<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000.
Registration Nos. 2-10305; 811-00623
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE / /
SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 100 /X/
AND/OR
REGISTRATION STATEMENT UNDER / /
THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 32 /X/
[Check appropriate box or boxes]
-----------------------
SM&R GROWTH FUND, INC.
[Exact Name of Registrant as Specified in Charter]
2450 SOUTH SHORE BOULEVARD, SUITE 400, LEAGUE CITY, TEXAS 77573
[Address of Principal Executive Offices] [Zip Code]
Registrant's Telephone Number, Including Area Code: (281) 334-2469
NAME AND ADDRESS OF
AGENT FOR SERVICE: WITH COPY TO:
TERESA E. AXELSON JERRY L. ADAMS
2450 SOUTH SHORE BOULEVARD GREER, HERZ & ADAMS, L.L.P.
SUITE 400 ONE MOODY PLAZA
LEAGUE CITY, TEXAS 77573 GALVESTON, TEXAS 77550
-----------------------
It is proposed that this filing will become effective (check appropriate box):
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on May 1, 2000 pursuant to paragraph (b) of Rule 485
/ / 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>
[LOGO]
SM&R EQUITY FUNDS
INVESTMENT STRATEGIES FOR A CHANGING WORLD
CLASS A, CLASS B, CLASS C
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
Prospectus, May 1, 2000
The Securities and Exchange Commission has not approved or
disapproved these securities or passed upon the adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
An investment in the Funds is not a deposit in a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation
or any other government agency.
(All classes may not be available in all states)
<PAGE>
TABLE OF CONTENTS
--------------------------------------------------------------------------
<TABLE>
<S> <C>
FUND SUMMARIES............................. 1
SM&R Growth Fund, Inc...................... 1
SM&R Equity Income Fund, Inc............... 2
SM&R Balanced Fund, Inc.................... 3
ADDITIONAL EXPLANATION OF RISK FACTORS..... 4
PERFORMANCE................................ 5
Bar Charts and Performance Tables.......... 5
EXPENSES OF THE FUNDS...................... 7
Fees and Expenses of the Funds............. 7
CHOOSING A SHARE CLASS THAT BEST SUITS
YOU........................................ 9
SALES CHARGE REDUCTION AND WAIVERS......... 10
Class A Sales Charges...................... 10
Class B Sales Charges...................... 10
Class C Sales Charges...................... 10
Reducing Your Class A Sales Charge......... 10
Class B Waivers of Contingent Deferred
Sales Charges.............................. 12
Distribution and Shareholder
Service (12b-1) Fee........................ 12
INVESTMENT OBJECTIVES, POLICIES AND RISKS.. 13
SM&R Growth Fund, Inc...................... 13
SM&R Equity Income Fund, Inc............... 14
SM&R Balanced Fund, Inc.................... 15
OTHER RISK FACTORS......................... 17
THE FUNDS AND THEIR MANAGEMENT............. 19
Investment Adviser......................... 19
Portfolio Management....................... 20
FINANCIAL HIGHLIGHTS....................... 22
SM&R Growth Fund........................... 23
SM&R Equity Income Fund.................... 24
SM&R Balanced Fund......................... 25
SHAREHOLDER'S GUIDE TO INVESTING WITH
SM&R'S MUTUAL FUNDS........................ 26
APPENDIX................................... A-1
</TABLE>
WHY READING THIS PROSPECTUS IS IMPORTANT TO YOU
This prospectus explains the investment objectives, risks and strategies of
each of the SM&R Equity Funds. Reading the prospectus will help you to decide
which SM&R Equity Fund, if any, is the right investment for you. We suggest
that you keep this prospectus for future reference.
<PAGE>
FUND SUMMARY SM&R GROWTH FUND, INC.
- --------------------------------------------------------------------------------
FUND FACTS
YOU MAY FIND
HELPFUL
Classes of Shares
Offered in this
Prospectus:
Class A-Fund #121
Class B-Fund #221
Class C-Fund #321
Investment Adviser:
Securities
Management and
Research, Inc.
Portfolio Managers:
Gordon D. Dixon
Andre J. Hodlewsky
Portfolio Turnover:
16.13% Class A
16.13% Class B
16.13% Class C
Dividend Payment
Schedule:
Semi-Annually
INVESTMENT OBJECTIVE
The Growth Fund seeks to achieve capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Growth Fund normally invests at least 85% of its total assets in common
stock. In selecting stocks, Securities Management and Research, Inc. ("SM&R"),
the Growth Fund's investment advisor:
- chooses stocks of financially sound companies that have a proven ability to
make and sustain a profit over time
- places an emphasis on companies with growth potential.
The Growth Fund generally purchases a higher proportion of stocks (relative to
their market weight) from those sectors of the market with higher growth
prospects, referred to as "overweighting." Examples of sectors with higher
growth prospects currently include technology, healthcare, and consumer staples.
On the other hand, the portfolio generally purchases a smaller proportion of
stocks (relative to their market weight) from sectors of the market with below
average growth characteristics (for example, utilities and basic materials),
referred to as "underweighting."
PRINCIPAL RISK FACTORS
The Growth Fund is subject to the risks common to all mutual funds that invest
in equity securities, and you could lose money investing in this fund. The
principal risks of investing in the Growth Fund are as follows:
- the market value of the fund's securities could decline (market risk).
- SM&R's investment decisions (such as sector overweighting and underweighting
and individual stock selection) could fail to achieve the desired results
(investment style or management risk).
- growth stocks can have relatively wide price swings as a result of the high
valuations they carry (growth stock risk).
- interest rates could increase which can cause the value of a debt security
to decline (interest rate risk).
- issuers of debt obligations could default or be unable to pay amounts due
(credit risk).
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- have long-term investment goals (ten years or more)
- are willing to accept higher short-term risk
- want to diversify your portfolio
WHO MAY NOT WANT TO INVEST IN THE FUND
This fund may NOT be appropriate:
- if you are investing with a shorter time horizon (less than ten years)
- if you are uncomfortable with an investment that will go up and down in
value
- as your complete portfolio
1
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
- --------------------------------------------------------------------------------
FUND FACTS
YOU MAY FIND
HELPFUL
Classes of Shares
Offered in this
Prospectus:
Class A-Fund #122
Class B-Fund #222
Class C-Fund #322
Investment Adviser:
Securities
Management and
Research, Inc.
Portfolio Managers:
Gordon D. Dixon
Andrew R. Duncan
Portfolio Turnover:
9.81% Class A
9.81% Class B
9.81% Class C
Dividend Payment
Schedule:
Quarterly
INVESTMENT OBJECTIVE
The Equity Income Fund seeks current income with a secondary objective of
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the fund's investment
advisor, normally invests at least 75% of the Equity Income Fund's assets in
common stocks. This fund may also invest in preferred stocks and investment
grade debt securities (such as publicly traded corporate bonds, debentures,
notes, commercial paper, repurchase agreements, and certificates of deposit). In
selecting common and preferred stocks, the fund focuses on companies with
consistent and increasing dividend payment histories and future earnings
potential sufficient to continue such dividend payments. This fund's goal is to
maintain a portfolio dividend yield (before fees and expenses) at least 50%
greater than that of the S&P 500 Index.
The Equity Income Fund generally purchases a higher proportion of stocks
(relative to their market weight) from those sectors of the market with greater
dividend prospects, referred to as "overweighting." Examples of sectors with
greater dividend prospects currently include financial companies like banks,
insurance companies, and real estate investment trusts. On the other hand, the
fund generally purchases a smaller proportion of stocks (relative to their
market weight) from sectors of the market with below average dividend yields
(such as technology and consumer staples), referred to as "underweighting."
PRINCIPAL RISK FACTORS
The Equity Income Fund is subject to the risks common to all mutual funds that
invest in equity securities and you could lose money investing in this fund. The
principal risks of investing in the Equity Income Fund are as follows:
- the market value of the fund's securities could decline (market risk).
- SM&R's investment decisions (such as sector overweighting and underweighting
and individual stock selection) could fail to achieve the desired results
(investment style or management risk).
- growth stocks can have relatively wide price swings as a result of the high
valuations they carry (growth stock risk).
- interest rates could increase which can cause the value of debt securities
to decline (interest rate risk).
- issuers of debt obligations could default or be unable to pay amounts due
(credit risk).
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- have medium-term investment goals (five years or more)
- are comfortable with moderate to aggressive risk
- are looking for a fund with both growth and income components
- are seeking to participate in the equity market
- are willing to accept higher short-term risk
WHO MAY NOT WANT TO INVEST IN THE FUND
This fund may NOT be appropriate if you:
- are investing with a shorter-time horizon (less than five years)
- are investing for maximum return
- require a high degree of stability of your principal
2
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
- --------------------------------------------------------------------------------
FUND FACTS
YOU MAY FIND
HELPFUL
Classes of Shares
Offered in this
Prospectus:
Class A-Fund #123
Class B-Fund #223
Class C-Fund #323
Investment Adviser:
Securities
Management and
Research, Inc.
Portfolio Managers:
Gordon D. Dixon
Andrew R. Duncan
Portfolio Turnover:
18.01% Class A
18.01% Class B
18.01% Class C
Dividend Payment
Schedule:
Quarterly
INVESTMENT OBJECTIVE
The Balanced Fund seeks to conserve principal, produce current income, and
achieve long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the Balanced Fund's
investment advisor, uses a "balanced" approach by investing part of the assets
in common stocks and the remainder in a combination of U.S. Government bonds,
investment-grade corporate bonds, collateralized mortgage obligations,
mortgage-backed securities, convertible bonds, cash, and money market
instruments. The balance of stocks to bonds and money market instruments changes
in response to changing economic conditions. This flexibility may help to reduce
price volatility.
SM&R will generally select stocks on certain growth and value considerations. A
growth stock would include a company whose price/earnings ratio is attractive
relative to the underlying earnings growth rate. An example of a value stock
would be one where the stock price appears undervalued in relation to earnings,
projected cash flow, or asset value per share.
The stocks in this fund are diversified and are selected based upon two models.
One model is based on profitability measurements and the other model is based on
the corporation's return on invested cash. The bonds, meanwhile, may serve as a
stabilizing force during times of eroding stock market value, as well as provide
a fixed income payment stream. The fund invests at least 25% of assets in fixed
income securities, all of which are rated BBB or better (investment grade).
The fixed income portion of the fund will generally invest in medium and
long-term securities. The average maturity for the fixed income portion
generally is expected to be in the six to fifteen year range (some securities
may have a longer or shorter duration). The average portfolio maturity may be
shorter when management anticipates that interest rates will increase, and
longer when management anticipates interest rates will decrease.
PRINCIPAL RISK FACTORS
The Balanced Fund is subject to the risks common to all mutual funds that invest
in equity securities and you could lose money investing in this fund. The
principal risks of investing in the Balance Fund are as follows:
- the market value of the fund's securities could decline (market risk).
- SM&R's investment decisions (such as determining the ratio of stock to bonds
and individual stock selection) could fail to achieve the desired results
(investment style or management risk).
- growth stocks can have relatively wide price swings as a result of the high
valuations they carry (growth stock risk).
- interest rates could increase which can cause the value of debt securities
to decline (interest rate risk).
- issuers of debt obligations could default or be unable to pay amounts due
(credit risk).
- the fund could be unable to find a buyer for its securities (liquidity
risk).
- the income you receive from the portfolio is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest
rates drop, your income from the portfolio may drop as well (income risk).
- Interest rates could fall enough to prompt an unexpected number of people to
refinance (or prepay) their mortgages before their maturity (call risk).
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- are seeking conservation of the purchasing power of your capital, but also
want to participate in equity investments
- are looking for a more conservative alternative to a growth-oriented
portfolio
- want a well-diversified and relatively stable investment allocation
- need a core investment
WHO MAY NOT WANT TO INVEST IN THE FUND
This fund may NOT be appropriate if you:
- are investing for a maximum return over a long time horizon
- require a high degree of stability of your principal
3
<PAGE>
ADDITIONAL EXPLANATION OF RISK FACTORS
--------------------------------------------------------------------------
COMMON RISK FACTORS FOR
ALL OF SM&R'S MUTUAL FUNDS
Please remember that mutual fund shares are:
- - Not guaranteed to achieve their investment goal
- - Not insured, endorsed or guaranteed by the FDIC, a bank or any government
agency
- - Subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in an SM&R Mutual Fund could fluctuate in
value over time and could result in a loss of money.
- --------------------------------------------------------
RISK FACTORS SPECIFIC TO THE SM&R EQUITY FUNDS
IMPORTANT
The following factors may affect the value of your investment in one or more
of the SM&R Equity Funds.
As indicated above, each of the three funds is subject to the following types
of risks to varying degrees.
CREDIT RISK.
The risk that the issuer of a security, or a party to a contract, will
default or otherwise not honor a financial obligation. THIS RISK APPLIES TO
ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON THE BALANCED AND EQUITY
INCOME FUNDS.
INTEREST RATE RISK.
The risk of declines in market value of an income-bearing investment due to
changes in prevailing interest rates. With fixed-rate securities, a rise in
interest rates typically causes a decline in market values, while a fall in
interest rates typically causes an increase in market values. THIS RISK
APPLIES TO ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON THE BALANCED
AND EQUITY INCOME FUNDS.
LIQUIDITY RISK.
The risk that certain securities or other investments may be difficult or
impossible to sell at the time the fund would like to sell them or at the
price the fund values them. The fund may have to sell at a lower price, sell
other securities instead, or forego an investment opportunity, any of which
could have a negative effect on fund management or performance. THIS RISK
APPLIES ONLY TO THE BALANCED FUND.
INVESTMENT STYLE OR MANAGEMENT RISK.
The risk that a strategy used by a fund's management may fail to produce the
intended result because:
- management fails to properly implement the selected investment strategy; or
- the securities that fit the fund's investment style do worse than
securities that fit other investment styles. THIS RISK IS COMMON TO ALL
MUTUAL FUNDS AND APPLIES TO ALL OF THE FUNDS.
MARKET RISK.
The risk that the market value of a security may move down, sometimes rapidly
and unpredictably. The fluctuations may cause a security to be worth less
than the price originally paid for it, or less than it was worth at an
earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. THIS RISK IS COMMON TO ALL STOCKS AND
BONDS AND THE MUTUAL FUNDS THAT INVEST IN THEM AND APPLIES TO ALL OF THE
FUNDS.
- --------------------------------------------
CALL RISK.
Call risk is the risk that an unexpected fall in prevailing interest rates
will shorten the life of an outstanding obligation by increasing the actual
or expected number of prepayments, thereby reducing the obligation's value.
CALL RISK APPLIES TO THE BALANCED FUND.
