<PAGE>
Registration Nos. 2-10305; 811-00623
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE / /
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 94 /X/
AND/OR
REGISTRATION STATEMENT UNDER / /
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 26 /X/
[Check appropriate box or boxes]
-----------------------
AMERICAN NATIONAL GROWTH FUND, INC.
[Exact Name of Registrant as Specified in Charter]
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
[Address of Principal Executive Offices] [Zip Code]
Registrant's Telephone Number, Including Area Code: (409) 763-2767
NAME AND ADDRESS OF
AGENT FOR SERVICE: WITH COPY TO:
MICHAEL W. MCCROSKEY JERRY L. ADAMS
ONE MOODY PLAZA GREER, HERZ & ADAMS, L.L.P.
GALVESTON, TEXAS 77550 ONE MOODY PLAZA
GALVESTON, TEXAS 77550
FREDERICK R. BELLAMY
SUTHERLAND, ASBILL & BRENNAN LLP
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
-----------------------
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/ / on (date) pursuant to paragraph (b) of Rule 485
/X/ 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / 75 days after filing pursuant to paragraph (a) of Rule 485
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
If appropriate, check the following box:
/ / this Post-Effective Amendment designates a new effective date for a
previously filed Post-Effective Amendment.
Title of Securities Being Registered ....Common Stock, par value $.01 per share.
<PAGE>
AMERICAN NATIONAL GROWTH FUND, INC.
CROSS-REFERENCE SHEET
Pursuant to Rule 485(a)
SHOWING LOCATION IN PROSPECTUS AND STATEMENT
OF ADDITIONAL INFORMATION REQUIRED BY
PARTS A AND B OF FORM N-1A
REGISTRATION STATEMENT
PART A ITEM AND CAPTION PROSPECTUS CAPTION
- ----------------------- ------------------
ITEM 1. COVER PAGE
(a) (i) . . . . . . . . . . . . . . . . Front Cover
(ii). . . . . . . . . . . . . . . . Front Cover
(iii) . . . . . . . . . . . . . . . Front Cover; Back Cover
(iv). . . . . . . . . . . . . . . . Front Cover; Back Cover
(v) . . . . . . . . . . . . . . . . Front Cover
(vi). . . . . . . . . . . . . . . . Not Applicable
(vii) . . . . . . . . . . . . . . . Not Applicable
(viii). . . . . . . . . . . . . . . Front Cover
(b) . . . . . . . . . . . . . . . . . . Front Cover
ITEM 2. SYNOPSIS
(a) (i) . . . . . . . . . . . . . . . . Table of Fees and Expenses
(ii). . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . The Funds at a Glance
(c) . . . . . . . . . . . . . . . . . . The Funds at a Glance
ITEM 3. CONDENSED FINANCIAL INFORMATION
(a) . . . . . . . . . . . . . . . . . . Financial Highlights -- American
National Growth Fund, Inc.
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . Performance and Advertising Data
(in the Statement of Additional
Information)
(d) . . . . . . . . . . . . . . . . . . Portfolio Manager's Discussion and
Analysis -- American National
Growth Fund, Inc.; Back Cover
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
(a) (i) . . . . . . . . . . . . . . . . The Funds and Their Management
(ii). . . . . . . . . . . . . . . . The Funds at a Glance; Investment
Objectives and Policies
(b) (i) . . . . . . . . . . . . . . . . Investment Objectives And Policies
(ii). . . . . . . . . . . . . . . . Investment Objectives and Policies
(c) . . . . . . . . . . . . . . . . . . Investment Objectives and Policies;
The Funds at a Glance
ITEM 5. MANAGEMENT OF THE FUND
(a) . . . . . . . . . . . . . . . . . . The Funds and Their Management
(b) (i) . . . . . . . . . . . . . . . . The Funds and Their Management
(ii). . . . . . . . . . . . . . . . The Funds and Their Management
- 2 -
<PAGE>
PART A ITEM AND CAPTION PROSPECTUS CAPTION
- ----------------------- ------------------
(iii) . . . . . . . . . . . . . . . The Funds and Their Management;
Table of Fees and Expenses; Cover
Page
(c) . . . . . . . . . . . . . . . . . . The Funds and Their Management
(d) . . . . . . . . . . . . . . . . . . The Funds and Their Management;
Table of Fees and Expenses; Cover
Page
(e) . . . . . . . . . . . . . . . . . . The Funds and Their Management;
Cover Page
(f) . . . . . . . . . . . . . . . . . . The Funds and Their Management;
Table of Fees and Expenses
(g) . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 5a. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
(a) . . . . . . . . . . . . . . . . . . Portfolio Manager's Discussion and
Analysis -- American National
Growth Fund, Inc.
(b) . . . . . . . . . . . . . . . . . . Portfolio Manager's Discussion and
Analysis -- American National
Growth Fund, Inc.
(c) . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
(a) (i) . . . . . . . . . . . . . . . . How to Purchase Shares
(ii). . . . . . . . . . . . . . . . How to Purchase Shares; Multiple
Class Structure; How To Redeem;
Special Purchase Plans and Services
(iii) . . . . . . . . . . . . . . . Not Applicable
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . Not Applicable
(e) . . . . . . . . . . . . . . . . . . Back Page
(f) . . . . . . . . . . . . . . . . . . Dividends, Capital Gains and
Federal Taxes
(g) (i) . . . . . . . . . . . . . . . . Dividends, Capital Gains and
Federal Taxes
(ii). . . . . . . . . . . . . . . . Dividends, Capital Gains and
Federal Taxes
(iii) . . . . . . . . . . . . . . . Dividends, Capital Gains and
Federal Taxes
(h) . . . . . . . . . . . . . . . . . . The Funds at a Glance; Multiple
Class Structure
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
(a) . . . . . . . . . . . . . . . . . . The Funds and Their Management;
How to Purchase Shares
(b) (i) . . . . . . . . . . . . . . . . Determination of Offering Price
(ii). . . . . . . . . . . . . . . . When Are Purchases Effective?;
Determination of Offering Price
(iii) . . . . . . . . . . . . . . . Multiple Class Structure
(iv). . . . . . . . . . . . . . . . Multiple Class Structure
(v) . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . Multiple Class Structure; Special
Purchase Plans and Services
(d) . . . . . . . . . . . . . . . . . . How to Purchase Shares
(e) . . . . . . . . . . . . . . . . . . Not Applicable
(f) (i) . . . . . . . . . . . . . . . . The Funds and Their Management
(ii). . . . . . . . . . . . . . . . The Funds and Their Management
(iii) . . . . . . . . . . . . . . . Not Applicable
(g) . . . . . . . . . . . . . . . . . . Multiple Class Structure
ITEM 8. REDEMPTION OR REPURCHASE
- 3 -
<PAGE>
PART A ITEM AND CAPTION PROSPECTUS CAPTION
- ----------------------- ------------------
(a) . . . . . . . . . . . . . . . . . . How To Redeem; Multiple Class
Structure
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . How to Redeem
(d) . . . . . . . . . . . . . . . . . . How to Redeem
ITEM 9. PENDING LEGAL PROCEEDINGS
(a) . . . . . . . . . . . . . . . . . . Not Applicable
PART B - ITEM AND CAPTION STATEMENT OF ADDITIONAL INFORMATION
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CAPTION
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ITEM 10. COVER PAGE
(a) (i) . . . . . . . . . . . . . . . . Cover Page
(ii). . . . . . . . . . . . . . . . Cover Page
(iii) . . . . . . . . . . . . . . . Cover Page
(iv). . . . . . . . . . . . . . . . Cover Page
(b) . . . . . . . . . . . . . . . . . . Cover Page
ITEM 11. TABLE OF CONTENTS. . . . . . . Table of Contents
ITEM 12. GENERAL INFORMATION AND HISTORY The Funds
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES
(a) . . . . . . . . . . . . . . . . . . Investment Objective and Policies
(b) . . . . . . . . . . . . . . . . . . Investment Objective and Policies
(c) . . . . . . . . . . . . . . . . . . Investment Objectives and Policies
(d) . . . . . . . . . . . . . . . . . . Portfolio Turnover
ITEM 14. MANAGEMENT OF THE FUND
(a) . . . . . . . . . . . . . . . . . . Management of The Fund
(b) . . . . . . . . . . . . . . . . . . Management of The Fund
(c) . . . . . . . . . . . . . . . . . . Management of The Fund
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) . . . . . . . . . . . . . . . . . . Control Persons and Principal
Holders of Securities
(b) . . . . . . . . . . . . . . . . . . Control Persons and Principal
Holders of Securities
(c) . . . . . . . . . . . . . . . . . . Control Persons and Principal
Holders of Securities
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
(a) (i) . . . . . . . . . . . . . . . . Investment Advisory and Other
Services -- Control and Management
of SM&R
(ii). . . . . . . . . . . . . . . . Investment Advisory and Other
Services -- Control and Management
of SM&R
(iii) . . . . . . . . . . . . . . . Investment Advisory and Other
Services -- Investment Advisory
Agreement
(b) . . . . . . . . . . . . . . . . . . Investment Advisory and Other
Services -- Investment Advisory
Agreement
(c) . . . . . . . . . . . . . . . . . . Not Applicable
(d) . . . . . . . . . . . . . . . . . . Investment Advisory and Other
Services -- Administrative Service
Agreement
(e) (i) . . . . . . . . . . . . . . . . Not Applicable
- 4 -
<PAGE>
PART B - ITEM AND CAPTION STATEMENT OF ADDITIONAL INFORMATION
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CAPTION
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(ii). . . . . . . . . . . . . . . . Not Applicable
(iii) . . . . . . . . . . . . . . . Not Applicable
(f) (i) . . . . . . . . . . . . . . . . Shareholder Servicing and
Distribution Plan
(ii). . . . . . . . . . . . . . . . Shareholder Servicing and
Distribution Plan
(iii) . . . . . . . . . . . . . . . Shareholder Servicing and
Distribution Plan
(g) . . . . . . . . . . . . . . . . . . Custodian
(h) . . . . . . . . . . . . . . . . . . Custodian; Counsel and Auditors
(i) . . . . . . . . . . . . . . . . . . Investment Advisory Agreement;
Administrative Service Agreement;
Custodian; Transfer and Dividend
Paying Agent
ITEM 17. BROKERAGE ALLOCATION AND OTHER PRACTICES
(a) . . . . . . . . . . . . . . . . . . Portfolio Transactions and
Brokerage Allocation
(b) . . . . . . . . . . . . . . . . . . Not Applicable
(c) . . . . . . . . . . . . . . . . . . Portfolio Transactions and
Brokerage Allocation
(d) . . . . . . . . . . . . . . . . . . Portfolio Transactions and
Brokerage Allocation
(e) . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
(a) (i) . . . . . . . . . . . . . . . . Capital Stock
(ii). . . . . . . . . . . . . . . . Capital Stock
(b) . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
(a) . . . . . . . . . . . . . . . . . . Purchase, Redemption and Pricing
of Securities Being Offered;
Special Purchase Plans
(b) . . . . . . . . . . . . . . . . . . Purchase, Redemption and Pricing
of Securities Being Offered;
Special Purchase Plans
(c) . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 20. TAX STATUS . . . . . . . . . . Tax Status
ITEM 21. UNDERWRITERS
(a) (i) . . . . . . . . . . . . . . . . The Underwriter
(ii). . . . . . . . . . . . . . . . The Underwriter
(iii) . . . . . . . . . . . . . . . The Underwriter
(b) . . . . . . . . . . . . . . . . . . The Underwriter
(c) . . . . . . . . . . . . . . . . . . Not Applicable
ITEM 22. CALCULATIONS OF PERFORMANCE DATA
(a) (i) . . . . . . . . . . . . . . . . Not Applicable
(ii). . . . . . . . . . . . . . . . Not Applicable
(iii) . . . . . . . . . . . . . . . Not Applicable
(iv). . . . . . . . . . . . . . . . Not Applicable
(b) (i) . . . . . . . . . . . . . . . . Performance and Advertising Data
(ii). . . . . . . . . . . . . . . . Performance and Advertising Data
(iii) . . . . . . . . . . . . . . . Not Applicable
- 5 -
<PAGE>
PART B - ITEM AND CAPTION STATEMENT OF ADDITIONAL INFORMATION
- ------------------------- -----------------------------------
CAPTION
-------
(iv). . . . . . . . . . . . . . . . Not Applicable
ITEM 23. FINANCIAL STATEMENTS Financial Statements are
incorporated by reference into Part
B Statement of Additional
Information
PART C: OTHER INFORMATION
-----------------
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
- 6 -
<PAGE>
[LOGO]
P R O S P E C T U S
CLASSES A, B, AND C
(PUBLIC RETAIL SALES)
AMERICAN NATIONAL FUNDS GROUP
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
TELEPHONE NUMBER: (409) - TOLL FREE: 1 (800) 231-4639
SEPTEMBER 15, 1998
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
OFFICERS
Michael W. McCroskey, President and CEO
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
<TABLE>
<S> <C>
INVESTMENT ADVISOR AND MANAGER LEGAL COUNSEL
Securities Management and Research, Inc. Greer, Herz & Adams, L.L.P.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT INDEPENDENT AUDITORS
Securities Management and Research, Inc. Tait, Weller & Baker
One Moody Plaza 8 Penn Center
Galveston, Texas 77550 Philadelphia, Pennsylvania 19103
CUSTODIAN TRANSFER AND
Securities Management and Research, Inc. DIVIDEND PAYING AGENT
One Moody Plaza Securities Management and Research, Inc.
Galveston, Texas 77550 One Moody Plaza
Galveston, Texas 77550
</TABLE>
This Prospectus offers shares in three equity mutual funds underwritten and
managed by Securities Management and Research, Inc.: (1) American National
Growth Fund, Inc. ("Growth Fund"), which seeks long-term growth; (2) American
National Income Fund, Inc. ("Income Fund"), which seeks current income with
appreciation secondary; and (3) Triflex Fund, Inc. ("Triflex Fund"), a balanced
fund seeking conservation of principal, current income, and long-term capital
appreciation (each, a "Fund"; collectively, the "Funds" or the "American
National Funds Group"). The Funds also offer other share classes with different
sales charge and distribution and service fee structures. Please read this
Prospectus carefully before making an investment and keep it for future
reference. There is no assurance that any Fund will achieve its objective.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK. FURTHER, SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE FUNDS AT A GLANCE........................... 3
TABLE OF FEES AND EXPENSES...................... 5
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH
FUND, INC...................................... 8
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME
FUND, INC...................................... 9
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC......... 10
INVESTMENT OBJECTIVES AND
POLICIES....................................... 11
THE FUNDS AND THEIR MANAGEMENT.................. 14
HOW TO PURCHASE SHARES.......................... 18
WHEN ARE PURCHASES EFFECTIVE?................... 19
<CAPTION>
PAGE
-----------
<S> <C>
DETERMINATION OF OFFERING PRICE................. 19
MULTIPLE CLASS STRUCTURE........................ 20
SPECIAL PURCHASE PLANS AND SERVICES............. 24
RETIREMENT PLANS................................ 26
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES...... 27
HOW TO REDEEM................................... 28
OTHER INFORMATION CONCERNING THE FUNDS.......... 30
APPENDIX A...................................... A-1
APPENDIX B...................................... B-1
</TABLE>
2
<PAGE>
THE FUNDS AT A GLANCE
Each Fund is a "mutual fund" that continuously sells and redeems its shares of
common stock at the current per share offering price. The investment objective
and investor suitability profile of each Fund are summarized below.
AMERICAN NATIONAL GROWTH FUND, INC. ("GROWTH FUND")
OBJECTIVE: The Growth Fund seeks long-term capital growth by investing its
assets in securities (primarily common stocks) that provide an opportunity for
capital appreciation.
INVESTOR SUITABILITY PROFILE: The Growth Fund is designed for investors who
want to build capital to meet long-range goals.
AMERICAN NATIONAL INCOME FUND, INC. ("INCOME FUND")
OBJECTIVE: The Income Fund seeks current income with a secondary objective of
long-term capital appreciation. It invests in common stock, preferred stocks,
and debt securities.
INVESTOR SUITABILITY PROFILE: The Income Fund is designed for investors seeking
to protect the purchasing power of their money while retaining the potential for
attractive growth and reducing their exposure to the volatility of the market.
TRIFLEX FUND, INC. ("TRIFLEX FUND")
OBJECTIVE: The Triflex Fund seeks to conserve principal, produce current
income, and achieve long-term capital appreciation. It invests in various types
of fixed income (debt) and equity securities.
INVESTOR SUITABILITY PROFILE: The Triflex Fund is designed for investors
seeking income and conservation of the purchasing power of their capital.
MANAGEMENT: Securities Management and Research, Inc. ("SM&R") makes the
investment choices for the Funds. SM&R has served as investment adviser, manager
and distributor of mutual funds since 1966. See "THE FUNDS AND THEIR MANAGEMENT"
for additional information.
PURCHASING SHARES: The Funds have multiple classes of shares with different
sales charges and distribution and service ("12b-1") fee structures. This
Prospectus offers three classes of shares, called Class A, Class B, and Class C
(each, a "Class," and collectively, the "Classes"). You may select from among
the following three Classes of shares:
CLASS A SHARES. Class A shares are sold at their respective net asset value
plus an initial or "front-end" sales charge of up to 5.75% of the public
offering price. For amounts invested over certain levels, or "breakpoints"
(beginning at $50,000), you pay reduced sales charges. For investments of $1
million or more, you do not pay any initial sales charge. Amounts invested above
$1 million, however, are subject to a 1.00% contingent deferred sales charge if
redeemed within thirteen months from purchase. Although you may pay an initial
sales charge when you purchase Class A shares, the ongoing expenses of this
Class are lower than the ongoing expenses of Class B and Class C shares.
(However, Class B and Class C both impose contingent deferred or "back-end"
sales charges on certain early redemptions, as described below.)
CLASS B SHARES. Class B shares are sold at their respective net asset value, so
you do not pay an initial sales charge when you purchase Class B shares. As a
result, 100% of your purchase is immediately invested. However, Class B shares
have higher ongoing expenses than Class A shares. Moreover, depending on how
long shares are owned, you may pay a contingent deferred sales charge when you
sell Class B shares. The contingent deferred sales charge decreases from a
maximum of 5.00% in the first year to zero after five or more years from
purchase. After eight years, Class B shares automatically convert to Class A
shares, which have lower ongoing expenses and no contingent deferred sales
charge applicable at that time.
CLASS C SHARES. The Funds offer Class C shares at their respective net asset
value plus an initial sales charge of 1.00% of the public offering price and a
contingent deferred sales charge of 1.00% if redeemed within thirteen months
from purchase. Although you may pay lower sales charges than for Class A and
Class B shares, the ongoing expenses for this Class are higher than the ongoing
expenses of Class A and Class B shares.
Each Fund also offers three other classes of shares through separate
prospectuses and restricts purchase of such shares to specified types of
investors or through certain distribution channels. These other share classes
have different sales charge and distribution and service fee structures.
MINIMUM PURCHASE: $100 minimum initial investment and $20 minimum for each
subsequent investment as described under "Special Purchase Plans."
REDEMPTIONS: Procedures may be found under "HOW TO REDEEM."
EXCHANGES: In general, you can exchange shares of a Fund for shares of another
fund in the SM&R Family of
3
<PAGE>
Funds (as defined herein) without the payment of an exchange fee, subject to
certain conditions. For information on exchanging shares, see "Exchange
Privilege" within the "SPECIAL PURCHASE PLANS AND SERVICES" section.
DERIVATIVE INVESTMENTS: The Funds do not invest in interest only (IO) or
principal only (PO) securities. The Triflex Fund may invest in collateralized
mortgage obligations (CMO's) from time to time. An explanation of CMO's can be
found in the Funds' Statement of Additional Information.
RISKS: Each Fund can be expected to have different investment results based on
its investment objective and different financial and market risks. Financial
risk refers to the ability of an issuer of a debt security to pay principal and
interest, and to the earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the degree to which the
price of a security will react to changes in conditions in securities markets in
general and, with particular reference to debt securities, to changes in the
overall level of interest rates. AS A RESULT OF THESE AND OTHER RISKS, THE VALUE
OF THE SHARES OWNED MAY BE HIGHER OR LOWER THAN THEIR COST.
PORTFOLIO TURNOVER RATES: Each Fund's portfolio turnover rates for the last
five years are included in the Financial Highlights tables herein. A security
will be sold, and the proceeds reinvested, whenever it is considered prudent to
do so from the viewpoint of a Fund's objectives, regardless of the holding
period of the security. A higher rate of portfolio turnover may result in higher
transaction costs. Additionally, higher portfolio turnover may, in some cases,
have adverse tax effects on the Funds and their shareholders. Portfolio turnover
rates are expected to be less than 90% per year for each of the Funds. An
explanation of turnover rate calculations and brokerage fees can be found in the
Funds' Statement of Additional Information.
4
<PAGE>
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
The purpose of the following table is to assist you in understanding the various
costs and expenses that an investor will bear directly or indirectly. You should
be aware that this table is not intended to reflect in detail the fees and
expenses associated with an individual shareholder's investment in any of the
Funds or Classes listed. It is being provided to assist you in gaining a more
complete understanding of fees, charges, and expenses which are discussed in
greater detail in the appropriate sections of this Prospectus. See "HOW TO
PURCHASE SHARES" in this Prospectus. The example is also intended to provide a
means to compare expense levels of Funds and Classes with different fee
structures over varying investment periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Growth Fund, Income Fund,
and Triflex Fund
------------------------------------
Class A Class B Class C
<S> <C> <C> <C>
MAXIMUM SALES CHARGE (TOTAL) 5.75% 5.00% 2.00%
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 5.75%(1) None 1.00%
Maximum Deferred Sales Load
(as a percentage of offering price)(2) None(3) 5.00%(4) 1.00%(5)
Maximum Sales Load Imposed on Reinvested
Dividends
(as a percentage of offering price) None None None
EXCHANGE FEES None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a Percentage of Average Net Assets Before Fee Waivers and Expense
Reimbursements)
The "Management Fee," "Other Expenses," and "Total Annual Fund Operating
Expenses" shown below for the Funds are for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Growth Fund Income Fund
------------------------------------- -------------------------------------
Class A Class B Class C Class A Class B Class C
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Management Fee 0.60% 0.60% 0.60% 0.69% 0.69% 0.69%
Distribution and/or Service (12b-1) Fee 0.25% 0.75% 1.00% 0.25% 0.75% 1.00%
Other Expenses(6) 0.36% 0.36% 0.36% 0.36% 0.36% 0.36%
Total Annual Fund Operating Expenses(7) 1.21% 1.71% 1.96% 1.30% 1.80% 2.05%
</TABLE>
<TABLE>
<CAPTION>
Triflex Fund
-------------------------------------
Class A Class B Class C
----------- ----------- -----------
<S> <C> <C> <C>
Management Fee 0.75% 0.75% 0.75%
Distribution and/or Service (12b-1) Fee 0.25% 0.75% 1.00%
Other Expenses(6) 0.61% 0.61% 0.61%
Total Annual Fund Operating Expenses(7) 1.61% 2.11% 2.36%
</TABLE>
NOTES TO THE TABLE OF FEES AND EXPENSES
(1) A sales charge of 5.75% is imposed on initial investments in Class A shares
of less than $50,000. This sales charge is reduced at certain breakpoints,
as follows: 4.50% on initial investments of at least $50,000 but less than
$100,000;
5
<PAGE>
3.50% on initial investments of at least $100,000 but less than $250,000;
2.50% on initial investments of at least $250,000 but less than $500,000;
1.50% on initial investments of at least $500,000 but less than $1 million;
and zero on initial investments of $1 million or more.
(2) An $8.00 transaction fee is charged for each expedited wire redemption.
(3) During the first thirteen months after purchase of Class A shares, a
contingent deferred sales charge of 1.00% is assessed on any redemptions of
Class A shares that were purchased without an initial sales charge as part
of an investment of $1 million or more.
(4) The maximum 5.00% contingent deferred sales charge on Class B shares applies
to redemptions during the first year after purchase. The charge declines to
4.00% during the second year, 3.00% during the third year, 2.00% during the
fourth year, 1.00% during the fifth year, and zero during the sixth year and
thereafter.
(5) A contingent deferred sales charge of 1.00% is assessed on all redemptions
of Class C shares during the first thirteen months after purchase.
(6) "Other Expenses" include the Administrative Service Fee. Because Class A, B,
and C shares were not available prior to the date of this Prospectus, "Other
Expenses" for Class A, B, and C shares were based on the expenses and
average net assets of the Growth, Income, and Triflex Funds for the fiscal
year ended December 31, 1997.
(7) The Fee Table does not reflect any fees waived or expenses assumed either
contractually or voluntarily by SM&R for the Funds during the fiscal year
ended December 31, 1997. Pursuant to the Administrative Service Agreement,
SM&R has agreed to pay (or to reimburse) each Fund for regular operating
expenses (including the advisory fee and administrative fee, but not
including the 12b-1 fee or Class-specific expenses) in excess of 1.25% per
year of such Fund's average daily net assets. During the fiscal year ended
December 31, 1997, SM&R waived management fees of 0.10% for the Triflex
Fund.
EXAMPLE OF EXPENSES
These Examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
These Examples assume that you invest $10,000 in each Fund and applicable
Class thereof for the time periods indicated. These Examples also assume that
your investment has a 5% return each year and that the Fund's operating expenses
remain the same. Your actual costs may be higher or lower than shown.
You would pay the following expenses, based on these assumptions, if you
actually redeem all of your shares at the end of the period shown:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Growth Fund
Class A
Class B
Class C
Income Fund
Class A
Class B
Class C
Triflex Fund
Class A
Class B
Class C
</TABLE>
6
<PAGE>
However, you would pay the following expenses, based on these assumptions, if
you did not redeem your shares:
<TABLE>
<CAPTION>
Three Years Five Years Ten Years
<S> <C> <C> <C>
Growth Fund
Class A
Class B
Class C
Income Fund
Class A
Class B
Class C
Triflex Fund
Class A
Class B
Class C
</TABLE>
7
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH FUND, INC.
The following financial highlights table is intended to help you understand
the Growth Fund's financial performance for the past five years. Certain
information reflects financial results for a single Growth Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Growth Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares, but do not reflect any sales
loads that would be imposed on the purchase or sale of any shares. This
information is derived from the financial statements of the Growth Fund, which
for the year ended through December 31, 1997 have been audited by Tait, Weller &
Baker, independent auditors, whose report, along with the Growth Fund's
financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request. The information for
years ending December 31, 1996 and prior, has been audited by the Growth Fund's
former independent auditors. The information for the six month period ended June
30, 1998 was derived from unaudited financial statements of the Growth Fund. If
multiple classes of shares of the Growth Fund had been in existence during the
past five years, the financial performance of Class A, B, and C shares of the
Growth Fund would have been lower than depicted because of the imposition of
distribution and/or service (12b-1) fees.
<TABLE>
<CAPTION>
Six Month
Period
Ended
June 30, Year Ended December 31,
---------- --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 4.95 $ 4.39 $ 3.83 $ 4.15 $ 4.51
Income From Investment Operations
Net Investment Income 0.06 0.05 0.08 0.06 0.06
Net Realized and Unrealized Gain
(Loss) on Securities 1.03 0.73 0.88 0.15 0.31
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 1.09 0.78 0.96 0.21 0.37
Less Distributions
Dividends from Net Investment Income (0.06) (0.05) (0.08) (0.06) (0.06)
Distributions from Capital Gains (0.74) (0.17) (0.32) (0.47) (0.67)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.80) (0.22) (0.40) (0.53) (0.73)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period $ 5.24 $ 4.95 $ 4.39 $ 3.83 $ 4.15
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN %(1) 22.24% 17.64% 25.20% 4.98% 8.17%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $178,344 $152,758 $134,821 $113,250 $113,135
Ratio of Expenses to Average Net
Assets(2) .96 1.15 0.98 0.97 1.00
Ratio of Net Income to Average Net
Assets (2) 1.03 1.02 1.67 1.46 1.31
Portfolio Turnover Rate 46.79 18.72 37.00 46.26 59.67
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
8
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME FUND, INC.
The following financial highlights table is intended to help you understand
the Income Fund's financial performance for the past five years. Certain
information reflects financial results for a single Income Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Income Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares, but do not reflect any sales
loads that would be imposed on the purchase or sale of any shares. This
information is derived from the financial statements of the Income Fund, which
for the year ended through December 31, 1997 have been audited by Tait, Weller &
Baker, independent auditors, whose report, along with the Income Fund's
financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request. The information for
years ending December 31, 1996 and prior, has been audited by the Income Fund's
former independent auditors. The information for the six month period ended June
30, 1998 was derived from unaudited financial statements of the Income Fund. If
multiple classes of shares of the Income Fund had been in existence during the
past five years, the financial performance of Class A, B, and C shares of the
Income Fund would have been lower than depicted because of the imposition of
distribution and/or service (12b-1) fees.
<TABLE>
<CAPTION>
Six Month
Period
Ended
June 30, Year Ended December 31,
---------- --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 25.05 $ 22.59 $ 18.90 $ 21.66 $ 22.09
Income From Investment Operations
Net Investment Income 0.63 0.58 0.62 0.62 0.56
Net Realized and Unrealized Gain
(Loss) on Securities 4.96 3.10 4.82 (0.75) 1.75
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 5.59 3.68 5.44 (0.13) 2.31
Less Distributions
Dividends from Net Investment Income (0.64) (0.58) (0.63) (0.61) (0.60)
Distributions from Capital Gains (3.01) (0.64) (1.12) (2.02) (2.14)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (3.65) (1.22) (1.75) (2.63) (2.74)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period $ 26.99 $ 25.05 $ 22.59 $ 18.90 $ 21.66
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN %(1) 22.72% 16.46% 29.12% (0.61)% 10.63%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $198,687 $165,786 $141,058 $114,231 $119,956
Ratio of Expenses to Average Net Assets (2) 1.05 1.10 1.12 1.12 1.17
Ratio of Net Income to Average Net
Assets (2) 2.28 2.42 2.89 2.86 2.51
Portfolio Turnover Rate 39.14 27.07 44.00 52.46 70.71
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
9
<PAGE>
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC.
The following financial highlights table is intended to help you understand
the Triflex Fund's financial performance for the past five years. Certain
information reflects financial results for a single Triflex Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Triflex Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares, but do not reflect any sales
loads that would be imposed on the purchase or sale of any shares. This
information is derived from the financial statements of the Triflex Fund, which
for the year ended through December 31, 1997 have been audited by Tait, Weller &
Baker, independent auditors, whose report, along with the Triflex Fund's
financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request. The information for
years ending December 31, 1996 and prior, has been audited by the Triflex Fund's
former independent auditors. The information for the six month period ended June
30, 1998 was derived from unaudited financial statements of the Triflex Fund. If
multiple classes of shares of the Triflex Fund had been in existence during the
past five years, the financial performance of Class A, B, and C shares of the
Triflex Fund would have been lower than depicted because of the imposition of
distribution and/or service (12b-1) fees.
<TABLE>
<CAPTION>
SIX MONTH
PERIOD
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------- ---------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 17.90 $ 16.85 $ 14.32 $ 15.35 $ 15.81
Income From Investment Operations
Net Investment Income 0.57 0.49 0.49 0.45 0.41
Net Realized and Unrealized Gain
(Loss) on Securities 2.50 1.48 2.67 (0.22) 0.58
--------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 3.07 1.97 3.16 0.23 0.99
Less Distributions
Dividends from Net Investment Income (0.59) (0.49) (0.49) (0.45) (0.41)
Distributions from Capital Gains (2.06) (0.43) (0.14) (0.81) (1.04)
--------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.65) (0.92) (0.63) (1.26) (1.45)
--------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period $ 18.32 $ 17.90 $ 16.85 $ 14.32 $ 15.35
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 17.46% 11.86% 22.29% 1.49% 6.31%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $25,838 $23,188 $21,757 $19,023 $20,469
Ratio of Expenses to Average Net
Assets(3) (2) 1.26 1.21 1.26 1.25" 1.32
Ratio of Net Income to Average Net
Assets (2) 3.02 2.83 2.99 2.91 2.49
Portfolio Turnover Rate 27.52 23.78 16.39 46.95 70.98
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
(3) Expenses for these calculations are net of a reimbursement from Securities
Management and Research, Inc. Without these reimbursements, the ratio of
expenses to average net assets would have been 1.36%, 1.34%, 1.46%, 1.45%,
and 1.39% for the years ended December 31, 1997, 1996, 1995, 1994, and 1993,
respectively.
10
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds have different investment objectives which it pursues
through the investment policies and techniques described below. These policies
and techniques are not fundamental and may be changed by the Board of Directors
of a Fund without shareholder approval. Each Fund has adopted certain
restrictions as fundamental policies which will not be changed unless approved
by the vote, at a special meeting of stockholders, of (i) 67% of the shares
present at a meeting, at which more than 50% of each Fund's outstanding shares
are present or represented by proxy, or (ii) more than 50% of each Fund's
outstanding shares. Each Fund's investment restrictions adopted as fundamental
policies are stated in the Funds' Statement of Additional Information.
AMERICAN NATIONAL GROWTH FUND, INC.
The Growth Fund seeks long-term capital growth by investing its assets in
securities that provide an opportunity for capital appreciation. The Growth Fund
is designed for investors who want to build capital over time to meet long-range
goals.
The Growth Fund's portfolio investments and the composition of its total
portfolio are considered from the viewpoint of potential capital appreciation.
This composition will be adjusted from time to time to best accomplish its
investment objective under current conditions. In pursuing its objective, the
Growth Fund will invest primarily in common stocks selected in accordance with
its investment objective.
The Growth Fund may invest in convertible preferred stocks rated at least "B"
by Standard and Poor's Corporation ("S&P") or at least "b" by Moody's Investors
Service, Inc. ("Moody's") preferred stock ratings, and convertible debentures
and notes rated at least "B" by S&P's and Moody's corporate bond ratings
("convertible securities"). Investments in convertible securities having these
ratings may involve greater risks than convertible securities having higher
ratings. Common stocks and convertible securities purchased will be of companies
which are believed by SM&R to provide an opportunity for capital appreciation.
The proportion of assets invested in any particular type of security can be
expected to vary, depending on SM&R's appraisal of market and economic
conditions. Under normal conditions at least 50% of the Growth Fund's total
assets will be invested in common stocks. On a temporary basis, the Growth Fund
may invest in commercial paper which at the date of such investment, is rated in
one of the two top categories by one or more of the nationally recognized
statistical rating organizations ("NRSRO's"), in certificates of deposit in
domestic banks and savings institutions having at least $1 billion of total
assets, and in repurchase agreements which are discussed under "Other Investment
Strategies."
AMERICAN NATIONAL INCOME FUND, INC.
The Income Fund seeks current income with a secondary objective of long-term
capital appreciation. The Income Fund is designed for investors seeking to
protect the purchasing power of their money while retaining the potential for
growth and reducing their exposure to the volatility of the market.
The Income Fund's portfolio investments and the composition of its total
portfolio are considered not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. This
composition of portfolio investments will be adjusted from time to time to best
accomplish its investment objectives under current conditions.
In pursuit of its objectives, the Income Fund will invest in common stocks,
preferred stocks and marketable debt securities selected in accordance with the
Income Fund's investment objectives. Common and preferred stocks purchased will
generally be of companies with consistent and increasing dividend payment
histories which are believed by SM&R to have further earnings potential
sufficient to continue such dividend payments. Debt securities will include
publicly traded corporate bonds, debentures, notes, commercial paper, repurchase
agreements, and certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets. The proportion of
assets invested in any particular type of security can be expected to vary,
11
<PAGE>
depending on SM&R's appraisal of market and economic conditions. Under normal
conditions at least 50% of the Income Fund's assets will be invested in equity
securities rather than debt securities.
Corporate debt obligations purchased by the Income Fund will consist only of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above.
TRIFLEX FUND, INC.
The Triflex Fund seeks to conserve principal, produce current income, and
achieve long-term capital appreciation. The Triflex Fund is designed for
investors seeking income and conservation of the purchasing power of their
capital.
The Triflex Fund seeks to achieve its objectives by flexibly managing a
balanced portfolio of fixed-income securities such as bonds, commercial paper,
preferred stock and short-term obligations combined with common stocks and
securities convertible into common stocks. The Triflex Fund will only purchase
common stocks and convertible securities of corporations having a market
capitalization of at least $100 million, an operating history of at least three
(3) years, and a listing on the New York Stock Exchange, American Stock Exchange
or Over-The-Counter markets. Corporate bonds purchased will consist of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above. The
Triflex Fund may also invest in repurchase agreements. This balanced investment
policy is intended to reduce risk and to obtain results in keeping with the
Triflex Fund's objectives.
The Triflex Fund's investments will be in fixed-income securities and equity
securities as described above. However, the Triflex Fund will sometimes be more
heavily invested in equity securities and at other times it will be more heavily
invested in fixed-income securities, depending on management's appraisal of
market and economic conditions. SM&R believes that a fund that is wholly
invested in fixed-income securities carries a large interest rate risk. Interest
rate risk is the uncertainty about losses due to changes in the rate of interest
on debt instruments. The major interest rate risk for investors, however, is not
in the interest rate itself, but in the change in the market price of bonds that
results from changes in the prevailing interest rate. Higher interest rates
would mean lower bond prices and lower net asset value for the Triflex Fund's
shareholders assuming no change in its current investment objective and
portfolio. Diversifying the Triflex Fund's portfolio with investments such as
commercial paper, convertible securities and common stocks may reduce the
decline in value attributable to the increase in interest rate and resulting
decrease in the market value of bonds and may reduce the interest rate risk.
However, stock prices also fluctuate in response to a number of factors,
including, changes in general level of interest rates, economic and political
developments and other factors which impact individual companies or specific
types of companies. Such market risks cannot be avoided but can be limited
through a program of diversification and a careful and consistent evaluation of
trends in the capital market and fundamental analysis of individual equity
holdings.
The Triflex Fund's goal of preservation of capital while owning common stocks
is dependent upon various factors, including the sustained long-term growth of
the United States economy. SM&R recognizes that recessions occur but also
recognizes that the economy historically has come back from those recessions.
Therefore, SM&R believes that the United States economy will continue to grow,
that
12
<PAGE>
the political environment will continue to be relatively stable and that the
financial markets will continue to function in a reasonably orderly fashion. As
long as these factors occur, SM&R believes that there is a reasonable likelihood
the Triflex Fund can reach its goal of preservation of capital while at the same
time investing in common stock.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity holding consistent with SM&R's outlook and
evaluation of trends in the economy and the financial markets. The Triflex
Fund's level of commitment to common stocks and specific common stock
investments will be determined as a result of this process. For example, within
an environment of rising inflation, common stocks historically have preserved
their value better than bonds; therefore, inclusion of common stocks could tend
to conserve principal better than a portfolio consisting entirely of bonds and
other debt obligations. In addition, within an environment of accelerating
growth in the economy, common stocks historically have conserved their value
better than bonds in part due to a rise in interest rates that occur
coincidentally with accelerating growth and profitability of the companies.
The Triflex Fund will not purchase a security if as a result of such purchase
less than 25% of its total assets will be in fixed-income senior securities
(including short and long-term securities, preferred stocks and convertible debt
securities and preferred stocks to the extent their value is attributable to
their fixed-income characteristics).
OTHER INVESTMENT STRATEGIES
Each Fund, consistent with its objectives and policies, may employ one or more
of the following strategies to enhance investment results.
COMMERCIAL PAPER. Commercial paper is short-term unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. The Funds will not invest in variable amount master
demand notes.
REPURCHASE AGREEMENTS. Each Fund may occasionally purchase repurchase
agreements in which a Fund purchases a U.S. government security subject to
resale to a bank or dealer at an agreed upon price and date. These repurchase
agreements will be entered into only with government securities dealers
recognized by the Federal Reserve Board or with member banks of the Federal
Reserve System. During the holding period, the seller must provide additional
collateral if the market value of the obligation falls below the repurchase
price. The custodian for the Fund purchasing such agreement will take title to,
or actual delivery of the security. A default by the seller might cause a Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Fund might also incur disposition costs in liquidating
the collateral. The Funds will purchase only repurchase agreements maturing in
seven (7) days or less of such purchase.
CERTIFICATE OF DEPOSIT. A certificate of deposit is generally a short-term,
interest-bearing negotiable certificate issued by a commercial bank or savings
and loan association against funds deposited in the issuing institution. The
interest rate may be fixed for the stated term or may be periodically adjusted
prior to the instrument's stated maturity, based upon a specified market rate. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction to finance
the import, export, transfer or storage of goods. The borrower is liable for
payment, as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have maturities
of six months or less and are traded in secondary markets prior to maturity.
Savings and loan associations whose certificates of deposit may be purchased
by the Funds are subject to regulation and examination by the Office of Thrift
Supervision. Such certificates of deposit held by the Funds do not benefit
materially from insurance from the Federal Deposit Insurance Corporation.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). ADRs are U.S. dollar-denominated
securities of foreign corporations which are traded in the U.S. on national
securities exchanges or over-the-counter and are issued by domestic banks. The
banks act as
13
<PAGE>
custodian of the shares of the foreign stock and collect dividends on the stock
which are either reinvested or distributed to the ADR holder in U.S. dollars.
While ADRs are not considered foreign securities, they may entail certain
political, economic and regulatory risks. Such risks may include political or
social instability, excessive taxation and limitations on the removal of funds
or other assets which could adversely affect the value of a Fund's investments.
The economies of many countries in which a Fund may invest may not be as
developed as the U.S. economy and may be subject to significantly different
forces. Foreign companies are not registered with the commission and are not
generally subject to the regulatory controls imposed on U.S. issuers.
Consequently, there is generally less public information available on foreign
securities. Foreign companies are not subject to uniform accounting, auditing,
and financial reporting standards. Income from foreign securities owned may be
reduced by a withholding tax at the source, which tax would reduce income
payable to a Fund's shareholders.
These strategies and other investment restrictions are more fully discussed in
the Funds' Statement of Additional Information under "INVESTMENT OBJECTIVES AND
POLICIES."
THE FUNDS AND THEIR MANAGEMENT
The Funds were originally incorporated as follows: Growth Fund, State of
Florida, May 5, 1953; Income Fund, State of Texas, May 1, 1970 and the Triflex
Fund, State of Texas, November 20, 1987. The Funds were subsequently
reincorporated in the State of Maryland on November 30, 1989. They are
diversified, open-end management investment companies (I.E., mutual funds).
A Board consisting of seven directors has overall responsibility for
overseeing the affairs of each Fund in a manner reasonably believed to be in the
best interest of each Fund. The Boards have delegated to SM&R, the adviser, the
management of each Fund's day to day business and affairs. In addition, SM&R
invests each Fund's assets, provides administrative services and serves as
transfer agent, dividend payment agent and underwriter. While the use of this
combined Prospectus subjects each Fund to possible liability as the result of
statements or omissions regarding another Fund, the Board of Directors of each
Fund considers the benefits to the respective Fund of using a combined
Prospectus to outweigh the risk.
SM&R, is a wholly-owned subsidiary of American National Insurance Company
("American National"). The Moody Foundation, a private foundation, owns
approximately 23.7% of American National's common stock and the Libbie Shearn
Moody Trust, a private trust for which the Moody National Bank acts as trustee,
owns approximately 37.6% of such shares. SM&R was incorporated in 1964 and has
managed investment companies since 1966. SM&R is also investment adviser to
American National, a Texas insurance company having its principal office in
Galveston, Texas; American National Investment Accounts, Inc., an investment
company used to fund benefits under variable contracts issued by American
National; SM&R Investments, Inc., an investment company consisting of four
investment portfolios (SM&R Investments, Inc. and the American National Funds
Group are collectively referred to in this Prospectus as the "SM&R Family of
Funds"); and for the Moody National Bank of Galveston (the "Bank"), a national
bank. SM&R may, from time to time, serve as investment adviser to other clients
including banks, employee benefit plans, other investment companies, foundations
and endowment funds.
As of September , 1998, SM&R and its parent, American National Insurance
Company, owned [ %] and [ %], respectively of the outstanding shares
of the Growth Fund; [ %] and [ ]%, respectively of the Income Fund;
[ %] and [ %], respectively of the Triflex Fund. American National and
SM&R reserve the right to vote these shares as they deem appropriate.
The following persons are affiliated with SM&R and the Funds as officers:
Michael W. McCroskey, Gordon D. Dixon, Emerson V. Unger, Teresa E. Axelson and
Brenda T. Koelemay.
14
<PAGE>
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in
providing investment advisory services to the Funds. While the following
individuals are primarily responsible for the day-to-day portfolio management of
their respective Fund, all accounts are reviewed on a regular basis by SM&R's
Investment Committee to ensure that they are being invested in accordance with
investment policies.
GORDON D. DIXON, DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER OF
SECURITIES MANAGEMENT AND RESEARCH, INC., VICE PRESIDENT, PORTFOLIO MANAGER OF
THE GROWTH FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Dixon joined Securities
Management and Research, Inc. in 1993. He graduated from the University of South
Dakota with a B.A. in Finance and Accounting and from Northwestern University in
1972 with an M.B.A in Finance and Accounting. Mr. Dixon began his investment
career in 1972 as an Administrative and Research Manager with Penmark
Investments. In 1979 he began working for American Airlines in the management of
the $600 million American Airlines Pension Portfolio, of which approximately
$100 million was equities. In 1984 he was employed by C&S/ Sovran Bank in
Atlanta, Georgia as Director of Equity Strategy where he had responsibility for
all research, equity trading and quantitative services groups as well as
investment policy input of a portfolio of approximately $7 billion, of which
$3.5 billion was equities.
WILLIAM R. BERGER, C.F.A., VICE PRESIDENT, PORTFOLIO MANAGER OF THE TRIFLEX
FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Berger joined Securities Management
and Research, Inc. in 1993. He graduated from Miami University, Oxford, Ohio in
1985 with a B.S. with Honors in Accounting and Finance and from The Wharton
School, University of Pennsylvania in 1988 with an M.B.A. in Finance and
Investment Management. Mr. Berger began his investment career in 1989 with
Trinity Investment Management Corporation as an equity and balanced portfolio
manager for various discretionary accounts worth more than $80 million for
corporate, endowment, religious and public funds. Prior to joining Trinity
Investment Management Corporation Mr. Berger was a Senior Auditor for Coopers &
Lybrand. Mr. Berger is a Chartered Financial Analyst and a Certified Public
Accountant.
ADVISORY AGREEMENTS
GROWTH FUND. Under the Growth Fund's Investment Advisory Agreement, dated
November 30, 1989, SM&R receives a basic advisory fee (the "Basic Advisory Fee")
which is adjusted for an upward or downward movement in the investment
performance during the previous thirty-six (36) monthly periods of the Fund as
compared to the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. This Basic Advisory Fee is computed each month
by applying to the average daily net asset value of the Fund (computed by adding
the daily net asset values for the month and dividing the resulting total by the
number of days in the month) one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
The Basic Advisory Fee annual rate is adjusted each month by adding to or
subtracting from such rate, when appropriate, the applicable performance
adjustment amount percentage shown in the table below. The resulting advisory
fee rate is then applied to the average daily net asset value of the Fund for
the succeeding month. The advisory fee for such month will be one-twelfth
(1/12th) of the resulting dollar figure.
15
<PAGE>
The performance adjustment amount will vary with the Fund's performance as
compared to the Lipper Index as shown by the following table:
<TABLE>
<CAPTION>
Performance
Compared To Lipper Performance
Index Adjustment Amount
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
<CAPTION>
Performance
Compared To Lipper Performance
Index Adjustment Amount
<S> <C>
0.10% to 0.99% below -0.02%
1.00% to 1.99% below -0.04%
2.00% to 2.99% below -0.06%
3.00% to 3.99% below -0.08%
4.00% to 4.99% below -0.10%
5.00% to 5.99% below -0.12%
6.00% to 6.99% below -0.14%
7.00% to 7.99% below -0.16%
8.00% to 8.99% below -0.18%
9.00% and below -0.20%
</TABLE>
See "INVESTMENT ADVISORY AND OTHER SERVICES" in the Funds' Statement of
Additional Information for a more detailed description of the method used in
calculating the performance adjustment. See Appendix B for a description of
these ratings
INCOME FUND AND TRIFLEX FUND. Under the Income and Triflex Funds' Investment
Advisory Agreements dated November 30, 1989, SM&R receives from each Fund an
investment advisory fee computed by applying to the average daily net asset
value of each Fund each month one-twelfth (1/12th) of the annual rate as
follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
As compensation for its services, SM&R is paid an investment advisory fee,
which is calculated as indicated above for each Fund. SM&R received total
advisory fees from the Growth, Income, and Triflex Funds for the fiscal year
ended December 31, 1997 which represented .60%, .69%, and .75%, respectively, of
each Fund's average daily net assets. The ratio of total expenses to average net
assets for each Fund for the same period are .96%, 1.05%, and 1.26%,
respectively.
The fees payable under each Fund's Investment Advisory Agreement may be higher
than the fees paid by other mutual funds, but each Fund believes its fees are
comparable to those paid by funds with the same or similar investment objective.
Consistent with the Conduct Rules (formerly the Rules of Fair Practice) of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Funds may give consideration to sales of their shares
as a factor in the selection of brokers and dealers to execute each Fund's
portfolio transactions when it is believed by SM&R that this can be done without
causing the Funds to pay more in brokerage commissions than they would
otherwise.
16
<PAGE>
ADMINISTRATIVE SERVICE AGREEMENTS
The administrative service agreements with the Funds provide for payment of an
administrative service fee to SM&R which is computed by applying to the average
daily net asset value of each Fund each month one-twelfth of the annual rate as
follows:
<TABLE>
<CAPTION>
Administrative
On the Portion of the Fund's Service
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</TABLE>
SM&R received total administrative service fees from the Growth, Income, and
Triflex Funds for the fiscal year ended December 31, 1997 which represented
[ ]%, [ ]%, and [ ]%, respectively, of each Fund's average daily
net assets.
SM&R has agreed in each Fund's administrative service agreement to pay (or to
reimburse each Fund for) the Fund's regular operating expenses (including the
advisory fee and administrative service fee, if any, paid to SM&R, but exclusive
of "12b-1 fees," Class-specific expenses, interest, taxes, commissions and other
expenses incidental to portfolio transactions) in excess of 1.25% per year of
each Fund's average daily net assets. (See "Administrative Service Agreement" in
the Funds' Statement of Additional Information for the fees paid by the Funds
thereunder.)
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Funds adopted a Distribution and Shareholder Servicing Plan (the "12b-1
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Class A, Class B, Class
C, and Class J shares of the Funds. In connection with Classes A, B, and C (the
"12b-1 Classes"), the 12b-1 Plan provides that SM&R will provide distribution
and/or shareholder services.
For each 12b-1 Class, SM&R is entitled to receive a Distribution Fee and/or
Service Fee, as applicable, computed as an annual percentage of the value of the
average daily net assets of the Fund attributable to that Class, as follows:
<TABLE>
<CAPTION>
Distribution Service Total 12b-1
Class Fee(1) Fee(1) Fee
- ----------------------------------------------------------------- ------------- ----------- -------------
<S> <C> <C> <C>
Class A Shares: Front-End Load -0- 0.25% 0.25%
Class B Shares: Back-End Load (CDSC) 0.50% 0.25% 0.75%
Class C Shares: Level Load 0.75% 0.25% 1.00%
</TABLE>
- ------------------------
(1) The Distribution Fee and/or Service Fee, as applicable, to be paid under
the 12b-1 Plan will be calculated daily (as a percentage of average daily
net assets) and paid periodically.
The purpose of the Distribution Fee is to compensate SM&R, or enable SM&R to
compensate other persons, including any distributor of shares of the 12b-1
Classes, for services that are primarily intended to result in or primarily
attributable to the sale of the 12b-1 Classes ("Selling Services"). The purpose
of the Service Fee is to compensate SM&R, or enable SM&R to compensate other
persons, for providing ongoing servicing to shareholders of the Funds
("Shareholder Services").
"Selling Services" include the training and supervision of sales personnel;
advertising, marketing, and other promotional expenses, including the costs of
preparing and printing sales literature; printing prospectuses and statements of
additional information and distributing them to prospective investors in 12b-1
Classes; and distributing shares of the 12b-1 Classes. Payments for Selling
Services may include payment for overhead and other office expenses that are
related to the distribution of the 12b-1 Classes. SM&R also may reimburse the
expenses of persons who provide support services in connection with the
distribution of the 12b-1 Classes, and may make payments to financial
intermediaries that sell shares of the 12b-1 Classes.
17
<PAGE>
"Shareholder Services" include all forms of shareholder liaison services that
SM&R deems appropriate, including maintaining shareholder accounts, providing
shareholder liaison services, responding to customer inquiries, and providing
shareholders with information on their investments and about the 12b-1 Classes.
HOW TO PURCHASE SHARES
You may purchase shares of the Funds from registered representatives of SM&R,
from authorized broker-dealers, or directly from SM&R. Such purchases will be at
the offering price for such shares determined as provided under the caption
"DETERMINATION OF OFFERING PRICE" in this Prospectus. SM&R will send you a
monthly confirmation for any month in which your account is active. You should
carefully review the monthly confirmation and promptly report any discrepancies
to SM&R. You may make initial and subsequent purchases directly through SM&R at
the following address:
Securities Management and Research, Inc.,
One Moody Plaza, 14th Floor
Galveston, Texas 77550
Each Fund's shares of authorized capital stock are all common stock, are
nonassessable and fully transferable, and each has one vote.
Certificates are not normally issued for shares of the Funds in an effort to
minimize the risk of loss or theft. However, SM&R confirms investors' purchases
and credits such purchases to their accounts on the books maintained by SM&R.
Investors have the same rights of share ownership as they would if certificates
had been issued. Furthermore, a lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond
is borne by the investor and can be 2% or more of the value of the lost, stolen
or destroyed certificate.
OPENING AN ACCOUNT
For initial purchases, you must submit an account application (the "Account
Application"), which includes the purchaser suitability form (the "Suitability
Form"). If you would like to take advantage of the electronic services
available, please complete the Special Investor Services section of the Account
Application. Special forms are required when establishing an IRA/SEP or 403(b)
plan. Please call Investor Services at (800) 231-4639 and request the special
forms when establishing retirement plans. Keep in mind when opening an account
that transactions by telephone between different accounts will only be permitted
if the accounts are registered in the identical name.
PURCHASE AMOUNTS
The minimum initial purchase amount for each Fund is $100 and $20 for
subsequent purchases (except certain systematic investment programs, see
"SPECIAL PURCHASE PLANS AND SERVICES" for additional information on reduction of
the minimums). The Funds reserve the right to reject any purchase.
PURCHASES BY MAIL
Make your check(s) payable to SM&R and send the check to the address indicated
above. Please note that third party checks will not be accepted to open a new
account, except for IRA Rollover checks that are properly endorsed. If you make
subsequent investments by mail, you must indicate your name, account number, and
the name of the Class(es) and Fund(s) being purchased. You may use the
remittance slip attached to the confirmation statement.
PURCHASES BY WIRE
To ensure proper crediting of a wire investment, you must have an executed
Account Application (including the Special Investor Services section) and
Suitability Form on file with the transfer agent. You may then wire your
investment by providing the following instructions to your bank:
The Moody National Bank of Galveston
ABA #113100091
Securities Management and Research, Inc.
#035 868 9
Name of Class and Fund (E.G., Class A of the Growth Fund)
Fund Account Number (number appears on your confirmation statement)
Investor's Name (E.G., Mary Smith, IRA)
18
<PAGE>
If wires are received after 3:00 p.m. Central Time or during a Bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day.
PURCHASES BY EXCHANGE
Call Investor Services if you have established telephone exchange privileges
on your account. See "SPECIAL PLANS AND SERVICES-Exchange Privilege" for
procedures and additional information relating to telephone exchanges. For
limitations on exchanges, see "Excessive Trading" also under "SPECIAL PLANS AND
SERVICES."
IMPORTANT: The Funds reserve the right to (1) refuse to open an account for
any person failing to provide a taxpayer identification number, certified as
correct and (2) close an account by redeeming its shares in full, at the then
current net asset value upon receipt of notice from the IRS that the taxpayer
identification number certified as correct by the shareholder is in fact
incorrect.
WHEN ARE PURCHASES EFFECTIVE?
Purchases received in proper form by SM&R prior to the close of the New York
Stock Exchange (currently 3:00 p.m. Central Time) (the "Exchange") on any SM&R
business day, or received prior thereto on any SM&R business day by a securities
dealer having a dealer contract with SM&R and reported to SM&R prior to SM&R's
close of business (currently 4:30 p.m. Central Time) on the same day, will be
effective and executed at the applicable Offering Price determined at the close
of the Exchange on that day. It is the responsibility of any such dealer, and
not SM&R, to establish procedures to assure that purchases received before the
close of the Exchange on an SM&R business day will be reported to SM&R before
SM&R's close of business on that same day. Purchases received after the close of
the Exchange, or customary national business holidays, or on an SM&R holiday
will be effective upon and made at the Offering Price determined as of the close
of the Exchange on SM&R's next business day that such Exchange is open for
trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange or on an
SM&R holiday, will be effective on and made at the Offering Price determined on
SM&R's next business day. Procedures for transmitting Federal Funds by wire are
available at any national bank, or any state bank which is a member of the
Federal Reserve System.
SM&R's business holidays are Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day, two (2) days
at Christmas and New Years Day. If Christmas Day is a weekday other than Monday,
Christmas Day and Christmas Eve Day are business holidays. If Christmas Day is
Monday, Christmas Day and the preceding Friday will be business holidays. If
Christmas Day is a Saturday, the preceding Thursday and Friday will be business
holidays. If Christmas Day is a Sunday, the preceding Friday and the following
Monday will be business holidays. If New Years Day is a Saturday the preceding
Friday will be a business holiday and if New Years Day is a Sunday, the
following Monday will be a business holiday. For calendar year 1998,
Independence Day will be observed on July 3, 1998.
DETERMINATION OF OFFERING PRICE
The offering price of each Fund's shares is equal to the net asset value of
such shares plus a sales charge, if any, computed at the rates set forth in the
applicable tables for the Classes below. Net asset value per share is determined
by dividing the market value of the securities owned by each Class of each Fund,
plus any cash or other assets (including dividends accrued but not collected),
less all liabilities (including accrued expenses but excluding capital and
surplus), by the number of shares outstanding of each Class. Net asset value is
currently determined as of 3:00 p.m. Central Time on each business day. Although
the legal rights of the Classes of the Funds are substantially identical, the
different expenses borne by each Class will result in different net asset values
and dividends for each Class.
19
<PAGE>
For a more complete description of the procedures involved in valuing various
Fund assets, see "Offering Price" in the Funds' Statement of Additional
Information.
MULTIPLE CLASS STRUCTURE
The Funds each offer six classes of shares, including Class T shares (existing
shareholders), Class A shares, Class B shares, Class C shares, Class Y shares
(institutional shareholders), and Class J shares (network). You are encouraged
to consider all of the Funds' class alternatives and choose the one that fits
your individual circumstances at the lowest level of fees. FOR MORE INFORMATION
ON THE OTHER CLASSES OF SHARES OR TO REQUEST A PROSPECTUS FOR ANOTHER CLASS,
INVESTORS MAY CONTACT INVESTOR SERVICES AT (800) 231-4639.
Class A, B, and C shares are offered in this Prospectus. These Classes allow
you to choose a sales charge structure that best suits your circumstances and
preferences. You may purchase shares at the next determined net asset value
plus, at your election, (i) a sales charge imposed at the time of purchase (the
Class A "front-end load" shares); (ii) a contingent deferred sales charge and an
annual distribution fee (the Class B "back-end load" shares), or (iii) an
initial sales charge and an annual distribution fee and a 1.00% redemption fee
during the first 13 months (the Class C "level load" shares).
The Funds' other three classes of shares are offered through separate
prospectuses. Class T shares are sold only to investors that became shareholders
of the Funds prior to September , 1998 and to certain persons designated
from time to time in the prospectus for the Class T shares. Class Y shares are
offered to certain institutional shareholders, as set forth from time to time in
the prospectus for the Class Y shares. Class J shares are offered pursuant to
special "network" distribution arrangements that are set forth in the prospectus
for the Class J shares. Class T, Y, and J shares are subject to different sales
charges and other expenses. Accordingly, Class T, Y, and J shares each will have
an expense ratio and performance that differs from those of the Funds' other
classes.
Each Class of shares of a Fund represents an interest in the same portfolio of
investments and each Class has the same rights as the other Classes, except that
each Class bears its own expenses. The net income attributable to each Class and
the dividends payable on the shares of that Class will be reduced by the amount
of the service and distribution (12b-1) fees of that Class. Class B and Class C
shares are subject to higher distribution fees, which will cause such Classes to
have a higher expense ratio and pay lower dividends than the Class A shares.
Class A Shares (Front-End Load): Class A shares are subject to an initial
sales charge of up to 5.75% of the public offering price and an annual 12b-1 fee
of 0.25% of the average daily net assets of the Class A shares. Purchasers of
Class A shares may qualify for a reduction or waiver of initial sales charges,
as set forth in the chart below and under "Reduction and/or Waiver of Initial
Sales Charges." If you invest $1 million or more in Class A shares, there is no
initial sales charge, but such shares will be subject to a contingent deferred
sales charge ("CDSC") of 1.00% of the offering price on redemptions within 13
months of purchase.
20
<PAGE>
The offering price of Class A shares is the next determined net asset value
plus a sales charge (calculated as a percentage of the offering price) shown in
the following table:
<TABLE>
<CAPTION>
Discount to Selected
Sales Charge Sales Charge Dealers
as a Percentage of as a Percentage of as a Percentage of
Amount of Investment Offering Price* Net Amount Invested Offering Price*
- --------------------------------------------------- ------------------ ------------------- ---------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% 6.1% 4.75%
$50,000 but less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 but less than $100,000,000 1.5% [ ] 1.00%
$1,000,000 and over None** None None
</TABLE>
- ------------------------------
* For Class A shares, SM&R may, in certain circumstances, provide compensation
(from its own profits and resources) to broker-dealers in addition to these
discounts. (See "OTHER INFORMATION CONCERNING THE FUNDS-Special Payments to
Broker-Dealers.")
** Subject to a CDSC of 1.00% on shares redeemed within 13 months of purchase.
Class B Shares (Back-End Load): An investor pays no initial sales charge upon
the purchase of Class B shares, but such shares are subject to a CDSC that
declines from 5.00% to zero, calculated as a percentage of the amount invested,
imposed on redemptions made within five years of purchase. Class B shares are
subject to an annual 12b-1 fee of 0.75% of the average daily net asset value of
the Class B shares.
Class B shares are sold at net asset value subject to a CDSC (expressed as a
percentage of the offering price) shown in the following table:
<TABLE>
<CAPTION>
Contingent Deferred Sales Charge
Years Since Purchase (as a percentage of offering price)
- ---------------------------------------------- -----------------------------------
<S> <C>
Year 1 5%
Year 2 4%
Year 3 3%
Year 4 2%
Year 5 1%
Year 6+ 0%
</TABLE>
If the net asset value of shares being redeemed has increased above the
initial purchase price, no CDSC is imposed on amounts attributable to such
increase in net asset value. No CDSC is assessed on shares derived from
reinvestment of dividends or capital gain distributions. The Funds will minimize
any applicable CDSC payable by assuming that an investor (i) first redeems Class
B shares owned through reinvested dividends and capital gains distributions, and
(ii) next redeems Class B shares held the longest.
Class B shares convert automatically to the appropriate number of Class A
shares of equal dollar value after the investor has owned the Class B shares for
eight (8) years. Dividends and other distributions paid to an investor in the
form of additional Class B shares also will convert to Class A shares on a
pro-rata basis. The conversion benefits shareholders because Class A shares are
subject to a lower ongoing 12b-1 fee. If an investor converts Class B shares of
a Fund for Class B shares of another fund in the SM&R Family of Funds, the
purchase date of the original investment will be used to determine the
appropriate conversion date.
Class C Shares (Level Load): A sales charge of 1.00% is assessed on initial
investments in Class C
21
<PAGE>
shares as a percentage of offering price. A contingent deferred sales charge of
1.00% is also assessed on redemptions of Class C shares during the first
thirteen months after purchase. Class C shares are subject to an annual 12b-1
fee of 1.00% of the average daily net asset value of the Class C shares.
REDUCTION AND/OR WAIVER OF INITIAL SALES CHARGES (CLASS A SHARES)
DISCOUNTS THROUGH CONCURRENT PURCHASES. To qualify for a reduced sales charge
on the Class A shares, you may combine concurrent purchases of Class A shares of
funds in the SM&R Family of Funds at the respective sales charges applicable to
each. Investors that are eligible to combine concurrent purchases to qualify for
a reduced sales charge include:
(1) Any individual;
(2) Any individual, his or her spouse, and trusts or custodial accounts for
their minor children;
(3) A trustee or fiduciary of a single trust estate or single fiduciary
account;
(4) Tax-exempt organizations specified in Sections 501(c)(3) or (13) of the
Internal Revenue Code, or employees' trusts, pension, profit-sharing, or other
employee benefit plans qualified under Section 401 of the Internal Revenue Code;
and
(5) Employees or employers on behalf of employees under any employee benefit
plan not qualified under Section 401 of the Internal Revenue Code.
Purchases by any "company" or employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the Fund will realize economies of scale in sales effort and
sales related expenses as a result of the employer's or the plan's bearing the
expense of any payroll deduction plan, making the Funds prospectus available to
individual investors or employees, forwarding investments by such employees to
the Funds, and the like.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION. If you already own Class T or Class
A shares of another fund in the SM&R Family of Funds, you may be able to receive
a discount when you buy additional shares. The offering value of the shares you
already own may be "accumulated" -I.E., combined together with the offering
value of the new shares you plan to buy--to achieve quantities eligible for
discount. See "SPECIAL PURCHASE PLANS" in the Statement of Additional
Information for further information about certain rules that apply when taking
advantage of the right of accumulation.
