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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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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 Section240.14a-12
SM&R BALANCED 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)
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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:
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/ / 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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IMPORTANT NEWS
FOR SM&R BALANCED FUND, INC. SHAREHOLDERS
Your Fund will host a special meeting of shareholders on October 31, 2000 at
the principal executive offices of the Fund and of Securities Management and
Research, Inc., at 2450 South Shore Boulevard, Suite 400, League City, Texas
77573. The purpose of the meeting is to vote on an important matter affecting
the Fund.
The first few pages of this booklet summarize the matter to be voted on and
explain the proxy process, including how you can conveniently cast your votes.
Before you vote, please read the full text of the proxy statement for a complete
understanding of the Fund's proposal.
PROPOSAL NO. 1
APPROVAL OF PLAN OF CONVERSION
At this time, your Fund and four other funds advised by SM&R make up the
SM&R fund complex. We want to convert your Fund and two other funds in the SM&R
fund complex into newly established series of SM&R Investments, Inc., another of
the funds in the SM&R fund complex. Currently, your Fund and such other two
funds are "stand alone" funds -- that is, they are organized and operated as
separate legal entities, Maryland corporations. Ultimately, if the conversion is
approved by the shareholders of the Fund and the other two funds, your Fund and
the other funds approving the conversion will no longer be "stand alone" funds
and will be operated as individual series of SM&R Investments, Inc. We believe
that such "conversion" will result in a structure more in line with other funds
and will result in a reduction of costs, administrative complexities and
redundancies. THE CONVERSION OF YOUR FUND INTO A NEW SERIES OF SM&R
INVESTMENTS, INC. WILL HAVE NO MATERIAL EFFECT ON THE SHAREHOLDERS, OFFICERS,
OPERATIONS, MANAGEMENT OR VALUE OF THE FUND OR YOUR FUND SHARES.
The material terms of the conversion are as follows:
- SM&R Investments, Inc. will form a new series as a clone of the Fund. This
new series of SM&R Investments, Inc. will have investment objectives and
principal investment strategies materially the same as the Fund, as well
as the same investment adviser. (See p. ).
- The new series of SM&R Investments, Inc. will purchase all of the assets
of the Fund by delivering shares of the new series to the Fund. (See
p. ).
- Prior to its termination, the Fund will constructively distribute to each
shareholder one share of the new series in exchange for each Fund share
held by such shareholder. (See p. ).
- Fund shareholders would then own the same number of shares of the new
series of SM&R Investments, Inc. of the same class and at the same net
asset value as they owned in the Fund immediately prior to the conversion.
(See p. ).
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Q & A ABOUT THE ENCLOSED PROXY MATERIALS
Q. I'm a small investor. Why should I bother to vote?
A. Your vote makes a difference. If numerous shareholders just like you fail to
vote their proxies, your Fund may not receive enough votes to go forward
with its meeting. If this happens, we'll need to mail proxies again -- a
costly proposition for your Fund.
Q. Who gets to vote?
A. Any person who owned shares of your Fund on the "record date", which was
August 31, 2000, gets to vote -- even if the investor sold the shares after
the record date. Each shareholder is entitled to one vote for each share of
the Fund owned on the record date.
Q. How can I vote?
A. You can vote in any one of the following ways:
- Through the Internet the address on your proxy card.
- By Touch Tone, with a toll-free call to the number listed on your proxy
card.
- By mail, with the enclosed ballot.
- In person at the meeting.
We encourage you to vote by Internet or telephone, using the "control" number
that appears on your proxy card. These voting methods will save your Fund a good
deal of money (no return-mail postage!). Whichever method you choose, please
take the time to read the full text of our proxy statement before you vote.
Q. I plan to vote by mail. How should I sign my proxy card?
A. If you are an individual account owner, please sign exactly as your name
appears on the proxy card. Either owner of a joint account may sign the
proxy card, but the signer's name must exactly match one that appears on the
card. You should sign proxy cards for other types of accounts in a way that
indicates your authority (for instance, "John Investor, Custodian").
Q. How do the Board members of my Fund suggest that I vote?
A. After careful consideration, the Board members of your Fund, including the
independent members, recommend that you vote "FOR" approval of the new
Investment Advisory Agreement and "FOR" approval of the proposed Plan of
Conversion.
Q. Whom do I call for more information?
A. Please call Shareholder Services toll free at 1-800-526-8346 and dial
extension 229 to talk to Michele Lord; extension 214 to talk to Cindy
Martin; or extension 225 to talk to Teresa Axelson. Each of such persons
will be able to assist you.
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SM&R BALANCED FUND, INC
2450 SOUTH SHORE BOULEVARD, SUITE 400
LEAGUE CITY, TEXAS 77573
(281) 334-2469
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OCTOBER 31, 2000
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To the Shareholders of
SM&R Balanced Fund, Inc.:
A Special Meeting (the "Special Meeting") of the Shareholders of SM&R
Balanced Fund, Inc. (the "Fund") will be held at the principal executive offices
of the Fund and of Securities Management and Research, Inc., at 2450 South Shore
Boulevard, Suite 400, League City, Texas 77573. The meeting will be held on
October 31, 2000, at 9:00 a.m. Central Time, for the following purposes:
1. To consider and act upon an Agreement and Plan of Conversion and Termination
providing for the conversion of the Fund from a separate, "stand alone" fund
to a separate series of SM&R Investments, Inc.
2. To act on such other matters as may properly come before the meeting or any
adjournment or adjournments thereof.
Only shareholders of record at the close of business on August 31, 2000, 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
of shareholders except to the extent required by law. A list of the Fund's
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shareholders is held in the office of the Fund, 2450 South Shore Boulevard,
Suite 400, League City, Texas 77573.
By Order of the Board of Directors
/s/ Teresa E. Axelson
Teresa E. Axelson
SECRETARY
September 21, 2000
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YOUR VOTE IS IMPORTANT!
YOU CAN VOTE EASILY AND QUICKLY BY TOLL-FREE TELEPHONE CALL, THROUGH THE
INTERNET AT OUR WEB SITE, OR BY MAIL WITH THE ENCLOSED BALLOT. JUST FOLLOW THE
SIMPLE INSTRUCTIONS THAT APPEAR ON YOUR ENCLOSED PROXY CARD.
PLEASE HELP YOUR FUND AVOID THE EXPENSE OF A FOLLOW-UP MAILING BY VOTING TODAY.
A MAJORITY OF THE OUTSTANDING SHARES OF THE FUND MUST BE PRESENT IN PERSON OR BY
PROXY AT THE MEETING.
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PROXY STATEMENT
FOR
SM&R BALANCED FUND, INC.
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2450 SOUTH SHORE BOULEVARD, SUITE 400
LEAGUE CITY, TEXAS 77573
(281) 334-2469
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GENERAL INFORMATION
This Proxy Statement is being mailed to the shareholders of SM&R Balanced
Fund, Inc. (the "Fund") on or about September 21, 2000, 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 Shareholders (the "Special Meeting") to
be held on October 31, 2000, 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 and all other costs of solicitation will be paid by Securities
Management and Research, Inc. ("SM&R"), the Fund's underwriter, administrator,
and investment adviser.
The Fund is a Maryland corporation.
August 31, 2000 (the "Record Date") has been fixed as the record date for
the determination of shareholders entitled to notice of and to vote at the
Special Meeting. The Fund had 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.
Generally, one-third (1/3) 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. However, approval of
Proposal 1 will require that more than one-half (1/2) of the Fund's outstanding
common shares be present in person or by proxy. (See "Required Vote" in the
discussion of each proposal below.) Abstentions and proxies signed and returned
by brokers without voting on a proposal ("Broker Non-
1
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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, as the time of the Special Meeting nears, more than 50% of the Fund's
outstanding shareholders have not voted, the officers of the Fund or the proxy
solicitation service utilized by the Fund may make phone calls to certain of the
shareholders in order to gather more votes.
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 of the Fund "FOR" the one (1) proposal described below.
PROPOSAL NO. 1. TO CONSIDER AN AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
PROVIDING FOR THE CONVERSION OF THE FUND TO A SERIES OF SM&R
INVESTMENTS, INC.
At this time, your Fund, SM&R Growth Fund, Inc. and SM&R Equity Income Fund,
Inc. (the "SM&R Equity Funds") and SM&R Investments, Inc. and American National
Investment Accounts, Inc., two other funds being advised by SM&R, make up the
SM&R fund complex. Your Fund and the other two SM&R Equity Funds currently have
boards of directors consisting of the same seven (7) persons.
The Fund is presently organized as a "stand alone" fund -- that is, it is
organized as a corporation under Maryland law and, as such, is currently
operated as a separate legal entity. Your Fund's Board of Directors, including
its Independent Directors, and the directors of SM&R Investments, Inc., another
fund in the SM&R fund complex, have unanimously approved an Agreement and Plan
of Conversion and Termination for your Fund (the "Conversion Plan"), a copy of
which is attached to this Proxy Statement as Appendix "A". The Conversion Plan
provides for the conversion of your Fund (the "Conversion") from a "stand alone"
fund to a newly established separate series (the "New Series") of SM&R
Investments, Inc. The boards of directors of the other two (2) SM&R Equity Funds
(which are the same persons who are directors of your fund) have also approved
the conversion of those funds into newly established series of SM&R
Investments, Inc. THE PROPOSED CONVERSION WILL HAVE NO MATERIAL EFFECT ON THE
SHAREHOLDERS, OFFICERS, OPERATIONS OR MANAGEMENT OF YOUR FUND.
