<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
TRIFLEX FUND, INC.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
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FOR EDGAR FILING, LANGUAGE THAT WILL BE ADDED IS PRECEDED BY A "<*>" AND
FOLLOWED BY A "</*>". LANGUAGE THAT WILL BE ELIMINATED IS PRECEDED BY A "<#>"
AND FOLLOWED BY A "</#>".
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TRIFLEX FUND, INC
----------------------------------------------------------------------
ONE MOODY PLAZA (409) 763-2767 GALVESTON, TEXAS 77550
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
MAY 28, 1998
To the Stockholders of Triflex Fund, Inc.:
NOTICE IS HEREBY GIVEN THAT a Special Meeting (the "Special Meeting") of the
Stockholders of Triflex Fund, Inc. (the "Fund") will be held at the principal
executive offices of the Fund and of Securities Management and Research, Inc.,
One Moody Plaza, 17th Floor, Galveston, Texas 77550, on May 28, 1998, at 8:50
a.m. Central Time, for the following purposes:
1. To elect a board of seven (7) directors.
2. To ratify or reject the appointment of Tait, Weller & Baker as
independent auditors of the Fund for its fiscal year ending December 31,
1998.
3. To approve or reject certain amendments to the Fund's Articles of
Incorporation.
4. To approve or reject the deletion of the Fund's current investment
restrictions and the adoption of new investment restrictions for the
Fund.
5. To act on such other matters as may properly come before the meeting or
any adjournment or adjournments thereof.
Only the stockholders of record at the close of business on April 15, 1998, are
entitled to notice of, and to vote at, the Special Meeting. After the Special
Meeting, the Fund does not presently anticipate holding regular annual meetings
except to the extent required by law. A list of the Fund's stockholders is held
in the office of the Fund, One Moody Plaza, Galveston, Texas 77550.
By Order of the Board of Directors
Teresa E. Axelson,
SECRETARY
April , 1998
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IMPORTANT
YOUR COOPERATION IS SOLICITED!
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE FILL IN, SIGN,
DATE AND PROMPTLY RETURN THE ENCLOSED PROXY VOTING BALLOT IN THE ENVELOPE
PROVIDED SO THAT A QUORUM WILL BE PRESENT AND THE MAXIMUM NUMBER OF SHARES MAY
BE VOTED. IT IS MOST IMPORTANT AND IN YOUR INTEREST FOR YOU TO SIGN AND DATE
YOUR PROXY VOTING BALLOT AND RETURN IT. THE PROXY VOTING BALLOT IS REVOCABLE AT
ANY TIME PRIOR TO ITS USE.
ADDITIONALLY, A MAJORITY OF THE OUTSTANDING SHARES OF THE FUND MUST BE PRESENT
IN PERSON OR BY PROXY AT THE MEETING.
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<PAGE>
PROXY STATEMENT FOR
TRIFLEX FUND, INC.
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ONE MOODY PLAZA (409) 763-2767 GALVESTON, TEXAS 77550
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GENERAL INFORMATION
This Proxy Statement is being mailed to the stockholders of Triflex Fund, Inc.
(the "Fund") on or about April , 1998, and is furnished in connection with
solicitation of proxies by the Board of Directors of the Fund for use at the
Fund's Special Meeting of Stockholders (the "Special Meeting") to be held on May
28, 1998, and at any adjournment of such meeting.
A proxy may be revoked at any time prior to the voting thereof by written notice
to the Secretary of the Fund at the address shown above, by personal attendance
at the Special Meeting, or by submitting a proxy bearing a later date. The cost
of printing and mailing this Proxy Statement, the attached Notice and Proxy will
be paid by Securities Management and Research, Inc. ("SM&R"), the Fund's
underwriter and investment adviser.
The Fund is a Maryland corporation.
April 15, 1998 (the "Record Date") has been fixed as the record date for the
determination of stockholders entitled to notice of and to vote at the Special
Meeting. The Fund had 1,402,774 shares of common stock (the "Common Stock")
outstanding on the record date. Each share of Common Stock outstanding is
entitled to one vote, but votes may not be cumulated. A majority of the
outstanding common shares of the Fund must be present in person or by proxy to
constitute a quorum for the approval of any matter which properly comes before
the Special Meeting. Abstentions and proxies signed and returned by brokers
without voting on a proposal ("Broker Non-Votes") will not be counted for or
against the proposal, but will be counted as votes present for purposes of
determining whether a quorum is present.
If, at the time of the Special Meeting nears, sufficient votes for a quorum have
not been received, the officers of the Fund may make phone calls to certain of
the stockholders in order to gather enough votes for a quorum.
SM&R and SM&R's parent company, American National Insurance Company ("American
National") have advised the Fund that they intend to vote all of their shares in
the same proportion as votes made by other stockholders of the Fund, in favor of
or against the nominees or proposals presented herein or at the Special Meeting.
PROPOSAL 1. ELECTION OF DIRECTORS
(ITEM 1 ON THE PROXY CARD)
The persons named as proxies intend to vote in favor of the election of the
following listed nominees as members of the Board of Directors unless authority
to vote for one or more of the nominees is specifically withheld. If, at the
time of the Special Meeting, any of the nominees for election as a director
shall be unable to serve, or are otherwise unavailable for election, the proxies
will be voted for such other persons as shall be proposed by the Board of
Directors. The Board of Directors has no reason to believe that any of the
persons nominated will become unavailable for election, and all persons
nominated have consented to serve as directors.
The directors of the Fund serve until the next annual or special meeting of
stockholders at which Directors are elected and until their successors are
elected and qualified. The information set forth below has been furnished by
each nominee.
<PAGE>
INFORMATION CONCERNING NOMINEES FOR DIRECTORS
(NAME, ADDRESS, AGE, POSITION AND OFFICES WITH THE FUND, BUSINESS EXPERIENCE IN
LAST FIVE YEARS)
RALPH S. CLIFFORD(1)(2) (12304 BLUE SAGE ROAD, OKLAHOMA CITY, OKLAHOMA 73120)
Age 82, Director of the Fund, American National Income Fund, Inc. and Triflex
Fund, Inc [SINCE 1972;]; 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.
PAUL D. CUMMINGS(1) (3102 BELAIRE DRIVE, OKLAHOMA CITY, OKLAHOMA 73110)
Age 83, Director of the Fund, [SINCE 1969;], American National Income Fund, Inc.
[SINCE 1969;] and Triflex Fund, Inc. [SINCE 1971;], Retired President and
Director of Globe Life and Accident Insurance Company [FROM TO ;].
JACK T. CURRIE(2) (515 POST OAK BOULEVARD, SUITE 750, HOUSTON, TEXAS 77027)
Age 69, Director of the Fund [SINCE ;], American National Income Fund, Inc.
[SINCE ;] and Triflex Fund, Inc. [SINCE 1971;]; Personal Investments [SINCE
;]; Director of American Indemnity Financial Corporation [SINCE ;],
holding company for casualty insurance company; Director of Stewart & Stevenson
Services, Inc. [SINCE ;], designs and constructs power generating systems.
*MICHAEL W. MCCROSKEY (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
Age 54, President and Director of the Fund, American National Income Fund, Inc.
and Triflex Fund, Inc. [SINCE 1994;]; President, Chief Executive Officer,
Director and member of the Executive Committee of SM&R [SINCE 1994;]; President,
Chief Executive Officer and Director of SM&R Capital Funds, Inc. [SINCE 1994;];
President and Director of American National Investment Accounts, Inc. [SINCE
1994;]; Executive Vice President of American National [SINCE 1996;] [SENIOR VICE
PRESIDENT OF AMERICAN NATIONAL, FROM 1991 TO 1996;]Vice President of Standard
Life and Accident Insurance Company [SINCE 1988;]; Vice President, Investments
of American National Property and Casualty Company [SINCE 1994;]; Vice
President, Investments of American National General Insurance Company [SINCE
1994;]; Assistant Secretary of American National Life Insurance Company of Texas
[SINCE 1986;]; Vice President of Investments for Garden State Life Insurance
Company [SINCE 1994;]; Vice President, Pacific Property and Casualty [SINCE
1996;], life, health and accident subsidiaries of American National; President
and Director of ANREM Corporation [SINCE 1977;]; President and Director, ANTAC,
Inc. [SINCE 1995;]; Director, Comprehensive Investment Services, Inc. [SINCE
1997;]
IRA W. PAINTON, C.L.U.(2) (12004 DAHOON, OKLAHOMA CITY, OKLAHOMA 73120)
Age 80, Chairman of the Board [SINCE 1989;] and Director of the Fund, American
National Income Fund, Inc. and Triflex Fund, Inc. [SINCE 1967;]; Retired
President of the Fund, American National Income Fund, Inc. and Triflex Fund,
Inc. [FROM 1968 TO 1993;]; Retired President and Director of SM&R [FROM 1968 TO
1993;].
DONALD P. STEVENS(1) (UNIVERSITY OF TEXAS MEDICAL BRANCH, STATION 1, BOX 41,
GALVESTON, TEXAS 77550)
Age 50, Director of the Fund, American National Income Fund, Inc. and Triflex
Fund, Inc. [SINCE ;]; Assistant to the President for Government Relations of
The University of Texas Medical Branch [SINCE ;], a medical school and
hospital system; Vice President of Jamail Galveston Foundation [SINCE ;].
STEVEN H. STUBBS, C.F.A. (514 POPLAR AVENUE, PHILADELPHIA, MISSISSIPPI)
Age 59, Director of the Fund, American National Income Fund, Inc. and Triflex
Fund, Inc. [SINCE 1987;]; Former Director, President and Chief Executive Officer
of The Westcap Corporation [FROM 1994 TO 1996;];
2
<PAGE>
Former President and Chief Executive Officer of SM&R and the Fund, American
National Income Fund, Inc. and Triflex Fund, Inc. [FROM 1987 TO 1994
- ------------------------
(1) Member of Audit Committee
(2) Member of Nominating Committee
* "Interested Persons" as defined in the Investment Company Act of 1940. As
indicated under the business experience section of the above table, Mr.
McCroskey is President and Chief Executive Officer and a director of SM&R.
ORGANIZATION OF THE BOARD
The Board of Directors maintains two Committees: the Nominating Committee and
the Audit Committee. The Nominating Committee is responsible for making
recommendations to the Board of Directors as to the selection of nominees for
Directors. In performing these functions, the committee will consider nominees
recommended by stockholders. Stockholder recommendations should be submitted, in
writing, to the Secretary of the Fund and should include a description of the
proposed nominee's qualifications, other relevant biographical data and an
indication of the willingness of the proposed nominee to serve if nominated and
elected. Ralph S. Clifford, Jack T. Currie and Ira W. Painton are the present
members of the Nominating Committee. No meetings of the Nominating Committee
were held during the fiscal year ended December 31, 1997.
The Audit Committee is responsible for making recommendations to the Board of
Directors as to the selection and appointment of and compensation paid to the
Fund's independent auditors, reviewing the scope and results of audits made by
such independent auditors, to making recommendations to the Board as to the
scope of future audits, inquiring into, reviewing and making recommendations
with respect to the adequacy of the Fund's accounting and financial controls,
and otherwise assuring effective communication between such auditors and the
Board of Directors as a whole. Ralph S. Clifford, Paul D. Cummings and Donald P.
Stevens are the present members of the Audit Committee. Two meetings of the
Audit Committee were held during the fiscal year ended December 31, 1998. All
three committee members were in attendance at those meetings.
The Fund held four (4) meetings of its Board of Directors during the fiscal year
ended December 31, 1997. None of the directors missed more than one (1) of the
four (4) meetings.
EXECUTIVE OFFICERS OF THE TRIFLEX FUND
The following information is given with respect to each of the Fund's executive
officers and portfolio managers who are not directors:
TERESA E. AXELSON (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
Age 50, Vice President of the Fund [SINCE 1991;] Secretary of the Fund [SINCE
1983; ASSISTANT VICE PRESIDENT OF SM&R FROM 1989 TO 1991;] Vice President of
SM&R [SINCE 1991;] Secretary of SM&R, American National Investment Accounts,
Inc., American National Income Fund, Inc., Triflex Fund, Inc. and SM&R Capital
Funds, Inc. [SINCE 1983;]
GORDON D. DIXON (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
Age 52, Vice President and Portfolio Manager of the American National Growth
Fund [SINCE 1993;] Director, Senior Vice President, Chief Investment Officer of
SM&R and a member of the investment and executive committees of SM&R [SINCE
1993;] Vice President, Portfolio Manager of American National Investment
Accounts, Inc.--Growth Portfolio; Co-Manager of the American National Income
Fund, Inc. and American National Investment Accounts, Inc.--Managed Portfolio
[SINCE 1993;] Vice President of Stocks for American National Insurance Company
[SINCE 1993;] Vice President of Investments for Garden State Life Insurance
Company [SINCE ;] President and Director of Comprehensive Investment
3
<PAGE>
Services, Inc. [SINCE 1997;] Former Director of Equity Strategy Research and
Trading for C&S/Soran Bank (now Nations Bank), Atlanta, Georgia [FROM TO
1993;].