LETTER OF INTENT. You may qualify immediately for a reduced sales charge on
purchases of Class A shares of funds in the SM&R Family of Funds by completing
the Letter of Intent section of the Account Application. Under a Letter of
Intent, an investor expresses an intention to purchase, within 13 months of the
initial investment, a specified amount of Class A shares in the funds of the
SM&R Family of Funds which, if made concurrently, would qualify for a reduced
sales charge. Upon execution of the Letter of Intent, the investor must make a
minimum initial investment equal to ten percent (10%) of the amount necessary to
qualify for the applicable reduced sales charge. To assure that the full
applicable sales charge will be paid if the intended purchase is not completed,
five percent (5%) of the total intended purchase amount will be held in escrow
in shares of the funds of the SM&R Family of Funds registered in the investor's
name. Shares held in escrow under a Letter of Intent are not eligible for the
exchange privilege until the Letter of Intent is completed or canceled. A Letter
of Intent does not represent a binding obligation on the part of the investor to
purchase or the SM&R Family of Funds to sell the full amount of shares
specified. (See the Investor's Letter of Intent on the Account Application and
"SPECIAL PURCHASE PLANS" in the Statement of Additional Information.)
THE EDUCATION FUNDING INVESTMENT ACCOUNT PROGRAM. The following breakpoints
apply to purchases made by individuals investing in the Funds through the use of
The Education Funding Investment Account Program as well as the Education IRA.
22
<PAGE>
<TABLE>
<CAPTION>
Discount to Selected
Sales Charge as a Sales Charge as a Dealers as a
Percentage of Percentage of Net Percentage of
Amount of Investment Offering Price Amount Invested Offering Price*
- ----------------------------------------------------------- ----------------- ------------------- ---------------------
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over* None** None None
</TABLE>
* For Class A shares, SM&R may, in certain circumstances, provide compensation
(from its own profits and resources) to broker-dealers in addition to these
discounts. (See "OTHER INFORMATION CONCERNING THE FUNDS--Special Payments to
Broker-Dealers.")
** Subject to a CDSC of 1.00% on shares redeemed within 13 months of purchase.
The Education Funding Investment Account Program is a service expressly
created to help investors accumulate funds for their children's or
grandchildren's college education. The maximum sales charge is 4.5% on the
purchase of Class A shares of the Funds. To participate in this special plan,
investors must complete the special Education Funding Investment Account
application designed specifically for the Program.
Reduction and/or Waiver of Contingent Deferred Sales Charge (Class B Shares)
Contingent deferred sales charges on Class B shares will be waived on
redemptions:
(1) following the shareholder's (or in the case of joint accounts, all
registered joint owners') death or disability, as defined in Section 72(m)(7) of
the Internal Revenue Code (the "Code") (provided SM&R is notified of such death
or disability at the time of the redemption request and is provided with
satisfactory evidence of such death or disability);
(2) in connection with certain distributions from IRAs, custodial accounts
maintained pursuant to Code Section 403(b), and plans qualified under Code
Section 401 (collectively, "Retirement Plans"); or
(3) not exceeding 10% per year of the amount otherwise subject to the CDSC
(amounts not subject to a CDSC, such as appreciation and reinvested dividends,
are withdrawn first).
Waiver category (1) above applies only to redemptions:
(a) made within one year following death or initial determination of
disability; and
(b) of Class B shares held at the time of death or initial determination of
disability.
Waiver category (2) above applies only to redemptions resulting from:
(a) required minimum distributions to plan participants or beneficiaries who
are age 70 1/2 or older;
(b) in kind transfers of assets where the participant or beneficiary
notifies SM&R of such transfer no later than the time such transfer occurs;
(c) tax-free rollovers or transfers of assets to another Retirement Plan
invested in Class B shares of one or more funds in the SM&R Family of Funds;
(d) tax-free returns of excess contributions or returns of excess deferral
amounts; and
(e) distributions upon the death or disability (as defined in the Code) of
the participant or beneficiary.
FUND AND CLASS SPECIFIC EXPENSES
Expenses that are directly attributable to a particular Class of shares
("Class Specific Expenses") will be borne solely by that Class. Class Specific
Expenses include: (1) asset-based distribution fees and shareholder service
fees; (2) transfer agency fees attributable to a particular Class; (3) expenses
related to preparing, printing, mailing, and distributing materials such as
shareholder reports, prospectuses, and proxy statements to current
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shareholders of a specific Class; (4) state and federal registration fees
incurred by a specific Class; (5) litigation and other legal expenses relating
to a particular Class; (6) directors' fees and expenses incurred as a result of
issues relating solely to a particular Class; (7) accounting, audit, and tax
expenses relating to a specific Class; (8) the expenses of administrative
personnel and services required to support the shareholders of a specific Class;
and (9) fees and other payments made to entities performing services for a
particular Class, including account maintenance, dividend disbursing, or
subaccounting services.
Class Specific Expenses may be waived or reimbursed by SM&R, the Fund's
investment adviser and distributor. Investment advisory fees, custodial fees,
and other expenses relating to the management of the Funds' assets shall not be
allocated on a class-specific basis. Income, realized and unrealized capital
gains and losses, and expenses that are not allocated to a specific Class shall
be allocated to each Class on the basis of the proportionate net assets of that
Class in relation to the net assets of the Fund.
For additional information about the expenses of the Funds, see the Statement
of Additional Information.
SPECIAL PURCHASE PLANS AND SERVICES
In addition to the special plans described above that permit you to reduce the
initial sales charge on Class A shares or the CDSC on Class B shares, the Funds
offer other services and plans that are designed to facilitate investment in the
Funds. At this time, there is no charge to you for these services. The Funds may
impose fees for such services in the future. Be aware, however, that if you
elect to participate in the ACH plan described below, you should check with your
financial institution for any additional charges imposed for this service. For
additional information contact your registered representative or SM&R. A
shareholder considering any of the plans or services described below should
consult a tax advisor before beginning a plan.
ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your Fund account(s) and your bank, savings and loan, or credit
union account using the Automated Clearing House (ACH) network. To arrange for
electronic transfers, complete the relevant section of the Account Application
at the time you open your account and specify the type of service or services
desired. Attach a voided, pre-printed check or deposit slip from your checking,
savings and loan or credit union account. Passbook savings accounts are not
eligible for the electronic transfer option. Additionally, your bank must be a
member of the Automated Clearing House (ACH) network for you to take advantage
of this service. You will receive a confirmation verifying initialization of the
electronic transfer option and may begin conducting transactions in your
account(s) under this option approximately 20 calendar days after receipt of the
verification notice from SM&R. If you elect this option after your account is
established, it may be necessary for you to obtain a signature guarantee for all
individuals named on the account(s) desiring this service.
TELEPHONE SERVICES. You can take advantage of this service by completing the
appropriate sections of the Account Application when opening your account.
Through this service, you will be able to purchase by ACH, redeem and exchange
shares on those accounts for which you have an executed Account Application on
file and have received verification from SM&R that the service has been
initialized as explained under Electronic Transfers above. If this option is
elected after your account is established, it may be necessary for you to obtain
a signature guarantee for all individuals named on the account(s) desiring this
service. Please note that the telephone redemption option is not available to
retirement plans.
The Funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions. The caller will be required to know (i) the name of the
Fund or Funds; (ii) all digits of the account number; (iii) the exact name and
address used in the registration(s); and (iv) the Social Security or Employer
Identification Number listed on the account(s). Additionally, all telephone
transactions will be recorded for your protection.
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Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, you should
bear the risk of any losses resulting from unauthorized or fraudulent telephone
transactions on your account(s).
AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via ACH) from your bank account and invested
monthly, bi-monthly, quarterly, or annually into the designated Fund(s) at the
applicable offering price determined on the date of the electronic transfer.
GROUP SYSTEMATIC INVESTMENT PLAN. A group of 5 or more employees may initially
invest a minimum of $100 ($20 per individual) in the Funds followed by
additional payments of at least $20 for each individual investing under a single
payroll deduction plan. Any such plan may be terminated by SM&R or the
Shareholder at any time upon sixty (60) days written notice.
WEALTH ACCUMULATION ACCOUNT. Shareholders having account balances of at least
$2,500 in SM&R Investments, Inc.'s Money Market Fund (the "Money Market Fund")
may open a Wealth Accumulation Account, which will provide them with an
automatic dollar cost averaging plan. Automatic monthly purchases of the shares
of other funds in the SM&R Family of Funds may be made by exchanges from the
shareholder's Money Market Fund Wealth Accumulation Account. Purchases of the
other funds must be at least $50 and, unless terminated by the shareholder, will
continue as long as the balance of the Money Market Fund Wealth Accumulation
Account is sufficient. Additional investments may be made to a Money Market Fund
account designated as a Wealth Accumulation Account to extend the purchase
period under the plan. However, if additional investments are received by SM&R
less than ten (10) business days prior to the 20th of the month, such
investments will not be available for use under the Wealth Accumulation Account
until the 20th of the following month. If the 20th of the month is an SM&R
holiday, the purchase will be processed on the next business day.
Purchases made will be subject to the applicable sales charge of the fund
whose shares are being purchased. Changes in amounts to be purchased, the funds
being purchased, and termination of a Wealth Accumulation Account will be made
within five (5) business days after written instructions are received by SM&R in
proper form (I.E., signed by the owner(s) of record exactly as registered).
Shareholders' rights to make additional investments, to exchange shares, and
to redeem shares in the Money Market Fund and any of the funds in the SM&R
Family of Funds, are not affected by a shareholder's participation in a Wealth
Accumulation Account. However, check writing privileges and expedited redemption
by telephone are not available for the Money Market Fund accounts designated as
a part of the Wealth Accumulation Account.
Shareholders of SM&R Investments, Inc.'s Primary Fund (the "Primary Fund")
that opened a Primary Fund Wealth Accumulation Account prior to September
, 1998 will be permitted to continue using the Account subject to the
terms applicable to a Money Market Fund Wealth Accumulation Account, described
above.
EXCHANGE PRIVILEGE. As an investor in a Fund, you are permitted to exchange
shares that you own in a Fund with shares of another fund in the SM&R Family of
Funds without the payment of an exchange fee, subject to certain conditions.
Exchanges between a Fund and another fund in the SM&R Family of Funds are
available only in states where the applicable funds are registered and the
exchange may be legally made.
You may exchange Class A, B, or C shares of a Fund, without an exchange fee,
for shares of the corresponding Class of another fund in the SM&R Family of
Funds. You also may exchange your Class A, B, or C shares for shares of SM&R
Investments, Inc.'s Primary Fund and Money Market Fund, provided that any
applicable CDSC period has expired on the shares you wish to exchange
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(I.E., 13 months in the case of Class A and Class C shares and 5 years in the
case of Class B shares) and you meet any minimum investment requirement for the
shares you wish to acquire. Finally, you may exchange shares you own in any
Class of a Fund for shares of another Class of that Fund, provided that you pay
any difference in sales charges and any applicable CDSC period has expired on
the shares you wish to exchange.
You may acquire, through an exchange, shares of a Class with a CDSC. If you
redeem those shares, the relevant CDSC, if any, will be calculated from the date
that you initially purchased the original shares, rather than from the date of
exchange.
Shares of any fund in the SM&R Family of Funds held in escrow under a Letter
of Intent are not eligible for the exchange privilege. Such shares will not be
released from escrow until the balance invested during the period specified in
the Letter of Intent equals or exceeds the amount required to be invested under
the Letter of Intent or the shareholder requests, in writing, that the Letter of
Intent be canceled and pays any adjustments in sales charge. After release from
escrow, shares may be exchanged, provided all other applicable conditions are
met.
You may request an exchange by telephone or in writing. In order to exchange
shares, the following requirements must be met: (a) the exchange must be made
between accounts having identical registrations and addresses; (b) the shares of
the fund of the SM&R Family of Funds acquired through exchange must be qualified
for sale in the state in which you reside; (c) the dollar amount of the exchange
must meet the minimum investment requirement applicable to the shares of the
fund in the SM&R Family of Funds that you would acquire through the exchange;
(d) SM&R must have received full payment for the shares being exchanged; (e)
your account must have been coded to reflect your certified taxpayer
identification number, or, if applicable, an appropriate Internal Revenue
Service Form W-8 (certificate of foreign status) or Form W-9 (certifying exempt
status); (f) any shares that you wish to exchange must have been held for at
least ten (10) business days; (g) certificates representing shares, if any, are
returned before such shares are exchanged; and (h) you have received a
prospectus for the shares you receive in the exchange.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by the participating funds or by SM&R at any time. Any
gain or loss realized on an exchange or re-exchange may be recognized for
federal and state income tax purposes. You should consult your tax advisor for
the tax treatment and effect of exchanges.
EXCESSIVE TRADING. Frequent trades, involving either substantial Fund assets or
a substantial portion of your account or accounts controlled by you, can disrupt
management of the Fund and raise the Fund's expenses. We define "excessive
trading" as exceeding one purchase and sale involving the same Fund within any
120-day period.
For example, you are in Fund X. You can move substantial assets from Fund X to
Fund Y and, within the next 120 days, sell your shares in Fund Y to return to
Fund X or move to Fund Z. If you exceed the number of trades described above,
you may be barred indefinitely from further transactions of the participating
funds.
There are two types of transactions exempted from the excessive trading
guidelines. They are (1) redemptions that are not part of exchanges and (2)
systematic purchases or redemptions.
RETIREMENT PLANS
An account may be established in Individual Retirement Accounts (IRA), which
includes Traditional, Roth, Education, and SIMPLE IRAs as well as Simplified
Employee Pension Plans (SEP IRAs). Additional retirement plans include 403(b)(7)
(TSA) Custodial Accounts and corporate retirement plans. These plans allow you
to shelter investment income from federal income tax while saving for
retirement. The minimum initial purchase for the Funds is $100. SM&R acts as
trustee or custodian for IRAs, SEPs and TSAs for the Funds. An annual custodial
fee of $7.50 per account will be charged for any part of a calendar year in
which an investor has any type of
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IRA, SEP or TSA accounts in the Funds and will be automatically deducted from
each account. Documents and forms containing detailed information regarding
these plans are available from your representative or SM&R. An individual
considering a retirement plan may also wish to consult with an attorney or tax
advisor.
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES
The Income and Triflex Funds will pay dividends from investment income, if
any, quarterly, during the months of March, June, September and December, and
distribute capital gains, if any, in December. The Growth Fund will pay
dividends from investment income, if any, semi-annually during the months of
June and December and distribute capital gains, if any, in December. Dividends
from net investment income may include net short-term capital gains, if any.
Dividends and capital gains distributions may also be made at such other times
as may be necessary to comply with the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
Dividends and capital gains distributions will be automatically reinvested at
net asset value in additional shares unless SM&R is instructed otherwise in
writing. Distributions not reinvested are paid by check or transmitted to your
bank account through an ACH transaction, if elected. If the Postal Service
cannot deliver your check, or if your check remains uncashed for six months, the
Funds reserve the right to reinvest your distribution check in your account at
the net asset value on the business day of the reinvestment and to reinvest all
future distributions in shares of the Funds. Dividends and capital gains
declared in December to shareholders of record in December and paid the
following January will be taxable to shareholders as if received in December.
After a dividend or capital gains distribution is paid, each Fund's share
price will drop by the amount of the dividend or distribution. Thus, a dividend
or capital gains distribution paid shortly after purchasing shares would
represent, in substance, a return of capital (to the extent it is paid on the
shares purchased), even though subject to income taxes as discussed below.
Shareholders and the IRS will be furnished an annual statement detailing federal
tax information, including information relative to dividends and distributions
paid to such shareholder during the preceding year.
INFORMATION COMMON TO THE FUNDS
Each Fund is a separate entity for federal income tax purposes and each Fund
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code. Each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in a timely
manner. Therefore, it is not expected that any Fund will be required to pay
federal income taxes.
In order to qualify as a regulated investment company, each Fund must meet
several requirements. These requirements include the following: (1) at least 90%
of the Fund's gross income must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or disposition of stock,
securities or foreign currencies or other income (including gains from options,
futures or forward contracts) derived in connection with the Fund's investment
business and (2) at the close of each quarter of the Fund's taxable year, (a) at
least 50% of the value of the Fund's assets must consist of cash, United States
Government securities, securities of other regulated investment companies and
other securities (limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer) and (b) not more than 25% of the value of the
Fund's assets may be invested in the securities of any issuer (other than United
States Government Securities or securities of other regulated investment
companies) or of two or more issuers which the Fund controls and which are
determined to be engaged in similar or related trades or businesses.
For federal income tax purposes, any income dividends derived from taxable
investments which the shareholder receives from any Fund, as well as any
distributions derived from net short-term capital gains, are treated as ordinary
income whether the shareholder has elected to receive them in cash or in
additional shares. Distributions derived from net
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long-term capital gains will be taxable as long-term capital gains regardless of
the length of time the shareholder has owned the Fund's shares and regardless of
whether such distributions are received in cash or in additional shares. In
determining the amount of capital gains, if any, available for distribution, net
capital gains are offset against available net capital losses, if any, carried
forward from previous years.
Redemptions and exchanges of shares in each Fund are taxable events on which a
shareholder may realize a gain or loss. Shareholders should consult with their
tax advisor concerning the tax reporting requirements in effect on the
redemption or exchange of such shares.
Each Fund may be required to report to the Internal Revenue Service ("IRS")
any taxable dividends or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the Application.
A shareholder may also be subject to backup withholding if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding taxes to distributions received by them from any Fund.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the fund from direct obligations of the
U.S. Government, subject in some states to minimum investment requirements.
At the end of each calendar year, the Funds will advise shareholders about the
tax status of all distributions made during each taxable year, including the
portion of the dividends which comprise taxable income, exempt income and
interest income that is a tax preference item under the alternative minimum tax.
Shareholders should consult a tax advisor about the application of state and
local (as well as federal) tax laws to these distributions and redemption
proceeds received from the Fund.
HOW TO REDEEM
Shares of the Funds will be redeemed at net asset value, plus any applicable
CDSC. Net asset value is determined on the date the request is received in
"Proper Form" as defined in "Proper Form" below. There is no extra charge for
redemptions. A redemption request should be addressed to Securities Management
and Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas 77550.
If uncertain of the redemption requirements investors should call Investor
Services or write SM&R. Payment will be made as soon as practicable and normally
within seven days after receipt of a redemption request in Proper Form. A wire
fee in the amount of $8.00 will be charged to the investor for redemptions by
wire under $5,000.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by personal check or ACH transfer, SM&R will process your redemption but will
generally delay sending you the proceeds for up to ten (10) business days to
allow the check or transfer to clear.
TELEPHONE REDEMPTIONS. You may request redemptions by telephone if you have
completed the Account Application and requested this option. This redemption
feature can only be used if: (a) the redemption proceeds are to be mailed to the
address of record or wired to the pre-authorized bank account indicated on the
Account Application; (b) there has been no change of address of record or
pre-authorized bank account within the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the security procedures discussed
under "SPECIAL PURCHASE PLANS AND SERVICES--Exchange Privilege" have been met;
and (e) the proceeds of the redemption do not exceed $25,000.
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SYSTEMATIC WITHDRAWAL PLAN. Each Fund has a "Systematic Withdrawal Plan"
("Withdrawal Account"), which permits shareholders having an account value of
$5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter on or about the 20th of the applicable month. Shareholders
maintaining a Withdrawal Account may elect to have the withdrawal proceeds
automatically deposited in their pre-authorized bank account via an ACH
transaction. This is accomplished by completing the relevant section of the
Account Application and returning it to SM&R. See "SPECIAL PURCHASE PLANS AND
SERVICES--Electronic Transfers" for additional information. It may not be
advisable for shareholders to maintain a Withdrawal Account while concurrently
purchasing shares of the Funds because of the sales charge or CDSC (as
applicable) involved in additional purchases. You should carefully consider and
contact your financial adviser regarding their advisability. Dividends and
capital gains distributions will automatically be reinvested in additional
shares at net asset value. As with other redemptions, a withdrawal is a sale for
federal income tax purposes. The Systematic Withdrawal Plan will automatically
terminate if all shares are liquidated or withdrawn from the account.
Certificates are not issued for shares held in a withdrawal account and
certificates held, if any, must be surrendered when shares are transferred to a
Withdrawal Account. No account covered by a Letter of Intent can be changed to a
Systematic Withdrawal Plan until such time as the Letter of Intent is fulfilled
or terminated, nor can an account under a Systematic Withdrawal Plan be placed
under a Letter of Intent.
REINVESTMENT PRIVILEGE. Within ninety (90) days of a redemption of Class A
shares (sixty (60) days for qualified plans), a shareholder may reinvest all or
part of the proceeds in Class A shares of that same Fund at the net asset value
next computed after receipt of the proceeds to be reinvested by SM&R. The
shareholder must ask the transfer agent for this privilege at the time of
reinvestment. Prior to reinvestment of redemption proceeds, a shareholder is
encouraged to consult with his or her accountant or tax advisor to determine any
possible tax ramifications of such a transaction. Each Fund managed by SM&R may
amend, suspend, or cease offering this privilege at any time as to shares
redeemed after the date of the amendment, suspension, or cessation.
For further information about the "Systematic Withdrawal Plan" and
"Reinvestment Privilege," contact a registered representative or SM&R.
Any gain or loss on the redemption of the shares is recognized for income tax
purposes, whether or not the proceeds are reinvested in accordance with this
privilege, subject, however to the "wash sale" rule described under "Exchange
Privilege" in the Statement of Additional Information.
"PROPER FORM" means the request for redemption must include: 1) your share
certificates, if issued; 2) your letter of instruction or a stock assignment
specifying the Fund, account number, and number of shares or dollar amount to be
redeemed. Both share certificates and stock powers, if any, must be endorsed and
executed exactly as the Fund shares are registered. It is suggested that
certificates be returned by certified mail for your protection; 3) any required
signature guarantees (see "Signature Guarantees" below); and 4) other supporting
legal documents, if required in the case of estates, trusts, guardianships,
divorce, custodianships, corporations, partnerships, pension or profit sharing
plans, retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
requests are submitted to the Funds' transfer agent in Proper Form for
processing.
TEXAS OPTIONAL RETIREMENT PROGRAM. Shares in an account established under the
Texas Optional Retirement Program may not be redeemed unless satisfactory
evidence is received by SM&R from the State that one of the following conditions
exists: (1) death of the employee; (2) termination of service with the employer;
or (3) retirement of the employee.
SIGNATURE GUARANTEES. This guarantee carries with it certain statutory
warranties which are relied upon by the transfer agent. This guarantee is
designed to protect the investor, the Fund, SM&R and its representatives through
the signature verification of each investor wishing to redeem or exchange
shares.
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Signature guarantees are required when: (1) the proceeds of the redemption
exceed $25,000; (2) the proceeds (in any amount) are to be paid to someone OTHER
THAN the registered owner(s) of the account; (3) the proceeds (in any amount)
are to be sent to any address OTHER THAN the shareholder's address of record,
pre-authorized bank account or exchanged to one of the other funds managed by
SM&R; or (4) the Fund or its transfer agent believes a signature would protect
against potential claims based on the transfer instructions, including, when the
authority of a representative of a corporation, partnership, association or
other entity has not been established to the satisfaction of the Fund or
transfer agent.
Acceptable guarantees can be obtained from an "eligible guarantor institution"
as defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions include banks, brokers, dealers, municipal securities
dealers or brokers, government securities dealers or brokers, credit unions (if
authorized under state law), national securities exchanges, registered
securities associations and institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program or an SM&R representative who has executed an
agreement and received authorization from SM&R. IMPORTANT: Witnessing or
notarization is not sufficient.
REDEMPTION OF SMALL ACCOUNTS. The Funds reserve the right to redeem shares in
any account (which will be promptly paid to the shareholder) if, due to your
redemptions, the value of the account falls below $100. If your account balance
falls below $100 as a result of redeeming shares, you will be notified that the
value of your account is less than the required minimum indicated above and
allowed at least 60 days to make an additional investment to increase the value
of your account above the required minimum. The Board of Directors may, from
time to time, change such required minimum investment.
RIGHTS RESERVED BY THE FUNDS. The Funds, acting through their transfer agent,
reserve the right to waive or lower investment minimums; to accept initial
purchases by telephone from a registered representative; to refuse any purchase
order; to cancel or rescind any purchase or exchange at any time prior to
receipt by the shareholder of written confirmation or, if later, within five (5)
business days of the transaction; to freeze an account and suspend account
services when notice has been received of a dispute involving account owners or
other parties or there is reason to believe a fraudulent transaction may occur;
to restrict or refuse the use of faxed redemptions where there is a question as
to the validity of the request or proper documents have not been received; to
otherwise modify the conditions of purchase and any services at any time; or to
act on instructions not believed to be genuine.
OTHER INFORMATION CONCERNING THE FUNDS
YEAR 2000 RISKS. Many services provided to the Funds and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated, referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. Like other mutual funds, financial and business organizations, and
individuals around the world, the Funds could be adversely affected if the
computer systems used by SM&R (which acts as their investment adviser,
underwriter, custodian, and transfer agent) do not properly process and
calculate date-related information and data from and after January 1, 2000. SM&R
is taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds and their shareholders.
VOTING RIGHTS. Within the respective Funds, all shares have equal voting,
participation and liquidation rights, but have no subscription, preemptive,
conversion, or cumulative voting rights.
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On certain matters, such as the election of directors, all shares of each Fund
vote together, with each share having one vote. On other matters affecting a
particular Fund, such as the Investment Advisory Contract or fundamental
investment policies, only shares of that Fund are entitled to vote, and a
majority of the shares of that Fund are required for approval of the proposal.
On matters affecting a particular Class of a Fund, only shares of that Class of
the Fund are entitled to vote, and a majority of the shares of that Class are
required for approval of the proposal.
SPECIAL PAYMENTS TO BROKER-DEALERS. Broker-dealers or other securities dealers
that have entered into selling agreements with SM&R may receive compensation
from SM&R or an affiliated company in connection with selling shares of the SM&R
Family of Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales and training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to securities dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities dealers may not use certain sales to qualify for this
compensation if prohibited by the laws of any state or self-regulatory agency,
such as the National Association of Securities Dealers, Inc.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
For purchases of $1 million or more of Class A shares, SM&R intends to pay its
representatives and broker-dealers from its own profits and resources. The
amount (expressed as a per annum percentage of the amount invested) which SM&R
might pay such representatives and broker-dealers is as follows for Class A
shares of the Growth, Income, and Triflex Funds, respectively: Year
1--[ ]%, [ ]%, and [ ]%; Year 2--[ ]%, [ ]%, and
[ ]%; and Year 3 and subsequent years, [ ]% (for each Fund).
ADDITIONAL INFORMATION. This Prospectus and the Statement of Additional
Information referred to on the cover page do not contain all the information set
forth in the registration statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The omitted information may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission. For
further information, shareholders may also contact SM&R, whose address and phone
number are set forth on the cover of this Prospectus.
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APPENDIX A
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
Looking back at 1997, U.S. economic characteristics reflected steady growth,
declining inflation, a decrease in the budget deficit, large increases in
business profits, employment and real incomes, and a continuation of
unprecedented stock market gains. Further, interest rates declined over the past
year as markets realized that with a backdrop of an appreciating dollar, global
deflationary tendencies, and excess liquidity via declining inflation, the
Federal Reserve would have no compelling reasons to alter monetary policy.
The S&P 500 ended 1997 registering its third consecutive year of +20% gains.
This ended the best calendar-three-year run since Standard and Poor's began
tracking indices in 1923. In addition, this was the first time since 1926 that
the S&P 500 produced better than 20% returns in three consecutive calendar
years. The year 1997 also featured a market of increased volatility. For 1997,
the S&P 500 closed more than 1% higher or lower than the previous day on 34% of
the trading days. In comparison, the average for the period 1990-1996 was less
than half that, at 14.5% of the trading days. For the fourth year in a row,
large capitalization stocks were the best performing size category. The S&P 500
broke 43 new record high marks during 1997, but not without a few bruises. The
9.6% decline between February 18 and April 11 stopped just short of the 10%
mark, which is traditionally the benchmark cited to declare a true market
correction. The 10% mark was crested, however, as stocks fell 10.8% between
October 7-27.
The Dow Jones World Index, which excludes the U.S. market, lost 3.0% during
the year, although performance was widely varied. Within the index, Asia/Pacific
declined 29.1% whereas Europe/Africa gained 19.9%. Also during the year, the
Merrill Lynch Domestic Bond Index rose 9.4%. Within this index, performance
varied from convertible bonds returning 16.1% to asset-backed securities
returning 7.2%. Money market returns were widely varied as well. The U.S. money
markets returned 5.1% whereas the foreign money markets fell 5.5%, reflecting
strength in the U.S. dollar.
Looking forward into the remainder of 1998, we believe the U.S. economy will
continue to grow, albeit at a reduced rate of approximately 2.0-3.0%. Inflation
will likely remain historically low (1.5-2.5%) as declining commodities costs
are countered by rising employment and wages. Such an environment will likely
lead to declining interest rates over the short run which, in turn, could
provide an ideal climate for fixed income securities as well as financial and
consumer dependent securities.
The Growth Fund seeks to identify stocks of superior companies utilizing two
valuation disciplines. These disciplines screen potential investments for both
cash flow and earnings with the goal of selecting companies suitable for long
term capital appreciation. The purpose of this approach is to purchase future
company earnings at a discount relative to peer companies, all else being equal.
The disciplines provide what we believe is a conservative and defensive group of
stocks from which to select for inclusion in the fund.
Within the Growth Fund, we noted particular strength from our holdings in the
financial, consumer cyclical and technology sectors. For 1997, our overweighting
of technology relative to the market also helped our relative performance. For
investors who owned shares for the whole year 1997, the Growth Fund produced a
total return of 22.3%, excluding sales charge (see graph for complete
performance history). The Growth Fund's growth attributes are achieved by
investing primarily in large-capitalization growth companies. The Growth Fund
makes an effort to overweight sectors by no more than twice the S&P 500 sector
weights and underweight by no more than half the S&P 500 sector weights.
We continue to seek out undervalued companies undergoing positive changes in
fundamentals and selling those issues that have hit their price targets or whose
fundamentals do not warrant inclusion in our Fund.
A-1
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL GROWTH FUND, INC. AND S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Growth Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value, and considers the effect of the Growth Fund's 5.75% maximum
sales charge. All performance figures are as-of December 31 for the applicable
year. The Growth Fund's fiscal year end was as of October 31 for 1988-1989.
A-2
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 OF
AMERICAN NATIONAL GROWTH FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------------
Investment income dividends paid and
reinvested during year $ 226 $ 308 $ 260 $ 176 $ 253 $ 216 $ 255 $ 360 $ 247 $ 320
Capital gains distributions reinvested
during year 700 1,794 259 847 1,165 2,404 1,972 1,552 865 4,027
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 9,992 12,422 12,057 16,515 16,102 17,417 18,284 22,892 26,931 32,921
Value of investment at year end assuming
investment income dividends taken in
cash $ 9,767 $11,832 $11,243 $15,219 $14,596 $15,583 $16,126 $19,858 $23,136 $27,995
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 2.26% 3.08% 2.10% 1.46% 1.53% 1.35% 1.47% 1.97% 1.08% 1.19%
Appreciation -2.34% 21.25% -5.04% 35.52% -4.03% 6.82% 3.51% 23.23% 16.56% 21.05%
----------------------------------------------------------------------------------------
Total Return -0.08% 24.33% -2.94% 36.98% -2.50% 8.17% 4.98% 25.20% 17.64% 22.24%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 6.00%
</TABLE>
All performance figures are as of December 31 for the applicable year. Growth
Fund's fiscal year was as of October 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$2,621
Capital Gains Paid and Reinvested.......$15,585
Appreciation (Unrealized Capital
Gains)...................................$4,715
Total Value.............................$32,921
</TABLE>
A-3
<PAGE>
AMERICAN NATIONAL INCOME FUND
The Income Fund turned in a solid performance in 1997, producing a total
return of 22.7%, excluding sales charge (see graph for complete performance
history). Throughout the year, the Income Fund exceeded its target of
maintaining a dividend yield at least 50% greater than that of the Standard &
Poor's 500 stock market index. The current dividend yield of the equities
comprising the portfolio stands at 2.7%, a full 70% greater than the S&P 500's
1.5% yield.
Throughout 1997, the Income Fund benefited from its overweighted positions in
the strong performing finance and consumer cyclical sectors. Within the finance
sector, the Income Fund's holdings include banks like Nationsbank, Norwest, and
Comerica; financial services companies like Beneficial, Morgan Stanley Dean
Witter, and Reliance Group holdings; and a carefully selected group of real
estate investment trusts (REITs) such as Centerpoint Properties, Crescent,
Health & Retirement Properties. On average, these holdings produced returns of
about 40% for the year. Moreover, the Income Fund was overweighted in this
strong performing sector relative to the broad market benchmarks.
We also noted particular strength in the consumer cyclicals sector, which
includes such industries as apparel, autos, printing, and retail. For the year,
the Income Fund's holdings in this sector produced an average return of 37%,
outperforming this strong sector's performance within the broad market. In
addition, the Income Fund benefited from above-market performance from our
healthcare selections, which appreciated 47% on average versus 35% for the
sector in the S&P 500. Of our holdings, the best performance was posted by
pharmaceuticals maker Schering-Plough which rose 92% for the year and drug
distributor Bergen Brunswig, up 83% during 1997.
Weakness for the Income Fund originated in the capital goods and energy
sectors. In the case of capital goods, most of the weakness came from companies
like engineering and construction companies Fluor and Foster Wheeler, both of
which have above average exposure to emerging markets in Southeast Asia. In the
energy sector, where generous dividend yields are available from many high
quality companies, the falling price of oil hurt earnings, especially in the
fourth quarter. We are still confident in our international integrated companies
like Exxon, Chevron, and Texaco as well as our domestic companies like Amoco,
Kerr-McGee and Murphy Oil.
As mentioned elsewhere in this report, we expect the U.S. economy to continue
its moderate growth in 1998, albeit at a somewhat reduced rate. Inflation will
likely remain historically low (1.5-2.5%) as declining commodities costs are
countered by rising employment and wages. Such an environment will likely lead
to declining interest rates over the short run which, in turn, should provide an
ideal climate for fixed income securities as well as financial and consumer
dependant securities.
Within this slow growth economy, we will seek our style specific goals by
identifying, based on our conservative and defensive valuation disciplines, what
we consider to be stocks of superior companies. We will continue our quest for
undervalued companies undergoing positive changes in fundamentals, and we will
sell those issues which have hit their price targets or whose fundamentals do
not warrant inclusion within the conservatively run Income Fund. This process
has served the Income Fund well in the past.
A-4
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC. AND S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Income Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value and considers the effect of the Income Fund's 5.75% maximum
sales charge. All performance figures are as of December 31 for the applicable
year. The Income Fund's fiscal year end was as of July 31 for 1988-1989.
A-5
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF AMERICAN NATIONAL INCOME FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid
and reinvested during year $ 374 $ 476 $ 543 $ 447 $ 404 $ 488 $ 559 $ 664 $ 654
Capital gains distributions
reinvested during year 1,111 992 49 928 811 1,768 1,884 1,183 730
Value of investment at year end
assuming reinvestment of
investment income dividends and
capital gains distributions 10,372 13,289 13,389 17,280 17,852 19,749 19,628 25,343 29,516
Value of investment at year end
assuming investment income
dividends taken in cash $ 9,997 $ 12,313 $ 11,891 $ 14,908 $ 15,040 $ 16,208 $ 15,654 $ 19,642 $ 22,342
PERCENTAGES
- -----------------------------------------------------------------------------------------------------------------------------------
Income Return 3.74% 4.59% 4.08% 3.34% 2.34% 2.73% 2.83% 3.38% 2.58%
Appreciation 0.02% 23.53% 3.33% 25.72% 0.98% 7.90% 3.44% 25.74% 13.88%
-------------------------------------------------------------------------------------------------
Total Return 3.72% 28.12% 0.75% 29.06% 3.32% 10.63% 0.61% 29.12% 16.46%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.07%
<CAPTION>
- --------------------------------
1997
- --------------------------------
<S> <C>
Investment income dividends paid
and reinvested during year $ 757
Capital gains distributions
reinvested during year 3,611
Value of investment at year end
assuming reinvestment of
investment income dividends and
capital gains distributions 36,223
Value of investment at year end
assuming investment income
dividends taken in cash $ 26,805
PERCENTAGES
- --------------------------------
Income Return 2.57%
Appreciation 20.15%
Total Return 22.72%
Sales Charge
Total Return
*(excluding sales charge)
</TABLE>
All performance figures are as of December 31 for the applicable year. Income
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,366
Capital Gains Paid and Reinvested.......$13,067
Appreciation (Unrealized Capital
Gains)...................................$7,790
Total Value.............................$36,223
</TABLE>
A-6
<PAGE>
TRIFLEX FUND
The Triflex Fund (the "Fund" or "Fund's") is the lowest risk equity-dominated
portfolio in the American National Funds Group. Throughout 1997, the Fund's
conservative blend of about 55% stocks, 40% bonds and 5% cash has served the
Fund well. The equity portion of the Fund produced a total return (capital
appreciation and dividend income) of about 25% while the bond portion of the
Fund returned about 11%. Combined, the Fund produced a total return of 17.5% for
the year, excluding sales charge (see graph for complete performance history).
Within the Fund, we took advantage of high real interest rates (after
adjusting for inflation) to extend maturities and add exposure to the fixed
income portion of the Fund. We shifted about 6% of the Fund's assets from
equities and cash, and moved it into bonds during April, as the yield on the
30-year Treasury bond pushed above 7%. In retrospect, our timing was quite
fortuitous, as interest rates dropped over one percentage point by year-end,
with the 30-year bond yield closing 1997 at 5.9%.
Within the equity portion of the Triflex Fund, we utilize the same
conservative and defensive stock selection disciplines used in the American
National Income and Growth Funds. The key is identifying what we consider to be
stocks of superior companies and purchasing them at discounted valuations.
During 1997, we noted particular strength from our equity holdings in the
financial, consumer staples, and technology sectors. In all three sectors, our
holdings produced returns in excess of 30%, outperforming the respective sectors
in the S&P 500 for the year.
We weren't so fortunate with our capital goods and energy holding, however, as
both sectors underperformed both on an absolute basis and relative to their
respective S&P sectors. Within capital goods, we saw weakness in companies like
Fluor and Foster Wheeler, whose businesses are closely tied to large
infrastructure projects in the emerging markets in Southeast Asia. In the energy
sector, falling oil prices caused the shares of most companies to fall in
sympathy. We are examining our holdings in both of these sectors to determine
whether changes should be made going forward.
On balance, Triflex Fund investors were rewarded by their investment in the
Fund in 1997, with a third consecutive year of double-digit returns. Although
the Fund has not produced the spectacular returns witnessed by some funds over
the last year or two, we have achieved our goal of providing consistently
positive performance in the strong up market, while firmly believing that the
Fund is well positioned should markets turn downward.
We appreciate your investment in the Triflex Fund and will continue to do all
we can to reward our shareholders' confidence and trust.
A-7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TRIFLEX FUND, INC., S&P 500 AND LEHMAN INTERMEDIATE GOVERNMENT/CORP INDEX
[LINE GRAPH TO BE INSERTED HERE]
Triflex Fund, Inc.'s performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions, changes in net asset value and
considers the effect of the Triflex Fund's 5.75% maximum sales charge. All
performance figures are as of December 31 for the applicable year. The Triflex
Fund's fiscal year end was as of July 31 for 1988-1989.
A-8
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF TRIFLEX FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
nvestment income dividends paid and
reinvested during year $ 555 $ 621 $ 579 $ 538 $ 328 $ 403 $ 489 $ 572 $ 598 $ 760
Capital gains distributions reinvested
during year 225 702 68 492 484 1,027 876 166 533 2,673
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 10,406 11,827 11,990 14,931 15,379 16,350 16,593 20,293 22,701 26,663
Value of investment at year end assuming
investment income dividends taken in
cash $ 9,850 $10,595 $10,212 $12,224 $12,309 $12,755 $12,566 $14,911 $16,222 $18,490
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 5.54% 5.97% 4.90% 4.49% 2.20% 2.62% 2.99% 3.44% 2.95% 3.35%
Appreciation -0.94% 7.69% -3.53% 20.04% 0.80% 3.69% -1.50% 18.85% 8.91% 14.11%
----------------------------------------------------------------------------------------
Total Return 4.60% 13.66% 1.37% 24.53% 3.00% 6.31% 1.49% 22.29% 11.86% 17.46%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.38%
</TABLE>
All performance figures are as of December 31 for the applicable year. Triflex
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,443
Capital Gains Paid and Reinvested........$7,246
Appreciation (Unrealized Capital
Gains)...................................$3,974
Total Value.............................$26,663
</TABLE>
A-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------
BOND RATINGS
Description of Standard & Poor's Corporation's bond rating:
AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions that
obligations in higher-rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB", "B", "CCC", "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will like have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, if faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
Description of Moody's Investor's Service, Inc.'s bond ratings:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds be-
cause margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
B-1
<PAGE>
<TABLE>
<S> <C>
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
</TABLE>
PREFERRED STOCK RATING.
Description of Standard & Poor's Corporation's preferred stock rating:
B Preferred stock rated "B" are regarded on balance, as predominately
speculative with respect to the issuer's capacity to pay preferred stock
obligations. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Description of Moody's Investors Service, Inc.'s preferred stock rating:
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
FEDERAL FUNDS
As used in this Prospectus and in the Funds' Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.
B-2
<PAGE>
AMERICAN NATIONAL FUNDS GROUP
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
SEPTEMBER , 1998
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or the Funds' Statement of Additional Information referred
to above) and if given or made, such information or representations must not be
relied upon as having been authorized by the Funds or SM&R, the Fund's
investment adviser, manager and principal underwriter. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
A Statement of Additional Information dated September , 1998 containing
additional information about the Funds was filed with the Securities and
Exchange Commission and are incorporated herein by reference. Additional
information about the Funds' investments also is available in the Funds' annual
and semi-annual reports to shareholders.
The Funds' Statement of Additional Information, annual report, and semi-annual
reports are available, without charge, upon request. You may make shareholder
inquiries, request further information about the Funds, or obtain copies of the
Statement of Additional Information, annual reports, and semi-annual reports, by
writing Securities Management and Research, Inc., One Moody Plaza, 14th Floor,
Galveston, Texas 77550, or by calling (Toll Free) 1-800-231-4639 or (Collect)
1-409- .
Information about the Funds may be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington D.C. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Funds also
are available on the Commission's Internet site at http://www.sec.gov, and you
may obtain copies of this information, upon payment of a duplicating fee, by
writing the Public Reference Section of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
811-00623
811-01916
811-02818
<PAGE>
[LOGO]
P R O S P E C T U S
CLASS Y
(INSTITUTIONAL SALES)
AMERICAN NATIONAL FUNDS GROUP
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
TELEPHONE NUMBER: (409) - TOLL FREE: 1 (800) 231-4639
SEPTEMBER 15, 1998
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
OFFICERS
Michael W. McCroskey, President and CEO
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
<TABLE>
<S> <C>
INVESTMENT ADVISOR AND MANAGER LEGAL COUNSEL
Securities Management and Research, Inc. Greer, Herz & Adams, L.L.P.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT INDEPENDENT AUDITORS
Securities Management and Research, Inc. Tait, Weller & Baker
One Moody Plaza 8 Penn Center
Galveston, Texas 77550 Philadelphia, Pennsylvania 19103
CUSTODIAN TRANSFER AND
Securities Management and Research, Inc. DIVIDEND PAYING AGENT
One Moody Plaza Securities Management and Research, Inc.
Galveston, Texas 77550 One Moody Plaza
Galveston, Texas 77550
</TABLE>
This Prospectus offers institutions and certain other investors no-load
shares in three equity mutual funds underwritten and managed by Securities
Management and Research, Inc.: (1) American National Growth Fund, Inc. ("Growth
Fund"), which seeks long-term growth; (2) American National Income Fund, Inc.
("Income Fund"), which seeks current income with appreciation secondary; and (3)
Triflex Fund, Inc. ("Triflex Fund"), a balanced fund seeking conservation of
principal, current income, and long-term capital appreciation (each, a "Fund";
collectively, the "Funds" or the "American National Funds Group"). The Funds
also offer other share classes with different sales charge and distribution and
service fee structures. Please read this Prospectus carefully before making an
investment and keep it for future reference. There is no assurance that any Fund
will achieve its objective.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK. FURTHER, SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE FUNDS AT A GLANCE........................... 3
TABLE OF FEES AND EXPENSES...................... 4
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH
FUND, INC...................................... 5
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME
FUND, INC...................................... 6
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC......... 7
INVESTMENT OBJECTIVES AND POLICIES.............. 8
THE FUNDS AND THEIR MANAGEMENT.................. 11
HOW TO PURCHASE SHARES.......................... 14
WHEN ARE PURCHASES EFFECTIVE?................... 15
<CAPTION>
PAGE
-----------
<S> <C>
DETERMINATION OF OFFERING PRICE................. 16
MULTIPLE CLASS STRUCTURE........................ 16
SPECIAL PURCHASE PLANS AND SERVICES............. 17
RETIREMENT PLANS................................ 19
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES...... 20
HOW TO REDEEM................................... 21
OTHER INFORMATION CONCERNING THE FUNDS.......... 23
APPENDIX A...................................... A-1
APPENDIX B...................................... B-1
</TABLE>
2
<PAGE>
THE FUNDS AT A GLANCE
Each Fund is a "mutual fund" that continuously sells and redeems its shares of
common stock at the current per share offering price. The investment objective
and investor suitability profile of each Fund are summarized below.
AMERICAN NATIONAL GROWTH FUND, INC. ("GROWTH FUND")
OBJECTIVE: The Growth Fund seeks long-term capital growth by investing its
assets in securities (primarily common stocks) that provide an opportunity for
capital appreciation.
INVESTOR SUITABILITY PROFILE: The Growth Fund is designed for investors who
want to build capital to meet long-range goals.
AMERICAN NATIONAL INCOME FUND, INC. ("INCOME FUND")
OBJECTIVE: The Income Fund seeks current income with a secondary objective of
long-term capital appreciation. It invests in common stock, preferred stocks,
and debt securities.
INVESTOR SUITABILITY PROFILE: The Income Fund is designed for investors seeking
to protect the purchasing power of their money while retaining the potential for
attractive growth and reducing their exposure to the volatility of the market.
TRIFLEX FUND, INC. ("TRIFLEX FUND")
OBJECTIVE: The Triflex Fund seeks to conserve principal, produce current
income, and achieve long-term capital appreciation. It invests in various types
of fixed income (debt) and equity securities.
INVESTOR SUITABILITY PROFILE: The Triflex Fund is designed for investors
seeking income and conservation of the purchasing power of their capital.
MANAGEMENT: Securities Management and Research, Inc. ("SM&R") makes the
investment choices for the Funds. SM&R has served as investment adviser,
manager, and distributor of mutual funds since 1966. See "THE FUNDS AND THEIR
MANAGEMENT" for additional information.
PURCHASING SHARES: No-load shares of the Funds are available through this
Prospectus to institutions and certain other investors. Class Y shares are
offered at net asset value without the imposition of any sales charge on
purchases or redemptions or any distribution and service ("12b-1") fees. The
Funds offer other share classes with different sales charge and distribution and
service ("12b-1") fee structures, as described in "MULTIPLE CLASS STRUCTURE."
The classes of the Funds are referred to collectively as "Classes" and each as a
"Class."
MINIMUM PURCHASE: For Class Y shares, the minimum initial investment
requirement generally is $500,000, except as described in "HOW TO PURCHASE
SHARES."
REDEMPTIONS: Procedures may be found under "HOW TO REDEEM."
EXCHANGES: In general, shareholders can exchange shares of a Fund for shares of
another fund in the SM&R Family of Funds (as defined herein) without the payment
of an exchange fee, subject to certain conditions. For information on exchanging
shares, see "Exchange Privilege" within "SPECIAL PURCHASE PLANS AND SERVICES."
DERIVATIVE INVESTMENTS: The Funds do not invest in interest only (IO) or
principal only (PO) securities. The Triflex Fund may invest in collateralized
mortgage obligations (CMO's) from time to time. An explanation of CMO's can be
found in the Funds' Statement of Additional Information.
RISKS: Each Fund can be expected to have different investment results based on
its investment objective and different financial and market risks. Financial
risk refers to the ability of an issuer of a debt security to pay principal and
interest, and to the earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the degree to which the
price of a security will react to changes in conditions in securities markets in
general and, with particular reference to debt securities, to changes in the
overall level of interest rates. As a result of these and other risks, the value
of the shares owned may be higher or lower than their cost.
PORTFOLIO TURNOVER RATES: Each Fund's portfolio turnover rates for the last
five years are included in the Financial Highlights tables herein. A security
will be sold, and the proceeds reinvested, whenever it is considered prudent to
do so from the viewpoint of a Fund's objectives, regardless of the holding
period of the security. A higher rate of portfolio turnover may result in higher
transaction costs. Additionally, higher portfolio turnover may, in some cases,
have adverse tax effects on the Funds and their shareholders. Portfolio turnover
rates are expected to be less than 90% per year for each of the Funds. An
explanation of turnover rate calculations and brokerage fees can be found in the
Funds' Statement of Additional Information.
3
<PAGE>
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
The purpose of the following table is to assist an investor in understanding the
various costs and expenses that an investor will bear directly or indirectly. An
investor should be aware that this table is not intended to reflect in detail
the fees and expenses associated with an individual shareholder's investment in
Class Y shares of any of the Funds listed. It is being provided to assist
investors in gaining a more complete understanding of fees, charges, and
expenses which are discussed in greater detail in the appropriate sections of
this Prospectus. See "HOW TO PURCHASE SHARES" in this Prospectus. The example is
also intended to provide a means to compare expense levels of Funds and Classes
with different fee structures over varying investment periods.
THERE ARE NO SHAREHOLDER TRANSACTION CHARGES IN CONNECTION WITH PURCHASES OR
REDEMPTIONS OF CLASS Y SHARES OF THE FUNDS, OTHER THAN AN $8.00 TRANSACTION FEE
CHARGED FOR EACH EXPEDITED WIRE REDEMPTION.
ANNUAL FUND OPERATING EXPENSES
(As a Percentage of Average Net Assets Before Fee Waivers and Expense
Reimbursements)
The "Management Fee," "Other Expenses," and "Total Annual Fund Operating
Expenses" shown below for the Funds are for the year ended December 31, 1997. No
Distribution or Service (12b-1) Fees are imposed on Class Y shares of the Funds.
<TABLE>
<CAPTION>
Growth Fund Income Fund Triflex Fund
--------------- --------------- -------------
Class Y Class Y Class Y
<S> <C> <C> <C>
Management Fee 0.60% 0.69% 0.65%
Other Expenses(1) 0.36% 0.36% 0.61%
Total Annual Fund Operating Expenses(2) 0.96% 1.05% 1.26%
</TABLE>
Notes to the Table of Fees and Expenses
(1) "Other Expenses" include the Administrative Service Fee. Because Class Y
shares were not available prior to the date of this Prospectus, "Other
Expenses" for Class Y shares were based on the expenses and average net
assets of the Growth, Income, and Triflex Funds for the fiscal year ended
December 31, 1997.
(2) The Fee Table does not reflect any fees waived or expenses assumed either
contractually or voluntarily by SM&R for the Funds during the fiscal year
ended December 31, 1997. Pursuant to the Administrative Service Agreement,
SM&R has agreed to pay (or to reimburse) each Fund for regular operating
expenses (including the advisory fee and administrative fee, but not
including any 12b-1 fee or Class-specific expenses) in excess of 1.25% per
year of such Fund's average daily net assets. During the fiscal year ended
December 31, 1997, SM&R waived management fees of 0.10% for the Triflex
Fund.
EXAMPLE OF EXPENSES
These Examples are intended to help investors compare the cost of investing in
the Funds with the cost of investing in other mutual funds.
These Examples assume that an investor invests $10,000 in Class Y shares of
each Fund for the time periods indicated. These Examples also assume that the
investment has a 5% return each year and that the Fund's operating expenses
remain the same. An investor's actual costs may be higher or lower than shown.
An investor would pay the following expenses, based on these assumptions, if
all shares were redeemed at the end of the period shown:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Growth Fund (Class Y)
Income Fund (Class Y)
Triflex Fund (Class Y)
</TABLE>
An investor would pay the same expenses, based on these assumptions, if the
shares were not redeemed, since there are no sales charges or redemption fees.
4
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH FUND, INC.
The following financial highlights table is intended to help an investor
understand the Growth Fund's financial performance for the past five years.
Certain information reflects financial results for a single Growth Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Growth Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares. This information is derived
from the financial statements of the Growth Fund, which for the year ended
through December 31, 1997 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Growth Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request. The information for years ending December 31, 1996 and
prior, has been audited by the Growth Fund's former independent auditors. The
information for the six month period ended June 30, 1998 was derived from
unaudited financial statements of the Growth Fund.
<TABLE>
<CAPTION>
Six Month
Period
Ended June
30, Year Ended December 31,
---------- ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 4.95 $ 4.39 $ 3.83 $ 4.15 $ 4.51
Income From Investment Operations
Net Investment Income 0.06 0.05 0.08 0.06 0.06
Net Realized and Unrealized Gain (Loss) on Securities 1.03 0.73 0.88 0.15 0.31
---------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.09 0.78 0.96 0.21 0.37
Less Distributions
Dividends from Net Investment Income (0.06) (0.05) (0.08) (0.06) (0.06)
Distributions from Capital Gains (0.74) (0.17) (0.32) (0.47) (0.67)
---------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.80) (0.22) (0.40) (0.53) (0.73)
---------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period $ 5.24 $ 4.95 $ 4.39 $ 3.83 $ 4.15
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 22.24% 17.64% 25.20% 4.98% 8.17%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $178,344 $152,758 $134,821 $113,250 $113,135
Ratio of Expenses to Average Net Assets (2) .96 1.15 0.98 0.97 1.00
Ratio of Net Income to Average Net Assets (2) 1.03 1.02 1.67 1.46 1.31
Portfolio Turnover Rate 46.79 18.72 37.00 46.26 59.67
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME FUND, INC.
The following financial highlights table is intended to help an investor
understand the Income Fund's financial performance for the past five years.
Certain information reflects financial results for a single Income Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Income Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares. This information is derived
from the financial statements of the Income Fund, which for the year ended
through December 31, 1997 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Income Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request. The information for years ending December 31, 1996 and
prior, has been audited by the Income Fund's former independent auditors. The
information for the six month period ended June 30, 1998 was derived from
unaudited financial statements of the Income Fund.
<TABLE>
<CAPTION>
Six Month
Period
Ended June
30, Year Ended December 31,
---------- -------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 25.05 $ 22.59 $ 18.90 $ 21.66 $ 22.09
Income From Investment Operations
Net Investment Income 0.63 0.58 0.62 0.62 0.56
Net Realized and Unrealized Gain (Loss) on
Securities 4.96 3.10 4.82 (0.75) 1.75
---------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 5.59 3.68 5.44 (0.13) 2.31
Less Distributions
Dividends from Net Investment Income (0.64) (0.58) (0.63) (0.61) (0.60)
Distributions from Capital Gains (3.01) (0.64) (1.12) (2.02) (2.14)
---------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (3.65) (1.22) (1.75) (2.63) (2.74)
---------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period $ 26.99 $ 25.05 $ 22.59 $ 18.90 $ 21.66
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 22.72% 16.46% 29.12% (0.61)% 10.63%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $198,687 $165,786 $141,058 $114,231 $119,956
Ratio of Expenses to Average Net Assets (2) 1.05 1.10 1.12 1.12 1.17
Ratio of Net Income to Average Net Assets (2) 2.28 2.42 2.89 2.86 2.51
Portfolio Turnover Rate 39.14 27.07 44.00 52.46 70.71
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC.
The following financial highlights table is intended to help an investor
understand the Triflex Fund's financial performance for the past five years.
Certain information reflects financial results for a single Triflex Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Triflex Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares. This information is derived
from the financial statements of the Triflex Fund, which for the year ended
through December 31, 1997 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Triflex Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request. The information for years ending December 31, 1996 and
prior, has been audited by the Triflex Fund's former independent auditors. The
information for the six month period ended June 30, 1998 was derived from
unaudited financial statements of the Triflex Fund.
<TABLE>
<CAPTION>
Six Month
Period
Ended June
30, Year Ended December 31,
---------- ----------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 17.90 $ 16.85 $ 14.32 $ 15.35 $ 15.81
Income From Investment Operations
Net Investment Income 0.57 0.49 0.49 0.45 0.41
Net Realized and Unrealized Gain (Loss) on Securities 2.50 1.48 2.67 (0.22) 0.58
---------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 3.07 1.97 3.16 0.23 0.99
Less Distributions
Dividends from Net Investment Income (0.59) (0.49) (0.49) (0.45) (0.41)
Distributions from Capital Gains (2.06) (0.43) (0.14) (0.81) (1.04)
---------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.65) (0.92) (0.63) (1.26) (1.45)
---------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period $ 18.32 $ 17.90 $ 16.85 $ 14.32 $ 15.35
---------- --------- --------- --------- --------- ---------
---------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 17.46% 11.86% 22.29% 1.49% 6.31%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $25,838 $23,188 $21,757 $19,023 $20,469
Ratio of Expenses to Average Net Assets(3) (2) 1.26 1.21 1.26 1.25" 1.32
Ratio of Net Income to Average Net Assets (2) 3.02 2.83 2.99 2.91 2.49
Portfolio Turnover Rate 27.52 23.78 16.39 46.95 70.98
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
(3)Expenses for these calculations are net of a reimbursement from Securities
Management and Research, Inc. Without these reimbursements, the ratio of
expenses to average net assets would have been 1.36%, 1.34%, 1.46%, 1.45%,
and 1.39% for the years ended December 31, 1997, 1996, 1995, 1994, and 1993,
respectively.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds have different investment objectives which it pursues
through the investment policies and techniques described below. These policies
and techniques are not fundamental and may be changed by the Board of Directors
of a Fund without shareholder approval. Each Fund has adopted certain
restrictions as fundamental policies which will not be changed unless approved
by the vote, at a special meeting of stockholders, of (i) 67% of the shares
present at a meeting, at which more than 50% of each Fund's outstanding shares
are present or represented by proxy, or (ii) more than 50% of each Fund's
outstanding shares. Each Fund's investment restrictions adopted as fundamental
policies are stated in the Funds' Statement of Additional Information.
AMERICAN NATIONAL GROWTH FUND, INC.
The Growth Fund seeks long-term capital growth by investing its assets in
securities that provide an opportunity for capital appreciation. The Growth Fund
is designed for investors who want to build capital over time to meet long-range
goals.
The Growth Fund's portfolio investments and the composition of its total
portfolio are considered from the viewpoint of potential capital appreciation.
This composition will be adjusted from time to time to best accomplish its
investment objective under current conditions. In pursuing its objective, the
Growth Fund will invest primarily in common stocks selected in accordance with
its investment objective.
The Growth Fund may invest in convertible preferred stocks rated at least "B"
by Standard and Poor's Corporation ("S&P") or at least "b" by Moody's Investors
Service, Inc. ("Moody's") preferred stock ratings, and convertible debentures
and notes rated at least "B" by S&P's and Moody's corporate bond ratings
("convertible securities"). Investments in convertible securities having these
ratings may involve greater risks than convertible securities having higher
ratings. Common stocks and convertible securities purchased will be of companies
which are believed by SM&R to provide an opportunity for capital appreciation.
The proportion of assets invested in any particular type of security can be
expected to vary, depending on SM&R's appraisal of market and economic
conditions. Under normal conditions at least 50% of the Growth Fund's total
assets will be invested in common stocks. On a temporary basis, the Growth Fund
may invest in commercial paper which at the date of such investment, is rated in
one of the two top categories by one or more of the nationally recognized
statistical rating organizations ("NRSRO's"), in certificates of deposit in
domestic banks and savings institutions having at least $1 billion of total
assets, and in repurchase agreements which are discussed under "Other Investment
Strategies."
AMERICAN NATIONAL INCOME FUND, INC.
The Income Fund seeks current income with a secondary objective of long-term
capital appreciation. The Income Fund is designed for investors seeking to
protect the purchasing power of their money while retaining the potential for
growth and reducing their exposure to the volatility of the market.
The Income Fund's portfolio investments and the composition of its total
portfolio are considered not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. This
composition of portfolio investments will be adjusted from time to time to best
accomplish its investment objectives under current conditions.
In pursuit of its objectives, the Income Fund will invest in common stocks,
preferred stocks and marketable debt securities selected in accordance with the
Income Fund's investment objectives. Common and preferred stocks purchased will
generally be of companies with consistent and increasing dividend payment
histories which are believed by SM&R to have further earnings potential
sufficient to continue such dividend payments. Debt securities will include
publicly traded corporate bonds, debentures, notes, commercial paper, repurchase
agreements, and certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets. The proportion of
assets invested in any particular type of security can be expected to vary,
8
<PAGE>
depending on SM&R's appraisal of market and economic conditions. Under normal
conditions at least 50% of the Income Fund's assets will be invested in equity
securities rather than debt securities.
Corporate debt obligations purchased by the Income Fund will consist only of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above.
TRIFLEX FUND, INC.
The Triflex Fund seeks to conserve principal, produce current income, and
achieve long-term capital appreciation. The Triflex Fund is designed for
investors seeking income and conservation of the purchasing power of their
capital.
The Triflex Fund seeks to achieve its objectives by flexibly managing a
balanced portfolio of fixed-income securities such as bonds, commercial paper,
preferred stock and short-term obligations combined with common stocks and
securities convertible into common stocks. The Triflex Fund will only purchase
common stocks and convertible securities of corporations having a market
capitalization of at least $100 million, an operating history of at least three
(3) years, and a listing on the New York Stock Exchange, American Stock Exchange
or Over-The-Counter markets. Corporate bonds purchased will consist of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above. The
Triflex Fund may also invest in repurchase agreements. This balanced investment
policy is intended to reduce risk and to obtain results in keeping with the
Triflex Fund's objectives.
The Triflex Fund's investments will be in fixed-income securities and equity
securities as described above. However, the Triflex Fund will sometimes be more
heavily invested in equity securities and at other times it will be more heavily
invested in fixed-income securities, depending on management's appraisal of
market and economic conditions. SM&R believes that a fund that is wholly
invested in fixed-income securities carries a large interest rate risk. Interest
rate risk is the uncertainty about losses due to changes in the rate of interest
on debt instruments. The major interest rate risk for investors, however, is not
in the interest rate itself, but in the change in the market price of bonds that
results from changes in the prevailing interest rate. Higher interest rates
would mean lower bond prices and lower net asset value for the Triflex Fund's
shareholders assuming no change in its current investment objective and
portfolio. Diversifying the Triflex Fund's portfolio with investments such as
commercial paper, convertible securities and common stocks may reduce the
decline in value attributable to the increase in interest rate and resulting
decrease in the market value of bonds and may reduce the interest rate risk.
However, stock prices also fluctuate in response to a number of factors,
including, changes in general level of interest rates, economic and political
developments and other factors which impact individual companies or specific
types of companies. Such market risks cannot be avoided but can be limited
through a program of diversification and a careful and consistent evaluation of
trends in the capital market and fundamental analysis of individual equity
holdings.
The Triflex Fund's goal of preservation of capital while owning common stocks
is dependent upon various factors, including the sustained long-term growth of
the United States economy. SM&R recognizes that recessions occur but also
recognizes that the economy historically has come back from those recessions.
Therefore, SM&R believes that the United States economy will continue to grow,
that
9
<PAGE>
the political environment will continue to be relatively stable and that the
financial markets will continue to function in a reasonably orderly fashion. As
long as these factors occur, SM&R believes that there is a reasonable likelihood
the Triflex Fund can reach its goal of preservation of capital while at the same
time investing in common stock.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity holding consistent with SM&R's outlook and
evaluation of trends in the economy and the financial markets. The Triflex
Fund's level of commitment to common stocks and specific common stock
investments will be determined as a result of this process. For example, within
an environment of rising inflation, common stocks historically have preserved
their value better than bonds; therefore, inclusion of common stocks could tend
to conserve principal better than a portfolio consisting entirely of bonds and
other debt obligations. In addition, within an environment of accelerating
growth in the economy, common stocks historically have conserved their value
better than bonds in part due to a rise in interest rates that occur
coincidentally with accelerating growth and profitability of the companies.
The Triflex Fund will not purchase a security if as a result of such purchase
less than 25% of its total assets will be in fixed-income senior securities
(including short and long-term securities, preferred stocks and convertible debt
securities and preferred stocks to the extent their value is attributable to
their fixed-income characteristics).
OTHER INVESTMENT STRATEGIES
Each Fund, consistent with its objectives and policies, may employ one or more
of the following strategies to enhance investment results.
COMMERCIAL PAPER. Commercial paper is short-term unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. The Funds will not invest in variable amount master
demand notes.
REPURCHASE AGREEMENTS. Each Fund may occasionally purchase repurchase
agreements in which a Fund purchases a U.S. government security subject to
resale to a bank or dealer at an agreed upon price and date. These repurchase
agreements will be entered into only with government securities dealers
recognized by the Federal Reserve Board or with member banks of the Federal
Reserve System. During the holding period, the seller must provide additional
collateral if the market value of the obligation falls below the repurchase
price. The custodian for the Fund purchasing such agreement will take title to,
or actual delivery of the security. A default by the seller might cause a Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Fund might also incur disposition costs in liquidating
the collateral. The Funds will purchase only repurchase agreements maturing in
seven (7) days or less of such purchase.
CERTIFICATE OF DEPOSIT. A certificate of deposit is generally a short-term,
interest-bearing negotiable certificate issued by a commercial bank or savings
and loan association against funds deposited in the issuing institution. The
interest rate may be fixed for the stated term or may be periodically adjusted
prior to the instrument's stated maturity, based upon a specified market rate. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction to finance
the import, export, transfer or storage of goods. The borrower is liable for
payment, as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have maturities
of six months or less and are traded in secondary markets prior to maturity.
Savings and loan associations whose certificates of deposit may be purchased
by the Funds are subject to regulation and examination by the Office of Thrift
Supervision. Such certificates of deposit held by the Funds do not benefit
materially from insurance from the Federal Deposit Insurance Corporation.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). ADRs are U.S. dollar-denominated
securities of foreign corporations which are traded in the U.S. on national
securities exchanges or over-the-counter and are issued by domestic banks. The
banks act as
10
<PAGE>
custodian of the shares of the foreign stock and collect dividends on the stock
which are either reinvested or distributed to the ADR holder in U.S. dollars.