SM&R Investments, Inc. was incorporated under the laws of Maryland on
November 6, 1991. It changed its name from SM&R Capital Funds, Inc. to SM&R
Investments, Inc. on December 31, 1998. Like your Fund, SM&R Investments, Inc.
is registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company, commonly called a "mutual
fund". The mailing address and telephone number of
2
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the principal office of SM&R Investments, Inc. are the same as those of your
Fund.
SM&R Investments, Inc. currently offers the following portfolios, each
having the number of shares indicated as of , 2000: SM&R Government
Bond Fund shares), SM&R Tax Free Fund ( shares), SM&R Primary Fund
( shares), SM&R Money Market Fund ( shares) (the "SM&R Fixed Income
Funds"). SM&R Investments, Inc. also currently offers the following portfolios
which commenced operations on September 1, 2000: SM&R Alger Growth Fund; SM&R
Alger Small-Cap Fund; SM&R Alger Aggressive Growth Fund; and SM&R Alger
Technology Fund (the "SM&R Alger Funds"). The SM&R Alger Funds did not have any
shares outstanding on the Record Date. The SM&R Fixed Income Funds declare
dividends monthly. The SM&R Alger Funds declare dividends quarterly.
If the Conversion is approved by the shareholders of your Fund, your Fund
will become another series of SM&R Investments, Inc. Your Fund, however, will
continue to declare dividends quarterly each year. However, after the
Conversion, the New Series will have a fiscal year which runs from September 1
through August 31 instead of your Fund's present fiscal year which runs from
January 1 through December 31.
The Conversion would be accomplished by having SM&R Investments, Inc. form
the New Series which would be a clone of your Fund. Such New Series would have
investment objectives and principal investment strategies, the same classes and
would otherwise be materially the same as your Fund. Such New Series would
"purchase" all of the assets of the Fund by delivering shares of the New Series
to the Fund. The Fund would then be dissolved, and its assets -- the shares of
the New Series -- would be distributed to the Fund's shareholders, who would
then be shareholders of the New Series of SM&R Investments, Inc.
The New Series, which has not commenced business operations and will be
established for the purpose of effecting the Conversion, will carry on the
business of your Fund following the Conversion. The New Series will have an
investment objective, investment strategies, techniques and restrictions
materially the same as those of your Fund. Since both the Fund and SM&R
Investments, Inc. are Maryland corporations organized under substantially
similar articles of incorporation, the rights of securities holders of the Fund
under state law and the Fund's governing documents are expected to remain
unchanged after the Conversion. Shareholder voting rights for both the Fund and
SM&R Investments, Inc. are currently based on the number of shares owned by each
shareholder.
In contemplation of the Conversion, SM&R Investments, Inc.'s directors
nominated and SM&R Investments, Inc.'s shareholders have elected a board
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of 14 directors. Seven of such directors are the same individuals now serving as
directors of your Fund and two of the other funds in the SM&R complex of funds.
The remaining directors are individuals, all of whom have served as directors of
SM&R Investments, Inc. for at least three (3) years. By approving the
Conversion, you are agreeing that such 14 directors will continue as directors
of SM&R Investments, Inc. after the Conversion -- that is, in effect, by voting
for the Conversion, you are ratifying and approving the election of such 14
individuals as directors. See "Information Concerning SM&R Investments, Inc.'s
Directors, Board Organization and Executive Officers".
The directors of SM&R Investments, Inc. will hold office without any limit
in time except that: (i) any director may resign; and (ii) a director may be
removed at any meeting of SM&R Investments, Inc.'s shareholders at which a
quorum is present by the affirmative vote of the majority of the outstanding
voting shares of SM&R Investments, Inc. In case a vacancy shall exist, a
majority of the remaining directors, though less than a quorum, will vote to
fill such vacancy by appointing another director, so long as immediately after
such appointment, at least two-thirds of the directors have been elected by
shareholders. If, at any time, less than a majority of the directors holding
office have been elected by shareholders, the directors then in office will
promptly call a shareholders meeting for the purpose of electing a board of
directors. Otherwise, unlike publicly traded companies, most mutual funds,
including your Fund and SM&R Investments, Inc., do not hold shareholder meetings
every year. Instead, they undertake this expensive process only when required by
law or when significant issues, such as the Conversion, requiring shareholder
approval come up. This means that you may not have an opportunity to actually
vote for or against nominees for director for a substantial period of time.
SM&R, the investment adviser to the Fund, will be responsible for providing
the New Series with various administrative services and supervising the daily
business affairs of the New Series, subject to the supervision of SM&R
Investments, Inc.'s board of directors. Such services will be provided by SM&R
pursuant to management contracts substantially similar to the contracts in
effect between the Fund and SM&R immediately prior to the proposed Conversion.
SM&R will also continue as the principal distributor of the shares of the New
Series under an underwriting agreement substantially similar to the existing
Underwriting Agreement between the Fund and SM&R. SM&R will also serve as
investment adviser to the New Series.
REASONS FOR THE PROPOSED CONVERSION
The Fund's board of directors unanimously recommends conversion of the Fund
to the New Series of SM&R Investments, Inc. This proposed Conversion is part of
an overall plan that involves the proposed conversion of the other two SM&R
Equity Funds as well. The goal of the conversions is to
4
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restructure the three SM&R Equity Funds, which are currently stand alone funds
in the SM&R fund complex, into separate series under SM&R Investments, Inc.
Ultimately, if all of the conversions are approved, the SM&R fund complex will
consist of two funds, each with multiple series. The Conversion will also
consolidate and streamline the production and mailing of certain financial
reports and legal documents, reducing the expenses of the Fund. The Conversion
will also make transfers among the SM&R fund complex easier as transfers among
series of the same fund involve less administrative difficulties than transfers
among different stand-alone funds. The Fund's board of directors has unanimously
determined that the proposed Conversion is in the best interests of the Fund,
that the terms of the Conversion are fair and reasonable, and that the interests
of the shareholders of the Fund will not be diluted as a result of the
Conversion. THE PROPOSED CONVERSION WILL HAVE NO MATERIAL EFFECT ON THE
SHAREHOLDERS, OFFICERS, OPERATIONS OR MANAGEMENT OF THE FUND.
The proposal to present the Conversion Plan to the Fund's shareholders was
unanimously approved by the Fund's board of directors (and the boards of
directors of the other two SM&R Equity Funds), including all of its Independent
Directors, on August 17, 2000. The board of directors of SM&R Investments, Inc.
also approved such Conversion on August 17, 2000. If the shareholders of the
Fund, or another of the two SM&R Equity Funds which are proposed to be converted
into series of SM&R Investments, Inc., do not approve the Conversion, the Fund
or such other funds which do not approve the Conversion will continue to operate
as stand alone funds.
SUMMARY OF THE CONVERSION PLAN
The following discussion summarizes the important terms of the Conversion
Plan. The summary is qualified in its entirety by reference to the Conversion
Plan itself, which is attached as Appendix "A" to this Proxy Statement. YOU
SHOULD READ THE CONVERSION PLAN IN ITS ENTIRETY.
If the Conversion Plan is approved by the shareholders of the Fund at their
October 31, 2000 Special Meeting, then, on December 31, 2000, or on such later
date agreed upon (the "Closing Date"), the Fund will transfer all of its assets
to the New Series in exchange for shares thereof ("New Series Shares") equal to
the number of the Fund's shares outstanding on the Closing Date and the
assumption by the New Series of all of the liabilities of the Fund. Immediately
thereafter, the Fund will constructively distribute to each Fund shareholder one
(1) New Series Share for each Fund share held by the shareholder on the Closing
Date, by class, in liquidation of the Fund shares. As soon as is practicable
after this distribution of New Series Shares, the Fund will be terminated and
will be wound up and liquidated. UPON COMPLETION OF THE PROPOSED CONVERSION,
EACH FUND SHAREHOLDER WILL OWN FULL AND FRACTIONAL NEW SERIES SHARES
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EQUAL IN NUMBER, DENOMINATION AND AGGREGATE NET ASSET VALUE TO, AND OF THE SAME
CLASS AS, HIS OR HER FUND SHARES.
The Conversion Plan obligates SM&R Investments, Inc. to enter into (i) an
Investment Advisory Agreement with SM&R with respect to the New Series (the "New
Investment Advisory Agreement"); (ii) an Underwriting Agreement with SM&R with
respect to the New Series (the "New Underwriting Agreement"); (iii) an
Administrative Service Agreement with SM&R with respect to the New Series (the
"New Administrative Service Agreement"); (iv) a Custodian Contract with SM&R
with respect to the New Series (the "New Custodian Contract"); (v) a Multiple
Class Plan with respect to the New Series (the "New Multiple Class Plan"); and
(vi) a Distribution and Shareholder Servicing Plan under Rule 12b-1 (the "New
12b-1 Plan") with respect to the New Series; (collectively, the "New
Agreements"). Approval of the Conversion Plan by the Fund's shareholders will
authorize the Fund (which will be issued a single share of the New Series on a
temporary basis) to approve the New Agreements as the sole initial shareholder
of the New Series. Each of the New Agreements will be materially the same as the
corresponding contract or plan in effect with respect to the Fund immediately
prior to the Closing Date.
The New Agreements will take effect on the Closing Date and each will
continue in effect for one (1) year. Thereafter, the New Investment Advisory
Agreement and the New Underwriting Agreement will each continue in effect only
if its continuance is approved at least annually: (i) by the vote of a majority
of SM&R Investments, Inc.'s Independent Directors cast in person at a meeting
called for the purpose of voting on such approval; and (ii) by the vote of a
majority of SM&R Investments, Inc.'s directors or a majority of the outstanding
voting shares of the New Series. The New Administrative Service Agreement and
the New Custodian Contract will continue in effect until terminated, with the
New Administrative Service Agreement being terminable by SM&R Investments, Inc.
or SM&R at any time without penalty upon 60 days' notice, and with the New
Custodian Contract being terminable at either time by SM&R Investments, Inc. or
by SM&R upon 30 days' notice. The New Multiple Class Plan will continue in
effect until terminated or materially changed by SM&R Investments, Inc. The New
12b-1 Plan will be terminable at any time without penalty by a vote of a
majority of SM&R Investments, Inc.'s Independent Directors or a majority of the
outstanding voting shares of the New Series.
