the Fund; Personal Investments; Director of American Indemnity Financial
Corporation, holding company for casualty insurance company; Director of
Stewart & Stevenson Services, Inc., designs and constructs power generating
systems.
*MICHAEL W. MCCROSKEY (ONE MOODY PLAZA, GALVESTON, TEXAS), President
and Director of the Fund; Director, President, Chief Executive Officer and
member of the Executive Committee of SM&R; President and Director of the
SM&R Capital Funds, Inc.; President and Director of the American National
Investment Accounts, Inc.; Executive Vice President, American National;
Vice President of Standard Life and
6
<PAGE>
Accident Insurance Company; Assistant Secretary of American National
Life Insurance Company of Texas, Vice President, Garden State Life
Insurance Company; life, health and accident insurance companies in the
American National Family of Companies; Director and President, ANREM
Corporation; President, ANTAC Corporation, 1994 to present.
(1)IRA W. PAINTON, C.L.U. (12004 DAHOON DRIVE, OKLAHOMA CITY, OKLAHOMA),
Chairman of the Board and Director of the Fund; Retired President of the
Fund and the other American National funds; Retired President and Director
of SM&R.
(2)DONALD P. STEVENS (13111 JOHN REYNOLDS DRIVE, GALVESTON, TEXAS), Director of
the Fund; Assistant to the President for Governmental Relations of The
University of Texas Medical Branch, a medical school and hospital system;
Vice President of Jamail Galveston Foundation.
STEVEN H. STUBBS (2885 DOMINIQUE DR., GALVESTON, TEXAS), Director of the Fund;
Former Director, President and Chief Executive Officer of The Westcap
Corporation; and Former President and Chief Executive Officer of SM&R and
the Fund.
WILLIAM R. BERGER, C.F.A. (ONE MOODY PLAZA, GALVESTON, TEXAS) Vice President
and Portfolio Manager for the Triflex Fund, Inc.; Vice President,
Portfolio Manager of the Balanced Portfolio; Co-Manager of the American
National Income Fund, Inc. and the American National Investment Accounts,
Inc.--Managed Portfolio; Assistant Vice President of Investments for
American National; Former Portfolio Manager for Trinity Investment
Management, Bellefonte, Pennsylvania, investment adviser; Former auditor
for Coopers & Lybrand, Dallas, Texas.
EMERSON V. UNGER, C.L.U. (ONE MOODY PLAZA, GALVESTON, TEXAS), Vice President of
the Fund and SM&R; Vice President of the American National Investment
Accounts, Inc. and SM&R Capital Funds, Inc.
BRENDA T. KOELEMAY (ONE MOODY PLAZA, GALVESTON, TEXAS), Vice President and
Treasurer of the Fund and SM&R; Vice President and Treasurer of the
American National Investment Accounts, Inc. and SM&R Capital Funds, Inc.;
Senior Manager, KPMG Peat Marwick, July 1980 to April 1992.
TERESA E. AXELSON (ONE MOODY PLAZA, GALVESTON, TEXAS), Vice President and
Secretary of the Fund SM&R, the American National Investment Accounts, Inc.
and SM&R Capital Funds, Inc.
* "Interested" persons as defined by the Investment Company Act of 1940.
(1) Member of nominating committee.
(2) Member of audit committee.
Officers and directors of the Fund affiliated with SM&R may receive
indirect compensation from the Fund to the extent of underwriting commissions
and investment advisory and service fees paid to SM&R.
By resolution of the Board of Directors, the Fund pays the fees and
expenses of only those directors who are not officers or employees of SM&R or
the Fund. During the fiscal year ended December 31, 1996, the Fund paid
$23,026 to such directors for fees and expenses in attending meetings of
the Board of Directors.
7
<PAGE>
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. Each director
receives a fee, allocated among the American National Funds for which he serves
as a director, which consists of an annual retainer component and a meeting fee
component. Set forth below is information regarding compensation paid or
accrued during the fiscal year ended December 31, 1996 for each director of the
Fund.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM ALL
DIRECTOR FROM FUND AMERICAN NATIONAL FUNDS
- --------------------------------------------------------------------------------
<S> <C> <C>
Ralph S. Clifford $3,433 $10,300
Paul D. Cummings $3,433 $10,300
Jack T. Currie $3,333 $10,000
Michael W. McCroskey -- --
Ira W. Painton $4,667 $14,000
Donald P. Stevens $3,433 $10,300
Steven H. Stubbs $3,333 $10,000
</TABLE>
POLICY REGARDING PERSONAL INVESTING
The following policies have been made a part of the Fund's Code of Ethics.
A portfolio manager must use extreme care to avoid even the appearance
of a conflict of interest in trading in any personal account (or an account
in which he has a beneficial interest). Accordingly, a portfolio manager may
not trade in (or otherwise acquire) any security for his personal account if
that same security is held in, or is being considered as a potential
acquisition by, any of the Funds. Any beneficial interest in a security held
by a portfolio manager must be sold at least 24 hours prior to any investment
by the Funds. The following exceptions apply:
1. Any beneficial interest in a security owned at the time of employment
may be held or traded at any time other than within 24 hours of a
trade in the Funds for the same or related security. Dividends in
that security may be re-invested in accordance with a formal plan
offered by the issuer.
2. Any beneficial interest in a security acquired by devise or bequeath
may be held or traded at any time other than within 24 hours of a
trade in the Funds for the same or related security.
3. Any beneficial interest in a security issued by the Government or any
Agency of the United States, a State, or any political subdivision
thereof may be traded or held.
4. Any beneficial interest in a security for which a written approval is
first obtained from the President & CEO may be traded or held.
PERSONAL INVESTING BY OTHER SM&R OFFICERS AND EMPLOYEES:
Officers and employees of the Company other than portfolio managers may
trade in (or otherwise acquire) or hold any security for his own account (or an
account in which he has beneficial interest). However, the trade must not occur
within 24 hours of a trade in the Funds for the same or related security.
8
<PAGE>
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1997, American National Insurance Company ("American
National"), a Texas life insurance company with its principal offices located
at One Moody Plaza, Galveston, Texas 77550 and Securities Management and
Research, Inc., investment adviser to the Triflex Fund, were the only
shareholders known to the Triflex Fund to own five percent (5%) or more of
its common stock. (For information about the Triflex Fund's capital stock,
see "Capital Stock" herein.) On that date, American National owned
approximately 13% and SM&R owned approximately 8%, respectively, of the
Triflex Fund's common stock. While such ownership does not directly affect a
shareholder's voting rights, it obviously gives American National and SM&R a
strong voice in the Triflex Fund's affairs. As a practical matter, such
ownership means that passage of a shareholder proposal is unlikely without
American National's or SM&R's vote therefor. (For further information about
American National, see the "Control and Management of SM&R" section herein.)
The officers and directors of the Triflex Fund as a group owned .50% of
the outstanding shares of the Triflex Fund as of April 1, 1997.
INVESTMENT ADVISORY AND OTHER SERVICES
CONTROL AND MANAGEMENT OF SM&R
SM&R has been the investment adviser, manager and underwriter of the Fund
since the Fund began business in 1978 as the American National Bond Fund, Inc.
SM&R acts pursuant to a written agreement periodically approved by the directors
or shareholders of the Fund. SM&R is also the investment adviser, manager and
underwriter of the other American National Funds Group and the American National
Investment Accounts, Inc. and the SM&R Capital Funds, Inc. SM&R's address is
that of the Fund.
SM&R is a wholly-owned subsidiary of American National, a Texas life
insurance company with its principal offices in Galveston, Texas. The Moody
Foundation (the "Foundation"), a charitable foundation established for
charitable and educational purposes, owns approximately 23.7% of American
National's common stock and the Libbie S. Moody Trust, a private trust, owns
approximately 37.6% of such shares. The trustees of the Moody Foundation are
Robert L. Moody ("RLM"), Chairman of the Board of Directors of American
National, Frances Moody Newman and Ross R. Moody.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie
S. Moody Trust. RLM is Chairman of the Board and President, Chief Executive
Officer of the Bank, President and Director of Moody Bancshares, Inc.
("Bancshares"), the sole shareholder of Moody Bank Holding Company, Inc.
("MBHC"), and President and Director of MBHC, the Bank's controlling
stockholder. The Three R Trusts, trusts established by RLM for the benefit of
his children, owns 100% of Bancshares' Class B stock (which elects a majority of
Bancshares' and MBHC's directors) and 47.5% of its Class A Stock. The trustee
of the Three R Trusts is Irwin M. Herz, Jr., who is also a director of American
National and a partner in Greer, Herz & Adams, L.L.P., 18th Floor, One Moody
Plaza, Galveston, Texas, General Counsel to American National, the Bank,
Bancshares, MBHC, the Fund, the other American National Funds, the American
National Investment Accounts, Inc., the SM&R Capital Funds, Inc., and SM&R.
Michael W. McCroskey, President of the Fund, is also President, Chief
Executive Officer, director and a member of the executive committee of SM&R,
and President and director of the other members of the American National
Funds Group, the American National Investment Accounts, Inc. and the SM&R
Capital Funds, Inc.; Gordon D. Dixon, Director, Senior Vice President, Chief
Investment Officer and a member of the investment and executive committees of
SM&R, Vice President, Portfolio Manager of the American National Investment
Accounts, Inc. - Growth Portfolio and the American National Growth Fund, Inc.,
Co-Manager of the American National Income Fund, Inc. and the American
National Investment Accounts, Inc.--Managed Portfolio; Emerson V. Unger, Vice
President of the Fund, is also Vice President of SM&R and Vice President of
the other members of the American National Funds Group, the American National
Investment Accounts, Inc., and the SM&R Capital Funds, Inc.; Brenda T.
Koelemay, Vice President and Treasurer of the Fund, is also Vice President
and Treasurer of SM&R and the other members of the American National Funds
Group, the American National Investment Accounts, Inc., and the SM&R Capital
Funds, Inc.; Teresa E. Axelson, Vice President and Secretary of the Fund, is
also Vice President and Secretary of SM&R, the other members of the American
National
9
<PAGE>
Funds Group and Vice President and Secretary of the American National
Investment Accounts, Inc. and SM&R Capital Funds, Inc.
INVESTMENT ADVISORY AGREEMENT
Under an Investment Advisory Agreement (the "Advisory Agreement") between
the Fund and SM&R dated November 30, 1989, SM&R acts as investment adviser for
and provides certain administrative services to the Fund.
As investment adviser, SM&R manages the investment and reinvestment of the
Fund's assets, including the placing of orders for the purchase and sale of
portfolio securities. SM&R provides and evaluates economic, statistical and
financial information to formulate and implement Fund investment programs. All
investments are reviewed quarterly by the Fund's Board of Directors to determine
whether or not such investments are within the policies, objectives and
restrictions of the Fund.
Under the Advisory Agreement, SM&R receives from the Fund an investment
advisory fee for acting as investment adviser computed by applying to the
average daily net asset value of the Fund each month one-twelfth of the annual
rate as follows:
<TABLE>
<CAPTION>
ON THE PORTION OF THE FUND'S BASIC ADVISORY
AVERAGE DAILY NET ASSETS FEE ANNUAL RATE
- ----------------------------------------------------------------------------
<S> <C>
Not exceeding $100,000,000 .750 of 1%
Exceeding $100,000,000 but not exceeding $200,000,000 .625 of 1%
Exceeding $200,000,000 but not exceeding $300,000,000 .500 of 1%
Exceeding $300,000,000 .400 of 1%
</TABLE>
This fee is higher than the fees paid by most other mutual funds.
For the fiscal years ended December 31, 1994, 1995 and 1996, SM&R
received investment advisory fees from the Fund of $148,225, $153,930 and
$167,921, respectively. The net assets of the Fund were $23,187,844 as of
December 31, 1996.
The Advisory Agreement was effective on November 30, 1989 and will
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by the Board of Directors of the Fund
or by vote of a majority of the outstanding voting securities of the Fund,
and, in either case, by the specific approval of a majority of directors who
are not parties to the Advisory Agreement or not "interested" persons (as
defined in the Investment Company Act of 1940, as amended) of any such
parties, cast in person at a meeting called for the purpose of voting on such
approval. Absent proposed changes, it is the policy of Fund management to
submit continuation of the Advisory Agreement annually only to the Fund's
Board of Directors for their approval or disapproval. The Advisory Agreement
was approved by the Board of Directors in accordance with such procedures on
July 22, 1996, and by the Fund's shareholders on November 16, 1989. The
Advisory Agreement may be terminated without penalty by vote of the Board of
Directors or by vote of the holders of a majority of the outstanding voting
securities of the Fund, or by SM&R, upon sixty (60) days' written notice and
will automatically terminate if assigned.