While ADRs are not considered foreign securities, they may entail certain
political, economic and regulatory risks. Such risks may include political or
social instability, excessive taxation and limitations on the removal of funds
or other assets which could adversely affect the value of a Fund's investments.
The economies of many countries in which a Fund may invest may not be as
developed as the U.S. economy and may be subject to significantly different
forces. Foreign companies are not registered with the commission and are not
generally subject to the regulatory controls imposed on U.S. issuers.
Consequently, there is generally less public information available on foreign
securities. Foreign companies are not subject to uniform accounting, auditing,
and financial reporting standards. Income from foreign securities owned may be
reduced by a withholding tax at the source, which tax would reduce income
payable to a Fund's shareholders.
These strategies and other investment restrictions are more fully discussed in
the Funds' Statement of Additional Information under "INVEST-
MENT OBJECTIVES AND POLICIES."
THE FUNDS AND THEIR MANAGEMENT
The Funds were originally incorporated as follows: Growth Fund, State of
Florida, May 5, 1953; Income Fund, State of Texas, May 1, 1970 and the Triflex
Fund, State of Texas, November 20, 1987. The Funds were subsequently
reincorporated in the State of Maryland on November 30, 1989. They are
diversified, open-end management investment companies (I.E., mutual funds).
A Board consisting of seven directors has overall responsibility for
overseeing the affairs of each Fund in a manner reasonably believed to be in the
best interest of each Fund. The Boards have delegated to SM&R, the adviser, the
management of each Fund's day to day business and affairs. In addition, SM&R
invests each Fund's assets, provides administrative services and serves as
transfer agent, dividend payment agent and underwriter. While the use of this
combined Prospectus subjects each Fund to possible liability as the result of
statements or omissions regarding another Fund, the Board of Directors of each
Fund considers the benefits to the respective Fund of using a combined
Prospectus to outweigh the risk.
SM&R, is a wholly-owned subsidiary of American National Insurance Company
("American National"). The Moody Foundation, a private foundation, owns
approximately 23.7% of American National's common stock and the Libbie Shearn
Moody Trust, a private trust for which the Moody National Bank acts as trustee,
owns approximately 37.6% of such shares. SM&R was incorporated in 1964 and has
managed investment companies since 1966. SM&R is also investment adviser to
American National, a Texas insurance company having its principal office in
Galveston, Texas; American National Investment Accounts, Inc., an investment
company used to fund benefits under variable contracts issued by American
National; SM&R Investments, Inc., an investment company consisting of four
investment portfolios (SM&R Investments, Inc. and the American National Funds
Group are collectively referred to in this Prospectus as the "SM&R Family of
Funds"); and for the Moody National Bank of Galveston (the "Bank"), a national
bank. SM&R may, from time to time, serve as investment adviser to other clients
including banks, employee benefit plans, other investment companies, foundations
and endowment funds.
As of September , 1998, SM&R and its parent, American National Insurance
Company, owned [ %] and [ %], respectively of the outstanding shares
of the Growth Fund; [ %] and [ ]%, respectively of the Income Fund;
[ %] and [ %], respectively of the Triflex Fund. American National and
SM&R reserve the right to vote these shares as they deem appropriate.
The following persons are affiliated with SM&R and the Funds as officers:
Michael W. McCroskey, Gordon D. Dixon, Emerson V. Unger, Teresa E. Axelson and
Brenda T. Koelemay.
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<PAGE>
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in
providing investment advisory services to the Funds. While the following
individuals are primarily responsible for the day-to-day portfolio management of
their respective Fund, all accounts are reviewed on a regular basis by SM&R's
Investment Committee to ensure that they are being invested in accordance with
investment policies.
GORDON D. DIXON, DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER OF
SECURITIES MANAGEMENT AND RESEARCH, INC., VICE PRESIDENT, PORTFOLIO MANAGER OF
THE GROWTH FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Dixon joined Securities
Management and Research, Inc. in 1993. He graduated from the University of South
Dakota with a B.A. in Finance and Accounting and from Northwestern University in
1972 with an M.B.A in Finance and Accounting. Mr. Dixon began his investment
career in 1972 as an Administrative and Research Manager with Penmark
Investments. In 1979 he began working for American Airlines in the management of
the $600 million American Airlines Pension Portfolio, of which approximately
$100 million was equities. In 1984 he was employed by C&S/ Sovran Bank in
Atlanta, Georgia as Director of Equity Strategy where he had responsibility for
all research, equity trading and quantitative services groups as well as
investment policy input of a portfolio of approximately $7 billion, of which
$3.5 billion was equities.
WILLIAM R. BERGER, C.F.A., VICE PRESIDENT, PORTFOLIO MANAGER OF THE TRIFLEX
FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Berger joined Securities Management
and Research, Inc. in 1993. He graduated from Miami University, Oxford, Ohio in
1985 with a B.S. with Honors in Accounting and Finance and from The Wharton
School, University of Pennsylvania in 1988 with an M.B.A. in Finance and
Investment Management. Mr. Berger began his investment career in 1989 with
Trinity Investment Management Corporation as an equity and balanced portfolio
manager for various discretionary accounts worth more than $80 million for
corporate, endowment, religious and public funds. Prior to joining Trinity
Investment Management Corporation Mr. Berger was a Senior Auditor for Coopers &
Lybrand. Mr. Berger is a Chartered Financial Analyst and a Certified Public
Accountant.
ADVISORY AGREEMENTS
GROWTH FUND. Under the Growth Fund's Investment Advisory Agreement, dated
November 30, 1989, SM&R receives a basic advisory fee (the "Basic Advisory Fee")
which is adjusted for an upward or downward movement in the investment
performance during the previous thirty-six (36) monthly periods of the Fund as
compared to the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. This Basic Advisory Fee is computed each month
by applying to the average daily net asset value of the Fund (computed by adding
the daily net asset values for the month and dividing the resulting total by the
number of days in the month) one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
The Basic Advisory Fee annual rate is adjusted each month by adding to or
subtracting from such rate, when appropriate, the applicable performance
adjustment amount percentage shown in the table below. The resulting advisory
fee rate is then applied to the average daily net asset value of the Fund for
the succeeding month. The advisory fee for such month will be one-twelfth
(1/12th) of the resulting dollar figure.
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<PAGE>
The performance adjustment amount will vary with the Fund's performance as
compared to the Lipper Index as shown by the following table:
<TABLE>
<CAPTION>
Performance Compared To Performance
Lipper Index Adjustment Amount
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
<CAPTION>
Performance Compared To Performance
Lipper Index Adjustment Amount
<S> <C>
0.10% to 0.99% below -0.02%
1.00% to 1.99% below -0.04%
2.00% to 2.99% below -0.06%
3.00% to 3.99% below -0.08%
4.00% to 4.99% below -0.10%
5.00% to 5.99% below -0.12%
6.00% to 6.99% below -0.14%
7.00% to 7.99% below -0.16%
8.00% to 8.99% below -0.18%
9.00% and below -0.20%
</TABLE>
See "INVESTMENT ADVISORY AND OTHER SERVICES" in the Funds' Statement of
Additional Information for a more detailed description of the method used in
calculating the performance adjustment. See Appendix B for a description of
these ratings
INCOME FUND AND TRIFLEX FUND. Under the Income and Triflex Funds' Investment
Advisory Agreements dated November 30, 1989, SM&R receives from each Fund an
investment advisory fee computed by applying to the average daily net asset
value of each Fund each month one-twelfth (1/12th) of the annual rate as
follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
As compensation for its services, SM&R is paid an investment advisory fee,
which is calculated as indicated above for each Fund. SM&R received total
advisory fees from the Growth, Income, and Triflex Funds for the fiscal year
ended December 31, 1997 which represented .60%, .69%, and .75%, respectively, of
each Fund's average daily net assets. The ratio of total expenses to average net
assets for each Fund for the same period are .96%, 1.05%, and 1.26%,
respectively.
The fees payable under each Fund's Investment Advisory Agreement may be higher
than the fees paid by other mutual funds, but each Fund believes its fees are
comparable to those paid by funds with the same or similar investment objective.
Consistent with the Conduct Rules (formerly the Rules of Fair Practice) of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Funds may give consideration to sales of their shares
as a factor in the selection of brokers and dealers to execute each Fund's
portfolio transactions when it is believed by SM&R that this can be done without
causing the Funds to pay more in brokerage commissions than they would
otherwise.
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<PAGE>
ADMINISTRATIVE SERVICE AGREEMENTS
The administrative service agreements with the Funds provide for payment of an
administrative service fee to SM&R which is computed by applying to the average
daily net asset value of each Fund each month one-twelfth of the annual rate as
follows:
<TABLE>
<CAPTION>
Administrative
On the Portion of the Fund's Service
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.25 %
Exceeding $100,000,000 but
not exceeding $200,000,000 0.20 %
Exceeding $200,000,000 but
not exceeding $300,000,000 0.15 %
Exceeding $300,000,000 0.10 %
</TABLE>
SM&R received total administrative service fees from the Growth, Income, and
Triflex Funds for the fiscal year ended December 31, 1997 which represented
[ ]%, [ ]%, and [ ]%, respectively, of each Fund's average daily
net assets.
SM&R has agreed in each Fund's administrative service agreement to pay (or to
reimburse each Fund for) the Fund's regular operating expenses (including the
advisory fee and administrative service fee, if any, paid to SM&R, but exclusive
of "12b-1 fees," Class-specific expenses, interest, taxes, commissions and other
expenses incidental to portfolio transactions) in excess of 1.25% per year of
each Fund's average daily net assets. (See "Administrative Service Agreement" in
the Funds' Statement of Additional Information for the fees paid by the Funds
thereunder.)
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Funds adopted a Distribution and Shareholder Servicing Plan (the "12b-1
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Class A, Class B, Class
C, and Class J shares of the Funds. No Distribution Fee or Service Fee is
imposed on Class Y shares.
HOW TO PURCHASE SHARES
An investor may purchase Class Y shares of the Funds from registered
representatives of SM&R, from authorized broker-dealers, or directly from SM&R.
Such purchases will be at the offering price for such shares determined as
provided under the caption "DETERMINATION OF OFFERING PRICE" in this Prospectus.
Class Y shares may be purchased by the following investors:
(a) institutional investors, such as insurance companies, banks, investment
companies, retirement plans, and other institutional investors approved by SM&R;
(b) trust companies and bank trust departments for funds over which they
exercise exclusive discretionary investment authority or they serve as a
directed trustee and which are held in a fiduciary, agency, advisory, custodial
or similar capacity;
(c) accounts managed by SM&R;
(d) any non-profit business, trade, professional charitable, civic or
similar associations and clubs with an active membership of at least 100 persons
who have entered into an NAV agreement with SM&R; and
(e) other investors, including individuals, with initial investments of
$500,000 or more.
Neither the Funds nor SM&R are responsible for determining whether or not a
prospective investor qualifies under any of the above categories to purchase
Class Y shares. Notifying SM&R of an intent to qualify under one of these
categories is the sole responsibility of the prospective investor.
SM&R will send a monthly confirmation for any month in which the account is
active. An investor should carefully review the monthly confirmation and
promptly report any discrepancies to SM&R. Initial and subsequent purchases may
be made directly through SM&R at the following address:
Securities Management and Research, Inc.,
One Moody Plaza, 14th Floor
Galveston, Texas 77550
Each Fund's shares of authorized capital stock are all common stock, are
nonassessable and fully transferable, and each has one vote.
Certificates are not normally issued for shares of the Funds in an effort to
minimize the risk of loss or
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<PAGE>
theft. However, SM&R confirms investors' purchases and credits such purchases to
their accounts on the books maintained by SM&R. Investors have the same rights
of share ownership as they would if certificates had been issued. Furthermore, a
lost, stolen or destroyed certificate cannot be replaced without obtaining a
sufficient indemnity bond. The cost of such a bond is borne by the investor and
can be 2% or more of the value of the lost, stolen, or destroyed certificate.
OPENING AN ACCOUNT
For initial purchases, an investor must submit an account application (the
"Account Application"), which includes the purchaser suitability form (the
"Suitability Form"). If an investor would like to take advantage of the
electronic services available, that investor must complete the Special Investor
Services section of the Account Application. Special forms are required when
establishing an IRA/SEP or 403(b) plan. Please call Investor Services at (800)
231-4639 and request the special forms when establishing retirement plans. Keep
in mind when opening an account that transactions by telephone between different
accounts will only be permitted if the accounts are registered in the identical
name.
PURCHASE AMOUNTS
For Class Y shares, the minimum initial investment requirement is $500,000. If
the investor is a group or institution specified in (a)-(d) of "HOW TO PURCHASE
SHARES," the minimum initial investment must only be $[ ]. All subsequent
investments must be at least $[ ]. The Company reserves the right to reject
any purchase.
PURCHASES BY MAIL
An investor should make the check(s) payable to SM&R and send the check to the
address indicated above. Please note that third party checks will not be
accepted to open a new account, except for IRA Rollover checks that are properly
endorsed. Investors making subsequent investments by mail must indicate their
name, account number, and the name of the Class and Fund being purchased. The
investor may use the remittance slip attached to the confirmation statement.
PURCHASES BY WIRE
To ensure proper crediting of a wire investment, an investor must have an
executed Account Application (including the Special Investor Services section)
and Suitability Form on file with the transfer agent. An investor may then wire
his investment by providing the following instructions to his bank:
The Moody National Bank of Galveston
ABA #113100091
Securities Management and Research, Inc.
#035 868 9
Name of Class and Fund, (E.G. Class Y of the Growth Fund)
Fund Account Number (number appears on your confirmation statement)
Investor's Name, (E.G. First National Bank)
If wires are received after 3:00 p.m. Central Time or during a Bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day.
PURCHASES BY EXCHANGE
An investor may call Investor Services if he has established telephone
exchange privileges on his account. See "SPECIAL PLANS AND SERVICES-Exchange
Privilege" for procedures and additional information relating to telephone
exchanges. For limitations on exchanges, see "Excessive Trading" also under
"SPECIAL PLANS AND SERVICES."
IMPORTANT: The Funds reserve the right to (1) refuse to open an account for
any person failing to provide a taxpayer identification number, certified as
correct and (2) close an account by redeeming its shares in full, at the then
current net asset value upon receipt of notice from the IRS that the taxpayer
identification number certified as correct by the shareholder is in fact
incorrect.
WHEN ARE PURCHASES EFFECTIVE?
Purchases received in proper form by SM&R prior to the close of the New York
Stock Exchange (currently 3:00 p.m. Central Time) (the "Exchange") on any SM&R
business day, or received prior thereto on any SM&R business day by a securities
dealer having a dealer contract with SM&R and reported to SM&R prior to SM&R's
close of business (currently 4:30 p.m. Central Time) on the same day,
15
<PAGE>
will be effective and executed at the applicable Offering Price determined at
the close of the Exchange on that day. It is the responsibility of any such
dealer, and not SM&R, to establish procedures to assure that purchases received
before the close of the Exchange on an SM&R business day will be reported to
SM&R before SM&R's close of business on that same day. Purchases received after
the close of the Exchange, or customary national business holidays, or on an
SM&R holiday will be effective upon and made at the Offering Price determined as
of the close of the Exchange on SM&R's next business day that such Exchange is
open for trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange or on an
SM&R holiday, will be effective on and made at the Offering Price determined on
SM&R's next business day. Procedures for transmitting Federal Funds by wire are
available at any national bank, or any state bank which is a member of the
Federal Reserve System.
SM&R's business holidays are Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day, two (2) days
at Christmas and New Years Day. If Christmas Day is a weekday other than Monday,
Christmas Day and Christmas Eve Day are business holidays. If Christmas Day is
Monday, Christmas Day and the preceding Friday will be business holidays. If
Christmas Day is a Saturday, the preceding Thursday and Friday will be business
holidays. If Christmas Day is a Sunday, the preceding Friday and the following
Monday will be business holidays. If New Years Day is a Saturday the preceding
Friday will be a business holiday and if New Years Day is a Sunday, the
following Monday will be a business holiday. For calendar year 1998,
Independence Day will be observed on July 3, 1998.
DETERMINATION OF OFFERING PRICE
The offering price of Class Y shares of each Fund is equal to the net asset
value of such shares. Net asset value per share is determined by dividing the
market value of the securities owned by Class Y of each Fund, plus any cash or
other assets (including dividends accrued but not collected), less all
liabilities (including accrued expenses but excluding capital and surplus), by
the number of shares outstanding of Class Y. Net asset value is currently
determined as of 3:00 p.m. Central Time on each business day. Although the legal
rights of the Classes of shares of the Funds are substantially identical, the
different expenses borne by each Class will result in different net asset values
and dividends for each Class.
For a more complete description of the procedures involved in valuing various
Fund assets, see "Offering Price" in the Funds' Statement of Additional
Information.
MULTIPLE CLASS STRUCTURE
Five other Classes of shares of the Funds are available through separate
prospectuses. Each Class represents an interest in the same portfolio of
investments and each Class has the same rights as the other Classes, except that
each Class bears its own expenses and charges. The net income attributable to
each Class and the dividends payable on the shares of that Class will be reduced
by the amount of the service and distribution (12b-1) fees of that Class, if
any.
The five other Classes include: (1) Class A "front-end load" shares; (2) Class
B "back-end load" shares; (3) Class C "level load" shares; (4) Class T shares
sold only to investors that became shareholders of the Funds prior to September
, 1998 and certain designated persons; and (5) Class J shares sold only
through special "network" distribution arrangements. Class A, Class B, Class C,
Class T, and Class J shares are subject to different sales charges and other
expenses and, accordingly, will have expense ratios and performance that differs
from those of Class Y shares. You are encouraged to consider all of the Funds'
class alternatives and choose the one that fits your individual circumstances at
the lowest level of fees. FOR MORE
16
<PAGE>
INFORMATION ON THE OTHER CLASSES OF SHARES OR TO REQUEST A PROSPECTUS FOR
ANOTHER CLASS, INVESTORS MAY CONTACT INVESTOR SERVICES AT (800) 231-4639.
FUND AND CLASS SPECIFIC EXPENSES
Expenses that are directly attributable to a particular Class of shares
("Class Specific Expenses") will be borne solely by that Class. Class Specific
Expenses include: (1) asset-based distribution fees and shareholder service
fees; (2) transfer agency fees attributable to a particular Class; (3) expenses
related to preparing, printing, mailing, and distributing materials such as
shareholder reports, prospectuses, and proxy statements to current shareholders
of a specific Class; (4) state and federal registration fees incurred by a
specific Class; (5) litigation and other legal expenses relating to a particular
Class; (6) directors' fees and expenses incurred as a result of issues relating
solely to a particular Class; (7) accounting, audit, and tax expenses relating
to a specific Class; (8) the expenses of administrative personnel and services
required to support the shareholders of a specific Class; and (9) fees and other
payments made to entities performing services for a particular Class, including
account maintenance, dividend disbursing, or subaccounting services.
Class Specific Expenses may be waived or reimbursed by SM&R, the Fund's
investment adviser and distributor. Investment advisory fees, custodial fees,
and other expenses relating to the management of the Funds' assets shall not be
allocated on a class-specific basis. Income, realized and unrealized capital
gains and losses, and expenses that are not allocated to a specific Class shall
be allocated to each Class on the basis of the proportionate net assets of that
Class in relation to the net assets of the Fund. All direct sales expenses for
Class Y shares are paid by SM&R, and no sales expense is borne by Class Y shares
of the Funds.
For additional information about the expenses of the Funds, see the Statement
of Additional Information.
SPECIAL PURCHASE PLANS AND SERVICES
The Funds offer services and plans that are designed to facilitate investment
in the Funds. At this time, there is no charge to investors for these services.
The Funds may impose fees for such services in the future. Be aware, however,
that shareholders electing to participate in the ACH plan described below should
check with their financial institution for any additional charges imposed for
this service. For additional information contact your registered representative
or SM&R. A shareholder considering any of the plans or services described below
should consult a tax advisor before beginning a plan.
ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows shareholders
to move money between their Fund account(s) and their bank, savings and loan, or
credit union account using the Automated Clearing House (ACH) network. To
arrange for electronic transfers, investors should complete the relevant section
of the Account Application at the time they open the account and specify the
type of service or services desired. Shareholders should also attach a voided,
pre-printed check or deposit slip from their checking, savings and loan or
credit union account. Passbook savings accounts are not eligible for the
electronic transfer option. Additionally, an investor's bank must be a member of
the Automated Clearing House (ACH) network for the investor to take advantage of
this service. Shareholders will receive a confirmation verifying initialization
of the electronic transfer option and may begin conducting transactions in their
account(s) under this option approximately 20 calendar days after receipt of the
verification notice from SM&R. If this option is elected after the account is
established, it may be necessary for the shareholder to obtain a signature
guarantee for all individuals named on the account(s) desiring this service.
TELEPHONE SERVICES. Investors can take advantage of this service by completing
the appropriate sections of the Account Application when opening their account.
Through this service, investors will be able to purchase by ACH, redeem, and
exchange shares on those accounts for which they have an executed Account
Application on file, and have received verification from SM&R that the service
has been initialized as explained under Electronic Transfers above. If this
option is elected after the account is established, it may be necessary for the
shareholder to obtain a signature guarantee for all individuals
17
<PAGE>
named on the account(s) desiring this service. Please note that the telephone
redemption option is not available to retirement plans.
The Funds have implemented the following security procedures intended to
protect shareholder accounts from losses resulting from unauthorized or
fraudulent telephone instructions. The caller will be required to know (i) the
name of the Fund or Funds; (ii) all digits of the account number; (iii) the
exact name and address used in the registration(s); and (iv) the Social Security
or Employer Identification Number listed on the account(s). Additionally, all
telephone transactions will be recorded for the shareholder's protection.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, shareholders
should bear the risk of any losses resulting from unauthorized or fraudulent
telephone transactions on their accounts.
AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via ACH) from a shareholder's bank account and
invested monthly, bi-monthly, quarterly, or annually into the designated Fund(s)
at the applicable offering price determined on the date of the electronic
transfer.
WEALTH ACCUMULATION ACCOUNT. Shareholders having account balances of at least
$2,500 in SM&R Investments, Inc.'s Money Market Fund (the "Money Market Fund")
may open a Wealth Accumulation Account, which will provide them with an
automatic dollar cost averaging plan. Automatic monthly purchases of the shares
of other funds in the SM&R Family of Funds may be made by exchanges from the
shareholder's Money Market Fund Wealth Accumulation Account. Purchases of the
other funds must be at least $50 and, unless terminated by the shareholder, will
continue as long as the balance of the Money Market Fund Wealth Accumulation
Account is sufficient. Additional investments may be made to a Money Market Fund
account designated as a Wealth Accumulation Account to extend the purchase
period under the plan. However, if additional investments are received by SM&R
less than ten (10) business days prior to the 20th of the month, such
investments will not be available for use under the Wealth Accumulation Account
until the 20th of the following month. If the 20th of the month is an SM&R
holiday, the purchase will be processed on the next business day.
Purchases made will be subject to the applicable sales charge of the fund
whose shares are being purchased. Changes in amounts to be purchased, the funds
being purchased, and termination of a Wealth Accumulation Account will be made
within five (5) business days after written instructions are received by SM&R in
proper form (I.E., signed by the owner(s) of record exactly as registered).
Shareholders' rights to make additional investments, to exchange shares, and
to redeem shares in the Money Market Fund and any of the funds in the SM&R
Family of Funds, are not affected by a shareholder's participation in a Wealth
Accumulation Account. However, check writing privileges and expedited redemption
by telephone are not available for the Money Market Fund accounts designated as
a part of the Wealth Accumulation Account.
Shareholders of SM&R Investments, Inc.'s Primary Fund (the "Primary Fund")
that opened a Primary Fund Wealth Accumulation Account prior to September
, 1998 will be permitted to continue using the Account subject to the
terms applicable to a Money Market Fund Wealth Accumulation Account, described
above.
EXCHANGE PRIVILEGE. Shareholders in a Fund are permitted to exchange shares
that they own in a Fund with shares of another fund in the SM&R Family of Funds
without the payment of an exchange fee, subject to certain conditions. Exchanges
between a Fund and another fund in the SM&R Family of Funds are available only
in states where the applicable funds are registered and the exchange may be
legally made.
Shareholders may exchange Class Y shares, without an exchange fee, for
corresponding Class Y
18
<PAGE>
shares of another fund in the SM&R Family of Funds. Shareholders also may
exchange their Class Y shares for shares of SM&R Investments, Inc.'s Primary
Fund and Money Market Fund, provided that the shareholder meets any minimum
investment requirement for the shares they wish to acquire. Finally, you may
exchange Class T shares for shares of another Class of the same Fund, provided
that you pay any difference in sales charges.
You may acquire, through an exchange, shares of a Class with a contingent
deferred sales charge ("CDSC"). If you redeem those shares, the relevant CDSC,
if any, will be calculated from the date that you initially purchased the
original shares, rather than from the date of exchange.
Shares of any fund in the SM&R Family of Funds held in escrow under a Letter
of Intent are not eligible for the exchange privilege. Such shares will not be
released from escrow until the balance invested during the period specified in
the Letter of Intent equals or exceeds the amount required to be invested under
the Letter of Intent or the shareholder requests, in writing, that the Letter of
Intent be canceled and pays any adjustments in sales charge. After release from
escrow, shares may be exchanged, provided all other applicable conditions are
met.
You may request an exchange by telephone or in writing. In order to exchange
shares, the following requirements must be met: (a) the exchange must be made
between accounts having identical registrations and addresses; (b) the shares of
the fund of the SM&R Family of Funds acquired through exchange must be qualified
for sale in the state in which you reside; (c) the dollar amount of the exchange
must meet the minimum investment requirement applicable to the shares of the
fund in the SM&R Family of Funds that you would acquire through the exchange;
(d) SM&R must have received full payment for the shares being exchanged; (e)
your account must have been coded to reflect your certified taxpayer
identification number, or, if applicable, an appropriate Internal Revenue
Service Form W-8 (certificate of foreign status) or Form W-9 (certifying exempt
status); (f) any shares that you wish to exchange must have been held for at
least ten (10) business days; (g) certificates representing shares, if any, are
returned before such shares are exchanged; and (h) you have received a
prospectus for the shares you receive in the exchange.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by the participating funds or by SM&R at any time. Any
gain or loss realized on an exchange or re-exchange may be recognized for
federal and state income tax purposes. Shareholders should consult a tax advisor
for the tax treatment and effect of exchanges.
EXCESSIVE TRADING. Frequent trades, involving either substantial Fund assets or
a substantial portion of an account or accounts controlled by a shareholder, can
disrupt management of the Fund and raise the Fund's expenses. The Funds define
"excessive trading" as exceeding one purchase and sale involving the same Fund
within any 120-day period.
For example, a shareholder is in Fund X. He can move substantial assets from
Fund X to Fund Y and, within the next 120 days, sell his shares in Fund Y to
return to Fund X or move to Fund Z. If the shareholder exceeds the number of
trades described above, he may be barred indefinitely from further transactions
of the participating funds.
There are two types of transactions exempted from the excessive trading
guidelines. They are (1) redemptions that are not part of exchanges and (2)
systematic purchases or redemptions.
RETIREMENT PLANS
An account may be established in Individual Retirement Accounts (IRA), which
includes Traditional, Roth, Education, and SIMPLE IRAs as well as Simplified
Employee Pension Plans (SEP IRAs). Additional retirement plans include 403(b)(7)
(TSA) Custodial Accounts and corporate retirement plans. These plans allow
investors to shelter investment income from federal income tax while saving for
retirement. The minimum initial purchase for Class Y shares of the Funds is
generally $500,000 (See "HOW TO PURCHASE SHARES"). SM&R acts as
19
<PAGE>
trustee or custodian for IRAs, SEPs and TSAs for the Funds. An annual custodial
fee of $7.50 per account will be charged for any part of a calendar year in
which an investor has any type of IRA, SEP or TSA accounts in the Funds and will
be automatically deducted from each account. Documents and forms containing
detailed information regarding these plans are available from a representative
or SM&R. An individual considering a retirement plan may also wish to consult
with an attorney or tax advisor.
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES
The Income and Triflex Funds will pay dividends from investment income, if
any, quarterly, during the months of March, June, September and December, and
distribute capital gains, if any, in December. The Growth Fund will pay
dividends from investment income, if any, semi-annually during the months of
June and December and distribute capital gains, if any, in December. Dividends
from net investment income may include net short-term capital gains, if any.
Dividends and capital gains distributions may also be made at such other times
as may be necessary to comply with the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
Dividends and capital gains distributions will be automatically reinvested at
net asset value in additional shares unless SM&R is instructed otherwise in
writing. Distributions not reinvested are paid by check or transmitted to your
bank account through an ACH transaction, if elected. If the Postal Service
cannot deliver your check, or if your check remains uncashed for six months, the
Funds reserve the right to reinvest your distribution check in your account at
the net asset value on the business day of the reinvestment and to reinvest all
future distributions in shares of the Funds. Dividends and capital gains
declared in December to shareholders of record in December and paid the
following January will be taxable to shareholders as if received in December.
After a dividend or capital gains distribution is paid, each Fund's share
price will drop by the amount of the dividend or distribution. Thus, a dividend
or capital gains distribution paid shortly after purchasing shares would
represent, in substance, a return of capital (to the extent it is paid on the
shares purchased), even though subject to income taxes as discussed below.
Shareholders and the IRS will be furnished an annual statement detailing federal
tax information, including information relative to dividends and distributions
paid to such shareholder during the preceding year.
INFORMATION COMMON TO THE FUNDS
Each Fund is a separate entity for federal income tax purposes and each Fund
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code. Each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in a timely
manner. Therefore, it is not expected that any Fund will be required to pay
federal income taxes.
In order to qualify as a regulated investment company, each Fund must meet
several requirements. These requirements include the following: (1) at least 90%
of the Fund's gross income must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or disposition of stock,
securities or foreign currencies or other income (including gains from options,
futures or forward contracts) derived in connection with the Fund's investment
business and (2) at the close of each quarter of the Fund's taxable year, (a) at
least 50% of the value of the Fund's assets must consist of cash, United States
Government securities, securities of other regulated investment companies and
other securities (limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer) and (b) not more than 25% of the value of the
Fund's assets may be invested in the securities of any issuer (other than United
States Government Securities or securities of other regulated investment
companies) or of two or more issuers which the Fund controls and which are
determined to be engaged in similar or related trades or businesses.
For federal income tax purposes, any income dividends derived from taxable
investments which the shareholder receives from any Fund, as well as any
distributions derived from net short-term capital
20
<PAGE>
gains, are treated as ordinary income whether the shareholder has elected to
receive them in cash or in additional shares. Distributions derived from net
long-term capital gains will be taxable as long-term capital gains regardless of
the length of time the shareholder has owned the Fund's shares and regardless of
whether such distributions are received in cash or in additional shares. In
determining the amount of capital gains, if any, available for distribution, net
capital gains are offset against available net capital losses, if any, carried
forward from previous years.
Redemptions and exchanges of shares in each Fund are taxable events on which a
shareholder may realize a gain or loss. Shareholders should consult with their
tax advisor concerning the tax reporting requirements in effect on the
redemption or exchange of such shares.
Each Fund may be required to report to the Internal Revenue Service ("IRS")
any taxable dividends or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the Application.
A shareholder may also be subject to backup withholding if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding taxes to distributions received by them from any Fund.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the fund from direct obligations of the
U.S. Government, subject in some states to minimum investment requirements.
At the end of each calendar year, the Funds will advise shareholders about the
tax status of all distributions made during each taxable year, including the
portion of the dividends which comprise taxable income, exempt income and
interest income that is a tax preference item under the alternative minimum tax.
Shareholders should consult a tax advisor about the application of state and
local (as well as federal) tax laws to these distributions and redemption
proceeds received from the Fund.
HOW TO REDEEM
Class Y shares will be redeemed at net asset value determined on the date the
request is received in "Proper Form" as defined below. There is no extra charge
for redemptions. A redemption request should be addressed to Securities
Management and Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas
77550.
If uncertain of the redemption requirements, investors should call Investor
Services or write SM&R. Payment will be made as soon as practicable and normally
within seven days after receipt of a redemption request in Proper Form. A wire
fee in the amount of $8.00 will be charged to the investor for redemptions by
wire under $5,000.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by personal check or ACH transfer, SM&R will process the redemption but will
generally delay sending the proceeds for up to ten (10) business days to allow
the check or transfer to clear.
TELEPHONE REDEMPTIONS. Shareholders may request redemptions by telephone if
they have completed the Account Application and requested this option. This
redemption feature can only be used if: (a) the redemption proceeds are to be
mailed to the address of record or wired to the pre-authorized bank account
indicated on the Account Application; (b) there has been no change of address of
record or pre-authorized bank account within the preceding 30 days; (c) the
shares to be redeemed are not in certificate form; (d) the security procedures
discussed under "SPECIAL PURCHASE PLANS AND SERVICES--Exchange Privilege" have
been met; and (e) the proceeds of the redemption do not exceed $25,000.
21
<PAGE>
SYSTEMATIC WITHDRAWAL PLAN. Each Fund has a "Systematic Withdrawal Plan"
("Withdrawal Account"), which permits shareholders having an account value of
$5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter on or about the 20th of the applicable month. Shareholders
maintaining a Withdrawal Account may elect to have the withdrawal proceeds
automatically deposited in their pre-authorized bank account via an ACH
transaction. This is accomplished by completing the relevant section of the
Account Application and returning it to SM&R. See "SPECIAL PURCHASE PLANS AND
SERVICES--Electronic Transfers" for additional information. Dividends and
capital gains distributions will automatically be reinvested in additional
shares
at net asset value. As with other redemptions, a withdrawal is a sale for
federal income tax purposes. The Systematic Withdrawal Plan will automatically
terminate if all shares are liquidated or withdrawn from the account.
Certificates are not issued for shares held in a withdrawal account and
certificates held, if any, must be surrendered when shares are transferred to a
Withdrawal Account. No account covered by a Letter of Intent can be changed to a
Systematic Withdrawal Plan until such time as the Letter of Intent is fulfilled
or terminated, nor can an account under a Systematic Withdrawal Plan be placed
under a Letter of Intent.
For further information about the Systematic Withdrawal Plan, contact a
registered representative or SM&R.
Any gain or loss on the redemption of the shares is recognized for income tax
purposes, whether or not the proceeds are reinvested in accordance with this
privilege, subject, however to the "wash sale" rule described under "Exchange
Privilege" in the Statement of Additional Information.
"PROPER FORM" means the request for redemption must include: 1) your share
certificates, if issued; 2) your letter of instruction or a stock assignment
specifying the Fund, account number, and number of shares or dollar amount to be
redeemed. Both share certificates and stock powers, if any, must be endorsed and
executed exactly as the Fund shares are registered. It is suggested that
certificates be returned by certified mail for your protection; 3) any required
signature guarantees (see "Signature Guarantees" below); and 4) other supporting
legal documents, if required in the case of estates, trusts, guardianships,
divorce, custodianships, corporations, partnerships, pension or profit sharing
plans, retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
requests are submitted to the Funds' transfer agent in Proper Form for
processing.
TEXAS OPTIONAL RETIREMENT PROGRAM. Shares in an account established under the
Texas Optional Retirement Program may not be redeemed unless satisfactory
evidence is received by SM&R from the State that one of the following conditions
exists: (1) death of the employee; (2) termination of service with the employer;
or (3) retirement of the employee.
SIGNATURE GUARANTEES. This guarantee carries with it certain statutory
warranties which are relied upon by the transfer agent. This guarantee is
designed to protect the investor, the Fund, SM&R and its representatives through
the signature verification of each investor wishing to redeem or exchange
shares. Signature guarantees are required when: (1) the proceeds of the
redemption exceed $25,000; (2) the proceeds (in any amount) are to be paid to
someone OTHER THAN the registered owner(s) of the account; (3) the proceeds (in
any amount) are to be sent to any address OTHER THAN the shareholder's address
of record, pre-authorized bank account or exchanged to one of the other funds
managed by SM&R; or (4) the Fund or its transfer agent believes a signature
would protect against potential claims based on the transfer instructions,
including, when the authority of a representative of a corporation, partnership,
association or other entity has not been established to the satisfaction of the
Fund or transfer agent.
Acceptable guarantees can be obtained from an "eligible guarantor institution"
as defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions include banks, brokers, dealers, municipal securities
dealers or brokers, government securities dealers or
22
<PAGE>
brokers, credit unions (if authorized under state law), national securities
exchanges, registered securities associations and institutions that participate
in the Securities Transfer Agent Medallion Program ("STAMP") or other recognized
signature guarantee medallion program or an SM&R representative who has executed
an agreement and received authorization from SM&R. IMPORTANT: Witnessing or
notarization is not sufficient.
REDEMPTION OF SMALL ACCOUNTS. The Funds reserve the right to redeem shares in
any account (which will be promptly paid to the shareholder) if, due to your
redemptions, the value of the account falls below $[ ]. If your account
balance falls below $[ ] as a result of redeeming shares, you will be
notified that the value of your account is less than the required minimum
indicated above and allowed at least 60 days to make an additional investment to
increase the value of your account above the required minimum. The Board of
Directors may, from time to time, change such required minimum investment.
RIGHTS RESERVED BY THE FUNDS. The Funds, acting through their transfer agent,
reserve the right to waive or lower investment minimums; to accept initial
purchases by telephone from a registered representative; to refuse any purchase
order; to cancel or rescind any purchase or exchange at any time prior to
receipt by the shareholder of written confirmation or, if later, within five (5)
business days of the transaction; to freeze an account and suspend account
services when notice has been received of a dispute involving account owners or
other parties or there is reason to believe a fraudulent transaction may occur;
to restrict or refuse the use of faxed redemptions where there is a question as
to the validity of the request or proper documents have not been received; to
otherwise modify the conditions of purchase and any services at any time; or to
act on instructions not believed to be genuine.
OTHER INFORMATION CONCERNING THE FUNDS
YEAR 2000 RISKS. Many services provided to the Funds and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated, referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. Like other mutual funds, financial and business organizations, and
individuals around the world, the Funds could be adversely affected if the
computer systems used by SM&R (which acts as their investment adviser,
underwriter, custodian, and transfer agent) do not properly process and
calculate date-related information and data from and after January 1, 2000. SM&R
is taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds and their shareholders.
VOTING RIGHTS. Within the respective Funds, all shares have equal voting,
participation and liquidation rights, but have no subscription, preemptive,
conversion, or cumulative voting rights.
On certain matters, such as the election of directors, all shares of each Fund
vote together, with each share having one vote. On other matters affecting a
particular Fund, such as the Investment Advisory Contract or fundamental
investment policies, only shares of that Fund are entitled to vote, and a
majority of the shares of that Fund are required for approval of the proposal.
On matters affecting a particular Class of a Fund, only shares of that Class of
the Fund are entitled to vote, and a majority of the shares of that Class are
required for approval of the proposal.
SPECIAL PAYMENTS TO BROKER-DEALERS. Broker-dealers or other securities dealers
that have entered into selling agreements with SM&R may receive compensation
from SM&R or an affiliated company in connection with selling shares of the SM&R
Family of Funds. Compensation may include financial assistance for conferences,
shareholder services,
23
<PAGE>
automation, sales and training programs, or promotional activities. Registered
representatives and their families may be paid for travel expenses, including
lodging, in connection with business meetings or seminars. In some cases, this
compensation may only be available to securities dealers whose representatives
have sold or are expected to sell significant amounts of shares. Securities
dealers may not use certain sales to qualify for this compensation if prohibited
by the laws of any state or self-regulatory agency, such as the National
Association of Securities Dealers, Inc.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
SM&R intends to pay its representatives and broker-dealers selling Class Y
shares from its own profits and resources. The amount (expressed as a per annum
percentage of the amount invested) which SM&R might pay such representatives and
broker-dealers is as follows for Class Y shares of the Growth, Income, and
Triflex Funds, respectively: Year 1--[ ]%, [ ]%, and [ ]%; Year
2--[ ]%, [ ]%, and [ ]%; and Year 3 and subsequent years,
[ ]% (for each Fund).
ADDITIONAL INFORMATION. This Prospectus and the Statement of Additional
Information referred to on the cover page do not contain all the information set
forth in the registration statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The omitted information may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission. For
further information, shareholders may also contact SM&R, whose address and phone
number are set forth on the cover of this Prospectus.
24
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
Looking back at 1997, U.S. economic characteristics reflected steady growth,
declining inflation, a decrease in the budget deficit, large increases in
business profits, employment and real incomes, and a continuation of
unprecedented stock market gains. Further, interest rates declined over the past
year as markets realized that with a backdrop of an appreciating dollar, global
deflationary tendencies, and excess liquidity via declining inflation, the
Federal Reserve would have no compelling reasons to alter monetary policy.
The S&P 500 ended 1997 registering its third consecutive year of +20% gains.
This ended the best calendar-three-year run since Standard and Poor's began
tracking indices in 1923. In addition, this was the first time since 1926 that
the S&P 500 produced better than 20% returns in three consecutive calendar
years. The year 1997 also featured a market of increased volatility. For 1997,
the S&P 500 closed more than 1% higher or lower than the previous day on 34% of
the trading days. In comparison, the average for the period 1990-1996 was less
than half that, at 14.5% of the trading days. For the fourth year in a row,
large capitalization stocks were the best performing size category. The S&P 500
broke 43 new record high marks during 1997, but not without a few bruises. The
9.6% decline between February 18 and April 11 stopped just short of the 10%
mark, which is traditionally the benchmark cited to declare a true market
correction. The 10% mark was crested, however, as stocks fell 10.8% between
October 7-27.
The Dow Jones World Index, which excludes the U.S. market, lost 3.0% during
the year, although performance was widely varied. Within the index, Asia/Pacific
declined 29.1% whereas Europe/Africa gained 19.9%. Also during the year, the
Merrill Lynch Domestic Bond Index rose 9.4%. Within this index, performance
varied from convertible bonds returning 16.1% to asset-backed securities
returning 7.2%. Money market returns were widely varied as well. The U.S. money
markets returned 5.1% whereas the foreign money markets fell 5.5%, reflecting
strength in the U.S. dollar.
Looking forward into the remainder of 1998, we believe the U.S. economy will
continue to grow, albeit at a reduced rate of approximately 2.0-3.0%. Inflation
will likely remain historically low (1.5-2.5%) as declining commodities costs
are countered by rising employment and wages. Such an environment will likely
lead to declining interest rates over the short run which, in turn, could
provide an ideal climate for fixed income securities as well as financial and
consumer dependent securities.
The Growth Fund seeks to identify stocks of superior companies utilizing two
valuation disciplines. These disciplines screen potential investments for both
cash flow and earnings with the goal of selecting companies suitable for long
term capital appreciation. The purpose of this approach is to purchase future
company earnings at a discount relative to peer companies, all else being equal.
The disciplines provide what we believe is a conservative and defensive group of
stocks from which to select for inclusion in the fund.
Within the Growth Fund, we noted particular strength from our holdings in the
financial, consumer cyclical and technology sectors. For 1997, our overweighting
of technology relative to the market also helped our relative performance. For
investors who owned shares for the whole year 1997, the Growth Fund produced a
total return of 22.3%, excluding sales charge (see graph for complete
performance history). The Growth
A-1
<PAGE>
Fund's growth attributes are achieved by investing primarily in
large-capitalization growth companies. The Growth Fund makes an effort to
overweight sectors by no more than twice the S&P 500 sector weights and
underweight by no more than half the S&P 500 sector weights.
We continue to seek out undervalued companies undergoing positive changes in
fundamentals and selling those issues that have hit their price targets or whose
fundamentals do not warrant inclusion in our Fund.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC., S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Growth Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value, and considers the effect of the Growth Fund's 5.75% maximum
sales charge. All performance figures are as-of December 31 for the applicable
year. The Growth Fund's fiscal year end was as of October 31 for 1988-1989.
A-2
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 OF
AMERICAN NATIONAL GROWTH FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
dividends paid and
reinvested during year $ 226 $ 308 $ 260 $ 176 $ 253 $ 216 $ 255 $ 360 $ 247 $ 320
Capital gains
distributions reinvested
during year 700 1,794 259 847 1,165 2,404 1,972 1,552 865 4,027
Value of investment at
year end assuming
reinvestment of
investment income
dividends and capital
gains distributions 9,992 12,422 12,057 16,515 16,102 17,417 18,284 22,892 26,931 32,921
Value of investment at
year end assuming
investment income
dividends taken in cash $ 9,767 $11,832 $11,243 $15,219 $14,596 $15,583 $16,126 $19,858 $23,136 $27,995
PERCENTAGES
- -----------------------------------------------------------------------------------------------------------------------------
Income Return 2.26% 3.08% 2.10% 1.46% 1.53% 1.35% 1.47% 1.97% 1.08% 1.19%
Appreciation -2.34% 21.25% -5.04% 35.52% -4.03% 6.82% 3.51% 23.23% 16.56% 21.05%
-------------------------------------------------------------------------------------------------
Total Return -0.08% 24.33% -2.94% 36.98% -2.50% 8.17% 4.98% 25.20% 17.64% 22.24%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 6.00%
</TABLE>
All performance figures are as of December 31 for the applicable year. Growth
Fund's fiscal year was as of October 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$2,621
Capital Gains Paid and Reinvested.......$15,585
Appreciation (Unrealized Capital
Gains)...................................$4,715
Total Value.............................$32,921
</TABLE>
A-3
<PAGE>
AMERICAN NATIONAL INCOME FUND
The Income Fund turned in a solid performance in 1997, producing a total
return of 22.7%, excluding sales charge (see graph for complete performance
history). Throughout the year, the Income Fund exceeded its target of
maintaining a dividend yield at least 50% greater than that of the Standard &
Poor's 500 stock market index. The current dividend yield of the equities
comprising the portfolio stands at 2.7%, a full 70% greater than the S&P 500's
1.5% yield.
Throughout 1997, the Income Fund benefited from its overweighted positions in
the strong performing finance and consumer cyclical sectors. Within the finance
sector, the Income Fund's holdings include banks like Nationsbank, Norwest, and
Comerica; financial services companies like Beneficial, Morgan Stanley Dean
Witter, and Reliance Group holdings; and a carefully selected group of real
estate investment trusts (REITs) such as Centerpoint Properties, Crescent,
Health & Retirement Properties. On average, these holdings produced returns of
about 40% for the year. Moreover, the Income Fund was overweighted in this
strong performing sector relative to the broad market benchmarks.
We also noted particular strength in the consumer cyclicals sector, which
includes such industries as apparel, autos, printing, and retail. For the year,
the Income Fund's holdings in this sector produced an average return of 37%,
outperforming this strong sector's performance within the broad market. In
addition, the Income Fund benefited from above-market performance from our
healthcare selections, which appreciated 47% on average versus 35% for the
sector in the S&P 500. Of our holdings, the best performance was posted by
pharmaceuticals maker Schering-Plough which rose 92% for the year and drug
distributor Bergen Brunswig, up 83% during 1997.
Weakness for the Income Fund originated in the capital goods and energy
sectors. In the case of capital goods, most of the weakness came from companies
like engineering and construction companies Fluor and Foster Wheeler, both of
which have above average exposure to emerging markets in Southeast Asia. In the
energy sector, where generous dividend yields are available from many high
quality companies, the falling price of oil hurt earnings, especially in the
fourth quarter. We are still confident in our international integrated companies
like Exxon, Chevron, and Texaco as well as our domestic companies like Amoco,
Kerr-McGee and Murphy Oil.
As mentioned elsewhere in this report, we expect the U.S. economy to continue
its moderate growth in 1998, albeit at a somewhat reduced rate. Inflation will
likely remain historically low (1.5-2.5%) as declining commodities costs are
countered by rising employment and wages. Such an environment will likely lead
to declining interest rates over the short run which, in turn, should provide an
ideal climate for fixed income securities as well as financial and consumer
dependant securities.
Within this slow growth economy, we will seek our style specific goals by
identifying, based on our conservative and defensive valuation disciplines, what
we consider to be stocks of superior companies. We will continue our quest for
undervalued companies undergoing positive changes in fundamentals, and we will
sell those issues which have hit their price targets or whose fundamentals do
not warrant inclusion within the conservatively run Income Fund. This process
has served the Income Fund well in the past.
A-4
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC., S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Income Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value and considers the effect of the Income Fund's 5.75% maximum
sales charge. All performance figures are as of December 31 for the applicable
year. The Income Fund's fiscal year end was as of July 31 for 1988-1989.
A-5
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF AMERICAN NATIONAL INCOME FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
dividends paid and
reinvested during year $ 374 $ 476 $ 543 $ 447 $ 404 $ 488 $ 559 $ 664 $ 654 $ 757
Capital gains
distributions reinvested
during year 1,111 992 49 928 811 1,768 1,884 1,183 730 3,611
Value of investment at
year end assuming
reinvestment of
investment income
dividends and capital
gains distributions 10,372 13,289 13,389 17,280 17,852 19,749 19,628 25,343 29,516 36,223
Value of investment at
year end assuming
investment income
dividends taken in cash $ 9,997 $12,313 $11,891 $14,908 $15,040 $16,208 $15,654 $19,642 $22,342 $26,805
PERCENTAGES
- -----------------------------------------------------------------------------------------------------------------------------
Income Return 3.74% 4.59% 4.08% 3.34% 2.34% 2.73% 2.83% 3.38% 2.58% 2.57%
Appreciation -0.02% 23.53% -3.33% 25.72% 0.98% 7.90% -3.44% 25.74% 13.88% 20.15%
-------------------------------------------------------------------------------------------------
Total Return 3.72% 28.12% 0.75% 29.06% 3.32% 10.63% -0.61% 29.12% 16.46% 22.72%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.07%
</TABLE>
All performance figures are as of December 31 for the applicable year. Income
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,366
Capital Gains Paid and Reinvested.......$13,067
Appreciation (Unrealized Capital
Gains)...................................$7,790
Total Value.............................$36,223
</TABLE>
A-6
<PAGE>
TRIFLEX FUND
The Triflex Fund (the "Fund" or "Fund's") is the lowest risk equity-dominated
portfolio in the American National Funds Group. Throughout 1997, the Fund's
conservative blend of about 55% stocks, 40% bonds and 5% cash has served the
Fund well. The equity portion of the Fund produced a total return (capital
appreciation and dividend income) of about 25% while the bond portion of the
Fund returned about 11%. Combined, the Fund produced a total return of 17.5% for
the year, excluding sales charge (see graph for complete performance history).
Within the Fund, we took advantage of high real interest rates (after
adjusting for inflation) to extend maturities and add exposure to the fixed
income portion of the Fund. We shifted about 6% of the Fund's assets from
equities and cash, and moved it into bonds during April, as the yield on the
30-year Treasury bond pushed above 7%. In retrospect, our timing was quite
fortuitous, as interest rates dropped over one percentage point by year-end,
with the 30-year bond yield closing 1997 at 5.9%.
Within the equity portion of the Triflex Fund, we utilize the same
conservative and defensive stock selection disciplines used in the American
National Income and Growth Funds. The key is identifying what we consider to be
stocks of superior companies and purchasing them at discounted valuations.
During 1997, we noted particular strength from our equity holdings in the
financial, consumer staples, and technology sectors. In all three sectors, our
holdings produced returns in excess of 30%, outperforming the respective sectors
in the S&P 500 for the year.
We weren't so fortunate with our capital goods and energy holding, however, as
both sectors underperformed both on an absolute basis and relative to their
respective S&P sectors. Within capital goods, we saw weakness in companies like
Fluor and Foster Wheeler, whose businesses are closely tied to large
infrastructure projects in the emerging markets in Southeast Asia. In the energy
sector, falling oil prices caused the shares of most companies to fall in
sympathy. We are examining our holdings in both of these sectors to determine
whether changes should be made going forward.
On balance, Triflex Fund investors were rewarded by their investment in the
Fund in 1997, with a third consecutive year of double-digit returns. Although
the Fund has not produced the spectacular returns witnessed by some funds over
the last year or two, we have achieved our goal of providing consistently
positive performance in the strong up market, while firmly believing that the
Fund is well positioned should markets turn downward.
We appreciate your investment in the Triflex Fund and will continue to do all
we can to reward our shareholders' confidence and trust.
A-7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TRIFLEX FUND, INC., S&P 500 AND LEHMAN INTERMEDIATE GOVERNMENT/CORP INDEX
[LINE GRAPH TO BE INSERTED HERE]
Triflex Fund, Inc.'s performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions, changes in net asset value and
considers the effect of the Triflex Fund's 5.75% maximum sales charge. All
performance figures are as of December 31 for the applicable year. The Triflex
Fund's fiscal year end was as of July 31 for 1988-1989.
A-8
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF TRIFLEX FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
dividends paid and
reinvested during year $ 555 $ 621 $ 579 $ 538 $ 328 $ 403 $ 489 $ 572 $ 598 $ 760
Capital gains
distributions reinvested
during year 225 702 68 492 484 1,027 876 166 533 2,673
Value of investment at
year end assuming
reinvestment of
investment income
dividends and capital
gains distributions 10,406 11,827 11,990 14,931 15,379 16,350 16,593 20,293 22,701 26,663
Value of investment at
year end assuming
investment income
dividends taken in cash $ 9,850 $10,595 $10,212 $12,224 $12,309 $12,755 $12,566 $14,911 $16,222 $18,490
PERCENTAGES
- -----------------------------------------------------------------------------------------------------------------------------
Income Return 5.54% 5.97% 4.90% 4.49% 2.20% 2.62% 2.99% 3.44% 2.95% 3.35%
Appreciation -0.94% 7.69% -3.53% 20.04% 0.80% 3.69% -1.50% 18.85% 8.91% 14.11%
-------------------------------------------------------------------------------------------------
Total Return 4.60% 13.66% 1.37% 24.53% 3.00% 6.31% 1.49% 22.29% 11.86% 17.46%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.38%
</TABLE>
All performance figures are as of December 31 for the applicable year. Triflex
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,443
Capital Gains Paid and Reinvested........$7,246
Appreciation (Unrealized Capital
Gains)...................................$3,974
Total Value.............................$26,663
</TABLE>
A-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------
BOND RATINGS
Description of Standard & Poor's Corporation's bond rating:
AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions that
obligations in higher-rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB", "B", "CCC", "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will like have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, if faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
Description of Moody's Investor's Service, Inc.'s bond ratings:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds be-
cause margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
B-1
<PAGE>
<TABLE>
<S> <C>
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
</TABLE>
PREFERRED STOCK RATING.
Description of Standard & Poor's Corporation's preferred stock rating:
B Preferred stock rated "B" are regarded on balance, as predominately
speculative with respect to the issuer's capacity to pay preferred stock
obligations. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Description of Moody's Investors Service, Inc.'s preferred stock rating:
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
FEDERAL FUNDS
As used in this Prospectus and in the Funds' Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.
B-2
<PAGE>
AMERICAN NATIONAL FUNDS GROUP
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
SEPTEMBER , 1998
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or the Funds' Statement of Additional Information referred
to above) and if given or made, such information or representations must not be
relied upon as having been authorized by the Funds or SM&R, the Fund's
investment adviser, manager and principal underwriter. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
A Statement of Additional Information dated September , 1998 containing
additional information about the Funds was filed with the Securities and
Exchange Commission and are incorporated herein by reference. Additional
information about the Funds' investments also is available in the Funds' annual
and semi-annual reports to shareholders.
The Funds' Statement of Additional Information, annual report, and semi-annual
reports are available, without charge, upon request. Investors may make
inquiries, request further information about the Funds, or obtain copies of the
Statement of Additional Information, annual reports, and semi-annual reports, by
writing Securities Management and Research, Inc., One Moody Plaza, 14th Floor,
Galveston, Texas 77550, or by calling (Toll Free) 1-800-231-4639 or (Collect)
1-409- .
Information about the Funds may be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington D.C. Investors may
obtain information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Funds also
are available on the Commission's Internet site at http://www.sec.gov, and
investors may obtain copies of this information, upon payment of a duplicating
fee, by writing the Public Reference Section of the Securities and Exchange
Commission, Washington, D.C. 20549-6009.
811-00623
811-01916
811-02818
<PAGE>
[LOGO]
P R O S P E C T U S
CLASS J
AMERICAN NATIONAL FUNDS GROUP
SEPTEMBER 15, 1998
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
TELEPHONE NUMBER: (409) - TOLL FREE: 1 (800) 231-4639
American National Growth Fund, Inc.
American National Income Fund, Inc.
Triflex Fund, Inc.
OFFICERS
Michael W. McCroskey, President and CEO
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
<TABLE>
<S> <C>
INVESTMENT ADVISOR AND MANAGER LEGAL COUNSEL
Securities Management and Research, Inc. Greer, Herz & Adams, L.L.P.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT INDEPENDENT AUDITORS
Securities Management and Research, Inc. Tait, Weller & Baker
One Moody Plaza 8 Penn Center
Galveston, Texas 77550 Philadelphia, Pennsylvania 19103
CUSTODIAN TRANSFER AND DIVIDEND
Securities Management and Research, Inc. PAYING AGENT
One Moody Plaza Securities Management and Research, Inc.
Galveston, Texas 77550 One Moody Plaza
Galveston, Texas 77550
</TABLE>
This Prospectus offers shares in three equity mutual funds underwritten and
managed by Securities Management and Research, Inc.: (1) American National
Growth Fund, Inc. ("Growth Fund"), which seeks long-term growth; (2) American
National Income Fund, Inc. ("Income Fund"), which seeks current income with
appreciation secondary; and (3) Triflex Fund, Inc. ("Triflex Fund"), a balanced
fund seeking conservation of principal, current income, and long-term capital
appreciation (each, a "Fund"; collectively, the "Funds" or the "American
National Funds Group"). These shares are offered only through certain financial
intermediaries that have distribution agreements with SM&R. The Funds also offer
other share classes with different sales charge and distribution and service fee
structures. Please read this Prospectus carefully before making an investment
and keep it for future reference. There is no assurance that any Fund will
achieve its objective.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK. FURTHER, SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE FUNDS AT A GLANCE........................... 3
TABLE OF FEES AND EXPENSES...................... 4
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH
FUND, INC...................................... 5
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME
FUND, INC...................................... 6
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC......... 7
INVESTMENT OBJECTIVES AND POLICIES.............. 8
THE FUNDS AND THEIR MANAGEMENT.................. 11
HOW TO PURCHASE SHARES.......................... 14
WHEN ARE PURCHASES EFFECTIVE?................... 15
<CAPTION>
PAGE
-----------
<S> <C>
DETERMINATION OF OFFERING PRICE................. 15
MULTIPLE CLASS STRUCTURE........................ 16
SPECIAL PURCHASE PLANS AND SERVICES............. 16
RETIREMENT PLANS................................ 19
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES...... 19
HOW TO REDEEM................................... 21
OTHER INFORMATION CONCERNING THE FUNDS.......... 22
APPENDIX A...................................... A-1
APPENDIX B...................................... B-1
</TABLE>
2
<PAGE>
THE FUNDS AT A GLANCE
Each Fund is a "mutual fund" that continuously sells and redeems its shares of
common stock at the current per share offering price. The investment objective
and investor suitability profile of each Fund are summarized below.
AMERICAN NATIONAL GROWTH FUND, INC. ("GROWTH FUND")
OBJECTIVE: The Growth Fund seeks long-term capital growth by investing its
assets in securities (primarily common stocks) that provide an opportunity for
capital appreciation.
INVESTOR SUITABILITY PROFILE: The Growth Fund is designed for investors who
want to build capital to meet long-range goals.
AMERICAN NATIONAL INCOME FUND, INC. ("INCOME FUND")
OBJECTIVE: The Income Fund seeks current income with a secondary objective of
long-term capital appreciation. It invests in common stock, preferred stocks,
and debt securities.
INVESTOR SUITABILITY PROFILE: The Income Fund is designed for investors seeking
to protect the purchasing power of their money while retaining the potential for
attractive growth and reducing their exposure to the volatility of the market.
TRIFLEX FUND, INC. ("TRIFLEX FUND")
OBJECTIVE: The Triflex Fund seeks to conserve principal, produce current
income, and achieve long-term capital appreciation. It invests in various types
of fixed income (debt) and equity securities.
INVESTOR SUITABILITY PROFILE: The Triflex Fund is designed for investors
seeking income and conservation of the purchasing power of their capital.
MANAGEMENT: Securities Management and Research, Inc. ("SM&R") makes the
investment choices for the Funds. SM&R has served as investment adviser, manager
and distributor of mutual funds since 1966. See "THE FUNDS AND THEIR MANAGEMENT"
for additional information.
PURCHASING SHARES: This Prospectus offers Class J shares of the Funds through
certain financial intermediaries (such as broker-dealers, investment advisers,
and mutual fund "marketplaces") that have distribution agreements with SM&R.
Class J shares are offered at their respective net asset values, without the
imposition of any sales charge on their purchase or redemption. As a result,
100% of your purchase is immediately invested. Class J shares are subject to a
distribution ("12b-1") fee deducted from assets. Other classes of shares are
offered through separate prospectuses and have different sales charges and 12b-1
fee structures, as described in "MULTIPLE CLASS STRUCTURE." The classes of the
Funds are referred to collectively as "Classes" and each as a "Class."
MINIMUM PURCHASE: $100 minimum initial investment and $20 minimum for each
subsequent investment as described under "Special Purchase Plans."
REDEMPTIONS: Procedures may be found under "HOW TO REDEEM."
EXCHANGES: In general, you can exchange shares of a Fund for shares of another
fund in the SM&R Family of Funds (as defined herein) without the payment of an
exchange fee, subject to certain conditions. For information on exchanging
shares, see "Exchange Privilege" within the "SPECIAL PURCHASE PLANS AND
SERVICES" section.
DERIVATIVE INVESTMENTS: The Funds do not invest in interest only (IO) or
principal only (PO) securities. The Triflex Fund may invest in collateralized
mortgage obligations (CMO's) from time to time. An explanation of CMO's can be
found in the Funds' Statement of Additional Information.
RISKS: Each Fund can be expected to have different investment results based on
its investment objective and different financial and market risks. Financial
risk refers to the ability of an issuer of a debt security to pay principal and
interest, and to the earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the degree to which the
price of a security will react to changes in conditions in securities markets in
general and, with particular reference to debt securities, to changes in the
overall level of interest rates. AS A RESULT OF THESE AND OTHER RISKS, THE VALUE
OF THE SHARES OWNED MAY BE HIGHER OR LOWER THAN THEIR COST.
PORTFOLIO TURNOVER RATES: Each Fund's portfolio turnover rates for the last
five years are included in the Financial Highlights tables herein. A security
will be sold, and the proceeds reinvested, whenever it is considered prudent to
do so from the viewpoint of a Fund's objectives, regardless of the holding
period of the security. A higher rate of portfolio turnover may result in higher
transaction costs. Additionally, higher portfolio turnover may, in some cases,
have adverse tax effects on the Funds and their shareholders. Portfolio turnover
rates are expected to be less than 90% per year for each of the Funds. An
explanation of turnover rate calculations and brokerage fees can be found in the
Funds' Statement of Additional Information.
3
<PAGE>
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
The purpose of the following table is to assist you in understanding the various
costs and expenses that an investor will bear directly or indirectly. You should
be aware that this table is not intended to reflect in detail the fees and
expenses associated with an individual shareholder's investment in Class J
shares of any of the Funds listed. It is being provided to assist you in gaining
a more complete understanding of fees, charges, and expenses which are discussed
in greater detail in the appropriate sections of this Prospectus. See "HOW TO
PURCHASE SHARES" in this Prospectus. The example is also intended to provide a
means to compare expense levels of Funds and Classes with different fee
structures over varying investment periods.
THERE ARE NO SHAREHOLDER TRANSACTION CHARGES IN CONNECTION WITH PURCHASES OR
REDEMPTIONS OF CLASS J SHARES OF THE FUNDS, OTHER THAN AN $8.00 TRANSACTION FEE
CHARGED FOR EACH EXPEDITED WIRE REDEMPTION.
ANNUAL FUND OPERATING EXPENSES
(As a Percentage of Average Net Assets Before Fee Waivers and Expense
Reimbursements)
The "Management Fee," "Other Expenses," and "Total Annual Fund Operating
Expenses" shown below for the Funds are for the year ended December 31, 1997.
<TABLE>
<CAPTION>
Growth Fund Income Fund Triflex Fund
--------------- ----------------- ---------------
Class J Class J Class J
<S> <C> <C> <C>
Management Fee 0.60% 0.69% 0.65%
Distribution and/or Service (12b-1) Fee 0.75% 0.75% 0.75%
Other Expenses(1) 0.36% 0.36% 0.61%
Total Annual Fund Operating Expenses(2) 1.71% 1.80% 2.01%
</TABLE>
Notes to the Table of Fees and Expenses
(1) "Other Expenses" include the Administrative Service Fee. Because Class J
shares were not available prior to the date of this Prospectus, "Other
Expenses" for Class J shares were based on the expenses and average net
assets of the Growth, Income, and Triflex Funds for the fiscal year ended
December 31, 1997.
(2) The Fee Table does not reflect any fees waived or expenses assumed either
contractually or voluntarily by SM&R for the Funds during the fiscal year
ended December 31, 1997. Pursuant to the Administrative Service Agreement,
SM&R has agreed to pay (or to reimburse) each Fund for regular operating
expenses (including the advisory fee and administrative fee, but not
including the 12b-1 fee or Class-specific expenses) in excess of 1.25% per
year of such Fund's average daily net assets. During the fiscal year ended
December 31, 1997, SM&R waived management fees of 0.10% for the Triflex
Fund.
EXAMPLE OF EXPENSES
These Examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
These Examples assume that you invest $10,000 in Class J shares of each Fund
for the time periods indicated. These Examples also assume that your investment
has a 5% return each year and that the Fund's operating expenses remain the
same. Your actual costs may be higher or lower than shown.