Assuming that the Conversion Plan is approved, it is currently contemplated
that the Conversion will become effective on the Closing Date. However, the
Conversion Plan may become effective at such other date agreed upon by the Fund
and SM&R Investments, Inc. in writing.
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The obligations of the Fund and SM&R Investments, Inc. under the Conversion
Plan are subject to various conditions stated therein. Notwithstanding the
approval of the Conversion Plan by the Fund's shareholders, such plan may be
terminated or amended at any time prior to the Closing Date by action of the
directors of the Fund to provide against unforeseen events if: (i) there is a
material breach by SM&R Investments, Inc. of any representation, warranty, or
agreement contained in the plan to be performed at or prior to the Closing Date;
or (ii) it reasonably appears that SM&R Investments, Inc. will not or cannot
meet a condition of the plan. Either the Fund or SM&R Investments, Inc. may at
any time waive compliance with any of the covenants and conditions contained in,
or may amend, the Conversion Plan, provided that the waiver or amendment does
not materially adversely affect the interests of the Fund's shareholders.
CONTINUATION OF FUND SHAREHOLDER ACCOUNTS
SM&R Investments, Inc. will establish accounts for the New
Series shareholders containing the appropriate number, class and denominations
of the New Series Shares to be received by each shareholder under the Conversion
Plan. Such accounts will be the same in all material respects as the accounts
currently maintained by the Fund for shareholders.
As a practical matter, the Conversion of your Fund will have no noticeable
effect on the Fund's shareholders. Your investment will not change. On the day
the Conversion takes place, you will own the same number of shares of the same
class of the New Series of SM&R Investments, Inc. as you owned of the Fund. The
net asset value of such shares will be the same as the net asset value of the
Fund's shares immediately prior to the conversion. The portfolio of the New
Series will be the same portfolio owned by the Fund immediately prior to the
Conversion. Thus, your interests as shareholder will not be diluted by the
Conversion.
EXPENSES
The expenses of the Conversion will be borne by SM&R.
TEMPORARY WAIVER OF INVESTMENT RESTRICTIONS
Certain fundamental investment restrictions of the Fund, which prohibit it
from acquiring more than a stated percentage of ownership of another company,
might be construed as restricting its ability to carry out the Conversion. By
approving the Conversion Plan, shareholders will be agreeing to waive, only for
the purpose thereof, those fundamental investment restrictions that could
prohibit or otherwise impede the transaction.
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TAX CONSEQUENCE OF THE CONVERSION
Both the Fund and SM&R Investments, Inc. have received an opinion from
Sutherland, Asbill & Brennan, L.L.P., that the Conversion will constitute a
tax-free reorganization within the meaning of section 368(a)(1)(F) of the
Internal Revenue Code of 1986, as amended (the "Code"). Accordingly, neither the
Fund, the New Series, nor the shareholders of the Fund will recognize gain or
loss for federal income tax purposes upon: (i) the transfer of the Fund's assets
in exchange solely for the New Series Shares and the New Series' assumption of
the Fund's liabilities; or (ii) the distribution of those shares to the Fund's
shareholders in liquidation of their Fund shares. The opinion further provides,
among other things, that: (1) a Fund shareholder's aggregate basis for federal
income tax purposes of the New Series Shares to be received by the shareholder
in the Conversion will be the same as the aggregate basis of his or her Fund
shares to be constructively surrendered in exchange for those New
Series Shares; and (2) a Fund shareholder's holding period for his or her New
Series Shares will include the shareholder's holding period for his or her Fund
shares, provided that those Fund shares were held as capital assets at the time
of the Conversion.
CONCLUSION
The Board has concluded that the proposed Conversion Plan is in the best
interest of the shareholders of the Fund. A vote in favor of the Conversion Plan
encompasses: (i) approval of the Conversion of the Fund to the New Series;
(ii) ratifying and approving the election of the current fourteen (14) directors
of SM&R Investments, Inc.; (iii) approval of the temporary waiver of certain
investment limitations of the Fund to permit the Conversion (see "Temporary
Waiver of Investment Restrictions", above); and (iv) authorization of the Fund,
as the sole initial shareholder of the New Series, to approve: (a) an Investment
Advisory Agreement with SM&R with respect to the New Series (the "New Investment
Advisory Agreement"); (b) an Underwriting Agreement with SM&R with respect to
the New Series (the "New Underwriting Agreement"); (c) an Administrative Service
Agreement with SM&R with respect to the New Series (the "New Administrative
Service Agreement"); (d) a Custodian Contract with SM&R with respect to the New
Series (the "New Custodian Contract"); (e) a Multiple Class Plan with respect to
the New Series (the "New Multiple Class Plan"); and (f) a Distribution and
Shareholder Servicing Plan under Rule 12b-1 (the "New 12b-1 Plan") with respect
to the New Series; (collectively, the "New Agreements"). Each of these New
Agreements is materially the same as the corresponding contract or plan in
effect with respect to the Fund immediately prior to the Closing Date. If
approved, the Conversion Plan will take effect on the Closing Date. If the
Conversion Plan is not approved, the Fund will continue to operate as a stand-
alone Fund. Otherwise, the Fund will be converted consistent with shareholder
approval.
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REQUIRED VOTE -- PLAN OF CONVERSION
Approval of the Plan of Conversion requires the affirmative vote of a
majority of Fund shares entitled to vote.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND OFFICERS AND DIRECTORS OF SM&R BALANCED FUND, INC.
According to the Fund's records, the following stockholders owned five
percent (5%) or more of the Fund's outstanding common stock as of the Record
Date:
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<CAPTION>
NAME & ADDRESS OF AMOUNT & NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------------- ------------------------ -------------------- ----------
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Common Stock American National (direct) %
Insurance Company (1)
Common Stock SM&R (2) (direct) %
</TABLE>
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 SM&R Investments, Inc.'s Common
Stock outstanding on the Record Date.
SM&R, the investment adviser, manager and underwriter of the Fund and SM&R
Investments, Inc., is a wholly-owned subsidiary of American National Insurance
Company ("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 Moody
Bancshares, Inc. ("Bancshares"), the sole shareholder of Moody Bank Holding
Company, Inc. ("MBHC"), and President and Director of MBHC, the Bank's
controlling shareholder. 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.
9
<PAGE>
As of the Record Date, each of the Fund's directors, and it'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 OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------------- ------------------------ ------------------------- --------
<S> <C> <C> <C>
Class T Jack T. Currie (direct) *
Class T Ira W. Painton (direct) *
(indirect) *
Class T Michael W. McCroskey (direct) *
Class T Directors and Officers (direct/indirect) *
as a Group
</TABLE>
* Less than 1% owned
The information above was furnished by the Fund's directors and officers.
BOARD OF DIRECTORS' RECOMMENDATION
AFTER CAREFUL CONSIDERATION, THE BOARD MEMBERS OF YOUR FUND, INCLUDING THE
INDEPENDENT MEMBERS, RECOMMEND THAT YOU VOTE "FOR" APPROVAL OF THE PROPOSED PLAN
OF CONVERSION.
SM&R INVESTMENTS, INC.
INFORMATION CONCERNING DIRECTORS, BOARD ORGANIZATION, AND EXECUTIVE OFFICERS
As explained above, by approving the Conversion, you are agreeing that the
14 present directors of SM&R Investments, Inc. will continue as directors of
SM&R Investments, Inc. after the Conversion. In other words, by voting for the
Conversion, you are ratifying and approving and, in effect, "electing", such 14
individuals as directors. Accordingly, to assist you in your decision on whether
to vote in favor of or against the Conversion, we are including the following
information which would have been furnished if you were actually voting for such
individuals as directors. KEEP IN MIND THAT SUCH INFORMATION IS ABOUT THE
PRESENT DIRECTORS OF SM&R INVESTMENTS, INC. AND NOT YOUR FUND. However, such
directors do include the seven (7) present directors of your Fund.
10
<PAGE>
According to the information furnished to the Fund by SM&R
Investments, Inc., the following stockholders owned five percent (5%) or more of
SM&R Investments Inc.'s outstanding common stock as of the Record Date:
<TABLE>
<CAPTION>
NAME & ADDRESS OF AMOUNT & NATURE OF PERCENT OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------------- ------------------------ -------------------- ----------
<S> <C> <C> <C>
Common Stock American National (direct) %
Insurance Company (1) (indirect) %
Common Stock SM&R (2) (direct) %
(indirect) %
</TABLE>
(1) The address of American National Insurance Company is One Moody Plaza,
Galveston, Texas 77550.
American National's direct share ownership is composed of shares of
the SM&R Government Bond Fund, shares of the SM&R Tax Free Fund,
shares of the SM&R Primary Fund and shares of the SM&R
Money Market Fund. American National's indirect ownership is composed of
shares of the SM&R Primary Fund and shares of the SM&R
Money Market Fund.
(2) SM&R's direct share ownership is composed of shares of the SM&R
Government Bond Fund, shares of the SM&R Tax Free Fund,
shares of the SM&R Primary Fund, shares of the SM&R Money Market
Fund. SM&R's indirect share ownership is composed of shares of the
SM&R Primary Fund.
INFORMATION CONCERNING DIRECTORS OF SM&R INVESTMENTS, INC.