As used herein, the term "majority" when referring to approval to be
obtained from shareholders means the vote of the lesser of (1) 67% of the
Fund's shares present at a meeting if the owners of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more than 50% of
the Fund's outstanding shares.
ADMINISTRATIVE SERVICE AGREEMENT
Under an Administrative Service Agreement between the Fund and SM&R
dated November 30, 1989, SM&R acts as transfer agent and provides all
management, operational and executive services to the Fund. SM&R pays the
salaries of all officers and employees administering the Fund's affairs and
maintains office facilities, furnishes statistical and research data,
clerical help, accounting, data processing, bookkeeping, transfer agency
services, dividend disbursements and certain other services required by the
Fund. The Fund has agreed to pay other expenses incurred in the operation of
the Fund, such as interest, taxes, commissions, and other expenses incidental
to portfolio transactions, Securities and Exchange Commission fees, fees of
the Custodian (See "CUSTODIAN" herein), auditing and legal expenses, fees and
expenses of qualifying Fund
10
<PAGE>
shares for sale and maintaining such qualifications under the various state
securities laws where Fund shares are offered for sale, fees and expenses of
directors not affiliated with SM&R, costs of maintaining corporate existence,
costs of printing and mailing prospectuses and shareholder reports to
existing shareholders and expenses of shareholders' meetings.
SM&R has agreed in its Administrative Service Agreement with the Fund to
pay (or to reimburse the Fund for) the Fund's expenses of any kind, exclusive
of interest, taxes, commissions and other expenses incidental to portfolio
transactions (and, with the prior approval of any state securities
commissioner deemed by the Fund's counsel to be required by law,
extraordinary expenses beyond SM&R's control), but including the management
fee, in excess of 1.25% per year of the Fund's average daily net assets.
Such reimbursement obligation is more restrictive than required by
California, the only state still having an expense reimbursement provision
applicable to the Fund. Such reimbursements, when required, will be made
monthly. During the fiscal years ended December 31, 1994, 1995 and 1996,
SM&R reimbursed $40,023, $40,894 and $29,344, respectively, in excess
expenses to the Fund.
Under the Administrative Service Agreement, SM&R receives from the Fund a
service fee for providing administrative services. The fee is computed by
applying to the average daily net asset value of the Fund each month one-twelfth
of the annual rate as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
ON THE PORTION OF THE FUND'S SERVICE FEE ANNUAL
AVERAGE DAILY NET ASSETS RATE
- -----------------------------------------------------------------------------
<S> <C>
Not exceeding $100,000,000 .25 of 1%
Exceeding $100,000,000 but not exceeding $200,000,000 .20 of 1%
Exceeding $200,000,000 but not exceeding $300,000,000 .15 of 1%
Exceeding $300,000,000 .10 of 1%
</TABLE>
The administrative service fee is payable to SM&R whether or not the actual
expense to SM&R for providing administrative services is more or less than the
amount of such fee.
For the fiscal years ended December 31, 1994, 1995 and 1996, SM&R
received administrative service fees from the Fund pursuant to an investment
advisory agreement then in effect which contained the administrative functions
now contained in the Administrative Service Agreement. During such periods,
SM&R received administrative service fees from the Fund of $49,409, $51,310
and $55,974, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
SM&R, which supervises the Fund's investments, is responsible for effecting
portfolio transactions through eligible securities brokers and dealers, subject
to the general supervision of the Fund's Board of Directors. Investment
decisions are made by an Investment Committee of SM&R, and orders are placed by
persons supervised by that committee.
There is no arrangement or intention to place orders with any specific
broker or group of brokers. The paramount factors considered by SM&R in placing
orders are efficiency in the execution of orders and obtaining the most
favorable net prices for the Fund in both purchases and sales of portfolio
securities. In seeking the best prices and executions, purchases and sales of
securities which are not listed or traded on a securities exchange are generally
executed with a principal market maker acting as principal. SM&R evaluates the
brokerage fees paid by the Fund to any affiliated person by comparing such fees
to those paid by other investment companies for similar transactions as reported
in various industry surveys.
Whenever the primary consideration of best price and best execution is met
to the satisfaction of SM&R, the brokers and dealers selected will include those
who provide supplementary statistical and research services. Such research
services include advice as to the advisability of investing in, purchasing or
selling securities, as well as analyses and reports concerning securities,
economic factors and trends. While SM&R is able to fulfill its obligation to
the Fund without such information, its expenses might be materially increased if
it had to obtain and assemble such information through its
11
<PAGE>
staff. However, the value of such information is not determinable. SM&R
also uses such information when rendering investment advisory services to the
other American National Funds, the American National Investment Accounts,
Inc., the SM&R Capital Funds, Inc., and to American National and its other
accounts. SM&R will authorize the Fund to pay an amount of commission for
effecting a securities transaction in excess of the amount of commission
another broker-dealer would have charged only if it determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer. Generally,
the Fund pays higher than the lowest commission rates available.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, and subject to seeking the best price and execution, the
Fund may give consideration to sales of shares of the Fund as a factor in the
selection of brokers and dealers to execute Fund portfolio transactions.
All purchases and sales of fixed income securities by the Fund are
executed on a net-price basis based on yield quotes from dealers. Such net
prices may include undisclosed mark-ups to such dealers. SM&R has no way to
determine the existence or amount of any such mark-ups except in original
issues. During the fiscal years ended December 31, 1994, 1995 and 1996, the
Fund paid brokerage fees amounting to $21,000, $13,000 and $11,000,
respectively, for transactions in portfolio securities. Portfolio turnover
rates for these periods were 47%, 16% and 24%, respectively. No brokerage
commissions have been paid during the Fund's three most recent periods to any
broker which is an affiliated person of the Fund, which is an affiliated
person of a broker which is an affiliated person of the Fund or an affiliated
person of which is an affiliated person of the Fund or SM&R.
The other American National Funds Group, the American National Investment
Accounts, Inc. and the SM&R Capital Funds, Inc., for which SM&R is also
investment adviser, may own securities of the same companies from time to time.
However, the Fund's portfolio security transactions will be conducted
independently, except when decisions are made to purchase or sell portfolio
securities of the Fund and the other American National Funds Group, the American
National Investment Accounts, Inc. and the SM&R Capital Funds, Inc.,
simultaneously. In such event, the transactions will be averaged as to price
and allocated as to amount (according to the proportionate share of the total
combined commitment) in accordance with the daily purchase or sale orders
actually executed.
The Fund's Board of Directors has determined that such ability to effect
simultaneous transactions may be in the best interests of the Fund. It is
recognized that in some cases these practices could have a detrimental effect
upon the price and volume of securities being bought and sold by the Fund, which
in other cases these practices could produce better executions.
CAPITAL STOCK
The Fund's authorized capital stock consists of 50,000,000 common shares
with a par value of $1.00 each. All shares are equal with respect to
distributions from income and capital gains. There are no conversion, pre-
emptive or other subscription rights. In the event of liquidation, each share
is entitled to an equal portion of all the Fund's assets after all debts and
expenses have been paid.
Each share is entitled to one vote, and the Fund's shares have non-
cumulative voting rights with respect to election of directors. This means that
the holders of more than 50% of the shares voting for the election of directors
can elect 100% of the directors if they so choose, and in such event, holders of
the remaining shares will not be able to elect any directors.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
PURCHASING SHARES
Shares of the Fund may be purchased at a public offering price which is
based on the net asset value of each share of the Fund next determined plus a
sales charge. Shares may be purchased from registered representatives of
SM&R, through certain other authorized broker-dealers or directly from SM&R.
Remittances for additional investments may be submitted directly
12
<PAGE>
to SM&R. Except for certain systematic investment programs (See "SPECIAL
PURCHASE PLANS" herein), the minimum initial investment is $100 and
additional shares may be purchased through investment of $20 or more at any
time thereafter.
In the interest of economy, certificates representing shares purchased are
not ordinarily issued. Most investors do not choose to receive certificates for
their shares as this eliminates the problem of safekeeping and facilitates
redemptions and transfers. However, a monthly confirmation will be sent to the
investor reflecting all activity during the month. The investor will have the
same ownership rights with respect to shares purchased as if certificates had
been issued. Investors may receive a certificate representing shares by making
written request to SM&R. If a certificate is requested, it will normally be
forwarded to the investor within 14 days after receipt of the request. SM&R
reserves the right to charge a small administrative fee for issuance of any
certificates. Certificates will not be issued for fractional shares (although
fractional shares remain in your account on the books of the Fund).
DETERMINATION OF NET ASSET VALUE
The net asset value per share of Fund shares is determined by adding the
market value of its portfolio securities and other assets, subtracting
liabilities, and dividing the result by the number of the Fund shares
outstanding. Expenses and fees of the Fund, including the advisory fee and the
expense limitation reimbursement, if any, are accrued daily and taken into
account in determining net asset value. The portfolio securities of the Fund
are valued as of the close of trading on each day when the New York Stock
Exchange is open for trading other than SM&R's business holidays described
below. Securities listed on national securities exchanges are valued at the
last sales price on such day, or if there is no sale, then at the closing bid
price therefor on such day on such exchange. The value of unlisted securities
is determined on the basis of the latest bid prices therefor on such day. If no
quotations are available for a security or other property, it is valued at fair
value as determined in good faith by the Board of Directors of the Fund on a
consistent basis.
SM&R's business holidays are Good Friday, Memorial Day, Labor Day,
Thanksgiving Day and the Friday following Thanksgiving Day and New Years Day.
For calendar year 1997, SM&R's Christmas holidays will be observed on December
24, 25 and 26.
OFFERING PRICE
Full and fractional shares are purchased at the offering price, which is
the net asset value next determined after receipt of a purchase plus the sales
charge. The sales charge is a percentage of the net asset value per share and
will vary as shown below. Purchases received by SM&R at its office in
Galveston, Texas prior to 3:00 p.m., Central Time, will be executed at the
applicable offering price determined on that day. Purchases received thereafter
will be executed at the offering price determined on the next business day.
The offering price is the net asset value per share plus a sales charge
computed at the rates set forth in the following table:
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
------------------------------------------------------------------
AMOUNT OF INVESTMENT AS A PERCENTAGE OF AS A PERCENTAGE DEALER CONCESSION AS A
AT OFFERING PRICE OFFERING PRICE OF NET AMOUNT PERCENTAGE OF OFFERING
INVESTED PRICE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.1% 4.75%
$50,000 but less than
$100,000 4.5% 4.7% 4.0%
$100,000 but less than
$250,000 3.5% 3.6% 3.0%
$250,000 but less than
$500,000 2.5% 2.6% 2.0%
$500,000 and over* None None None
</TABLE>
13
<PAGE>
*In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers from its own profits and resources, a per
annum percent of the amount invested as follows: Year 1 - 0.35% and
Year 2 - 0.25% for the Growth Fund, Income Fund and Triflex Fund, respectively.
In the third and subsequent years, SM&R may pay 0.075% per annum, in quarterly
installments, to those representatives and broker-dealers with accounts in the
aggregate totaling $1 million or more.
The following is an illustration of the calculation of the net asset value
and offering price per share at December 31, 1996:
NET ASSETS ($23,187,844) = Net Asset Value Per Share ($17.90)
------------------------
Shares outstanding (1,295,757)
To obtain the public offering price per share, the Fund's 5.75% sales
charge as of December 31, 1996 must be added to the net asset value obtained
above:
$17.90 = Public Offering Price Per Share ($18.99)
------
.9425
Such illustration reflects the calculation of the Fund's net asset value
and offering price per share based on the financial history of the Fund prior
to its name and investment objective change and prior to an increase in the
investment advisory fee and the imposition of a service fee. Accordingly, such
illustration should not be, and is not intended to, reflect anticipated future
valuations of net asset values and offering prices per share of the Fund.