BRENDA T. KOELEMAY (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
Age 43, Vice President and Treasurer of the Fund [SINCE 1992;] Vice President
and Treasurer of SM&R [SINCE 1992;] Vice President and Treasurer of American
National Income Fund, Inc., Triflex Fund, Inc., SM&R Capital Funds, Inc. and
American National Investment Accounts, Inc. [SINCE 1992;] Treasurer of
Comprehensive Investment Services, Inc. [SINCE 1997;] Senior Manager, KPMG Peat
Marwick [FROM 1980 TO 1992;].
MICHAEL W. MCCROSKEY (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
See "Information Concerning Nominees for Directors" above.
EMERSON V. UNGER, C.L.U. (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
Age 52, Vice President of the Fund [SINCE 1983;] Vice President of SM&R [SINCE
1983;] Vice President of American National Income Fund, Inc., Triflex Fund,
Inc., SM&R Capital Funds, Inc. and American National Investment Accounts, Inc.
[SINCE 1983;]
WILLIAM R. BERGER, C.F.A. (ONE MOODY PLAZA, GALVESTON, TEXAS 77550)
AGE 34, [VICE PRESIDENT AND PORTFOLIO MANAGER FOR THE FUND SINCE 1993;
CO-MANAGER OF THE AMERICAN NATIONAL INCOME FUND SINCE 1993;] Vice President,
Portfolio Manager of the American National Investment Accounts, Inc.--Balanced
Portfolio and Co-Manager of the Managed Portfolio [SINCE 1993;] Assistant Vice
President of Investments for American National [SINCE 1993] Vice President,
Comprehensive Investment Services [SINCE 1997;] Former Portfolio Manager for
Trinity Investment Management, Bellefonte, Pennsylvania, investment adviser
[FROM 1989 TO 1994]; Former auditor for Coopers & Lybrand, Dallas, Texas.
.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND OFFICERS AND DIRECTORS
According to the Fund's records, the following stockholders owned five percent
(5%) or more of the outstanding Common Stock as of the Record Date:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ------------------- ------------------------------------------------------ ---------------------- -----------
<S> <C> <C> <C>
Triflex Fund, Inc. American National Insurance Company(1) 205,842.399 (direct) 14.67%
Triflex Fund, Inc. Securities Management and Research, Inc.(1) 120,690.006 (direct) 8.60%
</TABLE>
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(1) The address of American National Insurance Company and SM&R is One Moody
Plaza, Galveston, Texas 77550.
The Fund is not aware of any other person (including any "group" as such term is
used in Section 13(d)(3) of the Securities Exchange Act of 1934) who held, of
record or beneficially, more than 5% of Fund's Common Stock outstanding on the
Record Date.
SM&R, the investment adviser, manager and underwriter of the Fund, is a
wholly-owned subsidiary of American National. 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 Foundation are Robert L. Moody ("RLM"),
Chairman of the Board, President and Chief Executive Officer of American
National, Frances Moody Newman, RLM's mother, and Ross R. Moody, RLM's son.
The Moody National Bank of Galveston (the "Bank") is the trustee of the Libbie
S. Moody Trust. RLM is Chairman of the Board, President and Chief Executive
Officer of the Bank and President and Director of
4
<PAGE>
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, own 100% of Bancshares Class B Common Stock (which
elects a majority of Bancshares' directors) and 47.5% of its Class A Common
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,
SM&R, the Bank, Bancshares, MBHC, and the Fund.
As of the Record Date, each of the Fund's directors and nominees for director,
and the Fund's directors and officers as a group, had the following ownership in
the Fund:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
TITLE OF CLASS NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
- ----------------- ---------------------------------------------------------- -------------------- ---------------
<S> <C> <C> <C>
Common Stock Jack T. Currie 300.000 (direct) *
Common Stock Ira W. Painton 3,868.298 (direct) *
Common Stock Michael W. McCroskey 2,282.944 (direct) *
Common Stock Directors and Executive Officers as a group 7,428.494 (direct) *
</TABLE>
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* Less than 1% owned. The information above was furnished by the Fund's
directors and officers.
REMUNERATION OF OFFICERS AND DIRECTORS
The officers of the Fund receive remuneration only from SM&R and not from the
Fund. Directors are paid a $500 per meeting fee by the Fund for attendance at
Board Meetings, a $2,000 annual retainer fee and reimbursement of travel
expenses. The annual retainer fee and the travel expenses are allocated between
the Fund, the American National Income Fund, Inc. and the American National
Growth Fund, Inc. The Chairman of the Board is paid an additional $1,000 per
meeting. The individual directors received the following compensation from the
Fund for the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM FUND AND
NAME OF PERSON, POSITION FROM FUND FUND COMPLEX PAID TO DIRECTORS
- --------------------------------------- ----------------------- ---------------------------------
<S> <C> <C>
Ralph S. Clifford, Director $ 3,533 $ 10,600(1)
Paul D. Cummings, Director $ 3,533 $ 10,600(1)
Jack T. Currie, Director $ 2,833 $ 8,499(1)
Michael W. McCroskey, Director -0- -0- (2)(3)
Ira W. Painton, Chairman of Board $ 4,667 $ 14,000(1)
Donald P. Stevens, Director $ 3,533 $ 10,600(1)
Steven H. Stubbs, Director $ 3,333 $ 10,000(1)
</TABLE>
- ------------------------
(1) Also serves as director of American National Growth Fund, Inc. and Triflex
Fund, Inc., investment companies advised by SM&R.
(2) Also serves as director for SM&R Capital Funds, Inc., an investment company
advised by SM&R.
For the period ended December 31, 1997, the directors were paid fees totaling
approximately $22,722.
REQUIRED VOTE
Election of each nominee as a Director requires, as to the entire Fund, the
affirmative vote of a plurality of the shares present (in person or by proxy) at
the Meeting, provided that at least a majority of the outstanding shares
entitled to be cast are present at the Meeting. Cumulative voting is not
permitted.
5
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING SLATE OF NOMINEES
AS DIRECTORS: RALPH S. CLIFFORD, PAUL D. CUMMINGS, JACK T. CURRIE, MICHAEL W.
MCCROSKEY, IRA W. PAINTON, DONALD P. STEVENS AND STEVEN H. STUBBS.
PROPOSAL 2. AUDITORS
(ITEM 2 ON THE PROXY CARD)
The Audit Committee and Board of Directors appointed Tait, Weller & Baker
("TWB") as the Fund's independent auditors for the fiscal year ended December
31, 1998. KPMG Peat Marwick ("KPMG") served as the Fund's auditor for the last
fiscal year, however, due to a concern over a potential conflict of interest,
the Audit Committee and Board of Directors decided not to appoint KPMG for the
current fiscal year.
There is no disagreement between the Fund and KPMG. At no time did KPMG's report
on the Fund's financial statements contain an adverse opinion or a disclaimer of
opinion or any qualification or modification as to uncertainty, audit scope, or
accounting principles. At no time were there any disagreements with KPMG on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of KPMG, would have caused it to make a reference to the subject
matter of the disagreements in connection with its reports.
The Fund does not expect representatives of KPMG or Tait, Weller & Baker to
attend this Special Meeting.
REQUIRED VOTE
Ratification of the selection of TWB as independent auditors requires, as to the
entire Fund, the affirmative vote of a majority of the shares present (in person
or by proxy) at the Meeting, provided that at least a majority of the
outstanding shares entitled to be cast are present at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF KPMG AS THE
FUND'S INDEPENDENT AUDITORS.
PROPOSAL 3. AMENDMENT OF FUND'S ARTICLES OF INCORPORATION
The Fund's Articles of Incorporation have not been amended since the Fund was
reincorporated in Maryland in 1989. Since such time, mutual funds with
"multi-classes" have become increasing popular. Issuing different "classes" of
shares with different expenses (such as sales charge) would allow the Fund
substantially more flexibility in the marketing of its shares. Such flexibility
would open up additional distribution channels and opportunities which could
result in substantial growth for the Fund.
In a multi-class fund, each "series" (or portfolio) of shares (the Fund has only
one series of shares, but a series fund such as the SM&R Capital Funds, Inc. has
multiple series) is divided into "classes." The underlying investments of each
class in a series are the same, but different sales and other charges are
imposed on the different classes to facilitate distribution through different
channels or to investors with different preferences as to charges.
The multi-class structure would also permit adoption of 12b-1 plans for one or
more of the new classes. A 12b-1 plan allows the Fund to assess asset-based fees
in order to cover distribution expenses. Of course, if such a plan is adopted
and it applies to existing shareholders, such shareholders would need to approve
the plan.
The Fund's Board of Directors proposes changes in the Fund's Articles of
Incorporation to allow for different classes of shares in each Series with
different sales loads and other fees and expenses and/or different services. It
is currently anticipated that such classes of shares would be created and sold
as soon as reasonably practicable, probably in the last quarter of 1998. In
conjunction with this plan, sales of new
6
<PAGE>
accounts in the current class would probably end, but existing shareholders
would still be allowed to make additional investments in their accounts, and
their fees and expenses would not be increased as a result of this plan. On the
other hand, the plan is intended to increase the Fund's assets through sales of
the other classes and the increased asset base could have a positive effect on
performance and could also reduce the Fund's expense ratio. A vote in favor of
the revisions to the Articles of Incorporation is therefore a vote in favor of
the plan to create new classes of shares.
In addition, the Fund's Board of Directors has approved certain other "clean-up"
amendments to the Fund's Articles of Incorporation. The amendments can be
summarized as follows:
<TABLE>
<S> <C>
<*>Article III</*> The change is to simply change the word "purposes"
to "purpose".
<*>Article III, Section (3):</*> The change is simply to define the phrase
"Maryland General Corporation Law" to include all
amendments, supplements or substitutions to that
act.
<*>Article III, Section (4):</*> The change simply utilizes the definition of
Maryland General Corporation Law provided in
Article III, Section (3).
<*>Article III, Section (9):</*> The change simply utilizes the definition of
Maryland General Corporation Law provided in
Article III, Section (3).
<*>Article V:</*> The modifications to this Article were necessary
to provide for multiple series and classes of
capital stock and the preferences, conversion and
other rights, voting powers, restrictions, and
limitations associated therewith. In addition, the
par value is being reduced from one dollar ($1.00)
to one cent ($0.01) per share to reduce filing
fees associated with future increases in
authorized shares.
<*>Article VI:</*> The minor modifications to this articles simply
reflect the fact that the changes to Article V
allow for multiple classes and series.
<*>Article VIII, Section (3): </*> This changes simply reinserts a provision
regarding cumulative voting that was deleted from
revised Article V.
<*>Article VIII, Section (7): </*> This section is a new provision specifically
permitting Corporation to enter into contracts for
dividend disbursing agents, transfer agents,
registrars and custodians.
<*>Article VIII, Section (8): </*> This section is a new provision specifically
permitting Corporation to enter into contracts for
the delegation of management or administrative
functions.
<*>Article IX, Section (1):</*> The change was simply to add some language
clarifying meaning of provision.
</TABLE>
As amended, the Restated Articles of Incorporation for the Fund would read as
shown in Appendix A.
REQUIRED VOTE
The amendment of the Articles of Incorporation requires, as to the entire Fund,
the affirmative vote of a majority of all of the votes entitled to be cast at
the Meeting, provided that at least a majority of the outstanding shares
entitled to be cast are present at the Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF THE AMENDMENT AND
RESTATEMENT OF THE FUND'S ARTICLES OF INCORPORATION.
7
<PAGE>
PROPOSALS 4(a) - (p): APPROVAL OR DISAPPROVAL OF THE AMENDMENT,
RESTATEMENT OR ELIMINATION OF THE FUND'S INVESTMENT RESTRICTIONS
(ITEM 4 ON THE PROXY CARD)
For each proposed change or element of this Proposal the relevant current
self-designated restriction is described below. The effect of a "FOR" vote on
each element of Proposal 4 is detailed, i.e., whether the current
self-designated restriction will be: (i) amended; (ii) restated; or (iii)
eliminated entirely. If a proposed restriction will amend or restate the current
self-designated restriction, then such proposed amendment or restatement is also
described in detail.
The Board of Directors recommends that shareholders of the Fund approve
proposals to amend, restate or eliminate the Fund's current investment
restrictions. These investment restrictions are fundamental policies that may be
changed by the Fund only with the approval of a majority of the outstanding
shares of the Fund, as determined by the provisions of the Investment Company
Act of 1940, as amended (the "1940 Act"). The entire slate of proposed
fundamental restrictions as well as the current fundamental restrictions are
provided in Exhibit B for your reference when deciding whether to vote on the
proposed changes as a group or individually. Each proposed fundamental
restriction is also specifically discussed below where appropriate. The Fund may
adopt additional or supplemental fundamental investment restrictions if required
by federal regulators or if determined by the Board of Directors to be necessary
or desirable. The proposed restrictions meet all of the requirements of the 1940
Act and no other fundamental investment restrictions beside those set forth in
Exhibit B are presently required by the 1940 Act.