4
<PAGE>
PERFORMANCE
--------------------------------------------------------------------------
PERFORMANCE
The bar charts and average annual total return tables shown below provide some
indication of the risks of investing in the funds and the difference in returns
by:
- - showing performance for each year since inception and
- - showing how average annual returns compare to those of a broad measure of
market performance.
PAST PERFORMANCE IS NOT NECESSARILY
AN INDICATION OF HOW THE FUNDS
WILL PERFORM IN THE FUTURE.
These bar charts include the effects of Fund expenses, but not sales charges and
account fees. The returns shown would be lower if such sales charges were
included.
GROWTH FUND
TOTAL RETURN FROM CLASS A SHARES (%)
For Period 1/1/99-12/31/99
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1999 23.45%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL RETURN
<S> <C> <C>
Best Quarter: Dec. 31, 1999 18.25%
Worst Quarter: Sept. 30, 1999 (5.56)%
</TABLE>
The next table lists the Growth Fund's average annual total return by class
since inception (1/1/99), including sales charges. This table is intended to
provide you with some indication of the risks of investing in the Fund. At the
bottom of the table you can compare this performance with the
S&P 500-Registered Trademark- and Lipper Growth Fund Index. The
S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock prices. Standard &
Poor's, S&P, and S&P 500-Registered Trademark- are registered trademarks of
Standard & Poor's Corporation. The Lipper Growth Fund Index is a widely
recognized, equally weighted performance index (adjusted for capital gains
distributions and income dividends) of the 30 largest open-end funds which
invest in companies whose long term earnings are expected to grow significantly
faster than the earnings of the stock represented in the major unmanaged stock
indices. Comparative data for this index will no longer be available from Lipper
effective December, 2000. A new comparative index will be selected at that time.
AVERAGE ANNUAL TOTAL RETURNS
(for the period ended 12/31/99)
<TABLE>
<CAPTION>
SINCE INCEPTION
<S> <C>
Class A 17.27%
Class B 15.93%
Class C 23.83%
S&P 500-Registered Trademark- 21.03%
Lipper Growth Fund Index 50.93%
</TABLE>
5
<PAGE>
PERFORMANCE
--------------------------------------------------------------------------
EQUITY INCOME FUND
TOTAL RETURN FOR CLASS A SHARES (%)
(for period 1/1/99-12/31/99)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1999 -3.01%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL RETURN
<S> <C> <C>
Best Quarter: June 30, 1999 9.03%
Worst Quarter: Sept. 30, 1999 (8.98)%
</TABLE>
The next table lists the Equity Income Fund's average annual total return by
class since inception (1/1/99), including sales charges. This table is intended
to provide you with some indication of the risks of investing in the Fund. At
the bottom of the table you can compare this performance with the
S&P 500-Registered Trademark- and the Lipper Equity Income Fund Index. The
S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock prices. Standard &
Poor's, S&P, and S&P 500-Registered Trademark- are registered trademarks of
Standard & Poor's Corporation. The Lipper Equity Income Fund Index is a widely
recognized, equally weighted performance index (adjusted for capital gains
distributions and income dividends) of the 10 largest open-end funds which seek
relatively high current income and growth of income through investing 60% or
more of their portfolio in equities.
AVERAGE ANNUAL TOTAL RETURNS
(for the period ended 12/31/99)
<TABLE>
<CAPTION>
SINCE INCEPTION
<S> <C>
Class A (7.84)%
Class B (9.60)%
Class C (5.25)%
S&P 500-Registered Trademark- 21.03%
Lipper Equity Income Fund Index 4.20%
</TABLE>
BALANCED FUND
TOTAL RETURN FOR CLASS A SHARES (%)
(for period 1/1/99-12/31/99)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1999 10.13%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL RETURN
<S> <C> <C>
Best Quarter: Dec. 31, 1999 10.01%
Worst Quarter: Sept. 30, 1999 (2.76)%
</TABLE>
The next table lists the Balanced Fund's average annual total return by class
since inception (1/1/99), including sales charges. This table is intended to
provide you with some indication of the risks of investing in the Fund. At the
bottom of the table you can compare this performance with the Lehman Brothers
Intermediate Government/Corporate Index and the Lipper Balanced Fund Index. The
Lehman Brothers Intermediate Government/Corporate Index is an unmanaged index
generally representative of the performance of the bond market as a whole. The
Lipper Balanced Fund Index is a widely recognized, equally weighted performance
index (adjusted for capital gains distributions and income dividends) of the 30
largest open-end funds whose primary objective is to conserve principal by
maintaining a balanced portfolio of stocks and bonds. The
stock/bond ratio typically ranges around 60%/40%.
AVERAGE ANNUAL TOTAL RETURNS
(for the period ended 12/31/99)
<TABLE>
<CAPTION>
SINCE INCEPTION
<S> <C>
Class A 4.64%
Class B 5.97%
Class C 7.39%
Lehman Brothers Intermediate
Government/Corporate Index 0.38%
Lipper Balanced Fund Index 8.96%
</TABLE>
6
<PAGE>
EXPENSES OF THE FUNDS
--------------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
GROWTH, EQUITY INCOME,
AND BALANCED FUND
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Maximum Sales Charge (Total) 2.00%
Maximum Sales Charge Imposed on Purchases
(as a percentage of offering price) 5.00%(1) None 1.00%
Maximum Deferred Sales Charge (as a
percentage of the lesser of the offering
price or redemption value)(2) (3) 5.00%(4) 1.00%(5)
Maximum Sales Charge Imposed on
Reinvested Dividends and other
Distributions (as a percentage of
offering price) None None None
Redemption Fees (2) (2) (2)
Exchange Fees None None None
Other Expenses (9) (9) (9)
</TABLE>
ANNUAL FUND OPERATING EXPENSES(6)
(expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
GROWTH FUND
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management Fees 0.53% 0.53% 0.53%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses(7) 0.73% 0.73% 0.73%
Total Annual Fund Operating Expenses(8) 1.51% 2.01% 2.26%
---- ---- ----
Net Expenses 1.51% 2.01% 2.26%
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management Fees 0.73% 0.73% 0.73%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses(7) 0.53% 0.53% 0.53%
Total Annual Fund Operating Expenses(8) 1.51% 2.01% 2.26%
---- ---- ----
Net Expenses 1.51% 2.01% 2.26%
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND
CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Management Fees 0.74% 0.74% 0.74%
Distribution and/or Service (12b-1) Fees 0.25% 0.75% 1.00%
Other Expenses(7) 0.52% 0.52% 0.52%
Total Annual Fund Operating Expenses(8) 1.51% 2.01% 2.26%
---- ---- ----
Net Expenses 1.51% 2.01% 2.26%
</TABLE>
FOOTNOTES TO FEES AND EXPENSES
<TABLE>
<C> <S>
(1) You pay a sales charge of 5.00% on initial investments in
Class A shares of less than $50,000. You pay a reduced
sales charge 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; 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) You pay an $10.00 transaction fee for each expedited wire
redemption.
(3) Purchases of $1 million or more of Class A shares may be
made without an initial sales charge. Redemptions of such
shares within the first thirteen months after purchase,
however, will be subject to a contingent deferred sales
charge of 1.00%.
(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% only applies to
redemptions of Class C shares during the first thirteen
months after purchase.
(6) The "Management Fee" and "Other Expenses" shown for the
funds are for the year ended December 31, 1999.
(7) "Other Expenses" include the 0.25% Administrative Service
Fee.
(8) The Fee Table does NOT reflect any fees waived or expenses
assumed either contractually or voluntarily by the funds'
manager, Securities Management and Research, Inc. ("SM&R").
Pursuant to the Administrative Service Agreement, SM&R will
pay (or reimburse) each fund for regular operating expenses
in excess of 1.25% per year of such fund's average daily net
assets. Regular operating expenses include the advisory fee
and administrative fee, but do not include the 12b-1 fee or
class-specific expenses.
(9) You pay a $7.50 per account annual custodian fee for the tax
deferred accounts.
</TABLE>
7
<PAGE>
EXPENSES OF THE FUNDS
--------------------------------------------------------------------------
EXPENSES
The tables below show the total expenses you would pay on a $10,000 investment
over one, three-, five-, and ten-year periods. These examples are intended to
help you compare the cost of investing in the funds with the cost of investing
in other mutual funds and are for illustration only. These examples also assume
that your investment has a 5% return each year, that you reinvest all of your
dividends and that the funds' operating expenses remain the same. YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER THAN SHOWN.
EXAMPLES OF FUND EXPENSES:
GROWTH FUND
<TABLE>
<CAPTION>
ASSUMING NO
ASSUMING REDEMPTION REDEMPTION
AT END OF PERIOD AT END OF PERIOD
CLASS A CLASS B CLASS C CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
1 Year $ 646 $ 704 $ 427 $ 204 $ 327
3 years 953 930 799 630 799
5 years 1,283 1,183 1,298 1,083 1,298
10 years 2,211 2,209 2,669 2,209 2,669
</TABLE>
EQUITY INCOME FUND
<TABLE>
<CAPTION>
ASSUMING NO
ASSUMING REDEMPTION REDEMPTION
AT END OF PERIOD AT END OF PERIOD
CLASS A CLASS B CLASS C CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
1 Year $ 646 $ 704 $ 427 $ 204 $ 327
3 years 953 930 799 630 799
5 years 1,283 1,183 1,298 1,083 1,298
10 years 2,211 2,209 2,669 2,209 2,669
</TABLE>
BALANCED FUND
<TABLE>
<CAPTION>
ASSUMING NO
ASSUMING REDEMPTION REDEMPTION
AT END OF PERIOD AT END OF PERIOD
CLASS A CLASS B CLASS C CLASS B CLASS C
<S> <C> <C> <C> <C> <C>
1 Year $ 646 $ 704 $ 427 $ 204 $ 327
3 years 953 930 799 630 799
5 years 1,283 1,183 1,298 1,083 1,298
10 years 2,211 2,209 2,669 2,209 2,669
</TABLE>
8
<PAGE>
CHOOSING A SHARE CLASS THAT BEST SUITS YOU
--------------------------------------------------------------------------
The SM&R Growth Fund, Inc., SM&R Equity Income Fund, Inc., and the SM&R Balanced
Fund, Inc., ("we", or "SM&R Equity Funds" or the "Fund" or "Funds") offer three
classes of shares in this Prospectus. Such classes are called Class A, Class B,
and Class C each with its own cost structure. Each class allows you to choose
the class that best suits your circumstances and preferences. Your
representative can help you decide.
The Funds offer other classes through other prospectuses. The other classes can
only be bought by specified types of investors or through certain distribution
channels. FOR MORE INFORMATION ON THE OTHER CLASSES OF SHARES OR TO REQUEST A
PROSPECTUS FOR ANOTHER CLASS, CALL INVESTOR SERVICES AT (800) 231-4639.
You may select from among the following three classes of shares:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
(FRONT-END LOAD) (BACK-END LOAD) (LEVEL LOAD)
<S> <C> <C>
- -Front-end sales -No front-end sales -Lower front-end sales
charges, as described charge; all your charge than Class A
below. There are money goes to work shares, as described
several ways to for you right away. below.
reduce these charges,
also described below.
- -Lower annual expenses -Higher annual -Higher annual
than Class B or expenses than expenses than
Class C shares. Class A shares. Class A and Class B
shares.
- -A deferred sales -A deferred sales -A deferred sales
charge on shares you charge on shares you charge on shares you
sell within thirteen sell within three sell within thirteen
months of purchase as years of purchase, as months of purchase,
described below. described below. as described below.
- -12b-1 fee of 0.25% of -12b-1 fee of 0.75% of -12b-1 fee of 1.00% of
average net assets. average net assets. average net assets.
-Automatic conversion -Does not convert to
to Class A shares Class A shares.
after eight years,
thus reducing future
annual expenses.
-Purchase amounts
limited to amounts
less than $500,000.
- -Generally more -Generally appropriate -Generally more
appropriate for long- for investors who may appropriate for
term investors. be averse to an up- short- term
front sales charge investors.
and are willing to
pay a back-end sales
charge and a higher
12b-1 fee for the
first eight years.
</TABLE>
(All classes may not be available in all states)
FOR EXPENSES OF CLASS A, B, AND C SHARES, SEE THE FEES AND EXPENSES OF THE FUNDS
EARLIER IN THIS PROSPECTUS.
9
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
--------------------------------------------------------------------------
CLASS A SALES CHARGES
If you select Class A shares you pay a "front-end" sales charge of up to 5%. The
sales charge is a percentage of the offering price, as shown in the following
table:
<TABLE>
<CAPTION>
SALES CHARGE SALES CHARGE
AS A % OF AS A % OF
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT INVESTED
<S> <C> <C>
Less than $50,000 5.00% 5.3%
$50,000 but less than
$100,000 4.5% 4.7%
$100,000 but less than
$250,000 3.5% 3.6%
$250,000 but less than
$500,000 2.5% 2.6%
$500,000 but less than
$1,000,000 1.5% 1.5%
$1,000,000 and over See below None
</TABLE>
INVESTMENTS OF $1 MILLION OR MORE.
If you invest $1 million or more in Class A shares, you do not pay any
"front-end" sales charge. However, you will pay a contingent deferred sales
charge (CDSC) of 1.00% of the offering price if you redeem shares purchased
without a "front-end" sales charge, within 13 months after you bought them. The
CDSC will be calculated in the same manner as for Class B shares, as described
below.
CLASS B SALES CHARGES
Class B shares are sold at net asset value, without any initial sales charge.
However, there is a CDSC on shares you sell within five years of buying them.
The CDSC shown in the following table is a percentage of the offering price:
<TABLE>
<CAPTION>
CONTINGENT DEFERRED
SALES CHARGE
(AS A % OF
THE LESSER OF THE
OFFERING PRICE OR
YEARS SINCE PURCHASE REDEMPTION FEE)
<S> <C>
Year 1 5.00%
Year 2 4.00%
Year 3 3.00%
Year 4 2.00%
Year 5 1.00%
Year 6+ None
</TABLE>
COMPUTING CDSC
If the net asset value of shares being redeemed has increased since you bought
them, we do not impose a CDSC on the increase in net asset value. We do not
impose a CDSC on shares bought with reinvested dividends or capital gain
distributions.
We will minimize any applicable CDSC by assuming that an investor --
(i) first redeems Class B shares bought through reinvested dividends and
capital gains distributions, and
(ii) next redeems Class B shares held the longest.
If the value of shares being redeemed has increased since you bought them, we do
not impose any CDSC on such increase in value. We do not impose any CDSC on
shares you buy with reinvested dividends or capital gain distributions. We will
minimize any applicable CDSC by assuming that an investor (i) first redeems
Class B shares bought through reinvested dividends and capital gains
distributions, and (ii) next redeems Class B shares held the longest.