(NAME, ADDRESS, AGE, POSITION, OFFICES AND BUSINESS EXPERIENCE
IN LAST FIVE YEARS)
THE INFORMATION SET FORTH BELOW HAS BEEN FURNISHED BY EACH OF THE
14 DIRECTORS AND THE OFFICERS OF SM&R INVESTMENTS, INC.:
ERNEST S. BARRATT Ph.D. (1) (Department of Psychiatry and Behavioral Sciences,
University of Texas Medical Branch, Galveston, Texas 77555-0189)
75, Director of SM&R Investments, Inc., another investment company in the SM&R
complex of funds, since 1997; Director of American National Investment
Accounts, Inc., another investment company in the SM&R complex of funds, since
1990; Marie B. Gale Professor in Psychiatry, Professor and Chief of
Psychodiagnostic service and Cognitive Neuroscopic Laboratory, Department of
Psychiatry and Behavioral Sciences, University of Texas Medical Branch, a
medical school and hospital system, since 1962.
LEA MCLEOD MATTHEWS *(2) (#8 Kern Ramble, Austin, Texas 78722)
38, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., other investment companies in the SM&R complex of funds, since
1994; Tivoli Systems, Inc., software and communications company, since April
2000; Communications Consultant, Texas Association of School Boards, 1999 to
2000; Publications Editor, National Western Life Insurance Co., 1990 to 1999;
Director of Garden State Life Insurance Company, 1993 to present;
11
<PAGE>
Director of Kids Exchange of Austin, a non-profit corporation, 1996 to 1998;
Consultant to Austin Writers League.
ANN MCLEOD MOODY *(2) (5 Colony Park Drive, Galveston, Texas 77551)
63, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., other investment companies in the SM&R complex of funds, since
1997; Director of Moody Gardens, Inc., non-profit corporation, since 1994;
Director of The Westcap Corporation, formerly a government bond trader, 1990 to
January 14, 1999; Director of Bank of Galveston, 1983 to 1988; Director and
Corporate Secretary of Seal Fleet, Inc., formerly offshore service company, 1972
to 1996; Director of Gal-Tex Hotel Corporation, hotel management company, since
1998.
EDWIN K. NOLAN (1) (1271 Jonas Drive, Canyon Lake, Texas 78133)
56, Director of SM&R Investments, Inc., another investment company in the SM&R
complex of funds, since 1991; Director of American National Investment Accounts,
Inc., another investment company in the SM&R complex of funds, since 1997;
Investor and Attorney, Law Offices, Edwin K. Nolan, P. C., Canyon Lake, Texas
since 1977; Director and Owner of Canyon Lake Aviation, Inc., a real estate
company, since 1986; Director of Hancock Mini Mart, Inc. since 1995.
ROBERT V. SHATTUCK, JR. (1018 23rd Street, Galveston, Texas 77550)
58, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., other investment companies in the SM&R complex of funds, since
1997; Attorney, Law Offices of Robert V. Shattuck, Jr., Galveston, Texas, since
1986.
JAMIE G. WILLIAMS (3328 Stanford, Dallas, Texas 75225)
54, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., other investment companies in the SM&R complex of funds, since
1997; Academic Language Therapist and Educational Consultant 1974 to present;
Director Center for Computer Assistance to the Disabled, since April 2000;
Director of The Learning Therapist Graduate Certificate Program, 1986 to 1995;
Adult Assessment Clinic and Adolescent Academic Development Programs, Division
of Evening, Summer and Continuing Studies, Southern Methodist University, 1994
to 1995; Adjunct Instructor in Department of Psychology, Dedman College,
Southern Methodist University, 1988 to 1995.
FRANK P. WILLIAMSON (301 Barracuda, Galveston, Texas 77550)
68, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., other investment companies in the SM&R complex of funds, since
1997; Retired, Owner of Professional Pharmacy, 1964 to 1998.
12
<PAGE>
THE FOLLOWING SIX (6) DIRECTORS OF SM&R INVESTMENTS, INC. ARE ALSO CURRENTLY
DIRECTORS OF THE FUND AND THE OTHER TWO SM&R EQUITY FUNDS:
RALPH S. CLIFFORD (3) (4800 Sixth Avenue Drive, Moline, Illinois 61265)
84, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., since September 21, 2000; Director of the Fund, SM&R Growth
Fund, Inc., and SM&R Equity Income Fund, Inc., other investment companies in the
SM&R complex of funds, 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, tractor and
implement manufacturing company.
PAUL D. CUMMINGS (3) (3102 Belaire Drive, Oklahoma City, Oklahoma 73110)
85, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., since September 21, 2000; Director of the Fund, since 1971;
Director of SM&R Equity Income Fund, Inc. and SM&R Growth Fund, Inc., other
investment companies in the SM&R complex of funds, since 1969; Retired President
and Director of Globe Life and Accident Insurance Company.
JACK T. CURRIE (515 Post Oak Boulevard, Suite 750, Houston, Texas 77027)
72, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., since September 21, 2000; Director of the Fund, SM&R Growth
Fund, Inc., and SM&R Equity Income Fund, Inc., other investment companies in the
SM&R complex of funds, since 1971; Personal Investments; Director of American
Indemnity Financial Corporation, holding company for casualty insurance company,
1978 to 1999; Director of Stewart & Stevenson Services, Inc., 1990 to 1999,
designs and constructs power generating systems.
IRA W. PAINTON, C.L.U. (3) (12004 Dahoon, Oklahoma City, Oklahoma 73120)
82, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., since September 21, 2000; Director of the Fund, since 1978 and
Chairman of the Board since 1989; Director of SM&R Equity Income Fund, Inc.,
another investment company in the SM&R complex of funds, since 1969 and Chairman
of the Board since 1989; Director of the SM&R Growth Fund, Inc., another
investment company in the SM&R complex of funds, since 1967, and Chairman of the
Board, since 1989; and Retired President of the Fund, SM&R Growth Fund, Inc.,
and SM&R Equity Income Fund, Inc.; Retired President and Director of SM&R.
DONALD P. STEVENS (University of Texas Medical Branch, Box 25041, Galveston,
Texas 77555)
53, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., since September 21, 2000; Director of the Fund, SM&R Growth
Fund, Inc., and SM&R Equity Income Fund, Inc., other investment
13
<PAGE>
companies in the SM&R complex of funds, since 1985; Assistant to the President
for Government Relations of The University of Texas Medical Branch, a medical
school and hospital system, since 1975; Vice President of Jamail Galveston
Foundation, since 1993.
STEVEN H. STUBBS, C.F.A. (514 Poplar Avenue, Philadelphia, Mississippi 39350)
61, Director of SM&R Investments, Inc. and American National Investment
Accounts, Inc., since September 21, 2000; Director of the Fund, SM&R Growth
Fund, Inc., and SM&R Equity Income Fund, Inc., other investment companies in the
SM&R complex of funds, since 1989; Former Director, President and Chief
Executive Officer of The Westcap Corporation, formerly a government bond trader,
1994 to 1995; Former President and Chief Executive Officer of SM&R 1987 to 1994;
Former President and Chief Executive Officer of the Fund, SM&R Growth Fund,
Inc., SM&R Equity Income Fund, Inc., American National Investment
Accounts, Inc. and SM&R Investments, Inc.; President and Director of Dancing
Rabbit Press, Inc., private book publishing company, since 1999; Director of
Neshoba County Philadelphia Historical Museum, Inc., non-profit museum, since
1999.
THE FOLLOWING DIRECTOR OF SM&R INVESTMENTS, INC. IS ALSO CURRENTLY A
DIRECTOR OF THE FUND, THE OTHER TWO SM&R EQUITY FUNDS AND AMERICAN NATIONAL
INVESTMENT ACCOUNTS, INC.:
MICHAEL W. MCCROSKEY * (2450 South Shore Boulevard, Suite 400, League City,
Texas 77573)
57, President, Chief Executive Officer and Director of SM&R Investments, Inc.
and American National Investment Accounts, Inc., since 1994; President and
Director of the Fund, SM&R Growth Fund, Inc., and SM&R Equity Income
Fund, Inc., other investment companies in the SM&R complex of funds, since 1994;
President, Chief Executive Officer, Director and member of the Executive
Committee of SM&R, since 1994; Executive Vice President of American National
Insurance Company; Vice President of Standard Life and Accident Insurance
Company; Vice President, Investments of American National Property and Casualty
Company; Vice President, Investments of American National General Insurance
Company; Assistant Secretary of American National Life Insurance Company of
Texas; Vice President of Investments for Garden State Life Insurance Company;
Vice President, Pacific Property and Casualty, life, health and accident
subsidiaries of American National; President and Director of ANREM Corporation,
real estate investment; President and Director, ANTAC, Inc., real estate
investment; Director, Comprehensive Investment Services, Inc., investments.
* "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.
Ms. Matthews and Mrs. Moody are members of the
14
<PAGE>
immediate family of Robert L. Moody. See Stock Ownership of Certain Beneficial
Owners and Officers and Directors below.
(1) Member of Audit Committee
(2) Ms. Matthews is the daughter of Mrs. Ann Moody.
(3) Mr. Clifford, Mr. Cummings and Mr. Painton have advised the Fund that,
because of their advancing age, they plan to resign from the board of SM&R
Investments, Inc. effective December 31, 2000. SM&R Investments, Inc. has
advised the Fund that if such directors resign, the current intent of the
board of such fund would be not to replace such directors and to reduce the
number of such fund's directors from 14 to 11. Mr. Clifford, Mr. Cummings
and Mr. Painton have also advised the Fund that, if the Conversion described
above is not approved by the Fund's shareholders and the Fund is not
converted into a series of SM&R Investments, Inc., such directors will
resign from the board of the Fund effective December 31, 2000.