One reason for amending, restating or eliminating the Fund's investment
restrictions is to adopt, insofar as possible, a uniform statement of investment
restrictions for the mutual funds advised by SM&R, the Fund's investment
adviser, as well as for funds that may be created in the future. Such uniformity
would facilitate the comparison of the investment restrictions of different
funds, as well as the administration of the investment restrictions by the
portfolio managers. The proposals would also result in a clearer and simpler
statement of these investment restrictions.
Another reason for amending, restating or eliminating the Fund's investment
restrictions is to modernize the investment restrictions. Certain of the Fund's
fundamental investment restrictions reflect regulatory, business or industry
conditions, practices or requirements which at one time led the Board of
Directors to impose them on the management of the Fund's investments. The
Directors believe that the passage of time, changes in regulatory standards, or
the development of new practices have rendered certain of the Fund's fundamental
investment restrictions unnecessary or unwarranted. In certain cases, investment
restrictions were adopted in response to state securities laws and regulations
restricting certain types of investment company practices and investments.
Because the states no longer have the power to enforce these investment
restrictions in light of the National Securities Markets Improvement Act of 1996
("NSMIA"), the elimination of these restrictions may expand the range of
investment opportunities and techniques available in connection with the
management of the Fund's investment portfolios. In other cases, fundamental
restrictions reflect federal regulatory requirements that remain in effect, but
that are not required to be fundamental restrictions.
The Directors propose to amend or eliminate those investment restrictions that
are redundant or that are inconsistent with current regulatory standards or
industry practice. In particular, the Directors propose to eliminate certain
fundamental investment restrictions that are no longer legally required, and to
amend certain fundamental investment restrictions that are more restrictive than
currently is required by law. The Directors believe that eliminating or amending
such restrictions would afford the Fund greater flexibility in responding to
investment opportunities that may arise from time to time.
The Directors also propose to eliminate other fundamental investment
restrictions that are not required to be fundamental. It is anticipated that if
the shareholders of the Fund vote to eliminate such a fundamental investment
restriction, the Board of Directors would adopt a new non-fundamental policy in
lieu of that
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restriction. Non-fundamental investment restrictions may be adopted or changed
by the Board of Directors, without seeking approval from shareholders. The
Directors believe that reducing the number of restrictions that can be changed
only by shareholder vote will result in an enhanced ability to modify investment
policies, as appropriate, to respond to changing markets and new investment
opportunities, and will minimize costs and delay associated with soliciting
shareholders when new opportunities or market changes arise. Finally, the
Directors propose to restate certain of the Fund's investment restrictions, as
described below, in order to render clearer and simpler statements of the Fund's
fundamental policies.
The Directors do not anticipate that the proposed amendment, restatement, or
elimination of the Fund's investment restrictions will result in a material
change in the level of risk associated with an investment in the Fund. If the
proposed changes are approved by shareholders of the Fund at the Meeting, the
Fund's registration statement, including its prospectus and statement of
additional information, would be revised, as appropriate, to reflect such
changes and, as necessary, to reflect modified investment policies. Any
amendment, restatement or elimination of an investment restriction would be
effective upon the effective date of the revised registration statement. In the
event that an amendment, restatement, or elimination of a restriction or
restrictions is not approved by the Fund's shareholders, the Fund will retain
the current fundamental restriction or restrictions, as applicable.
VOTING PROCEDURES
Each element of Proposal 4, as discussed below and presented on the proxy voting
ballot, may be voted on either (i) as a group or (ii) by each element (not
both). If the entire slate of Proposal 4 is approved, the Fund will have no
fundamental investment policies or investment restrictions except those set
forth in Exhibit B.
If shareholders of the Fund approve some, but not all, of the proposed
modifications, the Fund will have a combination of certain current
self-designated restrictions and certain proposed restrictions. In that event,
the Fund would have as its only fundamental restrictions the combination of (i)
approved proposed restrictions, and (ii) current self-designated restrictions
which were retained by shareholder vote.
A vote on the entire group of proposed modifications will be counted as if it
were a vote on each separate proposed modification. For example, a vote "FOR"
the entire group of proposed modifications on the proxy voting ballot will be
counted as a vote "FOR" each proposed modification. In the event that a proxy
voting ballot is returned with a vote on the entire slate and a vote on a
specific element of Proposal 4, the vote on the entire slate of proposed will be
considered determinative of, and counted as, the shareholder's intended vote. If
any part of Proposal 4 is adopted, then the Fund's Prospectus and Statement of
Additional Information will be revised to reflect the changes in the Fund's
fundamental investment policies and restrictions when such changes become
effective.
The Board of Directors believes that submitting each element of Proposal 4 to
the Fund's shareholders at this time is in the shareholders' and the Fund's best
interest because it takes advantage of the opportunity afforded the need to
submit Proposal 3 above to the Fund's shareholders. This will potentially spare
the Fund the extra costs and time delay of having a subsequent shareholder
meeting to consider changes to the Fund's current self-designated restrictions.
PROPOSAL 4(a): THE APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
INVESTMENT RESTRICTIONS ON ISSUER DIVERSIFICATION.
The Fund has two current fundamental investment restrictions that together
prohibit the Fund from: (i) purchasing the securities of any one issuer (other
than securities 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 Fund's total assets; and (ii)
purchasing 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.
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To be diversified under the 1940 Act, an open-end investment company must not,
with respect to 75% of its total assets, invest more than 5% of its total assets
in the securities of any one issuer or acquire more than 10% of the outstanding
voting securities of any one issuer. These restrictions apply only at the time
of investment. The Fund may invest up to 25% of its total assets without regard
to these restrictions. In addition, these restrictions do not apply to holdings
of or investments in cash, cash items, U.S. Government securities, or securities
of other investment companies.
The Board of Directors proposes amending the investment restrictions of the Fund
to require diversification only to the extent that is required under the 1940
Act. Additional diversification requirements are required for the Fund to be
treated as a regulated investment company for federal income tax purposes. These
tax-based requirements are not required to be reflected in the proposed
investment restrictions and may not be affected by the proposal.
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental policy on issuer diversification:
THE FUND, WITH RESPECT TO 75% OF THE FUND'S TOTAL ASSETS, MAY NOT PURCHASE
SECURITIES OF AN ISSUER (OTHER THAN CASH OR CASH ITEMS, OR SECURITIES OF THE
U.S. GOVERNMENT, ITS AGENCIES, OR INSTRUMENTALITIES OR OF OTHER INVESTMENT
COMPANIES), IF (I) SUCH PURCHASE WOULD CAUSE MORE THAN 5% OF THE FUND'S TOTAL
ASSETS TAKEN AT MARKET VALUE TO BE INVESTED IN THE SECURITIES OF SUCH ISSUER, OR
(II) SUCH PURCHASE WOULD AT THE TIME RESULT IN MORE THAN 10% OF THE OUTSTANDING
VOTING SECURITIES OF SUCH ISSUER BEING HELD BY THE FUND.
PROPOSAL 4(b): THE APPROVAL OR DISAPPROVAL OF THE AMENDMENT OR ELIMINATION OF
THE FUND'S INVESTMENT RESTRICTIONS ON BORROWING, MARGIN PURCHASING, AND
PLEDGING, MORTGAGING OR HYPOTHECATING ASSETS.
The 1940 Act requires that a mutual fund adopt a policy, which cannot be changed
without shareholder approval, on borrowing. Pursuant to the 1940 Act, a mutual
fund is prohibited from issuing any "senior security," including debt, except
that such fund may borrow from banks in an amount not exceeding one-third of its
total assets. A senior security includes any form of indebtedness that would
have priority over the Fund's common stock as to the distribution of assets or
payment of dividends.
The Fund currently has a fundamental investment restriction on borrowing that
provides that the Fund does not 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 restriction also
provides that 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.
The restriction states that the Fund may borrow solely to facilitate management
of its portfolio to enable the Fund to meet redemption requests and to obtain
short-term credits as may be necessary for transaction clearance, and that all
borrowings must be repaid before any additional investments are made.
The Board of Directors recommends that the Fund adopt a fundamental investment
restriction (i) permitting borrowing up to the maximum allowed by the 1940 Act,
and (ii) permitting the Fund to enter into mortgage dollar rolls accounted for
as a financing. Like the current restriction, the proposed restriction would
clarify that the Fund may obtain short-term credits to effect transaction
clearance. For purposes of the Fund's policy on borrowing, the Fund does not
consider certain investments and practices to be borrowings, including short
sales, currency transactions, mortgage dollar rolls which are not accounted for
as financing, forward contracts, swaps, interest rate caps, floors and collars,
options, futures contracts, options on futures contracts, and forward commitment
transactions. The proposed restriction would eliminate the provision with
respect to pledging, mortgaging or hypothecating assets. Such provision was
adopted in response to a requirement imposed by certain state securities laws,
and such laws no longer apply to the Fund.
The Fund also has a fundamental investment restriction that provides that the
Fund does not purchase securities on margin. Margin purchases involve the
purchase of securities with money borrowed from a broker. "Margin" is the cash
or eligible securities that the borrower places with its broker as collateral
for
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this loan. Under the 1940 Act, purchases on margin are permitted to obtain
short-term credit for the clearance of transactions and for initial and
variation margin payments made in connection with the purchase and sale of
futures contracts or related options. The Directors believe that the Fund should
have the flexibility to engage in such margin transactions, and propose that the
Fund amend its fundamental investment restriction on margin purchases to permit
the purchase of securities on margin to the extent permitted by applicable law.
The Directors also propose that the restriction on margin purchases be combined
with the Fund's investment restriction on borrowing. The Directors believe that
the proposed amendment on margin purchases would permit the Fund maximum
flexibility to respond to a changing regulatory environment.
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental investment restrictions on
borrowing, margin purchases, and pledging, mortgaging or hypothecating assets:
THE FUND MAY NOT BORROW MONEY, EXCEPT (A) THE FUND MAY BORROW FROM BANKS (AS
DEFINED IN THE ACT) OR THROUGH REVERSE REPURCHASE AGREEMENTS IN AMOUNTS UP TO
33_% OF ITS TOTAL ASSETS (INCLUDING THE AMOUNT BORROWED), (B) THE FUND MAY, TO
THE EXTENT PERMITTED BY APPLICABLE LAW, BORROW UP TO AN ADDITIONAL 5% OF ITS
TOTAL ASSETS FOR TEMPORARY PURPOSES, (C) THE FUND MAY OBTAIN SUCH SHORT-TERM
CREDITS AS MAY BE NECESSARY FOR THE CLEARANCE OF PURCHASES AND SALES OF
PORTFOLIO SECURITIES, (D) THE FUND MAY PURCHASE SECURITIES ON MARGIN TO THE
EXTENT PERMITTED BY APPLICABLE LAW, AND (E) THE FUND MAY ENGAGE IN TRANSACTIONS
IN MORTGAGE DOLLAR ROLLS WHICH ARE ACCOUNTED FOR AS FINANCINGS.
PROPOSAL 4(c): THE APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
INVESTMENT RESTRICTION ON LENDING.
The 1940 Act requires that a mutual fund adopt a policy, which cannot be changed
without shareholder approval, on lending. The Fund's current fundamental
investment restriction on lending prohibits the Fund from making loans except
certain call loans upon collateral security. A call loan is any loan that is
repayable upon demand. For purposes of this restriction, the acquisition of
publicly distributed bonds, debentures and other debt securities is not
considered a loan.
The Directors believe that securities lending and investment in repurchase
agreements with banks, broker-dealers and other financial institutions would be
attractive investments for the Fund. The Directors propose to amend the Fund's
investment restriction on lending to permit the Fund to engage in securities
lending to the extent permitted by applicable law and to enter into repurchase
agreements with banks, brokers-dealers and other financial institutions. The
proposed amendment of the Fund's fundamental investment restriction on lending
also would permit the Fund to make loans through the purchase of debt
obligations. Such provision would incorporate the Fund's current policy that
permits loans through the purchase of publicly distributed bonds, debentures and
other debt securities, but restates such policy more succinctly. The proposed
restriction also would delete the reference to call loans.
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental policy on lending:
THE FUND MAY NOT MAKE LOANS, EXCEPT THROUGH (a) THE PURCHASE OF DEBT OBLIGATIONS
IN ACCORDANCE WITH THE FUND'S INVESTMENT OBJECTIVE AND POLICIES, (b) REPURCHASE
AGREEMENTS WITH BANKS, BROKERS, DEALERS, AND OTHER FINANCIAL INSTITUTIONS, AND
(c) LOANS OF SECURITIES AS PERMITTED BY APPLICABLE LAW.
PROPOSAL 4(d): THE APPROVAL OR DISAPPROVAL OF THE RESTATEMENT OF THE FUND'S
INVESTMENT RESTRICTIONS ON UNDERWRITING.