REDUCED SALES CHARGE
The reduced sales charge rates set forth in the table above apply to
purchases of shares of the Fund, either singly or in combination with purchases
of shares of the American National Growth Fund, Inc. (the "Growth Fund"), the
American National Income Fund, Inc. (the "Income Fund"), the American National
Government Income Fund Series (the "Government Income Series") and the
American National Tax Free Series of the SM&R Capital Funds, Inc., at the
respective sales charges applicable to each, made at one time by: (1) Any
individual; (2) Any individual, his or her spouse, and trusts or custodial
agreements for their minor children; (3) A trustee or fiduciary of a single
trust estate or single fiduciary account; (4) Tax-exempt organizations specified
in Sections 501(c)(3) or (13) of the Internal Revenue Code, or employees'
trusts, pension, profit-sharing, or other employee benefit plans qualified under
Section 401 of the Internal Revenue Code; and (5) Employees or employers on
behalf of employees under any employee benefit plan not qualified under Section
401 of the Internal Revenue Code.
Purchases by any company or employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the Fund will realize economies of scale in sales effort and
sales related expenses as a result of the employer's or the plan's bearing the
expense of any payroll deduction plan, making the Fund's prospectus available to
individual investors or employees, forwarding investments by such employees to
the Fund, and the like.
The rates set forth above are applicable to single, lump sum purchases made
under the provisions of the preceding paragraphs 1, 2 and 3 and to qualified
investments under a "Letter of Intent" or under the "Accumulation Privilege" as
described below.
THE EDUCATION FUNDING INVESTMENT ACCOUNT PROGRAM
The following breakpoints apply to purchases made by individuals investing
in the Funds through the use of The Education Funding Investment Account
Program.
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
------------------------------------------------------
AMOUNT OF INVESTMENT AS A PERCENTAGE AS A PERCENTAGE DEALER CONCESSION
AT OFFERING PRICE OF OFFERING OF NET AMOUNT AS A PERCENTAGE OF
PRICE INVESTED OFFERING PRICE
- -------------------- --------------- --------------- ------------------
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than 3.5% 3.6% 3.0%
$250,000
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TOTAL SALES CHARGE
------------------------------------------------------
AMOUNT OF INVESTMENT AS A PERCENTAGE AS A PERCENTAGE DEALER CONCESSION
AT OFFERING PRICE OF OFFERING OF NET AMOUNT AS A PERCENTAGE OF
PRICE INVESTED OFFERING PRICE
- -------------------- --------------- --------------- ------------------
<S> <C> <C> <C>
$250,000 but less than 2.5% 2.6% 2.0%
$500,000
$500,000 and over* None None None
</TABLE>
*In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers from its own profits and resources, a per
annum percent of the amount invested as follows: Year 1 - 0.35% and
Year 2 - 0.25%. In the third and subsequent years, SM&R may pay 0.075% per
annum, in quarterly installments, to those representatives and broker-dealers
with accounts in the aggregate totaling $1 million or more.
The Education Funding Investment Account Program is a service expressly
created to help investors accumulate funds for their children's or
grandchildren's college education. The maximum sales charge is 4.5% on the
purchase of shares of the Funds. To participate in this special plan,
investors must complete the special Education Funding Investment Account
application designed specifically for the Program.
All direct sales expenses, including the cost of prospectuses for
prospective shareholders, are paid by SM&R, and no sales expense is borne by any
of the Funds.
SPECIAL PURCHASE PLANS
LETTER OF INTENT -- As indicated in the Prospectus under the heading "Letter
of Intent", investors may qualify for a reduced sales charge on the Fund
either singly or in combination with the purchase and holding of shares of
the Growth Fund, the Income Fund, the Government Income Series or the Tax
Free Series. A minimum initial investment equal to 10% of the amount
necessary for the applicable reduced sales charge is required when a Letter
of Intent is executed. Investments made under a Letter of Intent will
purchase shares at the total sales charge rate applicable to the specified
total investment. SM&R will hold in escrow from the initial investment
shares equal to 5% of the amount of the total intended investment. Such
escrow shares may not be exchanged or reinvested for shares of another fund,
or the Government Income Series or the Tax Free Series and, subject to the
right of early cancellation described below, will not be released until the
amount purchased equals the commitment set forth in the Letter of Intent. If
the intended investment is not completed during the 13 month period, the
difference between the sales charge actually paid and the sales charge
applicable to the total of such purchases made will be deducted from the
escrow shares if not paid by the investor within twenty (20) days after the
date notice thereof has been mailed to such investor.
A Letter of Intent agreement can be canceled prior to the end of the
13-month period and escrow shares released to the investor if the investor
pays the difference between the sales charge paid and the sales charge
applicable to the amount actually invested and agrees that such Letter of
Intent agreement is canceled and no longer in effect.
The offering value of the shares of the Fund, the Growth Fund, the Income
Fund, the Government Income Series or the Tax Free Series currently owned
may also be included in the aggregate amount of an investment covered by a
Letter of Intent. For example, if an investor owns shares of the Fund or shares
of the Growth Fund, the Income Fund, the Government Income Series, the Tax Free
Series or some combination of these funds, currently valued at $80,000 and
intends to invest $25,000 over the next thirteen months, such investor may
execute a Letter of Intent and the entire $25,000 will purchase shares of either
or all of such funds at the reduced sales charge rate applicable to an
investment of $100,000 or more. A Letter of Intent does not represent a binding
obligation on the part of the investor to purchase or the Fund to sell the full
amount of shares specified.
SYSTEMATIC INVESTMENT AND PRE-AUTHORIZED CHECK PLANS -- The Fund provides a
convenient, voluntary method of purchasing shares in the Fund through its
"Systematic Investment and Pre-Authorized Check Plans" (a "Plan" or "Plans").
The principal purposes of the Plans are to encourage thrift by enabling
investors to make regular purchases in amounts less than normally required, and
to employ the principle of dollar cost averaging described below.
15
<PAGE>
By acquiring Fund shares on a regular basis pursuant to a Plan, or
investing regularly on any other systematic plan, the investor takes advantage
of the principle of dollar cost averaging. Under dollar cost averaging, if a
constant amount is invested at regular intervals at varying price levels, the
average cost of all the shares will be lower than the average of the price
levels. This is because the same fixed number of dollars buys more shares when
price levels are low and fewer shares when price levels are high. It is
essential that the investor consider his other financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of dollar cost averaging will not protect against loss in a
declining market, as a loss will result if the plan is discontinued when the
market value is less than cost.
After the initial minimum investment of $100 has been met, a plan may be
opened by indicating an intention to make subsequent investments of $20 per
individual or more monthly for at least one year. The investor will receive a
confirmation showing the number of shares purchased, purchase price, and
subsequent new balance of shares accumulated.
An investor has no obligation to invest regularly or to continue
participating in a Plan, which may be terminated by the investor at any time
without penalty. Under a Plan, any distributions of income and realized capital
gains will be reinvested in additional shares at net asset value unless a
shareholder instructs SM&R in writing to pay them in cash. SM&R reserves the
right to increase or decrease the amount required to open and continue the plan,
and to terminate any shareholder's right to participate in the plan if after one
year the value of the amount invested is less than $100.
GROUP SYSTEMATIC INVESTMENT PLAN -- This plan provides employers and employees
with a convenient means for purchasing shares of the Fund under various types of
employee benefit and thrift plans, including payroll deduction and bonus
incentive plans. The plan may be started with an initial cash investment of $20
per participant for a group consisting of five or more participants. The shares
purchased by each participant under the plan will be credited to a separate
account in the name of each investor in which all dividends and capital gains
will be reinvested in additional shares of the Fund at net asset value. Such
reinvestments will be made at the start of business on the day following the
record date for such dividends and capital gains distributions. To keep his or
her account open, subsequent payments, each totaling $20 or more must be made
into each participant's account monthly. If the group is reduced to less than
five participants, the minimums set forth under "Systematic Investment and Pre-
Authorized Check Plans" shall apply. The plan may be terminated by SM&R or the
shareholder at any time upon sixty (60) days' prior written notice.
EXCHANGE PRIVILEGE -- As provided in the Prospectus under the heading
"Exchange Privilege", investors owning shares of the Fund can exchange such
shares for shares of the other funds in the American National Funds Group and
the SM&R Capital Funds, Inc. There is no administrative charge for this
privilege at this time, however, the Fund reserves the right to charge a fee
in the future.
Such exchange privileges are not options or rights to purchase such
securities, but are revocable privileges permitted under the present policies of
each of these funds, and are not available in any state or other jurisdiction
where the shares of the fund into which transfer is to be made are not
registered for sale. SM&R reserves the right to restrict the frequency of or
otherwise modify, condition, terminate or impose additional charges upon the
exchange privilege.
The minimum number of shares that may be exchanged is the number of shares
of the fund whose shares are being exchanged which have a net asset value on the
date of such exchange equal to the minimum initial or subsequent investment, as
the case may be, of the fund into which the exchange is being made.
Any gain or loss realized on such an exchange is recognized for income tax
purposes, subject, however, to the "wash sale" rule that if and to the extent
the investor reinvests in the Fund originally held within thirty (30) days after
the redemption, losses will not be recognized.
16
<PAGE>
REDEMPTION
Any shareholder may redeem all or any part of his shares by submitting a
written request to SM&R as the Fund's agent for such purpose. Such requests
must be duly executed by each registered owner and must be accompanied by
certificates endorsed for transfer, if certificates have been issued, with
signatures guaranteed by a commercial bank or securities firm. No signature
guarantees are required on the written request for redemption by a shareholder
of record when payment is to be made to such shareholder of record at such
shareholder's address of record and the value of the shares redeemed is $25,000
or less. In all other cases the signatures on the request for redemption, as
well as on certificates being tendered, must be guaranteed. On all redemption
requests for joint accounts, the signatures of all joint owners are required.
Corporations, executors, divorced persons, administrators, trustees or guardians
will be required to submit further documentation. Refer to the American
National Funds Group prospectus for signature guarantee requirements.
Shares are redeemed at the net asset value per share next computed after
the request and certificates, if any, are received in "Proper Form". (See "HOW
TO REDEEM SHARES" in the Prospectus). A shareholder may receive more or less
than he paid for his shares, depending on the prevailing market value of the
Fund's portfolio securities. Redemption checks are delivered as soon as
practicable and normally will be sent to the investor within seven days
following the date on which redemption is made.
At various times the Fund may be requested to redeem shares for which it
has not yet received good payment for prior purchases of Fund shares.
Accordingly, proceeds of the Fund will not be paid until good payment has been
received which could be as much as fifteen (15) business days after the
purchase, or until SM&R can verify that good payment (for example, cash or
certified check on a United States Bank) has been, or will be, collected for the
purchase of such shares.
The right of redemption is subject to suspension and payment postponed
during any period when the New York Stock Exchange is closed other than
customary weekend or holiday closings, or during which trading on such Exchange
is restricted; for any period during which an emergency exists, as a result of
which disposal by the Fund of its securities is not reasonably practicable or it
is not reasonably practicable for the Fund to fairly determine the value of its
net assets; or for such other periods as the Commission has by order permitted
such suspension for the protection of the Fund's security holders.
The Fund has made an election under the Investment Company Act of 1940, as
amended, to pay in cash all requests for redemption by any shareholder of
record, limited in amount with respect to each shareholder during any ninety-day
period to the lesser of (i) $250,000 or (ii) 1% of the net asset value of the
Fund at the beginning of such period. The Fund may pay the redemption price, if
any, in excess of the amounts described above in whole or in part in portfolio
securities, at the market value thereof determined as of the close of business
next following receipt of the request in proper form, if deemed advisable by the
board of directors. In such case a shareholder would incur brokerage costs if
he sold the securities received.
There is presently no charge for redeeming Fund shares. However, the Fund
reserves the right to charge for any redemption an amount, to be determined by
the Board of Directors, not to exceed 1% of the net asset value of the shares
being redeemed, but it is not the present intent of the Board of Directors to
make such a charge.
SYSTEMATIC WITHDRAWAL PLAN
As described in the Prospectus under "Systematic Withdrawal Plan", the
Fund has a Systematic Withdrawal Plan which allows shareholders having an
account value of $5,000 or more to automatically withdraw a minimum of $50
monthly or quarterly.
A Systematic Withdrawal Plan provides for regular monthly or quarterly
payments to the account investor or his designee through redemption of a portion
of the shares held in the account. Some portion of each withdrawal may be
taxable gain or loss to the account investor at the time of the withdrawal, the
amount of the gain or loss
17
<PAGE>
being determined by the investment in the Fund shares. The minimum, though
not necessarily recommended, withdrawal amount is $50.00. Shares sufficient
to provide the designated withdrawal payment are redeemed each month or
quarterly on or about the 20th, and checks are mailed to reach the investor on
or about the lst of the following month. All income dividends and capital
gains distributions are automatically reinvested at net asset value, without
sales charge. Since each withdrawal check represents proceeds from the sale
of sufficient shares equal to the withdrawal, there can be a reduction of
investment capital, particularly in a declining market. If redemptions are
consistently in excess of shares added through reinvestment of distributions,
the withdrawals will ultimately exhaust the capital.