ORGANIZATION OF THE BOARD OF SM&R INVESTMENTS, INC.
The Board of Directors of SM&R Investments, Inc. maintains an Audit
Committee. The Audit Committee is responsible for making recommendations to the
Board of Directors as to the selection and appointment of and compensation to
the Fund's independent auditors, to review the scope and results of audits made
by such independent auditors, to make recommendations to the Board as to the
scope of future audits, to inquire into, review and make recommendations with
respect to the adequacy of the Fund's accounting and financial controls, and to
otherwise assure effective communication between such auditors and the Board of
Directors as a whole. Ernest S. Barratt and Edwin K. Nolan are the present
members of the Audit Committee. One (1) Audit Committee meeting was held during
the fiscal year ended August 31, 2000.
SM&R Investments, Inc. held four (4) meetings of its Board of Directors
during the fiscal year ended August 31, 2000.
EXECUTIVE OFFICERS OF SM&R INVESTMENTS, INC.
The following information is given with respect to each of SM&R Investments,
Inc.'s executive officers who are not directors:
TERESA E. AXELSON (2450 South Shore Boulevard, Suite 400,
League City, Texas 77573)
52, Vice President and Secretary of SM&R Investments, Inc., the Fund, SM&R
Equity Income Fund, Inc., SM&R Growth Fund, Inc., American National Investment
Accounts, Inc. and SM&R.
BRENDA T. KOELEMAY (2450 South Shore Boulevard, Suite 400,
League City, Texas 77573)
45, Vice President and Treasurer of SM&R Investments, Inc., the Fund, SM&R
Equity Income Fund, Inc., SM&R Growth Fund, Inc., American National Investment
Accounts, Inc. and SM&R; Treasurer and Director of
15
<PAGE>
Comprehensive Investment Services, Inc.; formerly Senior Manager, KPMG Peat
Marwick.
MICHAEL W. MCCROSKEY (2450 South Shore Boulevard, Suite 400,
League City, Texas 77573)
See "Information Concerning Directors" above.
EMERSON V. UNGER, C.L.U. (2450 South Shore Boulevard, Suite 400, League City,
Texas 77573)
54, Vice President SM&R Investments, Inc., the Fund, SM&R Equity Income Fund,
Inc., SM&R Growth Fund, Inc., American National Investment Accounts, Inc. and
SM&R.
CHIEF EXECUTIVE OFFICER AND DIRECTORS OF SM&R
The following information is given with respect to each of SM&R's executive
officers and directors:
R. EUGENE LUCAS (Gal-Tex Hotel Corporation, 2302 Postoffice Street, Galveston,
Texas 77550)
DIRECTOR OF SM&R
Director of American National Insurance Company, One Moody Plaza, Galveston,
Texas 77550, life, health and accident insurance; President and Director of
Gal-Tex Hotel Corporation, 504 Moody National Bank Tower, Galveston, Texas
77550, hotel management corporation; President and Director of Gal-Tenn Hotel
Corporation, 504 Moody National Bank Tower, Galveston, Texas 77550, hotel
management corporation; President and Director of Gal-Tex Management Company,
504 Moody National Bank Tower, Galveston, Texas 77550, hotel management
corporation; President and Director of Gal-Tex Woodstock, Inc., 504 Moody
National Bank Tower, Galveston, Texas 77550, hotel management corporation;
President and Director of GTG Corporation, 504 Moody National Bank Tower,
Galveston, Texas 77550, hotel management corporation.
MICHAEL W. MCCROSKEY (2450 South Shore Boulevard, Suite 400,
League City, Texas 77573)
DIRECTOR, PRESIDENT, CHIEF EXECUTIVE OFFICER AND MEMBER OF THE EXECUTIVE
COMMITTEE OF SM&R
President and Director of SM&R Investments, Inc., the Fund, SM&R Growth
Fund, Inc., SM&R Equity Income Fund, Inc., and American National Investment
Accounts, mutual funds; Director, Comprehensive Investment Services, an
investment service company, all located at 2450 South Shore Boulevard,
Suite 400, League City, Texas 77573; Executive Vice President, American National
Insurance Company, life, health and accident insurance company; Director and
President, ANREM Corporation, real estate management company; Director and
President, ANTAC Corporation, real estate
16
<PAGE>
management company; all located at One Moody Plaza, Galveston, Texas 77550; Vice
President, American National Property and Casualty, property and casualty
insurance; Vice President, American National General Insurance Company,
insurance company; Vice President, Pacific Property and Casualty, Inc., property
and casualty insurance company, all located at 1949 East Sunshine, Springfield,
Missouri. Vice President of Standard Life and Accident Insurance Company,
insurance company, One Moody Plaza, Galveston, Texas 77550; Vice President of
Garden State Life Insurance Company, insurance company, 2450 South Shore Blvd.,
League City, Texas 77573.
G. RICHARD FERDINANDTSEN (One Moody Plaza, Galveston, Texas 77550)
DIRECTOR AND MEMBER OF EXECUTIVE COMMITTEE OF SM&R
Director, President and Chief Operating Officer, American National Insurance
Company, life, health and accident insurance company; Director, Chairman of the
Board, President and Chief Executive Officer, American National Life Insurance
Company of Texas, life insurance company, both located at One Moody Plaza,
Galveston, Texas; Director, Comprehensive Investment Services, investment
service company, 2450 South Shore Boulevard, Suite 400, League City, Texas
77573; Director, Vice Chairman of the Board, American National General Insurance
Company, insurance company; Director, Vice Chairman of the Board, American
National Property and Casualty, property and casualty insurance company;
Director and Vice Chairman of the Board, Pacific Property & Casualty Company,
property and casualty insurance company; Underwriter, American National Lloyds
Insurance Company, insurance company, all located at 1949 East Sunshine,
Springfield, Missouri. Director and Chairman of the Board, Standard Life and
Accident Insurance Company, insurance company, One Moody Plaza, Galveston, Texas
77550; Director, Garden State Life Insurance Company, insurance company, 2450
South Shore Boulevard, League City, Texas 77573.
RONALD J. WELCH (One Moody Plaza, Galveston, Texas 77550)
DIRECTOR OF SM&R
Executive Vice President and Chief Actuary of American National Insurance
Company, life, health and accident insurance company; Senior Vice President of
American National Life Insurance Company of Texas, life insurance company, both
located at One Moody Plaza, Galveston, Texas 77550; Director and Chairman of the
Board of Garden State Life Insurance Company, insurance company, 2450 South
Shore Boulevard, League City, Texas 77573; Director of Standard Life and
Accident Insurance Company, insurance company, One Moody Plaza, Galveston, Texas
77550; Director of American National Property and Casualty Company, property and
casualty insurance company; Director of American National General Insurance
Company, insurance company; Director of Pacific Property and Casualty Company,
property and casualty insurance company, all located at 1949 East Sunshine
Street, Springfield, Missouri.
17
<PAGE>
GORDON DIXON (2450 South Shore Boulevard, League City, Texas 77573)
DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER AND MEMBER OF
INVESTMENT AND EXECUTIVE COMMITTEES OF SM&R
Vice President and Co-Portfolio Manager of the Fund, SM&R Equity Income
Fund, Inc. and SM&R Growth Fund, Inc.; Vice President of, Portfolio Manager for
American National Government Bond Portfolio and American National High Yield
Bond Portfolio of, and Co-Portfolio Manager of American National Growth
Portfolio, American National Equity Income Portfolio and American National
International Stock Portfolio of American National Investment Accounts, Inc.;
Director and President, Comprehensive Investment Services, investment service
company, all located at 2450 South Shore Boulevard Suite 400, League City, Texas
77573; Vice President of Stocks for American National Insurance Company, life,
health and accident insurance company, One Moody Plaza, Galveston, Texas 77550;
Vice President of Investments for Garden State Life Insurance Company, an
insurance company, 2450 South Shore Boulevard, League City, Texas 77573.
DAVID A. BEHRENS (One Moody Plaza, Galveston, Texas 77550)
DIRECTOR OF SM&R
Executive Vice President, Independent Marketing, American National Insurance
Company, life, health and accident Insurance company, One Moody Plaza,
Galveston, Texas 77550.
STOCK OWNERSHIP OF OFFICERS
AND DIRECTORS OF SM&R INVESTMENTS, INC.
As of the Record Date, each of SM&R Investments, Inc.'s directors, and it's
directors and officers as a group, had the following ownership in the Fund:
<TABLE>
<CAPTION>
AMOUNT & NATURE OF PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------------- ------------------------ -------------------- ----------
<S> <C> <C> <C>
SM&R Primary Fund Paul D. Cummings 20,797 (direct) *
SM&R Money Market Jack T. Currie 10,000 (direct) *
Fund
SM&R Money Market Edwin Nolan 24,281 (direct) *
Fund 2,844 (direct) *
SM&R Primary Fund
SM&R Government Bond Michael W. McCroskey 3,674 (indirect) *
Fund Class T
SM&R Tax Free Fund 4,249 (direct) *
Class T 103 (indirect) *
SM&R Money Market 43,455 (direct) *
Fund
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
AMOUNT & NATURE OF PERCENT OF
TITLE OF CLASS NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS
-------------- ------------------------ -------------------- ----------
<S> <C> <C> <C>
SM&R Primary Fund 56,530 (direct) *
SM&R Money Market Ira W. Painton 6,290 (direct) *
Fund 7,326 (indirect) *
SM&R Money Market Steven H. Stubbs 6,782 (direct) *
Fund
SM&R Government Bond Directors and Officers 4,249 (direct/ *
Fund as a group indirect)
SM&R Tax Free Fund Directors and Officers 6,337 (direct/ *
as a group indirect)
SM&R Money Market Directors and Officers 215,697 (direct/ *
Fund as a group indirect)
SM&R Primary Fund Directors and Officers 172,967 (direct/ *
as a group indirect)
</TABLE>
* Less than 1% owned
The information above was furnished by the Fund's directors and officers.