The 1940 Act requires that a mutual fund adopt a policy, which cannot be changed
without shareholder approval, on underwriting securities issued by other
issuers. The Fund's current restriction on underwriting provides that the Fund
will not underwrite securities issued by other persons. The Board of Directors
proposes to restate the Fund's current restriction to on underwriting conform it
to the standard restriction
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applicable to other funds advised by SM&R. The proposed restriction also would
clarify that such restriction would not apply to sales of portfolio securities
by the Fund that may be deemed to be an underwriting. The proposed restatement
of the Fund's policy, which does not represent a material change in investment
policy, would prohibit the Fund from underwriting the securities of other
issuers (which is not a part of the normal activities of a mutual fund).
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental policy on underwriting:
THE FUND MAY NOT UNDERWRITE SECURITIES ISSUED BY OTHERS, EXCEPT TO THE EXTENT
THAT THE SALE OF PORTFOLIO SECURITIES BY THE FUND MAY BE DEEMED TO BE AN
UNDERWRITING.
PROPOSAL 4(e): THE APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
INVESTMENT RESTRICTION ON COMMODITIES.
The 1940 Act requires that a mutual fund have a fundamental investment policy
regarding investments in commodities. The Fund's current investment restriction
on commodities provides that the Fund does not purchase or sell commodities or
commodity contracts. The Fund also has a fundamental investment restriction
prohibiting investment in certain physical commodity and real estate interests
(discussed under Proposal 4(h) below). Such fundamental restriction prohibits
the Fund from investing in oil, gas or mineral leases or rights on royalty
contracts.
Pursuant to the current restriction on commodities, the Fund does not invest in
forward foreign currency exchange contracts and options thereon, because such
instruments are considered to be commodity contracts. Financial futures
contracts (I.E., futures contracts on securities indices, Treasury Bonds and
currency) and options thereon are also considered to be commodity contracts.
Although there is no present intent to have the Fund invest in financial futures
contracts or options thereon, the Board of Directors proposes that the
fundamental restriction on investment in commodities be liberalized to permit
investments in financial futures and options thereon to the full extent
permitted under applicable law.
Broadening the restriction in this manner is consistent with mutual fund
industry practice for funds similar to the Fund and will provide flexibility to
invest in such instruments in the future if the Board of Directors determines
that investment in such instruments would be advantageous to the Fund. The
proposed restriction would clarify that certain practices in which the Fund may
engage (such as forward foreign currency contracts or swaps) are not subject to
the restriction on commodities.
The Board of Directors also recommends that the shareholders vote to eliminate
the provision contained in the restriction on investment in certain physical
commodity and real estate interests (discussed under Proposal 4(h) below) that
prohibits investment in oil, gas and mineral leases, and rights on royalty
contracts. As discussed below, the Board of Directors believes that such
restriction no longer is required by state regulation, and that is redundant
because the Fund's policy with respect to investment in physical commodities
interests already is addressed by both the current and proposed investment
restrictions on commodities.
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental policy with respect to
commodities:
THE FUND MAY NOT INVEST IN COMMODITIES OR COMMODITY CONTRACTS, EXCEPT THAT THE
FUND MAY INVEST IN CURRENCY AND FINANCIAL INSTRUMENTS AND CONTRACTS THAT ARE
COMMODITIES OR COMMODITY CONTRACTS.
PROPOSAL 4(f): THE APPROVAL OR DISAPPROVAL OF THE AMENDMENT AND RESTATEMENT OF
THE FUND'S INVESTMENT RESTRICTIONS ON INVESTMENT IN REAL ESTATE.
The 1940 Act requires that a mutual fund adopt a policy, which cannot be changed
without shareholder approval, on acquiring interests in real estate. The Fund's
current investment restriction on real estate prohibits the Fund from investing
in mortgage loans, although the Fund may invest in securities which are
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<PAGE>
secured by real estate or real estate mortgages and securities of issuers which
invest or deal in real estate and/or real estate mortgages. A separate
restriction on certain physical commodity and real estate interests (discussed
in Proposal 4(h) below) provides, among other the things, that the Fund does not
invest in real estate or real estate limited partnerships. The proposed new
restriction relating to real estate would combine these two current
restrictions.
The Board of Directors proposes that the Fund's fundamental investment
restrictions on investment in real estate be amended and restated to provide the
Fund maximum flexibility under the 1940 Act to invest in interests secured by
real estate and to reflect the standard restriction applicable to other funds
advised by SM&R. The proposed fundamental investment restriction would permit
the Fund to invest in securities secured by real estate or interests therein,
securities of real estate investment trusts and in mortgage-related securities.
Such restriction also would provide that the Fund may hold and sell real estate
acquired by the Fund as a result of the ownership of securities, affording the
Fund additional flexibility to own real estate directly as a result of the
exercise of its rights in connection with debt obligations secured by real
estate, which may serve to protect the Fund in the event an issuer of debt
securities is unable to meet its obligations. Any investments in securities
secured by an interest in real estate would be, of course, subject to the Fund's
investment objective and policies and to other limitations regarding
diversification and concentration. The proposed restriction would restate
succinctly and in one restriction all of the provisions relating to real estate
that are contained in the Fund's investment restrictions.
If the proposed investment restriction on investment in real estate is approved,
the Board of Directors recommends that the shareholders vote to eliminate the
provision contained in the restriction on investment in certain physical
commodity and real estate interests (discussed under Proposal 4(h) below) that
prohibits investment in real estate or real estate limited partnerships. The
provision on investment in real estate would be redundant. Moreover, Fund
management would interpret the proposed restriction on investment in real estate
to prohibit investment in real estate limited partnerships. Therefore, any
provision explicitly prohibiting investment in real estate limited partnerships
would be unnecessary, and also should be eliminated. The Directors recommend
that shareholders also vote to eliminate the provision contained in the Fund's
investment restriction on investment in restricted securities (discussed under
Proposal 4(l) below) that prohibits certain investments in mortgage loans. If
the proposed restriction on investment in real estate is approved, the
prohibition on investments in mortgage loans would be redundant.
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental policy on investment in real
estate:
THE FUND MAY NOT PURCHASE, HOLD OR DEAL IN REAL ESTATE, ALTHOUGH THE FUND MAY
PURCHASE AND SELL SECURITIES THAT ARE SECURED BY REAL ESTATE OR INTERESTS
THEREIN, SECURITIES OF REAL ESTATE INVESTMENT TRUSTS, AND MORTGAGE-RELATED
SECURITIES AND MAY HOLD AND SELL REAL ESTATE ACQUIRED BY THE FUND AS A RESULT OF
THE OWNERSHIP OF SECURITIES.
PROPOSAL 4(g): THE APPROVAL OR DISAPPROVAL OF THE AMENDMENT OF THE FUND'S
INVESTMENT RESTRICTION ON SENIOR SECURITIES.
The 1940 Act restricts the ability of a mutual fund to issue "senior
securities," as defined in the 1940 Act, and requires that a mutual fund adopt a
fundamental policy with respect to the issuance of such securities. Senior
securities include any form of indebtedness that has priority over the Fund's
common stock as to the distribution of assets or payment of dividends. As
discussed above, under the 1940 Act a mutual fund is not permitted to issue
senior securities except for borrowings from banks.
The Fund's current investment restriction on senior securities prohibits the
issuance of senior securities. The proposed amendment of the Fund's restriction
on senior securities would permit the Fund to issue senior securities to the
extent permitted by applicable law. In addition to permitting the borrowing
contemplated above under Proposal 4(b), the amendment clarifies that the Fund
does not consider certain
13
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investment practices, such as forward purchases of securities and currencies,
options and futures transactions, which may have a leverage effect on the Fund
to be senior securities if such practices are conducted in a manner consistent
with current law and the interpretive positions of the SEC. The proposed
amendment permits the Fund maximum flexibility to respond to a changing
regulatory environment.
The Board of Directors proposes that the Fund adopt the following investment
restriction in lieu of its current fundamental policy on senior securities:
THE FUND MAY NOT ISSUE SENIOR SECURITIES TO THE EXTENT SUCH ISSUANCE WOULD
VIOLATE APPLICABLE LAW.
PROPOSAL 4(h): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
FUNDAMENTAL INVESTMENT RESTRICTION ON INVESTMENT IN CERTAIN PHYSICAL COMMODITY
AND REAL ESTATE INTERESTS.
The Fund has a fundamental investment restriction that prohibits it from
investing in oil, gas or other mineral leases, rights on royalty contracts or in
real estate or real estate limited partnerships. The Board of Directors proposes
that shareholders vote to eliminate this fundamental investment restriction.
The portion of the restriction that prohibits investment in oil, gas and mineral
interests was imposed by certain state securities laws and regulations. The 1940
Act currently does not contain any equivalent restrictions. As a result of the
recent enactment of NSMIA, state law restrictions on permissible investments no
longer apply to the Fund. Moreover, as discussed above under Proposal 4(e), this
provision is redundant because a Fund's policy with respect to investment in
interests in physical commodities already is addressed by both the current and
proposed investment restrictions on commodities. The Board of Directors
recommends that the provision restricting investment in oil, gas or other
mineral leases or rights on royalty contracts be eliminated.
As discussed above under Proposal 4(f), if the proposed amendment to the Fund's
fundamental investment restriction on investment in real estate is approved, the
provision in the restriction on investment certain physical commodity and real
estate interests that prohibits investment in real estate or real estate limited
partnerships would be redundant. Accordingly, the Board of Directors proposes
that such provision be eliminated.
PROPOSAL 4(i): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON SHORT SALES OF SECURITIES.
The Fund has a fundamental investment policy limiting short sales of securities.
In a short sale, an investor sells a borrowed security and has a corresponding
obligation to the lender to return the identical security. The Board of
Directors recommends that shareholders vote to eliminate this fundamental
investment restriction. If shareholders approve the elimination of this
investment restriction, the Board of Directors plans to adopt a non-fundamental
investment policy prohibiting the Fund from engaging in the strategy of short
sales of securities. Under this investment policy, which could be changed by the
Board without shareholder approval, entering into short sales "against the box"
would not be deemed to be engaging in the strategy of short sales of securities.
In a short sale "against the box," the Fund could engage in short sale if it
owned, or, by virtue of its ownership of other securities, had the right to
obtain, securities equivalent in kind and amount to the securities sold short.
The Board of Directors proposes that the Fund adopt the following
non-fundamental investment restriction in lieu of its current fundamental policy
on short sales of securities:
THE FUND MAY NOT ENGAGE IN THE STRATEGY OF SHORT SALES OF SECURITIES.
PROPOSAL 4(j): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON INVESTMENTS TO EXERCISE CONTROL OR MANAGEMENT.
The Fund currently has a fundamental investment restriction that prohibits it
from investing in a company for the purpose of exercising control or management.
This restriction was mandated by certain state securities laws. The 1940 Act
currently does not contain any equivalent restrictions. As a result of the
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recent enactment of NSMIA, state law restrictions on investment to exercise
control or management no longer apply to the Fund. The Board of Directors
therefore has concluded that it is in the best interests of the Fund and its
shareholders to eliminate such restriction.
PROPOSAL 4(k): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON INVESTING IN OTHER INVESTMENT COMPANIES.
The Fund currently has a fundamental investment restriction that provides that
the Fund does not invest in securities issued by any other investment company,
except in a regular transaction in the open market. The 1940 Act limits the
extent to which a mutual fund may invest in other investment companies, but does
not require a mutual fund to adopt a fundamental restriction with respect to
such investment. The Board of Directors believes that the Fund's current
fundamental investment restriction on investment in other investment companies
is unnecessary and should be eliminated. The Board also believes that the 1940
Act provisions regarding investment in other investment companies may change
from time to time, and therefore such fundamental restriction should be
eliminated in order to permit the Fund maximum flexibility in responding to a
changing regulatory environment. The Directors believe it is in the best
interests of the Fund and its shareholders to eliminate the current restriction
on investment in other investment companies.
PROPOSAL 4(l): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
RESTRICTIONS ON INVESTMENT IN RESTRICTED AND ILLIQUID SECURITIES.
The Fund currently has a fundamental investment restriction that provides that
the Fund will not invest in securities which have been acquired through private
placement transactions, or "restricted securities." The Fund also has a
fundamental investment restriction that provides that the Fund will not invest
in securities that are not readily marketable, or "illiquid" securities.
Restricted securities are those that are subject to legal or contractual delays
on resale. Illiquid securities are those which may not be sold or disposed of in
the ordinary course of business within seven days at approximately the value at
which a mutual fund has valued the investment. The types of securities that are
considered illiquid will vary over time based on changing market conditions and
regulatory interpretations. Restricted securities are considered illiquid unless
they are determined to be liquid pursuant to guidelines and procedures adopted
by a mutual fund's board of directors. The current fundamental investment
restriction limits investment in all restricted securities, including liquid and
illiquid restricted securities.
The Board of Directors recommends that the current investment restrictions on
restricted and illiquid securities be eliminated. It is anticipated that if
shareholders of the Fund vote to eliminate such restrictions, the Board of
Directors would adopt a non-fundamental policy that limits the Fund's investment
in illiquid (rather than restricted) securities to 15% of its net assets.