The shareholder may designate withdrawal payments for a fixed dollar
amount, as stated in the preceding paragraph, or a variable dollar amount based
on (1) redemption of a fixed number of shares at monthly or quarterly intervals,
or (2) redemption of a specified and increasing fraction of shares held at
monthly or quarterly intervals. To illustrate the latter option, if an investor
wanted quarterly payments for a ten-year period, the first withdrawal payment
would be the proceeds from redemption of 1/40th of the shares held in the
account. The second payment would be 1/39th of the remaining shares; the third
payment would be 1/38th of the remaining shares, etc. Under this option, all
shares would be redeemed over the ten-year period, and the payment amount would
vary each quarter, depending upon the number of shares redeemed and the
redemption price.
No charge is made for a non-qualified Systematic Withdrawal Plan, and the
account investor may change the option or payment amount at any time upon
written request received by SM&R no later than the month prior to the month of a
scheduled redemption for a withdrawal payment. A Systematic Withdrawal Plan may
also be terminated at any time by the account investor of the Fund without
penalty.
Occasionally certain limited types of qualified retirement plans are
involved in making investments and withdrawals during the same year. Under such
an arrangement, it is possible for the plan to be, in effect, charged duplicate
sales charges. In order to eliminate this possibility, the Fund will permit
additional investments, without sales charge, equal to all sums withdrawn,
providing the additional investments are made during the next twelve months
following the withdrawal or redemption, and providing that all funds withdrawn
were for the specific purpose of satisfying plan benefits of participants who
have retired, become disabled or left the plan. Furthermore, for a qualified
plan to qualify under this provision, the plan must include at least one
participant who is a non-owner employee. The Fund and SM&R discourage
shareholders from maintaining a withdrawal account while concurrently and
regularly purchasing shares of the Fund, although such practice is not
prohibited.
TAX STATUS
Shareholders are reminded that dividends are taxable whether received in
cash or reinvested and received in the form of additional shares. Furthermore,
any distribution received shortly after a purchase of shares by an investor will
have the effect of reducing the per share net asset value of his shares by the
amount of the distributions. Such distributions, although in effect a return of
capital, are subject to taxes. Furthermore, if the net asset value of each
share is reduced below the shareholder's cost as a result of a distribution,
such distribution would be a return of capital although taxed at applicable
rates.
The Fund or the securities dealer effecting a redemption transaction is
required to file an informational return (1099-B) with the IRS with respect to
each sale of Fund shares by a shareholder. The year-end statement provided to
each shareholder will serve as a substitute 1099-B for purposes of reporting any
gain or loss on the tax return filed by the shareholder. In addition, the Fund
is required by law and IRS regulations to withhold 31% of the dividends,
redemptions and other payments made to non-exempt accounts unless shareholders
have provided a corrected taxpayer identification number and made the
certifications required by the IRS as indicated in the shareholder application
when opening an account.
Distributions from the Fund may also be subject to state and local taxes.
Shareholders should consult their own tax adviser concerning tax consequences of
an investment in the Fund.
18
<PAGE>
THE UNDERWRITER
SM&R serves as principal underwriter of the shares of the Fund pursuant to
an Underwriting Agreement dated May 1, 1993 (the "Underwriting Agreement").
Such Underwriting Agreement provides that it shall continue in effect only so
long as such continuance is specifically approved at least annually by the board
of directors of the Fund or by vote of a majority of the outstanding voting
securities of the Fund and, in either case, by the specific approval of a
majority of directors who are not parties to such contract or agreement or not
"interested" persons (as defined in the Investment Company Act of 1940, as
amended) of any such parties, cast in person at a meeting called for the purpose
of voting on such approval. The Underwriting Agreement was approved by the
Board of Directors of the Fund in accordance with such procedures at a meeting
held on July 22, 1996. The Underwriting Agreement may be terminated without
penalty by vote of the Board of Directors or by vote of the holders of a
majority of the outstanding voting securities of the Fund, or by SM&R, upon
sixty (60) days' written notice and will automatically terminate if assigned (as
provided in the Investment Company Act of 1940, as amended).
As principal underwriter, SM&R continuously offers and sells shares of
the Fund through its own sales representatives and broker-dealers. As
compensation for such services, SM&R receives the sales charge, which is the
difference between the offering price at which shares are issued and the net
asset value. The sales charge allowance to broker-dealers ranges from a
maximum of 6.1% to a minimum of 2.6% of the net amount invested and from a
maximum of 4.75% to a minimum of 2.0% of the public offering price. In
connection with purchases of $500,000 or more, SM&R may pay broker-dealers
from its own profits and resources, a per annum percent of the amount invested
as follows: Year 1 - 0.35% and Year 2 - 0.25%. In the third and subsequent
years, SM&R may pay 0.075% per annum, in quarterly installments, to those
broker-dealers with accounts in the aggregate totaling $1 million or more.
Such allowances are the same for all broker-dealers.
The amount of such sales charge received by SM&R from the sale of Fund
shares for the fiscal years ended December 31, 1994, 1995 and 1996 was
$43,311, $33,172 and $44,577, respectively. Of such amounts received during
such periods SM&R retained approximately $9,500, $6,000 and $6,000,
respectively and $700, $295 and $390 was reallowed to dealers.
FINANCIAL STATEMENTS
The financial statements included as part of the Fund's Annual Report
dated December 31, 1996, filed with the Securities and Exchange Commission on
February 26, 1997, are attached hereto as "EXHIBIT 1".
CUSTODIAN
The cash and securities of the Fund are held by SM&R pursuant to a
Custodian Agreement dated September 12, 1991. As custodian, SM&R will hold
and administer the Fund's cash and securities and maintain certain financial
and accounting books and records as provided for in such Custodian Agreement.
The compensation paid to the Custodian is paid by the Fund and is based upon
and varies with the number, type and amount of transactions conducted by the
Custodian.
SM&R has entered into a sub-custodial agreement with Moody National Bank of
Galveston (the "Bank") effective July 1, 1991. Under the sub-custodian
agreement the cash and securities of the Fund will be held by the Bank which
will be authorized to use the facilities of the Depository Trust Company and the
facilities of the book-entry system of the Federal Reserve Bank with respect to
securities of the Fund held by it on behalf of SM&R for the Fund.
19
<PAGE>
COUNSEL AND AUDITORS
The Fund's General Counsel is Greer, Herz & Adams, L.L.P., 18th Floor, One
Moody Plaza, Galveston, Texas 77550. KPMG Peat Marwick LLP, 700 Louisiana,
Houston, Texas 77002, are the Fund's independent auditors and perform annual
audits of the Fund's financial statements.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
SM&R is the transfer agent and dividend paying agent for the Fund, the
American National Growth Fund, Inc., the American National Income Fund, Inc.,
the American National Investment Accounts, Inc. and the SM&R Capital Funds,
Inc.
PERFORMANCE DATA
CUMULATIVE TOTAL RETURN
The cumulative return reflects each year's hypothetical annually compounded
return that would equate a ten thousand dollar investment on November 20, 1987
(the effective date of the current investment objectives) to the redeemable
value on December 31 of each of the succeeding years by adding one to the
computed average annual total return multiplied by:
1. the $10,000 hypothetical investment for 1988 or;
2. the redeemable value of the $10,000 investment as of the preceding
December 31 for the succeeding years.
The total return percentage calculations assume the maximum sales charge
was deducted from the initial amount invested and that all income dividends and
capital gain distributions are reinvested on the reinvestment dates at the net
asset value.
The income return percentage reflects the income dividends paid during the
period divided by:
1. the $10,000 hypothetical investment for 1988 or;
2. the redeemable value of the $10,000 investment as of the preceding
December 31 for the succeeding years.
The appreciation percentage represents the difference between the $10,000
investment and the ending redemption value for 1988 and the difference between
the beginning and ending redemption values for subsequent years, less the income
dividends paid during the period divided by:
1. the $10,000 hypothetical investment for 1988; or
2. the redeemable value of the $10,000 investment as of the preceding
December 31 for the succeeding years.
The total return on the net amount invested reflects the hypothetical
return that would equate a November 20, 1987 initial ten thousand dollar
investment less the maximum $575 sales load to the redeemable value on December
31, 1988 by adding one to the computed total return and multiplying the result
by $9,425 (the initial ten thousand dollar investment less the maximum sales
load).
AVERAGE ANNUAL RETURN
The Fund's average annual return during specified time periods reflects the
hypothetical annually compounded return that would equate an initial one
thousand dollar investment to the ending redeemable value of such investment by
adding one to the computed average annual total return, raising the sum to a
power equal to the number of years covered by the computation and multiplying
the result by the one thousand dollar initial investment. The calculation
assumes deduction of the maximum sales charge from the initial amount invested
and reinvestment of all investment income
20
<PAGE>
dividends and capital gains distributions on the reinvestment dates at the
net asset value.
COMPARISONS
To help investors better evaluate how an investment in the Fund might
satisfy their investment objective, advertisements and other materials regarding
the Fund may discuss various measures of the performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
The following publications, indices, and averages may be used:
Dow Jones Composite Average or its component averages - an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment
of dividends.
Standard & Poor's 500 Stock Index or its component indices - an unmanaged index
composed of 400 industrial stocks, 40 financial stocks, 40 utilities stocks, and
20 transportation stocks. Comparisons of performance assume reinvestment of
dividends.
The New York Stock Exchange composite or component indices - unmanaged indices
of all industrial, utilities, transportation, and finance stocks listed on the
New York Stock Exchange.
Wilshire 5000 Equity Index - represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
Lipper - Mutual Fund Performance Analysis and Lipper - Fixed Income Fund
Performance Analysis - measure total return and average current yield for the
mutual fund industry. Rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc. analyzes
price, current yield, risk, total return, and average rate of return (average
annual compounded growth rate) over specified time periods for the mutual fund
industry.
Mutual Fund Source Book, published by Morningstar, Inc. - analyzes price, yield,
risk and total return for equity funds.
Financial publications: The Wall Street Journal and Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines provide performance
statistics over specified time periods.
Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau of
Labor Statistics - a statistical measure of change, over time, in the price of
goods and services in major expenditure groups.
Salomon Brothers Broad Bond Index or its component indices - The Aggregate Bond
Index measures yield, price and total return for Treasury, Agency, Corporate,
Mortgage, and Yankee bonds.
Standard & Poor's Bond Indices - measures yield and price of Corporate,
Municipal, and Government bonds.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the portfolio of the Fund, that the averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Fund to calculate its
figures. In addition there can be no assurance that the Fund will continue this
performance as compared to such other averages.
21
<PAGE>
- --------------------------------------------------------------------------------
A N N U A L R E P O R T
[LOGO]
AMERICAN
NATIONAL
FUNDS
GROUP
- AMERICAN NATIONAL GROWTH FUND
- AMERICAN NATIONAL INCOME FUND
- TRIFLEX FUND
ANNUAL REPORT
DECEMBER 31, 1996
<PAGE>
Securities Management & Research, Inc. BULK RATE
One Moody Plaza U.S. POSTAGE
Galveston, TX 77550 PAID
PERMIT NO. 1
HOUSTON, TEXAS
<PAGE>
AMERICAN NATIONAL FUNDS GROUP ANNUAL REPORT
- -----------------------------------------------------
SHAREHOLDER FEATURES AND BENEFITS
PRE-AUTHORIZED CHECK PLAN
MAKES IT EASY FOR YOU TO INVEST ON A REGULAR BASIS.
You can invest regularly into your mutual fund account by authorizing your bank
to automatically draft your personal checking account.
WEALTH ACCUMULATION ACCOUNT
A SYSTEMATIC EXCHANGE FEATURE*
This exchange feature allows you to gradually and periodically move assets from
one fund to another without charge. *We are required by the SEC to note that the
exchange privilege is subject to change or termination, although we have no such
plans.
EDUCATION FUNDING INVESTMENT ACCOUNT
WHEN YOUR CHILDREN OR GRANDCHILDREN ARE READY FOR COLLEGE - WILL YOU BE?
A special account to help you accumulate funds for a child's or grandchild's
college education. Such accounts qualify for a reduced sales charge. See the
prospectus for details.