You would pay the following expenses, based on these assumptions, if you
actually redeem all of your shares at the end of the period shown:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Growth Fund (Class J) $ $ $ $
Income Fund (Class J) $ $ $ $
Triflex Fund (Class J) $ $ $ $
</TABLE>
Because there are no sales charges or redemption fees, you would pay the same
expenses, based on these assumptions, if you did not redeem your shares.
4
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH FUND, INC.
The following financial highlights table is intended to help you understand
the Growth Fund's financial performance for the past five years. Certain
information reflects financial results for a single Growth Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Growth Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares. This information is derived
from the financial statements of the Growth Fund, which for the year ended
through December 31, 1997 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Growth Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request. The information for years ending December 31, 1996 and
prior, has been audited by the Growth Fund's former independent auditors. The
information for the six month period ended June 30, 1998 was derived from
unaudited financial statements of the Growth Fund. If multiple classes of shares
of the Growth Fund had been in existence during the past five years, the
financial performance of Class J shares of the Growth Fund would have been lower
than depicted because of the imposition of distribution and/or service (12b-1)
fees.
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Year Ended December 31,
--------------- ------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 4.95 $ 4.39 $ 3.83 $ 4.15 $ 4.51
Income From Investment Operations
Net Investment Income 0.06 0.05 0.08 0.06 0.06
Net Realized and Unrealized Gain
(Loss) on Securities 1.03 0.73 0.88 0.15 0.31
----- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 1.09 0.78 0.96 0.21 0.37
Less Distributions
Dividends from Net Investment Income (0.06) (0.05) (0.08) (0.06) (0.06)
Distributions from Capital Gains (0.74) (0.17) (0.32) (0.47) (0.67)
----- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (0.80) (0.22) (0.40) (0.53) (0.73)
----- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period $ 5.24 $ 4.95 $ 4.39 $ 3.83 $ 4.15
----- --------- --------- --------- --------- ---------
----- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 22.24% 17.64% 25.20% 4.98% 8.17%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period (000's
omitted) $178,344 $152,758 $134,821 $113,250 $113,135
Ratio of Expenses to Average Net Assets (2) .96 1.15 0.98 0.97 1.00
Ratio of Net Income to Average Net
Assets (2) 1.03 1.02 1.67 1.46 1.31
Portfolio Turnover Rate 46.79 18.72 37.00 46.26 59.67
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
5
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME FUND, INC.
The following financial highlights table is intended to help you understand
the Income Fund's financial performance for the past five years. Certain
information reflects financial results for a single Income Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Income Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares. This information is derived
from the financial statements of the Income Fund, which for the year ended
through December 31, 1997 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Income Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request. The information for years ending December 31, 1996 and
prior, has been audited by the Income Fund's former independent auditors. The
information for the six month period ended June 30, 1998 was derived from
unaudited financial statements of the Income Fund. If multiple classes of shares
of the Income Fund had been in existence during the past five years, the
financial performance of Class J shares of the Income Fund would have been lower
than depicted because of the imposition of distribution and/or service (12b-1)
fees.
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Year Ended December 31,
------------- ------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 25.05 $ 22.59 $ 18.90 $ 21.66 $ 22.09
Income From Investment Operations
Net Investment Income 0.63 0.58 0.62 0.62 0.56
Net Realized and Unrealized Gain (Loss) on
Securities 4.96 3.10 4.82 (0.75) 1.75
------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 5.59 3.68 5.44 (0.13) 2.31
Less Distributions
Dividends from Net Investment Income (0.64) (0.58) (0.63) (0.61) (0.60)
Distributions from Capital Gains (3.01) (0.64) (1.12) (2.02) (2.14)
------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (3.65) (1.22) (1.75) (2.63) (2.74)
------------- --------- --------- --------- --------- ---------
Net Asset Value,
End of period $ 26.99 $ 25.05 $ 22.59 $ 18.90 $ 21.66
------------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 22.72% 16.46% 29.12% (0.61)% 10.63%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $198,687 $165,786 $141,058 $114,231 $119,956
Ratio of Expenses to Average Net Assets (2) 1.05 1.10 1.12 1.12 1.17
Ratio of Net Income to Average Net Assets (2) 2.28 2.42 2.89 2.86 2.51
Portfolio Turnover Rate 39.14 27.07 44.00 52.46 70.71
Average Commission Rate Paid Per Share $.0700 $.0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC.
The following financial highlights table is intended to help you understand
the Triflex Fund's financial performance for the past five years. Certain
information reflects financial results for a single Triflex Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Triflex Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares. This information is derived
from the financial statements of the Triflex Fund, which for the year ended
through December 31, 1997 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Triflex Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request. The information for years ending December 31, 1996 and
prior, has been audited by the Triflex Fund's former independent auditors. The
information for the six month period ended June 30, 1998 was derived from
unaudited financial statements of the Triflex Fund. If multiple classes of
shares of the Triflex Fund had been in existence during the past five years, the
financial performance of Class J shares of the Triflex Fund would have been
lower than depicted because of the imposition of distribution and/or service
(12b-1) fees.
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Year Ended December 31,
------------- ------------------------------------------------------
1998 1997 1996 1995 1994 1993
------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 17.90 $ 16.85 $ 14.32 $ 15.35 $ 15.81
Income From Investment Operations
Net Investment Income 0.57 0.49 0.49 0.45 0.41
Net Realized and Unrealized Gain (Loss) on
Securities 2.50 1.48 2.67 (0.22) 0.58
------------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 3.07 1.97 3.16 0.23 0.99
Less Distributions
Dividends from Net Investment Income (0.59) (0.49) (0.49) (0.45) (0.41)
Distributions from Capital Gains (2.06) (0.43) (0.14) (0.81) (1.04)
------------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.65) (0.92) (0.63) (1.26) (1.45)
------------- --------- --------- --------- --------- ---------
Net Asset Value,
End of Period $ 18.32 $ 17.90 $ 16.85 $ 14.32 $ 15.35
------------- --------- --------- --------- --------- ---------
------------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 17.46% 11.86% 22.29% 1.49% 6.31%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $25,838 $23,188 $21,757 $19,023 $20,469
Ratio of Expenses to Average Net Assets(3) (2) 1.26 1.21 1.26 1.25 1.32
Ratio of Net Income to Average Net Assets (2) 3.02 2.83 2.99 2.91 2.49
Portfolio Turnover Rate 27.52 23.78 16.39 46.95 70.98
Average Commission Rate Paid Per Share $ .0700 $ .0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
(3) Expenses for these calculations are net of a reimbursement from Securities
Management and Research, Inc. Without these reimbursements, the ratio of
expenses to average net assets would have been 1.36%, 1.34%, 1.46%, 1.45%,
and 1.39% for the years ended December 31, 1997, 1996, 1995, 1994, and 1993,
respectively.
7
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds have different investment objectives which it pursues
through the investment policies and techniques described below. These policies
and techniques are not fundamental and may be changed by the Board of Directors
of a Fund without shareholder approval. Each Fund has adopted certain
restrictions as fundamental policies which will not be changed unless approved
by the vote, at a special meeting of stockholders, of (i) 67% of the shares
present at a meeting, at which more than 50% of each Fund's outstanding shares
are present or represented by proxy, or (ii) more than 50% of each Fund's
outstanding shares. Each Fund's investment restrictions adopted as fundamental
policies are stated in the Funds' Statement of Additional Information.
AMERICAN NATIONAL GROWTH FUND, INC.
The Growth Fund seeks long-term capital growth by investing its assets in
securities that provide an opportunity for capital appreciation. The Growth Fund
is designed for investors who want to build capital over time to meet long-range
goals.
The Growth Fund's portfolio investments and the composition of its total
portfolio are considered from the viewpoint of potential capital appreciation.
This composition will be adjusted from time to time to best accomplish its
investment objective under current conditions. In pursuing its objective, the
Growth Fund will invest primarily in common stocks selected in accordance with
its investment objective.
The Growth Fund may invest in convertible preferred stocks rated at least "B"
by Standard and Poor's Corporation ("S&P") or at least "b" by Moody's Investors
Service, Inc. ("Moody's") preferred stock ratings, and convertible debentures
and notes rated at least "B" by S&P's and Moody's corporate bond ratings
("convertible securities"). Investments in convertible securities having these
ratings may involve greater risks than convertible securities having higher
ratings. Common stocks and convertible securities purchased will be of companies
which are believed by SM&R to provide an opportunity for capital appreciation.
The proportion of assets invested in any particular type of security can be
expected to vary, depending on SM&R's appraisal of market and economic
conditions. Under normal conditions at least 50% of the Growth Fund's total
assets will be invested in common stocks. On a temporary basis, the Growth Fund
may invest in commercial paper which at the date of such investment, is rated in
one of the two top categories by one or more of the nationally recognized
statistical rating organizations ("NRSRO's"), in certificates of deposit in
domestic banks and savings institutions having at least $1 billion of total
assets, and in repurchase agreements which are discussed under "Other Investment
Strategies."
AMERICAN NATIONAL INCOME FUND, INC.
The Income Fund seeks current income with a secondary objective of long-term
capital appreciation. The Income Fund is designed for investors seeking to
protect the purchasing power of their money while retaining the potential for
growth and reducing their exposure to the volatility of the market.
The Income Fund's portfolio investments and the composition of its total
portfolio are considered not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. This
composition of portfolio investments will be adjusted from time to time to best
accomplish its investment objectives under current conditions.
In pursuit of its objectives, the Income Fund will invest in common stocks,
preferred stocks and marketable debt securities selected in accordance with the
Income Fund's investment objectives. Common and preferred stocks purchased will
generally be of companies with consistent and increasing dividend payment
histories which are believed by SM&R to have further earnings potential
sufficient to continue such dividend payments. Debt securities will include
publicly traded corporate bonds, debentures, notes, commercial paper, repurchase
agreements, and certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets. The proportion of
assets invested in any particular type of security can be expected to vary,
depending on SM&R's appraisal of market and economic conditions. Under normal
conditions at least 50% of the Income Fund's assets will be invested in equity
securities rather than debt securities.
8
<PAGE>
Corporate debt obligations purchased by the Income Fund will consist only of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above.
TRIFLEX FUND, INC.
The Triflex Fund seeks to conserve principal, produce current income, and
achieve long-term capital appreciation. The Triflex Fund is designed for
investors seeking income and conservation of the purchasing power of their
capital.
The Triflex Fund seeks to achieve its objectives by flexibly managing a
balanced portfolio of fixed-income securities such as bonds, commercial paper,
preferred stock and short-term obligations combined with common stocks and
securities convertible into common stocks. The Triflex Fund will only purchase
common stocks and convertible securities of corporations having a market
capitalization of at least $100 million, an operating history of at least three
(3) years, and a listing on the New York Stock Exchange, American Stock Exchange
or Over-The-Counter markets. Corporate bonds purchased will consist of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above. The
Triflex Fund may also invest in repurchase agreements. This balanced investment
policy is intended to reduce risk and to obtain results in keeping with the
Triflex Fund's objectives.
The Triflex Fund's investments will be in fixed-income securities and equity
securities as described above. However, the Triflex Fund will sometimes be more
heavily invested in equity securities and at other times it will be more heavily
invested in fixed-income securities, depending on management's appraisal of
market and economic conditions. SM&R believes that a fund that is wholly
invested in fixed-income securities carries a large interest rate risk. Interest
rate risk is the uncertainty about losses due to changes in the rate of interest
on debt instruments. The major interest rate risk for investors, however, is not
in the interest rate itself, but in the change in the market price of bonds that
results from changes in the prevailing interest rate. Higher interest rates
would mean lower bond prices and lower net asset value for the Triflex Fund's
shareholders assuming no change in its current investment objective and
portfolio. Diversifying the Triflex Fund's portfolio with investments such as
commercial paper, convertible securities and common stocks may reduce the
decline in value attributable to the increase in interest rate and resulting
decrease in the market value of bonds and may reduce the interest rate risk.
However, stock prices also fluctuate in response to a number of factors,
including, changes in general level of interest rates, economic and political
developments and other factors which impact individual companies or specific
types of companies. Such market risks cannot be avoided but can be limited
through a program of diversification and a careful and consistent evaluation of
trends in the capital market and fundamental analysis of individual equity
holdings.
The Triflex Fund's goal of preservation of capital while owning common stocks
is dependent upon various factors, including the sustained long-term growth of
the United States economy. SM&R recognizes that recessions occur but also
recognizes that the economy historically has come back from those recessions.
Therefore, SM&R believes that the United States economy will continue to grow,
that the political environment will continue to be relatively stable and that
the financial markets will continue to function in a reasonably orderly fashion.
As long as these factors occur, SM&R believes that there is a reasonable
likelihood the Triflex Fund can reach its goal of preservation of capital while
at the same time investing in common stock.
9
<PAGE>
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity holding consistent with SM&R's outlook and
evaluation of trends in the economy and the financial markets. The Triflex
Fund's level of commitment to common stocks and specific common stock
investments will be determined as a result of this process. For example, within
an environment of rising inflation, common stocks historically have preserved
their value better than bonds; therefore, inclusion of common stocks could tend
to conserve principal better than a portfolio consisting entirely of bonds and
other debt obligations. In addition, within an environment of accelerating
growth in the economy, common stocks historically have conserved their value
better than bonds in part due to a rise in interest rates that occur
coincidentally with accelerating growth and profitability of the companies.
The Triflex Fund will not purchase a security if as a result of such purchase
less than 25% of its total assets will be in fixed-income senior securities
(including short and long-term securities, preferred stocks and convertible debt
securities and preferred stocks to the extent their value is attributable to
their fixed-income characteristics).
OTHER INVESTMENT STRATEGIES
Each Fund, consistent with its objectives and policies, may employ one or more
of the following strategies to enhance investment results.
COMMERCIAL PAPER. Commercial paper is short-term unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. The Funds will not invest in variable amount master
demand notes.
REPURCHASE AGREEMENTS. Each Fund may occasionally purchase repurchase
agreements in which a Fund purchases a U.S. government security subject to
resale to a bank or dealer at an agreed upon price and date. These repurchase
agreements will be entered into only with government securities dealers
recognized by the Federal Reserve Board or with member banks of the Federal
Reserve System. During the holding period, the seller must provide additional
collateral if the market value of the obligation falls below the repurchase
price. The custodian for the Fund purchasing such agreement will take title to,
or actual delivery of the security. A default by the seller might cause a Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Fund might also incur disposition costs in liquidating
the collateral. The Funds will purchase only repurchase agreements maturing in
seven (7) days or less of such purchase.
CERTIFICATE OF DEPOSIT. A certificate of deposit is generally a short-term,
interest-bearing negotiable certificate issued by a commercial bank or savings
and loan association against funds deposited in the issuing institution. The
interest rate may be fixed for the stated term or may be periodically adjusted
prior to the instrument's stated maturity, based upon a specified market rate. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction to finance
the import, export, transfer or storage of goods. The borrower is liable for
payment, as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have maturities
of six months or less and are traded in secondary markets prior to maturity.
Savings and loan associations whose certificates of deposit may be purchased
by the Funds are subject to regulation and examination by the Office of Thrift
Supervision. Such certificates of deposit held by the Funds do not benefit
materially from insurance from the Federal Deposit Insurance Corporation.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). ADRs are U.S. dollar-denominated
securities of foreign corporations which are traded in the U.S. on national
securities exchanges or over-the-counter and are issued by domestic banks. The
banks act as custodian of the shares of the foreign stock and collect dividends
on the stock which are either reinvested or distributed to the ADR holder in
U.S. dollars. While ADRs are not considered foreign securities, they may entail
certain political, economic and regulatory risks. Such risks may include
political or social instability, excessive taxation and limitations on the
removal of funds or other assets which could adversely affect the value of a
Fund's investments. The economies of many countries in
10
<PAGE>
which a Fund may invest may not be as developed as the U.S. economy and may be
subject to significantly different forces. Foreign companies are not registered
with the commission and are not generally subject to the regulatory controls
imposed on U.S. issuers. Consequently, there is generally less public
information available on foreign securities. Foreign companies are not subject
to uniform accounting, auditing, and financial reporting standards. Income from
foreign securities owned may be reduced by a withholding tax at the source,
which tax would reduce income payable to a Fund's shareholders.
These strategies and other investment restrictions are more fully discussed in
the Funds' Statement of Additional Information under "INVESTMENT OBJECTIVES AND
POLICIES."
THE FUNDS AND THEIR MANAGEMENT
The Funds were originally incorporated as follows: Growth Fund, State of
Florida, May 5, 1953; Income Fund, State of Texas, May 1, 1970 and the Triflex
Fund, State of Texas, November 20, 1987. The Funds were subsequently
reincorporated in the State of Maryland on November 30, 1989. They are
diversified, open-end management investment companies (i.e., mutual funds).
A Board consisting of seven directors has overall responsibility for
overseeing the affairs of each Fund in a manner reasonably believed to be in the
best interest of each Fund. The Boards have delegated to SM&R, the adviser, the
management of each Fund's day to day business and affairs. In addition, SM&R
invests each Fund's assets, provides administrative services and serves as
transfer agent, dividend payment agent and underwriter. While the use of this
combined Prospectus subjects each Fund to possible liability as the result of
statements or omissions regarding another Fund, the Board of Directors of each
Fund considers the benefits to the respective Fund of using a combined
Prospectus to outweigh the risk.
SM&R, is a wholly-owned subsidiary of American National Insurance Company
("American National"). The Moody Foundation, a private foundation, owns
approximately 23.7% of American National's common stock and the Libbie Shearn
Moody Trust, a private trust for which the Moody National Bank acts as trustee,
owns approximately 37.6% of such shares. SM&R was incorporated in 1964 and has
managed investment companies since 1966. SM&R is also investment adviser to
American National, a Texas insurance company having its principal office in
Galveston, Texas; American National Investment Accounts, Inc., an investment
company used to fund benefits under variable contracts issued by American
National; SM&R Investments, Inc., an investment company consisting of four
investment portfolios (SM&R Investments, Inc. and the American National Funds
Group are collectively referred to in this Prospectus as the "SM&R Family of
Funds"); and for the Moody National Bank of Galveston (the "Bank"), a national
bank. SM&R may, from time to time, serve as investment adviser to other clients
including banks, employee benefit plans, other investment companies, foundations
and endowment funds.
As of September , 1998, SM&R and its parent, American National Insurance
Company, owned [ %] and [ %], respectively of the outstanding shares
of the Growth Fund; [ %] and [ ]%, respectively of the Income Fund;
[ %] and [ %], respectively of the Triflex Fund. American National and
SM&R reserve the right to vote these shares as they deem appropriate.
The following persons are affiliated with SM&R and the Funds as officers:
Michael W. McCroskey, Gordon D. Dixon, Emerson V. Unger, Teresa E. Axelson and
Brenda T. Koelemay.
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in
providing investment advisory services to the Funds. While the following
individuals are primarily responsible for the day-to-day portfolio management of
their respective Fund, all accounts are reviewed on a regular basis by SM&R's
Investment Committee to ensure that they are being invested in accordance with
investment policies.
GORDON D. DIXON, DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER OF
SECURITIES MANAGEMENT AND RESEARCH, INC., VICE PRESIDENT, PORTFOLIO MANAGER OF
THE GROWTH FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Dixon joined
11
<PAGE>
Securities Management and Research, Inc. in 1993. He graduated from the
University of South Dakota with a B.A. in Finance and Accounting and from
Northwestern University in 1972 with an M.B.A in Finance and Accounting. Mr.
Dixon began his investment career in 1972 as an Administrative and Research
Manager with Penmark Investments. In 1979 he began working for American Airlines
in the management of the $600 million American Airlines Pension Portfolio, of
which approximately $100 million was equities. In 1984 he was employed by C&S/
Sovran Bank in Atlanta, Georgia as Director of Equity Strategy where he had
responsibility for all research, equity trading and quantitative services groups
as well as investment policy input of a portfolio of approximately $7 billion,
of which $3.5 billion was equities.
WILLIAM R. BERGER, C.F.A., VICE PRESIDENT, PORTFOLIO MANAGER OF THE TRIFLEX
FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Berger joined Securities Management
and Research, Inc. in 1993. He graduated from Miami University, Oxford, Ohio in
1985 with a B.S. with Honors in Accounting and Finance and from The Wharton
School, University of Pennsylvania in 1988 with an M.B.A. in Finance and
Investment Management. Mr. Berger began his investment career in 1989 with
Trinity Investment Management Corporation as an equity and balanced portfolio
manager for various discretionary accounts worth more than $80 million for
corporate, endowment, religious and public funds. Prior to joining Trinity
Investment Management Corporation Mr. Berger was a Senior Auditor for Coopers &
Lybrand. Mr. Berger is a Chartered Financial Analyst and a Certified Public
Accountant.
ADVISORY AGREEMENTS
GROWTH FUND. Under the Growth Fund's Investment Advisory Agreement, dated
November 30, 1989, SM&R receives a basic advisory fee (the "Basic Advisory Fee")
which is adjusted for an upward or downward movement in the investment
performance during the previous thirty-six (36) monthly periods of the Fund as
compared to the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. This Basic Advisory Fee is computed each month
by applying to the average daily net asset value of the Fund (computed by adding
the daily net asset values for the month and dividing the resulting total by the
number of days in the month) one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
The Basic Advisory Fee annual rate is adjusted each month by adding to or
subtracting from such rate, when appropriate, the applicable performance
adjustment amount percentage shown in the table below. The resulting advisory
fee rate is then applied to the average daily net asset value of the Fund for
the succeeding month. The advisory fee for such month will be one-twelfth
(1/12th) of the resulting dollar figure.
The performance adjustment amount will vary with the Fund's performance as
compared to the Lipper Index as shown by the following table:
<TABLE>
<CAPTION>
Performance Compared To Performance
Lipper Index Adjustment Amount
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
<CAPTION>
Performance Compared To Performance
Lipper Index Adjustment Amount
<S> <C>
0.10% to 0.99% below -0.02%
1.00% to 1.99% below -0.04%
2.00% to 2.99% below -0.06%
3.00% to 3.99% below -0.08%
4.00% to 4.99% below -0.10%
5.00% to 5.99% below -0.12%
6.00% to 6.99% below -0.14%
7.00% to 7.99% below -0.16%
8.00% to 8.99% below -0.18%
9.00% and below -0.20%
</TABLE>
12
<PAGE>
See "INVESTMENT ADVISORY AND OTHER SERVICES" in the Funds' Statement of
Additional Information for a more detailed description of the method used in
calculating the performance adjustment. See Appendix B for a description of
these ratings
INCOME FUND AND TRIFLEX FUND. Under the Income and Triflex Funds' Investment
Advisory Agreements dated November 30, 1989, SM&R receives from each Fund an
investment advisory fee computed by applying to the average daily net asset
value of each Fund each month one-twelfth (1/12th) of the annual rate as
follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
As compensation for its services, SM&R is paid an investment advisory fee,
which is calculated as indicated above for each Fund. SM&R received total
advisory fees from the Growth, Income, and Triflex Funds for the fiscal year
ended December 31, 1997 which represented .60%, .69%, and .75%, respectively, of
each Fund's average daily net assets. The ratio of total expenses to average net
assets for each Fund for the same period are .96%, 1.05%, and 1.26%,
respectively.
The fees payable under each Fund's Investment Advisory Agreement may be higher
than the fees paid by other mutual funds, but each Fund believes its fees are
comparable to those paid by funds with the same or similar investment objective.
Consistent with the Conduct Rules (formerly the Rules of Fair Practice) of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Funds may give consideration to sales of their shares
as a factor in the selection of brokers and dealers to execute each Fund's
portfolio transactions when it is believed by SM&R that this can be done without
causing the Funds to pay more in brokerage commissions than they would
otherwise.
ADMINISTRATIVE SERVICE AGREEMENTS
The administrative service agreements with the Funds provide for payment of an
administrative service fee to SM&R which is computed by applying to the average
daily net asset value of each Fund each month one-twelfth of the annual rate as
follows:
<TABLE>
<CAPTION>
Administrative
On the Portion of the Fund's Service
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</TABLE>
SM&R received total administrative service fees from the Growth, Income, and
Triflex Funds for the fiscal year ended December 31, 1997 which represented
[ ]%, [ ]%, and [ ]%, respectively, of each Fund's average daily
net assets.
SM&R has agreed in each Fund's administrative service agreement to pay (or to
reimburse each Fund for) the Fund's regular operating expenses (including the
advisory fee and administrative service fee, if any, paid to SM&R, but exclusive
of "12b-1 fees," Class-specific expenses, interest, taxes, commissions and other
expenses incidental to portfolio transactions) in excess of 1.25% per year of
each Fund's average daily net assets. (See "Administrative Service Agreement" in
the Funds' Statement of Additional Information for the fees paid by the Funds
thereunder.)
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Funds adopted a Distribution and Shareholder Servicing Plan (the "12b-1
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Class A, Class B, Class
C, and Class J shares of the Funds. The 12b-1 Plan provides that SM&R will
provide distribution services to the Class J shares.
For Class J shares, SM&R is entitled to receive a distribution ("12b-1") fee
of 0.75%, computed as an
13
<PAGE>
annual percentage of the value of the average daily net assets of the Fund
attributable to that Class. The distribution fee to be paid under the 12b-1 Plan
will be calculated daily (as a percentage of average daily net assets) and paid
periodically.
The purpose of the distribution fee is to compensate SM&R, or enable SM&R to
compensate other persons, including any distributor of Class J shares, for
services that are primarily intended to result in or primarily attributable to
the sale of Class J shares ("Selling Services"). "Selling Services" include the
training and supervision of sales personnel; advertising, marketing, and other
promotional expenses, including the costs of preparing and printing sales
literature; printing prospectuses and statements of additional information and
distributing them to prospective investors in Class J; and distributing Class J
shares. Payments for Selling Services may include payment for overhead and other
office expenses that are related to the distribution of the Class J shares. SM&R
also may reimburse the expenses of persons who provide support services in
connection with the distribution of the Class J shares, and may make payments to
financial intermediaries that sell Class J shares.
HOW TO PURCHASE SHARES
You may purchase shares offered in this Prospectus through certain financial
intermediaries (such as broker-dealers, investment advisers, and mutual fund
"marketplaces") that have distribution agreements with SM&R. Such purchases will
be at the offering price for such shares determined as provided under the
caption "DETERMINATION OF OFFERING PRICE" in this Prospectus. SM&R will send you
a monthly confirmation for any month in which your account is active. You should
carefully review the monthly confirmation and promptly report any discrepancies
to SM&R. You may make initial and subsequent purchases directly through SM&R at
the following address:
Securities Management and Research, Inc.,
One Moody Plaza, 14th Floor
Galveston, Texas 77550
Each Fund's shares of authorized capital stock are all common stock, are
nonassessable and fully transferable, and each has one vote.
Certificates are not normally issued for shares of the Funds in an effort to
minimize the risk of loss or theft. However, SM&R confirms investors' purchases
and credits such purchases to their accounts on the books maintained by SM&R.
Investors have the same rights of share ownership as they would if certificates
had been issued. Furthermore, a lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond
is borne by the investor and can be 2% or more of the value of the lost, stolen
or destroyed certificate.
OPENING AN ACCOUNT
A fully completed account application (the "Account Application") must be
submitted to open an account. The Account Application must include the purchaser
suitability form (the "Suitability Form"). If you would like to take advantage
of the electronic services available, please complete the Special Investor
Services section of the Account Application. Special forms are required when
establishing an IRA/SEP or 403(b) plan. Keep in mind when opening an account
that transactions by telephone between different accounts will only be permitted
if the accounts are registered in the identical name.
PURCHASE AMOUNTS
The minimum initial purchase amount for Class J shares of each Fund is $100
and $20 for subsequent purchases (except certain systematic investment programs,
see "SPECIAL PURCHASE PLANS AND SERVICES" for additional information on
reduction of the minimums). The Funds reserve the right to reject any purchase.
Please note that third party checks will not be accepted to open a new account,
except for IRA Rollover checks that are properly endorsed.
SUBSEQUENT PURCHASES BY MAIL
Make your check(s) payable to SM&R and send the check(s) to the address
indicated above. You must indicate your name, account number, and the Class and
Fund being purchased. You may use the remittance slip attached to the
confirmation statement.
PURCHASES BY WIRE
To ensure proper crediting of a wire investment, you must have an executed
Account Application
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(including the Special Investor Services section) and Suitability Form on file
with the transfer agent. You may then wire your investment by providing the
following instructions to your bank:
The Moody National Bank of Galveston
ABA #113100091
Securities Management and Research, Inc.
#035 868 9
Name of Class and Fund (E.G., Class J of the Growth Fund)
Fund Account Number (number appears on your confirmation statement)
Investor's Name (E.G., Mary Smith, IRA)
If wires are received after 3:00 p.m. Central Time or during a Bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day.
PURCHASES BY EXCHANGE
Call Investor Services if you have established telephone exchange privileges
on your account. See "SPECIAL PLANS AND SERVICES-Exchange Privilege" for
procedures and additional information relating to telephone exchanges. For
limitations on exchanges, see "Excessive Trading" also under "SPECIAL PLANS AND
SERVICES."
IMPORTANT: The Funds reserve the right to (1) refuse to open an account for
any person failing to provide a taxpayer identification number, certified as
correct and (2) close an account by redeeming its shares in full, at the then
current net asset value upon receipt of notice from the IRS that the taxpayer
identification number certified as correct by the shareholder is in fact
incorrect.
WHEN ARE PURCHASES EFFECTIVE?
Purchases received in proper form by SM&R prior to the close of the New York
Stock Exchange (currently 3:00 p.m. Central Time) (the "Exchange") on any SM&R
business day, or received prior thereto on any SM&R business day by a securities
dealer having a dealer contract with SM&R and reported to SM&R prior to SM&R's
close of business (currently 4:30 p.m. Central Time) on the same day, will be
effective and executed at the applicable Offering Price determined at the close
of the Exchange on that day. It is the responsibility of any such dealer, and
not SM&R, to establish procedures to assure that purchases received before the
close of the Exchange on an SM&R business day will be reported to SM&R before
SM&R's close of business on that same day. Purchases received after the close of
the Exchange, or customary national business holidays, or on an SM&R holiday
will be effective upon and made at the Offering Price determined as of the close
of the Exchange on SM&R's next business day that such Exchange is open for
trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange or on an
SM&R holiday, will be effective on and made at the Offering Price determined on
SM&R's next business day. Procedures for transmitting Federal Funds by wire are
available at any national bank, or any state bank which is a member of the
Federal Reserve System.
SM&R's business holidays are Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day, two (2) days
at Christmas and New Years Day. If Christmas Day is a weekday other than Monday,
Christmas Day and Christmas Eve Day are business holidays. If Christmas Day is
Monday, Christmas Day and the preceding Friday will be business holidays. If
Christmas Day is a Saturday, the preceding Thursday and Friday will be business
holidays. If Christmas Day is a Sunday, the preceding Friday and the following
Monday will be business holidays. If New Years Day is a Saturday the preceding
Friday will be a business holiday and if New Years Day is a Sunday, the
following Monday will be a business holiday. For calendar year 1998,
Independence Day will be observed on July 3, 1998.
DETERMINATION OF OFFERING PRICE
The offering price of Class J shares of each Fund is equal to the net asset
value of such shares. Net asset value per share is determined by dividing the
market value of the securities owned by Class J of
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each Fund, plus any cash or other assets (including dividends accrued but not
collected), less all liabilities (including accrued expenses but excluding
capital and surplus), by the number of shares outstanding of Class J. Net asset
value is currently determined as of 3:00 p.m. Central Time on each business day.
Although the legal rights of the Classes of shares of the Funds are
substantially identical, the different expenses borne by each Class will result
in different net asset values and dividends for each Class.
For a more complete description of the procedures involved in valuing various
Fund assets, see "Offering Price" in the Funds' Statement of Additional
Information.
MULTIPLE CLASS STRUCTURE
Class J shares of the Funds are offered in this Prospectus to individuals
through certain financial intermediaries (such as broker-dealers, investment
advisers, and mutual fund "marketplaces") that have distribution agreements with
SM&R. Five other Classes of shares are available through separate prospectuses.
Each Class represents an interest in the same portfolio of investments and each
Class has the same rights as the other Classes, except that each Class bears its
own expenses and charges. The net income attributable to each Class and the
dividends payable on the shares of that Class will be reduced by the amount of
the service and distribution (12b-1) fees of that Class, if any.
The Funds have five other Classes: (1) Class A "front-end load" shares; (2)
Class B "back-end load" shares; (3) Class C "level load" shares; (4) Class Y
"institutional" shares; and (5) Class T shares sold only to investors that
became shareholders of the Funds prior to September , 1998 and certain
designated persons. Class A, Class B, Class C, Class Y, and Class T shares are
subject to different sales charges and other expenses and, accordingly, will
have expense ratios and performance that differs from those of Class J shares.
You are encouraged to consider all of the Funds' class alternatives and choose
the one that fits your individual circumstances at the lowest level of fees. For
more information on the other Classes of shares or to request a prospectus for
another Class, investors may contact Investor Services at (800) 231-4639.
FUND AND CLASS SPECIFIC EXPENSES
Expenses that are directly attributable to a particular Class of shares
("Class Specific Expenses") will be borne solely by that Class. Class Specific
Expenses include: (1) asset-based distribution fees and shareholder service
fees; (2) transfer agency fees attributable to a particular Class; (3) expenses
related to preparing, printing, mailing, and distributing materials such as
shareholder reports, prospectuses, and proxy statements to current shareholders
of a specific Class; (4) state and federal registration fees incurred by a
specific Class; (5) litigation and other legal expenses relating to a particular
Class; (6) directors' fees and expenses incurred as a result of issues relating
solely to a particular Class; (7) accounting, audit, and tax expenses relating
to a specific Class; (8) the expenses of administrative personnel and services
required to support the shareholders of a specific Class; and (9) fees and other
payments made to entities performing services for a particular Class, including
account maintenance, dividend disbursing, or subaccounting services.
Class Specific Expenses may be waived or reimbursed by SM&R, the Fund's
investment adviser and distributor. Investment advisory fees, custodial fees,
and other expenses relating to the management of the Funds' assets shall not be
allocated on a class-specific basis. Income, realized and unrealized capital
gains and losses, and expenses that are not allocated to a specific Class shall
be allocated to each Class on the basis of the proportionate net assets of that
Class in relation to the net assets of the Fund.
For additional information about the expenses of the Funds, see the Statement
of Additional Information.
SPECIAL PURCHASE PLANS AND SERVICES
The Funds offer services and plans that are designed to facilitate investment
in the Funds. At this time, there is no charge to you for these services. The
Funds may impose fees for such services in the
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future. Be aware, however, that if you elect to participate in the ACH plan
described below, you should check with your financial institution for any
additional charges imposed for this service. For additional information contact
your registered representative. A shareholder considering any of the plans or
services described below should consult a tax advisor before beginning a plan.
ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your Fund account(s) and your bank, savings and loan, or credit
union account using the Automated Clearing House (ACH) network. To arrange for
electronic transfers, complete the relevant section of the Account Application
at the time you open your account and specify the type of service or services
desired. Attach a voided, pre-printed check or deposit slip from your checking,
savings and loan or credit union account. Passbook savings accounts are not
eligible for the electronic transfer option. Additionally, your bank must be a
member of the Automated Clearing House (ACH) network for you to take advantage
of this service. You will receive a confirmation verifying initialization of the
electronic transfer option and may begin conducting transactions in your
account(s) under this option approximately 20 calendar days after receipt of the
verification notice from SM&R. If you elect this option after your account is
established, it may be necessary for you to obtain a signature guarantee for all
individuals named on the account(s) desiring this service.
TELEPHONE SERVICES. You can take advantage of this service by completing the
appropriate sections of the Account Application when opening your account.
Through this service, you will be able to purchase by ACH, redeem and exchange
shares on those accounts for which you have an executed Account Application on
file and have received verification from SM&R that the service has been
initialized as explained under Electronic Transfers above. If this option is
elected after your account is established, it may be necessary for you to obtain
a signature guarantee for all individuals named on the account(s) desiring this
service. Please note that the telephone redemption option is not available to
retirement plans.
The Funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions. The caller will be required to know (i) the name of the
Fund or Funds; (ii) all digits of the account number; (iii) the exact name and
address used in the registration(s); and (iv) the Social Security or Employer
Identification Number listed on the account(s). Additionally, all telephone
transactions will be recorded for your protection.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, you should
bear the risk of any losses resulting from unauthorized or fraudulent telephone
transactions on your account(s).
AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via ACH) from your bank account and invested
monthly, bi-monthly, quarterly, or annually into the designated Fund(s) at the
applicable offering price determined on the date of the electronic transfer.
GROUP SYSTEMATIC INVESTMENT PLAN. A group of 5 or more employees may initially
invest a minimum of $100 ($20 per individual) in the Funds followed by
additional payments of at least $20 for each individual investing under a single
payroll deduction plan. Any such plan may be terminated by SM&R or the
Shareholder at any time upon sixty (60) days written notice.
WEALTH ACCUMULATION ACCOUNT. Shareholders having account balances of at least
$2,500 in SM&R Investments, Inc.'s Money Market Fund (the "Money Market Fund")
may open a Wealth Accumulation Account, which will provide them with an
automatic dollar cost averaging plan. Automatic monthly purchases of the shares
of the other funds in the SM&R Family of Funds may be made by exchanges from the
shareholder's Money Market Fund Wealth Accumulation Account. Purchases of the
other funds must be at least $50 and, unless terminated by the shareholder, will
continue as long
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as the balance of the Money Market Fund Wealth Accumulation Account is
sufficient. Additional investments may be made to a Money Market Fund account
designated as a Wealth Accumulation Account to extend the purchase period under
the plan. However, if additional investments are received by SM&R less than ten
(10) business days prior to the 20th of the month, such investments will not be
available for use under the Wealth Accumulation Account until the 20th of the
following month. If the 20th of the month is an SM&R holiday, the purchase will
be processed on the next business day.
Purchases made will be subject to the applicable sales charge of the fund
whose shares are being purchased. Changes in amounts to be purchased, the funds
being purchased, and termination of a Wealth Accumulation Account will be made
within five (5) business days after written instructions are received by SM&R in
proper form (I.E., signed by the owner(s) of record exactly as registered).
Shareholders' rights to make additional investments, to exchange shares, and
to redeem shares in the Money Market Fund and any of the funds in the SM&R
Family of Funds, are not affected by a shareholder's participation in a Wealth
Accumulation Account. However, check writing privileges and expedited redemption
by telephone are not available for the Money Market Fund accounts designated as
a part of the Wealth Accumulation Account.
Shareholders of SM&R Investments, Inc.'s Primary Fund (the "Primary Fund")
that opened a Primary Fund Wealth Accumulation Account prior to September ,
1998 will be permitted to continue using the Account subject to the terms
applicable to a Money Market Fund Wealth Accumulation Account, described above.
EXCHANGE PRIVILEGE. As an investor in a Fund, you are permitted to exchange
shares that you own in a Fund with shares of another fund in the SM&R Family of
Funds without the payment of an exchange fee, subject to certain conditions.
Exchanges between a Fund and another fund in the SM&R Family of Funds are
available only in states where the applicable funds are registered and the
exchange may be legally made.
You may exchange Class J shares of a Fund, without an exchange fee, for
corresponding Class J shares of another fund in the SM&R Family of Funds. You
also may exchange your Class J shares for shares of SM&R Investments, Inc.'s
Primary Fund and Money Market Fund, provided that you meet any minimum
investment requirement for the shares you wish to acquire. Finally, you may
exchange Class J shares of a Fund for shares of another Class of that Fund,
provided that you pay any difference in sales charges.
You may acquire, through an exchange, shares of a Class with a contingent
deferred sales charge ("CDSC"). If you redeem those shares, the relevant CDSC,
if any, will be calculated from the date that you initially purchased the
original shares, rather than from the date of exchange.
Shares of any fund in the SM&R Family of Funds held in escrow under a Letter
of Intent are not eligible for the exchange privilege. Such shares will not be
released from escrow until the balance invested during the period specified in
the Letter of Intent equals or exceeds the amount required to be invested under
the Letter of Intent or the shareholder requests, in writing, that the Letter of
Intent be canceled and pays any adjustments in sales charge. After release from
escrow, shares may be exchanged, provided all other applicable conditions are
met.
You may request an exchange by telephone or in writing. In order to exchange
shares, the following requirements must be met: (a) the exchange must be made
between accounts having identical registrations and addresses; (b) the shares of
the fund of the SM&R Family of Funds acquired through exchange must be qualified
for sale in the state in which you reside; (c) the dollar amount of the exchange
must meet the minimum investment requirement applicable to the shares of the
fund in the SM&R Family of Funds that you would acquire through the exchange;
(d) SM&R must have received full payment for the shares being exchanged; (e)
your account must have been coded to reflect your certified taxpayer
identification number, or, if applicable, an appropriate Internal Revenue
Service Form W-8 (certificate of foreign status)
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or Form W-9 (certifying exempt status); (f) any shares that you wish to exchange
must have been held for at least ten (10) business days; (g) certificates
representing shares, if any, are returned before such shares are exchanged; and
(h) you have received a prospectus for the shares you receive in the exchange.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by the participating funds or by SM&R at any time. Any
gain or loss realized on an exchange or re-exchange may be recognized for
federal and state income tax purposes. You should consult your tax advisor for
the tax treatment and effect of exchanges.
EXCESSIVE TRADING. Frequent trades, involving either substantial Fund assets or
a substantial portion of your account or accounts controlled by you, can disrupt
management of the Fund and raise the Fund's expenses. We define "excessive
trading" as exceeding one purchase and sale involving the same Fund within any
120-day period.
For example, you are in Fund X. You can move substantial assets from Fund X to
Fund Y and, within the next 120 days, sell your shares in Fund Y to return to
Fund X or move to Fund Z. If you exceed the number of trades described above,
you may be barred indefinitely from further transactions of the participating
funds.
There are two types of transactions exempted from the excessive trading
guidelines. They are (1) redemptions that are not part of exchanges and (2)
systematic purchases or redemptions.
RETIREMENT PLANS
An account may be established in Individual Retirement Accounts (IRA), which
includes Traditional, Roth, Education, and SIMPLE IRAs as well as Simplified
Employee Pension Plans (SEP IRAs). Additional retirement plans include 403(b)(7)
(TSA) Custodial Accounts and corporate retirement plans. These plans allow you
to shelter investment income from federal income tax while saving for
retirement. The minimum initial purchase for the Funds is $100.
SM&R acts as trustee or custodian for IRAs, SEPs and TSAs for the Funds. An
annual custodial fee of $7.50 per account will be charged for any part of a
calendar year in which an investor has any type of IRA, SEP or TSA accounts in
the Funds and will be automatically deducted from each account. Documents and
forms containing detailed information regarding these plans are available from
your registered representative. An individual considering a retirement plan may
also wish to consult with an attorney or tax advisor.
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES
The Income and Triflex Funds will pay dividends from investment income, if
any, quarterly, during the months of March, June, September and December, and
distribute capital gains, if any, in December. The Growth Fund will pay
dividends from investment income, if any, semi-annually during the months of
June and December and distribute capital gains, if any, in December. Dividends
from net investment income may include net short-term capital gains, if any.
Dividends and capital gains distributions may also be made at such other times
as may be necessary to comply with the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
Dividends and capital gains distributions will be automatically reinvested at
net asset value in additional shares unless SM&R is instructed otherwise in
writing. Distributions not reinvested are paid by check or transmitted to your
bank account through an ACH transaction, if elected. If the Postal Service
cannot deliver your check, or if your check remains uncashed for six months, the
Funds reserve the right to reinvest your distribution check in your account at
the net asset value on the business day of the reinvestment and to reinvest all
future distributions in shares of the Funds. Dividends and capital gains
declared in December to shareholders of record in December and paid the
following January will be taxable to shareholders as if received in December.
After a dividend or capital gains distribution is paid, each Fund's share
price will drop by the amount of the dividend or distribution. Thus, a dividend
or capital gains distribution paid shortly after purchasing shares would
represent, in substance, a
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return of capital (to the extent it is paid on the shares purchased), even
though subject to income taxes as discussed below. Shareholders and the IRS will
be furnished an annual statement detailing federal tax information, including
information relative to dividends and distributions paid to such shareholder
during the preceding year.
INFORMATION COMMON TO THE FUNDS
Each Fund is a separate entity for federal income tax purposes and each Fund
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code. Each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in a timely
manner. Therefore, it is not expected that any Fund will be required to pay
federal income taxes.
In order to qualify as a regulated investment company, each Fund must meet
several requirements. These requirements include the following: (1) at least 90%
of the Fund's gross income must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or disposition of stock,
securities or foreign currencies or other income (including gains from options,
futures or forward contracts) derived in connection with the Fund's investment
business and (2) at the close of each quarter of the Fund's taxable year, (a) at
least 50% of the value of the Fund's assets must consist of cash, United States
Government securities, securities of other regulated investment companies and
other securities (limited generally with respect to any one issuer to not more
than 5% of the total assets of the Fund and not more than 10% of the outstanding
voting securities of such issuer) and (b) not more than 25% of the value of the
Fund's assets may be invested in the securities of any issuer (other than United
States Government Securities or securities of other regulated investment
companies) or of two or more issuers which the Fund controls and which are
determined to be engaged in similar or related trades or businesses.
For federal income tax purposes, any income dividends derived from taxable
investments which the shareholder receives from any Fund, as well as any
distributions derived from net short-term capital gains, are treated as ordinary
income whether the shareholder has elected to receive them in cash or in
additional shares. Distributions derived from net long-term capital gains will
be taxable as long-term capital gains regardless of the length of time the
shareholder has owned the Fund's shares and regardless of whether such
distributions are received in cash or in additional shares. In determining the
amount of capital gains, if any, available for distribution, net capital gains
are offset against available net capital losses, if any, carried forward from
previous years.
Redemptions and exchanges of shares in each Fund are taxable events on which a
shareholder may realize a gain or loss. Shareholders should consult with their
tax advisor concerning the tax reporting requirements in effect on the
redemption or exchange of such shares.
Each Fund may be required to report to the Internal Revenue Service ("IRS")
any taxable dividends or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the Application.
A shareholder may also be subject to backup withholding if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding taxes to distributions received by them from any Fund.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the fund from direct obligations of the
U.S. Government, subject in some states to minimum investment requirements.
At the end of each calendar year, the Funds will advise shareholders about the
tax status of all distributions made during each taxable year, including
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the portion of the dividends which comprise taxable income, exempt income and
interest income that is a tax preference item under the alternative minimum tax.
Shareholders should consult a tax advisor about the application of state and
local (as well as federal) tax laws to these distributions and redemption
proceeds received from the Fund.
HOW TO REDEEM
Class J shares will be redeemed at net asset value determined on the date the
request is received in "Proper Form" as defined below. There is no charge for
redemptions. A redemption request should be addressed to Securities Management
and Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas 77550.
If uncertain of the redemption requirements investors should call Investor
Services or write SM&R. Payment will be made as soon as practicable and normally
within seven days after receipt of a redemption request in Proper Form. A wire
fee in the amount of $8.00 will be charged to the investor for redemptions by
wire under $5,000.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by personal check or ACH transfer, SM&R will process your redemption but will
generally delay sending you the proceeds for up to ten (10) business days to
allow the check or transfer to clear.
TELEPHONE REDEMPTIONS. You may request redemptions by telephone if you have
completed the Account Application and requested this option. This redemption
feature can only be used if: (a) the redemption proceeds are to be mailed to the
address of record or wired to the pre-authorized bank account indicated on the
Account Application; (b) there has been no change of address of record or
pre-authorized bank account within the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the security procedures discussed
under "SPECIAL PURCHASE PLANS AND SERVICES-Exchange Privilege" have been met;
and (e) the proceeds of the redemption do not exceed $25,000.
SYSTEMATIC WITHDRAWAL PLAN. Each Fund has a "Systematic Withdrawal Plan"
("Withdrawal Account"), which permits shareholders having an account value of
$5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter on or about the 20th of the applicable month. Shareholders
maintaining a Withdrawal Account may elect to have the withdrawal proceeds
automatically deposited in their pre-authorized bank account via an ACH
transaction. This is accomplished by completing the relevant section of the
Account Application and returning it to SM&R. See "SPECIAL PURCHASE PLANS AND
SERVICES--Electronic Transfers" for additional information. Dividends and
capital gains distributions will automatically be reinvested in additional
shares at net asset value. As with other redemptions, a withdrawal is a sale for
federal income tax purposes. The Systematic Withdrawal Plan will automatically
terminate if all shares are liquidated or withdrawn from the account.
Certificates are not issued for shares held in a withdrawal account and
certificates held, if any, must be surrendered when shares are transferred to a
Withdrawal Account. No account covered by a Letter of Intent can be changed to a
Systematic Withdrawal Plan until such time as the Letter of Intent is fulfilled
or terminated, nor can an account under a Systematic Withdrawal Plan be placed
under a Letter of Intent.
For further information about the Systematic Withdrawal Plan, contact a
registered representative.
Any gain or loss on the redemption of the shares is recognized for income tax
purposes, whether or not the proceeds are reinvested in accordance with this
privilege, subject, however to the "wash sale" rule described under "Exchange
Privilege" in the Statement of Additional Information.
"Proper Form" means the request for redemption must include: 1) your share
certificates, if issued; 2) your letter of instruction or a stock assignment
specifying the Fund, account number, and number of shares or dollar amount to be
redeemed. Both share certificates and stock powers, if any, must be endorsed and
executed exactly as the Fund shares are registered. It is suggested that
certificates be
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returned by certified mail for your protection; 3) any required signature
guarantees (see "Signature Guarantees" below); and 4) other supporting legal
documents, if required in the case of estates, trusts, guardianships, divorce,
custodianships, corporations, partnerships, pension or profit sharing plans,
retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
requests are submitted to the Funds' transfer agent in Proper Form for
processing.
TEXAS OPTIONAL RETIREMENT PROGRAM. Shares in an account established under the
Texas Optional Retirement Program may not be redeemed unless satisfactory
evidence is received by SM&R from the State that one of the following conditions
exists: (1) death of the employee; (2) termination of service with the employer;
or (3) retirement of the employee.
SIGNATURE GUARANTEES. This guarantee carries with it certain statutory
warranties which are relied upon by the transfer agent. This guarantee is
designed to protect the investor, the Fund, SM&R and its representatives through
the signature verification of each investor wishing to redeem or exchange
shares. Signature guarantees are required when: (1) the proceeds of the
redemption exceed $25,000; (2) the proceeds (in any amount) are to be paid to
someone OTHER THAN the registered owner(s) of the account; (3) the proceeds (in
any amount) are to be sent to any address OTHER THAN the shareholder's address
of record, pre-authorized bank account or exchanged to one of the other funds in
the SM&R Family of Funds; or (4) the Fund or its transfer agent believes a
signature would protect against potential claims based on the transfer
instructions, such as when the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
satisfaction of the Fund or transfer agent.
Acceptable guarantees can be obtained from an "eligible guarantor institution"
as defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions include banks, brokers, dealers, municipal securities
dealers or brokers, government securities dealers or brokers, credit unions (if
authorized under state law), national securities exchanges, registered
securities associations and institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program. IMPORTANT: Witnessing or notarization is not
sufficient.
REDEMPTION OF SMALL ACCOUNTS. The Funds reserve the right to redeem shares in
any account (which will be promptly paid to the shareholder) if, due to your
redemptions, the value of the account falls below $100. If your account balance
falls below $100 as a result of redeeming shares, you will be notified that the
value of your account is less than the required minimum indicated above and
allowed at least 60 days to make an additional investment to increase the value
of your account above the required minimum. The Board of Directors may, from
time to time, change such required minimum investment.
RIGHTS RESERVED BY THE FUNDS. The Funds, acting through their transfer agent,
reserve the right to waive or lower investment minimums; to accept initial
purchases by telephone from a registered representative; to refuse any purchase
order; to cancel or rescind any purchase or exchange at any time prior to
receipt by the shareholder of written confirmation or, if later, within five (5)
business days of the transaction; to freeze an account and suspend account
services when notice has been received of a dispute involving account owners or
other parties or there is reason to believe a fraudulent transaction may occur;
to restrict or refuse the use of faxed redemptions where there is a question as
to the validity of the request or proper documents have not been received; to
otherwise modify the conditions of purchase and any services at any time; or to
act on instructions not believed to be genuine.
OTHER INFORMATION CONCERNING THE FUNDS
YEAR 2000 RISKS. Many services provided to the Funds and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
22
<PAGE>
of the way dates are encoded and calculated, referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. Like other mutual funds, financial and business organizations, and
individuals around the world, the Funds could be adversely affected if the
computer systems used by SM&R (which acts as their investment adviser,
underwriter, custodian, and transfer agent) do not properly process and
calculate date-related information and data from and after January 1, 2000. SM&R
is taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds and their shareholders.
VOTING RIGHTS. Within the respective Funds, all shares have equal voting,
participation and liquidation rights, but have no subscription, preemptive,
conversion, or cumulative voting rights.
On certain matters, such as the election of directors, all shares of each Fund
vote together, with each share having one vote. On other matters affecting a
particular Fund, such as the Investment Advisory Contract or fundamental
investment policies, only shares of that Fund are entitled to vote, and a
majority of the shares of that Fund are required for approval of the proposal.
On matters affecting a particular Class of a Fund, only shares of that Class of
the Fund are entitled to vote, and a majority of the shares of that Class are
required for approval of the proposal.
SPECIAL PAYMENTS TO BROKER-DEALERS. Broker-dealers or other securities dealers
that have entered into selling agreements with SM&R may receive compensation
from SM&R or an affiliated company in connection with selling shares of the SM&R
Family of Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales and training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to securities dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities dealers may not use certain sales to qualify for this
compensation if prohibited by the laws of any state or self-regulatory agency,
such as the National Association of Securities Dealers, Inc.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
For purchases of Class J shares, SM&R intends to pay its representatives and
broker-dealers from its own profits and resources. The amount (expressed as a
per annum percentage of the amount invested) which SM&R might pay such
representatives and broker-dealers is as follows for Class J shares of the
Growth, Income, and Triflex Funds, respectively: Year 1 [ ]%,
[ ]%, and [ ]%; Year 2 [ ]%, [ ]%, and [ ]%; and
Year 3 and subsequent years, [ ]% (for each Fund).
ADDITIONAL INFORMATION. This Prospectus and the Statement of Additional
Information referred to on the cover page do not contain all the information set
forth in the registration statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The omitted information may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission. For
further information, shareholders may also contact SM&R, whose address and phone
number are set forth on the cover of this Prospectus.
23
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
Looking back at 1997, U.S. economic characteristics reflected steady growth,
declining inflation, a decrease in the budget deficit, large increases in
business profits, employment and real incomes, and a continuation of
unprecedented stock market gains. Further, interest rates declined over the past
year as markets realized that with a backdrop of an appreciating dollar, global
deflationary tendencies, and excess liquidity via declining inflation, the
Federal Reserve would have no compelling reasons to alter monetary policy.
The S&P 500 ended 1997 registering its third consecutive year of +20% gains.
This ended the best calendar-three-year run since Standard and Poor's began
tracking indices in 1923. In addition, this was the first time since 1926 that
the S&P 500 produced better than 20% returns in three consecutive calendar
years. The year 1997 also featured a market of increased volatility. For 1997,
the S&P 500 closed more than 1% higher or lower than the previous day on 34% of
the trading days. In comparison, the average for the period 1990-1996 was less
than half that, at 14.5% of the trading days. For the fourth year in a row,
large capitalization stocks were the best performing size category. The S&P 500
broke 43 new record high marks during 1997, but not without a few bruises. The
9.6% decline between February 18 and April 11 stopped just short of the 10%
mark, which is traditionally the benchmark cited to declare a true market
correction. The 10% mark was crested, however, as stocks fell 10.8% between
October 7-27.
The Dow Jones World Index, which excludes the U.S. market, lost 3.0% during
the year, although performance was widely varied. Within the index, Asia/Pacific
declined 29.1% whereas Europe/Africa gained 19.9%. Also during the year, the
Merrill Lynch Domestic Bond Index rose 9.4%. Within this index, performance
varied from convertible bonds returning 16.1% to asset-backed securities
returning 7.2%. Money market returns were widely varied as well. The U.S. money
markets returned 5.1% whereas the foreign money markets fell 5.5%, reflecting
strength in the U.S. dollar.
Looking forward into the remainder of 1998, we believe the U.S. economy will
continue to grow, albeit at a reduced rate of approximately 2.0-3.0%. Inflation
will likely remain historically low (1.5-2.5%) as declining commodities costs
are countered by rising employment and wages. Such an environment will likely
lead to declining interest rates over the short run which, in turn, could
provide an ideal climate for fixed income securities as well as financial and
consumer dependent securities.
The Growth Fund seeks to identify stocks of superior companies utilizing two
valuation disciplines. These disciplines screen potential investments for both
cash flow and earnings with the goal of selecting companies suitable for long
term capital appreciation. The purpose of this approach is to purchase future
company earnings at a discount relative to peer companies, all else being equal.
The disciplines provide what we believe is a conservative and defensive group of
stocks from which to select for inclusion in the fund.
Within the Growth Fund, we noted particular strength from our holdings in the
financial, consumer cyclical and technology sectors. For 1997, our overweighting
of technology relative to the market also helped our relative performance. For
investors who owned shares for the whole year 1997, the Growth Fund produced a
total return of 22.3%, excluding sales charge (see graph for complete
performance history). The Growth Fund's growth attributes are achieved by
investing primarily in large-capitalization growth companies. The Growth Fund
makes an effort to overweight sectors by no more than twice the S&P 500 sector
weights and underweight by no more than half the S&P 500 sector weights.
We continue to seek out undervalued companies undergoing positive changes in
fundamentals and selling those issues that have hit their price targets or whose
fundamentals do not warrant inclusion in our Fund.
A-1
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL GROWTH FUND, INC. AND S&P 500
[LINE GRAPH TO BE INSERTED HERE]
[CHART]
American National Growth Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value, and considers the effect of the Growth Fund's 5.75% maximum
sales charge. All performance figures are as-of December 31 for the applicable
year. The Growth Fund's fiscal year end was as of October 31 for 1988-1989.
A-2
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000 OF
AMERICAN NATIONAL GROWTH FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
[CHART]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income
dividends paid and
reinvested during year $ 226 $ 308 $ 260 $ 176 $ 253 $ 216 $ 255 $ 360 $ 247 $ 320
Capital gains
distributions reinvested
during year 700 1,794 259 847 1,165 2,404 1,972 1,552 865 4,027
Value of investment at
year end assuming
reinvestment of
investment income
dividends and capital
gains distributions 9,992 12,422 12,057 16,515 16,102 17,417 18,284 22,892 26,931 32,921
Value of investment at
year end assuming
investment income
dividends taken in cash $ 9,767 $11,832 $11,243 $15,219 $14,596 $15,583 $16,126 $19,858 $23,136 $27,995
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------
Income Return 2.26% 3.08% 2.10% 1.46% 1.53% 1.35% 1.47% 1.97% 1.08% 1.19%
Appreciation -2.34% 21.25% -5.04% 35.52% -4.03% 6.82% 3.51% 23.23% 16.56% 21.05%
-------------------------------------------------------------------------------------------------
Total Return -0.08% 24.33% -2.94% 36.98% -2.50% 8.17% 4.98% 25.20% 17.64% 22.24%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 6.00%
</TABLE>
All performance figures are as of December 31 for the applicable year. Growth
Fund's fiscal year was as of October 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment................... $10,000
Dividends Paid and Reinvested......... $2,621
Capital Gains Paid and Reinvested..... $15,585
Appreciation (Unrealized Capital
Gains)................................ $4,715
Total Value........................... $32,921
</TABLE>
A-3
<PAGE>
AMERICAN NATIONAL INCOME FUND
The Income Fund turned in a solid performance in 1997, producing a total
return of 22.7%, excluding sales charge (see graph for complete performance
history). Throughout the year, the Income Fund exceeded its target of
maintaining a dividend yield at least 50% greater than that of the Standard &
Poor's 500 stock market index. The current dividend yield of the equities
comprising the portfolio stands at 2.7%, a full 70% greater than the S&P 500's
1.5% yield.
Throughout 1997, the Income Fund benefited from its overweighted positions in
the strong performing finance and consumer cyclical sectors. Within the finance
sector, the Income Fund's holdings include banks like Nationsbank, Norwest, and
Comerica; financial services companies like Beneficial, Morgan Stanley Dean
Witter, and Reliance Group holdings; and a carefully selected group of real
estate investment trusts (REITs) such as Centerpoint Properties, Crescent,
Health & Retirement Properties. On average, these holdings produced returns of
about 40% for the year. Moreover, the Income Fund was overweighted in this
strong performing sector relative to the broad market benchmarks.
We also noted particular strength in the consumer cyclicals sector, which
includes such industries as apparel, autos, printing, and retail. For the year,
the Income Fund's holdings in this sector produced an average return of 37%,
outperforming this strong sector's performance within the broad market. In
addition, the Income Fund benefited from above-market performance from our
healthcare selections, which appreciated 47% on average versus 35% for the
sector in the S&P 500. Of our holdings, the best performance was posted by
pharmaceuticals maker Schering-Plough which rose 92% for the year and drug
distributor Bergen Brunswig, up 83% during 1997.
Weakness for the Income Fund originated in the capital goods and energy
sectors. In the case of capital goods, most of the weakness came from companies
like engineering and construction companies Fluor and Foster Wheeler, both of
which have above average exposure to emerging markets in Southeast Asia. In the
energy sector, where generous dividend yields are available from many high
quality companies, the falling price of oil hurt earnings, especially in the
fourth quarter. We are still confident in our international integrated companies
like Exxon, Chevron, and Texaco as well as our domestic companies like Amoco,
Kerr-McGee and Murphy Oil.
As mentioned elsewhere in this report, we expect the U.S. economy to continue
its moderate growth in 1998, albeit at a somewhat reduced rate. Inflation will
likely remain historically low (1.5-2.5%) as declining commodities costs are
countered by rising employment and wages. Such an environment will likely lead
to declining interest rates over the short run which, in turn, should provide an
ideal climate for fixed income securities as well as financial and consumer
dependant securities.
Within this slow growth economy, we will seek our style specific goals by
identifying, based on our conservative and defensive valuation disciplines, what
we consider to be stocks of superior companies. We will continue our quest for
undervalued companies undergoing positive changes in fundamentals, and we will
sell those issues which have hit their price targets or whose fundamentals do
not warrant inclusion within the conservatively run Income Fund. This process
has served the Income Fund well in the past.
A-4
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC., S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Income Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value and considers the effect of the Income Fund's 5.75% maximum
sales charge. All performance figures are as of December 31 for the applicable
year. The Income Fund's fiscal year end was as of July 31 for 1988-1989.
A-5
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF AMERICAN NATIONAL INCOME FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid and
reinvested during year $ 374 $ 476 $ 543 $ 447 $ 404 $ 488 $ 559 $ 664 $ 654 $ 757
Capital gains distributions reinvested
during year 1,111 992 49 928 811 1,768 1,884 1,183 730 3,611
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 10,372 13,289 13,389 17,280 17,852 19,749 19,628 25,343 29,516 36,223
Value of investment at year end assuming
investment income dividends taken in
cash $ 9,997 $12,313 $11,891 $14,908 $15,040 $16,208 $15,654 $19,642 $22,342 $26,805
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 3.74% 4.59% 4.08% 3.34% 2.34% 2.73% 2.83% 3.38% 2.58% 2.57%
Appreciation -0.02% 23.53% -3.33% 25.72% 0.98% 7.90% -3.44% 25.74% 13.88% 20.15%
----------------------------------------------------------------------------------------
Total Return 3.72% 28.12% 0.75% 29.06% 3.32% 10.63% -0.61% 29.12% 16.46% 22.72%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.07%
</TABLE>
All performance figures are as of December 31 for the applicable year. Income
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,366
Capital Gains Paid and Reinvested.......$13,067
Appreciation (Unrealized Capital
Gains)...................................$7,790
Total Value.............................$36,223
</TABLE>
A-6
<PAGE>
TRIFLEX FUND
The Triflex Fund (the "Fund" or "Fund's") is the lowest risk equity-dominated
portfolio in the American National Funds Group. Throughout 1997, the Fund's
conservative blend of about 55% stocks, 40% bonds and 5% cash has served the
Fund well. The equity portion of the Fund produced a total return (capital
appreciation and dividend income) of about 25% while the bond portion of the
Fund returned about 11%. Combined, the Fund produced a total return of 17.5% for
the year, excluding sales charge (see graph for complete performance history).
Within the Fund, we took advantage of high real interest rates (after
adjusting for inflation) to extend maturities and add exposure to the fixed
income portion of the Fund. We shifted about 6% of the Fund's assets from
equities and cash, and moved it into bonds during April, as the yield on the
30-year Treasury bond pushed above 7%. In retrospect, our timing was quite
fortuitous, as interest rates dropped over one percentage point by year-end,
with the 30-year bond yield closing 1997 at 5.9%.
Within the equity portion of the Triflex Fund, we utilize the same
conservative and defensive stock selection disciplines used in the American
National Income and Growth Funds. The key is identifying what we consider to be
stocks of superior companies and purchasing them at discounted valuations.
During 1997, we noted particular strength from our equity holdings in the
financial, consumer staples, and technology sectors. In all three sectors, our
holdings produced returns in excess of 30%, outperforming the respective sectors
in the S&P 500 for the year.
We weren't so fortunate with our capital goods and energy holding, however, as
both sectors underperformed both on an absolute basis and relative to their
respective S&P sectors. Within capital goods, we saw weakness in companies like
Fluor and Foster Wheeler, whose businesses are closely tied to large
infrastructure projects in the emerging markets in Southeast Asia. In the energy
sector, falling oil prices caused the shares of most companies to fall in
sympathy. We are examining our holdings in both of these sectors to determine
whether changes should be made going forward.
On balance, Triflex Fund investors were rewarded by their investment in the
Fund in 1997, with a third consecutive year of double-digit returns. Although
the Fund has not produced the spectacular returns witnessed by some funds over
the last year or two, we have achieved our goal of providing consistently
positive performance in the strong up market, while firmly believing that the
Fund is well positioned should markets turn downward.
We appreciate your investment in the Triflex Fund and will continue to do all
we can to reward our shareholders' confidence and trust.