The current restrictions are more restrictive than is required under current
law. Under current SEC staff interpretations, a mutual fund, other than a money
market mutual fund, must limit investment in illiquid securities to 15% of its
net assets. The Fund's current restrictions permit no investment in either
restricted or illiquid securities. Eliminating the restriction on restricted
securities would permit the Fund to invest in such securities. Eliminating the
restriction on illiquid securities, and adopting a non-fundamental policy
consistent with the Staff position, would permit the Fund to invest up to 15% of
its assets in illiquid securities. Moreover, such restriction would clarify that
there is no limit on investment in certain restricted securities, such as Rule
144A securities, foreign securities, or so-called "Section 4(2)" commercial
paper that, while presumptively restricted, could be determined under procedures
approved by the Board to be "liquid," and therefore would not be subject to the
limit on investment in illiquid securities. The Board of Directors believes that
eliminating the Fund's fundamental restriction on restricted securities will
permit the Fund to take advantage of the increasingly liquid institutional
trading markets.
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The Board of Directors proposes that the Fund adopt the following
non-fundamental investment restriction in lieu of its current fundamental
investment restrictions on restricted and illiquid securities:
THE FUND MAY NOT PURCHASE ANY SECURITY WHICH IS AN "ILLIQUID SECURITY" IF MORE
THAN 15% OF THE NET ASSETS OF THE FUND TAKEN AT MARKET VALUE WOULD BE INVESTED
IN SUCH SECURITIES.
PROPOSAL 4(m): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON PURCHASES WHERE THE FUND MAY BE DEEMED A STATUTORY
UNDERWRITER.
The Fund currently has a fundamental investment restriction that provides that
the Fund does not purchase any securities as to which it would be deemed a
statutory underwriter under the Securities Act of 1933 (the "1933 Act"). A
mutual fund that purchases restricted securities in a private placement may be
deemed, under the 1933 Act, to be an underwriter of such securities to the
extent it sells them in certain transactions. The proposed amendment to the
Fund's investment restriction on underwriting securities (discussed in Proposal
4(d), above) clarifies that the Fund would not be prohibited from selling
restricted securities held in its portfolio merely because the Fund may
technically be deemed to be an underwriter as to such securities. Moreover, as
discussed in Proposal 4(l), above, the Directors propose that shareholders vote
to eliminate the Fund's investment restriction on investment in restricted
securities. The fundamental investment restriction on purchases where the Fund
would be deemed a statutory underwriter is inconsistent with the Fund's proposed
investment restriction on underwriting and with the proposed elimination of the
Fund's restriction on investment in restricted securities. The Directors
therefore have concluded that it is in the best interests of the Fund and its
shareholders to eliminate the policy on purchases where the Fund may be deemed a
statutory underwriter.
PROPOSAL 4(n): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON INVESTMENTS IN SECURITIES OF COMPANIES WITH LESS THAN
THREE YEARS' CONTINUOUS OPERATIONS.
The Fund currently has a fundamental investment restriction that prohibits it
from investing in securities issued by a corporation which has not been in
continuous operation for three years (typically referred to as "unseasoned
issuers"). The restriction also provides that it is the Fund's operating policy
not to invest in any business which has not been in continuous operation for at
least five years. The Fund's investment restriction on unseasoned issuers is
based on restrictions on investment in unseasoned issuers contained in certain
state securities laws and regulations. The 1940 Act currently does not contain
any equivalent restrictions. As a result of the recent enactment of NSMIA, state
law restrictions on permissible investments no longer apply to the Fund. The
Directors therefore have concluded that it is in the best interests of the Fund
and its shareholders to eliminate the policy on unseasoned issuers. In addition,
the Directors believe that elimination of this policy will increase the Fund's
flexibility to invest in unseasoned issuers that otherwise might meet its
investment objectives and policies.
Securities of unseasoned issuers may be subject to greater risk than securities
of more established companies because these issuers have only a brief operating
history and may have more limited markets and financial resources. However, the
Directors believe that the increasing prevalence of unseasoned issuers, the
investment opportunities offered by such issuers, and the fact that any such
investments will be made in accordance with the investment objectives and
policies of the Fund warrants the elimination of the current policy.
The Directors believe it is in the best interests of the Fund and its
shareholders to eliminate the current restriction on investment in unseasoned
issuers.
PROPOSAL 4(o): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON INVESTMENTS IN AN ISSUER OF WHICH FUND OFFICERS AND
DIRECTORS OWN MORE THAN A CERTAIN PERCENTAGE.
The Fund currently has a fundamental investment restriction that prohibits it
from retaining the securities of any issuer if any officer or Director of the
Fund or certain other "interested persons" owns more than 5% of the securities
of that issuer. This restriction was mandated by certain state securities laws.
The 1940
16
<PAGE>
Act currently does not contain any equivalent restrictions. As a result of the
recent enactment of NSMIA, state law percentage restrictions on investment by
Fund management no longer apply to the Fund. The Directors therefore have
concluded that it is in the best interests of the Fund and its shareholders to
eliminate the Fund's restriction on investment by Fund management.
PROPOSAL 4(p): THE APPROVAL OR DISAPPROVAL OF THE ELIMINATION OF THE FUND'S
INVESTMENT RESTRICTION ON PURCHASING WARRANTS.
The Fund currently has a fundamental investment restriction that limits the
Fund's investment in warrants to 5% of its total assets and which mandates that
the Fund may purchase only marketable warrants. Such restriction further
provides that the Fund does not invest more than 2% of its total assets in
warrants that are not listed on the New York or American stock exchanges.
Restrictions on purchasing warrants were imposed under certain state securities
laws. The 1940 Act does not contain any specific restrictions on purchasing
warrants. The Directors therefore have concluded that it is in the best
interests of the Fund and its shareholders to eliminate the current restriction
on purchasing warrants.
REQUIRED VOTE
Approval of each proposed amendment, restatement or elimination of the Fund's
fundamental investment restrictions requires the affirmative vote of a majority
of the outstanding shares of the Fund, as determined by the provisions of the
1940 Act. Pursuant to the 1940 Act, a "vote of a majority of the Fund's
outstanding voting securities" means the approval by the lesser of (i) more than
50% of the Fund's outstanding voting securities, or (ii) 67% or more of the
Fund's outstanding voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities of the Fund are present (in person
or by proxy). If a proposed amendment is not approved with respect to the Fund,
the current investment restriction will continue in effect unchanged for the
Fund.
BOARD OF DIRECTORS' RECOMMENDATION
The Board of Directors believes that each proposed amendment, restatement, or
elimination of the Fund's fundamental investment restrictions will more clearly
reflect current regulatory practice, will provide a more complete range of
investment opportunities, and will clarify and simplify the Fund's restrictions.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS OF THE FUND VOTE "FOR" THE
APPROVAL OF THE AMENDMENT, RESTATEMENT, OR ELIMINATION OF THE FUND'S INVESTMENT
RESTRICTIONS.
STOCKHOLDER PROPOSALS
As a general matter, the Fund does not hold annual meetings of shareholders,
and, therefore, the anticipated date of the next special meeting of shareholders
of the Fund cannot be provided. Any shareholder proposal that properly may be
included in proxy solicitation materials for a special meeting of shareholders
must be received by the Fund a reasonable time prior to the date voting
instructions or proxy materials are mailed to shareholders. Any such proposals
must comply with the requirements of Rule 14a-8 promulgated under the Securities
Exchange Act of 1934.
ANNUAL REPORT
The financial statements of the Fund, as contained in the Annual Report, should
be read in conjunction with this Proxy Statement. A copy of the Annual Report of
the Fund for the fiscal year ended December 31, 1997, including financial
statements, was mailed to stockholders in February, 1998. The Fund will furnish,
without charge, a copy of the Annual Report to a stockholder upon request. Any
such request should be made to Teresa E. Axelson, Secretary of the Fund, at One
Moody Plaza, Galveston, Texas 77550 or (800) 526-8346, ext. 229.
17
<PAGE>
OTHER BUSINESS
Management knows of no other business which will be presented for consideration
at the meeting other than as stated above. If any other business shall properly
come before the meeting, the enclosed Proxy authorizes the persons named therein
to vote on any such other business in accordance with their best judgement.
All shares represented by proxies received by management, not revoked, will be
voted at the meeting or at any adjournment thereof. Accordingly, we hope that
you will be able to attend the meeting, but if not, we ask that you promptly
mark, sign and mail the enclosed Proxy in the enclosed envelope.
By Order of the Board of Directors
Teresa E. Axelson,
SECRETARY
18
<PAGE>
APPENDIX A
<*>AMENDED AND RESTATED]</*> ARTICLES OF INCORPORATION
OF
TRIFLEX FUND, INC.
ARTICLE I
The undersigned, Jerry L. Adams, whose address is c/o Greer, Herz & Adams, One
Moody Plaza, 14th Floor, Galveston, Texas 77550 and who is an adult of full
legal age, does hereby declare that he is an incorporator intending to form a
corporation under and by virtue of the Maryland General Corporation Law
authorizing the formation of corporations.
ARTICLE II
The name of the Corporation is TRIFLEX FUND, INC.
ARTICLE III
PURPOSES AND POWERS
The <#>{purposes}</#>[purpose] for which the Corporation is formed and its
objects, rights, power and privileges are:
(1) To conduct and carry on the business of an open-end, management type
investment company registered under the Investment Company Act of 1940 (as
amended and together with any successor act thereto and all rules, regulations
and orders thereunder, referred to as the " '40 Act"), and to have and exercise
any and all rights and powers necessary and appropriate to the conduct of such
business or in any way incidental thereto;
(2) To subscribe for, or otherwise acquire, purchase, pledge, sell, assign,
transfer, exchange, distribute or otherwise dispose of, and generally deal in
and hold all forms of securities and other investments, including, but not
limited to, stocks (preferred and common), notes, bonds, debentures, script,
warrants, participation certificates, bankers acceptances, futures, options of
all types on securities and futures, mortgages, commercial paper, chooses in
action, evidences of indebtedness and other obligations of every kind and
description, precious metals and contracts and rights to acquire or dispose of
precious metals, and in connection therewith to hold part or all of its assets
in cash or cash equivalents or money market instruments;
(3) To continuously issue and sell shares of its own capital stock (all without
the vote or consent of the stockholders of the Corporation) in such amounts and
on such terms and conditions, for such purposes and for such amounts or kinds of
consideration now or hereafter permitted by the Maryland General Corporation
Law<*>[, or any act amendatory thereof, supplemental thereto, or in substitution
therefor (the "Maryland General Corporation Law"),]</*> and by the Articles of
Incorporation of the Corporation, as its Board of Directors may determine;
(4) To redeem, purchase or otherwise acquire, hold, dispose of, resell,
transfer, reissue, retire or cancel (all without the vote or consent of the
stockholders of the Corporation) shares of its capital stock, in any manner and
to the extent now or hereafter permitted by the <#>{laws of}</#> Maryland
<*>[General Corporation Law]</*> and by the Articles of Incorporation of the
Corporation;
(5) To borrow or raise money for any purpose of the Corporation and from time to
time to draw, make, accept, endorse, execute and issue promissory notes, drafts,
bills of exchange, warrants, bonds, debentures and other negotiable and
nonnegotiable instruments and evidences of indebtedness, and to pledge,
hypothecate and borrow upon the credit of the assets of the Corporation;
(6) To take all such action as shall be desirable and necessary to cause its
shares to be licensed or registered for sale under the laws of the United States
and in any state, country, city or other municipality
Appendix A-1
<PAGE>
of the United States, the territories thereof, the District of Columbia or in
any foreign country and in any town, city or subdivision thereof;
(7) To make contracts and generally to do any and all acts and things necessary
or desirable in furtherance of any of the corporate purposes or designed to
protect, preserve and/or enhance the value of the corporate assets, all to the
extent permitted to business corporations authorized under the laws of the State
of Maryland, as now or may in the future be authorized by said laws;
(8) To do all and everything necessary, suitable and proper for the
accomplishment of any of the purposes, objects or powers hereinbefore set forth
to the same extent and as fully as a natural person might or could do, in any
part of the world and either alone or in association or partnership with other
corporations, firms or individuals;
(9) To have all the rights, powers and privileges now or hereafter conferred by
the laws of the State of Maryland upon a corporation organized under the
Maryland General Corporation Law<#>{, or under any not amendatory thereof,
supplemental thereto or in substitution therefore}</#>; and
(10) To do any and all such further acts or things and to exercise any and all
such further powers or rights as may be necessary, incidental, relative,
conducive, appropriate or desirable for the accomplishment, carrying out or
attainment of all or any of the foregoing purposes, objects or powers.
The foregoing clauses are and shall be regarded as independent and separate, and
the enumeration in any such clause of any specific objectives and/or powers
shall not be construed as limiting or restricting in any way the general
objectives and powers stated in any other clause; nor shall any of the
objectives and/or powers stated above, except when otherwise expressly provided,
be in any way limited or restricted by reference to, or inference from, the
terms of any other clause of these Articles of Incorporation.