REMUNERATION OF OFFICERS AND DIRECTORS OF
SM&R INVESTMENTS, INC.
The directors who are "Interested Persons" and the officers of SM&R
Investments, Inc. receive remuneration, directors' fees and expense
reimbursements only from SM&R and not from SM&R Investments, Inc. Directors who
are not "Interested Persons" of SM&R Investments, Inc. are paid directors' fees
by and receive expense reimbursements from SM&R Investments, Inc. (See the
footnote under "Information Concerning Directors" above for a definition of
"Interested Persons").
All of the directors except Mr. McCroskey (who, as an employee of SM&R, is
not paid a fee for serving on the boards of funds in the SM&R fund complex) are
paid a $500 per meeting fee for attendance at Board Meetings, a $2,000 annual
retainer fee and reimbursement of travel expenses. The annual retainer fee and
the travel expenses paid by SM&R Investments, Inc. are
19
<PAGE>
allocated between the series of SM&R Investments, Inc. The following directors
of SM&R Investments, Inc. received the following compensation from SM&R
Investments, Inc. for the fiscal year ended August 31, 2000:
<TABLE>
<CAPTION>
TOTAL
COMPENSATION
AGGREGATE FROM SM&R
COMPENSATION FROM INVESTMENTS, INC.
NAME OF PERSON, POSITION SM&R INVESTMENTS, INC. AND FUND COMPLEX
------------------------ ----------------------- ------------------
<S> <C> <C>
ERNEST S. BARRATT (1)(2)
DIRECTOR $4,000.00 $ 8,000.00
RALPH S. CLIFFORD (1)(3)
DIRECTOR $ -0- $10,000.00
PAUL D. CUMMINGS (1)(3)
DIRECTOR $ -0- $10,000.00
JACK T. CURRIE (1)(3)
DIRECTOR $ -0- $10,000.00
MICHAEL W. MCCROSKEY *(1)
DIRECTOR $ -0- $ -0-
ALLAN W. MATTHEWS *(4)
DIRECTOR $ -0- $ -0-
LEA MCLEOD MATTHEWS *(1)
DIRECTOR $ -0- $ -0-
ANN MCLEOD MOODY *(1)
DIRECTOR $ -0- $ -0-
EDWIN K. NOLAN (1)(2)
DIRECTOR $4,000.00 $ 8,000.00
IRA W. PAINTON (1)(3)
DIRECTOR $ -0- $14,000.00
ROBERT V. SHATTUCK, JR. (1)(2)
DIRECTOR $4,000.00 $ 8,000.00
DONALD P. STEVENS (1)(3)
DIRECTOR $ -0- $10,000.00
STEVEN H. STUBBS (1)(3)
DIRECTOR $ -0- $10,000.00
JAMIE G. WILLIAMS (1)(2)
DIRECTOR $4,000.00 $ 8,000.00
FRANK P. WILLIAMSON (1)(2)
DIRECTOR $4,000.00 $ 8,000.00
</TABLE>
* "Interested Persons" as defined in the Investment Company Act of 1940.
20
<PAGE>
(1) Also serves as a director of the Fund and American National Investment
Accounts, Inc., SM&R Equity Income Fund, Inc. and SM&R Growth Fund, Inc.,
other funds in the SM&R complex of funds.
(2) Received compensation from SM&R Investments, Inc. and American National
Investment Accounts, Inc., another fund in the SM&R fund complex.
(3) Received compensation from the Fund, SM&R Equity Income Fund, Inc. and SM&R
Growth Fund, Inc., other funds in the SM&R complex of funds.
(4) Mr. Matthews resigned as a director of SM&R Investments, Inc. effective
August 17, 2000.
SHAREHOLDER 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.
AUDITORS
Tait, Weller & Baker ("TWB"), 8 Penn Center, Philadelphia, Pennsylvania
19103, served as the Fund's independent auditors for the year ending
December 31, 1999 and will also serve as the Fund's independent auditors for the
current fiscal year. Representatives of TWB are not expected to be present at
the Special Shareholders' Meeting.
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, 1999, including
financial statements, was mailed to shareholders in March, 2000. The Fund will
furnish, without charge, a copy of the Annual Report and the Semi-Annual Report
for the period ended June 30, 2000, to a shareholder upon request. The financial
statements of SM&R Investments, Inc., as contained in its annual report should
also be read in conjunction with this Proxy Statement. A copy will be provided
to you upon request, without charge. Any such request should be made to Michele
Lord, Assistant Secretary of the Fund, at P. O. Box 58969, Houston, Texas
77258-8969 or 1-800-526-8346, extension 229.
21
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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
/s/ Teresa E. Axelson
Teresa E. Axelson
SECRETARY
22
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APPENDIX A
AGREEMENT AND PLAN OF CONVERSION AND TERMINATION
This AGREEMENT AND PLAN OF CONVERSION AND TERMINATION ("Agreement") is made
August 17, 2000 between SM&R Balanced Fund, Inc., a Maryland corporation (the
"Old Fund"), and SM&R Investments, Inc., a Maryland corporation ("Investments"),
on behalf of its SM&R Balanced Fund series (the "New Fund"). (Old Fund and New
Fund are sometimes referred to herein individually as a "Fund" and collectively
as the "Funds"; and the Old Fund and Investments are sometimes referred to
herein individually as an "Investment Company" and collectively as the
"Investment Companies".) All agreements, representations, actions, and
obligations described herein made or to be taken or undertaken by either Fund
are made and shall be taken or undertaken by the Old Fund or by Investments on
behalf of the New Fund.
The Old Fund intends to change its identity -- by converting from a "stand
alone" fund organized and operating as a Maryland corporation to New Fund, a new
series of Investments -- through a reorganization within the meaning of
section 368(a)(1)(F) of the Internal Revenue Code of 1986, as amended (the
"Code"). Old Fund will accomplish such conversion by:
(i) transferring all its assets to New Fund (which is being established by
Investments solely for the purpose of acquiring Old Fund's assets and
continuing Old Fund's business) in exchange solely for voting shares of
common stock of New Fund ("New Fund Shares") and New Fund's assumption
of Old Fund's liabilities; and
(ii) subsequently constructively distributing the New Fund Shares pro rata
to holders of Old Fund shares of common stock ("Old Fund Shares") in
exchange therefor.
Such transfer, exchange, assumption and distribution shall be on the terms and
conditions set forth in this Agreement, which is intended to be, and is adopted
as, a "plan of reorganization" for federal income tax purposes. All such
transactions are referred to herein as the "Reorganization."
In consideration of the mutual promises herein contained, and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. PLAN OF CONVERSION AND TERMINATION
1.1 Old Fund agrees to assign, sell, convey, transfer, and deliver to New
Fund all of Old Fund's assets including, but not limited to, the assets
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described in paragraph 1.2 below ("Old Fund Assets"). New Fund agrees in
exchange therefor --
(a) to issue and deliver to Old Fund the number of full and fractional
(rounded to the third decimal place) New Fund Shares equal to the
number of full and fractional Old Fund Shares then outstanding, and
(b) to assume all of Old Fund's liabilities, including, but not limited
to, those described in paragraph 1.3 ("Old Fund Liabilities").
Such transactions shall take place at the Closing (as defined in
paragraph 2.1).
1.2 The Old Fund Assets shall include, without limitation, all cash, cash
equivalents, securities, receivables (including interest and dividends
receivable), claims and rights of action, rights to register shares
under applicable securities laws, books and records, deferred and
prepaid expenses shown as assets on Old Fund's books, and any and all
other property owned by Old Fund at the Effective Time (as defined in
paragraph 2.1).
1.3 The Old Fund Liabilities shall include, without limitation, all of Old
Fund's liabilities, debts, obligations, and duties of whatever kind or
nature, whether absolute, accrued, contingent, or otherwise, whether or
not arising in the ordinary course of business, whether or not
determinable at the Effective Time, and whether or not specifically
referred to in this Agreement.
1.4 At the Effective Time (or as soon thereafter as is reasonably
practicable), (a) the one New Fund Share issued to Old Fund pursuant to
paragraph 4.4 shall be redeemed by New Fund for $1.00 and (b) Old Fund
shall distribute the New Fund Shares it received pursuant to
paragraph 1.1 to its shareholders of record, determined as of the
Effective Time (each an "Old Fund Shareholder" and collectively "Old
Fund Shareholders"), in constructive exchange for their Old Fund Shares.
Such distribution shall be accomplished by Investments' transfer agent's
opening accounts on New Fund's share transfer books in the Old Fund
Shareholders' names and transferring such New Fund Shares thereto. Each
Old Fund Shareholder's account shall be credited with the respective pro
rata number of full and fractional (rounded to the third decimal place)
New Fund Shares due that Old Fund Shareholder so that each such Old Fund
Shareholder owns the same amount and class of New Fund Shares as the
number and class of Old Fund Shares owned by such Old Fund Shareholder
as of the Effective Time. All outstanding Old Fund Shares, including any
represented by certificates, shall simultaneously be canceled on
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Old Fund's share transfer books. New Fund shall not issue certificates
representing the New Fund Shares in connection with the Reorganization.
1.5 As soon as reasonably practicable after distribution of the New Fund
Shares to the Old Fund Shareholders pursuant to paragraph 1.4, but in
all events within twelve months after the Effective Time, Old Fund's
corporate existence shall be terminated, and any and all further action
necessary under applicable law to accomplish such termination of Old
Fund shall be taken.