CLASS C SALES CHARGES
Class C shares are sold at the net asset value plus a "front-end" sales charge
of 1.00% of the offering price. A contingent deferred sales charge of 1.00% also
applies on redemptions of Class C shares during the first thirteen months after
purchase.
REDUCING YOUR CLASS A SALES CHARGE
YOU CAN REDUCE YOUR SALES CHARGE ON PURCHASES OF CLASS A OF THE FUNDS, THROUGH
ONE OR MORE OF THE FOLLOWING PROGRAMS. YOU HAVE THE SOLE RESPONSIBILITY OF
NOTIFYING SM&R THAT YOU INTEND TO QUALIFY UNDER ONE OF THESE CATEGORIES.
DISCOUNTS THROUGH CONCURRENT PURCHASES.
To qualify for a reduced sales charge on Class A shares, you may combine
concurrent purchases of Class A shares of funds managed by Securities Management
and Research, Inc. ("SM&R") on which you paid a front-end sales charge.
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;
10
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
--------------------------------------------------------------------------
(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 in connection with employee benefit plans not qualified under
Section 401 of the Internal Revenue Code will qualify for the above quantity
discounts only if the fund will realize economies of scale in sales effort and
sales related expenses as a result of the employer's or the plan's bearing the
expense of any payroll deduction plan, making the fund's prospectus available
to individual investors or employees, forwarding investments by such employees
to the funds, and the like.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION.
If you already own Class A or Class T shares of a fund managed by SM&R, on which
you paid a front-end sales charge, you may be able to receive a discount when
you buy additional shares. The current net asset value of the shares you already
own may be "accumulated"--i.e., combined together with the dollar amount being
invested--to achieve quantities eligible for discount.
LETTER OF INTENT.
You may qualify for a reduced sales charge on purchases of Class A shares of
funds managed by SM&R 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 of funds managed by SM&R 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 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 funds to sell the full amount of shares specified.
ELIGIBLE NET ASSET VALUE PURCHASERS
If you qualify under one of the categories below, you may purchase Class A
shares without a "front-end" sales charge (at net asset value) to:
(a) persons purchasing shares for a federal or state sponsored
post-secondary education funding program;
(b) 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 managed by SM&R (other
than the Money Market and Primary Funds);
(c) policyholders of American National subsidiaries that have entered into a
net asset value agreement with SM&R;
(d) members of any non-profit business, trade, professional, charitable,
civic or similar associations and clubs with an active membership of at
least 100 persons;
(e) registered representatives and employees of dealers who have entered
into mutual fund sales or distribution agreements with SM&R and members
of the immediate family (including spouse, children, parents and parents
of spouse) provided that purchases at net asset value are permitted by
the policies of the dealer; and
(f) any other persons that have been determined by the Board of Directors
(or by the distributor based on guidelines established by the Board) to
have acquired shares under circumstances not involving any sales expense
to the Funds.
The Funds may terminate or change the terms of any waiver of sales
charges at any time.
11
<PAGE>
SALES CHARGE REDUCTIONS AND WAIVERS
--------------------------------------------------------------------------
CLASS B WAIVERS OF CONTINGENT DEFERRED SALES CHARGES
The CDSC will be waived on the following redemptions of Class B shares:
(1) 12% FREE AMOUNT. We waive the CDSC on redemptions pursuant to a systematic
withdrawal plan of up to 12% of account value per year. We apply this 12%
waiver on a per fund basis to the account value determined at the time you
elect a systematic withdrawal plan. (Remember that the CDSC does not apply
to appreciation and reinvested dividends. Redemptions from appreciation and
reinvested dividends, which occur first, do not count toward the 12% free
amount.)
(2) DEATH OR DISABILITY. We waive the CDSC on redemptions of Class B shares
following the shareholder's death or disability, so long as:
(a) the disablity began after the shares were purchased;
(b) SM&R is notified of such death or disability at the time of the
redemption request and receives satisfactory evidence of such death or
disability;
(c) the redemptions are made within one year following death or initial
determination of disability; and
(d) the shares were held at the time of death or initial determination of
disability.
For purposes of this waiver, the death or disability must meet the
definition in Section 72(m)(7) of the Internal Revenue Code (the
"Code"). If the shares are held in a joint account, then all registered
joint owners must be dead or disabled.
(3) MINIMUM REQUIRED DISTRIBUTIONS. We waive the CDSC on redemptions of Class B
shares in connection with certain distributions from four types of qualified
retirement plans: IRAs, custodial accounts maintained pursuant to Code
Section 403(b), deferred compensation plans qualifed under Code 457 and
plans qualified under Code Section 401. To qualify for the waiver, the
redemptions must result from one of the following:
(a) required minimum distributions to plan participants or beneficiaries who
are age 70 1/2 or older to the extent it does not exceed 12% annually of
the participant's or beneficiary's account value;
(b) tax-free rollovers or transfers of assets to another IRA,
Section 403(b) plan, Section 457 plan or Section 401 plan invested in
Class B shares of one or more funds managed by SM&R;
(c) tax-free returns of excess contributions or returns of excess deferral
amounts; and
(d) distributions upon the death or disability (as defined in the Code) of
the participant or beneficiary.
(4) SMALL ACCOUNTS. We waive the CDSC on redemptions by the funds of small
accounts (accounts with a value less than $500).
(5) SM&R INVESTMENTS. We waive the CDSC on redemptions of shares owned by SM&R
or any of its affiliates.
DISTRIBUTION AND SHAREHOLDER SERVICE (12B-1) FEE
Classes A, B, and C pay SM&R, the Funds principal underwriter, a distribution
and/or shareholder servicing (12b-1) fee. BECAUSE DISTRIBUTION AND/OR
SHAREHOLDER SERVICING (12b-1) FEES ARE PAID OUT OF FUND ASSETS ON AN ONGOING
BASIS, THE FEES MAY, OVER TIME, INCREASE THE COST OF AN INVESTMENT IN A FUND AND
COST INVESTORS MORE THAN OTHER TYPES OF SALES LOADS.
These fees are computed as an annual percentage of the average daily net assets
of each class of shares of a fund, as follows:
<TABLE>
<CAPTION>
DISTRIBUTION SERVICE TOTAL 12B-1
CLASS FEE FEE FEE
<S> <C> <C> <C>
Class A Shares
(FRONT-END LOAD) 0.25% -0- 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>
The distribution fee is for services that are primarily intended to result in or
are primarily attributable to the distribution of the Class A, B, and C shares.
The service fee is for providing ongoing servicing to shareholders of the
Class B and C shares. These fees compensate SM&R, or enable SM&R to compensate
other persons (including distributors of the shares), for providing such
services.
12
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------
Each Fund pursues its own investment objective through various investment
policies and techniques. ONLY THE PRINCIPAL INVESTMENT STRATEGIES OF EACH FUND
AND THE PRINCIPAL TYPES OF SECURITIES EACH FUND PLANS TO PURCHASE ARE DESCRIBED
BELOW. More investment information is in the Statement of Additional
Information. These policies and techniques are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Changes in a Fund's holdings, a Fund's performance, and the contribution of
various investments are discussed in the shareholder reports sent to you.
- SM&R HAS CONSIDERABLE LEEWAY IN CHOOSING INVESTMENT STRATEGIES AND SELECTING
SECURITIES IT BELIEVES WILL HELP THE FUNDS ACHIEVE THEIR OBJECTIVES.
Because of the market risks inherent in any investment, the Funds may not
achieve their investment objectives. In addition, effective management of each
Fund is subject to general economic conditions and to the ability and investment
techniques of management. The net asset value of each Fund's shares will vary
and the redemption value of shares may be either higher or lower than the
shareholder's cost. Since each Fund has a different investment objective, each
will have different investment results and incur different market, financial,
and other risks.
During unfavorable market conditions, each Fund may, but is not required to,
make temporary investments that are not consistent with a Fund's investment
objectives and principal strategies. Such defensive measures may include
increasing cash, investing more assets in bonds or money market instruments, and
where permitted by the individual Fund discussions that follow, investing in
derivatives or other instruments. If a Fund takes such defensive measures, it
may not achieve its investment objectives.
A Fund may trade actively and frequently to achieve its investment objective. A
high turnover rate may increase transaction costs, affecting the Fund's
performance over time. A high turnover rate may also result in higher capital
gains distributions, increasing your tax liability.
SM&R GROWTH FUND, INC.
The Growth Fund considers its portfolio investments and the composition of its
total portfolio from the viewpoint of potential capital appreciation. The Growth
Fund adjusts this composition from time to time in light of current conditions.
Under normal conditions, the Growth Fund invests at least 85% of its total
assets in common stocks.
The Growth Fund invests in the stocks of financially sound companies that have a
proven ability to make and sustain a profit over time. Management places an
emphasis on companies with growth potential. The Growth Fund does not employ
exotic investment strategies, such as using options and futures.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill and
foresight, and relative valuation to industry peers and the market as a whole.
We utilize this combination of disciplines and human judgement to drive our
stock selection process. We believe in evaluating each company's prospects as
opposed to relying on broad forecasts of industry prospects. We do not attempt
to time economic, market, style or capitalization cycles. Diversification, or
weighting of individual economic sectors, is also dictated by a combination of
disciplines and human judgement to varying degrees. We believe in never having
less than half or more than double the market weighting in any one sector. The
Growth Fund limits cash to 15% of its assets unless circumstances dictate
otherwise.
Because of the Growth Fund's goal of seeking long-term capital growth, certain
sectors of the market will have greater weight in the Growth Fund's portfolio
while other sectors of the market will have lower representation. For example,
the Growth Fund generally overweights the technology sector, which represents
approximately 15% to 20% of the Standard & Poor's 500 Index, in the portfolio
relative to its market weight. This overweighting reflects the higher growth
prospects of technology companies relative to the average company in the market.
At varying times, we may also overweight other sectors of the market providing
above average growth prospects, like healthcare and consumer staples.
13
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------
Conversely, the Growth Fund generally underrepresents certain sectors of the
market in its portfolio that tend to have below average growth
characteristics, like utilities, basic materials, and communications services.
As a result of such strategic overweighting and underweighting, the Growth
Fund's performance may differ substantially from broad market indexes like the
S&P 500 and tend to incur more price volatility than these indexes.
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 and Moody's corporate bond
ratings. Investments in convertible securities having these ratings may
involve greater risks than convertible securities having higher ratings.
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. Common stocks and convertible securities purchased will be of
companies that SM&R believes will provide an opportunity for capital
appreciation. 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, in certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets, and in repurchase
agreements.
SM&R EQUITY INCOME FUND, INC.
The Equity Income Fund considers its portfolio investments and the composition
of its total portfolio not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. We
adjust this composition of portfolio investments from time to time to best
accomplish the Equity Income Fund's investment objectives under current
conditions. In pursuit of its objectives, the Equity Income Fund will invest
in common stocks, preferred stocks, and marketable debt securities selected in
accordance with its investment objectives. Common and preferred stocks
purchased will generally be of companies with consistent and increasing
dividend payment histories that SM&R believes will have further earnings
potential sufficient to continue such dividend payments. Debt securities
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, the Equity Income Fund will invest at
least 75% of its assets in equity securities rather than debt securities.
We view common stocks, as well as investments in preferred stocks and bonds
convertible into common stock, from their potential for capital appreciation
in addition to their current and potential income yield. Our goal is to
maintain a portfolio dividend yield (before fees and expenses) at least 50%
greater than that of the S&P 500 Index.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on
a fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual sectors, is also dictated by a
combination of disciplines and human judgement to varying degrees. We believe
in never having less than half or more than double the market weighting in any
one sector. Cash is limited to 15% of the fund unless circumstances dictate
otherwise.
Certain sectors of the market will have greater weight in the Equity Income
Fund's portfolio while other sectors of the market will have lower
representation. For example, the Equity Income Fund generally overweights the
finance sector in its portfolio relative to that sector's market weight. This
reflects the greater dividend prospects of financial
14
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------
companies like banks, insurance companies, and real estate investment trusts
as compared to the average company in the market. At varying times, we may
also overweight other sectors of the market that provide above average
dividend prospects, like utilities and energy.
Conversely, the Equity Income Fund generally underrepresents certain sectors
of the market tending to have below average dividend yields, like technology,
consumer staples, and healthcare. As a result of such strategic overweighting
and underweighting, the Equity Income Fund's performance may differ
substantially from broad market indexes like the S&P 500.
Corporate debt obligations purchased by the Equity 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.
SM&R BALANCED FUND, INC.
The Balanced Fund uses a "balanced" approach by investing part of its assets
in stocks of well-known companies and the remainder in a combination of
high-grade bonds, bonds convertible into the common stock of the issuing
corporations, and money market instruments. We change the ratio of stocks to
bonds in response to changing economic conditions. This flexibility helps to
reduce price volatility.
The Balanced Fund's goal is relative stability of principal through a balance
of stocks, bonds, and cash. The stocks serve to capture the benefits that
ownership in corporate America brings. The bonds, meanwhile, can serve as a
stabilizing force during times of eroding stock market value, as well as
provide a fixed income payment stream into the portfolio.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual sectors, is also dictated by a
combination of disciplines and human judgement to varying degrees. We believe
in never having less than half or more than double the market weighting in any
one sector. Cash is limited to 15% of the portfolio unless circumstances
dictate otherwise.
The Balanced Fund will only purchase corporate bonds 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 Balanced Fund may
also invest in repurchase agreements. This balanced investment policy is
intended to reduce risk and to obtain results in keeping with the Balanced
Fund's objectives.
The Balanced Fund will invest in fixed-income securities and equity securities
as described above. However, the Balanced 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
15
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
--------------------------------------------------------------------------
interest rates would mean lower bond prices and lower net asset value for the
Balanced Fund's shareholders assuming no change in its current investment
objective and portfolio. Diversifying the Balanced 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.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity and debt holdings consistent with SM&R's outlook
and evaluation of trends in the economy and the financial markets. The
Balanced Fund determines its level of commitment to common stocks and specific
common stock investments 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
occurs coincidentally with accelerating growth and profitability of the
companies.
16
<PAGE>
OTHER RISK FACTORS
--------------------------------------------------------------------------
The following discussion relates to all three Funds. The Fund summaries located
at the beginning of this prospectus identifies some specific risks applicable to
each individual Fund.
GENERAL. There is no assurance that a Fund will achieve its goals. Generally,
if the securities owned by a Fund increase in value, the value of the shares
of the fund which you own will increase. Similarly, if the securities owned by
a Fund decrease in value, the value of your shares will also go down. In this
way, you participate in any change in the value of the securities owned by a
Fund.