ARTICLE IV
PRINCIPAL OFFICE AND RESIDENT AGENT
The address of the principal office of the Corporation in the State of Maryland
is c/o The Corporation Trust Incorporated, 32 South Street, Baltimore, Maryland
21202. The resident agent of the Corporation in the State of Maryland is The
Corporation Trust Incorporated, a corporation of the State of Maryland, whose
address is 32 South Street, Baltimore, Maryland 21202.
ARTICLE V
CAPITAL STOCK
(1) The total number of shares of [capital] stock <#>{which}</#>[that] the
Corporation shall have authority to issue is Fifty Million (50,000,000) shares
<#>{of common stock}</#><*>[,]</*> of the par value of one <#>dollar ($1.00)</#>
cent ($0.01) <#>{each, such shares to be classified as "Common Stock", and to
be}</#> <*>[per share and ]</*>of the aggregate par value of Fifty Million
Dollars ($50,000,000.00)<#> {Unless otherwise prohibited by law, so long as the
Corporation is registered as an open end investment company under the '40 Act,
the total number of shares of Common Stock which the Corporation is authorized
to issue may be increased or decreased by the Board of Directors in accordance
with the applicable provisions of the Maryland General Corporation Law.}</#>
<*>[, all of which Fifty Million (50,000,000) are designated Common Shares.
]</*>
<#>{The number of shares of authorized Common Stock that may be issued shall be
such number as may be determined by the Board of Directors.}</#>
<#>Any Common Stock reacquired by the Corporation}</#><*>[(2) The Board of
Directors of the Corporation is authorized]</*>, from time to time, <#>{may be
held as treasury shares, reissued or canceled as}</#> <*>[to classify or to
reclassify, as the case may be, any unissued shares of, or any shares previously
issued and reacquired by, the Corporation, whether now or hereafter authorized,
in separate series and classes that may be established and designated from time
to time. The shares of said series and classes of stock shall have such
Appendix A-2
<PAGE>
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption as shall be fixed and determined from time to time by]</*> the Board
of Directors <#>{may determine.}</#>
<#>Dividends and distributions on Common Stock may be paid with such frequency
as the Directors may determine,}</#><*>[. The Board of Directors is authorized
to increase or decrease the number of shares of any series or class, but the
number of shares of any series or class shall not be decreased by the Board of
Directors below the number of shares thereof then outstanding.
(3) The Board of Directors may redesignate a class or series of shares of
capital stock whether or not shares of such class or series are issued and
outstanding, provided that such redesignation does not in itself affect the
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of redemption
of such shares of stock.
(4) There is hereby established and classified one series of stock, comprised of
Fifty Million (50,000,000) shares, each with a par value of one dollar ($1.00).
Without limiting the authority of the Board of Directors set forth herein to
establish and designate any further series or classes, and to classify and
reclassify any unissued shares, and subject to such authority, shares of each
series, now authorized and hereafter authorized, shall be subject to the
following provisions:
(a) As more fully set forth hereafter, the assets and liabilities and the
income and expenses of each series shall be determined separately and,
accordingly, the net asset value, the dividends payable to holders, and the
amounts distributable in the event of dissolution of the Corporation to
holders of shares of the Corporation's stock may vary from series to series.
(b) All consideration received by the Corporation for the issue or sale of
shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including all proceeds derived from the sale, exchange or
liquidation thereof, and any funds or payments derived from any reinvestment
of such proceeds in whatever form the same may be, shall irrevocably belong
to that series for all purposes, subject only to the rights of creditors of
that series and shall be referred to as "assets belonging to" that series.
The assets belonging to a particular series shall be so recorded upon the
books of the Corporation. In the event that there are any assets, income,
earnings, profits and proceeds thereof, funds or payments which are not
readily identifiable as belonging to any particular series, the Directors
shall allocate them among, and they shall then belong to, any one or more of
the series established and designated from time to time in such manner and
on such basis as they, in their sole discretion, deem fair and equitable.
Each such allocation by the Corporation shall be conclusive and binding upon
the stockholders of all series for all purposes. The Directors shall have
full discretion, to the extent not inconsistent with the '40 Act and the
Maryland General Corporation Law, to determine which items shall be treated
as income and which items shall be treated as capital, and each such
determination and allocation shall be conclusive and binding upon the
stockholders.
(c) The assets belonging to each particular series shall be charged with the
liabilities of the Corporation attributable to that series and all expenses,
costs, charges and reserves attributable to that series. Any general
liabilities, expenses, costs, charges or reserves of the Corporation which
are not readily identifiable as belonging to any particular series shall be
allocated and charged by the Directors to and among any one or more of the
series established and designated from time to time in such manner and on
such basis as the Directors in their sole discretion deem fair and
equitable. Each allocation of liabilities, expenses, costs, charges and
reserves by the Directors shall be conclusive and binding upon the
stockholders of all series for all purposes.
(d) Shares of each series shall be entitled to such dividends and
distributions, in shares or in cash or both, as may be declared from time to
time by the Board of Directors, acting in its sole discretion, with respect
to such series, provided that dividends and distributions shall be paid on
shares of a series only out of lawfully available assets belonging to that
series. Dividends may be declared daily or otherwise]</*> pursuant to a
standing resolution or resolutions adopted only once or with such frequency
as the
Appendix A-3
<PAGE>
Board of Directors may determine<#>{, to the holders of Common Stock from
such of the income and capital gains, accrued or realized, or from the
assets of the Corporation as the Directors may determine, after providing
for actual and accrued liabilities}</#>. All dividends and distributions on
Common <#>{Stock}</#><*>[Shares of a particular series]</*> shall be
distributed pro-rata to the <#>{stockholders}</#> <*>[holders of that
series]</*> in proportion to the number of Common <#>{Stock}</#> <*>[Shares
of that series]</*> held by such holders at the date and time of record
established for the payment of such dividends or distributions, except that
in connection with any dividend or distribution program or procedure, the
Board of Directors may determine that no dividend or distribution shall be
payable on shares as to which the <#>{stockholder's}</#>
<*>[stockholder's]</*> purchase order <#>{and/or}</#> <*>[or]</*> payment
has not been received by the time or times established by the Board of
Directors under such program or procedure.
<#>{The Corporation intends to qualify as a "regulated investment company" under
the Internal Revenue Code of 1986, or any successor statute thereto, and
regulations promulgated thereunder. Inasmuch as the computation of net income
and gain for Federal income tax purposes may vary from the computation thereof
on the books of the Corporation, the}</#> <*>[(e) The ]</*>Board of Directors
shall have the power, in its sole discretion, to distribute in any fiscal year
as dividends<#>{,}</#> <*>[(]</*>including dividends designated in whole or in
part as capital <#>{gains distributions, amounts}</#> <*>[gain distributions) an
amount]</*> sufficient, in the opinion of the Board of Directors, to enable
<#>{it to qualify as regulated investment companies and to avoid liability for
Federal income tax in respect of that year. However, nothing in the foregoing
shall limit the authority of the Board of Directors to make distributions
greater than or less than the amount necessary to qualify the Corporation}</#>
<*>[each series of the Corporation to qualify ]</*>as a regulated investment
company <*>[under the Internal Revenue Code of 1986, as from time to time
amended, or any successor or comparable statute thereto, and regulations
promulgated thereunder,]</*> and to avoid liability of <*>[each series of]</*>
the Corporation for <#>{such tax}</#> <*>[federal income and excise taxes in
respect of that year. However, nothing in the foregoing shall limit the
authority of the Board of Directors to make distributions greater than or less
than the amount necessary to qualify as a regulated investment company and to
avoid liability of any series of the Corporation for such taxes].</*> {
}Dividends and distributions may be made in cash, property or additional shares
<*>[of the same or another class or series]</*>, or a combination thereof, as
determined by the Board of Directors or pursuant to any program that the Board
of Directors may have in effect at the time for the election by each stockholder
of the mode of the making of such dividend or distribution to that stockholder.
Any such dividend or distribution paid in shares will be paid at the net asset
value thereof as defined in <#>{Section 2 of this Article V.}</#> <*>[the '40
Act and as determined by the Board of Directors of the Corporation.]</*>
<#>{On all matters of the Corporation which require a vote of the stockholders,
each holder of a share}</#> <*>[(f) In the event of the liquidation or
dissolution of the Corporation or of a particular series, the stockholders of a
series that has been established and designated and is being liquidated]</*>
shall be entitled to <#>{one vote for each share standing in his name}</#>
<*>[receive, as a series, when and as declared by the Board of Directors, out of
the assets of the Corporation available for distribution to stockholders, the
assets belonging to that series. The assets so distributable to the stockholders
of a series shall be distributed among such stockholders in proportion to the
number of shares of that series held by them and recorded]</*> on the books of
the Corporation<#>{. Cumulative voting shall not be permitted.</#>
<#>2.}</#><*>[or, in the event that the series is divided into classes, in the
manner determined by the Board of Directors in accordance with the '40 Act. In
the event that there are any assets available for distribution which are not
readily identifiable as belonging to any particular series, such assets shall be
allocated by the Directors to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Directors in their sole discretion deem fair and equitable, and then
distributed to the holders of stock of each series as aforesaid. Each allocation
of such assets by the Directors shall be conclusive and binding upon the
stockholders of all series for all purposes.
(g) If a series is divided into multiple classes, the classes may be
invested with one or more other classes in the common investment portfolio
comprising the series. Notwithstanding the foregoing provisions of this
Article V(4) of these Articles of Incorporation, if two or more classes are
invested in
Appendix A-4
<PAGE>
a common investment portfolio, the shares of each such class of stock of the
Corporation shall be subject to the following preferences, conversion and
other rights, voting powers, restrictions, limitations as to dividends,
qualifications and terms and conditions of redemption, and, if there are
other classes of stock invested in a different investment portfolio
comprising a different series, shall also be subject to the provisions of
Article V(4)(a) through (f) of these Articles of Incorporation at the series
level as if the classes invested in the common investment portfolio were one
class:
(i) The income and expenses of the series shall be allocated among the
classes comprising the series in such manner as may be determined by the
Board of Directors in accordance with law.
(ii) As more fully set forth in this Article V(4)(g) of these Articles of
Incorporation, the liabilities and expenses of the classes comprising the
series shall be determined separately from those of each other and,
accordingly, the net asset values, the dividends and distributions
payable to holders, and the amounts distributable in the event of
liquidation of the Corporation or termination of a series to holders of
shares of the Corporation's stock may vary within the classes comprising
the series. Except for these differences and certain other differences
set forth in this Article V(4)(g) or elsewhere in these Articles of
Incorporation, the classes comprising a series shall have the same
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications and terms and conditions of
redemption.
(iii) The dividends and distributions of investment income and capital
gains with respect to the classes comprising a series shall be in such
amounts as may be declared from time to time by the Board of Directors,
and such dividends and distributions may vary among the classes
comprising the series to reflect differing allocations of the expenses
and liabilities of the Corporation among the classes and any resultant
differences between the net asset values per share of the classes, to
such extent and for such purposes as the Board of Directors may deem
appropriate. The allocation of investment income, capital gains, expenses
and liabilities of the Corporation among the classes comprising a series
shall be determined by the Board of Directors in a manner that is
consistent with applicable law.</*>
<*>(h)]</*> The Corporation shall, upon due presentation of a share or
shares of stock for redemption, redeem such share or shares of stock at a
redemption price prescribed by the Board of Directors in accordance with
applicable laws and regulations<#>{; provided that in no event shall such
price be less than the applicable Net Asset Value per share as determined in
accordance, with the provisions of this Section 2., less such redemption
charge, if any, as may be from time to time determined by the Board of
Directors. The Corporation may also redeem, at the current Net Asset Value
and to the extent and in the manner permitted by the '40 Act, shares of its
Common Stock not offered for redemption held by any shareholder whose shares
have a value less than such minimum amount as may be fixed from time to time
by the Board of Directors. The Corporation shall pay redemption prices in
cash, except that the Corporation may pay redemption prices in kind in such
manner as is permitted by the '40 Act.
Notwithstanding the foregoing, the Corporation may postpone payment of the
redemption price and may suspend the right of the stockholders to require the
Corporation to redeem shares during any period or at any time when and to the
extent permissible under the '40 Act.</#>
<#>The Net Asset Value of a share of Common Stock of the Corporation shall be
determined in accordance with applicable laws and regulations and under the
supervision of such persons and at such time or times as shall from time to time
be prescribed by the Board of Directors. The Board of Directors of the
Corporation shall have the final decision upon questions concerning the method
of computing Net Asset Value, valuation of assets, procedure in repurchase, and
other matters in connection with placing in effect the offering prices and
repurchase of the Corporation's Common Stock.</#>
<#>3.}</#> <*>[. The proceeds of the redemption of the shares of any class of
stock of the Corporation may be reduced by the amount of any contingent
deferred sales charge, liquidation charge, or other charge (which charges
may vary within and among the classes) payable on such redemption pursuant
to the terms of issuance of such shares, all in accordance with the '40 Act
and applicable rules and
Appendix A-5
<PAGE>
regulations of the National Association of Securities Dealers, Inc. and NASD
Regulation, Inc. (together, the "NASD").