1.6 Any reporting responsibility of Old Fund to a public authority is and
shall remain its responsibility up to and including the date on which
Old Fund is terminated.
1.7 Any transfer taxes payable on issuance of New Fund Shares in a name
other than that of the registered holder on Old Fund's books of the Old
Fund Shares constructively exchanged therefor shall be paid by the
person to whom such New Fund Shares are to be issued, as a condition of
such transfer.
2. CLOSING AND EFFECTIVE TIME
2.1 The Reorganization, together with related acts necessary to consummate
the Reorganization (the "Closing"), shall occur at the offices of
Securities Management and Research, Inc. at 2450 South Shore Boulevard,
Suite 400, League City, Texas 77573 on December 31, 2000, or at such
other place and/or on such other date as to which the parties may agree.
All acts taking place at the Closing shall be deemed to take place
simultaneously as of the close of business on the date thereof or at
such other time as to which the parties may agree (the "Effective
Time").
2.2 The Old Fund's fund accounting and pricing agent shall deliver at the
Closing a certificate of an authorized officer verifying that the
information (including adjusted basis and holding period, by lot)
concerning the Old Fund Assets, including all portfolio securities,
transferred by Old Fund to New Fund, as reflected on New Fund's books
immediately following the Closing, does or will conform to such
information on Old Fund's books immediately before the Closing. The Old
Fund's custodian shall deliver at the Closing a certificate of an
authorized officer stating that (a) the Old Fund Assets held by the
custodian will be transferred to New Fund at the Effective Time and
(b) all necessary taxes in conjunction with the delivery of the Old Fund
Assets, including all applicable federal and state stock transfer
stamps, if any, have been paid or provision for payment has been made.
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2.3 Investments' transfer agent shall deliver at the Closing a certificate
as to the opening on New Fund's share transfer books of accounts in the
Old Fund Shareholders' names. Investments shall issue and deliver a
confirmation to the Old Fund evidencing the New Fund Shares to be
credited to Old Fund at the Effective Time or provide evidence
satisfactory to the Old Fund that such New Fund Shares have been
credited to Old Fund's account on such books. At the Closing, each party
shall deliver to the other such bills of sale, checks, assignments,
stock certificates, receipts, or other documents as the other party or
its counsel may reasonably request.
2.4 Each Investment Company shall deliver to the other at the Closing a
certificate executed in its name by its President or a Vice President in
form and substance satisfactory to the recipient and dated the Effective
Time, to the effect that the representations and warranties it made in
this Agreement are true and correct at the Effective Time except as they
may be affected by the transactions contemplated by this Agreement.
3. REPRESENTATIONS AND WARRANTIES
3.1 Old Fund represents and warrants as follows:
3.1.1 The Old Fund is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and
a copy of its Amended and Restated Articles of Incorporation is on
file with the Maryland Department of Assessments and Taxation;
3.1.2 The Old Fund is duly registered as an open-end management
investment company under the Investment Company Act of 1940, as
amended ("1940 Act"), and such registration will be in full force
and effect at the Effective Time;
3.1.3 At the Closing, Old Fund will have good and marketable title to
the Old Fund Assets and full right, power, and authority to sell,
assign, transfer, and deliver the Old Fund Assets free of any
liens or other encumbrances; and upon delivery and payment for the
Old Fund Assets, New Fund will acquire good and marketable title
thereto;
3.1.4 New Fund Shares are not being acquired for the purpose of making
any distribution thereof, other than in accordance with the terms
hereof;
3.1.5 The Old Fund is a "fund" as defined in section 851(g)(2) of the
Code; it qualified for treatment as a regulated investment company
under Subchapter M of the Code ("RIC") for each
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past taxable year since it commenced operations and will continue
to meet all the requirements for such qualification for its
current taxable year; and it has no earnings and profits
accumulated in any taxable year in which the provisions of
Subchapter M did not apply to it. The Old Fund Assets shall be
invested at all times through the Effective Time in a manner that
ensures compliance with the foregoing;
3.1.6 The Old Fund Liabilities were incurred by Old Fund in the
ordinary course of its business and are associated with the Old
Fund Assets;
3.1.7 The Old Fund is not under the jurisdiction of a court in a
proceeding under Title 11 of the United States Code or similar
case within the meaning of section 368(a)(3)(A) of the Code;
3.1.8 Not more than 25% of the value of Old Fund's total assets
(excluding cash, cash items, and U. S. government securities) is
invested in the stock and securities of any one issuer, and not
more than 50% of the value of such assets is invested in the stock
and securities of five or fewer issuers;
3.1.9 As of the Effective Time, Old Fund will not have outstanding any
warrants, options, convertible securities, or any other type of
rights pursuant to which any person could acquire Old Fund Shares;
3.1.10 At the Effective Time, the performance of this Agreement shall
have been duly authorized by all necessary action by Old Fund's
Shareholders; and
3.1.11 The Old Fund will be terminated as soon as reasonably practicable
after the Effective Time, but in all events within twelve months
thereafter.
3.2 New Fund represents and warrants as follows:
3.2.1 Investments is a corporation duly organized, validly existing,
and in good standing under the laws of the State of Maryland; and
a copy of its Amended and Restated Articles of Incorporation is on
file with the Maryland Department of Assessments and Taxation;
3.2.2 Investments is duly registered as an open-end management
investment company under the 1940 Act, and such registration will
be in full force and effect at the Effective Time;
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3.2.3 Before the Effective Time, New Fund will be a duly established
and designated series of Investments;
3.2.4 New Fund has not commenced operations and will not do so until
after the Closing;
3.2.5 Prior to the Effective Time, there will be no issued and
outstanding shares in New Fund or any other securities issued by
New Fund, except for the one share provided for in paragraph 4.4;
3.2.6 No consideration other than New Fund Shares (and New Fund's
assumption of the Old Fund Liabilities) will be issued in exchange
for the Old Fund Assets in the Reorganization;
3.2.7 The New Fund Shares to be issued and delivered to Old Fund
hereunder will, at the Effective Time, have been duly authorized
and, when issued and delivered as provided herein, will be duly
and validly issued and outstanding shares of New Fund, fully paid
and non-assessable;
3.2.8 New Fund will be a "fund" as defined in section 851(g)(2) of the
Code and will meet all the requirements to qualify for treatment
as a RIC for its taxable year in which the Reorganization occurs;
3.2.9 New Fund has no plan or intention to issue additional New Fund
Shares following the Reorganization except for shares issued in
the ordinary course of its business as a series of Investments, an
open-end investment company; nor does New Fund have any plan or
intention to redeem or otherwise reacquire any New Fund Shares
issued to the Old Fund Shareholders pursuant to the
Reorganization, except to the extent it is required by the 1940
Act to redeem any of its shares presented for redemption at net
asset value in the ordinary course of that business;
3.2.10 Following the Reorganization, New Fund (a) will continue Old
Fund's "historic business" (within the meaning of
section 1.368-1(d)(2) of the Income Tax Regulations under the
Code), (b) use a significant portion of Old Fund's historic
business assets (within the meaning of section 1.368-1(d)(3) of
those regulations) in a business, (c) has no plan or intention to
sell or otherwise dispose of any of the Old Fund Assets, except
for dispositions made in the ordinary course of that business and
dispositions necessary to maintain its status as a RIC, and
(d) expects to retain substantially all the Old Fund Assets in the
same form as it receives them in the Reorganization,
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unless and until subsequent investment circumstances suggest the
desirability of change or it becomes necessary to make
dispositions thereof to maintain such status;
3.2.11 There is no plan or intention for New Fund to be dissolved or
merged into another corporation or a business trust or any "fund"
thereof (within the meaning of section 851(g)(2) of the Code)
following the Reorganization; and
3.2.12 Immediately after the Reorganization, (a) not more than 25% of
the value of the New Fund's total assets (excluding cash, cash
items, and U. S. government securities) will be invested in the
stock and securities of any one issuer and (b) not more than 50%
of the value of such assets will be invested in the stock and
securities of five or fewer issuers.
3.3 Each Fund represents and warrants as follows:
3.3.1 The aggregate fair market value of the New Fund Shares, when
received by the Old Fund Shareholders, will be approximately equal
to the aggregate fair market value of their Old Fund Shares
constructively surrendered in exchange therefor;
3.3.2 Its management (a) is unaware of any plan or intention of Old
Fund Shareholders to redeem, sell, or otherwise dispose of
(i) any portion of their Old Fund Shares before the Reorganization
to any person related (within the meaning of
section 1.368-1(e)(3) of the Income Tax Regulations under the
Code) to either Fund or (ii) any portion of the New Fund Shares to
be received by them in the Reorganization to any person related
(as so defined) to New Fund, (b) does not anticipate dispositions
of those New Fund Shares at the time of or soon after the
Reorganization to exceed the usual rate and frequency of
dispositions of shares of Old Fund as a series of an open-end
investment company, (c) expects that the percentage of Old Fund
Shareholder interests, if any, that will be disposed of as a
result of or at the time of the Reorganization will be de minimis,
and (d) does not anticipate that there will be extraordinary
redemptions of New Fund Shares immediately following the
Reorganization;
3.3.3 The Old Fund Shareholders will pay their own expenses, if any,
incurred in connection with the Reorganization;
3.3.4 Immediately following consummation of the Reorganization, the Old
Fund Shareholders will own all the New Fund Shares and will own
such shares solely by reason of their ownership of Old Fund Shares
immediately before the Reorganization;
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3.3.5 Immediately following consummation of the Reorganization, New
Fund will hold the same assets -- except for assets distributed to
shareholders in the course of its business as an RIC -- and be
subject to the same liabilities that Old Fund held or was subject
to immediately prior to the Reorganization. Such excepted assets,
together with the amount of all redemptions and distributions
(other than regular, normal dividends) made by Old Fund
immediately preceding the Reorganization, will, in the aggregate,
constitute less than 1% of Old Fund's net assets;
3.3.6 There is no intercompany indebtedness between the Funds; and
3.3.7 Neither Fund will be reimbursed for any expenses incurred by it
or on its behalf in connection with the Reorganization.