The risk inherent in investing in any fund is a risk common to any security.
That is, the value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates and the market's perception of the
underlying portfolio securities held by that Fund. Each Fund's share value
depends on general economic and securities market conditions, the investment
decisions of its management, and numerous other factors. All of these factors
are inherently uncertain and, in some cases, unforeseeable.
Any of the Funds could lose money if the stock markets in general go down or
if the particular stocks purchased by a Fund go down in value. In addition,
the Funds could lose money if prevailing interest rates increase or if the
debt securities purchased by a Fund are downgraded or defaulted upon.
STOCK INVESTMENT RISKS. Because each Fund invests a substantial portion of its
assets in stocks, the value of each Fund's portfolio will be affected by
changes in the stock markets. At times, the stock markets can be volatile and
stock prices can change substantially. This market risk will affect each
Fund's net asset value per share, which will fluctuate as the values of each
Fund's portfolio securities change. Stock prices do not always change
uniformly or at the same time and the various stock markets do not always move
in the same direction at the same time. Other factors specific to a particular
company also affect that company's stock price (for example, poor earnings,
loss of major customers, or major litigation). The Funds cannot always predict
the factors that will affect a stock's price. The Funds, however, do attempt
to limit market risk by diversifying their investments.
For the Growth Fund and the Equity Income Fund, the portfolio managers decide
to overweight or underweight certain industry sectors and to purchase
individual stocks based on their assessment of the future growth or income
prospects of an industry sector or particular stock. If certain industries or
investments do not perform as a Fund expects (I.E., do not grow in value or
produce dividend income as expected), that fund could under perform its peers
or lose money.
The Growth Fund is generally considered more aggressive than the Equity Income
and Balanced Funds because it invests for capital appreciation in common
stocks, emphasizing "growth" stocks that tend to be more volatile than other
investments. Investors in the Growth Fund should expect greater fluctuations
in share price, yield, and total return than with less aggressive funds.
DEBT SECURITIES RISKS. Debt securities are subject to changes in their values
due to changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise.
Accordingly, if interest rates go down after a security is purchased, such
security might be valued and/or sold at a price greater than its cost. On the
other hand, when prevailing interest rates rise, the values of already-issued
debt securities generally fall. Accordingly, if interest rates increase after
a security is purchased, such security might be valued and/or sold at a price
less than its cost. The magnitude of these fluctuations will generally be
greater for longer-term debt securities than shorter-term debt securities.
The Funds could lose money if any bonds they own are downgraded in credit
rating or go into default. In general, lower-rated bonds, such as junk bonds,
have higher credit risks. The Growth Fund is the only Fund permitted to invest
in junk bonds. Junk bonds have additional risks, including limitations on a
fund's ability to re-sell the lower-rated debt securities and less readily
available market quotations for such securities. If there are not readily
available market quotations for a debt security, its
17
<PAGE>
OTHER RISK FACTORS
--------------------------------------------------------------------------
value is determined largely by the investment manager's judgment. When and if
the debt security is sold, the investment manager may find that its estimation
of the debt security's value is substantially different than the actual price
at which it can be sold. Moreover, substantial redemptions of Fund shares
could require a Fund to sell portfolio securities at a time when a sale might
not be favorable.
SMALLER COMPANY RISKS. Smaller companies in which each of the Funds may invest
may involve greater risks than large established companies. Such smaller
companies may have limited product lines, markets, financial resources, and
management depth. Their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies.
Smaller companies may also be more vulnerable than larger companies to adverse
business or market developments. As a result, the prices of smaller companies
may fluctuate to a greater degree than the prices of securities of larger
companies.
OTHER RISKS. Each investor will be subject to all the risks normally attendant
to business operations, changes in general economic conditions, governmental
rules and fiscal policies, acts of God, and other factors beyond the control
of the Funds' management.
18
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
--------------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's Board of Directors has delegated to Securities Management and
Research, Inc. ("SM&R"), the Fund's investment adviser, the management of the
Fund's day-to-day business and affairs. In addition, SM&R invests the Funds'
assets, provides administrative services, and serves as transfer agent,
custodian, dividend paying 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"). SM&R was incorporated in 1964 and has managed mutual
funds since 1966. SM&R also serves as investment adviser to other clients
including banks, employee benefit plans, other investment companies, banks,
foundations and endowment funds.
ADVISORY AGREEMENTS
GROWTH FUND. We deduct an investment advisory fee from the value of the shares
each day. We calculate this fee for the Growth Fund at 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>
We adjust the basic advisory fee rate by comparing the fund's investment
performance during the previous thirty-six (36) months with the investment
performance of the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. over the same period. Specifically, we adjust
the basic advisory fee 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.
<TABLE>
<CAPTION>
PERFORMANCE PERFORMANCE
COMPARED TO ADJUSTMENT
LIPPER INDEX AMOUNT
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
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.
EQUITY INCOME AND BALANCED FUNDS. We deduct an investment advisory fee from the
value of the shares each day. We calculate this fee for the Equity Income and
Balanced Funds at 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>
SM&R received total advisory fees from the Growth, Equity Income, and Balanced
Funds for the fiscal year ended December 31, 1999 of 0.53%, 0.73%, and 0.74%,
19
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
--------------------------------------------------------------------------
respectively, of each fund's average daily net assets. Each fund's advisory fees
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.
ADMINISTRATIVE SERVICES
Pursuant to an Administrative Service Agreement with each fund, SM&R provides
all non-investment related management, executive, administrative, transfer
agent, and operational services to the funds. Under these agreements, SM&R
receives an administrative service fee from each fund at the annual rate of
average daily net asset values as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
ON THE PORTION OF THE FUND'S SERVICE FEE
AVERAGE DAILY NET ASSETS 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>
In these agreements, SM&R has agreed to pay (or to reimburse each fund for) each
fund's regular operating expenses in excess of 1.25% per year of such fund's
average daily net assets. Regular operating expenses include the advisory fee
and administrative service fee, if any, paid to SM&R, but do not include 12b-1
fees, class-specific expenses, interest, taxes, commissions, and other expenses
incidental to portfolio transactions.
SM&R received total administrative service fees of 0.25% for the Growth Fund;
0.25% for the Equity Income Fund; and 0.25% for the Balanced Fund for the fiscal
year ended December 31, 1999 of each Fund's average daily net assets.
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in providing
investment advisory services to the funds. While the following individual is
primarily responsible for the day-to-day portfolio management of the funds, 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, CO-MANAGER.
Mr. Dixon joined Securities Management and Research, Inc. in 1993. Mr. Dixon
serves as Co-Manager of the SM&R Growth Fund, SM&R Equity Income Fund and the
SM&R Balanced Fund. He was previously Portfolio Manager of the SM&R Growth
Fund, SM&R Equity Income Fund and SM&R Balanced Fund. Mr. Dixon also serves as
Vice President of the American National Investment Accounts, Inc., Portfolio
Manager for its American National ("A.N.") Government Bond Portfolio and the
A. N. High Yield Bond Portfolio, Co-Manager of its A. N. Growth Portfolio, A.
N. Equity Income Portfolio, A. N. Balanced Portfolio and A. N. International
Stock Portfolio. He also serves as Portfolio Manager of the SM&R Investments,
Inc.--SM&R Government Bond Fund and SM&R Tax Free Fund. 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.
ANDREW R. DUNCAN, SR. SECURITIES ANALYST/ PORTFOLIO MANAGER. Mr. Duncan joined
SM&R's staff in 1997 as Sr. Securities Analyst/Portfolio Manager. Mr. Duncan
serves as Portfolio Manager of the SM&R Equity Income Fund, SM&R Balanced
Fund, the American National Investment Accounts, Inc.--American National
("A.N.") Equity Income Portfolio, A. N. Balanced Portfolio, and the A. N.
International Stock Portfolio. He graduated from West Virginia University in
1995 with a BS/BA degree in Finance and from Texas A&M University in 1996 with
an MS in Finance.
20
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
--------------------------------------------------------------------------
ANDRE J. HODLEWSKY, SECURITIES ANALYST/PORTFOLIO MANAGER. Mr. Hodlewsky joined
SM&R in 1998 as Securities Analyst. Mr. Hodlewsky serves as Portfolio Manager
of the SM&R Growth Fund, Inc. and the American National Investment Accounts,
Inc.--American National ("A.N.") Growth Portfolio and A. N. Small-Cap/Mid-Cap
Portfolio. He graduated from the University of Wisconsin in 1990 with a BA in
Graphic Design and Industrial Design and from the University of Wisconsin in
1999 with an MBA in Marketing and Finance. Prior to joining SM&R's staff, he
held a position at Rockwell from 1995 to 1997 in their Internet and
Multi-Media Design Group and Mandel Company in Milwaukee, Wisconsin, from 1993
to 1995 in the Prepress Technology Division.
21
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The condensed financial information on the following pages reflect all of the
fees and expenses imposed by each of the Funds which contributed to the changes
in the share price of each Fund during the period. It also shows the changes in
share price for this period in comparison to changes over the last five fiscal
years or less, if the fund is not five years old.
On a per-share basis, the table includes as appropriate
- share price at the beginning of the period
- investment income and capital gains or losses
- distributions of income and capital gains paid to shareholders
- share price at the end of the period
The table also includes some key statistics for the period as appropriate
- Total Return -- the overall percentage of return of the fund, assuming the
reinvestment of all distributions
- Expense Ratio -- operating expenses as a percentage of average net assets
- Net Income Ratio -- net investment income as a percentage of average net
assets
- Portfolio Turnover -- the percentage of the fund's buying and selling
activity
The Financial Highlights have been audited by the Funds independent auditors,
Tait, Weller & Baker. Their Independent Auditor's Report is included in the
fund's annual report for the year ended December 31, 1999, which is incorporated
by reference into the Statement of Additional Information and is available upon
request.
22
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
GROWTH FUND
The following financial highlights table is intended to help you understand the
Growth Fund's financial performance since inception. Certain information
reflects financial results for a single share outstanding throughout the 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) since the 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, Class A, B, and C Shares, which for the year ended
December 31, 1999 has been audited by Tait, Weller & Baker. The independent
auditor's report, along with the Growth Fund's financial statements, are
incorporated by reference into the Statement of Additional Information, which is
available upon request.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------------- -------------------- --------------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1999 1999 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 5.69 $ 5.69 $ 5.69
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME--NET 0.01 0.00 0.00
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.30 1.24 1.49
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.31 1.24 1.49
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM
Investment income--net -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Capital gains (0.27) (0.27) (0.27)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (0.27) (0.27) (0.27)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $ 6.73 $ 6.66 $ 6.91
====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 23.45% 22.04% 26.44%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (000'S OMITTED) $3,776 $1,547 $134
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.51% 2.01% 2.26%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets (0.19)% (0.69)% (0.94)%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 16.13% 16.13% 16.13%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
EQUITY INCOME FUND
The following financial highlights table is intended to help you understand the
Equity Income Fund's financial performance since inception. Certain information
reflects financial results for a single Equity Income Fund share outstanding
throughout the period shown. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in the Equity
Income Fund (assuming reinvestment of all dividends and distributions) since the
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 Equity Income Fund, Class A, B and
C Shares, which for the year ended December 31, 1999 has been audited by Tait,
Weller & Baker. The independent auditor's report, along with the Equity Income
Fund's financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------------- -------------------- --------------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1999 1999 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $28.02 $28.02 $28.02
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME--NET 0.58 0.47 0.38
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments (1.47) (1.88) (1.36)
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations (0.89) (1.41) (0.98)
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM
Investment income--net (0.58) (0.47) (0.38)
- ---------------------------------------------------------------------------------------------------------------------------
Capital gains (1.76) (1.76) (1.76)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (2.34) (2.23) (2.14)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $24.79 $24.38 $24.90
====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN (3.01)% (4.86)% (3.32)%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (000'S OMITTED) $4,802 $4,343 $275
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.51% 2.01% 2.26%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.53% 1.03% 0.78%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 9.81% 9.81% 9.81%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------
BALANCED FUND
The following financial highlights table is intended to help you understand the
Balanced Fund's financial performance since inception. Certain information
reflects financial results for a single Balanced Fund share outstanding
throughout the period shown. The total returns in the table represent the rate
that an investor would have earned (or lost) on an investment in the Balanced
Fund (assuming reinvestment of all dividends and distributions) since the
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 Balanced Fund, Class A, B and C
Shares, which for the year ended December 31, 1999 has been audited by Tait,
Weller & Baker. The independent auditor's report, along with the Balanced Fund's
financial statements, are incorporated by reference into the Statement of
Additional Information, which is available upon request.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
-------------------- -------------------- --------------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
-------------------- -------------------- --------------------
1999 1999 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, BEGINNING OF YEAR $19.63 $19.63 $19.63
- ---------------------------------------------------------------------------------------------------------------------------
INVESTMENT INCOME--NET 0.47 0.40 0.41
- ---------------------------------------------------------------------------------------------------------------------------
Net realized and unrealized gain (loss) on investments 1.47 1.81 1.42
- ---------------------------------------------------------------------------------------------------------------------------
Total from Investment Operations 1.94 2.21 1.83
- ---------------------------------------------------------------------------------------------------------------------------
LESS DISTRIBUTIONS FROM
Investment income--net (0.47) (0.40) (0.41)
- ---------------------------------------------------------------------------------------------------------------------------
Capital gains (0.80) (0.80) (0.80)
- ---------------------------------------------------------------------------------------------------------------------------
Total Distributions (1.27) (1.20) (1.21)
- ---------------------------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR $20.30 $20.64 $20.25
====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL RETURN 10.13% 11.52% 9.58%
- ---------------------------------------------------------------------------------------------------------------------------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR (000'S OMITTED) $1,777 $1,119 $8
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of expenses to average net assets 1.51% 2.01% 2.26%
- ---------------------------------------------------------------------------------------------------------------------------
Ratio of net investment income to average net assets 1.87% 1.36% 1.13%
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate 18.01% 18.01% 18.01%
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
SHAREHOLDER'S GUIDE TO INVESTING WITH SM&R'S MUTUAL FUNDS
--------------------------------------------------------------------------
IMPORTANT SHAREHOLDER FACTS AND INFORMATION
THIS SECTION OF THE PROSPECTUS IS PROVIDED TO HELP YOU BECOME FAMILIAR WITH THE
TYPES OF ACCOUNTS AND SERVICES AVAILABLE IN THE SM&R EQUITY FUNDS. IT EXPLAINS
THE VARIOUS SERVICES AVAILABLE TO YOU AND FEATURES YOU CAN ESTABLISH AS PART OF
YOUR ACCOUNT IN THE "FUNDS" AS WELL AS ACCOUNT POLICIES AND FEES THAT MAY APPLY
TO YOUR ACCOUNT.