A-7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TRIFLEX FUND, INC., S&P 500 AND LEHMAN INTERMEDIATE GOVERNMENT/CORP INDEX
[LINE GRAPH TO BE INSERTED HERE]
Triflex Fund, Inc.'s performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions, changes in net asset value and
considers the effect of the Triflex Fund's 5.75% maximum sales charge. All
performance figures are as of December 31 for the applicable year. The Triflex
Fund's fiscal year end was as of July 31 for 1988-1989.
A-8
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF TRIFLEX FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid and
reinvested during year $ 555 $ 621 $ 579 $ 538 $ 328 $ 403 $ 489 $ 572 $ 598 $ 760
Capital gains distributions reinvested
during year 225 702 68 492 484 1,027 876 166 533 2,673
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 10,406 11,827 11,990 14,931 15,379 16,350 16,593 20,293 22,701 26,663
Value of investment at year end assuming
investment income dividends taken in
cash $ 9,850 $10,595 $10,212 $12,224 $12,309 $12,755 $12,566 $14,911 $16,222 $18,490
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 5.54% 5.97% 4.90% 4.49% 2.20% 2.62% 2.99% 3.44% 2.95% 3.35%
Appreciation -0.94% 7.69% -3.53% 20.04% 0.80% 3.69% -1.50% 18.85% 8.91% 14.11%
----------------------------------------------------------------------------------------
Total Return 4.60% 13.66% 1.37% 24.53% 3.00% 6.31% 1.49% 22.29% 11.86% 17.46%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.38%
</TABLE>
All performance figures are as of December 31 for the applicable year. Triflex
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,443
Capital Gains Paid and Reinvested........$7,246
Appreciation (Unrealized Capital
Gains)...................................$3,974
Total Value.............................$26,663
</TABLE>
A-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------
BOND RATINGS
Description of Standard & Poor's Corporation's bond rating:
AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions that
obligations in higher-rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB", "B", "CCC", "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will like have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, if faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
Description of Moody's Investor's Service, Inc.'s bond ratings:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds be-
cause margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but
B-1
<PAGE>
<TABLE>
<S> <C>
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
</TABLE>
PREFERRED STOCK RATING.
Description of Standard & Poor's Corporation's preferred stock rating:
B Preferred stock rated "B" are regarded on balance, as predominately
speculative with respect to the issuer's capacity to pay preferred stock
obligations. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Description of Moody's Investors Service, Inc.'s preferred stock rating:
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
FEDERAL FUNDS
As used in this Prospectus and in the Funds' Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.
B-2
<PAGE>
AMERICAN NATIONAL FUNDS GROUP
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
SEPTEMBER , 1998
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this Prospectus (and/or the Funds' Statement of Additional Information referred
to above) and if given or made, such information or representations must not be
relied upon as having been authorized by the Funds or SM&R, the Fund's
investment adviser, manager and principal underwriter. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
A Statement of Additional Information dated September , 1998 containing
additional information about the Funds was filed with the Securities and
Exchange Commission and are incorporated herein by reference. Additional
information about the Funds' investments also is available in the Funds' annual
and semi-annual reports to shareholders.
The Funds' Statement of Additional Information, annual report, and semi-annual
reports are available, without charge, upon request. You may make shareholder
inquiries, request further information about the Funds, or obtain copies of the
Statement of Additional Information, annual reports, and semi-annual reports, by
writing Securities Management and Research, Inc., One Moody Plaza, 14th Floor,
Galveston, Texas 77550, or by calling (Toll Free) 1-800-231-4639 or (Collect)
1-409- .
Information about the Funds may be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington D.C. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Funds also
are available on the Commission's Internet site at http://www.sec.gov, and you
may obtain copies of this information, upon payment of a duplicating fee, by
writing the Public Reference Section of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
811-00623
811-01916
811-02818
<PAGE>
[LOGO]
P R O S P E C T U S
CLASS T
(EXISTING OWNERS AND SPECIAL PURCHASERS)
AMERICAN NATIONAL FUNDS GROUP
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
TELEPHONE NUMBER: (409) - TOLL FREE: 1 (800) 231-4639
SEPTEMBER 15, 1998
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
OFFICERS
Michael W. McCroskey, President and CEO
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
<TABLE>
<S> <C>
INVESTMENT ADVISOR AND MANAGER LEGAL COUNSEL
Securities Management and Research, Inc. Greer, Herz & Adams, L.L.P.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT INDEPENDENT AUDITORS
Securities Management and Research, Inc. Tait, Weller & Baker
One Moody Plaza 8 Penn Center
Galveston, Texas 77550 Philadelphia, Pennsylvania 19103
CUSTODIAN TRANSFER AND DIVIDEND
Securities Management and Research, Inc. PAYING AGENT
One Moody Plaza Securities Management and Research, Inc.
Galveston, Texas 77550 One Moody Plaza
Galveston, Texas 77550
</TABLE>
This Prospectus offers shares in three equity mutual funds underwritten and
managed by Securities Management and Research, Inc.: (1) American National
Growth Fund, Inc. ("Growth Fund"), which seeks long-term growth; (2) American
National Income Fund, Inc. ("Income Fund"), which seeks current income with
appreciation secondary; and (3) Triflex Fund, Inc. ("Triflex Fund"), a balanced
fund seeking conservation of principal, current income, and long-term capital
appreciation (each, a "Fund"; collectively, the "Funds" or the "American
National Funds Group"). These shares are offered only to investors that became
shareholders of the Funds prior to September , 1998 and to certain
designated persons. The Funds also offer other share classes with different
sales charge and distribution and service fee structures. Please read this
Prospectus carefully before making an investment and keep it for future
reference. There is no assurance that any Fund will achieve its objective.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF OR GUARANTEED OR
ENDORSED BY ANY BANK. FURTHER, SHARES OF THE FUNDS ARE NOT FEDERALLY INSURED OR
GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER AGENCY. SHARES OF THE FUNDS INVOLVE
INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
THE FUNDS AT A GLANCE............................. 3
TABLE OF FEES AND EXPENSES........................ 4
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH
FUND, INC........................................ 6
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME
FUND, INC........................................ 7
FINANCIAL HIGHLIGHTS--TRIFLEX
FUND, INC........................................ 8
INVESTMENT OBJECTIVES AND POLICIES................ 9
THE FUNDS AND THEIR MANAGEMENT.................... 12
HOW TO PURCHASE SHARES............................ 15
WHO CAN PURCHASE CLASS T SHARES?.................. 16
WHEN ARE PURCHASES EFFECTIVE...................... 17
<CAPTION>
PAGE
-----------
<S> <C>
DETERMINATION OF OFFERING PRICE................... 18
MULTIPLE CLASS STRUCTURE.......................... 18
SPECIAL PURCHASE PLANS AND SERVICES............... 20
RETIREMENT PLANS.................................. 23
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES........ 23
HOW TO REDEEM..................................... 24
OTHER INFORMATION CONCERNING THE FUNDS............ 26
APPENDIX A........................................ A-1
APPENDIX B........................................ B-1
</TABLE>
2
<PAGE>
THE FUNDS AT A GLANCE
Each Fund is a "mutual fund" that continuously sells and redeems its shares of
common stock at the current per share offering price. The investment objective
and investor suitability profile of each Fund are summarized below.
AMERICAN NATIONAL GROWTH FUND, INC. ("GROWTH FUND")
OBJECTIVE: The Growth Fund seeks long-term capital growth by investing its
assets in securities (primarily common stocks) that provide an opportunity for
capital appreciation.
INVESTOR SUITABILITY PROFILE: The Growth Fund is designed for investors who
want to build capital to meet long-range goals.
AMERICAN NATIONAL INCOME FUND, INC. ("INCOME FUND")
OBJECTIVE: The Income Fund seeks current income with a secondary objective of
long-term capital appreciation. It invests in common stock, preferred stocks,
and debt securities.
INVESTOR SUITABILITY PROFILE: The Income Fund is designed for investors seeking
to protect the purchasing power of their money while retaining the potential for
attractive growth and reducing their exposure to the volatility of the market.
TRIFLEX FUND, INC. ("TRIFLEX FUND")
OBJECTIVE: The Triflex Fund seeks to conserve principal, produce current
income, and achieve long-term capital appreciation. It invests in various types
of fixed income (debt) and equity securities.
INVESTOR SUITABILITY PROFILE: The Triflex Fund is designed for investors
seeking income and conservation of the purchasing power of their capital.
MANAGEMENT: Securities Management and Research, Inc. ("SM&R") makes the
investment choices for the Funds. SM&R has served as investment adviser, manager
and distributor of mutual funds since 1966. See "THE FUNDS AND THEIR MANAGEMENT"
for additional information.
PURCHASING SHARES: Class T shares are available at net asset value plus a sales
charge of up to 5.75% of the public offering price. For amounts invested over
certain levels, or "breakpoints" (beginning at $50,000), you pay reduced sales
charges. For investments of $500,000 or more, you do not pay any initial sales
charge. This initial sales charge may be waived for certain designated
investors, as described in "MULTIPLE CLASS STRUCTURE-Waiver of Initial Sales
Charge for Special Purchasers." Class T shares do not impose any distribution
and service ("12b-1") fees.
Class T shares are available to investors that became shareholders of the
Company prior to September , 1998 and to certain designated persons listed in
"WHO CAN PURCHASE CLASS T SHARES?" Other classes of shares are offered through
separate prospectuses and have different sales charges and 12b-1 fee structures,
as described in "MULTIPLE CLASS STRUCTURE." The classes of the Funds are
referred to collectively as "Classes" and each as a "Class."
MINIMUM PURCHASE: $100 minimum initial investment and $20 minimum for each
subsequent investment as described under "Special Purchase Plans."
REDEMPTIONS: Procedures may be found under "HOW TO REDEEM."
EXCHANGES: In general, shareholders can exchange shares of a Fund for shares of
another fund in the SM&R Family of Funds (as defined herein) without the payment
of an exchange fee, subject to certain conditions. For information on exchanging
shares, see "Exchange Privilege" within the "SPECIAL PURCHASE PLANS AND
SERVICES" section.
DERIVATIVE INVESTMENTS: The Funds do not invest in interest only (IO) or
principal only (PO) securities. The Triflex Fund may invest in collateralized
mortgage obligations (CMO's) from time to time. An explanation of CMO's can be
found in the Funds' Statement of Additional Information.
RISKS: Each Fund can be expected to have different investment results based on
its investment objective and different financial and market risks. Financial
risk refers to the ability of an issuer of a debt security to pay principal and
interest, and to the earnings stability and overall financial soundness of an
issuer of an equity security. Market risk refers to the degree to which the
price of a security will react to changes in conditions in securities markets in
general and, with particular reference to debt securities, to changes in the
overall level of interest rates. AS A RESULT OF THESE AND OTHER RISKS, THE VALUE
OF THE SHARES OWNED MAY BE HIGHER OR LOWER THAN THEIR COST.
PORTFOLIO TURNOVER RATES: Each Fund's portfolio turnover rates for the last
five years are included in the Financial Highlights tables herein. A security
will be sold, and the proceeds reinvested, whenever it is considered prudent to
do so from the viewpoint of a Fund's objectives, regardless of the holding
period of the security. A higher rate of portfolio turnover may result in higher
transaction costs. Additionally, higher portfolio turnover may, in some cases,
have adverse tax effects on the Funds and their shareholders. Portfolio turnover
rates are expected to be less than 90% per year for each of the Funds. An
explanation of turnover rate calculations and brokerage fees can be found in the
Funds' Statement of Additional Information.
3
<PAGE>
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
The purpose of the following table is to assist you in understanding the various
costs and expenses that an investor will bear directly or indirectly. You should
be aware that this table is not intended to reflect in detail the fees and
expenses associated with an individual shareholder's investment in Class T
shares of any of the Funds listed. It is being provided to assist you in gaining
a more complete understanding of fees, charges, and expenses which are discussed
in greater detail in the appropriate sections of this Prospectus. See "HOW TO
PURCHASE SHARES" in this Prospectus. The example is also intended to provide a
means to compare expense levels of Funds and Classes with different fee
structures over varying investment periods.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Growth Fund, Income Fund, and Triflex Fund
<S> <C>
Class T
MAXIMUM SALES CHARGE (TOTAL) 5.75%
Maximum Sales Load Imposed on Purchases (as a percentage of
offering price) 5.75%(1)
Maximum Deferred Sales Load (as a percentage of offering
price)(2) None(3)
Maximum Sales Load Imposed on Reinvested Dividends (as a
percentage of offering price) None
EXCHANGE FEES None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(as a Percentage of Average Net Assets Before Fee Waivers and Expense
Reimbursements)
The "Management Fee," "Other Expenses," and "Total Annual Fund Operating
Expenses" shown below for the Funds are for the year ended December 31, 1997. NO
DISTRIBUTION OR SERVICE (12B-1) FEES ARE IMPOSED ON CLASS T SHARES OF THE FUNDS.
<TABLE>
<CAPTION>
Triflex
Growth Fund Income Fund Fund
------------ ------------ -----------
<S> <C> <C> <C>
Class T Class T Class T
Management Fee 0.60% 0.69% 0.65%
Other Expenses(4) 0.36% 0.36% 0.61%
Total Annual Fund Operating Expenses(5) 0.96% 1.05% 1.26%
</TABLE>
Notes to the Table of Fees and Expenses
(1) A sales charge of 5.75% is imposed on initial investments in Class T shares
of less than $50,000. This sales charge is reduced at certain breakpoints,
as follows: 4.50% on initial investments of at least $50,000 but less than
$100,000; 3.50% on initial investments of at least $100,000 but less than
$250,000; 2.50% on initial investments of at least $250,000 but less than
$500,000; and zero on initial investments of $500,000 or more.
(2) An $8.00 transaction fee is charged for each expedited wire redemption.
(3) "Other Expenses" include the Administrative Service Fee. "Other Expenses"
for Class T shares were based on the expenses and average net assets of the
Growth, Income, and Triflex Funds for the fiscal year ended December 31,
1997.
(4) The Fee Table does not reflect any fees waived or expenses assumed either
contractually or voluntarily by SM&R for the Funds during the fiscal year
ended December 31, 1997. Pursuant to the Administrative Service Agreement,
SM&R has agreed to pay (or to reimburse) each Fund for regular operating
expenses (including the advisory fee and administrative fee, but not
including the 12b-1 fee or Class-specific expenses) in excess of 1.25% per
year of such Fund's average daily net assets. During the fiscal year ended
December 31, 1997, SM&R waived management fees of 0.10% for the Triflex
Fund.
4
<PAGE>
EXAMPLE OF EXPENSES
These Examples are intended to help you compare the cost of investing in the
Funds with the cost of investing in other mutual funds.
These Examples assume that you invest $10,000 in Class T shares of each Fund
for the time periods indicated. These Examples also assume that your investment
has a 5% return each year and that the Fund's operating expenses remain the
same. Your actual costs may be higher or lower than shown.
You would pay the following expenses, based on these assumptions, if you
actually redeem all of your shares at the end of the period shown:
<TABLE>
<CAPTION>
One Year Three Years Five Years Ten Years
<S> <C> <C> <C> <C>
Growth Fund (Class T) $ $ $ $
Income Fund (Class T) $ $ $ $
Triflex Fund (Class T) $ $ $ $
</TABLE>
Because there are no deferred sales charges or redemption fees, you would pay
the same expenses, based on these assumptions, if you did not redeem your
shares.
5
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL GROWTH FUND, INC.
The following financial highlights table is intended to help you understand
the Growth Fund's financial performance for the past five years. Certain
information reflects financial results for a single Growth Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Growth Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares, but do not reflect any sales
loads that would be imposed on the purchase of any shares. This information is
derived from the financial statements of the Growth Fund, which for the year
ended through December 31, 1997 have been audited by Tait, Weller & Baker,
independent auditors, whose report, along with the Growth Fund's financial
statements, are incorporated by reference into the Statement of Additional
Information, which is available upon request. The information for years ending
December 31, 1996 and prior, has been audited by the Growth Fund's former
independent auditors. The information for the six month period ended June 30,
1998 was derived from unaudited financial statements of the Growth Fund.
<TABLE>
<CAPTION>
Six Month
Period Ended
June 30, Year Ended December 31,
--------------- --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 4.95 $ 4.39 $ 3.83 $ 4.15 $ 4.51
Income From Investment Operations
Net Investment Income 0.06 0.05 0.08 0.06 0.06
Net Realized and Unrealized Gain
(Loss) on Securities 1.03 0.73 0.88 0.15 0.31
------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 1.09 0.78 0.96 0.21 0.37
Less Distributions
Dividends from Net Investment Income (0.06) (0.05) (0.08) (0.06) (0.06)
Distributions from Capital Gains (0.74) (0.17) (0.32) (0.47) (0.67)
------- ---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (0.80) (0.22) (0.40) (0.53) (0.73)
------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 5.24 $ 4.95 $ 4.39 $ 3.83 $ 4.15
------- ---------- ---------- ---------- ---------- ----------
------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN %(1) 22.24% 17.64% 25.20% 4.98% 8.17%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $178,344 $152,758 $134,821 $113,250 $113,135
Ratio of Expenses to Average Net Assets (2) .96 1.15 0.98 0.97 1.00
Ratio of Net Income to Average Net
Assets (2) 1.03 1.02 1.67 1.46 1.31
Portfolio Turnover Rate 46.79 18.72 37.00 46.26 59.67
Average Commission Rate Paid Per Share $ .0700 $ .0700
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
6
<PAGE>
FINANCIAL HIGHLIGHTS--AMERICAN NATIONAL INCOME FUND, INC.
The following financial highlights table is intended to help you understand
the Income Fund's financial performance for the past five years. Certain
information reflects financial results for a single Income Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Income Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares, but do not reflect any sales
loads that would be imposed on the purchase of any shares. This information is
derived from the financial statements of the Income Fund, which for the year
ended through December 31, 1997 have been audited by Tait, Weller & Baker,
independent auditors, whose report, along with the Income Fund's financial
statements, are incorporated by reference into the Statement of Additional
Information, which is available upon request. The information for years ending
December 31, 1996 and prior, has been audited by the Income Fund's former
independent auditors. The information for the six month period ended June 30,
1998 was derived from unaudited financial statements of the Income Fund.
<TABLE>
<CAPTION>
Six Month
Period
Ended June
30, Year Ended December 31,
---------- --------------------------------------------------------------
1998 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
Beginning of period $ 25.05 $ 22.59 $ 18.90 $ 21.66 $ 22.09
Income From Investment Operations
Net Investment Income 0.63 0.58 0.62 0.62 0.56
Net Realized and Unrealized Gain (Loss) on
Securities 4.96 3.10 4.82 (0.75) 1.75
---------- ---------- ---------- ---------- ---------- ----------
TOTAL FROM INVESTMENT OPERATIONS 5.59 3.68 5.44 (0.13) 2.31
Less Distributions
Dividends from Net Investment Income (0.64) (0.58) (0.63) (0.61) (0.60)
Distributions from Capital Gains (3.01) (0.64) (1.12) (2.02) (2.14)
---------- ---------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS (3.65) (1.22) (1.75) (2.63) (2.74)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value,
End of Period $ 26.99 $ 25.05 $ 22.59 $ 18.90 $ 21.66
---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ----------
TOTAL RETURN %(1) 22.72% 16.46% 29.12% (0.61)% 10.63%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $198,687 $165,786 $141,058 $114,231 $119,956
Ratio of Expenses to Average Net Assets (2) 1.05 1.10 1.12 1.12 1.17
Ratio of Net Income to Average Net Assets (2) 2.28 2.42 2.89 2.86 2.51
Portfolio Turnover Rate 39.14 27.07 44.00 52.46 70.71
Average Commission Rate Paid Per Share $ .0700 $ .0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
7
<PAGE>
FINANCIAL HIGHLIGHTS--TRIFLEX FUND, INC.
The following financial highlights table is intended to help you understand
the Triflex Fund's financial performance for the past five years. Certain
information reflects financial results for a single Triflex Fund share
outstanding throughout each period shown. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the Triflex Fund (assuming reinvestment of all dividends and distributions)
prior to addition of multiple classes of shares, but do not reflect any sales
loads that would be imposed on the purchase of any shares. This information is
derived from the financial statements of the Triflex Fund, which for the year
ended through December 31, 1997 have been audited by Tait, Weller & Baker,
independent auditors, whose report, along with the Triflex Fund's financial
statements, are incorporated by reference into the Statement of Additional
Information, which is available upon request. The information for years ending
December 31, 1996 and prior, has been audited by the Triflex Fund's former
independent auditors. The information for the six month period ended June 30,
1998 was derived from unaudited financial statements of the Triflex Fund.
<TABLE>
<CAPTION>
Six Month
Period
Ended
June 30, Year Ended December 31,
--------- ---------------------------------------------------------
1998 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 17.90 $ 16.85 $ 14.32 $ 15.35 $ 15.81
Income From Investment Operations
Net Investment Income 0.57 0.49 0.49 0.45 0.41
Net Realized and Unrealized Gain (Loss) on
Securities 2.50 1.48 2.67 (0.22) 0.58
--------- --------- --------- --------- --------- ---------
TOTAL FROM INVESTMENT OPERATIONS 3.07 1.97 3.16 0.23 0.99
Less Distributions
Dividends from Net Investment Income (0.59) (0.49) (0.49) (0.45) (0.41)
Distributions from Capital Gains (2.06) (0.43) (0.14) (0.81) (1.04)
--------- --------- --------- --------- --------- ---------
TOTAL DISTRIBUTIONS (2.65) (0.92) (0.63) (1.26) (1.45)
--------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 18.32 $ 17.90 $ 16.85 $ 14.32 $ 15.35
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
TOTAL RETURN %(1) 17.46% 11.86% 22.29% 1.49% 6.31%
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $25,838 $23,188 $21,757 $19,023 $20,469
Ratio of Expenses to Average Net Assets(3) (2) 1.26 1.21 1.26 1.25" 1.32
Ratio of Net Income to Average Net Assets (2) 3.02 2.83 2.99 2.91 2.49
Portfolio Turnover Rate 27.52 23.78 16.39 46.95 70.98
Average Commission Rate Paid Per Share $ .0700 $ .0700 -- -- --
</TABLE>
(1) Returns are not annualized.
(2) Ratios are annualized.
(3) Expenses for these calculations are net of a reimbursement from Securities
Management and Research, Inc. Without these reimbursements, the ratio of
expenses to average net assets would have been 1.36%, 1.34%, 1.46%, 1.45%,
and 1.39% for the years ended December 31, 1997, 1996, 1995, 1994, and 1993,
respectively.
8
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
Each of the Funds have different investment objectives which it pursues
through the investment policies and techniques described below. These policies
and techniques are not fundamental and may be changed by the Board of Directors
of a Fund without shareholder approval. Each Fund has adopted certain
restrictions as fundamental policies which will not be changed unless approved
by the vote, at a special meeting of stockholders, of (i) 67% of the shares
present at a meeting, at which more than 50% of each Fund's outstanding shares
are present or represented by proxy, or (ii) more than 50% of each Fund's
outstanding shares. Each Fund's investment restrictions adopted as fundamental
policies are stated in the Funds' Statement of Additional Information.
AMERICAN NATIONAL GROWTH FUND, INC.
The Growth Fund seeks long-term capital growth by investing its assets in
securities that provide an opportunity for capital appreciation. The Growth Fund
is designed for investors who want to build capital over time to meet long-range
goals.
The Growth Fund's portfolio investments and the composition of its total
portfolio are considered from the viewpoint of potential capital appreciation.
This composition will be adjusted from time to time to best accomplish its
investment objective under current conditions. In pursuing its objective, the
Growth Fund will invest primarily in common stocks selected in accordance with
its investment objective.
The Growth Fund may invest in convertible preferred stocks rated at least "B"
by Standard and Poor's Corporation ("S&P") or at least "b" by Moody's Investors
Service, Inc. ("Moody's") preferred stock ratings, and convertible debentures
and notes rated at least "B" by S&P's and Moody's corporate bond ratings
("convertible securities"). Investments in convertible securities having these
ratings may involve greater risks than convertible securities having higher
ratings. Common stocks and convertible securities purchased will be of companies
which are believed by SM&R to provide an opportunity for capital appreciation.
The proportion of assets invested in any particular type of security can be
expected to vary, depending on SM&R's appraisal of market and economic
conditions. Under normal conditions at least 50% of the Growth Fund's total
assets will be invested in common stocks. On a temporary basis, the Growth Fund
may invest in commercial paper which at the date of such investment, is rated in
one of the two top categories by one or more of the nationally recognized
statistical rating organizations ("NRSRO's"), in certificates of deposit in
domestic banks and savings institutions having at least $1 billion of total
assets, and in repurchase agreements which are discussed under "Other Investment
Strategies."
AMERICAN NATIONAL INCOME FUND, INC.
The Income Fund seeks current income with a secondary objective of long-term
capital appreciation. The Income Fund is designed for investors seeking to
protect the purchasing power of their money while retaining the potential for
growth and reducing their exposure to the volatility of the market.
The Income Fund's portfolio investments and the composition of its total
portfolio are considered not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. This
composition of portfolio investments will be adjusted from time to time to best
accomplish its investment objectives under current conditions.
In pursuit of its objectives, the Income Fund will invest in common stocks,
preferred stocks and marketable debt securities selected in accordance with the
Income Fund's investment objectives. Common and preferred stocks purchased will
generally be of companies with consistent and increasing dividend payment
histories which are believed by SM&R to have further earnings potential
sufficient to continue such dividend payments. Debt securities will include
publicly traded corporate bonds, debentures, notes, commercial paper, repurchase
agreements, and certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets. The proportion of
assets invested in any particular type of security can be expected to vary,
depending on SM&R's appraisal of market and economic conditions. Under normal
conditions at
9
<PAGE>
least 50% of the Income Fund's assets will be invested in equity securities
rather than debt securities.
Corporate debt obligations purchased by the Income Fund will consist only of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above.
TRIFLEX FUND, INC.
The Triflex Fund seeks to conserve principal, produce current income, and
achieve long-term capital appreciation. The Triflex Fund is designed for
investors seeking income and conservation of the purchasing power of their
capital.
The Triflex Fund seeks to achieve its objectives by flexibly managing a
balanced portfolio of fixed-income securities such as bonds, commercial paper,
preferred stock and short-term obligations combined with common stocks and
securities convertible into common stocks. The Triflex Fund will only purchase
common stocks and convertible securities of corporations having a market
capitalization of at least $100 million, an operating history of at least three
(3) years, and a listing on the New York Stock Exchange, American Stock Exchange
or Over-The-Counter markets. Corporate bonds purchased will consist of
obligations rated either Baa or better by Moody's or BBB or better by S&P. Bonds
which are rated Baa by Moody's are considered as medium grade obligations, that
is, they are neither highly protected nor poorly secured. Bonds rated BBB by S&P
are regarded as having an adequate capacity to pay interest and repay principal.
Commercial paper and notes will consist only of direct obligations of
corporations whose bonds and/or debentures are rated as set forth above. The
Triflex Fund may also invest in repurchase agreements. This balanced investment
policy is intended to reduce risk and to obtain results in keeping with the
Triflex Fund's objectives.
The Triflex Fund's investments will be in fixed-income securities and equity
securities as described above. However, the Triflex Fund will sometimes be more
heavily invested in equity securities and at other times it will be more heavily
invested in fixed-income securities, depending on management's appraisal of
market and economic conditions. SM&R believes that a fund that is wholly
invested in fixed-income securities carries a large interest rate risk. Interest
rate risk is the uncertainty about losses due to changes in the rate of interest
on debt instruments. The major interest rate risk for investors, however, is not
in the interest rate itself, but in the change in the market price of bonds that
results from changes in the prevailing interest rate. Higher interest rates
would mean lower bond prices and lower net asset value for the Triflex Fund's
shareholders assuming no change in its current investment objective and
portfolio. Diversifying the Triflex Fund's portfolio with investments such as
commercial paper, convertible securities and common stocks may reduce the
decline in value attributable to the increase in interest rate and resulting
decrease in the market value of bonds and may reduce the interest rate risk.
However, stock prices also fluctuate in response to a number of factors,
including, changes in general level of interest rates, economic and political
developments and other factors which impact individual companies or specific
types of companies. Such market risks cannot be avoided but can be limited
through a program of diversification and a careful and consistent evaluation of
trends in the capital market and fundamental analysis of individual equity
holdings.
The Triflex Fund's goal of preservation of capital while owning common stocks
is dependent upon various factors, including the sustained long-term growth of
the United States economy. SM&R recognizes that recessions occur but also
recognizes that the economy historically has come back from those recessions.
Therefore, SM&R believes that the United States economy will continue to grow,
that
10
<PAGE>
the political environment will continue to be relatively stable and that the
financial markets will continue to function in a reasonably orderly fashion. As
long as these factors occur, SM&R believes that there is a reasonable likelihood
the Triflex Fund can reach its goal of preservation of capital while at the same
time investing in common stock.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity holding consistent with SM&R's outlook and
evaluation of trends in the economy and the financial markets. The Triflex
Fund's level of commitment to common stocks and specific common stock
investments will be determined as a result of this process. For example, within
an environment of rising inflation, common stocks historically have preserved
their value better than bonds; therefore, inclusion of common stocks could tend
to conserve principal better than a portfolio consisting entirely of bonds and
other debt obligations. In addition, within an environment of accelerating
growth in the economy, common stocks historically have conserved their value
better than bonds in part due to a rise in interest rates that occur
coincidentally with accelerating growth and profitability of the companies.
The Triflex Fund will not purchase a security if as a result of such purchase
less than 25% of its total assets will be in fixed-income senior securities
(including short and long-term securities, preferred stocks and convertible debt
securities and preferred stocks to the extent their value is attributable to
their fixed-income characteristics).
OTHER INVESTMENT STRATEGIES
Each Fund, consistent with its objectives and policies, may employ one or more
of the following strategies to enhance investment results.
COMMERCIAL PAPER. Commercial paper is short-term unsecured promissory notes
issued by corporations to finance short-term credit needs. Commercial paper is
usually sold on a discount basis and has a maturity at the time of issuance not
exceeding nine months. The Funds will not invest in variable amount master
demand notes.
REPURCHASE AGREEMENTS. Each Fund may occasionally purchase repurchase
agreements in which a Fund purchases a U.S. government security subject to
resale to a bank or dealer at an agreed upon price and date. These repurchase
agreements will be entered into only with government securities dealers
recognized by the Federal Reserve Board or with member banks of the Federal
Reserve System. During the holding period, the seller must provide additional
collateral if the market value of the obligation falls below the repurchase
price. The custodian for the Fund purchasing such agreement will take title to,
or actual delivery of the security. A default by the seller might cause a Fund
to experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Fund might also incur disposition costs in liquidating
the collateral. The Funds will purchase only repurchase agreements maturing in
seven (7) days or less of such purchase.
CERTIFICATE OF DEPOSIT. A certificate of deposit is generally a short-term,
interest-bearing negotiable certificate issued by a commercial bank or savings
and loan association against funds deposited in the issuing institution. The
interest rate may be fixed for the stated term or may be periodically adjusted
prior to the instrument's stated maturity, based upon a specified market rate. A
bankers' acceptance is a time draft drawn on a commercial bank by a borrower,
usually in connection with an international commercial transaction to finance
the import, export, transfer or storage of goods. The borrower is liable for
payment, as is the bank, which unconditionally guarantees to pay the draft at
its face amount on the maturity date. Most bankers' acceptances have maturities
of six months or less and are traded in secondary markets prior to maturity.
Savings and loan associations whose certificates of deposit may be purchased
by the Funds are subject to regulation and examination by the Office of Thrift
Supervision. Such certificates of deposit held by the Funds do not benefit
materially from insurance from the Federal Deposit Insurance Corporation.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). ADRs are U.S. dollar-denominated
securities of foreign corporations which are traded in the U.S. on national
securities exchanges or over-the-counter and are issued by domestic banks. The
banks act
11
<PAGE>
as custodian of the shares of the foreign stock and collect dividends on the
stock which are either reinvested or distributed to the ADR holder in U.S.
dollars. While ADRs are not considered foreign securities, they may entail
certain political, economic and regulatory risks. Such risks may include
political or social instability, excessive taxation and limitations on the
removal of funds or other assets which could adversely affect the value of a
Fund's investments. The economies of many countries in which a Fund may invest
may not be as developed as the U.S. economy and may be subject to significantly
different forces. Foreign companies are not registered with the commission and
are not generally subject to the regulatory controls imposed on U.S. issuers.
Consequently, there is generally less public information available on foreign
securities. Foreign companies are not subject to uniform accounting, auditing,
and financial reporting standards. Income from foreign securities owned may be
reduced by a withholding tax at the source, which tax would reduce income
payable to a Fund's shareholders.
These strategies and other investment restrictions are more fully discussed in
the Funds' Statement of Additional Information under "INVESTMENT OBJECTIVES AND
POLICIES."
THE FUNDS AND THEIR MANAGEMENT
The Funds were originally incorporated as follows: Growth Fund, State of
Florida, May 5, 1953; Income Fund, State of Texas, May 1, 1970 and the Triflex
Fund, State of Texas, November 20, 1987. The Funds were subsequently
reincorporated in the State of Maryland on November 30, 1989. They are
diversified, open-end management investment companies (I.E., mutual funds).
A Board consisting of seven directors has overall responsibility for
overseeing the affairs of each Fund in a manner reasonably believed to be in the
best interest of each Fund. The Boards have delegated to SM&R, the adviser, the
management of each Fund's day to day business and affairs. In addition, SM&R
invests each Fund's assets, provides administrative services and serves as
transfer agent, dividend payment agent and underwriter. While the use of this
combined Prospectus subjects each Fund to possible liability as the result of
statements or omissions regarding another Fund, the Board of Directors of each
Fund considers the benefits to the respective Fund of using a combined
Prospectus to outweigh the risk.
SM&R, is a wholly-owned subsidiary of American National Insurance Company
("American National"). The Moody Foundation, a private foundation, owns
approximately 23.7% of American National's common stock and the Libbie Shearn
Moody Trust, a private trust for which the Moody National Bank acts as trustee,
owns approximately 37.6% of such shares. SM&R was incorporated in 1964 and has
managed investment companies since 1966. SM&R is also investment adviser to
American National, a Texas insurance company having its principal office in
Galveston, Texas; American National Investment Accounts, Inc., an investment
company used to fund benefits under variable contracts issued by American
National; SM&R Investments, Inc., an investment company consisting of four
investment portfolios (SM&R Investments, Inc. and the American National Funds
Group are collectively referred to in this Prospectus as the "SM&R Family of
Funds"); and for the Moody National Bank of Galveston (the "Bank"), a national
bank. SM&R may, from time to time, serve as investment adviser to other clients
including banks, employee benefit plans, other investment companies, foundations
and endowment funds.
As of September , 1998, SM&R and its parent, American National Insurance
Company, owned [ %] and [ %], respectively of the outstanding shares
of the Growth Fund; [ %] and [ ]%, respectively of the Income Fund;
[ %] and [ %], respectively of the Triflex Fund. American National and
SM&R reserve the right to vote these shares as they deem appropriate.
The following persons are affiliated with SM&R and the Funds as officers:
Michael W. McCroskey, Gordon D. Dixon, Emerson V. Unger, Teresa E. Axelson and
Brenda T. Koelemay.
12
<PAGE>
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in
providing investment advisory services to the Funds. While the following
individuals are primarily responsible for the day-to-day portfolio management of
their respective Fund, all accounts are reviewed on a regular basis by SM&R's
Investment Committee to ensure that they are being invested in accordance with
investment policies.
GORDON D. DIXON, DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER
OF SECURITIES MANAGEMENT AND RESEARCH, INC., VICE PRESIDENT, PORTFOLIO MANAGER
OF THE GROWTH FUND AND CO-MANAGER OF THE INCOME FUND. MR. DIXON JOINED
SECURITIES MANAGEMENT AND RESEARCH, INC. IN 1993. HE GRADUATED FROM THE
UNIVERSITY OF SOUTH DAKOTA WITH A B.A. IN FINANCE AND ACCOUNTING AND FROM
NORTHWESTERN UNIVERSITY IN 1972 WITH AN M.B.A IN FINANCE AND ACCOUNTING. Mr.
Dixon began his investment career in 1972 as an Administrative and Research
Manager with Penmark Investments. In 1979 he began working for American Airlines
in the management of the $600 million American Airlines Pension Portfolio, of
which approximately $100 million was equities. In 1984 he was employed by
C&S/Sovran Bank in Atlanta, Georgia as Director of Equity Strategy where he had
responsibility for all research, equity trading and quantitative services groups
as well as investment policy input of a portfolio of approximately $7 billion,
of which $3.5 billion was equities.
WILLIAM R. BERGER, C.F.A., VICE PRESIDENT, PORTFOLIO MANAGER OF THE TRIFLEX
FUND AND CO-MANAGER OF THE INCOME FUND. Mr. Berger joined Securities Management
and Research, Inc. in 1993. He graduated from Miami University, Oxford, Ohio in
1985 with a B.S. with Honors in Accounting and Finance and from The Wharton
School, University of Pennsylvania in 1988 with an M.B.A. in Finance and
Investment Management. Mr. Berger began his investment career in 1989 with
Trinity Investment Management Corporation as an equity and balanced portfolio
manager for various discretionary accounts worth more than $80 million for
corporate, endowment, religious and public funds. Prior to joining Trinity
Investment Management Corporation Mr. Berger was a Senior Auditor for Coopers &
Lybrand. Mr. Berger is a Chartered Financial Analyst and a Certified Public
Accountant.
ADVISORY AGREEMENTS
GROWTH FUND. Under the Growth Fund's Investment Advisory Agreement, dated
November 30, 1989, SM&R receives a basic advisory fee (the "Basic Advisory Fee")
which is adjusted for an upward or downward movement in the investment
performance during the previous thirty-six (36) monthly periods of the Fund as
compared to the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. This Basic Advisory Fee is computed each month
by applying to the average daily net asset value of the Fund (computed by adding
the daily net asset values for the month and dividing the resulting total by the
number of days in the month) one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
The Basic Advisory Fee annual rate is adjusted each month by adding to or
subtracting from such rate, when appropriate, the applicable performance
adjustment amount percentage shown in the table below. The resulting advisory
fee rate is then applied to the average daily net asset value of the Fund for
the succeeding month. The advisory fee for such month will be one-twelfth
(1/12th) of the resulting dollar figure.
13
<PAGE>
The performance adjustment amount will vary with the Fund's performance as
compared to the Lipper Index as shown by the following table:
<TABLE>
<CAPTION>
Performance Compared Performance
To Lipper Index Adjustment Amount
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
<CAPTION>
Performance Compared Performance
To Lipper Index Adjustment Amount
<S> <C>
0.10% to 0.99% below -0.02%
1.00% to 1.99% below -0.04%
2.00% to 2.99% below -0.06%
3.00% to 3.99% below -0.08%
4.00% to 4.99% below -0.10%
5.00% to 5.99% below -0.12%
6.00% to 6.99% below -0.14%
7.00% to 7.99% below -0.16%
8.00% to 8.99% below -0.18%
9.00% and below -0.20%
</TABLE>
See "INVESTMENT ADVISORY AND OTHER SERVICES" in the Funds' Statement of
Additional Information for a more detailed description of the method used in
calculating the performance adjustment. See Appendix B for a description of
these ratings.
INCOME FUND AND TRIFLEX FUND. Under the Income and Triflex Funds' Investment
Advisory Agreements dated November 30, 1989, SM&R receives from each Fund an
investment advisory fee computed by applying to the average daily net asset
value of each Fund each month one-twelfth (1/12th) of the annual rate as
follows:
<TABLE>
<CAPTION>
On the Portion of the Fund's Basic Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
</TABLE>
As compensation for its services, SM&R is paid an investment advisory fee,
which is calculated as indicated above for each Fund. SM&R received total
advisory fees from the Growth, Income, and Triflex Funds for the fiscal year
ended December 31, 1997 which represented .60%, .69%, and .75%, respectively, of
each Fund's average daily net assets. The ratio of total expenses to average net
assets for each Fund for the same period are .96%, 1.05%, and 1.26%,
respectively.
The fees payable under each Fund's Investment Advisory Agreement may be higher
than the fees paid by other mutual funds, but each Fund believes its fees are
comparable to those paid by funds with the same or similar investment objective.
Consistent with the Conduct Rules (formerly the Rules of Fair Practice) of the
National Association of Securities Dealers, Inc., and subject to seeking best
price and execution, the Funds may give consideration to sales of their shares
as a factor in the selection of brokers and dealers to execute each Fund's
portfolio transactions when it is believed by SM&R that this can be done without
causing the Funds to pay more in brokerage commissions than they would
otherwise.
ADMINISTRATIVE SERVICE AGREEMENTS
The administrative service agreements with the Funds provide for payment of an
administrative service fee to SM&R which is computed by applying to
14
<PAGE>
the average daily net asset value of each Fund each month one-twelfth of the
annual rate as follows:
<TABLE>
<CAPTION>
Administrative
On the Portion of the Fund's Service
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but
not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but
not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</TABLE>
SM&R received total administrative service fees from the Growth, Income, and
Triflex Funds for the fiscal year ended December 31, 1997 which represented
[ ]%, [ ]%, and [ ]%, respectively, of each Fund's average daily
net assets.
SM&R has agreed in each Fund's administrative service agreement to pay (or to
reimburse each Fund for) the Fund's regular operating expenses (including the
advisory fee and administrative service fee, if any, paid to SM&R, but exclusive
of "12b-1 fees," Class-specific expenses, interest, taxes, commissions and other
expenses incidental to portfolio transactions) in excess of 1.25% per year of
each Fund's average daily net assets. (See "Administrative Service Agreement" in
the Funds' Statement of Additional Information for the fees paid by the Funds
thereunder.)
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
The Funds adopted a Distribution and Shareholder Servicing Plan (the "12b-1
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Class A, Class B, Class
C, and Class J shares of the Funds. No distribution and/or service ("12b-1") fee
is imposed on Class T shares.
HOW TO PURCHASE SHARES
You may purchase shares offered through this Prospectus from registered
representatives of SM&R, from authorized broker-dealers, or directly from SM&R.
Such purchases will be at the offering price for such shares determined as
provided under the caption "DETERMINATION OF OFFERING PRICE" in this Prospectus.
There are restrictions on the purchases of Class T shares. For more information
about these restrictions, see "WHO CAN PURCHASE CLASS T SHARES?"
SM&R will send you a monthly confirmation for any month in which your account
is active. You should carefully review the monthly confirmation and promptly
report any discrepancies to SM&R. You may make initial and subsequent purchases
directly through SM&R at the following address:
Securities Management and Research, Inc.,
One Moody Plaza, 14th Floor
Galveston, Texas 77550
Each Fund's shares of authorized capital stock are all common stock, are
nonassessable and fully transferable, and each has one vote.
Certificates are not normally issued for shares of the Funds in an effort to
minimize the risk of loss or theft. However, SM&R confirms investors' purchases
and credits such purchases to their accounts on the books maintained by SM&R.
Investors have the same rights of share ownership as they would if certificates
had been issued. Furthermore, a lost, stolen or destroyed certificate cannot be
replaced without obtaining a sufficient indemnity bond. The cost of such a bond
is borne by the investor and can be 2% or more of the value of the lost, stolen
or destroyed certificate.
OPENING AN ACCOUNT
To purchase shares, you must submit an account application (the "Account
Application") which includes a purchaser suitability form (the "Suitability
Form"). If you would like to take advantage of the electronic services
available, you must complete the Electronic Transfer Options section of the
Account Application. Special forms are required when establishing an IRA/SEP or
403(b) plan. Please call Investor Services at (800) 231-4639 and request the
special forms when establishing retirement plans. Keep in mind when opening an
account that transactions by telephone between different accounts will only be
permitted if the accounts are registered in the identical name.
15
<PAGE>
PURCHASE AMOUNTS
The minimum initial purchase amount for Class T shares of each Fund is $100
and $20 for subsequent purchases (except certain systematic investment programs,
see "SPECIAL PURCHASE PLANS AND SERVICES" for additional information on
reduction of the minimums). The Funds reserve the right to reject any purchase.
PURCHASES BY MAIL
Make your check(s) payable to SM&R and send the check to the address indicated
above. Please note that third party checks will not be accepted to open a new
account, except for IRA Rollover checks that are properly endorsed. If you make
subsequent investments by mail, you must indicate your name, account number, and
the name of the Class(es) and Fund(s) being purchased. You may use the
remittance slip attached to the confirmation statement.
PURCHASES BY WIRE
To ensure proper crediting of a wire investment, you must have an executed
Account Application (including the Special Investor Services section) and
Suitability Form on file with the transfer agent. You may then wire your
investment by providing the following instructions to your bank:
The Moody National Bank of Galveston
ABA #113100091
Securities Management and Research, Inc.
#035 868 9
Name of Class and Fund (E.G., Class T of the Growth Fund)
Fund Account Number (number appears on your confirmation statement)
Investor's Name (E.G., Mary Smith, IRA)
If wires are received after 3:00 p.m. Central Time or during a Bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day.
PURCHASES BY EXCHANGE
Call Investor Services if you have established telephone exchange privileges
on your account. See "SPECIAL PLANS AND SERVICES--Exchange Privilege" for
procedures and additional information relating to telephone exchanges. For
limitations on exchanges, see "Excessive Trading" also under "SPECIAL PLANS AND
SERVICES."
IMPORTANT: The Funds reserve the right to (1) refuse to open an account for
any person failing to provide a taxpayer identification number, certified as
correct and (2) close an account by redeeming its shares in full, at the then
current net asset value upon receipt of notice from the IRS that the taxpayer
identification number certified as correct by the shareholder is in fact
incorrect.
WHO CAN PURCHASE CLASS T SHARES?
In general, Class T shares may only be purchased by investors that became
shareholders of the Funds prior to September , 1998 and certain designated
persons. Specifically, Class T shares may be purchased by:
(a) shareholders of the Funds who own Class T shares that were purchased
prior to September , 1998 ("Existing Shareholders");
(b) present and retired directors, officers, and full-time employees of the
Funds;
(c) present and retired directors, officers, registered representatives, and
full-time employees of SM&R and their spouses;
(d) present and retired officers, directors, insurance agents, and full-time
employees and their spouses of American National and its subsidiaries and its
"affiliated persons," as defined in the Investment Company Act of 1940, and of
any corporation or partnership for which any of American National's present
directors serve as a director or partner, and their spouses;
(e) present and retired partners and full-time employees of legal counsel to
SM&R and officers and directors of any professional corporations which are
partners of such legal counsel and their spouses;
(f) any child, step-child, grandchild, parent, grandparent, brother, or
sister of any person named in (a), (b), (c), or (d) above and their spouses;
(g) any trust, pension, profit-sharing, IRA, or other benefit plan for any
of such persons mentioned in (a), (b), (c), (d) or (e);
(h) custodial accounts for minor children of such persons mentioned in (a),
(b), (c), (d) or
16
<PAGE>
(e) pursuant to the Uniform Gifts to Minors or Uniform Transfers to Minors Acts;
(i) persons who have received a distribution from a pension,
profit-sharing, or other benefit plan, to the extent such distribution
represents the proceeds of a redemption of shares of any fund in the SM&R Family
of Funds (other than the Money Market and Primary Funds);
(j) persons receiving rebated amounts through American National Property
and Casualty's (ANPAC) "Cash Back Program" to the extent the proceeds represent
the amount of the rebate,
(k) policyholders of American National subsidiaries who have entered into an
NAV agreement with SM&R; and
(l) registered representatives and employees of securities dealers with
whom SM&R has a selling agreement.
Neither the Funds nor SM&R are responsible for determining whether or not a
prospective investor qualifies under any of the above categories for purchase of
Class T shares. Notifying SM&R of an intent to qualify under one of these
categories is the sole responsibility of the prospective investor.
An Existing Shareholder, as defined above, is permitted to purchase Class T
shares of a Fund, but only if that Existing Shareholder currently owns Class T
shares of a that particular Fund. For example, an Existing Shareholder that owns
only Class T shares of the Growth Fund would be permitted to purchase additional
Class T shares of the Growth Fund, but would not be able to purchase Class T
shares of the Income Fund or Triflex Fund.
New accounts in Class T shares, however, can be opened by those investors
listed in (b)-(m) above (collectively, "Special Purchasers"). Special
Purchasers, therefore, are permitted to purchase Class T shares of a Fund
regardless of whether or not they currently own shares of that Fund. Special
Purchasers are also eligible for waiver of the initial sales charge as described
below in "MULTIPLE CLASS STRUCTURE--Waiver of Initial Sales Charge for Special
Purchasers."
WHEN ARE PURCHASES EFFECTIVE?
Purchases received in proper form by SM&R prior to the close of the New York
Stock Exchange (currently 3:00 p.m. Central Time) (the "Exchange") on any SM&R
business day, or received prior thereto on any SM&R business day by a securities
dealer having a dealer contract with SM&R and reported to SM&R prior to SM&R's
close of business (currently 4:30 p.m. Central Time) on the same day, will be
effective and executed at the applicable offering price (the "Offering Price")
determined at the close of the Exchange on that day. It is the responsibility of
any such dealer, and not SM&R, to establish procedures to assure that purchases
received before the close of the Exchange on an SM&R business day will be
reported to SM&R before SM&R's close of business on that same day. Purchases
received after the close of the Exchange, or customary national business
holidays, or on an SM&R holiday will be effective upon and made at the Offering
Price determined as of the close of the Exchange on SM&R's next business day
that such Exchange is open for trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange or on an
SM&R holiday, will be effective on and made at the Offering Price determined on
SM&R's next business day. Procedures for transmitting Federal Funds by wire are
available at any national bank, or any state bank which is a member of the
Federal Reserve System.
SM&R's business holidays are Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day, two (2) days
at Christmas and New Years Day. If Christmas Day is a weekday other than Monday,
Christmas Day and Christmas Eve Day are business holidays. If Christmas Day is
Monday, Christmas Day and the preceding Friday will be business holidays. If
Christmas Day is a Saturday, the preceding Thursday and Friday will be business
17
<PAGE>
holidays. If Christmas Day is a Sunday, the preceding Friday and the following
Monday will be business holidays. If New Years Day is a Saturday the preceding
Friday will be a business holiday and if New Years Day is a Sunday, the
following Monday will be a business holiday. For calendar year 1998,
Independence Day will be observed on July 3, 1998.
DETERMINATION OF OFFERING PRICE
The Offering Price is determined once each day and is comprised of the net
asset value of Class T shares of a Fund, plus the sales charge, if any. The
sales charge for Class T shares is computed at the rate set forth in the table
below.
Net asset value per share is determined by dividing the market value of the
securities owned by Class T of each Fund, plus any cash or other assets
(including dividends accrued but not collected), less all liabilities (including
accrued expenses but excluding capital and surplus), by the number of shares
outstanding of Class T. Net asset value is currently determined as of 3:00 p.m.
Central Time on each business day. Although the legal rights of the Classes of
shares of the Funds are substantially identical, the different expenses borne by
each Class will result in different net asset values and dividends for each
Class.
For a more complete description of the procedures involved in valuing various
Fund assets, see "Offering Price" in the Funds' Statement of Additional
Information.
MULTIPLE CLASS STRUCTURE
Class T shares of the Funds are offered in this Prospectus to investors that
became shareholders of the Company prior to September , 1998 and certain
designated persons. Five other Classes of shares are available through separate
prospectuses. Each Class represents an interest in the same portfolio of
investments and each Class has the same rights as the other Classes, except that
each Class bears its own expenses and charges. The net income attributable to
each Class and the dividends payable on the shares of that Class will be reduced
by the amount of the service and distribution (12b-1) fees of that Class, if
any.
The five other Classes include: (1) Class A "front-end load" shares; (2) Class
B "back-end load" shares; (3) Class C "level load" shares; (4) Class Y
"institutional" shares; and (5) Class J "network" shares offered through certain
financial intermediaries that have distribution agreements with SM&R. Class A,
Class B, Class C, Class Y, and Class J shares are subject to different sales
charges and other expenses and, accordingly, will have expense ratios and
performance that differs from those of Class T shares. You are encouraged to
consider all of the Funds' class alternatives and choose the one that fits your
individual circumstances at the lowest level of fees. FOR MORE INFORMATION ON
THE OTHER CLASSES OF SHARES OR TO REQUEST A PROSPECTUS FOR ANOTHER CLASS,
INVESTORS MAY CONTACT INVESTOR SERVICES AT (800) 231-4639.
Class T shares are subject to an initial sales charge of up to 5.75% of the
public offering price. Certain purchasers of Class T shares may qualify for a
reduction or waiver of initial sales charges, as set forth in the chart below
and under "Reduction and/ or Waiver of Initial Sales Charges." If you invest
$500,000 or more in Class T shares, there is no initial sales charge.
The offering price of Class T shares is the next determined net asset value
plus a sales charge, if applicable, (expressed as a percentage of the offering
price) shown in the following table:
<TABLE>
<CAPTION>
Sales Charge Sales Charge Discount to Selected Dealers
as a Percentage of as a Percentage of as a Percentage of
Amount of Investment Offering Price Net Amount Invested Offering Price*
- ------------------------------------------- --------------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
Less than $50,000 5.75% [ ]% [ ]%
$50,000 but less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over None None None
</TABLE>
*For Class T shares, SM&R may provide compensation (from its own profits and
resources) to broker-dealers in addition to these discounts. (See "OTHER
INFORMATION CONCERNING THE FUNDS--Special Payments to Broker-Dealers.")
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<PAGE>
REDUCTION AND/OR WAIVER OF INITIAL SALES CHARGES
DISCOUNTS THROUGH CONCURRENT PURCHASES. To qualify for a reduced sales charge
on the Class T shares, you may combine concurrent purchases of Class T shares of
funds in the SM&R Family of Funds at the respective sales charges applicable to
each. Investors that are eligible to combine concurrent purchases to qualify for
a reduced sales charge include:
(1) Any individual;
(2) Any individual, his or her spouse, and trusts or custodial accounts for
their minor children;
(3) A trustee or fiduciary of a single trust estate or single fiduciary
account;
(4) Tax-exempt organizations specified in Sections 501(c)(3) or (13) of the
Internal Revenue Code, or employees' trusts, pension, profit-sharing, or other
employee benefit plans qualified under Section 401 of the Internal Revenue Code;
and
(5) Employees or employers on behalf of employees under any employee benefit
plan not qualified under Section 401 of the Internal Revenue Code.
Purchases by any "company" or employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the Fund will realize economies of scale in sales effort and
sales related expenses as a result of the employer's or the plan's bearing the
expense of any payroll deduction plan, making the Funds prospectus available to
individual investors or employees, forwarding investments by such employees to
the Funds, and the like.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION. If you already own Class T or Class
A shares of a fund in the SM&R Family of Funds, you may be able to receive a
discount when you buy additional shares. The offering value of the shares you
already own may be "accumulated"--I.E., combined together with the offering
value of the new shares you plan to buy--to achieve quantities eligible for
discount. See "SPECIAL PURCHASE PLANS" in the Statement of Additional
Information for further information about certain rules that apply when taking
advantage of the right of accumulation.
LETTER OF INTENT. You may qualify immediately for a reduced sales charge on
purchases of Class T shares of funds in the SM&R Family of Funds by completing
the Letter of Intent section of the Account Application. Under a Letter of
Intent, an investor expresses an intention to purchase, within 13 months of the
initial investment, a specified amount of Class T shares of funds in the SM&R
Family of Funds which, if made concurrently, would qualify for a reduced sales
charge. Upon execution of the Letter of Intent, the investor must make a minimum
initial investment equal to ten percent (10%) of the amount necessary to qualify
for the applicable reduced sales charge. To assure that the full applicable
sales charge will be paid if the intended purchase is not completed, five
percent (5%) of the total intended purchase amount will be held in escrow in
shares of the funds registered in the investor's name. Shares held in escrow
under a Letter of Intent are not eligible for the exchange privilege until the
Letter of Intent is completed or canceled. A Letter of Intent does not represent
a binding obligation on the part of the investor to purchase or the SM&R Family
of Funds to sell the full amount of shares specified. (See the Investor's Letter
of Intent on the Account Application and "SPECIAL PURCHASE PLANS" in the
Statement of Additional Information.)
WAIVER OF INITIAL SALES CHARGE FOR SPECIAL PURCHASERS. After receipt of written
request by SM&R, Class T shares may be purchased by Special Purchasers at net
asset value per share without the imposition of any sales charge.
THE EDUCATION FUNDING INVESTMENT ACCOUNT PROGRAM. The following breakpoints
apply to purchases made by individuals investing in the Funds through the use of
The Education Funding Investment Account Program as well as the Education IRA.
19
<PAGE>
<TABLE>
<CAPTION>
Sales Charge Sales Charge Discount to Selected Dealers
as a Percentage of as a Percentage of as a Percentage of
Amount of Investment Offering Price Net Amount Invested Offering Price*
- ------------------------------------------- --------------------- ----------------------------- -------------------------------
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over* None** None None
</TABLE>
*For Class T shares, SM&R may provide compensation (from its own profits and
resources) to broker-dealers in addition to these discounts. (See "OTHER
INFORMATION CONCERNING THE FUNDS--Special Payments to Broker-Dealers.")
The Education Funding Investment Account Program is a service expressly
created to help investors accumulate funds for their children's or
grandchildren's college education. The maximum sales charge is 4.5% on the
purchase of Class T shares of the Funds. To participate in this special plan,
investors must complete the special Education Funding Investment Account
application designed specifically for the Program.
FUND AND CLASS SPECIFIC EXPENSES
Expenses that are directly attributable to a particular Class of shares
("Class Specific Expenses") will be borne solely by that Class. Class Specific
Expenses include: (1) asset-based distribution fees and shareholder service
fees; (2) transfer agency fees attributable to a particular Class; (3) expenses
related to preparing, printing, mailing, and distributing materials such as
shareholder reports, prospectuses, and proxy statements to current shareholders
of a specific Class; (4) state and federal registration fees incurred by a
specific Class; (5) litigation and other legal expenses relating to a particular
Class; (6) directors' fees and expenses incurred as a result of issues relating
solely to a particular Class; (7) accounting, audit, and tax expenses relating
to a specific Class; (8) the expenses of administrative personnel and services
required to support the shareholders of a specific Class; and (9) fees and other
payments made to entities performing services for a particular Class, including
account maintenance, dividend disbursing, or subaccounting services.
Class Expenses may be waived or reimbursed by SM&R, the Fund's investment
adviser and distributor. Investment advisory fees, custodial fees, and other
expenses relating to the management of the Funds' assets shall not be allocated
on a class-specific basis. Income, realized and unrealized capital gains and
losses, and expenses that are not allocated to a specific Class shall be
allocated to each Class on the basis of the proportionate net assets of that
Class in relation to the net assets of the Fund.
For additional information about the expenses of the Funds, see the Statement
of Additional Information.
SPECIAL PURCHASE PLANS AND SERVICES
The Funds offer services and plans that are designed to facilitate investment
in the Funds. At this time, there is no charge to you for these services. The
Funds may impose fees for such services in the future. Be aware, however, that
if you elect to participate in the ACH plan described below, you should check
with your financial institution for any additional charges imposed for this
service. For additional information contact your registered representative or
SM&R. A shareholder considering any of the plans or services described below
should consult a tax advisor before beginning a plan.
ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your Fund account(s) and your bank, savings and loan, or credit
union account using the Automated Clearing House (ACH) network. To arrange for
electronic transfers, complete the relevant section of the Account Application
at the time you open your account and specify the type of service or services
desired. Attach a voided, pre-printed check or deposit slip from your checking,
savings and loan or credit union account. Passbook savings accounts are not
eligible for the electronic transfer option. Additionally, your bank must be a
member of the Automated Clearing House (ACH) network for you to take advantage
of this service. You will receive a confirmation verifying initialization of the
electronic
20
<PAGE>
transfer option and may begin conducting transactions in your account(s) under
this option approximately 20 calendar days after receipt of the verification
notice from SM&R. If you elect this option after your account is established, it
may be necessary for you to obtain a signature guarantee for all individuals
named on the account(s) desiring this service.
TELEPHONE SERVICES. You can take advantage of this service by completing the
appropriate sections of the Account Application when opening your account.
Through this service, you will be able to purchase by ACH, redeem and exchange
shares on those accounts for which you have an executed Account Application on
file and have received verification from SM&R that the service has been
initialized as explained under Electronic Transfers above. If this option is
elected after your account is established, it may be necessary for you to obtain
a signature guarantee for all individuals named on the account(s) desiring this
service. Please note that the telephone redemption option is not available to
retirement plans.
The Funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions. The caller will be required to know (i) the name of the
Fund or Funds; (ii) all digits of the account number; (iii) the exact name and
address used in the registration(s); and (iv) the Social Security or Employer
Identification Number listed on the account(s). Additionally, all telephone
transactions will be recorded for your protection.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, you should
bear the risk of any losses resulting from unauthorized or fraudulent telephone
transactions on your account(s).
AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via ACH) from your bank account and invested
monthly, bi-monthly, quarterly, or annually into the designated Fund(s) at the
applicable offering price determined on the date of the electronic transfer.
WEALTH ACCUMULATION ACCOUNT. Shareholders having account balances of at least
$2,500 in SM&R Investments, Inc.'s Money Market Fund (the "Money Market Fund")
may open a Wealth Accumulation Account, which will provide them with an
automatic dollar cost averaging plan. Automatic monthly purchases of the shares
of the other funds in the SM&R Family of Funds may be made by exchanges from the
shareholder's Money Market Fund Wealth Accumulation Account. Purchases of the
other funds must be at least $50 and, unless terminated by the shareholder, will
continue as long as the balance of the Money Market Fund Wealth Accumulation
Account is sufficient. Additional investments may be made to a Money Market Fund
account designated as a Wealth Accumulation Account to extend the purchase
period under the plan. However, if additional investments are received by SM&R
less than ten (10) business days prior to the 20th of the month, such
investments will not be available for use under the Wealth Accumulation Account
until the 20th of the following month. If the 20th of the month is an SM&R
holiday, the purchase will be processed on the next business day.
Purchases made will be subject to the applicable sales charge of the fund
whose shares are being purchased. Changes in amounts to be purchased, the funds
being purchased, and termination of a Wealth Accumulation Account will be made
within five (5) business days after written instructions are received by SM&R in
proper form (i.e., signed by the owner(s) of record exactly as registered).
Shareholders' rights to make additional investments, to exchange shares, and
to redeem shares in the Money Market Fund and any of the funds in the SM&R
Family of Funds, are not affected by a shareholder's participation in a Wealth
Accumulation Account. However, check writing privileges and expedited redemption
by telephone are not available for the Money Market Fund accounts designated as
a part of the Wealth Accumulation Account.
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<PAGE>
Shareholders of SM&R Investments, Inc.'s Primary Fund (the "Primary Fund")
that opened a Primary Fund Wealth Accumulation Account prior to September
, 1998 will be permitted to continue using the Account subject to the
terms applicable to a Money Market Fund Wealth Accumulation Account, described
above.
EXCHANGE PRIVILEGE. As an investor in a Fund, you are permitted to exchange
shares that you own in a Fund with shares of another fund in the SM&R Family of
Funds without the payment of an exchange fee, subject to certain conditions.
Exchanges between a Fund and another fund in the SM&R Family of Funds are
available only in states where the applicable funds are registered and the
exchange may be legally made.
You may exchange Class T shares of a Fund, without an exchange fee, for
corresponding Class T shares of another fund in the SM&R Family of Funds. You
also may exchange your Class T shares for shares of SM&R Investments, Inc.'s
Primary Fund and Money Market Fund, provided that you meet any minimum
investment requirement for the shares you wish to acquire. Finally, you may
exchange Class T shares of a Fund for shares of another Class of that Fund,
provided that you pay any difference in sales charges.
You may acquire, through an exchange, shares of a Class with a contingent
deferred sales charge ("CDSC"). If you redeem those shares, the relevant CDSC,
if any, will be calculated from the date that you initially purchased the
original shares, rather than from the date of exchange.
Shares of any fund in the SM&R Family of Funds held in escrow under a Letter
of Intent are not eligible for the exchange privilege. Such shares will not be
released from escrow until the balance invested during the period specified in
the Letter of Intent equals or exceeds the amount required to be invested under
the Letter of Intent or the shareholder requests, in writing, that the Letter of
Intent be canceled and pays any adjustments in sales charge. After release from
escrow, shares may be exchanged, provided all other applicable conditions are
met.
You may request an exchange by telephone or in writing. In order to exchange
shares, the following requirements must be met: (a) the exchange must be made
between accounts having identical registrations and addresses; (b) the shares of
the fund of the SM&R Family of Funds acquired through exchange must be qualified
for sale in the state in which you reside; (c) the dollar amount of the exchange
must meet the minimum investment requirement applicable to the shares of the
fund in the SM&R Family of Funds that you would acquire through the exchange;
(d) SM&R must have received full payment for the shares being exchanged; (e)
your account must have been coded to reflect your certified taxpayer
identification number, or, if applicable, an appropriate Internal Revenue
Service Form W-8 (certificate of foreign status) or Form W-9 (certifying exempt
status); (f) any shares that you wish to exchange must have been held for at
least ten (10) business days; (g) certificates representing shares, if any, are
returned before such shares are exchanged; and (h) you have received a
prospectus for the shares you receive in the exchange.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by the participating funds or by SM&R at any time. Any
gain or loss realized on an exchange or re-exchange may be recognized for
federal and state income tax purposes. You should consult your tax advisor for
the tax treatment and effect of exchanges.
EXCESSIVE TRADING. Frequent trades, involving either substantial Fund assets or
a substantial portion of your account or accounts controlled by you, can disrupt
management of the Fund and raise the Fund's expenses. We define "excessive
trading" as exceeding one purchase and sale involving the same Fund within any
120-day period.
For example, you are in Fund X. You can move substantial assets from Fund X to
Fund Y and, within the next 120 days, sell your shares in Fund Y to return to
Fund X or move to Fund Z. If you exceed the number of trades described above,
you may be barred indefinitely from further transactions of the participating
funds.
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<PAGE>
There are two types of transactions exempted from the excessive trading
guidelines. They are (1) redemptions that are not part of exchanges and (2)
systematic purchases or redemptions.