(i) To the extent permitted by the '40 Act and Maryland General Corporation
Law, the Corporation may redeem shares of Common Shares of any series or
class not offered for redemption held by any shareholder whose shares have a
value less than such minimum amount as may be fixed by the Board of
Directors (the "Minimum Required Investment").
(j) Notwithstanding Article V(4)(i) of these Articles of Incorporation, to
the extent permitted by the '40 Act and Maryland General Corporation Law,
the Corporation may redeem shares of Common Shares of any series or class
not offered for redemption held by any shareholder without regard to the
value of such shares.
(k) If shares of stock are redeemed pursuant to Articles V(4)(i) or V(4)(j)
of these Articles of Incorporation, the Corporation shall pay the redemption
price in cash or in kind in such manner as is consistent with and not in
contravention of the '40 Act. Redemption prices shall be paid exclusively
out of the assets of the series whose shares are being redeemed.
Notwithstanding the foregoing, the Corporation may postpone payment of the
redemption price and may suspend the right of holders of shares of any class
or series to require the Corporation to redeem shares of that class or
series during any period or at any time when and to the extent permissible
under the '40 Act.
(l) At such times (which may vary between and among the holders of
particular classes) as may be determined by the Board of Directors (or with
the authorization of the Board of Directors, by the officers of the
Corporation) in accordance with the '40 Act and applicable rules and
regulations of the NASD and reflected in the pertinent registration
statement of the Corporation, shares of any particular class of stock of the
Corporation may be automatically converted into shares of another class of
stock of the Corporation based on the relative net asset values of such
classes at the time of conversion, subject, however, to any conditions of
conversion that may be imposed by the Board of Directors (or with the
authorization of the Board of Directors, by the officers of the Corporation)
and reflected in the pertinent registration statement of the Corporation as
aforesaid.
Except as provided above, all provisions of the Articles of Incorporation
relating to stock of the Corporation shall apply to shares of, and to the
holders of, all classes of stock.
(5) On each matter submitted to a vote of the stockholders, each holder of a
share shall be entitled to one vote for each share standing in his name on the
books of the Corporation on a date reasonably determined by the Board of
Directors of the Corporation, irrespective of the class or series thereof, and
all shares of all classes or series shall vote as a single class or series
("Single Class Voting"); provided, however, that (i) as to any matter with
respect to which a separate vote of any class or series is required by the '40
Act, or by the Maryland General Corporation Law, such requirement as to a
separate vote by that class or series shall apply in lieu of Single Class Voting
as described above; (ii) in the event that the separate vote requirements
referred to in (i) above apply with respect to one or more classes or series,
then, subject to (iii) below, the shares of all other classes or series shall
vote as a single class or series; and (iii) as to any matter which does not
affect the interest of particular class or series, only the holders of shares of
the one or more affected classes or series shall be entitled to vote.
(6) The establishment and designation of any series or class of Common Shares
shall be effective upon (1) the adoption by a majority of the then Directors of
a resolution setting forth such establishment and designation and the relative
rights and preferences of such series or class, or as otherwise provided in such
instrument and (2) the filing with the proper authority of the State of Maryland
of Articles Supplementary setting forth such establishment and designation and
relative rights and preferences.
(7) Unless otherwise required by the '40 Act, the presence in person or by proxy
of the holders of one-third (1/3) of the shares of capital stock of the
Corporation outstanding and entitled to vote thereat shall constitute a quorum
for the transaction of business at a stockholders' meeting, except that where
any provision of law or of the Charter of the Corporation permit or require that
holders of any series or class
Appendix A-6
<PAGE>
shall vote as a separate series or class, then one-third (1/3) of the aggregate
number of shares of capital stock of that series or class, as applicable,
outstanding and entitled to vote shall constitute a quorum for the transaction
of business by that series or class, as applicable.
(8) No holder of stock of the Corporation by virtue of being such a holder shall
have any right to purchase, subscribe for, or otherwise acquire any shares of
the Corporation or any other security that the Corporation may issue or sell
(whether out of the number of shares authorized by the Charter of the
Corporation or out of any shares of the Corporation's capital stock that the
Corporation may acquire) other than a right that the Board of Directors in its
discretion may determine to grant.
(9) All persons who shall acquire stock in the Corporation shall acquire the
same subject to the provisions of the Charter of Corporation and the By-Laws of
the Corporation, as from time to time amended or supplemented.</*>
<*>(10)]</*>The Corporation may issue, sell, redeem, repurchase and otherwise
deal in and with shares of its stock in fractional denominations <#>{. Such}</#>
<*>[and such]</*> fractional denominations shall, for all purposes<#>{,}</#> be
shares of <#>{common stock}</#><*>[Common Shares]</*> having<#>{,}</#>
proportionately to the respective fractions represented thereby<#>{,}</#> all
the rights of whole shares, including without limitation, the right to vote, the
right to receive dividends <#>{and distributions}</#><*>[,]</*> and the right to
participate upon liquidation of the Corporation; provided that the issue of
shares in fractional denominations shall be limited to such transactions and be
made upon such terms as may be fixed by or under authority of the By-Laws.
<#>{4.}</#><*>[(11)]</*>The Corporation shall not be obligated to issue
certificates representing shares of <#>{its Common Stock}</#> <*>[any class or
series]</*> unless it shall receive a written request therefor from the record
holder thereof in accordance with procedures established in the By-Laws or by
the Board of Directors.
<*>[(12)</*><*>The Board of Directors of the Corporation shall have the final
decision upon questions concerning the method of computing net asset value,
valuation of assets, procedure in repurchase, and other matters in connection
with placing in effect the offering price and repurchase of the Corporation's
Common Shares.]</*>
ARTICLES VI
PREEMPTIVE RIGHTS
No stockholder of the Corporation <*>[of any class or series]</*>, whether now
or hereafter authorized, shall have any preemptive or preferential or other
right of purchase of or subscription to <#>{the Common Stock}</#> <*>[any shares
of any class or series of stock, or securities convertible into, exchangeable
for or evidencing the right to purchase stock of any class or series whatever,
whether or not the stock in question is of the same class or series as may be
held by such stockholders, and whether now or hereafter authorized and]</*>
whether issued for cash, property, services or otherwise, other than such, if
any, as the Board of Directors in its discretion may from time to time fix.
ARTICLE VII
REQUIRED VOTE OF STOCKHOLDERS
Notwithstanding any provisions of Maryland law requiring the affirmative vote of
more than a majority of all the votes entitled to be cast on a matter, the
Corporation may take action on any such matter if such action is approved by a
majority of all the votes entitled to be cast on such matter. Without intending
any limitation of the foregoing sentence, such majority approval shall be
sufficient, valid and effective, after due authorization, approval and/or other
action by the Board of Directors, as required by law, to approve and authorize
the following acts of the Corporation:
(a) the amendment of the Charter of the Corporation;
(b) the consolidation of the Corporation with one or more corporations to form a
new consolidated corporation;
Appendix A-7
<PAGE>
(c) the merger of the Corporation into another corporation or the merger of one
or more other corporations into the Corporation;
(d) the sale, lease, exchange or other transfer of all, or substantially all, of
the property and assets of the Corporation, including its goodwill and
franchises;
(e) the participation by the Corporation in a share exchange (as defined in the
Corporation and Associations Article of the Annotated Code of Maryland) as the
Corporation the stock of which is to be acquired;
(f) the voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation.
ARTICLES VIII
NUMBER AND POWERS OF DIRECTORS
(1) The number of directors of the Corporation shall be such number, not less
than three (3), as may be specified in or fixed in the manner prescribed by the
By-Laws of the Corporation. Until a different number is fixed as provided by the
By-Laws, the Corporation shall have nine (9) directors. Unless otherwise
provided by the By-Laws of the Corporation, directors need not be stockholders
thereof.
(2) The names of the initial directors who shall act until the first annual
meeting or until their successors are duly chosen and qualified are:
Ralph S. Clifford
Paul D. Cummings
Jack T. Currie
Ira H. Green
Eva W. Levy
William S. Mackey, Jr.
Ira W. Painton
Donald P. Stevens
Steven H. Stubbs
(3) So long as permitted by Maryland law by the '40 Act, directors elected at a
meeting of shareholders shall not have a specified term and shall serve until
their successors are elected and qualified. <*>[Cumulative voting in the
election of directors is prohibited.]</*>
(4) The Board of Directors of the Corporation is hereby empowered to authorize
the issuance from time to time of shares of <#>{Common Stock}</#> <*>[capital
stock]</*>, whether now or hereafter authorized, for such consideration as the
Board of Directors may deem advisable, subject to such limitations as may be set
forth in the Charter or the By-Laws of the Corporation, in the Maryland General
Corporation Law or in the '40 Act.
(5) Each Director and each officer of the Corporation shall be indemnified by
the Corporation to the fullest extent permitted by the Maryland General
Corporation Law and the By-Laws of the Corporation, as such Law and By-Laws may
now or in the future be in effect, subject only to such limitations as may be
required by the '40 Act.
(6) The Board of Directors of the Corporation may make, alter or repeal from
time to time any of the By-Laws of the Corporation except any particular By-Law
which is specified as not subject to alteration or repeal by the Board of
Directors.
<*>[(7)</*> <*>The Corporation may employ such custodian or custodians for the
safekeeping of the property of the Corporation and of its shares, such dividend
disbursing agent or agents, and such transfer agent or agents and registrar or
registrars of its shares, and may make and perform such contracts for the
aforesaid purposes as in the opinion of the Board of Directors of this
Corporation may be reasonable, necessary or proper for the conduct of the
affairs of the Corporation, and may pay the fees and disbursements of such
Appendix A-8
<PAGE>
custodians, dividend disbursing agents, transfer agents, and registrars out of
the income and/or any other property of the Corporation. Notwithstanding any
other provisions of these Articles of Incorporation or the By-Laws of the
Corporation, the Board of Directors may cause any or all of the property of the
Corporation to be transferred or to be acquired and held in the name of a
custodian so appointed or in the name of any nominee or nominees of this
Corporation or nominee or nominees of such custodian satisfactory to the said
Board of Directors.</*>
<*>(8)</*> <*>The Corporation may enter into a written contract or contracts
with any person, including any firm, corporation, trust or association in which
any officer, other employee, director or stockholder of this Corporation may be
interested, providing for a delegation of the management of all or part of this
Corporation's securities portfolio and also for the delegation of the
performance of administrative corporate functions, subject always to the
direction of the Board of Directors. The compensation payable by this
Corporation under such contracts shall always be such as is deemed fair and
equitable to both parties by the said Board of Directors. Any such contracts
shall in all respects be consistent with and subject to the requirements of the
'40 Act.]</*>
ARTICLE IX
LIMITATION OF DIRECTORS AND OFFICERS LIABILITY
The personal liability of the Corporation's directors and officers to the
Corporation or to its stockholders shall be limited to the fullest extent
permitted by the Maryland General Corporation Law now or hereafter in effect. In
particular, but without limiting in any way the preceding sentence, directors
and officers of the Corporation shall not be personally liable to the
Corporation or to its stockholders for monetary damages arising out of any act
or omission in their capacity as director or officer, except:
(1) To the extent that it is proved that a director or officer actually received
an improper benefit or profit in money, property, or services<*>[, such director
or officer shall be liable to the Corporation]</*> for the amount of the benefit
or profit in money, property, or services actually received; or
(2) To the extent that a judgement or other final adjudication adverse to a
director or officer is entered in a proceeding based on a finding in the
proceeding that such director's or officer's action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
ARTICLE X
PERPETUAL EXISTENCE
The duration of the Corporation shall be perpetual.
Appendix A-9
<PAGE>
APPENDIX B
CURRENT AND PROPOSED FUNDAMENTAL RESTRICTIONS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
<*>EXISTING FUNDAMENTAL</*> <*>PROPOSED FUNDAMENTAL</*>
<*>RESTRICTIONS</*> <*>RESTRICTIONS</*>
- -------------------------------------------------------------------------------------------------------
Issuer The Fund does not purchase the The Fund, with respect to 75% of the
Diversification securities of any one issuer (other Fund's <*>total assets</*>, may not
Proposal 4(a) than those issued or guaranteed by the purchase securities of an issuer (OTHER
U.S. Government), if immediately after THAN CASH OR CASH ITEMS, OR SECURITIES
and as a result of such purchase the OF THE U. S. GOVERNMENT, ITS AGENCIES,
market value of the Fund's holding in OR INSTRUMENTALITIES OR OF OTHER
the securities of such issuer exceeds INVESTMENT COMPANIES), if, (i) such
5% of the market value of the Fund's purchase would cause more than 5% of
total assets. the Fund's <*>total assets</*> taken at
The Fund does not purchase the market value to be invested in the
securities of an issuer if the purchase securities of such issuer, or (ii) such
will cause the Fund to own more than purchase would at the time result in
10% of the outstanding voting more than 10% of the outstanding voting
securities of the issuer. securities of such issuer being held by
the Fund.