SM&R'S WEB SITE: www.smrinvest.com
BUSINESS HOURS:
8:00 A.M. TO 4:30 P.M. CENTRAL TIME
EACH DAY THE NEW YORK STOCK EXCHANGE IS OPEN FOR TRADING ("REGULAR
TRADING DAY")
24-HOUR ACCESS TO ACCOUNT INFORMATION. SEE "VOICE RESPONSE UNIT" UNDER
"OTHER SERVICES" IN THIS GUIDE.
MAILING ADDRESS:
SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
OVERNIGHT MAILING ADDRESS AND STREET ADDRESS:
SECURITIES MANAGEMENT AND RESEARCH, INC.
2450 SOUTH SHORE BOULEVARD, SUITE 400
LEAGUE CITY, TEXAS 77573
IMPORTANT PHONE NUMBERS:
INVESTOR HOTLINE/VOICE RESPONSE:
1-877-239-2049
INVESTOR SERVICES DEPARTMENT:
1-800-231-4639
FAX NUMBERS:
TRANSFER AGENCY:
1-281-538-4983
WIRING INSTRUCTIONS:
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 GOVERNMENT BOND FUND)
FUND ACCOUNT NUMBER (NUMBER APPEARS ON YOUR CONFIRMATION STATEMENT)
YOUR NAME (E.G., MARY SMITH)
THIRD PARTY CHECKS
To prevent fraud, SM&R will not accept checks made payable to third parties to
open new accounts. Tax-deferred rollover checks, properly endorsed, will be
accepted.
MINIMUM INVESTMENT AMOUNTS:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
<S> <C> <C>
Regular Accounts $ 100 $ 20
Automatic Investment Plan $ 100 $ 20
Retirement Plans $ 100 $ 20
</TABLE>
The Funds' low investment minimums make investing easy. Once you decide on a
fund, an investment amount, and a share class simply talk to your
representative or broker-dealer, or fill out an application and send in your
investment.
The Funds reserve the right to change the amount of these minimums from time
to time or to waive them in whole or in part for certain types of accounts.
CERTIFICATES
Share certificates are not issued by the Funds. Your purchases are maintained
on the records of the Funds in book shares. This provides you with easy access
to your shares. You have the same rights of share ownership as you would if
certificates had been issued.
SPECIAL FEES:
- Tax-deferred: $7.50 per account custodian fee deducted annually
- Wiring fee: $10.00 for wire redemption proceeds under $10,000
SIGNATURE GUARANTEE REQUIREMENTS:
Required on all redemptions in amounts of $50,000 or more. Other requirements
apply and are discussed later in this guide.
TELEPHONE SERVICES:
SM&R will automatically establish a telephone redemption/exchange option for
all non-qualified and non-tax deferred accounts, unless you instruct us not to
do so. These services are not available to participants of post-secondary
education programs. Refer to "Telephone Services" later in this guide.
PLEASE KEEP IN MIND THAT ACCOUNT POLICIES (INCLUDING FEES), SERVICES AND
FEATURES MAY BE MODIFIED OR DISCONTINUED WITHOUT SHAREHOLDER APPROVAL OR PRIOR
NOTICE. DURING TIMES OF ECONOMIC TURMOIL OR MARKET VOLATILITY, SEVERE WEATHER,
OR NATURAL DISASTER YOU MAY NOT BE ABLE TO REACH SM&R BY TELEPHONE TO INSTITUTE
A REDEMPTION OR EXCHANGE.
26
<PAGE>
SHAREHOLDER'S GUIDE TO INVESTING WITH SM&R'S MUTUAL FUNDS
--------------------------------------------------------------------------
TYPES OF ACCOUNTS AVAILABLE
BELOW IS A BRIEF EXPLANATION OF THE DIFFERENT ACCOUNTS AVAILABLE IN THE FUNDS.
INDIVIDUAL OR JOINT OWNERSHIP
Individual accounts are owned by one person. Joint accounts have two or more
owners.
A UNIFORM GIFT OR TRANSFER TO MINOR (UGMA OR UTMA)
An UGMA/UTMA account is a custodial account managed for the benefit of a
minor. To open an UGMA or UTMA account, you must include the minor's Social
Security number on the application.
TRUST
An established trust can open an account. The names of each trustee, the
name of the trust and the date of the trust agreement must be included on
the application.
BUSINESS ACCOUNTS
Corporations, partnerships, and sole proprietorships may also open an
account. The application must be signed by an authorized officer of the
corporation or a general partner or owner of the business.
TAX-DEFERRED ACCOUNTS
If you are eligible, you may set up one or more tax-deferred accounts. A
tax-deferred account allows you to shelter your investment income and capital
gains from current income taxes, while saving for retirement. A contribution
to certain types of these plans may also be tax deductible. Tax-deferred
accounts include retirement plans described below and the Education IRA.
Distributions from these plans are generally subject to income tax and may be
subject to an additional tax if withdrawn prior to age 59 1/2 or used for a
non-qualifying purpose. Information concerning IRAs and TSAs, and the forms
necessary to adopt such plans, can be obtained by contacting your registered
representative, your broker-dealer, or by calling SM&R. INVESTORS SHOULD
CONSULT THEIR TAX ADVISER OR LEGAL COUNSEL BEFORE SELECTING A TAX-DEFERRED
ACCOUNT.
Securities Management and Research, Inc. serves as custodian for the
tax-deferred accounts offered by the funds. You will be charged an annual
account maintenance fee of $7.50 for each tax-deferred account you have. The
fee will be automatically deducted from your account (usually in the last
quarter). The custodian reserves the right to change the amount of this fee or
to waive it in whole or in part for certain types of accounts.
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS
Traditional IRAs allow most individuals with earned income to contribute up
to the lesser of $2000 or 100% of compensation annually.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS
Roth IRAs allow most individuals with earned income to contribute up to the
lesser of $2000 or 100% of compensation annually.
EDUCATION IRA
This plan allows individuals, subject to certain income limitations, to
contribute up to $500 annually per child under the age of 18.
SIMPLIFIED EMPLOYEE PENSION PLAN
This plan allows small business owners (including sole proprietors) to make
tax-deductible contributions for themselves and any eligible employee(s). A
SEP requires an IRA (a SEP-IRA) to be set up for each SEP participant.
SIMPLE
This plan allows employee pre-tax contributions up to $6,000 annually and
may be matched by the employer up to a maximum of 3% of employees'
compensations.
PROFIT SHARING OR MONEY PURCHASE PENSION PLAN
These plans are open to corporations, partnerships and sole proprietors to
benefit their employees and themselves.
SECTION 403(b)(7) PLAN
Employees of educational organizations or other qualifying, tax-exempt
organizations may be eligible to participate in a Section 403(b)(7) Plan.
PRICING OF FUND SHARES
GENERAL (HOW SHARES ARE PRICED). Each Fund's offering price is calculated once
each day the New York Stock Exchange (the "Exchange") is open for regular
trading. The offering price equals a Fund's net asset value plus the sales
charge, if any, computed at the rate set forth in the applicable tables for
the classes. (See "Sales Charge Reductions
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and Waivers in the Prospectus.") You may purchase shares of the SM&R Primary
Fund and SM&R Money Market Fund without a sales charge. Accordingly, the
offering price for shares of these funds is net asset value. Although the
legal rights of the Class A, B, and C shares are substantially identical, the
different expenses borne by each class will result in different net asset
values and dividends. The net asset value of the Class B and C shares
generally will be lower than the Class A shares as a result of differences in
service and distribution (12b-1) fees charged.
A NOTE ON PRICING. Each Fund's investments will be priced at their market value
when market quotations are readily available. When these quotations are not
readily available, investments will be priced at their fair value, calculated
according to procedures adopted by the Funds' Board of Directors. The Funds
also may use fair value pricing if the value of a security held by the Fund is
materially affected by events occurring after the close of regular trading of
the primary markets or exchanges on which the security is traded. In these
situations, prices used by the Fund to calculate its net asset value may
differ from quoted or published prices for the underlying securities.
SHARE PRICE -- EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS. Each Fund's share
price, called its net asset value, or NAV, is calculated once each day at the
close of regular trading (currently 3:00 p.m. Central Time). NAV is not
calculated on holidays or other days the Exchange is closed. In the event the
Exchange closes early on a particular day, we will determine the net asset
value of the Funds as of such earlier closing time. Below is the method used
by the Funds to calculate the NAV on any given day.
<TABLE>
<S> <C> <C>
Total Assets - Liabilities
Net Asset Value = --------------------------
Number of Shares Outstanding
</TABLE>
Knowing the daily net asset value is useful to you as a shareholder because it
indicates the current value of your investment. Each Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day, less any
applicable transaction fee or redemption charge. The price you pay or receive
for shares of a Fund depends, in part, on the day and time you make your
purchase or redemption. Purchases and redemptions will be executed on each day
the Exchange is open for regular trading at the next NAV determined THAT DAY if:
- SM&R receives your request in good order prior to the close of the regular
trading day;
- a securities dealer having a dealer contract with SM&R receives your order
prior to the close of the regular trading day and reports your order to
SM&R prior to SM&R's close of business (currently 4:30 p.m. Central Time)
on the same day; or
- SM&R is advised of bank wire purchases received by Moody National Bank
before 3 p.m. Central Time.
If we receive your order after the close of the regular trading day or on any
day that the Exchange is closed, we will execute your purchase or redemption
at the price determined on the next regular trading day. In unusual
circumstances, the Funds may temporarily suspend the processing of sale
requests, or may postpone payment of proceeds for up to three business days or
longer, as allowed by federal securities laws.
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HOW TO PURCHASE SHARES
YOU SHOULD REFER TO THE FIRST PAGE OF THIS SHAREHOLDER'S GUIDE "IMPORTANT
SHAREHOLDER FACTS AND INFORMATION" FOR THE APPROPRIATE ADDRESSES AND TELEPHONE
NUMBERS.
<TABLE>
<CAPTION>
METHOD OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------
BY MAIL OR THROUGH A - Determine the Fund and the Class in which - Make your check payable to SM&R.
REGISTERED you want to invest. - Use the investment slip on your
REPRESENTATIVE - Complete and sign the account application confirmation, or
- Make the check payable to SM&R. - Write a note specifying:
- Mail the application and your check to SM&R -- Your account number
at the address on the first page of this -- The Fund name
guide. -- Share class
- Or deliver the information to your -- The name(s) in which the account is
representative (provided he or she has a registered.
broker-dealer arrangement with SM&R). - Mail to the address indicated on the cover
page of this guide.
- -------------------------------------------------------------------------------------------------------------------
BY PHONE WIRE - Call Investors Services to obtain a - Call Investors Services at the number on
reference number (call by noon, Central the first page of this guide, on any
Time, if you want wired funds to be credited business day.
that day). - You can send your investment either by:
Instruct your bank to wire or transfer -- Federal Funds Wire (offers immediate
your purchase (your bank may charge a access to funds), or
wiring fee) using the information on the -- Electronic transfer via ACH which
first page of this guide. avoids wiring fees, if your bank
- Complete the account application and mail account is set up on file
to the appropriate address.
- Wires received before 3:00 p.m. Central
Time on regular trading days will receive
that day's closing price (if not, you will
receive the next trading day's closing
price).
- -------------------------------------------------------------------------------------------------------------------
BY EXCHANGE - You can make an additional investment by exchange from an existing Fund in the SM&R Mutual
Funds to an existing account by calling Investor Services.
- You can only exchange shares in the same class with identical registrations.
- There is no sales charge or redemption fee when exchanging funds within the SM&R Mutual
Funds.
- Orders placed before 3 p.m. Central Time on regular trading days will receive that day's
closing price (if not, you will receive the next regular trading day's closing price).
- Exchanges are limited to three per calendar quarter, and twelve per calendar year.
- Exchanges between accounts that do not have identical ownership registration must be made
in writing.
- Be sure you read the prospectus for the Fund into which you are exchanging.
KEY POINT: AN EXCHANGE REPRESENTS THE SALE OF SHARES OF ONE FUND AND THE PURCHASE OF SHARES
OF ANOTHER FUND. THIS TRANSACTION MAY PRODUCE A TAXABLE GAIN OR LOSS IN A NON-TAX DEFERRED
ACCOUNT.
- -------------------------------------------------------------------------------------------------------------------
AUTOMATIC INVESTMENT - You can transfer money automatically from - To establish automatic investing for an
PLAN THROUGH THE your bank account into your Fund account on existing account, call Investor Services for
AUTOMATED CLEARING a monthly basis. an application.
HOUSE (ACH) - Initial investment minimum is $100 if you - The minimum is $20.
invest at least $20 per month with this
service.
- To enroll, check off the box on the account
application and provide:
1. Your bank account information,
2. The amount and date of your monthly
investment, and
3. A voided check.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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HOW TO REDEEM SHARES
You have several convenient ways for you to redeem your shares in any of the
SM&R Equity Funds. Redemptions will be at net asset value, less any applicable
CDSC, which is determined on the date your request is received by SM&R in good
order.
<TABLE>
<CAPTION>
METHODS REQUIREMENTS
<S> <C>
- -----------------------------------------------------------------------------------
CALL US - Call Investor Service during normal business hours on any
business day.
- This service is only available for those accounts which
are non-qualified and non-tax deferred:
1. The amount requested is $500 or more per account
2. The amount is less than $50,000 in aggregate
3. The proceeds are to be mailed to the address of
record or electronically transferred to the bank
account indicated on your fund account.
4. There has been no change of address for either you or
your bank for 30 days
5. Telephone services have not been declined.
6. The security procedures discussed on page 9 of this
guide have been met.
7. There are no outstanding certificate shares on the
account.
- All authorized requests received before 3:00 p.m. Central
Time on regular trading days will be processed at that
day's closing price. Requests received after 3:00 p.m. will
be processed the following regular trading day.
- We can either:
-- wire the proceeds the next business day into your
bank account of record (service charges may apply)
-- electronically transmit the proceeds to your bank
account of record via the ACH service
-- mail you a check
- All telephone calls are recorded for your protection. We
are not responsible for acting on telephone orders we
believe to be genuine. (Refer to "Security Procedures"
later in this guide)
- See exceptions below for requests that must be made in
writing.
- A $10.00 fee is charged for redemptions by wire under
$10,000.
- To redeem from a tax-deferred account, call Investor
Services for a special withdrawal form.
- -----------------------------------------------------------------------------------
WRITE US - You can mail a redemption request to the appropriate
address listed on the first page of this guide.