SYSTEMATIC WITHDRAWAL PLAN
YOU CAN SUPPLEMENT YOUR INCOME
This feature offers you a way of redeeming shares to meet current cash needs
while the rest of your money continues to work for you. See the prospectus for
details.
RETIREMENT PLANS
HELP IN PLANNING FOR A MORE SECURE FUTURE
You can use the American National family of funds for IRA, 403(b)(7), SEP, 457,
401(k) and pension and profit sharing plans. These funds can be well-suited for
pension fund fiduciaries seeking prudent investment alternatives with the
potential for higher rates of return.
DISTRIBUTIONS
CONVENIENT DIVIDEND DISTRIBUTIONS
Each fund distributes essentially all earned net income to shareholders
regularly. You can supplement your income with a convenient check, or
automatically reinvest your distributions and purchase additional shares without
a sales charge.
REINVESTMENT PRIVILEGE
OUR COMMITMENT TO SERVICE
Shareholders who redeem all or part of their shares may repurchase shares up to
the same dollar amount within 90 days of the redemption without an additional
sales charge.
INFORMATION LINE
ACCESS YOUR ACCOUNT INFORMATION BY PHONE
Simply call toll free 1-800-231-4639 and you'll speak to an Investor Services
Representative - in person. Whatever you need, they are there to help.
This report and the financial statements contained herein are submitted for the
general information of the shareholders of these funds. This report is not
authorized for distribution to prospective investors unless preceded or
accompanied by an effective prospectus.
1
<PAGE>
AMERICAN NATIONAL FUNDS GROUP One Moody Plaza, Galveston, Texas 77550
- --------------------------------------------------------------------------------
DIRECTORS
Ralph S. Clifford
Paul D. Cummings
Jack T. Currie
Michael W. McCroskey
Ira W. Painton
Donald P. Stevens
Steven H. Stubbs
OFFICERS
Michael W. McCroskey, President
Gordon D. Dixon, Vice President and
Portfolio Manager
William R. Berger, Vice President and
Portfolio Manager
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
INVESTMENT ADVISOR AND MANAGER
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
CUSTODIAN
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
700 Louisiana
Houston, Texas 77002
2
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
APPAREL, TEXTILE--2.40%
Guilford Mills, Incorporated 40,000 $ 1,065,000
Kellwood Company 80,000 1,600,000
Phillips-Van Heusen Corporation 70,000 1,006,250
-----------
3,671,250
AUTO, TRUCK & PARTS
MANUFACTURER--2.13%
Chrysler Corporation 22,000 726,000
Ford Motor Company 20,000 637,500
General Motors Corporation 20,000 1,115,000
Modine Manufacturing Company 29,000 775,750
-----------
3,254,250
BANKS--5.21%
Comerica, Incorporated 40,000 2,095,000
Morgan (J.P.) & Company 20,000 1,952,500
NationsBank Corporation 20,000 1,955,000
Norwest Corporation 45,000 1,957,500
-----------
7,960,000
BEVERAGES--3.22%
Coca-Cola Company 30,000 1,578,750
Cott Corporation 58,000 420,500
PepsiCo, Incorporated 100,000 2,925,000
-----------
4,924,250
BUILDING CONSTRUCTION &
SUPPLIES--3.42%
Fluor Corporation 40,000 2,510,000
Foster Wheeler Corporation 45,000 1,670,625
Giant Cement Holding,
Incorporated* 65,000 1,048,125
-----------
5,228,750
CHEMICALS--2.79%
Cabot Corporation 30,000 753,750
Du Pont (E.I.) de Nemours &
Company 25,000 2,359,375
Occidental Petroleum Corporation 49,000 1,145,375
-----------
4,258,500
COAL, GAS & PIPE--1.60%
El Paso Natural Gas Company 2,511 126,806
Sonat, Incorporated 45,000 2,317,500
-----------
2,444,306
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
COMPUTER SOFTWARE & SERVICES--
4.05%
Bay Networks, Incorporated* 15,000 $ 313,125
BMC Software, Incorporated* 40,000 1,655,000
Electronic Data Systems
Corporation 21,600 934,200
Newbridge Networks Corporation* 32,000 904,000
Sequent Computer Systems,
Incorporated* 65,000 1,153,750
Silicon Graphics, Incorporated* 48,000 1,224,000
-----------
6,184,075
COSMETICS & TOILETRIES--2.11%
Procter & Gamble Company 30,000 3,225,000
DRUGS--7.13%
Abbott Laboratories 50,000 2,537,500
Allergan, Incorporated 41,000 1,460,625
Amgen, Incorporated* 20,000 1,087,500
Bergen Brunswig Corporation
(Class A) 49,000 1,396,500
Merck & Company, Incorporated 35,000 2,773,750
Scherer (R.P.) Corporation* 32,500 1,633,125
-----------
10,889,000
ELECTRONICS--2.47%
General Signal Corporation 45,000 1,923,750
Motorola, Incorporated 30,000 1,841,250
-----------
3,765,000
ENVIRONMENTAL--3.04%
Wheelabrator Technologies,
Incorporated 85,000 1,381,250
WMX Technologies, Incorporated 100,000 3,262,500
-----------
4,643,750
EXPLORATION & DRILLING--1.83%
Noble Affiliates, Incorporated 24,000 1,149,000
Union Pacific Resources Group,
Incorporated 25,408 743,184
Union Texas Petroleum Holdings,
Incorporated 40,000 895,000
-----------
2,787,184
FINANCIAL SERVICES-2.99%
American General Corporation 20,000 817,500
American States Financial
Corporation 56,000 1,484,000
Dean Witter Discover and Company 15,000 993,750
Mercury Finance Company** 104,000 1,274,000
-----------
4,569,250
</TABLE>
3
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND, CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
FOOD PRODUCERS & RETAILERS--
8.66%
<S> <C> <C>
Albertson's, Incorporated 40,000 $ 1,425,000
Food Lion, Incorporated (Class A) 250,000 2,445,300
General Mills, Incorporated 45,000 2,851,875
Hudson Foods, Incorporated (Class
A) 25,000 475,000
IBP, Incorporated 58,000 1,406,500
McCormick & Company, Incorporated 58,000 1,366,625
Sara Lee Corporation 40,000 1,490,000
Universal Foods Corporation 50,000 1,762,500
-----------
13,222,800
HOSPITAL SUPPLIES & SERVICES--
2.64%
OrNda HealthCorp* 34,000 994,500
PacifiCare Health Systems,
Incorporated (Class B)* 10,000 852,500
Tenet Healthcare Corporation* 100,000 2,187,500
-----------
4,034,500
HOUSEHOLD FURNITURE/
APPLIANCES--1.26%
The Singer Company N.V. 55,000 1,230,625
Whirlpool Corporation 15,000 699,375
-----------
1,930,000
MEDIA--1.97%
Disney (Walt) Company 30,000 2,088,750
US West Media Group,
Incorporated* 50,000 925,000
-----------
3,013,750
MEDICAL SUPPLIES & SERVICES--
1.70%
Johnson & Johnson 30,000 1,492,500
Mallinckrodt Group, Incorporated 25,000 1,103,125
-----------
2,595,625
METALS & MINING--0.78%
Cyprus Amax Minerals Company 40,000 935,000
J&L Specialty Steel, Incorporated 22,000 250,250
-----------
1,185,250
MISCELLANEOUS--3.40%
Banta Corporation 58,000 1,326,750
Lucent Technologies, Incorporated 17,824 824,360
Sturm, Ruger & Company,
Incorporated 44,000 852,500
Tenneco, Incorporated 27,000 1,218,375
UST, Incorporated 30,000 971,250
-----------
5,193,235
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
OFFICE EQUIPMENT/SERVICES--6.36%
COMPAQ Computer Corporation* 35,000 $ 2,598,750
Hewlett-Packard Company 74,000 3,718,500
Sun Microsystems, Incorporated* 60,000 1,541,250
Tandem Computers, Incorporated* 135,000 1,856,250
-----------
9,714,750
OIL DOMESTIC & INTERNATIONAL--
8.69%
Amoco Corporation 25,000 2,012,500
Ashland Oil, Incorporated 40,000 1,755,000
Chevron Corporation 42,000 2,730,000
Societe Nationale Elf Aquitaine
ADR 60,000 2,715,000
Unocal Corporation 100,000 4,062,500
-----------
13,275,000
PAPER/FOREST PRODUCTS--1.75%
Louisiana-Pacific Corporation 35,000 739,375
Mead Corporation 24,000 1,395,000
Temple-Inland, Incorporated 10,000 541,250
-----------
2,675,625
RAILROADS--2.03%
Burlington Northern, Incorporated 15,000 1,295,625
Union Pacific Corporation 30,000 1,803,750
-----------
3,099,375
RETAIL DISCOUNT/SPECIALTY--2.31%
Toys "R" Us, Incorporated* 26,000 780,000
Wal-Mart Stores, Incorporated 120,000 2,745,000
-----------
3,525,000
SEMICONDUCTORS--2.20%
Advanced Micro Devices,
Incorporated* 40,000 1,030,000
Avnet, Incorporated 40,000 2,330,000
-----------
3,360,000
TRANSPORT, TRUCKING & SHIPPING--
0.87%
Arnold Industries, Incorporated 25,000 396,875
Covenant Transport, Incorporated
(Class A)* 20,000 287,500
Greenbrier Companies,
Incorporated 55,000 570,625
Newport News Shipbuilding,
Incorporated* 5,400 81,000
-----------
1,336,000
</TABLE>
4
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND, CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
UTILITY ELECTRIC/TELEPHONE--3.59%
<S> <C> <C>
Alltel Corporation 47,000 $ 1,474,625
AT&T Company 55,000 2,392,500
US West Communications Group 50,000 1,612,500
-----------
5,479,625
-----------
TOTAL COMMON STOCK--92.60%
(COST $104,494,854) 141,445,100
-----------
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
CONTAINERS--0.49%
Crown Cork & Seal Company,
Incorporated, 5.70%, 01/13/97 $ 745,000 $ 743,584
DIVERSIFIED--0.60%
Growmark, Incorporated, 5.75%,
01/14/97 915,000 913,100
ELECTRIC UTILITIES--1.98%
Orange & Rockland Utilities,
Incorporated, 5.96%, 01/03/97 1,132,000 1,131,625
Orange & Rockland Utilities,
Incorporated, 6.65%, 01/06/97 794,000 793,267
Orange & Rockland Utilities,
Incorporated, 6.57%, 01/08/97 100,000 99,872
Pennsylvania Power & Light
Company, 5.80%, 01/16/97 1,003,000 1,000,576
-----------
3,025,340
FINANCIAL SERVICES--0.99%
Ford Motor Credit Company, 5.91%,
01/02/97 240,000 239,961
Kerr-McGee Credit Corporation,
5.70%, 01/10/97 1,270,000 1,268,190
-----------
1,508,151
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
FOODS--2.07%
ConAgra, Incorporated, 5.72%,
01/13/97 $ 336,000 $ 335,359
ConAgra, Incorporated, 5.92%,
01/21/97 2,026,000 2,019,337
Tyson Foods, Incorporated, 5.85%,
01/17/97 814,000 811,884
-----------
3,166,580
STEEL PRODUCTS--0.65%
Carpenter Technology Corporation,
5.75%, 01/07/97 1,000,000 999,042
TRANSPORT MISCELLANEOUS--0.48%
XTRA, Incorporated, 5.85%,
01/15/97 740,000 738,316
-----------
TOTAL COMMERCIAL PAPER--7.26%
(COST $11,094,113) 11,094,113
-----------
TOTAL INVESTMENTS--99.86%
(COST $115,588,967) 152,539,213
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.14% 219,084
-----------
NET ASSETS--100.00% $152,758,297
-----------
-----------
ABBREVIATIONS
ADR -- American Depository Receipt
* -- Non-income producing securities
** -- On January 31, 1997, the Fund's net asset value
was $5.15 after considering the decline in value of
Mercury Finance Company.
</TABLE>
See notes to financial statements.