RETIREMENT PLANS
An account may be established in Individual Retirement Accounts (IRA), which
includes Traditional, Roth, Education, and SIMPLE IRAs as well as Simplified
Employee Pension Plans (SEP IRAs). Additional retirement plans include 403(b)(7)
(TSA) Custodial Accounts and corporate retirement plans. These plans allow you
to shelter investment income from federal income tax while saving for
retirement. The minimum initial purchase for the Funds is $100. SM&R acts as
trustee or custodian for IRAs, SEPs and TSAs for the Funds. An annual custodial
fee of $7.50 per account will be charged for any part of a calendar year in
which an investor has any type of IRA, SEP or TSA accounts in the Funds and will
be automatically deducted from each account. Documents and forms containing
detailed information regarding these plans are available from your registered
representative or SM&R. An individual considering a retirement plan may also
wish to consult with an attorney or tax advisor.
DIVIDENDS, CAPITAL GAINS AND FEDERAL TAXES
The Income and Triflex Funds will pay dividends from investment income, if
any, quarterly, during the months of March, June, September and December, and
distribute capital gains, if any, in December. The Growth Fund will pay
dividends from investment income, if any, semi-annually during the months of
June and December and distribute capital gains, if any, in December. Dividends
from net investment income may include net short-term capital gains, if any.
Dividends and capital gains distributions may also be made at such other times
as may be necessary to comply with the Internal Revenue Code of 1986, as amended
from time to time (the "Code").
Dividends and capital gains distributions will be automatically reinvested at
net asset value in additional shares unless SM&R is instructed otherwise in
writing. Distributions not reinvested are paid by check or transmitted to your
bank account through an ACH transaction, if elected. If the Postal Service
cannot deliver your check, or if your check remains uncashed for six months, the
Funds reserve the right to reinvest your distribution check in your account at
the net asset value on the business day of the reinvestment and to reinvest all
future distributions in shares of the Funds. Dividends and capital gains
declared in December to shareholders of record in December and paid the
following January will be taxable to shareholders as if received in December.
After a dividend or capital gains distribution is paid, each Fund's share
price will drop by the amount of the dividend or distribution. Thus, a dividend
or capital gains distribution paid shortly after purchasing shares would
represent, in substance, a return of capital (to the extent it is paid on the
shares purchased), even though subject to income taxes as discussed below.
Shareholders and the IRS will be furnished an annual statement detailing federal
tax information, including information relative to dividends and distributions
paid to such shareholder during the preceding year.
INFORMATION COMMON TO THE FUNDS
Each Fund is a separate entity for federal income tax purposes and each Fund
has elected to be treated as a regulated investment company under Subchapter M
of the Internal Revenue Code. Each Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in a timely
manner. Therefore, it is not expected that any Fund will be required to pay
federal income taxes.
In order to qualify as a regulated investment company, each Fund must meet
several requirements. These requirements include the following: (1) at least 90%
of the Fund's gross income must be derived from dividends, interest, payments
with respect to securities loans, gains from the sale or disposition of stock,
securities or foreign currencies or other income (including gains from options,
futures or forward contracts) derived in connection with the Fund's investment
business and (2) at the close of each quarter of the Fund's taxable year, (a) at
least 50% of the value of the Fund's assets must consist of cash, United States
Government securities, securities of other regulated investment companies and
other securities (limited generally with respect to any one issuer to not more
than 5%
23
<PAGE>
of the total assets of the Fund and not more than 10% of the outstanding voting
securities of such issuer) and (b) not more than 25% of the value of the Fund's
assets may be invested in the securities of any issuer (other than United States
Government Securities or securities of other regulated investment companies) or
of two or more issuers which the Fund controls and which are determined to be
engaged in similar or related trades or businesses.
For federal income tax purposes, any income dividends derived from taxable
investments which the shareholder receives from any Fund, as well as any
distributions derived from net short-term capital gains, are treated as ordinary
income whether the shareholder has elected to receive them in cash or in
additional shares. Distributions derived from net long-term capital gains will
be taxable as long-term capital gains regardless of the length of time the
shareholder has owned the Fund's shares and regardless of whether such
distributions are received in cash or in additional shares. In determining the
amount of capital gains, if any, available for distribution, net capital gains
are offset against available net capital losses, if any, carried forward from
previous years.
Redemptions and exchanges of shares in each Fund are taxable events on which a
shareholder may realize a gain or loss. Shareholders should consult with their
tax advisor concerning the tax reporting requirements in effect on the
redemption or exchange of such shares.
Each Fund may be required to report to the Internal Revenue Service ("IRS")
any taxable dividends or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the Application.
A shareholder may also be subject to backup withholding if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding taxes to distributions received by them from any Fund.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the fund from direct obligations of the
U.S. Government, subject in some states to minimum investment requirements.
At the end of each calendar year, the Funds will advise shareholders about the
tax status of all distributions made during each taxable year, including the
portion of the dividends which comprise taxable income, exempt income and
interest income that is a tax preference item under the alternative minimum tax.
Shareholders should consult a tax advisor about the application of state and
local (as well as federal) tax laws to these distributions and redemption
proceeds received from the Fund.
HOW TO REDEEM
Class T shares will be redeemed at net asset value determined on the date the
request is received in "Proper Form" as defined below. There is no charge for
redemptions. A redemption request should be addressed to Securities Management
and Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas 77550.
If uncertain of the redemption requirements investors should call Investor
Services or write SM&R. Payment will be made as soon as practicable and normally
within seven days after receipt of a redemption request in Proper Form. A wire
fee in the amount of $8.00 will be charged to the investor for redemptions by
wire under $5,000.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by personal check or ACH transfer, SM&R will process your redemption but will
generally delay sending you the proceeds for up to ten (10) business days to
allow the check or transfer to clear.
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<PAGE>
TELEPHONE REDEMPTIONS. You may request redemptions by telephone if you have
completed the Account Application and requested this option. This redemption
feature can only be used if: (a) the redemption proceeds are to be mailed to the
address of record or wired to the pre-authorized bank account indicated on the
Account Application; (b) there has been no change of address of record or
pre-authorized bank account within the preceding 30 days; (c) the shares to be
redeemed are not in certificate form; (d) the security procedures discussed
under "SPECIAL PURCHASE PLANS AND SERVICES--Exchange Privilege" have been met;
and (e) the proceeds of the redemption do not exceed $25,000.
SYSTEMATIC WITHDRAWAL PLAN. Each Fund has a "Systematic Withdrawal Plan"
("Withdrawal Account"), which permits shareholders having an account value of
$5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter on or about the 20th of the applicable month. Shareholders
maintaining a Withdrawal Account may elect to have the withdrawal proceeds
automatically deposited in their pre-authorized bank account via an ACH
transaction. This is accomplished by completing the relevant section of the
Account Application and returning it to SM&R. See "SPECIAL PURCHASE PLANS AND
SERVICES--Electronic Transfers" for additional information. It may not be
advisable for shareholders to maintain a Withdrawal Account while concurrently
purchasing shares of the Funds because of the sales charge involved in
additional purchases. You should carefully consider and contact your financial
adviser regarding their advisability. Dividends and capital gains distributions
will automatically be reinvested in additional shares at net asset value. As
with other redemptions, a withdrawal is a sale for federal income tax purposes.
The Systematic Withdrawal Plan will automatically terminate if all shares are
liquidated or withdrawn from the account. Certificates are not issued for shares
held in a withdrawal account and certificates held, if any, must be surrendered
when shares are transferred to a Withdrawal Account. No account covered by a
Letter of Intent can be changed to a Systematic Withdrawal Plan until such time
as the Letter of Intent is fulfilled or terminated, nor can an account under a
Systematic Withdrawal Plan be placed under a Letter of Intent.
REINVESTMENT PRIVILEGE. Within ninety (90) days of a redemption of Class T
shares (sixty (60) days for qualified plans), a shareholder may reinvest all or
part of the proceeds in Class T shares of that same Fund at the net asset value
next computed after receipt of the proceeds to be reinvested by SM&R. The
shareholder must ask the transfer agent for this privilege at the time of
reinvestment. This Reinvestment Privilege is not available to a shareholder that
redeems all Class T shares owned in a particular Fund. Prior to reinvestment of
redemption proceeds, a shareholder is encouraged to consult with his or her
accountant or tax advisor to determine any possible tax ramifications of such a
transaction. Each Fund managed by SM&R may amend, suspend, or cease offering
this privilege at any time as to shares redeemed after the date of the
amendment, suspension, or cessation.
For further information about the "Systematic Withdrawal Plan" and
"Reinvestment Privilege," contact a registered representative or SM&R.
Any gain or loss on the redemption of the shares is recognized for income tax
purposes, whether or not the proceeds are reinvested in accordance with this
privilege, subject, however to the "wash sale" rule described under "Exchange
Privilege" in the Statement of Additional Information.
"PROPER FORM" means the request for redemption must include: 1) your share
certificates, if issued; 2) your letter of instruction or a stock assignment
specifying the Fund, account number, and number of shares or dollar amount to be
redeemed. Both share certificates and stock powers, if any, must be endorsed and
executed exactly as the Fund shares are registered. It is suggested that
certificates be returned by certified mail for your protection; 3) any required
signature guarantees (see "Signature Guarantees" below); and 4) other supporting
legal documents, if required in the case of estates, trusts, guardianships,
divorce, custodianships, corporations, partnerships, pension or profit sharing
plans, retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
requests are submitted
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<PAGE>
to the Funds' transfer agent in Proper Form for processing.
TEXAS OPTIONAL RETIREMENT PROGRAM. Shares in an account established under the
Texas Optional Retirement Program may not be redeemed unless satisfactory
evidence is received by SM&R from the State that one of the following conditions
exists: (1) death of the employee; (2) termination of service with the employer;
or (3) retirement of the employee.
SIGNATURE GUARANTEES. This guarantee carries with it certain statutory
warranties which are relied upon by the transfer agent. This guarantee is
designed to protect the investor, the Fund, SM&R and its representatives through
the signature verification of each investor wishing to redeem or exchange
shares. Signature guarantees are required when: (1) the proceeds of the
redemption exceed $25,000; (2) the proceeds (in any amount) are to be paid to
someone OTHER THAN the registered owner(s) of the account; (3) the proceeds (in
any amount) are to be sent to any address OTHER THAN the shareholder's address
of record, pre-authorized bank account or exchanged to one of the other funds in
the SM&R Family of Funds; or (4) the Fund or its transfer agent believes a
signature would protect against potential claims based on the transfer
instructions, such as when the authority of a representative of a corporation,
partnership, association or other entity has not been established to the
satisfaction of the Fund or transfer agent.
Acceptable guarantees can be obtained from an "eligible guarantor institution"
as defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions include banks, brokers, dealers, municipal securities
dealers or brokers, government securities dealers or brokers, credit unions (if
authorized under state law), national securities exchanges, registered
securities associations and institutions that participate in the Securities
Transfer Agent Medallion Program ("STAMP") or other recognized signature
guarantee medallion program or an SM&R representative who has executed an
agreement and received authorization from SM&R. IMPORTANT: Witnessing or
notarization is not sufficient.
REDEMPTION OF SMALL ACCOUNTS. The Funds reserve the right to redeem shares in
any account (which will be promptly paid to the shareholder) if, due to your
redemptions, the value of the account falls below $100. If your account balance
falls below $100 as a result of redeeming shares, you will be notified that the
value of your account is less than the required minimum indicated above and
allowed at least 60 days to make an additional investment to increase the value
of your account above the required minimum. The Board of Directors may, from
time to time, change such required minimum investment.
RIGHTS RESERVED BY THE FUNDS. The Funds, acting through their transfer agent,
reserve the right to waive or lower investment minimums; to accept initial
purchases by telephone from a registered representative; to refuse any purchase
order; to cancel or rescind any purchase or exchange at any time prior to
receipt by the shareholder of written confirmation or, if later, within five (5)
business days of the transaction; to freeze an account and suspend account
services when notice has been received of a dispute involving account owners or
other parties or there is reason to believe a fraudulent transaction may occur;
to restrict or refuse the use of faxed redemptions where there is a question as
to the validity of the request or proper documents have not been received; to
otherwise modify the conditions of purchase and any services at any time; or to
act on instructions not believed to be genuine.
OTHER INFORMATION CONCERNING THE FUNDS
YEAR 2000 RISKS. Many services provided to the Funds and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated, referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. Like other mutual funds, financial and business organizations, and
individuals around the world, the Funds could be adversely affected if the
computer systems used by SM&R (which acts as their investment adviser,
26
<PAGE>
underwriter, custodian, and transfer agent) do not properly process and
calculate date-related information and data from and after January 1, 2000. SM&R
is taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
Funds and their shareholders.
VOTING RIGHTS. Within the respective Funds, all shares have equal voting,
participation and liquidation rights, but have no subscription, preemptive,
conversion, or cumulative voting rights.
On certain matters, such as the election of directors, all shares of each Fund
vote together, with each share having one vote. On other matters affecting a
particular Fund, such as the Investment Advisory Contract or fundamental
investment policies, only shares of that Fund are entitled to vote, and a
majority of the shares of that Fund are required for approval of the proposal.
On matters affecting a particular Class of a Fund, only shares of that Class of
the Fund are entitled to vote, and a majority of the shares of that Class are
required for approval of the proposal.
SPECIAL PAYMENTS TO BROKER-DEALERS. Broker-dealers or other securities dealers
that have entered into selling agreements with SM&R may receive compensation
from SM&R or an affiliated company in connection with selling shares of the SM&R
Family of Funds. Compensation may include financial assistance for conferences,
shareholder services, automation, sales and training programs, or promotional
activities. Registered representatives and their families may be paid for travel
expenses, including lodging, in connection with business meetings or seminars.
In some cases, this compensation may only be available to securities dealers
whose representatives have sold or are expected to sell significant amounts of
shares. Securities dealers may not use certain sales to qualify for this
compensation if prohibited by the laws of any state or self-regulatory agency,
such as the National Association of Securities Dealers, Inc.
Securities laws of states in which the Fund offers its shares may differ from
federal law. Banks and financial institutions that sell shares of the Fund may
be required to register as securities dealers pursuant to state law.
For purchases of Class T shares of $500,000 or more, SM&R may pay its
representatives and broker-dealers from its own profits and resources. The
amount (expressed as a per annum percentage of the amount invested) which SM&R
might pay such representatives and broker-dealers is as follows for Class T
shares of the Growth, Income, and Triflex Funds, respectively: Year
1--[ ]%, [ ]%, and [ ]%; Year 2--[ ]%, [ ]%, and
[ ]%; and Year 3 and subsequent years, [ ]% (for each Fund).
ADDITIONAL INFORMATION. This Prospectus and the Statement of Additional
Information referred to on the cover page do not contain all the information set
forth in the registration statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The omitted information may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission. For
further information, shareholders may also contact SM&R, whose address and phone
number are set forth on the cover of this Prospectus.
27
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GROWTH FUND
Looking back at 1997, U.S. economic characteristics reflected steady growth,
declining inflation, a decrease in the budget deficit, large increases in
business profits, employment and real incomes, and a continuation of
unprecedented stock market gains. Further, interest rates declined over the past
year as markets realized that with a backdrop of an appreciating dollar, global
deflationary tendencies, and excess liquidity via declining inflation, the
Federal Reserve would have no compelling reasons to alter monetary policy.
The S&P 500 ended 1997 registering its third consecutive year of +20% gains.
This ended the best calendar-three-year run since Standard and Poor's began
tracking indices in 1923. In addition, this was the first time since 1926 that
the S&P 500 produced better than 20% returns in three consecutive calendar
years. The year 1997 also featured a market of increased volatility. For 1997,
the S&P 500 closed more than 1% higher or lower than the previous day on 34% of
the trading days. In comparison, the average for the period 1990-1996 was less
than half that, at 14.5% of the trading days. For the fourth year in a row,
large capitalization stocks were the best performing size category. The S&P 500
broke 43 new record high marks during 1997, but not without a few bruises. The
9.6% decline between February 18 and April 11 stopped just short of the 10%
mark, which is traditionally the benchmark cited to declare a true market
correction. The 10% mark was crested, however, as stocks fell 10.8% between
October 7-27.
The Dow Jones World Index, which excludes the U.S. market, lost 3.0% during
the year, although performance was widely varied. Within the index, Asia/Pacific
declined 29.1% whereas Europe/Africa gained 19.9%. Also during the year, the
Merrill Lynch Domestic Bond Index rose 9.4%. Within this index, performance
varied from convertible bonds returning 16.1% to asset-backed securities
returning 7.2%. Money market returns were widely varied as well. The U.S. money
markets returned 5.1% whereas the foreign money markets fell 5.5%, reflecting
strength in the U.S. dollar.
Looking forward into the remainder of 1998, we believe the U.S. economy will
continue to grow, albeit at a reduced rate of approximately 2.0-3.0%. Inflation
will likely remain historically low (1.5-2.5%) as declining commodities costs
are countered by rising employment and wages. Such an environment will likely
lead to declining interest rates over the short run which, in turn, could
provide an ideal climate for fixed income securities as well as financial and
consumer dependent securities.
The Growth Fund seeks to identify stocks of superior companies utilizing two
valuation disciplines. These disciplines screen potential investments for both
cash flow and earnings with the goal of selecting companies suitable for long
term capital appreciation. The purpose of this approach is to purchase future
company earnings at a discount relative to peer companies, all else being equal.
The disciplines provide what we believe is a conservative and defensive group of
stocks from which to select for inclusion in the fund.
Within the Growth Fund, we noted particular strength from our holdings in the
financial, consumer cyclical and technology sectors. For 1997, our overweighting
of technology relative to the market also helped our relative performance. For
investors who owned shares for the whole year 1997, the Growth Fund produced a
total return of 22.3%, excluding sales charge (see graph for complete
performance history). The Growth Fund's growth attributes are achieved by
investing primarily in large-capitalization growth companies. The Growth Fund
makes an effort to overweight sectors by no more than twice the S&P 500 sector
weights and underweight by no more than half the S&P 500 sector weights.
A-1
<PAGE>
We continue to seek out undervalued companies undergoing positive changes in
fundamentals and selling those issues that have hit their price targets or whose
fundamentals do not warrant inclusion in our Fund.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL GROWTH FUND, INC. AND S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Growth Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value, and considers the effect of the Growth Fund's 5.75% maximum
sales charge. All performance figures are as-of December 31 for the applicable
year. The Growth Fund's fiscal year end was as of October 31 for 1988-1989.
A-2
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF AMERICAN NATIONAL GROWTH FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid
and reinvested during year $ 226 $ 308 $ 260 $ 176 $ 253 $ 216 $ 255 $ 360 $ 247
Capital gains distributions
reinvested during year 700 1,794 259 847 1,165 2,404 1,972 1,552 865
Value of investment at year end
assuming reinvestment of
investment income dividends
and capital gains
distributions 9,992 12,422 12,057 16,515 16,102 17,417 18,284 22,892 26,931
Value of investment at year end
assuming investment income
dividends taken in cash $ 9,767 $ 11,832 $ 11,243 $ 15,219 $ 14,596 $ 15,583 $ 16,126 $ 19,858 $ 23,136
PERCENTAGES
- -----------------------------------------------------------------------------------------------------------------------------------
Income Return 2.26% 3.08% 2.10% 1.46% 1.53% 1.35% 1.47% 1.97% 1.08%
Appreciation -2.34% 21.25% -5.04% 35.52% -4.03% 6.82% 3.51% 23.23% 16.56%
-------------------------------------------------------------------------------------------------
Total Return -0.08% 24.33% -2.94% 36.98% -2.50% 8.17% 4.98% 25.20% 17.64%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 6.00%
<CAPTION>
- --------------------------------
1997
- --------------------------------
<S> <C>
Investment income dividends paid
and reinvested during year $ 320
Capital gains distributions
reinvested during year 4,027
Value of investment at year end
assuming reinvestment of
investment income dividends
and capital gains
distributions 32,921
Value of investment at year end
assuming investment income
dividends taken in cash $ 27,995
PERCENTAGES
- --------------------------------
Income Return 1.19%
Appreciation 21.05%
Total Return 22.24%
Sales Charge
Total Return
*(excluding sales charge)
</TABLE>
All performance figures are as of December 31 for the applicable year. Growth
Fund's fiscal year was as of October 31 for 1988-1989.
<TABLE>
<S> <C> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$2,621
Capital Gains Paid and Reinvested.......$15,585
Appreciation (Unrealized Capital
Gains)...................................$4,715
Total Value.............................$32,921
</TABLE>
A-3
<PAGE>
AMERICAN NATIONAL INCOME FUND
The Income Fund turned in a solid performance in 1997, producing a total
return of 22.7%, excluding sales charge (see graph for complete performance
history). Throughout the year, the Income Fund exceeded its target of
maintaining a dividend yield at least 50% greater than that of the Standard &
Poor's 500 stock market index. The current dividend yield of the equities
comprising the portfolio stands at 2.7%, a full 70% greater than the S&P 500's
1.5% yield.
Throughout 1997, the Income Fund benefited from its overweighted positions in
the strong performing finance and consumer cyclical sectors. Within the finance
sector, the Income Fund's holdings include banks like Nationsbank, Norwest, and
Comerica; financial services companies like Beneficial, Morgan Stanley Dean
Witter, and Reliance Group holdings; and a carefully selected group of real
estate investment trusts (REITs) such as Centerpoint Properties, Crescent,
Health & Retirement Properties. On average, these holdings produced returns of
about 40% for the year. Moreover, the Income Fund was overweighted in this
strong performing sector relative to the broad market benchmarks.
We also noted particular strength in the consumer cyclicals sector, which
includes such industries as apparel, autos, printing, and retail. For the year,
the Income Fund's holdings in this sector produced an average return of 37%,
outperforming this strong sector's performance within the broad market. In
addition, the Income Fund benefited from above-market performance from our
healthcare selections, which appreciated 47% on average versus 35% for the
sector in the S&P 500. Of our holdings, the best performance was posted by
pharmaceuticals maker Schering-Plough which rose 92% for the year and drug
distributor Bergen Brunswig, up 83% during 1997.
Weakness for the Income Fund originated in the capital goods and energy
sectors. In the case of capital goods, most of the weakness came from companies
like engineering and construction companies Fluor and Foster Wheeler, both of
which have above average exposure to emerging markets in Southeast Asia. In the
energy sector, where generous dividend yields are available from many high
quality companies, the falling price of oil hurt earnings, especially in the
fourth quarter. We are still confident in our international integrated companies
like Exxon, Chevron, and Texaco as well as our domestic companies like Amoco,
Kerr-McGee and Murphy Oil.
As mentioned elsewhere in this report, we expect the U.S. economy to continue
its moderate growth in 1998, albeit at a somewhat reduced rate. Inflation will
likely remain historically low (1.5-2.5%) as declining commodities costs are
countered by rising employment and wages. Such an environment will likely lead
to declining interest rates over the short run which, in turn, should provide an
ideal climate for fixed income securities as well as financial and consumer
dependant securities.
Within this slow growth economy, we will seek our style specific goals by
identifying, based on our conservative and defensive valuation disciplines, what
we consider to be stocks of superior companies. We will continue our quest for
undervalued companies undergoing positive changes in fundamentals, and we will
sell those issues which have hit their price targets or whose fundamentals do
not warrant inclusion within the conservatively run Income Fund. This process
has served the Income Fund well in the past.
A-4
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
AMERICAN NATIONAL INCOME FUND, INC. AND S&P 500
[LINE GRAPH TO BE INSERTED HERE]
American National Income Fund, Inc.'s performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions, changes
in net asset value and considers the effect of the Income Fund's 5.75% maximum
sales charge. All performance figures are as of December 31 for the applicable
year. The Income Fund's fiscal year end was as of July 31 for 1988-1989.
A-5
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF AMERICAN NATIONAL INCOME FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends paid and
reinvested during year $ 374 $ 476 $ 543 $ 447 $ 404 $ 488 $ 559 $ 664 $ 654 $ 757
Capital gains distributions reinvested
during year 1,111 992 49 928 811 1,768 1,884 1,183 730 3,611
Value of investment at year end assuming
reinvestment of investment income
dividends and capital gains
distributions 10,372 13,289 13,389 17,280 17,852 19,749 19,628 25,343 29,516 36,223
Value of investment at year end assuming
investment income dividends taken in
cash $ 9,997 $12,313 $11,891 $14,908 $15,040 $16,208 $15,654 $19,642 $22,342 $26,805
PERCENTAGES
- ----------------------------------------------------------------------------------------------------------------------------------
Income Return 3.74% 4.59% 4.08% 3.34% 2.34% 2.73% 2.83% 3.38% 2.58% 2.57%
Appreciation -0.02% 23.53% -3.33% 25.72% 0.98% 7.90% -3.44% 25.74% 13.88% 20.15%
----------------------------------------------------------------------------------------
Total Return 3.72% 28.12% 0.75% 29.06% 3.32% 10.63% 0.61% 29.12% 16.46% 22.72%
----------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.07%
</TABLE>
All performance figures are as of December 31 for the applicable year. Income
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,366
Capital Gains Paid and Reinvested.......$13,067
Appreciation (Unrealized Capital
Gains)...................................$7,790
Total Value.............................$36,223
</TABLE>
A-6
<PAGE>
TRIFLEX FUND
The Triflex Fund (the "Fund" or "Fund's") is the lowest risk equity-dominated
portfolio in the American National Funds Group. Throughout 1997, the Fund's
conservative blend of about 55% stocks, 40% bonds and 5% cash has served the
Fund well. The equity portion of the Fund produced a total return (capital
appreciation and dividend income) of about 25% while the bond portion of the
Fund returned about 11%. Combined, the Fund produced a total return of 17.5% for
the year, excluding sales charge (see graph for complete performance history).
Within the Fund, we took advantage of high real interest rates (after
adjusting for inflation) to extend maturities and add exposure to the fixed
income portion of the Fund. We shifted about 6% of the Fund's assets from
equities and cash, and moved it into bonds during April, as the yield on the
30-year Treasury bond pushed above 7%. In retrospect, our timing was quite
fortuitous, as interest rates dropped over one percentage point by year-end,
with the 30-year bond yield closing 1997 at 5.9%.
Within the equity portion of the Triflex Fund, we utilize the same
conservative and defensive stock selection disciplines used in the American
National Income and Growth Funds. The key is identifying what we consider to be
stocks of superior companies and purchasing them at discounted valuations.
During 1997, we noted particular strength from our equity holdings in the
financial, consumer staples, and technology sectors. In all three sectors, our
holdings produced returns in excess of 30%, outperforming the respective sectors
in the S&P 500 for the year.
We weren't so fortunate with our capital goods and energy holding, however, as
both sectors underperformed both on an absolute basis and relative to their
respective S&P sectors. Within capital goods, we saw weakness in companies like
Fluor and Foster Wheeler, whose businesses are closely tied to large
infrastructure projects in the emerging markets in Southeast Asia. In the energy
sector, falling oil prices caused the shares of most companies to fall in
sympathy. We are examining our holdings in both of these sectors to determine
whether changes should be made going forward.
On balance, Triflex Fund investors were rewarded by their investment in the
Fund in 1997, with a third consecutive year of double-digit returns. Although
the Fund has not produced the spectacular returns witnessed by some funds over
the last year or two, we have achieved our goal of providing consistently
positive performance in the strong up market, while firmly believing that the
Fund is well positioned should markets turn downward.
We appreciate your investment in the Triflex Fund and will continue to do all
we can to reward our shareholders' confidence and trust.
A-7
<PAGE>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TRIFLEX FUND, INC., S&P 500 AND LEHMAN INTERMEDIATE GOVERNMENT/CORP INDEX
[LINE GRAPH TO BE INSERTED HERE]
Triflex Fund, Inc.'s performance figures are historical and reflect reinvestment
of all dividends and capital gains distributions, changes in net asset value and
considers the effect of the Triflex Fund's 5.75% maximum sales charge. All
performance figures are as of December 31 for the applicable year. The Triflex
Fund's fiscal year end was as of July 31 for 1988-1989.
A-8
<PAGE>
ILLUSTRATION OF AN ASSUMED INVESTMENT OF $10,000
OF TRIFLEX FUND, INC.
[LINE GRAPH TO BE INSERTED HERE]
SUMMARY OF RESULTS FOR CALENDAR YEAR
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment income dividends
paid and reinvested during
year $ 555 $ 621 $ 579 $ 538 $ 328 $ 403 $ 489 $ 572 $ 598 $ 760
Capital gains distributions
reinvested during year 225 702 68 492 484 1,027 876 166 533 2,673
Value of investment at year
end assuming reinvestment of
investment income dividends
and capital gains
distributions 10,406 11,827 11,990 14,931 15,379 16,350 16,593 20,293 22,701 26,663
Value of investment at year
end assuming investment income
dividends taken in cash $ 9,850 $10,595 $10,212 $12,224 $12,309 $12,755 $12,566 $14,911 $16,222 $18,490
PERCENTAGES
- ---------------------------------------------------------------------------------------------------------------------------------
Income Return 5.54% 5.97% 4.90% 4.49% 2.20% 2.62% 2.99% 3.44% 2.95% 3.35%
Appreciation (0.94%) 7.69% (3.53%) 20.04% 0.80% 3.69% (1.50%) 18.85% 8.91% 14.11%
-------------------------------------------------------------------------------------------------
Total Return 4.60% 13.66% 1.37% 24.53% 3.00% 6.31% 1.49% 22.29% 11.86% 17.46%
-------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------
Sales Charge 5.75%
Total Return
*(excluding sales charge) 10.38%
</TABLE>
All performance figures are as of December 31 for the applicable year. Triflex
Fund's fiscal year was as of July 31 for 1988-1989.
<TABLE>
<S> <C>
SUMMARY
Original Investment.....................$10,000
Dividends Paid and Reinvested............$5,443
Capital Gains Paid and Reinvested........$7,246
Appreciation (Unrealized Capital
Gains)...................................$3,974
Total Value.............................$26,663
</TABLE>
A-9
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX B
(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------
BOND RATINGS
Description of Standard & Poor's Corporation's bond rating:
AAA An obligation rated "AAA" has the highest rating assigned by Standard &
Poor's. The obligor's capacity to meet its financial commitment on the
obligation is extremely strong.
AA An obligation rated "AA" differs from the highest-rated obligations only
in small degree. The obligor's capacity to meet its financial commitment
on the obligation is very strong.
A An obligation rated "A" is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions that
obligations in higher-rated categories. However, the obligor's capacity to
meet its financial commitment on the obligation is still strong.
BBB An obligation rated "BBB" exhibits adequate protection parameters.
However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the obligor to meet its financial
commitment on the obligation.
Obligations rated "BB", "B", "CCC", "CC," and "C" are regarded as having
significant speculative characteristics. "BB" indicates the least degree
of speculation and "C" the highest. While such obligations will like have
some quality and protective characteristics, these may be outweighed by
large uncertainties or major exposures to adverse conditions.
BB An obligation rated "BB" is less vulnerable to nonpayment than other
speculative issues. However, if faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions, which
could lead to the obligor's inadequate capacity to meet its financial
commitment on the obligation.
B An obligation rated "B" is more vulnerable to nonpayment than obligations
rated "BB", but the obligor currently has the capacity to meet its
financial commitment on the obligation. Adverse business, financial, or
economic conditions will likely impair the obligor's capacity or
willingness to meet its financial commitment on the obligation.
Description of Moody's Investor's Service, Inc.'s bond ratings:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes are
to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements
may be present which suggest a
B-1
<PAGE>
<TABLE>
<S> <C>
susceptibility to impairment sometime in the future.
Baa Bonds which are rated "Baa" are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba Bonds which are rated "Ba" are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated "B" generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
</TABLE>
PREFERRED STOCK RATING.
Description of Standard & Poor's Corporation's preferred stock rating:
B Preferred stock rated "B" are regarded on balance, as predominately
speculative with respect to the issuer's capacity to pay preferred stock
obligations. While such issues will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or
major risk exposures to adverse conditions.
Description of Moody's Investors Service, Inc.'s preferred stock rating:
b An issue which is rated "b" generally lacks the characteristics of a
desirable investment. Assurance of dividend payments and maintenance of
other terms of the issue over any long period of time may be small.
FEDERAL FUNDS
As used in this Prospectus and in the Funds' Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.
B-2
<PAGE>
AMERICAN NATIONAL FUNDS GROUP
AMERICAN NATIONAL GROWTH FUND, INC.
AMERICAN NATIONAL INCOME FUND, INC.
TRIFLEX FUND, INC.
SEPTEMBER , 1998
No dealer, sales representative, or other person has been authorized to give any
information or to make any representations other than those contained in this
Prospectus (and/or the Funds' Statement of Additional Information referred to
above) and if given or made, such information or representations must not be
relied upon as having been authorized by the Funds or SM&R, the Fund's
investment adviser, manager and principal underwriter. This Prospectus does not
constitute an offer or solicitation by anyone in any state in which such offer
or solicitation is not authorized, or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation.
A Statement of Additional Information dated September , 1998 containing
additional information about the Funds was filed with the Securities and
Exchange Commission and are incorporated herein by reference. Additional
information about the Funds' investments also is available in the Funds' annual
and semi-annual reports to shareholders.
The Funds' Statement of Additional Information, annual report, and semi-annual
reports are available, without charge, upon request. You may make shareholder
inquiries, request further information about the Funds, or obtain copies of the
Statement of Additional Information, annual reports, and semi-annual reports, by
writing Securities Management and Research, Inc., One Moody Plaza, 14th Floor,
Galveston, Texas 77550, or by calling (Toll Free) 1-800-231-4639 or (Collect)
1-409- .
Information about the Funds may be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington D.C. You may obtain
information on the operation of the public reference room by calling the
Commission at 1-800-SEC-0330. Reports and other information about the Funds also
are available on the Commission's Internet site at http://www.sec.gov, and you
may obtain copies of this information, upon payment of a duplicating fee, by
writing the Public Reference Section of the Securities and Exchange Commission,
Washington, D.C. 20549-6009.
811-00623
811-01916
811-02818
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 15, 1998
AMERICAN NATIONAL INCOME FUND, INC.
AMERICAN NATIONAL GROWTH FUND, INC.
TRIFLEX FUND, INC.
<TABLE>
<S> <C>
Mailing and Street Address: Telephone Number: (409)
One Moody Plaza Toll Free: 1-(800) 231-4639
Galveston, Texas 77550
</TABLE>
This Statement of Additional Information is NOT a prospectus, but should be
read in conjunction with the American National Funds Group prospectus or
prospectuses dated September 15, 1998 that is relevant to the Class or Classes
of shares that you wish to purchase (each such prospectus is referred to herein
as a "Prospectus" and collectively as the "Prospectuses"). A copy of each
Prospectus may be obtained from your registered representative or Securities
Management and Research, Inc. ("SM&R"), One Moody Plaza, Galveston, Texas 77550
(Telephone No. (409) or Toll Free 1-(800)-231-4639). Terms not defined
herein have the same meaning as given to them in the Prospectuses.
No dealer, sales representative, or other person has been authorized to give
any information or to make any representations other than those contained in
this Statement of Additional Information (and/or the Prospectuses referred to
above), and if given or made, such information or representations must not be
relied upon as having been authorized by the Funds or SM&R. Neither the
Prospectuses nor this Statement of Additional Information constitutes an offer
or solicitation by anyone in any state in which such offer or solicitation is
not authorized, or in which the person making such offer or solicitation is not
qualified to do so, or to any person to whom it is unlawful to make such offer
or solicitation.
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TABLE OF CONTENTS
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THE FUNDS................................................................. 1
INVESTMENT OBJECTIVES AND POLICIES........................................ 2
FUNDAMENTAL INVESTMENT RESTRICTIONS................................... 2
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS............................... 3
INVESTMENT TECHNIQUES..................................................... 6
U.S. GOVERNMENT OBLIGATIONS........................................... 6
INVESTMENT IN COVERED CALL OPTIONS.................................... 7
COLLATERALIZED MORTGAGE OBLIGATIONS................................... 7
REPURCHASE AGREEMENTS................................................. 8
LENDING OF SECURITIES................................................. 8
144A SECURITIES AND SECTION 4(2) COMMERCIAL PAPER..................... 9
CERTIFICATE OF DEPOSITS AND BANKERS ACCEPTANCES....................... 9
PORTFOLIO TURNOVER........................................................ 9
REMUNERATION OF DIRECTORS............................................. 12
POLICY REGARDING PERSONAL INVESTING....................................... 14
PERSONAL INVESTING BY OTHER SM&R OFFICERS AND EMPLOYEES............... 14
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES....................... 14
INVESTMENT ADVISORY AND OTHER SERVICES.................................... 15
CONTROL AND MANAGEMENT OF SM&R........................................ 15
INVESTMENT ADVISORY AGREEMENT......................................... 15
PERFORMANCE ADJUSTMENT OF BASIC ADVISORY FEE FOR GROWTH FUND.......... 17
ADVISORY FEES PAID.................................................... 18
ADMINISTRATIVE SERVICE AGREEMENT...................................... 18
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN............................... 19
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION........................... 21
CAPITAL STOCK............................................................. 22
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.............. 22
PURCHASING SHARES..................................................... 22
DETERMINATION OF NET ASSET VALUE...................................... 22
OFFERING PRICE........................................................ 23
CLASS T SHARES (EXISTING SHAREHOLDERS)................................ 23
CLASS A SHARES (FRONT-END LOAD)....................................... 23
CLASS B SHARES (BACK-END LOAD)........................................ 24
CLASS C SHARES (LEVEL LOAD)........................................... 25
CLASS Y SHARES AND CLASS J SHARES..................................... 25
SPECIAL PURCHASE PLANS.................................................... 25
DISCOUNTS THROUGH CONCURRENT PURCHASES................................ 25
THE EDUCATION FUNDING INVESTMENT ACCOUNT PROGRAM...................... 25
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION............................. 26
LETTER OF INTENT...................................................... 26
WAIVER OF INITIAL SALES CHARGE FOR SPECIAL PURCHASERS................. 27
REDUCTION AND/OR WAIVER OF CONTINGENT DEFERRED SALES CHARGE (CLASS B
SHARES).............................................................. 27
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SYSTEMATIC INVESTMENT PLAN AND ELECTRONIC TRANSFER SERVICE............ 27
GROUP SYSTEMATIC INVESTMENT PLAN...................................... 28
EXCHANGE PRIVILEGE.................................................... 28
REDEMPTION................................................................ 29
SYSTEMATIC WITHDRAWAL PLAN............................................ 30
TAX STATUS................................................................ 31
THE UNDERWRITER........................................................... 31
FINANCIAL STATEMENTS...................................................... 32
CUSTODIAN................................................................. 32
COUNSEL AND AUDITORS...................................................... 32
TRANSFER AGENT AND DIVIDEND PAYING AGENT.................................. 33
PERFORMANCE AND ADVERTISING DATA.......................................... 33
YIELD................................................................. 33
TOTAL RETURN.......................................................... 34
CUMULATIVE TOTAL RETURN............................................... 35
AVERAGE ANNUAL RETURN................................................. 36
COMPARISONS............................................................... 36
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THE FUNDS
The American National Income Fund, Inc. was originally incorporated in Texas
on July 15, 1969, the American National Growth Fund, Inc. was originally
incorporated in Florida on March 5, 1953, and the Triflex Fund, Inc. was
originally incorporated in Texas on January 9, 1978 as the American National
Bond Fund, Inc. The American National Bond Fund, Inc. changed its name to the
Triflex Fund, Inc. and altered its investment objective in November 1987.
On August 23, 1989, the Board of Directors of the American National Income
Fund, Inc. (the Texas corporation), the American National Growth Fund, Inc. (the
Florida corporation), and the Triflex Fund, Inc. (the Texas corporation) (the
"Predecessor Funds") caused the American National Income Fund, Inc., the
American National Growth Fund, Inc., and the Triflex Fund, Inc. (the "Successor
Funds") to be incorporated under the laws of the State of Maryland. The purpose
of incorporating the Successor Funds in Maryland was to permit each Predecessor
Fund to change its domiciliary state to Maryland by merging into the respective
Successor Fund. On November 16, 1989, each Predecessor Fund's stockholders
approved its merger and each merger was consummated on November 30, 1989. At
that time, each Successor Fund, as the survivor of the respective merger,
succeeded to all of the assets and assumed all of the liabilities of the
respective Predecessor Fund, which was then dissolved. Each Predecessor Fund's
investment objective and policies and investment restrictions were unchanged and
became the respective Successor Fund's investment objectives and policies and
investment restrictions. Accordingly, and because each Successor Fund is
essentially the same as the Predecessor Fund, no distinction is made in the
Prospectuses and this Statement of Additional Information between the two and,
unless required by the context thereof, disclosures are made as though the
change of domicile had not occurred. The Successor Funds are referred to in this
Statement of Additional Information each as a "Fund" and collectively as the
"Funds."
The Funds are registered under the Investment Company Act of 1940, as
amended (the "1940 Act" or the "Act") as diversified, open-end management
investment companies commonly known as a mutual funds. A mutual fund is a
company in which a number of persons invest which in turn invests in the
securities of other companies. Each Fund is an open-end investment company
because it generally must redeem an investor's shares upon request. Each Fund is
a diversified investment company because it offers investors an opportunity to
minimize the risk inherent in all investments in securities by spreading their
investment over a number of companies in various industries. However,
diversification cannot eliminate such risks. Registration under the 1940 Act
does not imply any supervision by the Securities and Exchange Commission (the
"Commission") over the Funds' management or investment policies or practices.
The Funds are each divided into six classes of shares of common stock
designated as:
- Class T Shares (existing shareholders and certain designated persons);
- Class A Shares (front-end load);
- Class B Shares (back-end load);
- Class C Shares (level load);
- Class J Shares (network);
- Class Y Shares (institutional shareholders).
These Classes of shares have different sales charges and distribution and
service ("12b-1") fee structures. Each Class bears its own liabilities and its
proportionate share of the general liabilities of that Fund. A Multiple Class
Plan was adopted for each Fund pursuant to Rule 18f-3 under the 1940 Act.
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<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
As noted in the Prospectuses under "INVESTMENT OBJECTIVES AND POLICIES,"
each Fund has its own investment objective and follows policies and techniques
designed to achieve those objectives.
FUNDAMENTAL INVESTMENT RESTRICTIONS
The American National Growth Fund, Inc. (the "Growth Fund"), the American
National Income Fund, Inc. (the "Income Fund"), and the Triflex Fund, Inc. (the
"Triflex Fund") (hereinafter, collectively referred to as the "American National
Funds Group," and with SM&R Investments, Inc. as the "SM&R Family of Funds") are
subject to the following investment restrictions which are deemed to be
fundamental policies. These policies may be changed by a Fund only with the
approval of a majority of that Fund's outstanding shares as determined by the
1940 Act. Such approval requires the affirmative vote of the lesser of (i) 67%
or more of the voting securities present at a meeting if the holders of more
than 50% of voting securities are represented at that meeting or (ii) more than
50% of the outstanding voting securities of the Fund.
Each Fund is subject to the following fundamental investment restrictions:
1. The Fund, with respect to 75% of the Fund's total assets, may not purchase
securities of an issuer (other than cash or cash items, or securities of the
U.S. Government, its agencies, or instrumentalities or of other investment
companies), if (i) such purchase would cause more than 5% of the Fund's
total assets taken at market value to be invested in the securities of such
issuer, or (ii) such purchase would at the time result in more than 10% of
the outstanding voting securities of such issuer being held by the Fund.
2. The Fund may not invest 25% or more of its total assets in the securities of
one or more issuers conducting their principal business activities in the
same industry (excluding the U.S. Government or any of its agencies or
instrumentalities).
3. The Fund may not borrow money, except (a) the Fund may borrow from banks (as
defined in the Act) or through reverse repurchase agreements in amounts up
to 33 1/3% of its total assets (including the amount borrowed), (b) the Fund
may, to the extent permitted by applicable law, borrow up to an additional
5% of its total assets for temporary purposes, (c) the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of portfolio securities, (d) the Fund may purchase securities on
margin to the extent permitted by applicable law, and (e) the Fund may
engage in transactions in mortgage dollar rolls which are accounted for as
financings.
4. The Fund may not make loans, except through (a) the purchase of debt
obligations in accordance with the Fund's investment objective and policies,
(b) repurchase agreements with banks, brokers, dealers, and other financial
institutions, and (c) loans of securities as permitted by applicable law.
5. The Fund may not underwrite securities issued by others, except to the
extent that the sale of portfolio securities by the Fund may be deemed to be
an underwriting.
6. The Fund may not invest in commodities or commodity contracts, except that
the Fund may invest in currency and financial instruments and contracts that
are commodities or commodity contracts.
7. The Fund may not issue senior securities to the extent such issuance would
violate applicable law.
8. The Fund may not purchase, hold or deal in real estate, although the Fund
may purchase and sell securities that are secured by real estate or
interests therein, securities of real estate investment trusts, and
mortgage-related securities and may hold and sell real estate acquired by
the Fund as a result of the ownership of securities.
In addition to the above, the Triflex Fund has adopted, as a fundamental
policy, that it will be a "balanced fund."
2
<PAGE>
Any investment policy or restriction which involves a maximum percentage of
securities or assets shall not be considered to be violated unless an excess
over the percentage occurs immediately after an acquisition of securities or
utilization of assets and results therefrom.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
American National Growth Fund, Inc. The Board of Directors of the Growth
Fund has adopted the following non-fundamental investment policies.
Non-fundamental investment policies may be adopted or changed by the Board of
Directors, without approval from shareholders.
1. The Fund will not invest more than 5% of the value of the net assets of the
Fund, at the time of purchase in the securities of any one issuer, but this
limitation does not apply to investments in securities issued or guaranteed
by the U.S. government or its instrumentalities.
2. The Fund will not purchase any security (other than United States Government
obligations) if, as a result, the Fund would hold more than (a) 10% of the
total value of any class of outstanding securities of an issuer, or (b) 10%
of the outstanding voting securities of an issuer.
3. The Fund will not concentrate more than 25% of its net assets in any one
industry or group of industries; provided, however, there is no limitation
with respect to investments in obligations issued or guaranteed by the
United States Government or its agencies or instrumentalities. For purposes
of this restriction telephone, gas and electric and public utilities are
each regarded as separate industries.
4. The Fund will not borrow money except for such action by the Fund for
temporary or emergency purposes in an amount not to exceed 10% of the Fund's
net assets. The Fund will not purchase securities on margin (but it may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. The Fund will not pledge or mortgage any of its assets, except for such
action by the Fund for temporary or emergency purposes in an amount not to
exceed 10% of the Fund's net assets.
6. The Fund will not lend money or other assets (although this does not prevent
the purchase of bonds or other corporate debt securities which are publicly
distributed).
7. The Fund will not engage in underwriting securities of other issuers.
8. The Fund will not buy or sell real estate.
9. The Fund will not invest in oil, gas or other mineral leases, rights or
royalty contracts or in real estate or real estate limited partnerships.
10. The Fund will not invest in real estate mortgage loans although it may
invest in securities which are secured by real estate or real estate
mortgages and securities of issuers which invest or deal in real estate
and/or real estate mortgages, provided such securities meet the criteria
set forth in the Prospectus.
11. The Fund will not purchase or sell commodities or commodity contracts
including future contracts.
12. The Fund will not issue senior securities.
13. The Fund may not purchase any security which is an "illiquid security" if
more than 15% of the net assets of the Fund taken at market value would be
invested in such securities.
14. The Fund does not engage in the strategy of short sales of securities.
15. The Fund will not write or purchase from others, put and call options, or
any combination thereof.
16. The Fund will not invest in companies for the purpose of exercising control
or management.
3
<PAGE>
17. The Fund will not invest in the securities of companies which have a record
of less than three years continuous operation, including predecessor
companies.
18. The Fund will not invest in the securities of an issuer if more than 1/2%
interest in it is owned by an officer or director of the Fund or SM&R and
such officers or directors together own more than 5% interest in such
issuer.
19. The Fund will not purchase the securities of any other investment company
unless such purchases are made on the open market and do not exceed 5% of
the Fund's total assets, taken at market, or unless such purchases are the
result of a plan or merger and do not otherwise violate the applicable
provisions of the Investment Company Act of 1940. Such purchases may cause
the Fund to indirectly incur additional advisory and administrative fees.
20. Any warrants purchased by the Fund must be marketable warrants and the
Fund's investment in warrants valued at the lower of cost or market, may
not exceed 5% of the Fund's total assets. Not more than 2% of the Fund's
total assets may be invested in warrants which are not listed on the New
York or American Stock Exchange.
American National Income Fund, Inc. The Board of Directors of the Income
Fund has adopted the following non-fundamental investment policies, which may be
adopted or changed by the Board of Directors, without approval from
shareholders.
1. The Fund will not purchase the securities of any one issuer (other than
those issued or guaranteed by the U.S. Government), if immediately after and
as a result of such purchase the market value of the Fund's holding in the
securities of such issuer exceeds 5% of the market value of the Fund's total
assets. The Fund will not purchase the securities of an issuer if the
purchase will cause the Fund to own more than 10% of the outstanding voting
securities of the issuer.
2. The Fund will not concentrate its investments in any particular industry or
groups of industries; however, it may invest up to 25% of the value of its
total assets in the securities of issuers in any one industry. Utility
companies, for example, such as gas, electric, water and telephone companies
will be considered as separate industries.
3. The Fund will not borrow money except from banks for temporary,
extraordinary or emergency purposes, and then only from a bank and not in
excess of 5% of the value of its total assets and not for investment
purposes.
4. The Fund will not purchase securities on margin. The Fund will not pledge,
mortgage or hypothecate any of its property.
5. The Fund will not make loans to other persons except through the purchase of
bonds, debentures and other debt securities which are publicly distributed
and customarily purchased by institutional investors.
6. The Fund will not engage in underwriting securities of other companies.
7. The Fund will not buy or sell real estate. The Fund will not invest in oil,
gas or other mineral leases, rights or royalty contracts or in real estate
or real estate limited partnerships.
8. The Fund will not invest in real estate mortgage loans although it may
invest in securities which are secured by real estate or real estate
mortgages and securities of issuers which invest or deal in real estate
and/or real estate mortgages, provided such securities meet the criteria set
forth in the Prospectus.
9. The Fund will not purchase or sell commodities or commodity contracts
including future contracts.
10. The Fund will not issue senior securities.
4
<PAGE>
11. The Fund may not purchase any security which is an "illiquid security" if
more than 15% of the net assets of the Fund taken at market value would be
invested in such securities.
12. The Fund does not engage in the strategy of short sales of securities.
13. The Fund will not write or purchase from others, put and call options, or
any combination thereof.
14. The Fund will not invest in companies for the purpose of exercising control
or management.
15. The Fund will not invest in the securities of a company having a record of
less than three years of continuous operation, including the operations of
any predecessor company or enterprise to which the company has succeed by
merger, consolidation, reorganization or purchase of assets.
16. The Fund will not purchase or retain securities of any issuer if any
officer or director of the Fund or SM&R owns more than 1/2 of 1% of the
securities of such issuer and such officers or directors together own more
than 5% of the securities of such issuer.
17. The Fund will not invest in securities of another investment company except
pursuant to a plan of merger, consolidation or acquisition of assets
approved by shareholders of the Fund.
18. Any warrants purchased by the Fund must be marketable warrants and the
Fund's investment in warrants valued at the lower of cost or market, may
not exceed 5% of the Fund's total assets. Not more than 2% of the Fund's
total assets may be invested in warrants which are not listed on the New
York or American Stock Exchange.
19. The Fund will not participate on a joint or a joint and several basis in
any trading account in securities.
Triflex Fund, Inc. The Board of Directors of the Triflex Fund has adopted
the following non-fundamental investment policies, which may be adopted or
changed by the Board of Directors, without approval from shareholders.
1. The Fund will not purchase the securities of any one issuer (other than
those issued or guaranteed by the U.S. Government), if immediately after and
as a result of such purchase the market value of the Fund's holding in the
securities of such issuer exceeds 5% of the market value of the Fund's total
assets.
2. The Fund will not purchase the securities of an issuer if the purchase will
cause the Fund to own more than 10% of the outstanding voting securities of
the issuer.
3. The Fund will not concentrate its investments in any one industry by
investment of more than 25% of the value of its total assets in such
industry. Utility companies, for example, such as gas, electric, water and
telephone companies will be considered as separate industries.
4. The Fund will not borrow money except that the Fund may borrow an amount up
to 10% of its total assets to meet redemption requests and for the clearance
of purchases and sales of portfolio securities (this borrowing provision is
not for investment leverage but solely to facilitate management of the
portfolio to enable the Fund to meet redemption requests where the
liquidation of portfolio securities is deemed to be disadvantageous or
inconvenient and to obtain such short-term credits as may be necessary for
the clearance of purchases and sales of portfolio securities; all borrowings
at any time outstanding will be repaid before any additional investments are
made; the Fund will not mortgage, pledge or hypothecate any assets in
connection with any such borrowing in excess of 15% of the Fund's total
assets.
5. The Fund will not purchase securities on margin.
6. The Fund will not make loans to other persons except certain call loans upon
collateral security (the Fund does not intend to make such loans; the
acquisition of publicly distributed bonds, debentures and other debt
securities is not considered a loan).
5
<PAGE>
7. The Fund will not engage in underwriting securities issued by other persons.
8. The Fund will not purchase or sell commodities or commodity contracts
including future contracts.
9. The Fund will not issue senior securities.
10. The Fund will not invest in oil, gas or other mineral leases, rights on
royalty contracts or in real estate or real estate limited partnerships.
11. The Fund will not invest in real estate mortgage loans although it may
invest in securities which are secured by real estate or real estate
mortgages and securities of issuers which invest or deal in real estate
and/or real estate mortgages, provided such securities meet the criteria
set forth in the Prospectus.
12. The Fund does not engage in the strategy of short sales of securities.
13. The Fund will not invest in other companies for the purpose of exercising
control of management.
14. The Fund will not purchase the securities of any other investment company
except in a regular transaction in the open market. Such purchases may
cause the Fund to indirectly incur additional advisory and administrative
fees.
15. The Fund may not purchase any security which is an "illiquid security" if
more than 15% of the net assets of the Fund taken at market value would be
invested in such securities.
16. The Fund will not purchase any securities as to which it would be deemed a
statutory underwriter under the Securities Act of 1933.
17. The Fund will not purchase the securities of any issuer the business of
which has been in continuous operation for less than three (3) years
(however, it is the Fund's operating policy not to invest in any business
which has not been in continuous operation for at least five (5) years).
18. The Fund will not retain investments in the securities of any issuer if
directors or officers of the Fund or certain other "interested" persons own
more than 5% of such securities.
19. Any warrants purchased by the Fund must be marketable warrants and the
Fund's investment in warrants valued at the lower of cost or market, may
not exceed 5% of the Fund's total assets. Not more than 2% of the Fund's
total assets may be invested in warrants which are not listed on the New
York or American Stock Exchange.
The Triflex Fund has adopted a policy whereby it does not presently invest
in securities which have been acquired through private placement transactions or
in real estate mortgage loans although it may invest in securities which are
secured by real estate mortgages and securities of issues which invest or deal
in real estate and/or real estate mortgages provided such securities meet the
criteria set forth in the Prospectus.
INVESTMENT TECHNIQUES
U.S. GOVERNMENT OBLIGATIONS
The Funds may invest in United States Government obligations. These
instruments are debt obligations issued by agencies or authorities controlled or
supervised by and acting as instrumentalities of the U.S. Government established
under authority granted by Congress. Such obligations include, but are not
limited to, Government National Mortgage Association, The Tennessee Valley
Authority, The Bank for Cooperatives, Federal Intermediate Credit Banks, Federal
Home Loan Banks, Federal Land Banks and The Federal National Mortgage
Association. Some obligations of U.S. Government agencies, authorities and other
instrumentalities are supported by the full faith and credit of the U.S.
Treasury; others by the rights of the issuer to borrow from the Treasury; and
others only by the credit of the issuer. Obligations of
6
<PAGE>
the Government National Mortgage Association are supported by the full faith and
credit of the U.S. Treasury; obligations of the other agencies, authorities and
other instrumentalities shown above are supported only by the credit of the
issuers.
The Funds' adviser will invest in U.S. obligations not backed by the "full
faith and credit" of the U.S. government only when, in its opinion, the risk is
minimal. SM&R does not presently intend to invest any significant amount in such
obligations and would do so in the future only to increase a Fund's liquidity on
a short-term basis during adverse and unusual market conditions.
INVESTMENT IN COVERED CALL OPTIONS
Although there is no present intent to do so, the Triflex Fund may write
covered call option contracts provided that the option is listed on a domestic
securities exchange and that no option will be written if, as a result, more
than 25% of the Triflex Fund's assets are subject to call options. A covered
call option is an option on a security which the Triflex Fund owns or can
acquire by converting a convertible security it owns. The purchaser of the
option acquires the right to buy the security from the Triflex Fund at a fixed
exercise price at any time prior to the expiration of the option, regardless of
the market price of the security at that time. A security on which an option has
been written will be held in escrow by the Triflex Fund's custodian until the
option expires, is exercised, or a closing purchase transaction is made. The
Triflex Fund thus foregoes the opportunity to profit from an increase in the
market price in the underlying security above the exercise price, in return for
the premium it receives from the purchaser of the option. The Triflex Fund's
management believes that such premiums will maximize the Triflex Fund's return
without subjecting it to substantial risks.
The Triflex Fund will purchase call options only to close out a position in
an option written by it. In order to close out a position the Triflex Fund will
make a "closing purchase transaction" if such is available. In such a
transaction, the Triflex Fund will purchase a call option on the same security
with the same exercise price and expiration date as the call option which it has
previously written. When a security is sold from the Triflex Fund's portfolio
against which a call option has been written, the Triflex Fund will effect a
closing purchase transaction so as to close out any existing call option on that
security. The Triflex Fund will realize a profit or loss from a closing purchase
transaction if the amount paid to purchase a call option is less or more than
the amount received as a premium from the writing thereof. A closing purchase
transactions cannot be made if trading in the option has been suspended.
The premium received by the Triflex Fund upon writing a call option will
increase the Triflex Fund's assets, and a corresponding liability will be
recorded and subsequently adjusted from day to day to the current value of the
option written. For example, if the current value of the option exceeds the
premium received, the excess would be an unrealized loss and, conversely, if the
premium exceeds the current value, such excess would be an unrealized gain. The
current value of the option will be the last sales price on the principal
exchange on which the option is traded or, in the absence of any transactions,
the mean between the closing bid and asked price.
COLLATERALIZED MORTGAGE OBLIGATIONS
The Triflex Fund may invest a portion of its assets in collateralized
mortgage obligations or "CMOs," which are debt obligations collateralized by a
portfolio or pool of mortgages, mortgage-backed securities or U.S. Government
securities. Collateralized obligations in which the Triflex Fund may invest are
issued or guaranteed by a U.S. Government agency or instrumentality, such as the
FHLMC. A variety of types of collateralized obligations are currently available
and others may become available in the future. One should keep in mind that
during periods of rapid interest rate fluctuation, the price of a security, such
as a CMO, could either increase or decrease based on inherent interest rate
risk. Additionally, the risk of maturities shortening or lengthening in
conjunction with interest rate movement, could magnify the overall effect of the
price fluctuation.
7
<PAGE>
A CMO is often issued in multiple classes with varying maturities and
interest rates. As a result the investor may obtain greater predictability of
maturity than with direct investments in mortgage-backed securities. Thus,
classes with shorter maturities may have lower volatility and lower yield while
those with longer maturities may have higher volatility and higher yields. This
provides the investor with greater control over the characteristics of the
investment in a changing interest rate environment.
REPURCHASE AGREEMENTS
Although there is no present intent to do so, the Funds may invest in
repurchase agreements with commercial banks, brokers or dealers either for
defensive purposes due to market conditions or to generate income from its
excess cash balances. A repurchase agreement is an agreement under which a Fund
acquires a money market instrument (generally a security issued by the United
States Government or any agency thereof, a banker's acceptance or a certificate
of deposit) from a commercial bank, broker or dealer, subject to resale to the
seller at an agreed upon price and date (normally, the next business day). A
repurchase agreement may be considered a loan collateralized by securities. The
resale price reflects an agreed upon interest rate effective for the period the
instrument is held by a Fund and is unrelated to the interest rate on the
underlying instrument. In these transactions, the securities acquired by a Fund
(including accrued interest earned thereon) must have a total value in excess of
the value of the repurchase agreement and are held by the Fund's Custodian Bank
until repurchased.
The use of repurchase agreements involves certain risks. For example, if the
other party to the agreement defaults on its obligations to repurchase the
underlying security at a time when the value of the security has declined, a
Fund may incur a loss upon disposition of the security. If the other party to
the agreement becomes insolvent and subject to liquidation or reorganization
under the Bankruptcy Code or other laws, a court may determine that the
underlying security is collateral for a loan by a Fund not within the control of
that Fund and therefore the realization by that Fund on such collateral may be
automatically stayed. Finally, it is possible that a Fund may not be able to
substantiate its interest in the underlying security and may be deemed an
unsecured creditor of the other party to the agreement. While the Funds'
management acknowledges these risks, it is expected that they can be controlled
through careful monitoring procedures.
LENDING OF SECURITIES
Although there is no present intent to do so, the Triflex Fund may lend its
portfolio securities to qualified institutional investors who need to borrow
securities in order to complete certain transactions, such as covering short
sales, avoiding failures to deliver securities or completing arbitrage
operations. By lending its portfolio securities, the Triflex Fund attempts to
increase its income through the receipt of interest on the loan. Any gain or
loss in the market price of the securities loaned that might occur during the
term of the loan would be for the account of the Triflex Fund. The Triflex Fund
may lend its portfolio securities to qualified brokers, dealers, banks or other
financial institutions, so long as the terms the structure and the aggregate
amount of such loans are not inconsistent with the 1940 Act, or the Rules and
Regulations or interpretations of the Commission thereunder, which currently
require that (a) the borrower pledge and maintain with the Triflex Fund
collateral consisting of cash, a letter of credit issued by a domestic United
States bank, or securities issued or guaranteed by the United States Government
having a value at all times not less than 100% of the value of the securities
loans, (b) the borrower add to such collateral whenever the price of the
securities loaned rises (i.e., the borrower "marks to the market" on a daily
basis), (c) the loans be made subject to termination by the Triflex Fund at any
time, and (d) the Triflex Fund receive reasonable interest on the loans (which
may include the Triflex Fund's investing any cash collateral in interest bearing
short-term investments), any distribution on the loaned securities and any
increase in their market value. Loan arrangements made by the Triflex Fund will
comply with all other applicable regulatory requirements, including the rules of
the New York Stock Exchange, which rules presently require the borrower, after
notice, to redeliver the securities within the normal settlement time of five
(5) business days. All relevant facts and circumstances, including the credit
worthiness of the broker, dealer
8
<PAGE>
or institution, will be considered in making decisions with respect to the
lending of securities, subject to review by the Triflex Fund's board of
directors.
At the present time, the Staff of the Commission does not object if an
investment company pays reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by the investment company's directors. In addition, voting rights may
pass with the loaned securities, but if a material event should occur affecting
an investment on loans, the loans must be called and the securities voted.
144A SECURITIES AND SECTION 4(2) COMMERCIAL PAPER
If otherwise consistent with its investment objective and policies, a Fund
may purchase securities that are not registered under the Securities Act of
1933, as amended (the "1933 Act") but which can be sold to "qualified
institutional buyers" in accordance with Rule 144A under the 1933 Act, or which
were issued under Section 4(2) of the 1933 Act. Any such security will not be
considered illiquid so long as it is determined by the Board, after considering
trading activity, availability of reliable price information and other relevant
information, that an adequate trading market exists for that security. To the
extent that, for a period of time, qualified institutional or other buyers may
cease purchasing such restricted securities, the level of illiquidity of a Fund
holding such securities may increase.
CERTIFICATE OF DEPOSITS AND BANKERS ACCEPTANCES
A certificate of deposit generally is a short-term, interest-bearing
negotiable certificate issued by a commercial bank or savings and loan
association against funds deposited in the issuing institution. The interest
rate may be fixed for the stated term or may be periodically adjusted prior to
the instrument's stated maturity, based upon a specified market rate. A bankers'
acceptance is a time draft drawn on a commercial bank by a borrower, usually in
connection with an international commercial transaction to finance the import,
export, transfer or storage of goods. The borrower is liable for payment, as is
the bank, which unconditionally guarantees to pay the draft at its face amount
on the maturity date. Most bankers' acceptances have maturities of six months or
less and are traded in secondary markets prior to maturity.
Savings and loan associations whose certificates of deposit may be purchased
by the Funds are subject to regulation and examination by the Office of Thrift
Supervision. Such certificates of deposit held by a Fund do not benefit
materially from insurance from the Federal Deposit Insurance Corporation.
PORTFOLIO TURNOVER
Portfolio turnover for a Fund is calculated by dividing the lesser of annual
purchases or sales of portfolio securities by the monthly average of the value
of the Fund's portfolio securities excluding securities whose maturities at the
time of purchase are one year or less. A 100% portfolio turnover rate would
occur, for example, if all of the Fund's portfolio securities were replaced
within one year. In general, it is intended that portfolio changes in the Funds
be made as infrequently as possible, consistent with market and economic factors
generally, and special considerations affecting any particular security such as
the limitation of loss or realization of price appreciation at a time believed
to be opportune. However, purchases and sales of portfolio securities for the
Triflex Fund are made at such times and in such amounts as are deemed advisable
in light of market, economic and other conditions, irrespective of the volume of
portfolio turnover. A high rate of portfolio turnover involves corresponding
greater expenses than a lower rate. A Fund and its shareholders must bear such
higher expenses. High portfolio turnover also may result in the realization of
substantial net short-term capital gains.
Portfolio turnover rates for the years ended December 31, 1997, 1996, and
1995 were 37%, 19% and 47%, respectively, for the Growth Fund; 44%, 27% and 39%,
respectively, for the Income Fund; and 16%, 24% and 28%, respectively, for the
Triflex Fund. No brokerage commissions have been paid during the Funds' three
most recent periods to any broker which is an affiliated person of the Funds,
which is an affiliated person of a broker which is an affiliated person of the
Funds or an affiliated person of which is an affiliated person of the Funds or
SM&R.