- Your letter of instruction must:
-- list your account number and the fund name
-- indicate the number of shares or dollar value you
wish to redeem
-- be signed by the registered owner(s)
-- include any outstanding share certificates issued
prior to January 1, 1999
-- include special withdrawal forms for tax deferred
accounts
- Refer to "Signature Guarantee" below for requests that
must be signature guaranteed.
- -----------------------------------------------------------------------------------
FAX US You may fax your request for redemption from a non-qualified
and non-tax deferred account, if your request meets
requirements stated in 2-7 under "Call Us" above. Your fax
requests must be received by SM&R before 3:00 p.m. Central
Time on regular trading days to receive that day's price.
- -----------------------------------------------------------------------------------
SELL YOUR SHARES IN You may also redeem your shares by coming to SM&R's home
PERSON office, and deliver your request in person prior to
3:00 p.m. Central Time on regular trading days to receive
that day's price.
- -----------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL You can withdraw money automatically from your Fund account
PLAN (SWP) on a monthly, quarterly, semi-annual, and annual basis --
without redemption fees -- on or about the 20th of the month
and if:
- Your account value is $5,000 or more
- You complete the relevant section of the application
- The withdrawal can be mailed to you at your address of
record, or deposited directly to your bank account via
ACH
The minimum withdrawal is $50 per month.
The maximum amount is 1% of your account per month or 12%
annually.
To obtain proper forms, contact Investor Services.
See "Important Facts About Redeeming" later in this guide
for more information.
- -----------------------------------------------------------------------------------
</TABLE>
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PAYMENT OF REDEMPTION PROCEEDS
Normally, redemption proceeds of shares you purchased by wire, certified check,
money order, or other immediately available funds will be mailed no later than
the 7th calendar day following receipt of your redemption request. Redemptions
of shares recently purchased by a personal check or ACH (discussed later in this
guide) transfer will generally be delayed for up to ten (10) business days to
allow the check or transfer to clear.
We reserve the right to redeem "in kind" by paying you the proceeds of a
redemption in securities rather than in cash.
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<S> <C>
INDIVIDUAL OR JOINT TENANTS Written instructions must be signed by each shareholder,
exactly as the names appear in the account registration.
UGMA OR UTMA Written instructions must be signed by the custodian in
his/her capacity as it appears in the account registration
until the minor reaches the age of majority as defined by
the state in which the UGMA or UTMA was established.
SOLE PROPRIETOR, GENERAL Written instructions must be signed by an authorized
PARTNER individual in his/her capacity as it appears on the account
registration.
CORPORATION, ASSOCIATION Written instructions must be signed by the person(s)
authorized to act on the account. In addition, a certified
copy of the corporate resolution authorizing the signer to
act must accompany the request.
TRUST Written instructions must be signed by the trustee(s). If
the name of the current trustee(s) does not appear on the
account application, a current certificate of incumbency
dated within 60 days must also be submitted.
IRA OR TSA A special withdrawal form must be signed by the account
(INCLUDES ALL TYPES OF IRAS) owner, and you may obtain this form by contacting Investor
Services at the number on the first page of this guide. If
you do not want federal income tax withheld from your
redemption, you must state that you elect not to have such
withholding apply. In addition, your instructions must state
whether the distribution is normal (after age 59 1/2) or
premature (before age 59 1/2) and, if premature, whether any
exceptions such as death or disability apply with regard to
the 10% additional tax on early distributions. In addition,
TSA's will have a 20% mandatory withholding tax applied to
all distributions if the account owner is under 70 1/2.
EXECUTORS OF SHAREHOLDER Written instructions must be signed by the executor. A copy
ESTATES of the order appointing the executor, certified within the
past 12 months must accompany the letter of instructions. A
signature guarantee must be provided as discussed below.
</TABLE>
SIGNATURE GUARANTEE
To protect you and the Funds against fraud, certain redemption requests must be
made in writing with your signature guaranteed. A signature guarantee can be
obtained at most banks and securities dealers. A notary public is not authorized
to provide a signature guarantee.
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<TABLE>
<S> <C>
The following circumstances require a signature guarantee: WHO CAN PROVIDE A SIGNATURE GUARANTEE:
- - Redemptions from one or more of the Funds total $50,000 or - Commercial Bank
more - Trust Company
- - You want the proceeds sent to an address other than the - Savings Association
address currently appearing on your account - Credit Union
- - You want the proceeds sent to a bank account not listed on - Member of Medallion Program
your account - Member of a U.S. Stock Exchange
- - You want the proceeds payable to anyone other than the - Authorized SM&R Representatives
registered owner(s) of the account NOTARY PUBLIC NOT ACCEPTABLE
- - Either your address or the address of your bank account
has been changed within 30 days
- - The account is registered in the name of a fiduciary,
corporation or any other organization. In these cases,
additional documentation is required:
Corporate accounts: certified copy of corporate
resolution
Fiduciary accounts: copy of the power of attorney or
other governing document
- - The Funds or their transfer agent believe a signature
guarantee would protect against claims based on transfer
instructions
</TABLE>
IMPORTANT FACTS ABOUT REDEEMING
SYSTEMATIC WITHDRAWAL PLAN. It may not be advisable for shareholders to
maintain a Withdrawal Account while concurrently purchasing shares of the Fund
because of the sales charge or CDSC (as applicable) involved in additional
purchases. See "Class B Waivers of Contingent Deferred Sales Charges" in this
prospectus for a discussion of the CDSC waivers available. You should
carefully consider such purchases and contact your representative regarding
their advisability. While you are participating in a Systematic Withdrawal
Plan 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. 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. Retirement Plan Accounts
are subject to special withdrawal requirements. Call Investor Services for
assistance.
REINVESTMENT PRIVILEGE. Within ninety (90) days of a redemption (60 days for
tax-deferred plans) of Class A or Class T shares of a Fund, a shareholder may
reinvest all or part of the proceeds in the same class of the same Fund from
which the redemption was processed 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 your registered representative, your broker-dealer or
SM&R.
"GOOD ORDER" means the request for redemption must include:
(1) your letter of instruction or a stock assignment specifying the fund,
account number, and number of shares or dollar amount to be redeemed.
The letter of instruction and stock powers must be signed and executed
exactly as the fund shares are registered and any
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outstanding share certificates returned. It is suggested that
certificates be returned by certified mail for your protection;
(2) any required signature guarantees (see "Signature Guarantees" above);
and
(3) 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 it is your responsibility to ensure that all requests
are submitted to the Fund's transfer agent in good order for processing.
TEXAS OPTIONAL RETIREMENT PROGRAM. You may not redeem shares in any account
established under the Texas Optional Retirement Program, unless SM&R receives
satisfactory evidence from the state that one of the following conditions
exist:
(1) death of the employee;
(2) termination of service with the employer; or
(3) retirement of employee.
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 $500. 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 Funds may,
from time to time, change such required minimum investment.
TRANSACTIONS THROUGH PROCESSING ORGANIZATIONS
You may also purchase or sell shares of the Funds through a broker-dealer, bank
or other financial institution, or an organization that provides recordkeeping
and consulting services to 401(k) plans or other employee benefit plans (a
"Processing Organization"). Processing Organizations may charge you a fee for
this service and may require different minimum initial and subsequent
investments than the Funds. Processing Organizations may also impose other
charges or restrictions different from those applicable to shareholders who
invest in the Funds directly. If you utilize a Processing Organization the Funds
are not responsible for failure of any Processing Organization to carry out its
obligations to its customers. YOU MAY NOT BE CONSIDERED THE SHAREHOLDER OF
RECORD OF YOUR SHARES. THEREFORE, YOU MAY NOT BE ABLE TO UTILIZE SERVICES
AVAILABLE ONLY TO SHAREHOLDERS OF THE FUNDS. YOU SHOULD KEEP THIS IN MIND WHEN
ESTABLISHING AN ACCOUNT IN ANY FUND.
OTHER SERVICES
In addition to the plans described under "Sales Charge Reductions and Waivers,"
that permit you to reduce the initial sales charge assessed on Class A shares or
the CDSC on Class B shares, the Funds offer other services and plans described
below. 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 electronic transfers (ACH) plan described below, you
should check with your financial institution for any additional charges imposed
by them for this service. For additional information on these plans and services
you should contact your registered representative, broker-dealer or SM&R. Before
beginning any of the plans or services described below you should consult a tax
advisor.
ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your account(s) and your bank, savings and loan, or credit union
account using Automated Clearing House ("ACH") network. To arrange for
electronic transfers, complete the relevant Special Investor Services 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 bank, savings and loan, or credit union account. YOUR
FINANCIAL INSTITUTION MUST BE A MEMBER OF THE AUTOMATED CLEARING HOUSE (ACH)
NETWORK FOR YOU TO TAKE ADVANTAGE OF THIS SERVICE.
TELEPHONE SERVICES. You can only use telephone services for transaction amounts
of $500 or more. Through this service, you will be able to purchase additional
shares for an existing SM&R mutual fund account by ACH. You may also use the
telephone services to redeem and exchange shares on those accounts for which
you have an executed account application on file. For example, we permit
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exchanges by telephone from a joint account only to another joint account
registered in the identical names. There may be additional restrictions on
telephone transactions by joint account owners. If you initially choose not to
have this option and wish to establish it at a later date, it would be
necessary for you to complete the required form requesting this option.
Contact your registered representative for more information. PLEASE NOTE THAT
THE TELEPHONE REDEMPTION OPTION IS NOT AVAILABLE FOR QUALIFIED AND
TAX-DEFERRED ACCOUNTS.
While telephone redemption is easy and convenient, this account feature involves
risk of loss from unauthorized or fraudulent transactions. SM&R will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private, and by immediately reviewing
any account statements that we send to you. Make sure to contact SM&R's
Investors Services Department immediately about any transaction you believe to
be unauthorized.
SECURITY PROCEDURES
TELEPHONE TRANSACTIONS
The Funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions: The caller must 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).
Anyone with the required account information indicated above (including your
broker) can request a telephone transaction in your account. All calls are
recorded and/or monitored for verification, record keeping and
quality-assurance purposes. Requested proceeds will be forwarded only to an
address or bank account designated on the account at the time of the
transaction.
VOICE RESPONSE UNITS
The Funds now have available to shareholders a means by which they can access
account information, fund prices, and take advantage of other features
24-hours a day. To obtain account information you will be required to know
your fund number, account number, and your PIN number. As indicated under
"Telephone Services" above, you should keep your account information private.
We also suggest that you change your PIN number periodically and not provide
the number to anyone.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone or through the voice response
unit that comply with the current security procedures and other requirements.
SM&R believes that such security procedures and other requirements are
reasonable.
During times of economic turmoil or market volatility, severe weather, or
natural disaster you may not be able to reach SM&R by telephone to institute a
redemption or exchange.
For additional restrictions refer to "Exchange Privilege" below.
AUTOMATIC DIVIDEND INVESTMENT. Your dividends and distributions may be paid in
cash or invested in any SM&R Mutual Fund at net asset value. Unless you
specify otherwise, your dividends and distributions will automatically be
reinvested in the same SM&R Mutual Fund. You may invest your dividends and
distributions (1) into another SM&R Mutual Fund in the same class of shares;
or (2) from Class A shares into SM&R Money Market Fund, or vise versa.
You must comply with the following requirements to invest your dividends and
distributions in shares of another SM&R Mutual Fund:
(1) Your account balance (a) in the SM&R Mutual Fund paying the dividend
must be at least $5,000; and (b) the SM&R Mutual Fund receiving the
dividend must have an account balance of at least $500.
(2) Both accounts must have identical registration information, that is they
cannot be in different names; and
(3) You must have elected, in writing, to reinvest dividends into another
SM&R Mutual Fund.
AUTOMATIC INVESTMENT PLAN. Through this plan, a specified amount is
electronically transferred (via
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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. SM&R can establish a Group Systematic
Investment Plan with an employer having 5 or more participants under a single
payroll deduction arrangement. Under this investment plan there is a minimum
investment of $20 per individual. Any such plan may be terminated by SM&R or
the shareholder at any time upon sixty (60) days written notice. However, all
other investment amount minimums apply. Contact SM&R for further information
regarding these plans.
EXCHANGE PRIVILEGE. As an investor in the Funds, you may be permitted to
exchange shares that you own for shares of other mutual funds managed by SM&R
without the payment of an exchange fee, subject to certain conditions.
EXCHANGES BETWEEN A FUND AND ANOTHER FUND MANAGED BY SM&R ARE AVAILABLE ONLY
IN STATES WHERE THE APPLICABLE FUNDS ARE REGISTERED AND THE EXCHANGE MAY BE
LEGALLY MADE. YOU SHOULD CONTACT SM&R TO DETERMINE WHETHER A FUND IS
REGISTERED IN A PARTICULAR STATE AND WHETHER AN EXCHANGE IS PERMITTED.
WE RESERVE THE RIGHT TO TERMINATE OR CHANGE THE TERMS OF ANY EXCHANGE
PRIVILEGE AT ANY TIME.
You may exchange Class A, Class B, or Class C shares that you own in the
Funds, without an exchange fee or sales charge, for shares of the
corresponding class of another fund managed by SM&R. You also may exchange
your Class A or Class B shares for shares of the SM&R Investments,
Inc.--Primary or Money Market Funds, subject to two conditions:
- any applicable CDSC period has expired on the shares you wish to exchange
(I.E., 13 months in the case of Class A share purchases of $1 million or
more and 6 years in the case of Class B share purchases), and
- you meet any minimum investment requirement for the shares you wish to
acquire.
You CANNOT exchange Class C shares for shares of the Money Market Fund or
Primary Fund.
We waive any sales charges on Class A and Class T shares acquired through an
exchange if you previously paid a sales charge on amounts invested in those
shares. For example, assume you purchase Class A shares of an Equity Income
Fund. You then exchange your Class A shares for shares of the Money Market
Fund. Later, you re-exchange those shares of the Money Market Fund for Class A
shares of the Tax Free Fund. We would not impose any sales charge upon the
re-exchange into Class A shares of the Tax Free Fund because you previously
paid a sales charge on amounts invested in those shares. In other words, we
will never impose a front-end sales charge on the same investment TWICE.
Shares of any fund managed by SM&R 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 that are registered in the
same name, address and, if applicable, taxpayer identification number;
(b) the shares of the Fund acquired through exchange must be qualified for
sale in the state in which you reside;
(c) the dollar amount of a written exchange must meet the minimum investment
requirement applicable to the shares of the fund that you would acquire
through the exchange;
(d) the minimum dollar amount of a telephone exchange is $500;
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(e) SM&R must have received full payment for the shares being exchanged;
(f) 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);
(g) any shares that you wish to exchange must have been held for at least
ten (10) business days; and
(h) you have received a prospectus for the fund 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.