5
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INCOME FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE--1.45%
Raytheon Company 50,000 $ 2,406,250
APPAREL, TEXTILE--2.13%
Guilford Mills, Incorporated 50,000 1,331,250
Kellwood Company 110,000 2,200,000
-----------
3,531,250
AUTO, TRUCK & PARTS
MANUFACTURER--3.61%
Ford Motor Company 133,881 4,267,457
Modine Manufacturing Company 64,000 1,712,000
-----------
5,979,457
BANKS--8.42%
Comerica, Incorporated 70,000 3,666,250
Fleet Financial Group,
Incorporated 51,747 2,580,882
Morgan (J.P.) & Company 24,500 2,391,812
NationsBank Corporation 30,000 2,932,500
Norwest Corp 55,000 2,392,500
-----------
13,963,944
BEVERAGES--2.47%
PepsiCo, Incorporated 140,000 4,095,000
BUILDING CONSTRUCTION &
SUPPLIES--2.18%
Fluor Corporation 40,000 2,510,000
Foster Wheeler Corporation 30,000 1,113,750
-----------
3,623,750
CHEMICALS--2.28%
Du Pont (E.I.) de Nemours &
Company 40,000 3,775,000
COAL, GAS & PIPE--1.36%
El Paso Natural Gas Company 3,720 187,860
Sonat, Incorporated 40,000 2,060,000
-----------
2,247,860
DIVERSIFIED--1.09%
Tenneco, Incorporated 40,000 1,805,000
DRUGS--5.92%
Abbott Laboratories 65,000 3,298,750
Allergan, Incorporated 38,000 1,353,750
Bergen Brunswig Corporation
(Class A) 45,000 1,282,500
Schering-Plough Corporation 60,000 3,885,000
-----------
9,820,000
ELECTRONICS--3.03%
General Signal Corporation 60,000 2,565,000
Motorola, Incorporated 40,000 2,455,000
-----------
5,020,000
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
FINANCIAL SERVICES--3.52%
American States Financial
Corporation 47,000 $ 1,245,500
Dean Witter Discover and Company 45,000 2,981,250
Mercury Finance Company** 132,000 1,617,000
-----------
5,843,750
FOODS PRODUCERS & RETAILERS--
7.22%
Albertson's, Incorporated 55,000 1,959,375
Food Lion, Incorporated (Class A) 350,000 3,423,420
IBP, Incorporated 63,500 1,539,875
McCormick & Company, Incorporated 70,000 1,649,375
Sara Lee Corporation 44,000 1,639,000
Universal Foods Corporation 49,800 1,755,450
-----------
11,966,495
HOUSEHOLD FURNITURE/
APPLIANCES--1.69%
Whirlpool Corporation 60,000 2,797,500
METALS & MINING--1.27%
Cyprus Amax Minerals Company 90,000 2,103,750
MISCELLANEOUS--5.45%
Arnold Industries, Incorporated 80,000 1,270,000
Banta Corporation 63,000 1,441,125
Columbia/HCA Healthcare
Corporation 37,500 1,528,125
Lucent Technologies, Incorporated 16,204 749,435
Newport News Shipbuilding,
Incorporated* 8,000 120,000
Sturm, Ruger & Company,
Incorporated 80,000 1,550,000
Union Pacific Resources Group,
Incorporated 25,408 743,184
WMX Technologies, Incorporated 50,000 1,631,250
-----------
9,033,119
OFFICE EQUIPMENT--2.42%
Hewlett-Packard Company 80,000 4,020,000
OIL DOMESTIC & INTERNATIONAL--
3.94%
Societe Nationale Elf Aquitaine
ADR 25,000 1,131,250
Texaco, Incorporated 55,000 5,396,875
-----------
6,528,125
PAPER/FOREST PRODUCTS--3.68%
Mead Corporation 35,000 2,034,375
Temple-Inland, Incorporated 40,000 2,165,000
Weyerhaeuser Company 40,000 1,895,000
-----------
6,094,375
RAILROADS--3.95%
Burlington Northern, Incorporated 55,000 4,750,625
Union Pacific Corporation 30,000 1,803,750
-----------
6,554,375
</TABLE>
6
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INCOME FUND, CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
REAL ESTATE/REITS--6.41%
<S> <C> <C>
CenterPoint Properties
Corporation 63,000 $ 2,063,250
Health & Retirement Property
Trust 100,000 1,937,500
Hospitality Properties Trust 50,000 1,450,000
Liberty Trust Properties 75,000 1,931,250
Oasis Residential, Incorporated 55,000 1,251,250
Omega Healthcare Investors,
Incorporated 60,000 1,995,000
-----------
10,628,250
TOBACCO--1.27%
UST, Incorporated 65,000 2,104,375
UTILITY ELECTRIC/GAS/TELEPHONE--
6.59%
Alltel Corporation 51,000 1,600,125
AT&T Company 50,000 2,175,000
Baltimore Gas and Electric
Company 26,300 703,525
DTE Energy Company 65,000 2,104,375
GTE Corporation 60,000 2,730,000
US West Communications Group 50,000 1,612,500
-----------
10,925,525
-----------
TOTAL COMMON STOCK--81.35%
(Cost $97,186,216) 134,867,150
-----------
<CAPTION>
PREFERRED STOCK
<S> <C> <C>
COAL, GAS & PIPE--0.66%
Western Gas Resources,
Incorporated (Convertible) 28,000 1,092,000
FINANCIAL SERVICES--0.77%
Security Capital Industrial Trust
(Convertible) 47,000 1,280,750
INSURANCE COMPANIES--0.67%
St Paul Capital LLC (Convertible) 20,000 1,107,500
OIL DOMESTIC--3.53%
Ashland Oil, Incorporated
(Convertible) 35,000 2,401,875
Unocal Corporation (Convertible) 61,000 3,454,125
-----------
5,856,000
TOBACCO--0.84%
RJR Nabisco Holdings
(Convertible) 206,240 1,392,120
-----------
TOTAL PREFERRED STOCK--6.47%
(Cost $10,061,504) 10,728,370
-----------
<CAPTION>
FACE
CORPORATE BONDS AMOUNT VALUE
<S> <C> <C>
HOUSEHOLD FURNITURE/
APPLIANCES--0.61%
Masco Corporation, 5.25%,
02/15/12, $1,000,000 $ 1,018,750
Subordinated Convertible
Debentures
MACHINERY/GENERAL INDUSTRIAL--
1.03%
Robbins & Meyers, Incorporated,
6.50%, 09/01/03, Subordinated
Convertible Debentures 1,500,000 1,704,375
-----------
TOTAL CORPORATE BONDS--1.64%
(Cost $2,402,500) 2,723,125
-----------
COMMERCIAL PAPER
CONTAINERS--1.20%
Crown Cork & Seal Company,
Incorporated, 5.72%, 01/09/97 2,000,000 1,997,458
DIVERSIFIED--0.61%
Growmark, Incorporated, 5.70%,
01/14/97 1,008,000 1,005,925
ELECTRIC UTILITIES--2.78%
Orange & Rockland Utilities,
Incorporated, 5.96%, 01/03/97 1,107,000 1,106,633
Orange & Rockland Utilities,
Incorporated, 6.65%, 01/06/97 801,000 800,260
Orange & Rockland Utilities,
Incorporated, 6.57%, 01/08/97 981,000 979,748
Pennsylvania Power & Light
Company, 5.80%, 01/16/97 1,720,000 1,715,843
-----------
4,602,484
FINANCIAL SERVICES--1.34%
Ford Motor Credit Company, 5.91%,
01/02/97 1,000,000 999,836
Kerr-McGee Credit Corporation,
5.70%, 01/10/97 1,230,000 1,228,247
-----------
2,228,083
FOODS--3.04%
ConAgra, Incorporated, 6.75%,
01/03/97 107,000 106,960
ConAgra, Incorporated, 5.92%,
01/21/97 1,986,000 1,979,468
Tyson Foods, Incorporated, 5.77%,
01/06/97 1,593,000 1,591,723
Tyson Foods, Incorporated, 5.85%,
01/17/97 1,357,000 1,353,472
-----------
5,031,623
STEEL PRODUCTS--0.60%
Carpenter Technology Corporation,
5.75%, 01/07/97 1,000,000 999,042
</TABLE>
7
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INCOME FUND, CONTINUED
<TABLE>
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
TRANSPORT MISCELLANEOUS--0.79%
<S> <C> <C>
XTRA, Incorporated, 5.85%,
01/15/97 $1,305,000 $ 1,302,031
-----------
TOTAL COMMERCIAL PAPER--10.36%
(Cost $17,166,646) 17,166,646
-----------
TOTAL INVESTMENTS--99.82%
(Cost $126,816,866) 165,485,291
-----------
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.18% 300,607
-----------
NET ASSETS--100.00% $165,785,898
-----------
-----------
ABBREVIATIONS
ADR -- American Depository Receipt
REIT -- Real Estate Investment Trust
* -- Non-income producing security
** -- On January 31, 1997, the Fund's net asset value was
$25.77 after considering the decline in value of
Mercury Finance Company.
</TABLE>
See notes to financial statements.
8
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
TRIFLEX FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
APPAREL, TEXTILE--0.85%
Guilford Mills, Incorporated 3,400 $ 90,525
Kellwood Company 5,300 106,000
-----------
196,525
AUTO, TRUCK & PARTS
MANUFACTURER--1.86%
Chrysler Corporation 2,600 85,800
Ford Motor Company 3,300 105,188
General Motors Corporation 3,000 167,250
Modine Manufacturing Company 2,700 72,225
-----------
430,463
BANKS--4.93%
Comerica, Incorporated 5,000 261,875
NationsBank Corporation 5,000 488,750
Norwest Corporation 9,000 391,500
-----------
1,142,125
BEVERAGES--1.47%
Cott Corporation 6,800 49,300
PepsiCo, Incorporated 10,000 292,500
-----------
341,800
BUILDING CONSTRUCTION &
SUPPLIES--3.31%
Fluor Corporation 5,000 313,750
Foster Wheeler Corporation 5,000 185,625
Giant Cement Holding,
Incorporated* 8,500 137,063
Granite Construction,
Incorporated 6,900 131,100
-----------
767,538
CHEMICALS--2.78%
Cabot Corporation 3,600 90,450
Du Pont (E.I.) de Nemours &
Company 4,000 377,500
Occidental Petroleum Corporation 7,600 177,650
-----------
645,600
COAL, GAS & PIPE--1.02%
El Paso Natural Gas Company 297 14,998
Sonat, Incorporated 4,300 221,450
-----------
236,448
COMPUTER SOFTWARE & SERVICES--
2.34%
BMC Software, Incorporated* 5,200 215,150
Electronic Data Systems
Corporation 2,300 99,475
Sequent Computer Systems,
Incorporated* 6,200 110,050
Silicon Graphics, Incorporated* 4,600 117,300
-----------
541,975
COSMETICS & TOILETRIES--2.32%
Procter & Gamble Company 5,000 537,500
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
DRUGS--6.00%
Abbott Laboratories 8,000 $ 406,000
Allergan, Incorporated 3,900 138,937
Amgen, Incorporated* 2,000 108,750
Bergen Brunswig Corporation
(Class A) 4,600 131,100
Scherer (R. P.) Corporation* 3,100 155,775
Warner-Lambert Company 6,000 450,000
-----------
1,390,562
ELECTRONICS--1.30%
General Signal Corporation 4,200 179,550
Motorola, Incorporated 2,000 122,750
-----------
302,300
ENVIRONMENTAL--2.04%
Wheelabrator Technologies,
Incorporated 9,000 146,250
WMX Technologies, Incorporated 10,000 326,250
-----------
472,500
EXPLORATION & DRILLING--0.87%
Noble Affiliates, Incorporated 1,700 81,388
Union Pacific Resources Group,
Incorporated 1,693 49,520
Union Texas Petroleum Holdings,
Incorporated 3,200 71,600
-----------
202,508
FINANCIAL SERVICES--1.67%
American General Corporation 1,800 73,575
American States Financial
Corporation 5,400 143,100
Dean Witter Discover and Company 1,800 119,250
Mercury Finance Company** 4,200 51,450
-----------
387,375
FOOD PRODUCERS & RETAILERS--
4.17%
Albertson's, Incorporated 3,100 110,438
General Mills, Incorporated 5,000 316,875
IBP, Incorporated 5,500 133,375
Ralston Purina Company 1,700 124,737
Sara Lee Corporation 3,800 141,550
Universal Foods Corporation 4,000 141,000
-----------
967,975
HOSPITAL SUPPLIES & SERVICES--
2.90%
Columbia/HCA Healthcare
Corporation 7,650 311,737