9
<PAGE>
MANAGEMENT OF THE FUND
The Board of Directors of each Fund has the responsibility for the overall
management of that Fund, including general supervision and review of its
investment activities. The directors, in turn, elect the officers of each Fund
who are responsible for administering day-to-day operations of the Fund. While
the use of this combined Statement of Additional Information subjects each Fund
to possible liability as the result of statements or omissions regarding another
Fund, the Board of Directors of each Fund considers the benefits to the
respective Fund of using a combined Statement of Additional Information to
outweigh the risk.
Information about each of the officers and directors of the Funds is set
forth below. Unless otherwise specifically noted, each has had the same or
similar employment or position for at least the past five years and occupies the
identical position with all three Funds. Unless otherwise indicated, the address
of an officer or director is One Moody Plaza, Galveston, Texas 77550. Directors
who are deemed to be "interested persons" of the Funds, as defined in the 1940
Act, are indicated by an asterisk(*).
<TABLE>
<CAPTION>
POSITIONS HELD WITH THE
NAME, ADDRESS, AND AGE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ----------------------------------- ------------------------- --------------------------------------------------
<S> <C> <C>
Michael W. McCroskey* ............. Director and President President, Chief Executive Officer, Director and
Age 54 since 1994 member of the Executive Committee of SM&R, June
1994 to present; President, Chief Executive
Officer, and Director of SM&R Investments, Inc.,
June 1994 to present; President and Director of
American National Investment Accounts, June 1994
to present; Executive Vice President, American
National, 1996 to present; Senior Vice
President, American National, 1991 to 1996; Vice
President of Standard Life and Accident
Insurance Company, 1988 to present; Assistant
Secretary of American National Life Insurance
Company of Texas, 1986 to present; Vice
President, Investments of American National
Property and Casualty Company, 1994 to present;
Vice President, Investments of American National
General Insurance Company, 1994 to present; Vice
President, Pacific Property and Casualty, 1996
to present, life, health and accident insurance
subsidiaries of American National; Vice
President, Garden State Life Insurance Company,
1994 to present; Director and President, ANREM
Corporation, 1977 to present; President and
Director of ANTAC Corporation, 1995 to present;
Director, Comprehensive Investment Services,
Inc., 1997 to present.
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD WITH THE
NAME, ADDRESS, AND AGE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ----------------------------------- ------------------------- --------------------------------------------------
<S> <C> <C>
Ralph S. Clifford (1)(2) .......... Director since 1972 Retired attorney, Clifford, Clifford & Olson;
Age 82 Retired Director of Henry County Bank; Retired
12304 Blue Sage Rd. Director of Illini Beef Packers, Inc.; Retired
Oklahoma City, Oklahoma Director of Industrial Relations of Deere &
Company.
Paul D. Cummings (2) .............. Director since 1969 (for Retired President and Director of Globe Life and
Age 83 Triflex Fund, since 1971) Accident Insurance Company.
3102 Belaire Drive
Oklahoma City, Oklahoma
Jack T. Currie (1) ................ Director since 1971 Director of American Indemnity Financial
Age 69 Corporation, holding company for casualty
515 Post Oak Boulevard, insurance company, 1978 to present; Director of
Suite 750 Stewart & Stevenson Services, Inc., designs and
Houston, Texas constructs power generating systems, 1990 to
present.
Ira W. Painton, C.L.U. (1) ........ Chairman of the Board Retired President of the Funds, 1968 to 1993;
Age 80 since 1989 and Director Retired President and Director of SM&R.
12004 Dahoon Drive since 1967
Oklahoma City, Oklahoma
Donald P. Stevens (2) ............. Director, since 1985 Assistant to the President for Government
Age 50 Relations of The University of Texas Medical
University of Texas Medical Branch, a medical school and hospital system,
Branch, Station 1, Box 41 1975 to present; Vice President of Jamail
Galveston, Texas Galveston Foundation, 1993 to present.
Steven H. Stubbs, C.F.A. .......... Director since 1987 Former Director, President and Chief Executive
Age 59 Officer of The Westcap Corporation, 1994 to
514 Poplar Ave. 1996; and Former President and Chief Executive
Philadelphia, Mississippi Officer of SM&R and the Funds, 1987 to 1994.
Gordon D. Dixon ................... Vice President and Director, Senior Vice President, Chief Investment
Age 52 Portfolio Manager Officer of SM&R and a member of the investment
of the Growth Fund; and executive committees of SM&R, 1993 to
Co-Manager of the present; Vice President, Portfolio Manager of
Income Fund the American National Investment Accounts,
Inc.--Growth Portfolio; Co-Manager of the
American National Investment Accounts, Inc.--
Managed Portfolio, 1993 to present; Vice
President of Stocks for American National
Insurance Company, 1993 to present; Vice
President of Investments for Garden State Life
Insurance Company, 1993 to present; Director and
President, Comprehensive Investment Services,
1997 to present; Former Director of Equity
Strategy Research and Trading for C&S/Soran Bank
(now Nations Bank) Atlanta, Georgia, 1984 to
1993.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
POSITIONS HELD WITH THE
NAME, ADDRESS, AND AGE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
- ----------------------------------- ------------------------- --------------------------------------------------
<S> <C> <C>
William R. Berger, C.F.A. ......... Co-Manager of the Vice President, Portfolio Manager of the American
Age 34 Income Fund; Vice National Investment Accounts, Inc.--Balanced
President and Portfolio Portfolio and Co-Manager of the Managed
Manager for the Triflex Portfolio, 1993 to present; Assistant Vice
Fund President of Investments for American National,
1993 to present; Vice President, Comprehensive
Investment Services, 1997 to present; Former
Portfolio Manager for Trinity Investment
Management, Bellefonte, Pennsylvania, investment
adviser, 1989 to 1994; Former auditor for
Coopers & Lybrand, Dallas, Texas.
Emerson V. Unger, C.L.U. .......... Vice President Vice President SM&R, SM&R Investments, Inc., and
Age 52 American National Investment Accounts since
1983.
Brenda T. Koelemay ................ Vice President and Vice President and Treasurer SM&R, SM&R
Age 43 Treasurer Investments, Inc. and American National
Investment Accounts since 1992; Treasurer of
Comprehensive Investment Services, Inc. since
1997; Senior Manager, KPMG Peat Marwick LLP,
July 1980 to April 1992.
Teresa E. Axelson ................. Vice President and Vice President of SM&R, 1991 to present; Secretary
Age 50 Secretary of SM&R, SM&R Investments, Inc., and American
National Investment Accounts, 1983 to present.
</TABLE>
- ------------------------
* "Interested persons" as defined by the 1940 Act.
(1) Members of the nominating committee.
(2) Members of the audit committee.
Officers and directors of the Funds affiliated with SM&R may receive
indirect compensation from the Funds to the extent of underwriting commissions
and investment advisory and service fees paid to SM&R.
By resolution of the Boards of Directors, each Fund pays the fees and
expenses of only those directors who are not officers or employees of SM&R or
the Funds. During the fiscal year ended December 31, 1997, each Fund paid
$22,722 to such directors for fees and expenses in attending meetings of the
Boards of Directors. There were [ ] Board, [ ] Audit Committee, and [ ]
Nominating Committee meetings held during this period, and each director
attended at least 75% of the Board and Committee meetings, respectively.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with each
meeting of a Fund's Board of Directors or any Committee attended. Each director
receives a fee, allocated among the American National Funds Group for which he
serves as a director, which consists of an annual retainer component
12
<PAGE>
and a meeting fee component. Set forth below is information regarding
compensation paid or accrued during the fiscal year ended December 31, 1997 for
each director of each Fund.
GROWTH FUND, INCOME FUND, AND TRIFLEX FUND
<TABLE>
<CAPTION>
TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION ALL
DIRECTOR FROM EACH FUND AMERICAN NATIONAL FUNDS
- --------------------------------- ----------------------- --------------------------
<S> <C> <C>
Ralph S. Clifford................ $ 3,533 $ 10,600
Paul D. Cummings................. $ 3,533 $ 10,600
Jack T. Currie................... $ 2,833 $ 8,499
Michael W. McCroskey............. -- --
Ira W. Painton................... $ 4,667 $ 14,000
Donald P. Stevens................ $ 3,533 $ 10,600
Steven H. Stubbs................. $ 3,333 $ 10,000
</TABLE>
13
<PAGE>
POLICY REGARDING PERSONAL INVESTING
The following policies have been made a part of each Fund's Code of Ethics.
A portfolio manager must use extreme care to avoid even the appearance of a
conflict of interest in trading in any personal account (or an account in which
he has a beneficial interest). Accordingly, a portfolio manager may not trade in
(or otherwise acquire) any security for his personal account if that same
security is held in, or is being considered as a potential acquisition by, any
of the Funds. Any beneficial interest in a security held by a portfolio manager
must be sold at least 24 hours prior to any investment by the Funds. The
following exceptions apply:
1. Any beneficial interest in a security owned at the time of
employment may be held or traded at any time other than within 24 hours of a
trade in the Funds for the same or related security. Dividends in that
security may be re-invested in accordance with a formal plan offered by the
issuer.
2. Any beneficial interest in a security acquired by devise or bequeath
may be held or traded at any time other than within 24 hours of a trade in
the Funds for the same or related security.
3. Any beneficial interest in a security issued by the Government or
any Agency of the United States, a State, or any political subdivision
thereof may be traded or held.
4. Any beneficial interest in a security for which a written approval
is first obtained from the President and Chief Executive Officer may be
traded or held.
PERSONAL INVESTING BY OTHER SM&R OFFICERS AND EMPLOYEES
Officers and employees of SM&R other than portfolio managers may trade in
(or otherwise acquire) or hold any security for his own account (or an account
in which he has beneficial interest). However, the trade must not occur within
24 hours of a trade in the Funds for the same or related security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of September 1, 1998, SM&R and its parent, American National Insurance
Company, owned [ ]% and [ ]%, respectively, of the outstanding shares of
the Growth Fund; [ ]% and [ ]%, respectively of the outstanding shares of
the Income Fund; and [ ]% and [ ]%, respectively, of the outstanding
shares of the Triflex Fund. Any person who owns directly or indirectly more than
25% of the outstanding voting securities of a Fund is presumed by the 1940 Act
to "control" that Fund, and may be able to significantly influence the outcome
of any shareholder vote. For purposes of voting on matters submitted to
shareholders, any person who owns more than 50% of the outstanding shares of a
Fund generally would be able to cast the deciding vote.
American National and SM&R were the only shareholders known to the Triflex
Fund to own five percent (5%) or more of its common stock. (For information
about the Triflex Fund's capital stock, see "Capital Stock" herein.) While such
ownership does not directly affect a shareholder's voting rights, it obviously
gives American National and SM&R a strong voice in the Triflex Fund's affairs.
As a practical matter, such ownership means that passage of a shareholder
proposal is unlikely without American National's or SM&R's vote therefor. (For
further information about American National, see the "Control and Management of
SM&R" section herein.)
The officers and directors of the Growth Fund as a group owned [ ]% of
the outstanding shares of the Growth Fund as of September 1, 1998. The officers
and directors of the Income Fund as a group owned [ ]% of the outstanding
shares of the Income Fund as of September 1, 1998. The officers and directors of
the Triflex Fund as a group owned [ ]% of the outstanding shares of the
Triflex Fund as of September 1, 1998.
14
<PAGE>
INVESTMENT ADVISORY AND OTHER SERVICES
CONTROL AND MANAGEMENT OF SM&R
SM&R has been the investment adviser, manager and underwriter of the Growth
Fund since 1966, of the Income Fund since it began business in 1969, and of the
Triflex Fund since it began business in 1978 as the American National Bond Fund,
Inc. SM&R acts pursuant to a written agreement periodically approved by the
directors or shareholders of each Fund. SM&R is also the investment adviser,
manager and underwriter of American National Investment Accounts, Inc. and SM&R
Investments, Inc. SM&R's address is that of the Funds.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"), a Texas life insurance company with its principal offices
in Galveston, Texas. The Moody Foundation (the "Foundation"), a charitable
foundation established for charitable and educational purposes, owns
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owns approximately 37.6% of such shares. The trustees of
the Moody Foundation are Robert L. Moody ("RLM"), Chairman of the Board of
Directors of American National, Frances Moody Newman and Ross R. Moody.
The Moody National Bank of Galveston (the "Bank") is trustee of the Libbie
S. Moody Trust. RLM is Chairman of the Board and President, Chief Executive
Officer of the Bank, President and Director of Moody Bancshares, Inc.
("Bancshares"), the sole shareholder of Moody Bank Holding Company, Inc.
("MBHC"), and President and Director of MBHC, the Bank's controlling
stockholder. The Three R Trusts, trusts established by RLM for the benefit of
his children, owns 100% of Bancshares' Class B stock (which elects a majority of
Bancshares' and MBHC's Directors) and 47.5% of its Class A stock. The trustee of
the Three R Trusts is Irwin M. Herz, Jr., who is also a director of American
National and a partner in Greer, Herz & Adams, L.L.P., 18th Floor, One Moody
Plaza, Galveston, Texas, General Counsel to American National, the Bank,
Bancshares, MBHC, the Funds, the American National Investment Accounts, Inc.,
SM&R Investments, Inc., and SM&R.
Michael W. McCroskey, President and Director of the Funds, is also
President, Chief Executive Officer, Director and a member of the executive
committee of SM&R, and President and Director of the American National
Investment Accounts, Inc. and SM&R Investments, Inc.; Gordon D. Dixon, Director,
Senior Vice President, Chief Investment Officer and a member of the investment
and executive committees of SM&R, Co-Manager of the Income Fund, Vice President,
Portfolio Manager of the Growth Fund and American National Investment Accounts,
Inc.--Growth Portfolio, and Co-Manager of the American National Investment
Accounts, Inc.--Managed Portfolio; William R. Berger, Co-Manager of the Income
Fund, Vice President and Portfolio Manager of the American National Investment
Accounts, Inc.-- Balanced Portfolio and the Triflex Fund, and Co-Manager of the
American National Investment Accounts, Inc.--Managed Portfolio; Emerson V.
Unger, Vice President of the Funds, is also Vice President of SM&R and Vice
President of the American National Investment Accounts, Inc. and SM&R
Investments, Inc.; Teresa E. Axelson, Vice President and Secretary of the Funds
is also Vice President and Secretary of SM&R, the American National Investment
Accounts, Inc. and the SM&R Capital Fund, Inc.; and Brenda T. Koelemay, Vice
President and Treasurer of the Funds, is also Vice President and Treasurer of
SM&R, the American National Investment Accounts, Inc. and SM&R Investments, Inc.
INVESTMENT ADVISORY AGREEMENT
Under an Investment Advisory Agreement (an "Advisory Agreement") between
each Fund and SM&R dated November 30, 1989, SM&R acts as investment adviser for
and provides certain administrative services to the Funds.
As investment adviser, SM&R manages the investment and reinvestment of each
Fund's assets, including the placing of orders for the purchase and sale of
portfolio securities. SM&R provides and
15
<PAGE>
evaluates economic, statistical and financial information to formulate and
implement Fund investment programs. All investments are reviewed quarterly by
each Fund's Board of Directors to determine whether or not such investments are
within the policies, objectives and restrictions of each Fund.
Each Fund's Advisory Agreement was effective on November 30, 1989 and will
continue in effect from year to year only so long as such continuance is
specifically approved at least annually by its Board of Directors or by vote of
a majority of the outstanding voting securities of the Fund, and, in either
case, by the specific approval of a majority of directors who are not parties to
the Advisory Agreement or not "interested" persons (as defined in the 1940 Act)
of any such parties, cast in person at a meeting called for the purpose of
voting on such approval. Absent proposed changes, it is the policy of Fund
management to submit continuation of the Advisory Agreements annually only to
the Funds' Boards of Directors for their approval or disapproval. Each Fund's
Advisory Agreement was approved by its Board of Directors on August 21, 1997,
and by its shareholders on November 16, 1989. Each Fund's Advisory Agreement may
be terminated without penalty by vote of its Board of Directors or by vote of
the holders of a majority of the outstanding voting securities of the Fund, or
by SM&R, upon sixty (60) days written notice and will automatically terminate if
assigned.
As used herein, the term "majority" when referring to approval to be
obtained from shareholders means the vote of the lesser of (1) 67% of the Fund's
shares present at a meeting if the owners of more than 50% of the outstanding
shares are present in person or by proxy; or (2) more than 50% of the Fund's
outstanding shares.
Under the Advisory Agreement, SM&R receives from each Fund an investment
advisory fee (the "Basic Advisory Fee") for acting as investment adviser
computed by applying to the average daily net asset value of each Fund each
month one-twelfth of the annual rate as follows:
<TABLE>
<CAPTION>
BASIC ADVISORY
ON THE PORTION OF THE FUND'S AVERAGE DAILY NET ASSETS FEE ANNUAL RATE
- ----------------------------------------------------------------------------- ---------------
<S> <C>
Not exceeding $100,000,000................................................... 0.750%
Exceeding $100,000,000 but not exceeding $200,000,000........................ 0.625%
Exceeding $200,000,000 but not exceeding $300,000,000........................ 0.500%
Exceeding $300,000,000....................................................... 0.400%
</TABLE>
In addition, the Advisory Agreement for the Growth Fund also provides for an
upward or downward adjustment of the Basic Advisory Fee based upon the
investment performance during the previous thirty-six (36) monthly periods of
the Growth Fund compared to the Lipper Growth Fund Index (the "Lipper Index")
published by Lipper Analytical Services, Inc., as discussed below.
The fees payable under each Fund's Advisory Agreement may be higher than the
fees paid by other mutual funds, but each Fund believes its fees are comparable
to those paid by funds with the same or similar investment objective.
The average daily net asset value of each Class of each Fund shall be
computed by adding the net asset values computed by SM&R each day during the
month and dividing the resulting total by the number of days in the month. The
net asset value per share of each Class of Fund shares shall be determined each
day by adding the market value of its portfolio securities and other assets,
subtracting liabilities and dividing the result by the number of Class shares
outstanding. Expenses and fees of each Fund, including the advisory and
administrative service fee, will be accrued daily and taken into account in
determining net asset value. The portfolio securities of each Fund will be
valued as of the close of trading on each day when the New York Stock Exchange
is open for trading. Securities listed on national securities exchanges will be
valued at the last sales price on such day, or if there is no sale, then at the
closing bid price therefor on such day on such exchange. The value of unlisted
securities will be determined on the basis of the latest bid prices therefor on
such day. If no quotations are available for a security or other property, it
will be valued at fair value as determined in good faith by SM&R on a consistent
basis.
16
<PAGE>
PERFORMANCE ADJUSTMENT OF BASIC ADVISORY FEE FOR GROWTH FUND
Under the Growth Fund's Advisory Agreement, the Basic Advisory Fee annual
rate shown above will be adjusted each month by adding to or subtracting from
such rate, when appropriate, the applicable performance adjustment amount
percentage shown in the table below. The resulting advisory fee rate will then
be applied to the average daily net asset value of the Growth Fund for the
succeeding month. The advisory fee for such month will be one-twelfth (1/12th)
of the resulting dollar figure.
The performance adjustment amount shall vary with the Growth Fund's
performance as compared to the Lipper Index as shown by the following table:
<TABLE>
<CAPTION>
PERFORMANCE PERFORMANCE PERFORMANCE
ADJUSTMENT COMPARED TO ADJUSTMENT
PERFORMANCE COMPARED TO LIPPER INDEX AMOUNT LIPPER INDEX AMOUNT
- --------------------------------------- ----------- ------------------------- -----------
<S> <C> <C> <C>
0.10% to 0.99% above................... +0.02% 0.10% to 0.99% below (0.02)%
1.00% to 1.99% above................... +0.04% 1.00% to 1.99% below (0.04)%
2.00% to 2.99% above................... +0.06% 2.00% to 2.99% below (0.06)%
3.00% to 3.99% above................... +0.08% 3.00% to 3.99% below (0.08)%
4.00% to 4.99% above................... +0.10% 4.00% to 4.99% below (0.10)%
5.00% to 5.99% above............... +_> ]0.12% 5.00% to 5.99% below (0.12)%
6.00% to 6.99% above................... +0.14% 6.00% to 6.99% below (0.14)%
7.00% to 7.99% above................... +0.16% 7.00% to 7.99% below (0.16)%
8.00% to 8.99% above................... +0.18% 8.00% to 8.99% below (0.18)%
9.00% and above........................ +0.20% 9.00% and below (0.20)%
</TABLE>
The performance period is calculated as of the last Thursday of each January
through November and the last business day of each December. The time period
between the last business day in December and the last Thursday in January, the
ten (10) time periods between the last Thursday in January through October and
the last Thursday of the immediately succeeding month, and the time period
between the last Thursday in November and the last business day in December
shall be referred to herein as the "Monthly Periods". The performance period
which forms the basis for each monthly fee adjustment calculation shall end on
each such last Thursday and last business day and shall be the immediately
preceding thirty-five (35) Monthly Periods plus the current Monthly Period.
To determine how the Growth Fund's performance compares to the Lipper Index,
SM&R will determine a monthly percentage change for the Growth Fund and for the
Lipper Index. These monthly percentage changes will be calculated for each
Monthly Period other than January by dividing the year-to-date percentage
changes through the end of each of the Monthly Periods by the year-to-date
percentage changes through the end of the preceding Monthly Period. The monthly
percentage and the year-to-date percentage change for January will always be the
same and will not have to be calculated separately. A cumulative percentage
change for the Performance Period will then be calculated by compounding the
monthly percentage changes for the preceding thirty-five (35) Monthly Periods
and multiplying that product by the current Monthly Period's percentage change.
After such cumulative percentage change has been calculated for the Growth Fund
and the Lipper Index, such percentage changes are then compared. If the
percentage differential resulting from such comparison is less than .10%, no
performance adjustment shall be made. If such percentage differential is .10%,
or more, such differential shall be the percentage used in the Percentage
Performance Compared To Lipper Index table above. For example, if the percentage
differential resulting from such comparison is .07%, no performance adjustment
shall be made and the advisory fee shall be equal to the Basic Advisory Fee
annual rate. If such percentage differential is 2.5% above the Lipper Index, a
performance adjustment equal to .06% shall be made and the Basic Advisory Fee
shall be increased from .75% to .81%. If such percentage differential is 2.5%
below the Lipper Index, a performance adjustment equal to .06% shall be made and
the Basic Advisory Fee shall be decreased from .75% to .69%.
17
<PAGE>
Those shareholders who prefer to use basis points rather than percentage
points when analyzing the Growth Fund's performance compared to the Lipper Index
should convert each 1.00% in the Percentage Performance Compared To Lipper Index
column in the above table to 100 basis points.
The adjustment to the Basic Advisory Fee will not be cumulative. An
increased fee will result even though the performance of the Growth Fund over
some period of time shorter than the Performance Period has been behind that of
the Lipper Index and even if the net asset value of the Growth Fund's shares has
decreased. Conversely, a reduction in the Basic Advisory Fee will be made for a
month even though the performance of the Growth Fund over some period of time
shorter than the Performance Period has been ahead of that of the Lipper Index
and even if the net asset value of the Growth Fund's shares has increased.
As indicated above, the Growth Fund's expenses (including the monthly basic
advisory fee and administrative service fee) and the performance adjustment for
each performance fee period will be computed and accrued daily and taken into
account in computing the daily net asset value of a Growth Fund share. However,
expenses in excess of the maximum expense limitation shall not be accrued for
the purpose of computing the daily net asset value of a Growth Fund share.
In the case of termination of the Advisory Agreement during any Monthly
Period, the fee for that Monthly Period shall be reduced proportionately on the
basis of the number of calendar days during which it is in effect for that
Monthly Period. The fee rate will be computed on the basis of and applied to net
assets averaged over that Monthly Period ending on the last business day on
which the Advisory Agreement is in effect. The amount of any performance
adjustment to the Basic Advisory Fee will be computed on the basis of the
thirty-six (36) Monthly Periods ending on the last business day on which the
Advisory Agreement is in effect provided that if the Advisory Agreement has been
in effect less than thirty-six (36) Monthly Periods, the computation will be
made on the basis of the period of time during which it has been in effect.
ADVISORY FEES PAID
For the fiscal years ended December 31, 1995, 1996 and 1997, SM&R accrued
investment advisory fees from the Growth Fund of $732,251, $1,093,421, and
$1,011,542 respectively; from the Income Fund of $927,331, $1,080,300, and
$1,270,994, respectively; and from the Triflex Fund of $153,930, $167,921, and
$186,693, respectively. The net assets of the Growth Fund, Income Fund, and
Triflex Fund were $178,344,088, $198,686,914, and $25,838,072, respectively, as
of December 31, 1997.
ADMINISTRATIVE SERVICE AGREEMENT
Under an Administrative Service Agreement between each Fund and SM&R dated
November 30, 1989, SM&R provides all non-investment related management,
executive, administrative and operational services to each Fund. Pursuant to the
Administrative Service Agreement, SM&R also acts as transfer agent for the
Funds' authorized and issued shares and as dividend disbursing agent.
In its capacity as administrator under the Administrative Service Agreement,
SM&R furnishes and pays for the services of all officers and employees necessary
to perform the executive, administrative, clerical and bookkeeping functions of
the Funds. SM&R's duties as administrator include, among other things:
administering the Funds' affairs; maintaining office facilities; processing
purchase orders and redemption requests; furnishing statistical and research
data; and providing clerical, accounting, data processing, bookkeeping and
certain other services required by each Fund.
In its capacity as transfer agent and dividend disbursing agent under the
Administrative Agreement, SM&R's duties include, but are not limited to:
dividend disbursements and transfer agency services; maintaining shareholder
accounts; preparing shareholder meeting lists and mailing and tabulating
proxies; mailing shareholder reports and other materials to shareholders; tax
withholding; and "blue sky" related services.
18
<PAGE>
EXPENSES BORNE BY THE FUND
Each Fund has agreed to pay other expenses incurred in the operation of the
Fund, such as interest, taxes, commissions and other expenses incidental to
portfolio transactions, Commission fees, fees of the Custodian (See "CUSTODIAN"
herein), auditing and legal expenses, fees and expenses of qualifying Fund
shares for sale and maintaining such qualifications under the various state
securities laws where Fund shares are offered for sale, fees and expenses of
directors not affiliated with SM&R, costs of maintaining corporate existence,
costs of printing and mailing prospectuses and shareholder reports to existing
shareholders and expenses of shareholders' meetings.
SM&R has agreed in its Administrative Service Agreement with each Fund to
pay (or to reimburse each Fund for) each Fund's regular operating expenses of
any kind, exclusive of interest, taxes, commissions, Class Specific Expenses,
and other expenses incidental to portfolio transactions (and, with the prior
approval of any state securities commissioner deemed by each Fund's counsel to
be required by law, extraordinary expenses beyond SM&R's control), but including
the basic advisory fee, in excess of 1.25% per year of each Fund's average daily
net assets. Such reimbursements, when required, will be made monthly. No
reimbursement to the Income and Growth Funds under the 1.25% expense limitation
was required for the fiscal years ended December 31, 1995, 1996 and 1997. During
the fiscal years ended December 31, 1995, 1996, and 1997, SM&R reimbursed
$40,894, $29,344, and $24,234, respectively, in excess expenses to the Triflex
Fund.
Under each Administrative Service Agreement, SM&R receives from each Fund an
administrative service fee for providing administrative services. The fee is
computed by applying to the average daily net asset value of the Fund each month
one-twelfth of the annual rate as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
SERVICE FEE ANNUAL
ON THE PORTION OF THE FUND'S AVERAGE DAILY NET ASSETS RATE
- --------------------------------------------------------------------------- -------------------
<S> <C>
Not exceeding $100,000,000................................................. 0.25%
Exceeding $100,000,000 but not exceeding $200,000,000...................... 0.20%
Exceeding $200,000,000 but not exceeding $300,000,000...................... 0.15%
Exceeding $300,000,000..................................................... 0.10%
</TABLE>
The administrative service fee is payable to SM&R whether or not the actual
expenses to SM&R for providing administrative services is more or less than the
amount of such fee.
For the fiscal years ended December 31, 1995, 1996 and 1997, SM&R received
Administrative Service Fees pursuant to the Administrative Service Agreement
from the Growth Fund of $301,526, $335,086, and $387,654, respectively; from the
Income Fund of $306,746, $355,696, and $416,699, respectively; and from the
Triflex Fund of $51,310, $55,974, and $62,231, respectively.
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN
Each Fund adopted a Distribution and Shareholder Servicing Plan (the "12b-1
Plan") pursuant to Rule 12b-1 under the 1940 Act for the Class A, Class B, Class
C, and Class J shares. The 12b-1 Plan provides that SM&R will provide
distribution and/or shareholder services to the Class A, Class B, Class C, and
Class J shares of the Funds (the "12b-1 Classes").
19
<PAGE>
For each 12b-1 Class, SM&R is entitled to receive a Distribution Fee and/or
Service Fee, as applicable, computed as an annual percentage of the value of the
average daily net assets of the Fund attributable to that Class, as follows:
<TABLE>
<CAPTION>
DISTRIBUTION SERVICE TOTAL 12b-1
CLASS FEE FEE FEE
- ---------------------------------------------------------- ----------- --------- -----------
<S> <C> <C> <C>
Class T Shares: Existing Shareholders..................... -0- -0- -0-
Class A Shares: Front-End Load............................ -0- 0.25% 0.25%
Class B Shares: Back-End Load (CDSC)...................... 0.50% 0.25% 0.75%
Class C Shares: Level Load................................ 0.75% 0.25% 1.00%
Class J Shares: Network................................... 0.75% -0- 0.75%
Class Y Shares: Institutional............................. -0- -0- -0-
</TABLE>
- ------------------------
1 The Distribution Fee and/or Service Fee, as applicable, to be paid under the
12b-1 Plan will be calculated daily (as a percentage of average daily net
assets) and paid periodically.
The purpose of the Distribution Fee is to compensate SM&R, or enable SM&R to
compensate other persons, including any distributor of shares of the 12b-1
Classes, for services that are primarily intended to result in or primarily
attributable to the sale of the 12b-1 Classes ("Selling Services"). The purpose
of the Service Fee is to compensate SM&R, or enable SM&R to compensate other
persons, for providing ongoing servicing to shareholders of the Funds
("Shareholder Services").
"Selling Services" include the training and supervision of sales personnel;
advertising, marketing, and other promotional expenses, including the costs of
preparing and printing sales literature; printing prospectuses and statements of
additional information and distributing them to prospective investors in 12b-1
Classes; and distributing shares of the 12b-1 Classes. Payments for Selling
Services may include payment for overhead and other office expenses that are
related to the distribution of the 12b-1 Classes. SM&R also may reimburse the
expenses of persons who provide support services in connection with the
distribution of the 12b-1 Classes, and may make payments to financial
intermediaries that sell shares of the 12b-1 Classes. "Shareholder Services"
include all forms of shareholder liaison services that SM&R deems appropriate,
including maintaining shareholder accounts, providing shareholder liaison
services, responding to customer inquiries, and providing shareholders with
information on their investments and about the 12b-1 Classes.
The 12b-1 Plan, and any related agreement, continues in effect with respect
to a 12b-1 Class only if such continuance is specifically approved at least
annually by either the Board or the shareholders of that 12b-1 Class and, in
either case, by a majority vote of those directors who are not interested
persons of the Fund and who have no direct or indirect financial interest in the
operation of this Plan or in such agreement (the "Independent Directors"), cast
in person at a meeting called for the purpose of voting on this Plan and/or the
related agreement. The 12b-1 Plan may be terminated with respect to any 12b-1
Class at any time, by vote of a majority of the Independent Directors or by a
vote of a majority of the outstanding voting securities of the relevant Class.
Any distribution and shareholder services agreement related to the 12b-1
Plan terminates automatically upon its assignment. Moreover, with respect to
each 12b-1 Class, any distribution and shareholder services agreement related to
that 12b-1 Class may be terminated at any time, without the payment of any
penalty, (1) by the Board or by a vote of the 12b-1 Class' outstanding
shareholders, on 60 days written notice to SM&R, or (2) by SM&R, on 60 days
written notice to the Fund.
The 12b-1 Plan provides that it may not be amended with respect to any 12b-1
Class to increase materially the amount of the fees described in such Plan
without approval of the shareholders of the relevant Class. All material
amendments to the Plan also must be approved by the Board in the manner
described above and in the 12b-1 Plan.
20
<PAGE>
In each year during which this Plan remains in effect with respect to a
12b-1 Class, SM&R (and any other person authorized to direct the disposition of
monies paid or payable by the relevant Fund pursuant to the Plan or any related
agreement) will prepare and furnish to the Board, and the Board will review, at
least quarterly, written reports complying with the requirements of Rule 12b-1,
which set out the amounts expended under this Plan and the purposes for which
those expenditures were made. The obligations of each Fund under the 12b-1 Plan
will not be binding upon any of the directors, shareholders, nominees, officers,
employees or agents, whether past, present or future, of the Fund, individually,
but are binding only upon the assets and property of the relevant Fund or Funds,
as provided in the Funds' Articles of Incorporation.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
SM&R, which supervises each Fund's investments, is responsible for effecting
portfolio transactions through eligible securities brokers and dealers, subject
to the general supervision of each Fund's Board of Directors. Investment
decisions are made by an Investment Committee of SM&R, and orders are placed by
persons supervised by that committee.
There is no arrangement or intention to place orders with any specific
broker or group of brokers. The paramount factors considered by SM&R in placing
orders are efficiency in the execution of orders and obtaining the most
favorable prices for the Fund in both purchases and sales of portfolio
securities. In seeking the best prices and executions, purchases and sales of
securities which are not listed or traded on a securities exchange are generally
executed with a principal market maker acting as principal. SM&R evaluates the
brokerage fees paid by the Fund to any affiliated person by comparing such fees
to those paid by other investment companies for similar transactions as reported
in various industry surveys.
Whenever the primary consideration of best price and best execution is met
to the satisfaction of SM&R, the brokers and dealers selected will include those
who provide supplementary statistical and research services. Such research
services include advice as to the advisability of investing in, purchasing or
selling securities, as well as analyses and reports concerning securities,
economic factors and trends. While SM&R is able to fulfill its obligation to
each Fund without such information, its expenses might be materially increased
if it had to obtain and assemble such information through its staff. However,
the value of such information is not determinable. SM&R also uses such
information when rendering investment advisory services to the American National
Investment Accounts, Inc., SM&R Investments, Inc., and to American National and
its other accounts. SM&R will authorize each Fund to pay an amount of commission
for effecting a securities transaction in excess of the amount of commission
another broker-dealer would have charged only if it determines in good faith
that such amount of commission is reasonable in relation to the value of the
brokerage and research services provided by such broker-dealer. Generally, the
Funds pay higher than the lowest commission rates available.
Consistent with the Conduct Rules of the National Association of Securities
Dealers, and subject to seeking the best price and execution, each Fund may give
consideration to sales of shares of each Fund as a factor in the selection of
brokers and dealers to execute Fund portfolio transactions.
Brokerage fees paid on the purchase and sale of portfolio securities for the
fiscal years ended December 31, 1995, 1996 and 1997, amounted to approximately
$198,000, $98,000 and $416,000 respectively, for the Growth Fund; $165,000,
$132,000 and $345,000, respectively, for the Income Fund; and $13,000, $11,000
and $33,000, respectively, for the Triflex Fund.
The Funds, the American National Investment Accounts, Inc., and SM&R
Investments, Inc., for which SM&R is also investment adviser, may own securities
of the same companies from time to time. However, Each Fund's portfolio security
transactions will be conducted independently, except when decisions are made to
purchase or sell portfolio securities of the Funds, the American National
Investment Accounts, Inc., and SM&R Investments, Inc., simultaneously. In such
event, the transactions will be
21
<PAGE>
averaged as to price and allocated as to amount (according to the proportionate
share of the total combined commitment) in accordance with the daily purchase or
sale orders actually executed.
Each Fund's Board of Directors has determined that such ability to effect
simultaneous transactions may be in the best interests of each Fund. It is
recognized that in some cases these practices could have a detrimental effect
upon the price and volume of securities being bought and sold by the Funds,
which in other cases these practices could produce better executions.
CAPITAL STOCK
Each of the Funds has authorized capital stock of two billion common shares
with a par value of $0.01 each. All shares are equal with respect to
distributions from income and capital gains. There are no conversion,
pre-emptive or other subscription rights. In the event of liquidation, each
share is entitled to an equal portion of all the Fund's assets after all debts
and expenses have been paid.
Each share is entitled to one vote, and each Fund's shares have
non-cumulative voting rights with respect to election of directors. This means
that the holders of more than 50% of the shares voting for the election of
directors can elect 100% of the directors if they so choose, and in such event,
holders of the remaining shares will not be able to elect any directors.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
PURCHASING SHARES
Shares of each Fund may be purchased at a public offering price which is
based on the net asset value of each share of the Fund next determined plus a
sales charge, if any. Shares may be purchased through agents of American
National who are also registered representatives of SM&R, through certain other
authorized broker-dealers or directly from SM&R. Remittances for additional
investments may be submitted directly to SM&R. Except for certain systematic
investment programs (see "SPECIAL PURCHASE PLANS" herein), the minimum initial
investment is $100 and additional shares may be purchased through investment of
$20 or more at any time thereafter.
In the interest of economy, certificates representing shares purchased are
not ordinarily issued. Most investors do not choose to receive certificates for
their shares as this eliminates the problem of safekeeping and facilitates
redemptions and transfers. However, a monthly confirmation will be sent to the
investor reflecting all activity during the month. The investor will have the
same ownership rights with respect to shares purchased as if certificates had
been issued. Investors may receive a certificate representing shares by making a
written request to SM&R. If a certificate is requested, it will normally be
forwarded to the investor within 14 days after receipt of the request. SM&R
reserves the right to charge a small administrative fee for issuance of any
certificates. Certificates will not be issued for fractional shares (although
fractional shares remain in your account on the books of the Funds).
All purchases must be in (or payable in) U.S. dollars. All checks must be
drawn in U.S. dollars on a U.S. bank. Investors will be subject to a service
charge on dishonored checks. The Funds reserve the right to reject any order for
the purchase of its shares when in the judgment of management such rejection is
in the best interests of the Funds.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Class of each Fund is determined by
adding the market value of the Class' portfolio securities and other assets,
subtracting liabilities, and dividing the result by the number of the Class
shares outstanding. Expenses and fees of each Class of a Fund, including the
advisory fee and the expense limitation reimbursement, if any, are accrued daily
and taken into account in determining net asset value. The portfolio securities
of the Funds are valued as of the close of trading on each day when the New York
Stock Exchange is open for trading other than SM&R's business holidays described
below.
22
<PAGE>
Securities listed on national securities exchanges are valued at the last sales
price on such day, or if there is no sale, then at the closing bid price
therefor on such day on such exchange. The value of unlisted securities is
determined on the basis of the latest bid prices therefor on such day. If no
quotations are available for a security or other property, it is valued at fair
value as determined in good faith by the Board of Directors of each Fund on a
consistent basis.
SM&R's business holidays are Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day, the Friday following Thanksgiving Day, two (2) days
at Christmas and New Years Day. If Christmas Day is a weekday other than Monday,
Christmas Day and Christmas Eve Day are business holidays. If Christmas Day is
Monday, Christmas Day and the preceding Friday will be business holidays. If
Christmas Day is a Saturday, the preceding Thursday and Friday will be business
holidays. If Christmas Day is a Sunday, the preceding Friday and the following
Monday will be business holidays. If New Years Day is a Saturday, the preceding
Friday will be a business holiday and if New Years Day is a Sunday, the
following Monday will be a business holiday.
OFFERING PRICE
Full and fractional shares are purchased at the offering price, which is the
net asset value next determined after receipt of a purchase plus the sales
charge, if any. The sales charge, if applicable, is a percentage of the net
asset value per share and will vary as shown below. Purchases received by SM&R
at its office in Galveston, Texas prior to 3:00 p.m. Central Time, will be
executed at the applicable offering price determined on that day. Purchases
received thereafter will be executed at the offering price determined on the
next business day.
CLASS T SHARES (EXISTING SHAREHOLDERS)
The offering price of the Class T shares is the net asset value per share
plus a sales charge computed at the rates set forth in the following table.
Class T shares are subject to an initial sales charge of up to 5.75% of the
public offering price. Certain purchasers of Class T shares may qualify for a
reduction or waiver of initial sales charges, as set forth in the chart below
and under "Special Purchase Plans" below and "Reduction and/or Waiver of Initial
Sales Charges" in the Prospectuses. If you invest $500,000 or more in Class T
shares, there is no initial sales charge.
The offering price of Class T shares is the next determined net asset value
plus a sales charge, if applicable, (expressed as a percentage of the offering
price) shown in the following table:
<TABLE>
<CAPTION>
SALES CHARGE AS DISCOUNT TO
A SELECTED
SALES CHARGE AS A PERCENTAGE OF DEALERS AS A
PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE*
- ------------------------------------ ----------------- ---------------- ------------------
<S> <C> <C> <C>
Less than $50,000................... 5.75% [ ]% [ ]%
$50,000 but less than $100,000...... 4.5% 4.7% 4.0%
$100,000 but less than $250,000..... 3.5% 3.6% 3.0%
$250,000 but less than $500,000..... 2.5% 2.6% 2.0%
$500,000 and over................... None None None
</TABLE>
- ------------------------
*For Class T shares, SM&R may provide compensation (from its own profits and
resources) to broker-dealers in addition to these discounts.
CLASS A SHARES (FRONT-END LOAD)
Class A shares are subject to an initial sales charge of up to 5.75% of the
public offering price and an annual 12b-1 fee of 0.25% of the average daily net
assets of the Class A shares. Certain purchasers of
23
<PAGE>
Class A shares may qualify for a reduction or waiver of initial sales charges,
as set forth in the chart below and under "Special Purchase Plans" below and
"Reduction and/or Waiver of Initial Sales Charges" in the Prospectuses. If you
invest $1 million or more in Class A shares, there is no initial sales charge,
but such shares will be subject to a contingent deferred sales charge ("CDSC")
of 1.00% of the offering price on redemptions within 13 months of purchase.
The offering price of Class A shares is the next determined net asset value
plus a sales charge (expressed as a percentage of the offering price) shown in
the following table:
<TABLE>
<CAPTION>
DISCOUNT TO
SALES CHARGE AS SELECTED
A SALES CHARGE AS A DEALERS AS A
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE*
- ------------------------------------ ---------------- ----------------- -------------------
<S> <C> <C> <C>
Less than $50,000................... 5.75% 6.1% 4.75%
$50,000 but less than $100,000...... 4.5% 4.7% 4.0%
$100,000 but less than $250,000..... 3.5% 3.6% 3.0%
$250,000 but less than $500,000..... 2.5% 2.6% 2.0%
$500,000 but less than
$100,000,000....................... 1.5% [ ] 1.00%
$1,000,000 and over................. None** None None
</TABLE>
- ------------------------
* For Class A shares, SM&R may, in certain circumstances, provide compensation
(from its own profits and resources) to broker-dealers in addition to these
discounts.
** Subject to a CDSC of 1.00% on shares redeemed within 13 months of purchase.
CLASS B SHARES (BACK-END LOAD)
An investor pays no initial sales charge upon the purchase of Class B
shares, but such shares are subject to a CDSC that declines from 5.00% to zero,
calculated as a percentage of the amount invested, imposed on certain
redemptions made within six years of purchase. Class B shares are subject to an
annual 12b-1 fee of 0.75% of the average daily net asset value of the Class B
shares.
Class B shares are sold at net asset value subject to a contingent deferred
sales charge (expressed as a percentage of the offering price) shown in the
following table:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
YEARS SINCE PURCHASE (AS A PERCENTAGE OF OFFERING PRICE)
- ---------------------- -----------------------------------
<S> <C>
Year 1........................................................ 5%
Year 2........................................................ 4%
Year 3........................................................ 3%
Year 4........................................................ 2%
Year 5........................................................ 1%
Year 6+....................................................... 0%
</TABLE>
If the net asset value of shares being redeemed has increased above the
initial purchase price, no CDSC is imposed on amounts attributable to such
increase in net asset value. No CDSC is assessed on shares derived from
reinvestment of dividends or capital gain distributions. The Company will
minimize any applicable CDSC payable by assuming that an investor (i) first
redeems Class B shares owned through reinvested dividends and capital gains
distributions, and (ii) next redeems Class B shares held the longest.
Class B shares convert automatically to the appropriate number of Class A
shares of equal dollar value after the investor has owned the Class B shares for
eight (8) years. Dividends and other distributions paid to an investor in the
form of additional Class B shares also will convert to Class A shares on a
pro-rata basis. The conversion benefits shareholders because Class A shares are
not subject to an ongoing
24
<PAGE>
Distribution Fee. If an investor exchanges Class B shares for Class B shares of
another fund in the SM&R Family of Funds, the purchase date of the original
investment will be used to determine the appropriate conversion date.
CLASS C SHARES (LEVEL LOAD)
A sales charge of 1.00% is assessed on initial investments in Class C shares
as a percentage of offering price. A contingent deferred sales charge of 1.00%
is also assessed on redemptions of Class C shares during the first thirteen
months after purchase. Class C shares are subject to an annual 12b-1 fee of
1.00% of the average daily net asset value of the Class C shares.
CLASS Y SHARES AND CLASS J SHARES
Class Y shares are no-load shares of the Funds that are available to
institutions and certain other investors, as described in the Prospectus for the
Class Y shares. Class J shares are no-load shares that are offered through
certain financial intermediaries (such as broker-dealers, investment advisers,
and mutual fund "marketplaces") that have distribution agreements with SM&R.
Class Y shares and Class J shares are offered at net asset value without the
imposition of any sales charge on purchases or redemptions or any distribution
and service ("12b-1") fees. Accordingly, the offering price for Class Y shares
and Class J shares is that Class' net asset value.
SPECIAL PURCHASE PLANS
DISCOUNTS THROUGH CONCURRENT PURCHASES
Investors may qualify for a reduced sales charge on Class T or Class A
shares. To qualify, the investor may combine concurrent purchases of Class T and
Class A shares of a fund in the SM&R Family of Funds at the respective sales
charges applicable to each. The "breakpoints," which reduce the applicable sales
charge rates at certain levels of investment, set forth in the tables above for
Class A and Class T shares apply to purchases of Class T or Class A shares of a
Fund, either singly or in combination with purchases of shares of another Fund
or a fund in the SM&R Family of Funds at the respective sales charges applicable
to each, made at one time by: (1) Any individual; (2) Any individual, his or her
spouse, and trusts or custodial agreements for their minor children; (3) A
trustee or fiduciary of a single trust estate or single fiduciary account; (4)
Tax-exempt organizations specified in Sections 501(c)(3) or (13) of the Internal
Revenue Code, or employees' trusts, pension, profit-sharing, or other employee
benefit plans qualified under Section 401 of the Internal Revenue Code; and (5)
Employees or employers on behalf of employees under any employee benefit plan
not qualified under Section 401 of the Internal Revenue Code.
Purchases by any "company" or employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the Funds will realize economies of scale in sales effort and
sales related expenses as a result of the employer's or the plan's bearing the
expense of any payroll deduction plan, making the Funds' prospectuses available
to individual investors or employees, forwarding investments by such employees
to the Funds, and the like.
The rates set forth above are applicable to single, lump sum purchases made
under the provisions of the preceding paragraphs and to qualified investments
under a "Letter of Intent" or under the "Accumulation Privilege" as described
below.
THE EDUCATION FUNDING INVESTMENT ACCOUNT PROGRAM
The following breakpoints apply to purchases made by individuals investing
in Class A or Class T shares of the Funds through the use of The Education
Funding Investment Account Program as well as the Education IRA.
25
<PAGE>
TOTAL SALES CHARGE
<TABLE>
<CAPTION>
DISCOUNT TO SELECTED
SALES CHARGE AS A SALES CHARGE AS A DEALERS AS A
PERCENTAGE OF PERCENTAGE OF NET PERCENTAGE OF
AMOUNT OF INVESTMENT OFFERING PRICE AMOUNT INVESTED OFFERING PRICE*
- -------------------------------------------------------- ----------------- ----------------- ---------------------
<S> <C> <C> <C>
Less than $100,000...................................... 4.5% 4.7% 4.0%
$100,000 but less than $250,000......................... 3.5% 3.6% 3.0%
$250,000 but less than $500,000......................... 2.5% 2.6% 2.0%
$500,000 and over*...................................... None ** None None
</TABLE>
- ------------------------
* For Class A and T shares, SM&R may, in certain circumstances, provide
compensation (from its own profits and resources) to broker-dealers in
addition to these discounts as follows: Year 1 - 0.35% and Year 2 - 0.25%.
In the third and subsequent years, SM&R may pay 0.075% per annum, in
quarterly installments, to those representatives and broker-dealers with
accounts in the aggregate totaling $1 million or more.
** Subject to a CDSC of 1.00% on shares redeemed within 13 months of purchase.
The Education Funding Investment Account Program is a service expressly
created to help investors accumulate funds for their children's or
grandchildren's college education. The maximum sales charge is 4.5% on the
purchase of Class A or T shares of the Funds. To participate in this special
plan, investors must complete the special Education Funding Investment Account
application designed specifically for the Program.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION
If you already own Class T or Class A shares of another fund in the SM&R
Family of Funds, you may be able to receive a discount when you buy additional
shares. The offering value of the shares you already own may be "accumulated" -
I.E., combined together with the offering value of the new shares you plan to
buy--to achieve quantities eligible for discount.
LETTER OF INTENT
You may qualify immediately for a reduced sales charge on purchases of Class
T and Class A shares of funds in the SM&R Family of Funds by completing a Letter
of Intent (See "Letter of Intent" in the Prospectuses). A minimum initial
investment equal to 10% of the amount necessary for the applicable reduced sales
charge is required when a Letter of Intent is executed. Investments made under a
Letter of Intent will purchase shares at the total sales charge rate applicable
to the specified total investment. SM&R will hold in escrow from the initial
investment shares equal to 5% of the amount of the total intended investment.
Such escrow shares may not be exchanged for or reinvested in shares of another
fund and, subject to the right of early cancellation described below, will not
be released until the amount purchased equals the commitment set forth in the
Letter of Intent. If the intended investment is not completed during the
13-month period, the difference between the sales charge actually paid and the
sales charge applicable to the total of such purchases made will be deducted
from the escrow shares if not paid by the investor within twenty days after the
date notice thereof has been mailed to such investor.
A Letter of Intent agreement can be canceled prior to the end of the
13-month period and escrow shares released to the investor if the investor pays
the difference between the sales charge paid and the sales charge applicable to
the amount actually invested and agrees that such Letter of Intent agreement is
canceled and no longer in effect.
The offering value of the shares of funds in the SM&R Family of Funds
currently owned may also be included in the aggregate amount of an investment
covered by a Letter of Intent.
26
<PAGE>
For example, if an investor owns Class A shares of one or more of the Funds
and/or another fund in the SM&R Family of Funds currently valued at $80,000 and
intends to invest $25,000 over the next thirteen months in Class A shares of the
Growth Fund, such investor may execute a Letter of Intent and the entire $25,000
will purchase shares of either or all of such funds at the reduced sales charge
rate applicable to an investment of $100,000 or more. A Letter of Intent does
not represent a binding obligation on the part of the investor to purchase or
the Funds to sell the full amount of shares specified.
WAIVER OF INITIAL SALES CHARGE FOR SPECIAL PURCHASERS
After receipt of written request by SM&R, Class T shares of the Funds may be
purchased by certain purchasers designated in the Class T Prospectus at net
asset value per share without the imposition of any sales charge.
REDUCTION AND/OR WAIVER OF CONTINGENT DEFERRED SALES CHARGE (CLASS B SHARES)
Contingent deferred sales charges on Class B shares will be waived on
redemptions:
(1) following the shareholder's (or in the case of joint accounts, all
registered joint owners') death or disability, as defined in Section
72(m)(7) of the Internal Revenue Code (the "Code") (provided SM&R is
notified of such death or disability at the time of the redemption
request and is provided with satisfactory evidence of such death or
disability);
(2) in connection with certain distributions from IRAs, custodial accounts
maintained pursuant to Code Section 403(b), and plans qualified under
Code Section 401 (collectively, "Retirement Plans"); or
(3) not exceeding 10% per year of the amount otherwise subject to the CDSC
(amounts not subject to a CDSC, such as appreciation and reinvested
dividends, are withdrawn first).
Waiver category (1) above applies only to redemptions:
(a) made within one year following death or initial determination of
disability; and
(b) of Class B share held at the time of death or initial determination of
disability.
Waiver category (2) above applies only to redemptions resulting from:
(a) required minimum distributions to plan participants or beneficiaries who
are age 70 1/2 or older;
(b) in kind transfers of assets where the participant or beneficiary
notifies SM&R of such transfer no later than the time such transfer
occurs;
(c) tax-free rollovers or transfers of assets to another Retirement Plan
invested in Class B shares of one or more funds in the SM&R Family of
Funds;
(d) tax-free returns of excess contributions or returns of excess deferral
amounts; and
(e) distributions upon the death or disability (as defined in the Code) of
the participant or beneficiary.
SYSTEMATIC INVESTMENT PLAN AND ELECTRONIC TRANSFER SERVICE
All Funds provide a convenient, voluntary method of purchasing their shares
through the "Systematic Investment Plan and Electronic Transfer Service" (a
"Plan" or "Plans"). The principal purposes of such Plans are to encourage thrift
by enabling investors to make regular purchases in amounts less than normally
required, and, in the case of the Funds, to employ the principle of dollar cost
averaging described below. INVESTORS SHOULD BE AWARE THAT ANY APPLICABLE SALES
CHARGE WILL APPLY TO PURCHASES MADE THROUGH A PLAN.
27
<PAGE>
By acquiring shares of the Funds on a regular basis pursuant to a Plan, or
investing regularly on any other systematic plan, the investor takes advantage
of the principle of Dollar Cost Averaging. Under Dollar Cost Averaging, if a
constant amount is invested at regular intervals at varying price levels, the
average cost of all the shares will be lower than the average of the price
levels. This is because the same fixed number of dollars buys more shares when
price levels are low and fewer shares when price levels are high. It is
essential that the investor consider his or her financial ability to continue
this investment program during times of market decline as well as market rise.
The principle of Dollar Cost Averaging will not protect against loss in a
declining market, as a loss will result if the Plan is discontinued when the
market value is less than cost.
After the initial minimum investment of $100 has been met, a Plan may be
opened by indicating an intention to invest $20 or more (per individual) in the
Funds monthly for at least one year. The investor will receive a confirmation
showing the number of shares purchased, purchase price, and subsequent new
balance of shares accumulated.
An investor has no obligation to invest regularly or to continue
participating in a Plan, which may be terminated by the investor at any time
without penalty. Under a Plan, any distributions of income and realized capital
gains will be reinvested in additional shares at net asset value unless a
shareholder instructs SM&R in writing to pay them in cash. SM&R reserves the
right to increase or decrease the amount required to open and continue the Plan,
and to terminate any shareholder's right to participate in the Plan if after one
year the value of the amount invested is less than $100.
GROUP SYSTEMATIC INVESTMENT PLAN
A Group Systematic Investment Plan provides employers and employees with a
convenient means for purchasing shares of the Funds under various types of
employee benefit and thrift plans, including payroll deduction and bonus
incentive plans. The Plan may be started with an initial cash investment of $20
per participant for a group consisting of five or more participants. The shares
purchased by each participant under the Plan will be credited to a separate
account in the name of each investor in which all dividends and capital gains
will be reinvested in additional shares of the applicable Fund at net asset
value (plus a sales charge, if applicable). Such reinvestments will be made at
the start of business on the day following the record date for such dividends
and capital gains distributions. To keep his or her account open, subsequent
payments in the amount of $20 or more must be made into each participant's
account monthly. If the group is reduced to less than five participants, the
minimums set forth under "Systematic Investment Plan and Electronic Transfer
Service" shall apply. The plan may be terminated by SM&R or the shareholder at
any time upon sixty (60) days prior written notice.
EXCHANGE PRIVILEGE
Exchanges shall be permitted, without charge, between each Class of shares
of a Fund and the corresponding Class of another fund in the SM&R Family of
Funds on terms described in the Prospectuses. Investors also may exchange shares
of a Class of a Fund for shares of SM&R Investment, Inc.'s Primary and Money
Market Funds, and visa-versa, and may exchange shares of one Class of a Fund for
shares of another Class of that Fund. An investor exchanging shares must meet
any minimum investment requirement for any shares the investor wishes to
acquire, and must pay any applicable sales charge.
Investors may acquire, through an exchange, shares of a Class with a CDSC.
For purposes of determining any CDSC an investor must pay if the investor
redeems those acquired shares, the length of time such acquired shares have been
held will be calculated from the date that the investor initially purchased
shares in the relevant fund in the SM&R Family of Funds, rather from the date
the investor exchanged those shares for the shares subject to a CDSC. In
determining the applicability of any CDSC, it will be assumed that a redemption
is made first from shares representing capital appreciation, next from shares
representing the reinvestment of dividends and capital gain distributions, and
finally from other
28
<PAGE>
shares held by the shareholders for the longest period. For Federal income tax
purposes, the amount of the CDSC will reduce the gain or increase the loss, as
the case may be, on the amount realized on redemption.
Shares of any fund in the SM&R Family of Funds held in escrow under a Letter
of Intent are not eligible for the exchange privilege. Such shares will not be
released from escrow until the balance invested during the period specified in
the Letter of Intent equals or exceeds the amount required to be invested under
the Letter of Intent or the shareholder requests, in writing, that the Letter of
Intent be canceled and pays any adjustments in sales charge. After release from
escrow, shares may be exchanged, provided all other applicable conditions are
met.
The exchange privilege does not give an investor the option or right to
purchase securities, but is a revocable privilege permitted under the present
policies of each of the Funds. SM&R reserves the right to restrict the frequency
of or otherwise modify, condition, terminate or impose additional charges upon
the exchange privilege. Any gain or loss realized on an exchange or re-exchange
may be recognized for federal and state income tax purposes. You should consult
your tax advisor for the tax treatment and effect of exchanges.
The minimum number of shares of a Fund that may be exchanged is the number
of shares of the Fund that have a net asset value on the date of such exchange
that is equal to the minimum initial or subsequent investment, as the case may
be, of the fund in the SM&R Family of Funds into which the exchange is being
made.
REDEMPTION
Any shareholder may redeem all or any part of his shares by submitting a
written request to SM&R as the Funds' agent for such purpose. Such requests must
be duly executed by each registered owner and must be accompanied by
certificates endorsed for transfer, if certificates have been issued, with
signatures guaranteed by an "eligible guarantor institution" as discussed in the
Prospectuses. No signature guarantees are required on the written request for
redemption by a shareholder of record when payment is to be made to such
shareholder of record at such shareholder's address of record and the value of
the shares redeemed is $25,000 or less. In all other cases the signatures on the
request for redemption, as well as on certificates being tendered, must be
guaranteed. On all redemption requests for joint accounts, the signatures of all
joint owners are required. Redemptions may also be requested by telephone, see
"HOW TO REDEEM" in the Prospectuses. Corporations, executors, divorced persons,
administrators, trustees or guardians will be required to submit further
documentation. Any applicable CDSC must be paid upon redemption.
Shares are redeemed at the net asset value per share next computed after the
request and certificates, if any, are received in "Proper Form." (See "HOW TO
REDEEM" in the Prospectuses). A shareholder may receive more or less than he
paid for his shares, depending on the prevailing market value of the Fund's
portfolio securities and the applicable CDSC, if any. Redemption checks are
delivered as soon as practicable and normally will be sent to the investor
within seven days following the date on which redemption is made.
At various times a Fund may be requested to redeem shares for which it has
not yet received good payment for prior purchases of Fund shares. Accordingly,
proceeds of a Fund will not be paid until good payment has been received which
could be as much as fifteen (15) business days after the purchase, or until SM&R
can verify that good payment (for example, cash or certified check on a United
States bank) has been, or will be, collected for the purchase of such shares.
The right of redemption is subject to suspension and payment postponed
during any period when the New York Stock Exchange is closed other than
customary weekend or holiday closings, or during which trading on such Exchange
is restricted; for any period during which an emergency exists, as a result of
which disposal by a Fund of its securities is not reasonably practicable or it
is not reasonably practicable for
29
<PAGE>
a Fund to fairly determine the value of its net assets; or for such other
periods as the Commission has by order permitted such suspension for the
protection of a Fund's security holders.
The Funds have made an election under the 1940 Act to pay in cash all
requests for redemption by any shareholder of record, limited in amount with
respect to each shareholder during any ninety-day period to the lesser of (i)
$250,000 or (ii) 1% of the net asset value of the Fund at the beginning of such
period. The Funds may pay the redemption price, if any, in excess of the amounts
described above in whole or in part in portfolio securities, at the market value
thereof determined as of the close of business next following receipt of the
request in proper form, if deemed advisable by the Board of Directors. In such
case a shareholder would incur brokerage costs if he sold the securities
received.
SYSTEMATIC WITHDRAWAL PLAN
As described in the Prospectus under "Systematic Withdrawal Plan," each Fund
has a Systematic Withdrawal Plan which allows shareholders having an account
value of $5,000 or more to automatically withdraw a minimum of $50 monthly or
quarterly. It may not be advisable for shareholders to maintain a Withdrawal
Account while concurrently purchasing shares of the Funds because of the sales
charge or CDSC (as applicable) involved in additional purchases and withdrawals.
A shareholder should carefully consider such purchases and contact his or her
financial adviser regarding their advisability.
A Systematic Withdrawal Plan provides for regular monthly or quarterly
payments to the account investor or his designee through redemption of a portion
of the shares held in the account. Some portion of each withdrawal may be
taxable gain or loss to the account investor at the time of the withdrawal, the
amount of the gain or loss being determined by the investment in the Funds'
shares. The minimum, though not necessarily recommended, withdrawal amount is
$50. Shares sufficient to provide the designated withdrawal payment are redeemed
each month or quarterly on the 20th, or the next succeeding business day, and
checks are mailed to reach the investor on or about the lst of the following
month. All income dividends and capital gains distributions are automatically
reinvested at net asset value, without sales charge. Since each withdrawal check
represents proceeds from the sale of sufficient shares equal to the withdrawal,
there can be a reduction of invested capital, particularly in a declining
market. If redemptions are consistently in excess of shares added through
reinvestment of distributions, the withdrawals will ultimately exhaust the
capital.
The shareholder may designate withdrawal payments for a fixed dollar amount,
as stated in the preceding paragraph, or a variable dollar amount based on (1)
redemption of a fixed number of shares at monthly or quarterly intervals, or (2)
redemption of a specified and increasing fraction of shares held at monthly or
quarterly intervals. To illustrate the latter option, if an investor wanted
quarterly payments for a ten-year period, the first withdrawal payment would be
the proceeds from redemption of 1/40th of the shares held in the account. The
second payment would be 1/39th of the remaining shares; the third payment would
be 1/38th of the remaining shares, etc. Under this option, all shares would be
redeemed over the ten-year period, and the payment amount would vary each
quarter, depending upon the number of shares redeemed and the redemption price.
No charge is made for a non-qualified Systematic Withdrawal Plan, and the
account investor may change the option or payment amount at any time upon
written request received by SM&R no later than the month prior to the month of a
scheduled redemption for a withdrawal payment. A Systematic Withdrawal Plan may
also be terminated at any time by the account investor or the Fund without
penalty.
Occasionally certain limited types of qualified retirement plans are
involved in making investments and withdrawals during the same year. Under such
an arrangement, it is possible for the plan to be, in effect, charged duplicate
sales charges. In order to eliminate this possibility, each Fund will permit
additional investments, without sales charge, equal to all sums withdrawn,
providing the additional investments are made during the next twelve months
following the withdrawal or redemption, and providing that all funds withdrawn
were for the specific purpose of satisfying plan benefits of participants
30
<PAGE>
who have retired, become disabled or left the plan. Furthermore, for a qualified
plan to qualify under this provision, the plan must include at least one
participant who is a non-owner employee. The Funds and SM&R discourage
shareholders from maintaining a withdrawal account while concurrently and
regularly purchasing shares of the Funds, although such practice is not
prohibited.
TAX STATUS
Shareholders are reminded that dividends are taxable whether received in
cash or reinvested and received in the form of additional shares. Furthermore,
any distribution received shortly after a purchase of shares by an investor will
have the effect of reducing the per share net asset value of his shares by the
amount of the distributions. Such distributions, although in effect a return of
capital, are subject to taxes. Furthermore, if the net asset value of each share
is reduced below the shareholder's cost as a result of a distribution, such
distribution would be a return of capital although taxed at applicable rates.
Each Fund or the securities dealer effecting a redemption transaction is
required to file an information return (1099-B) with the IRS with respect to
each sale of Fund shares by a shareholder. The year-end statement provided to
each shareholder will serve as a substitute 1099-B for purposes of reporting any
gain or loss on the tax return filed by the shareholder. In addition, each Fund
is required by law and IRS regulations to withhold 31% of the dividends,
redemptions and other payments made to non-exempt accounts unless shareholders
have provided a corrected taxpayer identification number and made the
certifications required by the IRS as indicated in the shareholder application
when opening an account.
Distributions from each Fund may also be subject to state and local taxes.
Shareholders should consult their own tax adviser concerning tax consequences of
an investment in the Funds.