AUTOMATIC CONVERSIONS. 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 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 exchanges Class B shares of a fund for Class B shares of another fund
managed by SM&R, the purchase date of the original investment will be used to
determine the appropriate conversion date.
ABUSIVE TRADING PRACTICES. Excessive, short-term (market-timing) or other
abusive trading practices may disrupt portfolio management strategies and harm
fund performance. To minimize harm to the Fund and its shareholders, we
reserve the right to reject any purchase order (including exchanges) from any
investor we believe has a history of abusive trading or whose trading, in our
judgement, has been or may be disruptive to a fund. In making this judgement,
we may consider trading done in multiple accounts under common ownership or
control.
36
<PAGE>
SHAREHOLDER'S GUIDE TO INVESTING WITH SM&R'S MUTUAL FUNDS
--------------------------------------------------------------------------
DISTRIBUTIONS AND TAXABILITY. To avoid taxation of the Funds, the IRS Code
requires each Fund to distribute net income and any capital gains realized on
its investments annually. A Fund's income from dividends and interest and any
net realized short-term gains are paid to shareholders as ordinary income
dividends. Net realized long-term gains are paid to shareholders as capital
gains distributions.
Dividends you receive from the Funds, whether reinvested or taken as cash, are
generally considered taxable. Some dividends paid in January may be taxable as
if they had been paid the previous December. The Form 1099 that is mailed to
you every January details your dividends and their federal tax category,
although you should verify your tax liability with your tax professional.
DISTRIBUTION SCHEDULE. The following schedule of distributions is provided to
let you know when you can expect to receive a distribution from the SM&R
Mutual Funds you own. These distributions, under normal circumstances and if
earned, will be declared and paid in the months indicated in the following
chart.
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
DECLARED PAID
<S> <C> <C>
SM&R GROWTH FUND June and December
December
- -----------------------------------------------------
SM&R EQUITY INCOME March, June, December
FUND September,
December
- -----------------------------------------------------
SM&R BALANCED FUND March, June, December
September,
December
- -----------------------------------------------------
</TABLE>
DISTRIBUTIONS EFFECT ON NAV. In order to be entitled to a dividend, an investor
must have acquired shares of a fund prior to the close of business on the
dustribution record date. A shareholder should be cautioned, however, before
purchasing shares of a fund immediately prior to a distribution. Dividends and
distributions paid by the Funds have the effect of reducing net asset value
per share on the record date by the amount of the payment. Therefore, a
dividend or distribution of record shortly after the purchase of shares by a
shareholder represents, in substance, a return of capital.
DIVIDEND REINVESTMENTS. Dividends and capital gains will be automatically
reinvested at net asset value in additional shares of the Fund 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
applicable Fund(s). Dividends on 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. This is a convenient way
to accumulate additional shares and maintain or increase the shareholder's
earning base. Of course, any shares so acquired remain at market risk.
Shareholders have the right to change their election with respect to the
receipt of distributions by notifying SM&R in writing, but any such change
will be effective only as to distributions for which the record date is seven
or more business day after SM&R has received the shareholder's written
request.
BACKUP WITHHOLDING. Backup withholding for federal income tax may be applied,
where required by current IRS requirements, at the rate of 31% from taxable
dividends, distributions, and redemption proceeds (including exchanges) if you
fail to furnish the funds with a correct and properly certified Social
Security or Employer Identification Number when you sign your application, or
if you underreport your income to the Internal Revenue Service.
TAXABILITY OF REDEMPTIONS AND EXCHANGES. You should consult with a tax advisor
concerning the tax effect on the redemption or exchange of such shares. Any
time you sell or exchange shares, it is considered a taxable event for you.
Depending on the purchase price and the sale price of the shares
37
<PAGE>
SHAREHOLDER'S GUIDE TO INVESTING WITH SM&R'S MUTUAL FUNDS
--------------------------------------------------------------------------
you sell or exchange, you may have a gain or a loss on the transaction. You
are responsible for any tax liabilities generated by your transactions.
RIGHTS RESERVED BY THE COMPANY. The Company, acting through its transfer agent,
reserves the right:
- to waive, lower, or raise 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 the account owners or other parties or
there is reason to believe a fraudulent transaction may occur, or has
occurred;
- 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 not act on instructions believed not to be genuine;
- to eliminate duplicate mailings of fund material to shareholders who
reside at the same address; or
- to otherwise modify the conditions of purchase and any services at any
time.
38
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED ALL IN PROSPECTUSES)
--------------------------------------------------------------------------
BOND RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM BOND (BONDS THAT EXTEND
LONGER THAN ONE YEAR) 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 than 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 likely 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, it 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 LONG-TERM BOND (BONDS THAT
EXTEND LONGER THAN ONE YEAR) 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 larger than
the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
A-1
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED ALL IN PROSPECTUSES)
--------------------------------------------------------------------------
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.
PREFERRED STOCK RATING
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S PREFERRED STOCK RATING:
AAA This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rated "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelmingly as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the "A"
category.
BB Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
predominantly speculative with
B respect to the issuer's capacity to pay preferred stock obligations. "BB"
indicates the lowest degree of speculation
CCC and "CCC"' the highest. 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:
aaa An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba An issue which is rated "ba" is considered to have speculative elements and
its future cannot be considered well assured. Earnings and asset protection
may be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
A-2
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED ALL IN PROSPECTUSES)
--------------------------------------------------------------------------
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.
A-3
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS
--------------------------------------------------------------------------
The following documents contain more information about the funds and are
available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains additional information about all aspects of the funds. A
current SAI has been filed with the Securities and Exchange Commission and is
incorporated herein by reference.
ANNUAL AND SEMI-ANNUAL REPORTS
The funds' annual and semi-annual reports provide additional information about
the funds' investments. The annual report for the fiscal year ended
December 31, 1999 will contain a discussion of the market conditions and
investment strategies that significantly affected each fund's performance during
the last fiscal year.
REQUESTING DOCUMENTS
You may request a free copy of the SAI and these reports, make shareholder
inquiries, or request further information about the funds either by contacting
your broker or by contacting the funds at:
SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
TELEPHONE: 1-800-231-4639 (TOLL FREE) OR
1-281-334-2469 (COLLECT)
PUBLIC INFORMATION.
You can review and copy information about the funds, including the SAI, 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. 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.
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
Investment Company
File Nos. 811-00623
811-01916
811-02818
<PAGE>
[LOGO]
SM&R EQUITY FUNDS
INVESTMENT STRATEGIES FOR A CHANGING WORLD
CLASS T
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
Prospectus, May 1, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
<PAGE>
TABLE OF CONTENTS
-------------------------------------------------------------------
<TABLE>
<S> <C>
FUND SUMMARIES.......................... 1
SM&R Growth Fund, Inc................... 1
SM&R Equity Income Fund, Inc............ 2
SM&R Balanced Fund, Inc................. 3
ADDITIONAL EXPLANATION OF RISK
FACTORS................................. 5
PERFORMANCE............................. 6
EXPENSES OF THE FUNDS................... 8
Fees and Expenses of the Funds.......... 8
SHARES OF THE FUNDS..................... 10
Eligible Purchasers of Class T Shares... 10
Class T Sales Charges................... 11
Sales Charge Reductions and Waivers..... 11
INVESTMENT OBJECTIVES, POLICIES AND
RISKS................................... 13
Growth Fund............................. 13
Equity Income Fund...................... 14
Balanced Fund........................... 15
OTHER RISK FACTORS...................... 18
THE FUNDS AND THEIR MANAGEMENT.......... 20
Investment Adviser...................... 20
Portfolio Management.................... 21
FINANCIAL HIGHLIGHTS.................... 23
Growth Fund............................. 24
Equity Income Fund...................... 25
Balanced Fund........................... 26
SHAREHOLDER'S GUIDE TO INVESTING WITH
SM&R'S MUTUAL FUNDS..................... 27
APPENDIX A.............................. A-1
</TABLE>
WHY READING THIS PROSPECTUS IS IMPORTANT TO YOU
This prospectus explains the investment objectives, risks and strategies of
each of the SM&R Equity Funds. Reading the prospectus will help you to decide
which SM&R Equity Fund, if any, is the right investment for you. We suggest
that you keep this prospectus for future reference.
<PAGE>
FUND SUMMARY SM&R GROWTH FUND, INC.
------------------------------------------------------------------------
FUND FACTS
YOU MAY FIND
HELPFUL
Classes of Shares
Offered in this
Prospectus:
Class T Fund #021
Investment Adviser:
Securities
Management and
Research, Inc.
Portfolio Managers:
Gordon D. Dixon
Andre J. Hodlewsky
Portfolio Turnover:
16.13% Class T
NASDAQ Symbol:
AMRNX Class T
Dividend Payment
Schedule:
Semi-Annually
INVESTMENT OBJECTIVE
The Growth Fund seeks to achieve capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Growth Fund normally invests at least 85% of its total assets in common
stocks. In selecting stocks, Securities Management and Research, Inc. ("SM&R"),
the Growth Fund's investment advisor:
- chooses stocks of financially sound companies that have a proven ability to
make and sustain a profit over time
- places an emphasis on companies with growth potential
The Growth Fund generally purchases a higher proportion of stocks (relative to
their market weight) from these sectors of the market with higher growth
prospects, referred to as "overweighting." Examples of sectors with higher
growth prospects currently include technology, healthcare, and consumer staples.
On the other hand, the portfolio generally purchases a smaller proportion of
stocks (relative to their market weight) from sectors of the market with below
average growth characteristics (for example, utilities and basic materials),
referred to as "underweighting."
PRINCIPAL RISK FACTORS
The Growth Fund is subject to the risks common to all mutual funds that invest
in equity securities, and you could lose money investing in this fund. The
principal risks of investing in the Growth Fund are as follows:
- the market value of the fund's securities could decline (market risk).
- SM&R's investment decisions (such as sector overweighting and underweighting
and individual stock selection) could fail to achieve the desired results
(investment style or management risk).
- growth stocks can have relatively wide price swings as a result of the high
valuations they carry (growth stock risk).
- interest rates could increase which can cause the value of a debt security
to decline (interest rate risk).
- issuers of debt obligations could default or be unable to pay amounts due
(credit risk).
WHO MAY WANT TO INVEST IN THE FUND
The fund may be appropriate if you:
- have long-term investment goals (ten years or more)
- are willing to accept higher short-term risk
- want to diversify your portfolio
WHO MAY NOT WANT TO INVEST IN THE FUND
The fund may NOT be appropriate:
- if you are investing with a shorter time horizon (less than ten years)
- if you are uncomfortable with an investment that will go up and down in
value
- as your complete portfolio
1
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
------------------------------------------------------------------------
FUND FACTS
YOU MAY FIND
HELPFUL
Classes of Shares
Offered in this
Prospectus:
Class T Fund #022
Investment Adviser:
Securities
Management and
Research, Inc.
Portfolio Managers:
Gordon D. Dixon
Andrew R. Duncan
Portfolio Turnover:
9.81% Class T
NASDAQ Symbol:
AMNIX Class T
Dividend Payment
Schedule:
Quarterly
INVESTMENT OBJECTIVE
The Equity Income Fund seeks current income with a secondary objective of
long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the fund's investment
advisor, normally invests at least 75% of the Equity Income Fund's assets in
common stocks. This portfolio may also invest in preferred stocks and investment
grade debt securities (such as publicly traded corporate bonds, debentures,
notes, commercial paper, repurchase agreements, and certificates of deposit). In
selecting common and preferred stocks, the fund focuses on companies with
consistent and increasing dividend payment histories and future earnings
potential sufficient to continue such dividend payments. The fund's goal is to
maintain a fund dividend yield (before fees and expenses) at least 50% greater
than that of the S&P 500 Index.
The Equity Income Fund generally purchases a higher proportion of stocks
(relative to their market weight) from those sectors of the market with greater
dividend prospects, referred to as "overweighting." Examples of sectors with
greater dividend prospects currently include financial companies like banks,
insurance companies, and real estate investment trusts. On the other hand, the
fund generally purchases a smaller proportion of stocks (relative to their
market weight) from sectors of the market with below average dividend yields
(such as technology and consumer staples), referred to as "underweighting."
PRINCIPAL RISK FACTORS
The Equity Income Fund is subject to the risks common to all mutual funds that
invest in equity securities and you could lose money investing in this fund. The
principal risks of investing in the Equity Income Fund are as follows:
- the market value of the fund's securities could decline (market risk).
- SM&R's investment decisions (such as sector overweighting and underweighting
and individual stock selection) could fail to achieve the desired results
(investment style or management risk).
- growth stocks can have relatively wide price swings as a result of the high
valuations they carry (growth stock risk).
- interest rates could increase which can cause the value of debt securities
to decline (interest rate risk).
- issuers of debt obligations could default or be unable to pay amounts due
(credit risk).
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- have medium-term investment goals (five years or more)
- are comfortable with moderate to aggressive risk
- are looking for a fund with both growth and income components
- are seeking to participate in the equity market
- are willing to accept higher short-term risk
WHO MAY NOT WANT TO INVEST IN THE FUND
This fund may NOT be appropriate if you:
- are investing with a shorter-time horizon (less than five years)
- are investing for maximum return
- require a high degree of stability of your principal
2
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
------------------------------------------------------------------------
FUND FACTS
YOU MAY FIND
HELPFUL
Classes of Shares
Offered in this
Prospectus:
Class T Fund #023
Investment Adviser:
Securities
Management and
Research, Inc.
Portfolio Managers:
Gordon D. Dixon
Andrew R. Duncan
Portfolio Turnover:
18.01% Class T
NASDAQ Symbol:
ANTRX Class T
Dividend Payment
Schedule:
Quarterly
INVESTMENT OBJECTIVE
The Balanced Fund seeks to conserve principal, produce current income, and
achieve long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the Balanced Fund's
investment advisor, uses a "balanced" approach by investing part of the assets
in common stocks and the remainder in a combination of U.S. Government bonds,
investment-grade corporate bonds, collateralized mortgage obligations, mortgage-
backed securities, convertible bonds, cash and money market instruments. The
balance of stocks to bonds and money market instruments changes in response to
changing economic conditions. This flexibility may help to reduce price
volatility.
SM&R will generally select stocks on certain growth and value considerations. A
growth stock would include a company whose price/earnings ratio is attractive
relative to the underlying earnings growth rate. An example of a value stock
would be one where the stock price appears undervalued in relation to earnings,
projected cash flow, or asset value per share.
The stocks in this fund are diversified and are selected based upon two models.