OrNda HealthCorp* 3,500 102,375
PacifiCare Health Systems,
Incorporated (Class B)* 1,000 85,250
Tenet Healthcare Corporation* 7,900 172,813
-----------
672,175
</TABLE>
9
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
TRIFLEX FUND, CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
MEDIA--1.56%
<S> <C> <C>
Disney (Walt) Company 3,800 $ 264,575
US West Media Group,
Incorporated* 5,200 96,200
-----------
360,775
MEDICAL SUPPLIES & SERVICE--
1.07%
Johnson & Johnson 5,000 248,750
MISCELLANEOUS--5.26%
Banta Corporation 5,500 125,813
Cyprus Amax Minerals Company 5,500 128,563
Health & Retirement Property
Trust 8,900 172,438
Lucent Technologies, Incorporated 1,555 71,918
Sturm, Ruger & Company,
Incorporated 4,600 89,125
The Singer Company N.V. 4,900 109,637
Tenneco, Incorporated 3,200 144,400
Toys "R" Us, Incorporated* 3,000 90,000
Union Pacific Corporation 2,000 120,250
UST, Incorporated 5,200 168,350
-----------
1,220,494
OFFICE EQUIPMENT/SERVICES--1.61%
Sun Microsystems, Incorporated* 9,200 236,325
Tandem Computers, Incorporated* 10,000 137,500
-----------
373,825
OIL DOMESTIC & INTERNATIONAL--
3.14%
Amoco Corporation 2,000 161,000
Chevron Corporation 4,400 286,000
Societe Nationale Elf Aquitaine
ADR 6,200 280,550
-----------
727,550
PAPER/FOREST PRODUCTS--1.54%
Louisiana-Pacific Corporation 5,100 107,737
Mead Corporation 2,000 116,250
Weyerhaeuser Company 2,800 132,650
-----------
356,637
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
SEMICONDUCTORS--1.51%
Avnet, Incorporated 6,000 $ 349,500
TRANSPORT, TRUCKING & SHIPPING--
0.44%
Arnold Industries, Incorporated 2,200 34,925
Greenbrier Companies,
Incorporated 5,600 58,100
Newport News Shipbuilding,
Incorporated* 640 9,600
-----------
102,625
UTILITY ELECTRIC/TELEPHONE--3.00%
Alltel Corporation 4,400 138,050
AT&T Company 4,800 208,800
GTE Corporation 4,000 182,000
US West Communications Group 5,200 167,700
-----------
696,550
-----------
TOTAL COMMON STOCK--58.96%
(Cost $9,821,924) 13,672,075
-----------
<CAPTION>
PREFERRED STOCK
<S> <C> <C>
COAL, GAS & PIPE--0.44%
Western Gas Resources,
Incorporated (Convertible) 2,600 101,400
OIL DOMESTIC--0.85%
Unocal Corporation (Convertible) 3,500 198,188
-----------
TOTAL PREFERRED STOCK--1.29%
(Cost $314,066) 299,588
-----------
</TABLE>
10
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1996
- --------------------------------------------------------------------------------
TRIFLEX FUND, CONTINUED
<TABLE>
<CAPTION>
FACE
BONDS AND NOTES AMOUNT VALUE
FINANCIAL SERVICES--2.59%
<S> <C> <C>
Ford Motor Credit Company,
6.375%, 09/15/99 $ 600,000 $ 600,000
GOVERNMENT AGENCIES--19.55%
Federal Home Loan Mortgage
Corporation, 7.70%, 05/17/06 1,000,000 1,012,490
Federal Home Loan Mortgage
Corporation, 7.00%, 09/15/07 1,000,000 1,004,260
Federal Home Loan Mortgage
Corporation, Pool #284839,
8.50%, 01/01/17 58,187 60,278
Federal Home Loan Mortgage
Corporation, Pool #302886,
8.00%, 05/01/17 54,863 55,910
Federal Home Loan Mortgage
Corporation, Pool #298759,
8.00%, 08/01/17 184,881 188,406
Federal National Mortgage
Association, 7.55%, 04/22/02 685,000 722,702
Federal National Mortgage
Association, 7.55%, 06/10/04 1,250,000 1,258,150
Federal National Mortgage
Association, Pool #041669,
8.00%, 02/01/17 36,083 36,760
Federal National Mortgage
Association, Pool #48974,
8.00%, 06/01/17 190,270 193,838
-----------
4,532,794
U S TREASURY SECURITIES--14.41%
U S Treasury Bond, 6.000%,
02/15/26 2,600,000 2,367,976
U S Treasury Note, 5.875%,
02/15/04 1,000,000 974,160
-----------
3,342,136
-----------
TOTAL BONDS AND NOTES--36.55%
(Cost $8,193,231) 8,474,930
-----------
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
ELECTRIC UTILITIES--1.53%
Idaho Power Company, 5.70%,
01/09/97 $ 169,000 $ 168,786
Orange & Rockland Utilities,
Incorporated, 5.96%, 01/03/97 187,000 186,938
-----------
355,724
FOODS--0.81%
Tyson Foods, Incorporated, 5.85%,
01/07/97 187,000 186,818
GOVERNMENT AGENCIES--0.22%
Federal National Mortgage
Association, 6.00%, 01/03/97 50,000 49,983
-----------
TOTAL COMMERCIAL PAPER--2.56%
(Cost $592,525) 592,525
-----------
TOTAL INVESTMENTS--99.36%
(Cost $18,921,746) 23,039,118
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.64% 148,726
-----------
NET ASSETS--100.00% $23,187,844
-----------
-----------
ABBREVIATIONS
ADR -- American Depository Receipt
* -- Non-income producing securities
** -- On January 31, 1997, the Fund's net asset value
was $18.43 after considering the decline in value
of Mercury Finance Company.
</TABLE>
See notes to financial statements.
11
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH INCOME TRIFLEX
<S> <C> <C> <C>
ASSETS
Investments in securities, at value $ 152,539,213 $ 165,485,291 $ 23,039,118
Cash 2,235 2,026 8,959
Receivable for:
Dividends 229,013 373,267 21,749
Interest - 46,473 122,088
Other assets 131,996 104,782 27,288
-------------- -------------- --------------
TOTAL ASSETS 152,902,457 166,011,839 23,219,202
LIABILITIES
Capital stock reacquired - 82,393 -
Accrued:
Investment advisory fee 99,922 97,879 14,893
Service fee 30,238 32,169 4,965
Other liabilities 14,000 13,500 11,500
-------------- -------------- --------------
TOTAL LIABILITIES 144,160 225,941 31,358
-------------- -------------- --------------
NET ASSETS $ 152,758,297 $ 165,785,898 $ 23,187,844
-------------- -------------- --------------
-------------- -------------- --------------
Shares outstanding 30,871,421 6,618,317 1,295,757
-------------- -------------- --------------
-------------- -------------- --------------
Net asset value per share $ 4.95 $ 25.05 $ 17.90
-------------- -------------- --------------
-------------- -------------- --------------
Offering price per share
(Net asset value per share / 94.25%) $ 5.25 $ 26.58 $ 18.99
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
STATEMENTS OF OPERATIONS Year Ended December 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GROWTH INCOME TRIFLEX
<S> <C> <C> <C>
INVESTMENT INCOME
Dividends $ 2,604,309 $ 4,501,861 $ 311,315
Interest 488,388 882,478 591,754
-------------- -------------- --------------
TOTAL INVESTMENT INCOME 3,092,697 5,384,339 903,069
EXPENSES
Investment advisory fee 1,093,421 1,080,300 167,921
Service fee 335,086 355,696 55,974
Insurance 60,394 70,776 6,428
Directors' fees and expenses 23,026 23,026 23,026
Custodian fees 66,120 78,244 14,460
Audit fees 13,500 13,500 11,500
Qualification fees 23,562 28,472 9,881
Shareholder reporting expenses 28,569 28,952 5,742
Reorganization expenses - - 4,711
Legal 245 275 148
-------------- -------------- --------------
TOTAL EXPENSES 1,643,923 1,679,241 299,791
LESS EXPENSES REIMBURSED - - 29,344
-------------- -------------- --------------
NET EXPENSES 1,643,923 1,679,241 270,447
-------------- -------------- --------------
INVESTMENT INCOME, NET 1,448,774 3,705,098 632,622
-------------- -------------- --------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 4,261,181 3,943,081 599,434
Change in unrealized appreciation of investments for the year 17,439,255 15,681,074 1,280,861
-------------- -------------- --------------
NET GAIN ON INVESTMENTS 21,700,436 19,624,155 1,880,295
-------------- -------------- --------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 23,149,210 $ 23,329,253 $ 2,512,917
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
See notes to financial statements.
12
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income, net $ 1,448,774 $ 2,100,718
Net realized gain on investments 4,261,181 8,778,428
Change in unrealized appreciation 17,439,255 17,009,120
-------------- --------------
Net increase in net assets resulting from operations 23,149,210 27,888,266
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income, net (1,419,918) (2,151,434)
Capital gains (4,921,156) (9,178,995)
-------------- --------------
Total distributions to shareholders (6,341,074) (11,330,429)
CAPITAL SHARE TRANSACTIONS, NET 1,129,016 5,013,300
-------------- --------------
TOTAL INCREASE 17,937,152 21,571,137
NET ASSETS
Beginning of year 134,821,145 113,250,008
-------------- --------------
End of year $ 152,758,297 $ 134,821,145
-------------- --------------
-------------- --------------
</TABLE>
AMERICAN NATIONAL INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income, net $ 3,705,098 $ 3,714,443
Net realized gain on investments 3,943,081 6,691,546
Change in unrealized appreciation 15,681,074 21,966,913
-------------- --------------
Net increase in net assets resulting from operations 23,329,253 32,372,902
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income, net (3,671,980) (3,750,365)
Capital gains (4,113,747) (6,611,754)
-------------- --------------
Total distributions to shareholders (7,785,727) (10,362,119)
CAPITAL SHARE TRANSACTIONS, NET 9,184,340 4,816,388
-------------- --------------
TOTAL INCREASE 24,727,866 26,827,171
NET ASSETS
Beginning of year 141,058,032 114,230,861
-------------- --------------
End of year $ 165,785,898 $ 141,058,032
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
13
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
TRIFLEX FUND
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income, net $ 632,622 $ 614,731
Net realized gain on investments 599,434 352,817
Change in unrealized appreciation 1,280,861 3,149,441
-------------- --------------
Net increase in net assets resulting from operations 2,512,917 4,116,989
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income, net (626,356) (627,120)
Capital gains (550,081) (178,979)
-------------- --------------
Total distributions to shareholders (1,176,437) (806,099)
CAPITAL SHARE TRANSACTIONS, NET 94,672 (576,725)
-------------- --------------
TOTAL INCREASE 1,431,152 2,734,165
NET ASSETS
Beginning of year 21,756,692 19,022,527
-------------- --------------
End of year $ 23,187,844 $ 21,756,692
-------------- --------------
-------------- --------------
</TABLE>
See notes to financial statements.