- -------------------------------------------------------------------------------------------------------
Borrowing, Margin The Fund does not borrow money except The Fund may not borrow money, except
Purchases, Pledging that the Fund may borrow an amount up (i) the Fund may borrow from banks (as
and Mortgaging to 10% of its <*>total assets</*> to defined in the Act) or through reverse
Property meet redemption requests and for the repurchase agreements in amounts up to
Proposal 4(b) clearance of purchases and sales of 33 1/3%, of its <*>total assets</*>
portfolio securities (this borrowing (including the amount borrowed), (ii)
provision is not for investment the Fund may, to the extent permitted
leverage but solely to facilitate by applicable law, borrow up to an
management of the portfolio to enable additional 5% of its <*>total
the Fund to meet redemption requests assets</*> for temporary purposes,
where the liquidation of portfolio (iii) the Fund may obtain such
securities is deemed to be short-term credits as may be necessary
disadvantageous or inconvenient and to for the clearance of purchases and
obtain such short-term credits as may sales of portfolio securities, (iv) the
be necessary for the clearance of Fund may purchase securities on margin
purchases and sales of portfolio to the extent permitted by applicable
securities; all borrowings at any time law, and (v) the Fund may engage in
outstanding will be repaid before any transactions in mortgage dollar rolls
additional investments are made; the which are accounted for as financings.
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</*>.
The Fund does not purchase securities
on margin.
- -------------------------------------------------------------------------------------------------------
Lending Restriction The Fund does not make loans to other The Fund may not make loans, except
(restated) persons except certain call loans upon through (i) the purchase of debt
Proposal 4(c) collateral security (the Fund does not obligations in accordance with the
intend to make such loans; the Fund's investment objective and
acquisition of publicly distributed policies (ii) repurchase agreements
bonds, debentures and other debt with banks brokers, dealers and other
securities is not considered a loan). financial institutions, and (iii) loans
of securities as permitted by
applicable law
- -------------------------------------------------------------------------------------------------------
Underwriting The Fund does not underwrite securities The Fund may not underwrite securities
Restriction issued by other persons. issued by others, except to the extent
(restated) that the sale of portfolio securities
Proposal 4(d) by the Fund may be deemed to be an
underwriting.
- -------------------------------------------------------------------------------------------------------
</TABLE>
Appendix B-1
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<*>EXISTING FUNDAMENTAL</*> <*>PROPOSED FUNDAMENTAL</*>
<*>RESTRICTIONS</*> <*>RESTRICTIONS</*>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Commodities The Fund does not purchase or sell The Fund may not invest in commodities
Proposal 4(e) commodities or commodity contracts. or commodity contracts, except that the
Fund may invest in currency and
financial instruments and contracts
that are commodities or commodity
contracts.
- -------------------------------------------------------------------------------------------------------
Real Estate and Oil The Fund does not buy or sell real The Fund may not purchase, hold or deal
and Gas (restated) estate. in real estate, although the Fund may
Proposal 4(f),(h) The Fund does not invest in oil, gas or purchase and sell securities that are
other mineral leases, rights or royalty secured by real estate or interests
contracts or in real estate or real therein, securities of real estate
estate limited partnerships. investment trusts, and mortgage-related
securities and may hold and sell real
estate acquired by the Fund as a result
of the ownership of securities.
- -------------------------------------------------------------------------------------------------------
Senior Securities The Fund does not issue senior The Fund may not issue senior
Proposal 4(g) securities. securities to the extent such issuance
would violate applicable law.
- -------------------------------------------------------------------------------------------------------
Short Sales of The Fund does not make short sales of N/A
Securities securities.
Proposal 4(i)
- -------------------------------------------------------------------------------------------------------
Exercise Control of The Fund does not invest in other N/A
Management companies for the purpose of exercising
Proposal 4(j) control of management.
- -------------------------------------------------------------------------------------------------------
Investment in other The Fund does not purchase the N/A
Investment Companies securities of any other investment
Proposal 4(k) company except in a regular transaction
in the open market. Such purchase may
cause the Fund to indirectly incur
additional advisory and administrative
fees.
- -------------------------------------------------------------------------------------------------------
Restricted Securities The Fund does not invest in securities N/A
Proposal 4(l) which are not readily marketable, such
as restricted securities or foreign
securities not listed on a recognized
securities exchange, nor will it invest
in any other assets for which a bona
fide market does not exist.
The Fund does not invest in securities
which have been acquired through
private placement transactions
("restricted securities") or in real
estate mortgage loans although it may
invest in securities which are secured
by real estate or real estate mortgages
and securities of issuers 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?"
- -------------------------------------------------------------------------------------------------------
</TABLE>
Appendix B-2
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<*>EXISTING FUNDAMENTAL</*> <*>PROPOSED FUNDAMENTAL</*>
<*>RESTRICTIONS</*> <*>RESTRICTIONS</*>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------
Statutory Underwriter The Fund does not purchase any N/A
Proposal 4(m) securities as to which it would be
deemed a statutory underwriter under
the Securities Exchange Act of 1933.
- -------------------------------------------------------------------------------------------------------
Continuous Operation The Fund does not purchase the N/A
Proposal 4(n) 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.
- -------------------------------------------------------------------------------------------------------
Officer, Director, The Fund does not retain investments in N/A
Portfolio Manager the securities of any issuer if
Ownership directors and officers of the Fund or
Proposal 4(o) certain other "interested persons" own
more than 5% of such securities.
- -------------------------------------------------------------------------------------------------------
Warrants Any warrants purchased by the Fund must N/A
Proposal 4(p) 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 Exchange.
- -------------------------------------------------------------------------------------------------------
</TABLE>
Appendix B-3
<PAGE>
PROXY VOTING BALLOT
TRIFLEX FUND, INC.
SPECIAL SHAREHOLDERS' MEETING ON MAY 28, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints IRA W. PAINTON and MICHAEL W. McCROSKEY, and
each of them, as proxies with full power of substitution, and hereby authorizes
each of them to represent and to vote, as designated below, all the shares of
the Triflex Fund, Inc. that the undersigned is entitled to vote at the special
meeting of shareholders to be held in Galveston, Texas, on Thursday, May 28,
1998, and at any postponement or adjournment thereof for each of the Proposals
contained in the Proxy Statement.
You are encouraged to specify your choices by marking the appropriate boxes by
each Proposal presented. YOU NEED NOT MARK ANY BOXES IF YOU WISH TO VOTE IN
ACCORDANCE WITH THE BOARD OF DIRECTORS' RECOMMENDATIONS. IF YOU SIGN THIS FORM
WITHOUT CHECKING A BOX WITH RESPECT TO THE ELECTION OF DIRECTORS, OR ANY OTHER
PROPOSAL LISTED BELOW, THE TIMELY RETURN OF THIS PROXY VOTING BALLOT WILL BE
DEEMED AN INSTRUCTION TO VOTE FOR THE ELECTION OF ALL NOMINEES IDENTIFIED IN
ITEM ONE OR TO VOTE IN FAVOR OF THE PROPOSALS. THE NAMED PROXIES CANNOT VOTE
YOUR SHARES UNLESS YOU SIGN AND RETURN THIS PROXY VOTING BALLOT IN THE ENVELOPE
PROVIDED. In their discretion, the named proxies will vote on such other
business as is properly brought before the meeting and any adjournment or
adjournments thereof.
(Record Date Shares)
Name
Name
Address
Address
Address
Address
YOUR VOTE IS IMPORTANT TO US
THANK YOU FOR TAKING THE TIME TO VOTE THIS PROXY BALLOT!!!
VOTE ON DIRECTORS: (The Board of Directors recommends a vote FOR Item 1)
1. Nominees for the Board of Directors of the Triflex Fund, Inc. are listed
below: Please cast your vote for these individuals by marking one of the
selections below.
/ / FOR ALL NOMINEES -- Check this box if you wish to vote for all Director
Nominees indicated below.
/ / WITHHOLD VOTE ON ALL NOMINEES -- Check this box if you wish to not vote for
any of the Director Nominees indicated below.
/ / FOR ALL NOMINEES EXCEPT -- Draw a line through the names of those Director
Nominees for which you do not want to vote.
<TABLE>
<S> <C> <C>
(1) Ralph S. Clifford (4) Michael W. McCroskey (7) Steven H. Stubbs.
(2) Paul D. Cummings (5) Ira W. Painton
(3) Jack T. Currie (6) Donald P. Stevens
</TABLE>
VOTE ON PROPOSALS (The Board of Directors recommends a vote FOR Items 2, 3 and
4.)
1. To ratify the appointment of Tait, Weller & Baker as independent auditors
for the Fund.
/ / FOR / / AGAINST / / ABSTAIN
2. To approve certain amendments to the Fund's Articles of Incorporation.
/ / FOR / / AGAINST / / ABSTAIN
3. To approve amending, restating or eliminating the Fund's fundamental
investment restrictions as described in Proposal 4 of the Proxy Statement:
Mark one of the boxes below to vote on the entire slate of Proposal 4 in the
aggregate.
/ / FOR / / AGAINST / / ABSTAIN
STOP HERE AND SIGN ON THE REVERSE SIDE, AS DIRECTED
UNLESS YOU WOULD LIKE TO VOTE ON EACH ELEMENT OF PROPOSAL 4 INDIVIDUALLY.
<PAGE>
To vote on each amendment, restatement or elimination separately:
4(a) Proposed Change in Restriction Regarding Issuer Diversification:
/ / FOR / / AGAINST / / ABSTAIN
4(b) Proposed Changes in Restrictions Regarding Borrowing, Margins, Pledging
or Mortgaging Property:
/ / FOR / / AGAINST / / ABSTAIN
4(c) Proposed Change in Restriction Regarding Lending:
/ / FOR / / AGAINST / / ABSTAIN
4(d) Proposed Change in Restriction Regarding Underwriting of Securities:
/ / FOR / / AGAINST / / ABSTAIN
4(e) Proposed Change in Restriction Regarding Investment in Commodities:
/ / FOR / / AGAINST / / ABSTAIN
4(f) Proposed Change in Restriction Regarding Real Estate Investments:
/ / FOR / / AGAINST / / ABSTAIN
4(g) Proposed Change in Restriction Regarding Issuance of Senior Securities:
/ / FOR / / AGAINST / / ABSTAIN
4(h) Proposed Changes in Restrictions Regarding Investment in Physical
Commodity and Real Estate Interests:
/ / FOR / / AGAINST / / ABSTAIN
4(i) Proposed Change in Restriction Regarding Short Sales of Securities:
/ / FOR / / AGAINST / / ABSTAIN
4(j) Proposed Change in Restriction Regarding Investing to Exercise Control
or Management:
/ / FOR / / AGAINST / / ABSTAIN
4(k) Proposed Change in Restriction Regarding Investing in Other Investment
Companies:
/ / FOR / / AGAINST / / ABSTAIN
4(l) Proposed Change in Restriction Regarding Investment in "Illiquid
Securities":
/ / FOR / / AGAINST / / ABSTAIN
4(m)Proposed Change in Restriction Regarding Statutory Underwriter:
/ / FOR / / AGAINST / / ABSTAIN
4(n) Proposed Change in Restriction Regarding Investments in Companies Based
on Company's Years in Continuous Operation:
/ / FOR / / AGAINST / / ABSTAIN
4(o) Proposed Change in Restriction Regarding Purchasing Securities in Which
Certain Affiliated Persons Also Invest:
/ / FOR / / AGAINST / / ABSTAIN
4(p) Proposed Change in Restriction Regarding Investments in Warrants:
/ / FOR / / AGAINST / / ABSTAIN
5. To act on such other matters as may properly come before the meeting or any
adjournment thereof.
________________________________________________________________________________
I HEREBY REVOKE ANY AND ALL PROXIES WITH RESPECT TO SHARES OF THE FUND
HERETOFORE GIVEN BY ME. I ACKNOWLEDGE RECEIPT OF THE PROXY STATEMENT DATED APRIL
, 1998. THIS PROXY VOTING BALLOT MAY BE REVOKED AT ANY TIME PRIOR TO THE
MEETING BY NOTIFYING THE SECRETARY OF THE FUND IN WRITING.
Date:______________________________________
______________________________________________________
Signature of Owner
______________________________________________________
Signature of Co-Owner (if account held
jointly)
NOTE: PLEASE SIGN EXACTLY AS YOUR NAME OR NAMES APPEAR ON THE PROXY VOTING
BALLOT. JOINT OWNERS MUST EACH SIGN THE PROXY VOTING BALLOT TO HAVE YOUR VOTE
COUNT. WHEN SIGNING AS A FIDUCIARY (IE. ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE, OR GUARDIAN), GIVE THE FULL TITLE AS TO THE CAPACITY IN WHICH YOU ARE
SIGNING.