4. CONDITIONS PRECEDENT
Each Fund's obligations hereunder shall be subject to (a) performance by the
other Fund of all its obligations to be performed hereunder at or before the
Effective Time, (b) all representations and warranties of the other Fund
contained herein being true and correct in all material respects as of the date
hereof and, except as they may be affected by the transactions contemplated
hereby, as of the Effective Time, with the same force and effect as if made on
and as of the Effective Time, and (c) the further conditions that, at or before
the Effective Time:
4.1 This Agreement and the transactions contemplated hereby shall have been
duly adopted and approved by each Investment Company's board of
directors and shall have been approved by Old Fund's shareholders in
accordance with applicable law;
4.2 All necessary filings shall have been made with the Securities and
Exchange Commission ("SEC") and state securities authorities, and no
order or directive shall have been received that any other or further
action is required to permit the parties to carry out the transactions
contemplated hereby. All consents, orders, and permits of federal,
state, and local regulatory authorities (including the SEC and state
securities authorities) deemed necessary by either Investment Company to
permit consummation, in all material respects, of the transactions
contemplated hereby shall have been obtained, except where failure to
obtain same would not involve a risk of a material adverse effect on the
assets or properties of either Fund, provided that either Investment
Company may waive any of such conditions;
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4.3 Each Investment Company shall have received an opinion of Sutherland,
Asbill & Brennan, L.L.P., addressed to and in form and substance
satisfactory to it, as to the federal income tax consequences mentioned
below ("Tax Opinion"). In rendering the Tax Opinion, such counsel may
rely as to factual matters, exclusively and without independent
verification, on the representations made in this Agreement (or in
separate letters addressed to such counsel) and the certificates
delivered pursuant to paragraph 2.4. The Tax Opinion shall be
substantially to the effect that, based on the facts and assumptions
stated therein and conditioned on consummation of the Reorganization in
accordance with this Agreement, for federal income tax purposes:
4.3.1 New Fund's acquisition of the Old Fund Assets in exchange solely
for New Fund Shares and New Fund's assumption of the Old Fund
Liabilities, followed by Old Fund's distribution of those shares
pro rata to the Old Fund Shareholders constructively in exchange
for the Old Fund Shareholders' Old Fund Shares, will constitute a
reorganization within the meaning of section 368(a)(1)(F) of the
Code, and each Fund will be "a party to a reorganization" within
the meaning of section 368(b) of the Code;
4.3.2 Old Fund will recognize no gain or loss on the transfer to New
Fund of the Old Fund Assets in exchange solely for New Fund Shares
and New Fund's assumption of the Old Fund Liabilities or on the
subsequent distribution of those shares to the Old Fund
Shareholders in constructive exchange for their Old Fund Shares;
4.3.3 New Fund will recognize no gain or loss on its receipt of the Old
Fund Assets in exchange solely for New Fund Shares and its
assumption of the Old Fund Liabilities;
4.3.4 New Fund's basis for the Old Fund Assets will be the same as the
basis thereof in Old Fund's hands immediately before the
Reorganization, and New Fund's holding period for the Old Fund
Assets will include Old Fund's holding period therefor;
4.3.5 An Old Fund Shareholder will recognize no gain or loss on the
constructive exchange of all its Old Fund Shares solely for New
Fund Shares pursuant to the Reorganization;
4.3.6 An Old Fund Shareholder's aggregate basis for the New Fund Shares
to be received by it in the Reorganization will be the same as the
aggregate basis for its Old Fund shares to be constructively
surrendered in exchange for those New Fund
A-9
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Shares, and its holding period for those New Fund Shares will
include its holding period for those Old Fund Shares, provided
they are held as capital assets by the Old Fund Shareholder at the
Effective Time; and
4.3.7 For purposes of section 381 of the code, New Fund will be treated
as if there had been no Reorganization. Accordingly, the
Reorganization will not result in the termination of Old Fund's
taxable year, Old Fund's tax attributes enumerated in
section 381(c) of the Code will be taken into account by New Fund
as if there had been no Reorganization, and the part of Old Fund's
taxable year before the Reorganization will be included in New
Fund's taxable year after the Reorganization;
4.4 Prior to the Closing, Investments' directors shall have authorized the
issuance of, and New Fund shall have issued, one New Fund Share to Old
Fund in consideration of the payment of $1.00 to vote on the matters
referred to in paragraph 4.5; and
4.5 Investments (on behalf of and with respect to New Fund) shall have
entered into an investment advisory agreement, an underwriting
agreement, an administrative service agreement, a custodian contract, a
multiple class plan, and a distribution and shareholder servicing plan
pursuant to rule 12b-1 under the 1940 Act, and such other agreements as
are necessary for New Fund's operation as a series of an open-end
investment company. Each such contract, plan, and agreement shall have
been approved by Investments' directors and, to the extent required by
law, by such of those directors who are not "interested persons" thereof
(as defined in the 1940 Act) and by the Old Fund as the sole shareholder
of New Fund.
At any time before the Closing, either Investment Company may waive any of
the foregoing conditions (except that set forth in paragraph 4.1) if, in the
judgment of its board of directors, such waiver will not have a material adverse
effect on its Fund's shareholders' interests.
5. BROKERAGE FEES AND EXPENSES
5.1 Each Investment Company represents and warrants to the other that there
are no brokers or finders entitled to receive any payments in connection
with the transactions provided for herein.
5.2 The expenses of the Reorganization will be borne by Securities
Management and Research, Inc., the Florida corporation that serves as
investment adviser to the Funds.
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6. ENTIRE AGREEMENT; NO SURVIVAL
Neither party has made any representation, warranty, or covenant not set
forth herein, and this Agreement constitutes the entire agreement between the
parties. The representations, warranties, and covenants contained herein or in
any document delivered pursuant hereto or in connection herewith shall not
survive the Closing.
7. TERMINATION
This Agreement may be terminated at any time at or prior to the Effective
Time, whether before or after approval by Old Fund's Shareholders:
7.1 By either Fund (a) in the event of the other Fund's material breach of
any representation, warranty, or covenant contained herein to be
performed at or prior to the Effective Time, (b) if a condition to its
obligations has not been met and it reasonably appears that such
condition will not or cannot be met, or (c) if the Closing has not
occurred on or before December 31, 2000; or
7.2 By the parties' mutual agreement.
In the event of termination under paragraphs 7.1(c) or 7.2, there shall be
no liability for damages on the part of either Fund, or the directors or
officers of either Investment Company, to the other Fund.
8. AMENDMENT
This Agreement may be amended, modified, or supplemented at any time,
notwithstanding approval thereof by Old Fund's Shareholders, in such manner as
may be mutually agreed upon in writing by the parties; provided that following
such approval no such amendment shall have a material adverse effect on the Old
Fund Shareholders' interests.
9. MISCELLANEOUS
9.1 This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Maryland; provided that, in the case of
any conflict between such laws and the federal securities laws, the
latter shall govern.
9.2 Nothing expressed or implied herein is intended or shall be construed to
confer upon or give any person, firm, trust, or corporation other than
the parties and their respective successors and assigns any rights or
remedies under or by reason of this Agreement.
9.3 This Agreement may be executed in one or more counterparts, all of which
shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been executed by each
Investment Company and delivered to the other party
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hereto. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, each party has caused this Agreement to be executed and
delivered by its duly authorized officers as of the day and year first written
above.
<TABLE>
<S> <C>
ATTEST: SM&R BALANCED FUND, INC.
By:
-------------------------------- -------------------------------
Secretary Name:
--------------------------------
Its:
-------------------------------
ATTEST: SM&R INVESTMENTS, INC.
By:
-------------------------------- -------------------------------
Secretary Name:
--------------------------------
Its:
-------------------------------
</TABLE>
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VOTING PROXY
SM&R BALANCED FUND, INC.
PROXY FOR SPECIAL SHAREHOLDER'S MEETING
October 31, 2000
Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Ira W. Painton and Michael W. McCroskey and each
or any of them, as proxies with power of substitution, and hereby authorizes
each of them to represent and to vote, as designated on the reverse side, all
the shares of the SM&R Balanced Fund, Inc. that the undersigned is entitled to
vote at the special meeting of shareholders to be held in League City, Texas, on
Tuesday, October 31, 2000, and at any postponement or adjournment thereof on
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 any proposal listed, the timely return of
this Proxy Voting Ballot will be deemed an instruction 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.
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 September 21,
2000. THIS PROXY VOTING BALLOT MAY BE
REVOKED AT ANY TIME PRIOR TO THE MEETING
BY NOTIFYING THE SECRETARY OF THE FUND
IN WRITING.
Date______________, 2000
---------------------------------------
Signature(s) (Title(s), if applicable)
Note: Please sign exactly as your name
or names appear on the Proxy Voting
Ballot. When signing as a fiduciary
(i.e. attorney, executor, administrator,
trustee, or guardian), give the full
title as to the capacity in which you
are signing.
VOTE ON PROPOSALS ( The Board of Directors recommends a vote FOR )
1. Approval of Plan of Conversion of the Fund into a Series of SM&R Investments,
Inc.
/ / For / / Abstain / / Against
2. To act on such other matters as may properly come before the meeting or any
adjournment thereof.