14
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
AMERICAN NATIONAL GROWTH FUND 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 4.39 $ 3.83 $ 4.15 $ 4.51 $ 5.07
Investment income, net 0.05 0.08 0.06 0.06 0.08
Net realized and unrealized gain (loss) on investments
during the year 0.73 0.88 0.15 0.31 (0.20)
--------- --------- --------- --------- ---------
Total from Investment Operations 0.78 0.96 0.21 0.37 (0.12)
Less distributions from
Investment income, net (0.05) (0.08) (0.06) (0.06) (0.08)
Capital gains (0.17) (0.32) (0.47) (0.67) (0.36)
--------- --------- --------- --------- ---------
Total distributions (0.22) (0.40) (0.53) (0.73) (0.44)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year $ 4.95 $ 4.39 $ 3.83 $ 4.15 $ 4.51
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return 17.64% 25.20% 4.98% 8.17% (2.50)%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 152,758 $ 134,821 $ 113,250 $ 113,135 $ 111,811
Ratio of expenses to average net assets 1.15 0.98 0.97 1.00 1.07
Ratio of net investment income to average net assets 1.02 1.67 1.46 1.31 1.42
Portfolio turnover rate 18.72 37.00 46.26 59.67 92.28
Average commission rate 7.00 -- -- -- --
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
AMERICAN NATIONAL INCOME FUND 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 22.59 $ 18.90 $ 21.66 $ 22.09 $ 22.94
Investment income, net 0.58 0.62 0.62 0.56 0.57
Net realized and unrealized gain (loss) on investments
during the year 3.10 4.82 (0.75) 1.75 0.17
--------- --------- --------- --------- ---------
Total from Investment Operations 3.68 5.44 (0.13) 2.31 0.74
Less distributions from
Investment income, net (0.58) (0.63) (0.61) (0.60) (0.53)
Capital gains (0.64) (1.12) (2.02) (2.14) (1.06)
--------- --------- --------- --------- ---------
Total distributions (1.22) (1.75) (2.63) (2.74) (1.59)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year $ 25.05 $ 22.59 $ 18.90 $ 21.66 $ 22.09
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return 16.46% 29.12% (0.61)% 10.63% 3.31%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 165,786 $ 141,058 $ 114,231 $ 119,956 $ 108,076
Ratio of expenses to average net assets 1.10 1.12 1.12 1.17 1.18
Ratio of net investment income to average net assets 2.42 2.89 2.86 2.51 2.56
Portfolio turnover rate 27.07 44.00 52.46 70.71 44.03
Average commission rate 7.00 -- -- -- --
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
TRIFLEX FUND 1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 16.85 $ 14.32 $ 15.35 $ 15.81 $ 16.20
Investment income, net 0.49 0.49 0.45 0.41 0.46
Net realized and unrealized gain (loss) on investments
during the year 1.48 2.67 (0.22) 0.58 0.01
--------- --------- --------- --------- ---------
Total from Investment Operations 1.97 3.16 0.23 0.99 0.47
Less distributions from
Investment income, net (0.49) (0.49) (0.45) (0.41) (0.35)
Capital gains (0.43) (0.14) (0.81) (1.04) (0.51)
--------- --------- --------- --------- ---------
Total distributions (0.92) (0.63) (1.26) (1.45) (0.86)
--------- --------- --------- --------- ---------
Net Asset Value, End of Year $ 17.90 $ 16.85 $ 14.32 $ 15.35 $ 15.81
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Total return 11.86% 22.29% 1.49% 6.31% 3.00%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 23,188 $ 21,757 $ 19,023 $ 20,469 $ 21,482
Ratio of expenses to average net assets (1) 1.21 1.26 1.25 1.32 1.15
Ratio of net investment income to average net assets 2.83 2.99 2.91 2.49 2.96
Portfolio turnover rate 23.78 16.39 46.95 70.98 61.66
Average commission rate 7.00 -- -- -- --
</TABLE>
(1) Expenses for these calculations are net of a reimbursement from Securities
Management & Research, Inc. Without these reimbursements, the ratio of
expenses to average net assets would have been 1.34%, 1.46%, 1.45%, 1.39%
and 1.32% for the years ended 1996, 1995, 1994, 1993 and 1992,
respectively.
See notes to financial statements.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1996
- --------------------------------------------------------------------------------
AMERICAN NATIONAL FUNDS GROUP
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The American National Funds Group (the "Funds") are diversified open-end
management investment companies registered under the Investment Company Act of
1940, as amended. The Funds are comprised of the American National Growth Fund,
Inc., American National Income Fund, Inc. and the Triflex Fund, Inc. The
following is a summary of significant accounting policies consistently followed
by the Funds in the preparation of its financial statements. The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INVESTMENT VALUATION:
Investments listed on national exchanges are valued at the last sales price of
the day, or if there were no sales, then at the last bid price. Debt obligations
that are issued or guaranteed by the U.S. Government, its agencies, authorities,
and instrumentalities are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices, and may reflect
appropriate factors such as yield, type of issue, coupon rate, maturity and
seasoning differential. Securities for which market quotations are not readily
available are valued at fair value as determined by the Board of Directors.
Commercial paper is stated at amortized cost, which is equivalent to fair value.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date (date order to buy
or sell is executed). Dividend income is recognized on the ex-dividend date, and
interest income is recognized on an accrual basis. Realized gains and losses
from security transactions are reported on the basis of specific identification
for financial reporting and federal income tax purposes.
FEDERAL INCOME TAXES:
For federal income tax purposes, each fund is treated as a separate entity. The
Funds intend to comply with requirements of the Internal Revenue Code relating
to regulated investment companies and intend to distribute substantially all of
its taxable income to its shareholders. Therefore, no provision for federal
income taxes is recorded in the accompanying financial statements.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering at net asset value plus a
sales charge. The Funds repurchase shares at net asset value. Dividends and
other distributions are recorded by the Fund on the ex-dividend date and may be
reinvested at the net asset value.
EXPENSES:
Operating expenses not directly attributable to a Fund's operations are prorated
among the Funds based on the relative net assets or shareholders of each Fund.
Reorganization expenses have been deferred and are being amortized over a five
year period.
NOTE 2--INVESTMENT ADVISORY AND SERVICE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Securities Management and Research, Inc. (SM&R) is the investment advisor and
principal underwriter for the Funds. Investment advisory fees paid to SM&R are
computed as a percentage of the average daily net assets as follows:
<TABLE>
<CAPTION>
INVESTMENT
ADVISORY
FEE SERVICE FEE
<S> <C> <C>
Net Assets
Not exceeding $100,000,000 0.750% 0.250%
Exceeding $100,000,000 but not exceeding $200,000,000 0.625% 0.200%
Exceeding $200,000,000 but not exceeding $300,000,000 0.500% 0.150%
Exceeding $300,000,000 0.400% 0.100%
</TABLE>
The investment advisory agreement for the Growth Fund provides for incentive
fees that will increase or decrease the basic investment advisory fee, based on
the performance of the fund in relation to a specified industry index for the
funds with similar objectives over a rolling 36-month period. For the year ended
December 31, 1996 approximately $116,500 was earned in incentive fees, and the
investment advisory fee was decreased by approximately $41,400, netting an
increase of approximately $75,100.
SM&R has agreed to reimburse the Fund for all expenses, other than taxes,
interest, and expenses directly related to the purchase and sale of investment
securities, in excess of 1.25% per annum of the average daily net assets.
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
AMERICAN NATIONAL FUNDS GROUP
During the year ended December 31, 1996, SM&R, as principal underwriter,
received as sales charges on sale of shares of capital stock of the Funds and
made reallowances to dealers as follows:
<TABLE>
<CAPTION>
SALES CHARGES
SALES CHARGES REALLOWED TO
RECEIVED BY SM&R DEALERS
<S> <C> <C>
Growth $ 256,481 $ 6,066
Income 612,858 9,010
Triflex 44,577 390
</TABLE>
SM&R is a wholly-owned subsidiary of American National Insurance Company
(American National). As of December 31, 1996, SM&R and American National had the
following ownership in the Funds:
<TABLE>
<CAPTION>
AMERICAN NATIONAL
SM&R ----------------------------
------------------------------ PERCENT OF
PERCENT OF SHARES
SHARES SHARES OUTSTANDING SHARES OUTSTANDING
<S> <C> <C> <C> <C>
Growth 283,275 0.92% 1,002,908 3.25%
Income 14,153 0.21% -- --
Triflex 104,501 8.06% 174,857 13.49%
</TABLE>
NOTE 3--COST, PURCHASES, AND SALES OF INVESTMENT SECURITIES
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investment in securities, other than commercial
paper and corporate short-term bonds and notes, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Growth $24,860,419 $26,864,011
Income 37,697,435 39,540,937
Triflex 5,315,027 5,078,764
</TABLE>
Gross unrealized appreciation and depreciation as of December 31, 1996, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
<S> <C> <C>
Growth $39,668,131 $2,717,885
Income 39,395,515 727,090
Triflex 4,417,677 300,305
</TABLE>
17
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
AMERICAN NATIONAL FUNDS GROUP
NOTE 4--CAPITAL STOCK
AMERICAN NATIONAL GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 2,177,792 $10,210,865 2,337,194 $10,021,158
Investment income dividends reinvested 287,812 1,382,250 473,961 2,069,798
Distributions made from net realized gains reinvested 967,807 4,800,321 2,057,863 8,931,124
--------- ----------- --------- -----------
Subtotals 3,433,411 16,393,436 4,869,018 21,022,080
Redemptions of capital shares (3,261,788) (15,264,420) (3,708,002) (16,008,780)
--------- ----------- --------- -----------
Net increase in capital shares outstanding 171,623 $ 1,129,016 1,161,016 $ 5,013,300
----------- -----------
----------- -----------
Shares outstanding at beginning of year 30,699,798 29,538,782
--------- ---------
Shares outstanding at end of year 30,871,421 30,699,798
--------- ---------
--------- ---------
The components of net assets at December 31, 1996, are as
follows:
Capital Stock--30,871,421 shares of $1.00 par value
outstanding (75,000,000 authorized) (par and additional
paid-in capital) $113,283,856
Undistributed net investment income 685,115
Accumulated net realized gain on investments 1,839,080
Net unrealized appreciation of investments 36,950,246
-----------
Net assets $152,758,297
-----------
-----------
</TABLE>
AMERICAN NATIONAL INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 910,789 $21,860,138 560,583 $12,119,202
Investment income dividends reinvested 146,022 3,535,030 166,234 3,617,673
Distributions made from net realized gains reinvested 160,183 3,978,943 286,368 6,408,920
--------- ----------- --------- -----------
Subtotals 1,216,994 29,374,111 1,013,185 22,145,795
Redemptions of capital shares (843,346) (20,189,771) (811,772) (17,329,407)
--------- ----------- --------- -----------
Net increase in capital shares outstanding 373,648 $ 9,184,340 201,413 $ 4,816,388
----------- -----------
----------- -----------
Shares outstanding at beginning of year 6,244,669 6,043,256
--------- ---------
Shares outstanding at end of year 6,618,317 6,244,669
--------- ---------
--------- ---------
The components of net assets at December 31, 1996, are as
follows:
Capital Stock--6,618,317 shares of $1.00 par value
outstanding (50,000,000 authorized) (par and additional
paid-in capital) $126,385,216
Undistributed net investment income 214,559
Accumulated net realized gain on investments 517,698
Net unrealized appreciation of investments 38,668,425
-----------
Net assets $165,785,898
-----------
-----------
</TABLE>
18
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
AMERICAN NATIONAL FUNDS GROUP
TRIFLEX FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 119,915 $ 2,092,078 69,156 $ 1,102,436
Investment income dividends reinvested 34,214 599,589 37,554 602,878
Distributions made from net realized gains reinvested 29,666 532,797 10,388 173,263
--------- ----------- --------- -----------
Subtotals 183,795 3,224,464 117,098 1,878,577
Redemptions of capital shares (178,895) (3,129,792) (154,950) (2,455,302)
--------- ----------- --------- -----------
Net increase (decrease) in capital shares outstanding 4,900 $ 94,672 (37,852) ($ 576,725)
----------- -----------
----------- -----------
Shares outstanding at beginning of year 1,290,857 1,328,709
--------- ---------
Shares outstanding at end of year 1,295,757 1,290,857
--------- ---------
--------- ---------
The components of net assets at December 31, 1996, are as
follows:
Capital Stock--1,295,757 shares of $1.00 par value
outstanding (50,000,000 authorized) (par and additional
paid-in capital) $18,661,821
Undistributed net investment income 340,555
Accumulated net realized gain on investments 68,096
Net unrealized appreciation of investments 4,117,372
-----------
Net assets $23,187,844
-----------
-----------
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
American National Funds Group
We have audited the accompanying statements of assets and liabilities of
American National Funds Group (comprised of American National Growth Fund, Inc.,
American National Income Fund, Inc. and Triflex Fund, Inc.), including the
schedule of investments as of December 31, 1996, the related statements of
operations for the year then ended, the statements of changes in net assets for
each of the years in the two-year period then ended, and the financial
highlights for each of the years in the five-year period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights 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, 1996, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American National Funds Group as of December 31, 1996, the results of its
operations for the year then ended and the changes in its net assets for each of
the years in the two-year period then ended, and the financial highlights for
each of the years in the five-year period then ended, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
February 7, 1997
DISTRIBUTIONS
- ----------------------------------------------------------------------------
Distributions per share for the year ended December 31, 1996.
<TABLE>
<CAPTION>
SHORT-TERM LONG-TERM
RECORD INVESTMENT CAPITAL CAPITAL
DATE INCOME GAIN GAIN
<S> <C> <C> <C> <C>
American National Growth Fund, Inc. 6/24/96 $ 0.0259
12/18/96 $ 0.0215 $ 0.0890 $ 0.0760
American National Income Fund, Inc. 3/22/96 $ 0.1240
6/24/96 $ 0.1500
9/23/96 $ 0.1560
12/18/96 $ 0.1480 $ 0.1380 $ 0.5010
Triflex Fund, Inc. 3/22/96 $ 0.1016
6/24/96 $ 0.1250
9/23/96 $ 0.1300
12/18/96 $ 0.1350 $ 0.3790 $ 0.0550
</TABLE>
20