THE UNDERWRITER
SM&R serves as principal underwriter of the shares of the Funds pursuant to
an Underwriting Agreement dated May 1, 1993, as amended on [ ], 1998 (the
"Underwriting Agreement"). Such Underwriting Agreement provides that it shall
continue in effect only so long as such continuance is specifically approved at
least annually by the Board of Directors of each Fund or by vote of a majority
of the outstanding voting securities of a Fund and, in either case, by the
specific approval of a majority of directors who are not parties to such
agreement or not "interested" persons (as defined in the 1940 Act) of any such
parties, cast in person at a meeting called for the purpose of voting on such
approval. The Underwriting Agreement was approved by the Board of Directors of
each Fund in accordance with such procedures at a meeting held on August 21,
1997. The Underwriting Agreement may be terminated without penalty by vote of
the Board of Directors or by vote of the holders of a majority of the
outstanding voting securities of a Fund, or by SM&R, upon sixty (60) days
written notice and will automatically terminate if assigned (as provided in the
1940 Act).
As principal underwriter, SM&R continuously offers and sells shares of each
Fund through its own sales representatives and broker-dealers. As compensation
for such services, SM&R receives the sales charge, which is the difference
between the offering price at which shares are issued and the net asset value
thereof. The sales charge allowance to broker-dealers ranges from a maximum of
6.1% to a minimum of 2.6% of the net amount invested and from a maximum of 4.75%
to a minimum of 2.0% of the public offering price. In connection with certain
purchases of Class T shares of $500,000 or more, SM&R may pay broker-dealers
from its own profits and resources, a per annum percent of the amount invested
as follows: Year 1 -0.35%, Year 2 -0.25%, and, in the third and subsequent
years, 0.075% per annum, in quarterly installments, to those broker-dealers with
accounts in the aggregate totaling $1 million or more. In connection with
certain purchases of Class A shares of $1,000,000 or more, SM&R may pay
broker-dealers from its own profits and resources, a per annum percent of the
amount invested as follows: Year 1 - [ ]%, Year 2 - [ ]%, and, in the
third and subsequent years, [ ]%. Such allowances are the same for all
broker-dealers.
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<PAGE>
The amount of such sales charge received by SM&R from the sale of Fund
shares for the fiscal years ended December 31, 1995, 1996 and 1997 was $244,914,
$256,481 and $405,080, respectively, for the Growth Fund; $327,908, $612,858 and
$697,920, respectively, for the Income Fund; and $33,172, $44,577 and $54,962,
respectively, for the Triflex Fund. Of such amounts received from the Growth
Fund during such periods, SM&R retained approximately $58,000, $47,000 and
$54,000, respectively and $4,393, $6,066, and $5,433 was reallowed to dealers.
Of such amounts received from the Income Fund during such periods, SM&R retained
approximately $67,000, $55,000 and $48,000, respectively and $5,830, $9,010 and
$9,704 was reallowed to dealers. Of such amounts received from the Triflex Fund
during such periods, SM&R retained approximately $6,000, $6,000 and $2,000,
respectively and $295, $390 and $353 was reallowed to dealers.
FINANCIAL STATEMENTS
The Growth Fund's Schedule of Investments and audited financial statements
for the year ended December 31, 1997, and the Independent Auditors' Report of
KPMG dated Tait, Weller & Baker dated January 30, 1998 are incorporated herein
by reference to post-effective amendment number 93 to the Growth Fund's
registration statement filed with the Commission on April 22, 1998. The Income
Fund's Schedule of Investments and audited financial statements for the year
ended December 31, 1997, and the Independent Auditors' Report of KPMG dated
Tait, Weller & Baker dated January 30, 1998 are incorporated herein by reference
to post-effective amendment number 37 to the Income Fund's registration
statement filed with the Commission on April 22, 1998. The Triflex Fund's
Schedule of Investments and audited financial statements for the year ended
December 31, 1997, and the Independent Auditors' Report of KPMG dated Tait,
Weller & Baker dated January 30, 1998 are incorporated herein by reference to
post-effective amendment number 29 to the Triflex Fund's registration statement
filed with the Commission on April 22, 1998.
Each Fund's unaudited financial statements for the six-month period ended
June 30, 1998 are incorporated herein by reference from each Fund's Semi- Annual
Report dated [ ], 1998, filed with the Commission on [ ],
1998.
CUSTODIAN
The cash and securities of the Funds are held by SM&R, One Moody Plaza,
Galveston, Texas 77550, pursuant to a Custodian Agreement dated September 12,
1991. As custodian, SM&R will hold and administer the Funds' cash and securities
and maintain certain financial and accounting books and records as provided for
in such Custodian Agreement. The compensation paid to the Custodian is paid by
the Funds and is based upon and varies with the number, type and amount of
transactions conducted by the Custodian.
SM&R has entered into a sub-custodial agreement with Moody National Bank of
Galveston (the "Bank") effective July 1, 1991. Under the sub-custodian
agreement, the cash and securities of the Funds will be held by the Bank which
will be authorized to use the facilities of the Depository Trust Company and the
facilities of the book-entry system of the Federal Reserve Bank with respect to
securities of the Funds held by it on behalf of SM&R for the Funds.
COUNSEL AND AUDITORS
The Fund's General Counsel is Greer, Herz & Adams, L.L.P., 18th Floor, One
Moody Plaza, Galveston, Texas 77550. Tait, Weller & Baker, 8 Penn Center,
Philadelphia, PA 19103, are the Fund's independent auditors and perform annual
audits of the Fund's financial statements.
Due to a concern over a potential conflict of interest, KPMG resigned as
auditors to the Funds. The Board appointed Tait, Weller & Baker to serve as the
independent auditors to the Funds for the year ended December 31, 1997.
Shareholders of the Funds ratified the selection of Tait, Weller & Baker for the
32
<PAGE>
year ended December 31, 1998 at a meeting of the Shareholders held on
[ ], 1998. For the year ended December 31, 1996, and up to the date of
resignation of KPMG, there were no disagreements with KPMG on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure which, if not resolved to the satisfaction of KPMG, would
have caused it to make reference to the subject matter of the disagreement in
connection with its report. The independent auditors' report on the 1996
financial statements did not contain an adverse opinion or a disclaimer of
opinion, and was not qualified or modified as to uncertainty, audit scope or
accounting principles. Each of Tait, Weller & Baker and KPMG has advised the
Funds that neither it nor any present member or associate of the relevant firm
has any financial interest, direct or indirect, in any of the Funds.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
SM&R is the transfer agent and dividend paying agent for the Funds, the
American National Investments Accounts, Inc., and SM&R Investments, Inc. (See
"Administrative Service Agreement" herein.)
PERFORMANCE AND ADVERTISING DATA
Quotations of performance may from time to time be used in advertisements,
sales literature, shareholder reports or other communications to shareholders or
prospective investors. Each Fund's yield and total return fluctuate in response
to market conditions and other factors. Investment return and principal value
will fluctuate, and shares, when redeemed, may be worth more or less than their
original cost.
Each Fund's performance may be quoted in advertising in terms of yield or
total return. All advertisements will disclose the maximum sales charge to which
investments in shares of that Fund may be subject. If any advertised performance
data does not reflect the maximum sales charge (if any), such advertisement will
disclose that the sales charge has not been deducted in computing the
performance data, and that, if reflected, the maximum sales charge would reduce
the performance quoted. An investor should keep in mind when reviewing
performance that past performance of a fund is not indicative of future results,
but is an indication of the return to the investor only for the limited
historical period.
With respect to those categories of investors who are permitted to purchase
shares of a Fund at net asset value, sales literature pertaining to the Fund may
quote a current distribution rate, yield, total return, average annual total
return and other measures of performance as described elsewhere in this
Statement of Additional Information with the substitution of net asset value for
the public offering price.
Sales literature referring to the use of the Funds as a potential investment
for Individual Retirement Accounts ("IRAs"), and other tax-advantaged retirement
plans may quote a total return based upon compounding of dividends on which it
is presumed no federal income tax applies.
YIELD
Standardized yield for each Fund is computed by dividing the Fund's interest
income (in accordance with specific standardized rules) for a given 30-day or
one month period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the Fund's net
asset value per share at the end of the period and annualizing the result
(assuming compounding of income in accordance with specific standardized rules)
in order to arrive at an annual percentage rate. The 30-day
33
<PAGE>
yield figure is calculated for each Class of each Fund according to a formula
prescribed by the Commission. The formula can be expressed as follows:
<TABLE>
<S> <C>
6
Yield = 2[(a-b + 1) -1]
cd
</TABLE>
Where:
<TABLE>
<S> <C>
a = dividends and interest earned during the period.
b = expenses accrued for the period (net of reimbursement).
c = the average daily number of shares outstanding during the period that were
entitled to receive dividends.
d = the maximum offering price per share on the last day of the period.
</TABLE>
For the purpose of determining the interest earned (variable "a" in the
formula) on debt obligations that were purchased by a Fund at a discount or
premium, the formula generally calls for amortization of the discount or
premium; the amortization schedule will be adjusted monthly to reflect changes
in the market values of the debt obligations.
Investors should recognize that, in periods of declining interest rates, the
yield will tend to be somewhat higher than prevailing market rates, and in
periods of rising interest rates the yield will tend to be somewhat lower. In
addition, when interest rates are falling, moneys received by the Fund from the
continuous sale of its shares will likely be invested in portfolio instruments
producing lower yields than the balance of the Fund's portfolio, thereby
reducing the current yield of the Fund. In periods of rising interest rates, the
opposite result can be expected to occur.
Yield information is useful in reviewing the performance of a Fund, but
because yields fluctuate, this information cannot necessarily be used to compare
an investment in shares of the Fund with bank deposits, savings accounts and
similar investment alternatives that often provide an agreed or guaranteed fixed
yield for a stated period of time. Shareholders of a Fund should remember that
yield is a function of the kind and quality of the instruments in the Fund's
portfolio, portfolio maturity, operating expenses and market conditions.
TOTAL RETURN
Standardized total returns quoted in advertising and sales literature
reflect all aspects of a Fund's return, including the effect of reinvesting
dividends and capital gain distributions, any change in the Fund's net asset
value per share over the period and maximum sales charge, if any, applicable to
purchases of the Fund's shares. A cumulative total return reflects a Fund's
performance over a stated period of time. An average annual total return
reflects the hypothetical annually compounded return that would have produced
the same cumulative total return if the Fund's performance had been constant
over the entire period. Because average annual returns tend to even out
variations in a Fund's return, investors should recognize that such returns are
not the same as actual year-by-year results. To illustrate the components of
overall performance, a Fund may separate its cumulative and average annual
returns into income results and capital gain or loss.
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<PAGE>
The average annual total return figures for the Funds described in the
Prospectuses are computed for a Class according to a formula prescribed by the
Commission. The formula can be expressed as follows:
n
P(1 + T) = ERV
Where P = a hypothetical initial payment
of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment
made at the beginning of a 1-,
5- or 10-year period at the
end of a 1-, 5- or 10-year
period (or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period.
The aggregate total return figures described in the Prospectuses represent
the cumulative change in the value of an investment in a class for the specified
period are computed by the following formula:
Aggregate Total Return = ERV - P
P
Where P = a hypothetical initial payment
of $1,000; and
ERV = Ending Redeemable Value of a
hypothetical $1,000 investment
made at the beginning of a 1-,
5- or 10-year period at the
end of the 1-, 5- or 10-year
period (or fractional portion
thereof), assuming
reinvestment of all dividends
and distributions.
YIELD AND TOTAL RETURN FIGURES ARE BASED ON HISTORICAL EARNINGS AND ARE NOT
INTENDED TO INDICATE FUTURE PERFORMANCES.
A Fund's performance is a function of its portfolio management in selecting
the type and quality of portfolio securities and is affected by operating
expenses of the Fund and market conditions. A shareholder's investment in a Fund
is not insured or guaranteed. These factors should be carefully considered by
the investor before making any investment in any Fund.
CUMULATIVE TOTAL RETURN
The cumulative return reflects each year's hypothetical annually compounded
return that would equate a ten thousand dollar investment on January 1, 1988 to
the redeemable value on December 31 of each of the next ten years by adding one
to the computed average annual total return multiplied by:
1. the $10,000 hypothetical investment for the first year, or
2. the redeemable value of the $10,000 investment as of December 31 of the
preceding year for years two through ten.
The total return percentage calculations assume the maximum sales charge was
deducted from the initial amount invested and that all income dividends and
capital gain distributions are reinvested on the reinvestment dates at the net
asset value. The income return percentage reflects the income dividends paid
during the year divided by:
1. the $10,000 hypothetical investment for the first year, or
2. the redeemable value of the $10,000 investment as of December 31 of the
preceding year for years two through ten.
35
<PAGE>
The appreciation percentage represents the change in the net asset value
during the year less the income dividends paid during the year divided by:
1. the $10,000 hypothetical investment for the first year, or
2. the redeemable value of the $10,000 investment as of December 31 of the
preceding year for years two through ten.
The total return on the net amount invested reflects the hypothetical return
that would equate a January 1, 1988 initial ten thousand dollar investment less
the maximum $575 sales load to the redeemable value on December 31, 1988 by
adding one to the computed total return and multiplying the result by $9,425
(the initial ten thousand dollar investment less the maximum sales load).
AVERAGE ANNUAL RETURN
The Funds' average annual return during specified time periods reflects the
hypothetical annually compounded return that would equate an initial one
thousand dollar investment to the ending redeemable value of such investment by
adding one to the compounded average annual total return, raising the sum to a
power equal to the number of years covered by the computation and multiplying
the result by the one thousand dollar initial investment. The calculation
assumes deduction of the maximum sales charge from the initial amount invested
and reinvestment of all investment income dividends and capital gains
distributions on the reinvestment dates at the net asset value.
CLASS PERFORMANCE
The Funds converted from a single-class to a multi-class structure in
September 1998. That single class of outstanding shares was converted to Class T
shares, effective September 15, 1998. Existing shareholders of a Fund as of
September 15, 1998 became shareholders in Class T of that Fund.
The performance calculations for the Classes of the Funds, other than the
Class T shares, and any Classes that might later be created, may be stated so as
to include the performance of the Fund's Class T shares. For these purposes, the
inception of the Class T shares is the inception of the Funds. Generally,
performance of the Class T shares will not be restated to reflect the expenses
or expense ratio of another class. For example, the inception of performance for
the Class A shares will be deemed to be the inception date of the Class T shares
and the performance of the Class T shares (based on the Class T shares' actual
expenses) from the inception of Class T shares to the inception of Class A
shares will be deemed to be the performance of the Class A shares for that
period. For standardized total return calculations, the current maximum initial
sales load for Class A shares would be used in determining the total return of
Class A shares as if assessed at the inception of Class T shares.
COMPARISONS
To help investors better evaluate how an investment in the Funds might
satisfy their investment objective, advertisements and other materials regarding
the Funds may discuss various measures of the performance as reported by various
financial publications. Materials may also compare performance (as calculated
above) to performance as reported by other investments, indices, and averages.
The following publications, indices, and averages may be used:
Dow Jones Composite Average or its component averages--an unmanaged index
composed of 30 blue-chip industrial corporation stocks (Dow Jones Industrial
Average), 15 utilities company stocks (Dow Jones Utilities Average), and 20
transportation company stocks. Comparisons of performance assume reinvestment of
dividends.
36
<PAGE>
Standard & Poor's 500 Stock Index or its component indices--an unmanaged
index composed of 400 industrial stocks, 40 financial stocks, 40 utilities
stocks, and 20 transportation stocks. Comparisons of performance assume
reinvestment of dividends.
The New York Stock Exchange composite or component indices--unmanaged
indices of all industrial, utilities, transportation, and finance stocks listed
on the New York Stock Exchange.
Wilshire 5000 Equity Index--represents the return on the market value of all
common equity securities for which daily pricing is available. Comparisons of
performance assume reinvestment of dividends.
Lipper--Mutual Fund Performance Analysis and Lipper--Fixed Income Fund
Performance Analysis--measure total return and average current yield for the
mutual fund industry. Rank individual mutual fund performance over specified
time periods, assuming reinvestment of all distributions, exclusive of any
applicable sales charges.
CDA Mutual Fund Report, published by CDA Investment Technologies, Inc.
analyzes price, current yield, risk, total return, and average rate of return
(average annual compounded growth rate) over specified time periods for the
mutual fund industry.
Mutual Fund Source Book, published by Morningstar, Inc.--analyzes price,
yield, risk and total return for equity funds.
Financial publications: The Wall Street Journal and Business Week, Changing
Times, Financial World, Forbes, Fortune, and Money magazines provide performance
statistics over specified time periods.
Consumer Price Index (or Cost of Living Index), published by the U.S. Bureau
of Labor Statistics--a statistical measure of change, over time, in the price of
goods and services in major expenditure groups.
Salomon Brothers Broad Bond Index or its component indices--The Aggregate
Bond Index measures yield, price and total return for Treasury, Agency,
Corporate, Mortgage, and Yankee bonds.
Standard & Poor's Bond Indices--measures yield and price of Corporate,
Municipal, and Government bonds.
In assessing such comparisons of performance, an investor should keep in
mind that the composition of the investments in the reported indices and
averages is not identical to the portfolio of the Funds, that the averages are
generally unmanaged, and that the items included in the calculations of such
averages may not be identical to the formula used by the Funds to calculate its
figures. In addition there can be no assurance that the Funds will continue this
performance as compared to such other averages.
37
<PAGE>
PART C - OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The Annual Financial Statements required in the instructions to this Form
N-1A are incorporated by reference to the Statement of Additional
Information included in Post-Effective Amendment No. 93 to this
Registration Statement.
The Semi-Annual Financial Statements required in the instructions to Form
N-1A are included in the Semi-Annual Report to Shareholders dated June 30,
1998, which is incorporated by reference into the Statement of Additional
Information.
(b) Exhibits
1a. Registrant's Articles of Incorporation are incorporated herein by
reference to Exhibit 99.B1a to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
.
1b. Registrant's Articles Supplementary are incorporated herein by
reference to Exhibit 99.B1b to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
2. Registrant's By-Laws are incorporated herein by reference to Exhibit
99.B2 to Post-Effective Amendment No. 91 to this Form N-1A
Registration Statement.
3. Not Applicable
4. A specimen of Registrant's stock certificate is incorporated herein by
reference to Exhibit 99.B4 to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
5. Registrant's Investment Advisory Agreement is incorporated herein by
reference to Exhibit 99.B5 to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
6a. Registrant's Underwriting Agreement is incorporated herein by
reference to Exhibit 99.B6 to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
6b. Registrant's Distribution and Shareholder Servicing Plan is filed
herewith.
C - 1
<PAGE>
7. Not Applicable.
8a. Registrant's Custodian Agreement is incorporated herein by reference
to Exhibit 99.B8a to Post-Effective Amendment No. 91 to this Form N-1A
Registration Statement.
8b. Registrant's Sub-Custodian Agreement is incorporated herein by
reference to Exhibit 99.B8b to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
9. Not applicable.
10. Consent and opinion of Registrant's counsel, Greer, Herz & Adams,
L.L.P. will be filed by amendment.
11. Consent of KPMG Peat Marwick LLP and Tait, Weller & Baker, accountants
of Registrant will be filed by amendment.
12. Not Applicable.
13. Not Applicable.
14a. Model plans used to establish Tax Sheltered Custodial Accounts and
Texas Optional Retirement Programs are incorporated herein by
reference to Exhibit 99.B14a to Post-Effective Amendment No. 93 to
this Form N-1A Registration Statement.
14b. Documents used to establish Individual Retirement Accounts, in
conjunction with which Registrant offers its securities, are
incorporated herein by reference to Exhibit 99.B14b to Post-Effective
Amendment No. 93 to this Form N-1A Registration Statement.
15. Not Applicable.
16. Schedule of computation of performance quotations provided pursuant to
Item 22 of Form N-1A will be filed by amendment.
17. Financial Data Schedules will be filed by amendment.
18. Registrant's Multiple Class Plan is filed herewith.
19. List of persons controlled by or under common control with Registrant
is filed herewith.
C - 2
<PAGE>
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
All persons under common control with Registrant are shown on the list
attached hereto as Exhibit 99.B19.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of July 31, 1998, the number of record holders of Registrant's common stock
were as follows:
TITLE OF CLASS NUMBER OF RECORD HOLDERS
- -------------- ------------------------
Common Stock,
$0.01 par value
Class T Shares [____]
Class A Shares None
Class B Shares None
Class C Shares None
Class Y Shares None
Class J Shares None
ITEM 27. INDEMNIFICATION.
Registrant has agreed to indemnify its directors to the maximum extent
permitted by applicable law against all costs and expenses (including, but not
limited to, counsel fees, amounts of judgments paid, and amounts paid in
settlement) reasonably incurred in connection with the defense of any actual or
threatened claim, action, suit or proceeding, whether civil, criminal,
administrative, or other, in which he or she may be involved by virtue of such
person being or having been such director. Such indemnification is pursuant to
Section 3.15 of Registrant's By-Laws, a copy of which is attached as Exhibit
99.B2 to Post-Effective Amendment No. 91 to Form N-1A.
Registrant, together with American National Income Fund, Inc. and Triflex
Fund, Inc. (collectively referred to as the "American National Funds Group") has
purchased a directors' and officers' liability policy. At a Joint Boards of
Directors' Meeting of Registrant and the other funds in the American National
Funds Group held on May 29, 1998, the Boards of Directors authorized the renewal
of an ICI Mutual Insurance Company Directors and Officers/Errors and Omissions
Liability Insurance policy. The ICI Mutual Insurance Company, 1600 M Street is
located at 5th Floor, Washington, D.C. 20036. The policy contains a $5,000 per
individual insured per loss deductible, a $25,000 aggregate all individual
insureds, each claim deductible,
C - 3
<PAGE>
$100,000 company reimbursement, each claim deductible and $100,000 company
coverage, each claim deductible. The aggregate limit of liability is
$5,000,000. The annual premium for 1998 for all three funds in the American
National Funds Group is . Registrant's share of such fee, based
upon the proportion of its total assets to those of the other American National
Funds Group, is .
Additionally, Registrant is required to maintain a secured letter of
credit. However, due to the restrictions on the making of loans, Registrant and
SM&R have entered into an undertaking whereby SM&R has secured a letter of
credit from U.S. National Bank of Galveston, Texas for the benefit of
Registrant. Pursuant to this arrangement, Registrant will reimburse SM&R for
its proportionate share of any expenses incurred by SM&R in the procurement of
the letter of credit and for any annual renewal premiums paid on behalf of
Registrant by SM&R.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Securities Management and Research, Inc. ("SM&R") serves as investment
adviser to Registrant and the other funds in the American National Funds
Group, American National Investment Accounts, Inc. ("Investment Accounts")
and SM&R Capital Funds, Inc. (to be renamed "SM&R Investments, Inc.") (the
"SM&R Funds"). See "THE FUNDS AND THEIR MANAGEMENT" in Part A and "ADVISORY
AGREEMENT" and "MANAGEMENT OF THE COMPANY" in Part B. The address of SM&R is
One Moody Plaza, Galveston, Texas.
DIRECTORS AND OFFICERS OF SM&R
ROBERT A. FRUEND, CLU
DIRECTOR OF SM&R
Executive Vice President and Director of Ordinary Agencies of American
National Insurance Company ("American National") and Director and Vice President
of American National Life Insurance Company of Texas, both located at One Moody
Plaza, Galveston, Texas; Director and Chairman of the Board of American National
Property and Casualty Company; Director and Chairman of the Board of American
National General Insurance Company; Director of American National Insurance
Service Company; Director of American National Lloyds Insurance Company;
Director and Chairman of the Board, Pacific Property and Casualty, Inc., all
located at 1949 East Sunshine, Springfield, Missouri.
R. EUGENE LUCAS
DIRECTOR OF SM&R
Director of American National, One Moody Plaza, Galveston, Texas;
President and Director of Gal-Tex Hotel Corporation, 504 Moody National Bank
Tower, Galveston, Texas, Gal-Tenn Hotel Corporation, 504 Moody National Bank
Tower, Galveston, Texas; Director of ANREM Corporation, One Moody Plaza,
Galveston, Texas.
C - 4
<PAGE>
MICHAEL W. MCCROSKEY
DIRECTOR, PRESIDENT, CHIEF EXECUTIVE OFFICER
AND MEMBER OF THE EXECUTIVE COMMITTEE OF SM&R
President and Director of Registrant; President and Director of each of the
other funds in the American National Funds Group; President and Director of
Investment Accounts; President and Director of the SM&R Funds; Executive Vice
President, American National; Director and President, ANREM Corporation;
Director and President, ANTAC Corporation; Assistant Secretary of American
National Life Insurance Company of Texas; Director, Comprehensive Investment
Services, all located at One Moody Plaza, Galveston, Texas; Vice President,
American National Property and Casualty; Vice President, American National
General Insurance Company; Vice President, Pacific Property and Casualty, Inc.,
all located at 1949 East Sunshine, Springfield, Missouri. Vice President of
Standard Life and Accident Insurance Company, 201 Robert S. Kerr Avenue,
Oklahoma City, Oklahoma; Vice President of Garden State Life Insurance Company,
2450 South Shore Blvd., League City, Texas.
G. RICHARD FERDINANDSTEN
DIRECTOR AND MEMBER OF EXECUTIVE COMMITTEE OF SM&R
Director, Senior Executive Vice President and Chief Operating Officer,
American National; Director, Chairman of the Board, President and Chief
Executive Officer, American National Life Insurance Company of Texas; Director,
Comprehensive Investment Services, all located at One Moody Plaza, Galveston,
Texas; Director, Vice Chairman of the Board, American National General Insurance
Company; Director, Vice Chairman of the Board, American National Property and
Casualty; Director and Vice Chairman of the Board, Pacific Property & Casualty
Company; Underwriter, American National Lloyds Insurance Company, all located at
1949 East Sunshine, Springfield, Missouri. Director and Chairman of the Board,
Standard Life and Accident Insurance Company, 201 Robert S. Kerr Avenue,
Oklahoma City, Oklahoma; Director, Garden State Life Insurance Company, 2450
South Shore Boulevard, League City, Texas.
RONALD J. WELCH
DIRECTOR OF SM&R
Executive Vice President and Chief Actuary of American National; Senior
Vice President of American National Life Insurance Company of Texas, all located
at One Moody Plaza, Galveston, Texas; Director and Chairman of the Board of
Garden State Life Insurance Company, 2450 South Shore Boulevard, League City,
Texas; Director of Standard Life and Accident Insurance Company, 201 Robert S.
Kerr Avenue, Oklahoma City, Oklahoma; Director of American National Property and
Casualty Company; Director of American National General
C - 5
<PAGE>
Insurance Company; Director of American National Insurance Service Company;
Director of Pacific Property and Casualty Company, all located at 1949 East
Sunshine Street, Springfield, Missouri.
GORDON DIXON
DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER AND
MEMBER OF INVESTMENT AND EXECUTIVE COMMITTEES OF SM&R
Vice President and Portfolio Manager of Registrant; Co-Manager of American
National Income Fund, Inc.; Vice President of Investment Accounts; Portfolio
Manager of the Growth Portfolio of Investment Accounts; Co-Manager of the
Managed Portfolio of Investment Accounts; Vice President of Stocks for American
National; Director and President, Comprehensive Investment Services, all located
at One Moody Plaza, Galveston, Texas; Vice President of Investments for Garden
State Life Insurance Company, 2450 South Shore Boulevard, League City, Texas;
Former Director of Equity Strategy Research and Trading for C&S/Sovran Bank (now
NationsBank) Atlanta, Georgia.
K. DAVID WHEELER
SENIOR VICE PRESIDENT, INSTITUTIONAL SALES AND PRIVATE CLIENT
SERVICES OF SM&R
One Moody Plaza, Galveston, Texas; Senior Institutional Consultant, Bank
South, Atlanta, Georgia.
VERA M. YOUNG
VICE PRESIDENT, PORTFOLIO MANAGER OF SM&R
Vice President of Investment Accounts and the SM&R Funds; Portfolio Manager
of the Money Market Portfolio of Investment Accounts and the Primary Fund and
Money Market Fund of the SM&R Funds, all located at One Moody Plaza, Galveston,
Texas; Assistant Vice President, Securities of American National, located at One
Moody Plaza, Galveston, Texas.
EMERSON V. UNGER, C.L.U.
VICE PRESIDENT OF SM&R
Vice President of the funds in the American National Funds Group,
Investment Accounts and the SM&R Funds, all located at One Moody Plaza,
Galveston, Texas.
C - 6
<PAGE>
BRENDA T. KOELEMAY
VICE PRESIDENT AND TREASURER OF SM&R
Vice President and Treasurer of the funds in the American National Funds
Group, Investment Accounts and the SM&R Funds; Treasurer, Comprehensive
Investment Services, all located at One Moody Plaza, Galveston, Texas.
TERESA E. AXELSON
VICE PRESIDENT AND SECRETARY OF SM&R
Vice President and Secretary of the funds in the American National Funds
Group, Investment Accounts and the SM&R Funds, all located at One Moody Plaza,
Galveston, Texas.
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) SM&R also serves as the principal underwriter for Registrant, the
other funds in the American National Funds Group, Investment Accounts and the
SM&R Funds. See "THE FUNDS AND THEIR MANAGEMENT" in Part A.
(b)
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICERS WITH OFFICERS
BUSINESS ADDRESS UNDERWRITER WITH REGISTRANT
Robert A. Fruend, C.L.U. Director None
One Moody Plaza
Galveston, Texas
R. Eugene Lucas Director None
Moody National Bank Tower
Galveston, Texas
Michael W. McCroskey Director and President, President and
One Moody Plaza Chief Executive Officer Director
Galveston, Texas
G. Richard Ferdinandsten Director None
One Moody Plaza
Galveston, Texas
C - 7
<PAGE>
Ronald J. Welch Director None
One Moody Plaza
Galveston, Texas
Gordon D. Dixon Director, Senior Vice Vice President
One Moody Plaza President, Chief Portfolio Manager
Galveston , Texas Investment Officer
K. David Wheeler Senior Vice President None
One Moody Plaza Institutional Sales
Galveston, Texas and Private Client
Services
Vera M. Young Vice President, None
One Moody Plaza Portfolio Manager
Galveston, Texas
Emerson V. Unger, C.L.U. Vice President Vice President
One Moody Plaza
Galveston, Texas
Brenda T. Koelemay Vice President and Vice President and
One Moody Plaza Treasurer Treasurer
Galveston, Texas
Teresa E. Axelson Vice President and Vice President and
One Moody Plaza Secretary Secretary
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by
Section 31(a) of the Investment Company Act of 1940 and the Rules promulgated
thereunder will be maintained at the office of SM&R at One Moody Plaza,
Galveston, Texas 77550.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts to which Registrant is a
party not discussed under Part A or Part B of this Post-Effective Amendment No.
94 to Registration Statement.
C - 8
<PAGE>
ITEM 32. UNDERTAKINGS.
(a) Registrant undertakes to provide a copy of Registrant's latest Annual
Report to shareholders to whom a prospectus is delivered upon request and
without charge.
(b) TEXAS OPTIONAL RETIREMENT PROGRAM
Registrant, American National Income Fund and Triflex Fund offer shares as
investments for custodial accounts that meet the requirements of Section
403(b)(7) of the Internal Revenue Code of 1986, as amended (the "Code"), in
connection with the Texas Optional Retirement Program (the "Program"). Under
the Program, a custodial account for each participating employee ("Participant")
is established in the name of State Street Bank and Trust Company. The Program,
as interpreted by the Texas Attorney General, imposes certain restrictions on
early withdrawals from custodial accounts. Section 22(e) prohibits a registered
investment company from suspending a shareholder's right of redemption or
postponing payment on redemption of any redeemable security for more than seven
days after tender of the security.
The Staff of the Securities and Exchange Commission took a no-action
position under section 22(e) of the 1940 Act permitting Registrant, American
National Income Fund and Triflex Fund to offer shares in connection with the
Program as contemplated above (See American National Fund Group, pub. avail. Apr
27, 1987 (the "No-Action Letter")). The Staff took its position based on
Registrant's representation that Registrant and SM&R would comply with
conditions set forth in the No-Action Letter. In this regard, Registrant and
SM&R has complied with the following provisions of the No-Action Letter:
(a) Appropriate disclosure regarding the restrictions on redemption
imposed by the Program is included in this Registration Statement on
Form N-1A and the applicable Prospectuses included in this
Registration Statement.
(b) Appropriate disclosure regarding the restrictions on redemption
imposed by the Program is included in any sales literature used in
connection with the offer of the Registrant's shares to Participants
in connection with the Program.
(c) Registrant and SM&R instruct salespeople who solicit Participants to
purchase Registrant's shares specifically to bring the restrictions on
redemption imposed by the Program to the attention of the potential
Participants.
(d) Registrant and SM&R obtain from each Participant who purchases
Registrant's shares in connection with the Program, prior to or at the
time of purchase, a signed statement acknowledging the restrictions on
redemption imposed by the Program.
C - 9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Registrant, AMERICAN NATIONAL GROWTH FUND,
INC., has duly caused this POST-EFFECTIVE AMENDMENT NO. 94 to Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Galveston and State of Texas, on the 17th day of
July, 1998.
AMERICAN NATIONAL GROWTH FUND, INC.
By: /s/ Michael W. McCroskey
-------------------------------------------
Michael W. McCroskey, President
Pursuant to the requirements of the Securities Act of 1933, this
POST-EFFECTIVE AMENDMENT NO. 94 has been signed below by the following persons
in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE AND PRINCIPAL ACCOUNTING OFFICER:
FINANCIAL OFFICER:
/s/ Michael W. McCroskey /s/ Brenda T. Koelemay
- ---------------------------------- ------------------------------------
Michael W. McCroskey, President Brenda T. Koelemay, Treasurer
Date: July 17, 1998
DIRECTORS:
/s/ Ralph S. Clifford Date: July 17, 1998
- ----------------------------
Ralph S. Clifford
/s/ Paul D.Cummings Date : July 17, 1998
- ----------------------------
Paul D. Cummings
/s/ Jack T. Currie Date : July 17, 1998
- ----------------------------
Jack T. Currie
/s/ Michael W. McCroskey Date : July 17, 1998
- ----------------------------
Michael W. McCroskey
/s/ Ira W. Painton Date : July 17, 1998
- ----------------------------
Ira W. Painton
/s/ Donald P. Stevens Date : July 17, 1998
- ----------------------------
Donald P Stevens
/s/ Steven H. Stubbs Date : July 17, 1998
- ----------------------------
Steven H. Stubbs
<PAGE>
EXHIBIT INDEX
99.B6b Registrant's Distribution and Shareholder Servicing Plan
99.B18. Registrant's Multiple Class Plan
99.B19 List of persons controlled by or under common control with Registrant
<PAGE>
EXHIBIT 99.B6b
AMERICAN NATIONAL GROWTH FUND, INC.
DISTRIBUTION AND SHAREHOLDER SERVICING PLAN
May 29, 1998
This Distribution and Shareholder Servicing Plan (the "Plan") is adopted by
American National Growth Fund, Inc., a corporation organized under the laws of
the State of Maryland (the "Fund") which currently offers a single series, or
portfolio, pursuant to Rule 12b-1 ("Rule 12b-1") under the Investment Company
Act of 1940, as amended (the "1940 Act").
The Fund currently has a single class of shares, but it is intended that
five new classes will be established so there will be six classes of shares of
common stock (the "Shares"), designated as the Class T Shares (existing
shareholders), the Class A Shares, the Class B Shares, the Class C Shares, the
Class Y Shares (institutional shareholders) and the Class J Shares (network),
respectively. This Plan describes distribution services and shareholder
servicing to be provided by Securities Management and Research, Inc. ("SM&R")
(the Fund's investment adviser and principal underwriter), any person providing
ongoing servicing to shareholders of the Fund (each, a "Service Provider"), or
any distributor of the Fund's Shares (each, a "Distributor") in connection with
the Class A, Class B, Class C and Class J Shares. The Plan also specifies the
deductions from Fund assets to pay for such services.
SECTION 1. AMOUNT OF PAYMENTS: DISTRIBUTION AND SHAREHOLDER SERVICE FEES
(a) The Fund will pay distribution fees (the "Distribution Fees") and/or
shareholder service fees (the "Service Fees") with respect to each of the Class
A, Class B, Class C and Class J Shares of the Fund (the "12b-1 Classes") for
distribution-related services and shareholder services, respectively, provided
to each such Class of Shares. The Distribution Fee and Service Fee, as
applicable, for each Class of Shares shall be computed as an annual percentage
of the value of the average daily net assets of the Fund attributable to such
Class, as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DISTRIBUTION SERVICE TOTAL 12b-1
CLASS FEE FEE FEE
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------
Class T Shares: Existing Shareholders . . . -0- -0- -0-
- -------------------------------------------------------------------------------------------
Class A Shares: Front-End Load . . . . . . -0- .25% 0.25%
- -------------------------------------------------------------------------------------------
Class B Shares: Back-End Load (CDSC) . . . .50% .25% 0.75%
- -------------------------------------------------------------------------------------------
Class C Shares: Level Load . . . . . . . . .75% .25% 1.00%
- -------------------------------------------------------------------------------------------
Class Y Shares: Institutional . . . . . . . -0- -0- -0-
- -------------------------------------------------------------------------------------------
Class J Shares: Network . . . . . . . . . . .75% -0- 0.75%
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
(b) The Distribution Fees to be paid under this Plan will be calculated
daily (as a percentage of average daily net assets) and paid periodically by the
Fund with respect to the Shares of the relevant 12b-1 Classes of the Fund at the
annual rates indicated above.
(c) The Service Fees to be paid under this Plan will be calculated daily
(as a percentage of average daily net assets) and paid periodically by the Fund
with respect to the Shares of the relevant 12b-1 Classes of the Fund at the
annual rates indicated above.
(d) Payments under this Plan are not tied exclusively to shareholder
services or distribution expenses actually incurred by SM&R or any Service
Provider or Distributor; the payments may exceed or be less than expenses
actually incurred by SM&R, a Service Provider and/or a Distributor.
SECTION 2. DISTRIBUTION AND SHAREHOLDER SERVICES PROVIDED.
The Distribution Fees payable with respect to Class B, Class C and Class J
Shares of the Fund are intended to compensate SM&R, or enable SM&R to compensate
other persons, including Distributors, for services that are primarily intended
to result in, or that are primarily attributable to, the sale of such respective
Classes of Shares of the Fund ("Selling Services"). The Service Fees payable
with respect to the Class A, Class B and Class C Shares of the Fund are intended
to compensate SM&R, or enable SM&R to compensate Service Providers, for
providing ongoing servicing to shareholders of the Fund ("Shareholder
Services").
"Selling Services" when used in this Plan include, but are not limited to:
compensation of sales personnel, training and supervision of sales personnel,
advertising, marketing, and other promotional expenses (including the
preparation of, printing, and making of sales literature), and the printing and
distribution to prospective investors in the Fund of prospectuses and statements
of additional information, that are used in connection with sales of the
relevant 12b-1 Classes of the Fund and distributing such Classes of Shares of
the Fund. In providing compensation for Selling Services in accordance with
this Plan, SM&R is expressly authorized (i) to make, or cause to be made,
payments reflecting an allocation of overhead and other office expenses related
to the distribution of the relevant 12b-1 Classes of the Fund; (ii) to make, or
cause to be made, payments, or to provide for the reimbursement of expenses of,
persons who provide support services in connection with the distribution of the
relevant 12b-1 Classes of the Fund; and (iii) to make, or cause to be made,
payments to financial intermediaries who have sold the Shares of the relevant
12b-1 Classes.
"Shareholder Services" as used in this Plan mean all forms of shareholder
liaison services, as SM&R deems appropriate for functions such as maintaining
shareholder accounts, providing shareholder liaison services, responding to
customer inquiries, and providing shareholders with information on their
investments and about the Fund.
-2-
<PAGE>
SECTION 3. APPROVAL OF PLAN AND RELATED AGREEMENTS.
(a) SHAREHOLDER APPROVAL. Neither this Plan nor any related agreements
will take effect with respect to a 12b-1 Class of the Fund, and no fee will be
deducted or payable in accordance with Section 1 of this Plan, with respect to
the Shares of such 12b-1 Class of the Fund, until this Plan has been approved by
a vote of at least a majority of the outstanding voting securities represented
by that Class, if adopted after any public offering of the Shares of that Class
or the sale of such Shares to persons who are not affiliated persons of the Fund
or affiliated persons of such persons. This Plan will be deemed to have been
approved by shareholders of a 12b-1 Class of the Fund so long as a majority of
the outstanding voting securities of the shareholders of such 12b-1 Class vote
for the approval of the Plan, notwithstanding that: (i) the Plan has not been
approved by a majority of the outstanding voting securities represented by the
any other Class or (ii) the Plan has not been approved by a majority of the
outstanding voting securities of the Fund.
(b) DIRECTOR APPROVAL. Neither this Plan nor any related agreements will
take effect with respect to any Class of Shares of the Fund until approved by:
(i) a majority vote of the full Board of Directors of the Fund (the
"Board"), and
(ii) a majority vote of those directors who are not interested persons
of the Fund and who have no direct or indirect financial interest in the
operation of this Plan or in any agreements related to it (the "Independent
Directors"),
cast in person at a meeting called for the purpose of voting on this Plan
and the related agreements. In voting to approve the implementation or
continuance of this Plan (see Section 4 below), the directors must conclude, in
exercise of reasonable business judgment and in light of their fiduciary duties,
that there is a reasonable likelihood that the Plan will benefit the Fund and
its shareholders.
SECTION 4. CONTINUANCE OF PLAN.
This Plan will continue in effect with respect to a 12b-1 Class of Shares
of the Fund from year to year so long as its continuance is specifically
approved annually by vote of the Board in the manner described in Section 3(b)
above. The Board will evaluate the appropriateness of this Plan with respect to
the Shares of each of the respective 12b-1 Classes of the Fund and its payment
terms on a continuing basis and in doing so will consider all relevant factors,
including the types and extent of Shareholder Services and/or Selling Services
provided by SM&R, Service Providers and/or Distributors and amounts SM&R,
Service Providers and/or Distributors receive under this Plan.
SECTION 5. TERMINATION.
This Plan may be terminated with respect to any 12b-1 Class of the Fund at
any time, by vote of a majority of the Independent Directors or by a vote of a
majority of the outstanding voting securities of the relevant Class of the Fund.
-3-
<PAGE>
SECTION 6. AMENDMENTS.
This Plan may not be amended with respect to any 12b-1 Class of the Fund to
increase the amount of the fees described in Section 1 above without approval of
the shareholders of the relevant Class as contemplated in Section 3(a) above.
In addition, all material amendments to this Plan must be approved in the manner
described in Section 3(b) above.
SECTION 7. SELECTION OF INDEPENDENT DIRECTORS.
While this Plan is in effect with respect to any 12b-1 Class of the Fund,
the selection and nomination of the Fund's Directors who are not interested
persons of the Fund will be committed to the discretion of the Directors then in
office who are not interested persons of the Fund.
SECTION 8. QUARTERLY WRITTEN REPORTS.
In each year during which this Plan remains in effect with respect to a
12b-1 Class, SM&R (and any other person authorized to direct the disposition of
monies paid or payable by the Fund pursuant to the Plan or any related
agreement) will prepare and furnish to the Board, and the Board will review, at
least quarterly, written reports complying with the requirements of Rule 12b-1,
which set out the amounts expended under this Plan and the purposes for which
those expenditures were made.
SECTION 9. RECORDKEEPING.
The Fund will preserve copies of this Plan, any agreement relating to this
Plan and any report made pursuant to Section 8 above, for a period of not less
than six years (the first two years in an easily accessible place) from the date
of this Plan, the agreement or the report, or for such other periods as may be
required by applicable law.
SECTION 10. FILING.
This Plan shall be filed as an exhibit to the Fund's Registration Statement
on Form N-1A with the U.S. Securities and Exchange Commission, with the next
amendment of such Registration Statement filed after the date hereof.
SECTION 11. INTERPRETATION; MEANING OF CERTAIN TERMS.
(a) This Plan shall be interpreted in accordance with the 1940 Act and Rule
12b-1 thereunder.
(b) As used in this Plan, the terms "interested person" and "majority of
the outstanding voting securities" will be deemed to have the same meaning that
those terms have under the 1940 Act and the rules and regulations under the 1940
Act, subject to any exemption that may be granted to the Fund under the 1940 Act
by the Securities and Exchange Commission.
(c) The provisions of this Plan are severable for each Class.
-4-
<PAGE>
SECTION 12. LIMITATION OF LIABILITY.
The obligations of the Fund under this Plan will not be binding upon any of
the directors, shareholders, nominees, officers, employees or agents, whether
past, present or future, of the Fund, individually, but are binding only upon
the assets and property of the Fund, as provided in the Fund's Articles of
Incorporation. The execution and delivery of this Plan have been authorized by
the directors of the Fund, and signed by an authorized officer of the Fund,
acting as such, and neither the authorization by the directors nor the execution
and delivery by the officer will be deemed to have been made by any of them
individually or to impose any liability on any of them personally, but will bind
only the property of the Fund.
SECTION 13. DATE OF EFFECTIVENESS.
This Plan has been executed by the Fund as of the ______ day of _________,
1998 and will become effective with respect to the Class A, Class B, Class C or
Class J Shares of the Fund as of the date on which interests in the Class A,
Class B, Class C or Class J Shares, as applicable, are first offered to or held
by the public (subject to approvals as provided for in Section 3 above).
AMERICAN NATIONAL GROWTH FUND, INC.
By: ________________________________
Michael M. McCroskey
President
-5-
<PAGE>
EXHIBIT 99.B18
AMERICAN NATIONAL GROWTH FUND, INC.
MULTIPLE CLASS PLAN
May 29, 1998
This Multiple Class Plan (the "Multi-Class Plan") is adopted by American
National Growth Fund, Inc., a corporation organized under the laws of the State
of Maryland (the "Fund"), pursuant to Rule 18f-3 of the under the Investment
Company Act of 1940, as amended (the "1940 Act").
The Fund currently has a single class of shares, but it is intended that
five new classes will be established so there will be six classes of shares of
common stock (the "Shares"), designated as the Class T Shares (existing
shareholders), the Class A Shares, the Class B Shares, the Class C Shares, the
Class J Shares (network), and the Class Y Shares (institutional shareholders).
These classes of Shares have different sales charges and distribution and
service ("12b-1") fee structures.
SECTION 1: DISTRIBUTION ARRANGEMENTS AND SERVICE FEES
(a) INTRODUCTION.
Each Class of Shares of the Fund will have the same relative rights and
privileges, except that, as set forth in this Plan, they shall differ with
respect to (i) sales, distribution and shareholder services and other charges
and expenses as initially provided for in Section 1 of this Plan and as
subsequently provided for in the Fund's prospectus and statement of additional
information, as the same may be amended from time to time (each a "Prospectus"
and "SAI," and collectively, the "Prospectus" and "SAI"); (ii) the exclusive
right of each Class of Shares to vote on matters submitted to shareholders that
relate solely to that Class or for which the interests of one Class differ from
the interests of another Class or Classes; (iii) such differences relating to
eligible investors as may be set forth in the Prospectus and SAI; (iv) the
designation of each Class of Shares; and (v) conversion features.
The board of directors of the Fund (the "Board") may determine in the
future that other distribution arrangements, allocations of expenses (whether
ordinary or extraordinary) or services to be provided to a Class of Shares are
appropriate and amend this Plan accordingly without the approval of shareholders
of any Class to the extent permitted by law.
(b) DISTRIBUTION AND SHAREHOLDER SERVICES FEES: As discussed below, the
Class A, Class B, Class C and Class J Shares (the "12b-1 Classes") shall be
offered by the Fund pursuant
<PAGE>
to a Distribution and Shareholder Servicing Plan, adopted pursuant to Rule 12b-1
under the 1940 Act ("Rule 12b-1 Plan"), providing for a distribution fee (the
"Distribution Fee") and a shareholder services fee (the "Service Fee") at annual
rates computed based on the value of the average daily net assets of the Fund
attributable to the relevant Classes of Shares. Such fees shall be calculated
daily and paid periodically by the Fund. The Distribution Fee is intended to
compensate Securities Management and Research, Inc. ("SM&R"), or enable SM&R to
compensate other persons, including any distributor of Shares, for services that
are primarily intended to result in, or that are primarily attributable to, the
sale of Shares attributable to the relevant 12b-1 Class. The Service Fee
payable under the Plan is intended to compensate SM&R, or enable SM&R to
compensate other persons ("Service Providers"), for providing ongoing servicing
and/or maintenance of the accounts of shareholders of the applicable Class of
the Fund ("Shareholder Services").
(c) ADMINISTRATIVE SERVICE FEE. As discussed below, all six Classes of
Shares of the Fund shall be subject to an administrative service fee (the
"Administrative Fee") at an annual rate computed based on the value of the
average daily net assets of the Fund. The Administrative Fee declines with
respect to higher asset levels, as set forth in the Prospectus and/or SAI (as
revised from time to time) and an administrative services agreement between the
Fund and SM&R (the "Administrative Agreement"). Pursuant to the Administrative
Agreement, SM&R has agreed (1)to pay the Fund or to reimburse the Fund for the
expenses attributable to all Classes (including the advisory fee and
Administrative Fee paid to SM&R and any other fees allocated to all Classes of
shares of the Fund based on average daily net assets, but exclusive of interest,
taxes, the Service Fee, the Distribution Fee, commissions and other expenses
incidental to portfolio transactions and any other Class Expenses, as defined
below) in excess of 1.25% per year of such Class' average daily net assets.
(d) CONTINGENT DEFERRED SALES CHARGE. As discussed below, some Class A
Shares and all Class B and Class C Shares shall be subject to a contingent
deferred sales charge ("CDSC") calculated as a specified percentage of the
offering price of the Shares of the relevant Class at the time of purchase.
No CDSC shall be imposed on Shares of a Class unless so provided in the
Prospectus. No CDSC shall be imposed on increases in the net asset value of
the Shares being redeemed above the initial purchase price. No CDSC shall be
assessed on Shares derived from reinvestment of dividends or capital gain
distributions. SM&R, in its discretion, may waive a CDSC otherwise due upon
the redemption of Shares on terms disclosed in the Prospectus or SAI and as
allowed under Rule 6c-10 and other applicable rules of the 1940 Act.
- --------------------
(1) As of the date hereof, the Administrative Agreement does not provide
for multiple classes and therefore provides for the 1.25% expense limit on a
Fund-wide basis, and does not provide for the Service or Distribution Fee. It
is anticipated that the Administrative Agreement will be revised to provide for
multiple classes, in accordance with this Multi-Class Plan, before this Plan is
implemented.
-2-
<PAGE>
(e) EXCHANGE PRIVILEGES. Exchanges shall be permitted, without charge,
between each Class of Shares of the Fund and corresponding classes of other
investment funds advised by SM&R, including American National Income Fund, Inc.
and Triflex Fund, Inc., on terms described in the Prospectus. Exchanges also
are permitted, without charge, between (i) each Class of Shares, except Class B
Shares, and the corresponding class of SM&R Government Bond Fund and SM&R Tax
Free Fund, each a multi-class investment portfolio of SM&R Investments, Inc.
(ii) each Class and SM&R Money Market Fund and SM&R Primary Fund, each a
single-class investment portfolio of SM&R Investments, Inc., on terms described
in the Prospectus. Each class or series of shares that may be exchanged for
Shares of any of the Classes is referred to herein as a "Portfolio."
(f) CLASS-SPECIFIC ARRANGEMENTS.
The Classes of Shares have the following service and distribution fee
arrangements:
CLASS T SHARES (EXISTING SHAREHOLDERS). Class T Shares shall be (i)
offered only to existing shareholders (I.E., accounts in the Fund prior to
the implementation of this Plan; (ii) subject to an Administrative Fee at
the maximum annual rate of .25% of the value of the average daily net
assets attributable to Class T Shares; (iii) not subject to any Service
Fee; and (iv) not subject to any Distribution Fee. Class T Shares shall be
subject to a front-end sales charge is that is reduced at certain
breakpoints as set forth on attached Appendix A - Multi-Class Structure and
is eventually eliminated with respect to investments in the Fund in an
amount of Five Hundred Thousand Dollars ($500,000.00) or more.
CLASS A SHARES. Class A Shares shall be sold subject to a front-end sales
charge as approved from time to time by the Board and set forth in the
Prospectus. The front-end sales charge is reduced for investments made in
amounts over certain levels, or "breakpoints," and is eventually eliminated
with respect to investments in Class A Shares in an amount of One Million
Dollars ($1,000,000.00) or more. The currently proposed front-end sales
charges and corresponding breakpoints for the Class A Shares are set forth
in Appendix A - Multi-Class Structure. Shares that are not subject to a
front-end sales charge because a purchaser invests $1,000,000.00 or more in
Class A Shares shall be subject to a CDSC of 1% for a period of 13 months.
Class A Shares also shall be (i) subject to a Service Fee of .25% of the
value of the average daily net assets attributable to Class A Shares; (ii)
subject to an Administrative Fee at a maximum annual rate of .25% of the
value of the average daily net assets attributable to Class A Shares; and
(iii) not subject to any Distribution Fee. Class A Shares may be exchanged
for Class A Shares of another Portfolio at their relative net asset values,
on terms described in the Prospectus.
CLASS B SHARES: Class B Shares shall be subject to a CDSC on Shares
redeemed as follows:
-3-
<PAGE>
<TABLE>
<CAPTION>
YEARS SINCE PURCHASE OF
CLASS B SHARES CDSC
----------------- ----
<S> <C> <C>
Year 1 5%
Year 2 4%
Year 3 3%
Year 4 2%
Year 5 1%
Year 6+ 0%
</TABLE>
Class B Shares also shall be (i) subject to an Administrative Fee at a
maximum annual rate of .25% of the average daily net assets attributable to
Class B Shares; (ii) subject to a Service Fee of .25%, of the value of the
average daily net assets attributable to Class B Shares; and (iii) subject
to a Distribution Fee of .50%, of the value of the average daily net assets
attributable to Class B Shares. Class B Shares automatically convert to
Class A Shares after eight years. Such conversion will occur at the
relative net asset value per Share of each Class without the imposition of
any sales charge, fee or other charge. Class B Shares may be exchanged for
Class B Shares of another Portfolio at their relative net asset values, on
terms described in the Prospectus.
CLASS C SHARES: Class C Shares shall be: (i) sold subject to a front-end
sales charge of 1.00% of the offering price; (ii) subject to a 1.00% CDSC
for a period of 13 months, (iii) subject to an Administrative Fee at a
maximum annual rate of .25% of the value of the average daily net assets
attributable to Class C Shares; (iv) subject to a Service Fee of .25% of
the value of the average daily net assets attributable to Class C Shares;
and (v) subject to a Distribution Fee of .75% of the value of the average
daily net assets attributable to Class C Shares. Class C Shares will not
convert to any other Class of Shares. Class C Shares may be exchanged for
Class C Shares of another Portfolio at their relative net asset values, on
terms described in the Prospectus.
CLASS J SHARES (NETWORK CLASS). Class J Shares shall be (i) offered only
pursuant to certain distribution arrangements approved from time to time
and as set forth in the Prospectus; (ii) subject to an Administrative Fee
at the maximum annual rate of .25% of the value of the average daily net
assets attributable to Class J Shares; (iii) subject to a Distribution Fee
of .75% of the value of the average daily net assets attributable to
Class J Shares; and (iv) not subject to any Service Fee. Class J Shares
may be exchanged for Class J Shares of another Portfolio at their relative
net asset values, on terms described in the Prospectus.
-4-
<PAGE>
CLASS Y SHARES (INSTITUTIONAL CLASS). Class Y Shares shall be (i) offered
only to certain categories of institutional investors as approved from time
to time and as set forth in the Prospectus; (ii) subject to an
Administrative Fee at a maximum annual rate of .25% of the value of the
average daily net assets attributable to Class Y Shares; (iii) not subject
to any Service Fee; and (iv) not subject to any Distribution Fee. Class Y
Shares may be exchanged for Class Y Shares of another Portfolio at their
relative net asset values, on terms described in the Prospectus.
SECTION 2: ALLOCATION OF CLASS EXPENSES
Each Class of Shares of the Fund represents interests in the Fund, and each
has the same rights, preferences, voting powers, restrictions and limitations,
as the other Classes, except as follows:
(1) expenses related to the distribution of a Class of Shares or to the
services provided to shareholders of a Class of Shares shall be borne
solely by such Class;
(2) each Class will bear different Class Expenses (as defined below);
(3) each Class will have exclusive voting rights with respect to matters
that exclusively affect such Class; and
(4) each Class will bear a different name or designation.
Expenses that are directly attributable to a particular Class of Shares
will be incurred by that Class of Shares. The Board, acting in its sole
discretion, has determined that the following expenses attributable to the
Shares of a particular Class ("Class Expenses") will be borne solely by the
Class to which they are attributable:
(1) asset-based distribution fees and shareholder service fees;
(2) transfer agency fees attributable to a particular Class;
(3) expenses related to preparing, printing, mailing and distributing
materials such as shareholder reports, prospectuses and proxy
statements to current shareholders of a specific Class;
(4) state and federal registration fees incurred by a specific Class;
(5) litigation and other legal expenses relating to a particular Class;
(6) directors' fees and expenses incurred as a result of issues relating
solely to a particular Class;
(7) accounting, audit and tax expenses relating to a specific Class;
(8) the expenses of administrative personnel and services required to
support the shareholders of a specific Class; and
-5-
<PAGE>
(9) fees and other payments made to entities performing services for a
particular Class, including account maintenance, dividend disbursing
or subaccounting services.
Class Expenses may be waived or reimbursed proportionately and on a pro
rata basis between Classes of a Fund by SM&R, the Fund's investment adviser and
distributor. Investment advisory fees, custodial fees, and other expenses
relating to the management of the Funds' assets shall not be allocated on a
class-specific basis.
SECTION 3: ALLOCATION OF FUND INCOME AND EXPENSES
Income, realized and unrealized capital gains and losses, and expenses that
are not allocated to a specific Class pursuant to Section 2 above, shall be
allocated to each Class of the Fund on the basis of the proportionate net assets
of that Class in relation to the net assets of the Fund. On a daily basis, the
total income, dividends, other income accrued and Fund-level expenses incurred
are multiplied by the proportionate value of the Fund's net assets attributable
to each Class to determine the income and expenses attributable to that Class
for the day. Expenses properly attributable to each Class are recorded
separately and charged to that Class. Net income for each Class is then
determined for the day and segregated on the Fund's general ledger. Dividends
are calculated in the same manner for each Class and declared and paid on all
Classes of Shares on the same days and at the same times.
SECTION 4: AMENDMENTS
This Multi-Class Plan may not be amended to change any material provision
unless such amendment is approved by a vote of the majority of the Board,
including a majority of the Directors who are not interested persons of the Fund
(as defined in Section 2(a)(19) of the 1940 Act) (the "Independent Directors"),
based on its finding that the amendment is in the best interest of each Class
individually and the Fund as a whole.
SECTION 5: TERMINATION
This Multi-Class Plan shall remain in effect until such time as the Board
terminates this Multi-Class Plan or makes a material change to this Multi-Class
Plan. Any material change to this Multi-Class Plan must be approved by the
Board, including a majority of the Independent Directors, as being in the best
interests of each Class of Shares and the Fund as a whole.
SECTION 6: RECORD KEEPING
The Fund shall preserve copies of this Multi-Class Plan and any related
agreements for a period of not less than six years from the date of this
Multi-Class Plan or agreement, the first two years in an easily accessible
place, or for such other periods as may be required by applicable law.
-6-
<PAGE>
SECTION 7: FILING
This Plan shall be filed as an exhibit to the Fund's Registration Statement
on Form N-1A with the U.S. Securities and Exchange Commission, with the next
amendment of such Registration Statement filed after the date hereof.
SECTION 8: INTERPRETATION; MEANING OF CERTAIN TERMS.
(a) This Plan shall be interpreted in accordance with the 1940 Act and Rule
18f-3 thereunder.
(b) As used in this Plan, the term "interested person" shall have the same
meaning that such term has under the 1940 Act and the rules and regulations
under the 1940 Act, subject to any exemption that may be granted to the Fund
under the 1940 Act by the Securities and Exchange Commission.
(c) The provisions of this Plan are severable for each Class.
SECTION 9. DATE OF EFFECTIVENESS.
This Plan has been executed by the Fund as of the ______ day of _________,
1998 and will become effective with respect to each Class of Shares of the Fund
as of the date on which interests in that Class are first offered to or held by
the public, subject to approval by the Board as required by Rule 18f-3 under the
1940 Act.
IN WITNESS WHEREOF, the Fund has executed this Multi-Class Plan on the day
and year set forth below.
Date:_____________________
AMERICAN NATIONAL GROWTH FUND, INC.
__________________________ By:_____________________________________
__________________________ Title:__________________________________
Attest:
-7-
<PAGE>
EXHIBIT 99.B19
CONTROL LIST
The Registrant, American National Growth Fund, Inc., is advised and managed
by Securities Management & Research, Inc. ("SM&R"), a Florida corporation and
registered investment adviser and broker-dealer. SM&R is a wholly-owned
subsidiary of American National Insurance Company, a Texas insurance company.
The Libbie Shearn Moody Trust owns approximately 37.58% of the outstanding stock
of American National Insurance Company. The Moody Foundation, which has a 75%
contingent remainder interest in the Libbie Shearn Moody Trust, owns
approximately 23.7% of the outstanding stock of American National Insurance
Company.
The Trustees of The Moody Foundation are Mrs. Frances Moody Newman, Robert
L. Moody and Ross Rankin Moody. Robert L. Moody is a life income beneficiary of
the Libbie Shearn Moody Trust and Chairman of the Board, Director, President and
Chief Executive Officer of American National Insurance Company. Robert L. Moody
has assigned his interest in the Libbie Shearn Moody Trust to National Western
Life Insurance Company, a Colorado insurance company of which he is also
Chairman of the Board, a Director and controlling shareholder.
The Moody National Bank of Galveston is the trustee of the Libbie Shearn
Moody Trust and various other trusts which, in the aggregate, own approximately
46.87% of the outstanding stock of American National Insurance Company. Moody
Bank Holding Company, Inc. owns approximately 97% of the outstanding shares of
The Moody National Bank of Galveston. Moody Bank Holding Company, Inc. is a
wholly owned subsidiary of Moody Bancshares, Inc. The Three R Trusts, trusts
created by Robert L. Moody for the benefit of his children, are controlling
stockholders of Moody Bancshares, Inc.
The Moody Foundation owns 33.0% and the Libbie Shearn Moody Trust owns
51.0% of the outstanding stock of Gal-Tex Hotel Corporation, a Texas
corporation. Gal-Tex Hotel Corporation has the following wholly-owned
subsidiaries, listed in alphabetical order:
GAL-TENN HOTEL CORPORATION
GAL-TEX MANAGEMENT COMPANY
GAL-TEX WOODSTOCK, INC.
GTG CORPORATION
NEW PAXTON HOTEL CORPORATION
American National owns a direct or indirect interest in the following
entities, listed in alphabetical order:
ENTITY: American Hampden Joint Venture
ENTITY FORM: a Texas joint venture
<PAGE>
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
98% interest.
ENTITY: American National of Delaware Corporation
ENTITY FORM: a Delaware corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company
ENTITY: American National Financial Corporation
ENTITY FORM: a Texas corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: American National Financial Corporation (Delaware)
ENTITY FORM: a Delaware corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: American National Financial Corporation (Nevada)
ENTITY FORM: a Nevada corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: American National General Insurance Company
ENTITY FORM: a Missouri insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company.
ENTITY: American National Income Fund, Inc.
ENTITY FORM: a Maryland corporation - registered investment company
-2-
<PAGE>
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own less than five percent
of the outstanding stock of the Company.
ENTITY: American National Insurance Service Company
ENTITY FORM: a Missouri corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company.
ENTITY: American National Investment Accounts, Inc.
ENTITY FORM: a Maryland corporation - registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, Securities Management and
Research, Inc. owns approximately 6.94% of the outstanding stock of the Company,
and American National Insurance Company owns approximately 93.24% of the
outstanding stock of the Company.
ENTITY: American National Life Insurance Company of Texas
ENTITY FORM: a Texas insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company
ENTITY: American National Lloyds Insurance Company
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS FOR CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: American National Property and Casualty Company
ENTITY FORM: a Missouri insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: ANPAC General Agency of Texas
-3-
<PAGE>
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company.
ENTITY: ANPAC Lloyds Insurance Management, Inc.
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS FOR CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: ANREM Corporation
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of Securities
Management and Research, Inc.
ENTITY: ANTAC, Inc.
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Comprehensive Investment Services, Inc.
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Garden State Life Insurance Company
ENTITY FORM: a New Jersey insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Gateway Park Joint Venture
ENTITY FORM: a Texas joint venture
-4-
<PAGE>
OWNERSHIP OR OTHER BASIS OF CONTROL: South Shore Harbour Development, Ltd. has
a 50% interest.
ENTITY: Harbour Title Company
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: South Shore Harbour Development, Ltd. owns
50% of the outstanding stock.
ENTITY: Kearns Building Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National owns a 85% interest.
ENTITY: Pacific Property and Casualty Company
ENTITY FORM: a California corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: Panther Creek Limited Partnership
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest
ENTITY: Ridgedale Festival Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
50% interest.
ENTITY: Rutledge Partners, L.P.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
50% interest.
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ENTITY: SM&R Capital Funds, Inc.
ENTITY FORM: a Maryland corporation - a registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, Company consists of three (3)
different series: Government Income Fund Series, Primary Fund Series, and Tax
Free Fund Series. Securities Management and Research, Inc. owns approximately
20.01% of the outstanding stock of the Government Income Fund Series, and
American National Insurance Company owns approximately 27.44% of the outstanding
stock of the Government Income Fund Series. Securities Management and Research,
Inc. owns approximately 2.23% of the outstanding stock of the Primary Fund
Series, and American National Insurance Company owns approximately 67.40% of the
outstanding stock of the Primary Fund Series. Securities Management and
Research, Inc. owns approximately 11.71% of the outstanding stock of the Tax
Free Fund Series, and American National Insurance Company owns approximately
58.53% of the outstanding stock of the Tax Free Fund Series.
ENTITY: South Shore Harbour Development, Ltd.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANTAC, Inc. owns a 95% limited partnership
interest. ANREM Corp. owns a 5% general partnership interest.
ENTITY: Standard Life and Accident Insurance Company
ENTITY FORM: an Oklahoma insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Terra Venture Bridgeton Project Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned by American National
Insurance Company.
ENTITY: Third and Catalina, Ltd.
ENTITY FORM: a Texas limited partnership
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OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
49% limited partnership interest.
ENTITY: Timbermill, Ltd.
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest.
ENTITY: Town and Country Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest.
ENTITY: Triflex Fund, Inc.
ENTITY FORM: a Maryland corporation - a registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, Securities Management and
Research, Inc. owns approximately 8.5% of the outstanding stock of the Company,
and American National Insurance Company owns approximately 14.23% of the
outstanding stock of the Company.
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