One model is based on profitability measurements and the other model is based on
the corporation's return on invested cash. The bonds, meanwhile, may serve as a
stabilizing force during times of eroding stock market value, as well as provide
a fixed income payment stream. The fund invests at least 25% of assets in fixed
income securities, all of which are rated BBB or better (investment grade).
The fixed income portion of the fund will generally invest in medium and long-
term securities. The average maturity for the fixed income portion generally is
expected to be in the six to fifteen year range (some securities may have a
longer or shorter duration). The average portfolio maturity may be shorter when
management anticipates that interest rates will increase, and longer when
management anticipates interest rates will decrease.
PRINCIPAL RISK FACTORS
The Balanced Fund is subject to the risks common to all mutual funds that invest
in equity securities and you could lose money investing in this fund. The
principal risks of investing in the Balanced Fund are as follows:
- the market value of the fund's securities could decline (market risk).
- SM&R's investment decisions (such as determining the ratio of stocks to
bonds and individual stock selection) could fail to achieve the desired
results (investment style or management risk).
- growth stocks can have relatively wide price swings as a result of the high
valuations they carry (growth stock risk).
- interest rates could increase which can cause the value of debt securities
to decline (interest rate risk).
- issuers of debt obligations could default or be unable to pay amounts due
(credit risk).
- the fund could be unable to find a buyer for its securities (liquidity
risk).
- the income you receive from the portfolio is based primarily on interest
rates, which can vary widely over the short- and long-term. If interest
rates drop, your income from the portfolio may drop as well (income risk).
- Interest rates could fall enough to prompt an unexpected number of people to
refinance (or prepay) their mortgages before their maturity (call risk).
3
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
------------------------------------------------------------------------
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- are seeking conservation of the purchasing power of your capital, but also
want to participate in equity investments
- are looking for a more conservative alternative to a growth-oriented
portfolio
- want a well-diversified and relatively stable investment allocation
- need a core investment
WHO MAY NOT WANT TO INVEST IN THE FUND
This fund may NOT be appropriate if you:
- are investing for maximum return over a long time horizon
- require a high degree of stability of your principal
4
<PAGE>
ADDITIONAL EXPLANATION OF RISK FACTORS
-------------------------------------------------------------------
COMMON RISK FACTORS FOR
ALL OF SM&R'S MUTUAL FUNDS
Please remember that mutual fund shares are:
- - Not guaranteed to achieve their investment goal
- - Not insured, endorsed or guaranteed by the FDIC, a bank or any government
agency
- - Subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in an SM&R Mutual Fund could fluctuate in
value over time and could result in a loss of money.
- ---------------------------------------------------
RISK FACTORS SPECIFIC TO THE
SM&R'S EQUITY FUNDS
IMPORTANT
The following factors may affect the value of your investment IN ONE OR MORE OF
THE SM&R EQUITY FUNDS.
CREDIT RISK
The risk that the issuer of a security, or a party to a contract, will default
or otherwise not honor a financial obligation. THIS RISK APPLIES TO ALL OF THE
FUNDS, BUT MAY HAVE A GREATER IMPACT ON THE BALANCED AND EQUITY INCOME FUNDS.
INTEREST RATE RISK
The risk of declines in market value of an income-bearing investment due to
changes in prevailing interest rates. With fixed-rate securities, a rise in
interest rates typically causes a decline in market values, while a fall in
interest rates typically causes an increase in market values. THIS RISK APPLIES
TO ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON THE BALANCED AND EQUITY
INCOME FUNDS.
LIQUIDITY RISK
The risk that certain securities or other investments may be difficult or
impossible to sell at the time the fund would like to sell them or at the price
the fund values them. The fund may have to sell at a lower price, sell other
securities instead, or forego an investment opportunity, any of which could have
a negative effect on fund management or performance. THIS RISK APPLIES ONLY TO
THE BALANCED FUND.
INVESTMENT STYLE OR MANAGEMENT RISK
The risk that a strategy used by a fund's management may fail to produce the
intended result because:
- - management fails to properly implement the selected investment strategy; or
- - the securities that fit the fund's investment style do worse than securities
that fit other investment styles
THIS RISK IS COMMON TO ALL MUTUAL FUNDS AND APPLIES TO ALL OF THE FUNDS.
MARKET RISK
The risk that the market value of a security may move down, sometimes rapidly
and unpredictably. The fluctuations may cause a security to be worth less than
the price originally paid for it, or less than it was worth at an earlier time.
Market risk may affect a single issuer, industry, sector of the economy, or the
market as a whole. THIS RISK IS COMMON TO ALL STOCKS AND BONDS AND THE MUTUAL
FUNDS THAT INVEST IN THEM AND APPLIES TO ALL OF THE FUNDS.
CALL RISK
Call risk is the risk that an unexpected fall in prevailing interest rates will
shorten the life of an outstanding obligation by increasing the actual or
expected number of prepayments, thereby reducing the obligation's value. CALL
RISK APPLIES TO THE BALANCED FUND.
5
<PAGE>
PERFORMANCE
-------------------------------------------------------------------
PERFORMANCE
The bar charts and average annual total return tables shown below provide some
indication of the risks of investing in the funds and the difference in returns
by:
- - showing performance for each year over a ten year period and
- - showing how average annual returns for 1, 5 and 10 years compare to those of a
broad measure of market performance.
PAST PERFORMANCE IS NOT NECESSARILY
AN INDICATION OF HOW THE FUNDS
WILL PERFORM IN THE FUTURE.
These bar charts include the effects of Fund expenses, but not sales charges and
account fees. The returns shown would be lower if such sales charges were
included.
SM&R GROWTH FUND
YEAR-BY-YEAR TOTAL RETURN (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -2.94%
1991 36.98%
1992 -2.50%
1993 8.17%
1994 4.98%
1995 25.20%
1996 17.64%
1997 22.24%
1998 18.35%
1999 24.49%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL RETURN
<S> <C> <C>
Best Quarter: Dec. 31, 1998 19.41%
Worst Quarter: Sept. 30, 1990 (13.16)%
</TABLE>
The next table lists the Growth Fund's year-by-year average annual total return
over the past one, five and ten-year periods, including sales charges. This
table is intended to provide you with some indication of the risks of investing
in the Fund. At the bottom of the table you can compare this performance with
the S&P 500-Registered Trademark- and Lipper Growth Fund Index. The
S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of 500
Stocks, a widely recognized, unmanaged index of common stock prices. Standard &
Poor's, S&P, and S&P 500-Registered Trademark- are registered trademarks of
Standard & Poor's Corporation. The Lipper Growth Fund Index is a widely
recognized, equally weighted performance index (adjusted for capital gains
distributions and income dividends) of the 30 largest open-end funds which
invest in companies whose long term earnings are expected to grow significantly
faster than the earnings of the stocks represented in the major unmanaged stock
indices. Comparative data for this index will no longer be available from Lipper
effective December, 2000. A new comparative index will be selected at that time.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending 12/31/99)
<TABLE>
<CAPTION>
PAST PAST PAST
ONE YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
SM&R Growth Fund 17.28% 20.14% 13.91%
S&P 500-Registered Trademark- 21.03% 28.55% 18.19%
Lipper Growth Fund Index 50.93% 30.51% 19.20%
</TABLE>
6
<PAGE>
PERFORMANCE
-------------------------------------------------------------------
SM&R EQUITY INCOME FUND
YEAR-BY-YEAR TOTAL RETURN (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 0.75%
1991 29.06%
1992 3.31%
1993 10.63%
1994 -0.61%
1995 29.12%
1996 16.46%
1997 22.72%
1998 12.11%
1999 -1.39%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL RETURN
<S> <C> <C>
Best Quarter: Dec. 31, 1991 11.12%
Worst Quarter: Sept. 30, 1999 (8.72)%
</TABLE>
The next table lists the Equity Income Fund's year-by-year average annual total
return over the past one, five and ten-year periods, including sales charges.
This table is intended to provide you with some indication of the risks of
investing in the Fund. At the bottom of the table you can compare this
performance with the S&P 500-Registered Trademark- and the Lipper Equity Income
Fund Index. The S&P 500-Registered Trademark- is the Standard & Poor's Composite
Index of 500 Stocks, a widely recognized, unmanaged index of common stock
prices. Standard & Poor's, S&P, and S&P 500-Registered Trademark- are registered
trademarks of Standard & Poor's Corporation. The Lipper Equity Income Fund Index
is a widely recognized, equally weighted performance index (adjusted for capital
gains distributions and income dividends) of the 10 largest open-end funds which
seek relatively high current income and growth of income through investing 60%
or more of their portfolios in equities.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending 12/31/99)
<TABLE>
<CAPTION>
PAST PAST PAST
ONE YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
SM&R Equity Income Fund (7.06)% 13.97% 11.00%
S&P 500-Registered Trademark- 21.03% 28.55% 18.19%
Lipper Equity Income Fund Index 4.20% 17.80% 13.04%
</TABLE>
SM&R BALANCED FUND
YEAR-BY-YEAR TOTAL RETURN (%)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 1.37%
1991 24.53%
1992 3.00%
1993 6.31%
1994 1.49%
1995 22.29%
1996 11.86%
1997 17.46%
1998 13.83%
1999 11.87%
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED TOTAL RETURN
<S> <C> <C>
Best Quarter: Dec. 31, 1998 10.18%
Worst Quarter: Sept. 30, 1990 (7.64)%
</TABLE>
The next table lists the Balanced Fund's year-by-year average annual total
return over the past one, five and ten-year periods, including sales charges.
This table is intended to provide you with some indication of the risks of
investing in the Fund. At the bottom of the table you can compare this
performance with the Lehman Brothers Intermediate Government/Corporate Index and
the Lipper Balanced Fund Index. The Lehman Brothers Intermediate
Government/Corporate Index is an unmanaged index generally representative of the
performance of the bond market as a whole. The Lipper Balanced Fund Index is a
widely recognized, equally weighted performance index (adjusted for capital
gains distributions and income dividends) of the 30 largest open-end funds whose
primary objective is to conserve principal by maintaining a balanced portfolio
of stocks and bonds. The stock/bond ratio typically ranges around 60%/40%.
AVERAGE ANNUAL TOTAL RETURNS
(for the periods ending 12/31/99)
<TABLE>
<CAPTION>
PAST PAST PAST
ONE YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
SM&R Balanced Fund 5.43% 14.04% 10.47%
Lehman Brothers Intermediate
Government/Corporate Index 0.38% 7.10% 7.26%
Lipper Balanced Fund Index 8.96% 16.33% 12.26%
</TABLE>
7
<PAGE>
EXPENSES OF THE FUNDS
-------------------------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
This table describes the fees and expenses that you may pay if you buy and hold
shares of the funds.
SHAREHOLDER FEES
(fees paid directly from your investment)
<TABLE>
<CAPTION>
EQUITY
GROWTH INCOME BALANCED
FUND FUND FUND
CLASS T CLASS T CLASS T
<S> <C> <C> <C>
Maximum Sales Charge Imposed on
Purchases
(as a percentage of offering price) 5.75%(1) 5.75%(1) 5.75%(1)
Maximum Deferred Sales Charge
(as a percentage of the lesser of
the offering price or redemption
value)(2) None None None
Maximum Sales Charge Imposed on
Reinvested Dividends
and Other Distributions (as a
percentage of offering price) None None None
Exchange Fees None None None
Redemption Fees (2) (2) (2)
Other Expenses (6) (6) (6)
</TABLE>
ANNUAL FUND OPERATING EXPENSES(3)
(expenses that are deducted from fund assets)
<TABLE>
<CAPTION>
EQUITY
GROWTH INCOME BALANCED
FUND FUND FUND
CLASS T CLASS T CLASS T
<S> <C> <C> <C>
Management Fees 0.48% 0.68% 0.75%
Other Expenses(4) 0.39% 0.37% 0.66%
Total Annual Fund Operating
Expenses(5) 0.87% 1.05% 1.41%
------- ------- ------
Net Expenses 0.87% 1.05% 1.41%
</TABLE>
FOOTNOTES TO FEES AND EXPENSES
(1) You pay a sales charge of 5.75% on shares of less than $50,000. You pay a
reduced sales charge 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) You pay a $10.00 transaction fee for each expedited wire redemption.
(3) The "Management Fees" and "Other Expenses" shown for the funds are for the
year ended December 31, 1999. NO DISTRIBUTION OR SERVICE (12b-1) FEES ARE
IMPOSED ON CLASS T SHARES OF THE FUNDS.
(4) "Other Expenses" include the 0.25% Administrative Service Fee. "Other
Expenses" for Class T shares are based on the expenses and average net
assets of the Growth, Equity Income, and Balanced Fund for the fiscal year
ended December 31, 1999.
(5) The Fee Table does NOT reflect any fees waived or expenses assumed either
contractually or voluntarily by the funds' manager, Securities Management
and Research, Inc. ("SM&R"). Pursuant to the Administrative Service
Agreement, SM&R will pay (or reimburse) each fund for regular operating
expenses in excess of 1.25% per year of such fund's average daily net
assets. Regular operating expenses include the advisory fee and
administrative fee, but do not include any 12b-1 fee or class-specific
expenses.
(6) You pay a $7.50 per account annual custodian fee for the tax-deferred
accounts.
<PAGE>
EXPENSES OF THE FUNDS
-------------------------------------------------------------------
EXPENSES
The tables below show the total expenses you would pay on a $10,000 investment
over one, three-, five-, and ten-year periods. These examples are intended to
help you compare the cost of investing in the funds with the cost of investing
in other mutual funds and are for illustration only. These examples also assume
that your investment has a 5% return each year, that you reinvest all of your
dividends and that the funds' operating expenses remain the same. Your actual
costs may be higher or lower than shown.
EXAMPLES OF FUND EXPENSES:
<TABLE>
<CAPTION>
GROWTH FUND
ASSUMING NO REDEMPTION
AT END OF PERIOD
CLASS T
<S> <C>
1 Year $ 659
3 Years $ 837
5 Years $1,029
10 Years $1,586
</TABLE>
<TABLE>
<CAPTION>
EQUITY INCOME FUND
ASSUMING NO REDEMPTION
AT END OF PERIOD
CLASS T
<S> <C>
1 Year $ 676
3 Years $ 890
5 Years $1,121
10 Years $1,784
</TABLE>
<TABLE>
<CAPTION>
BALANCED FUND
ASSUMING NO REDEMPTION
AT END OF PERIOD
CLASS T
<S> <C>
1 Year $ 710
3 Years $ 996
5 Years $1,302
10 Years $2,169
</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.
9
<PAGE>
SHARES OF THE FUNDS
-------------------------------------------------------------------
The SM&R Growth Fund, Inc., SM&R Equity Income Fund, Inc., and the SM&R Balanced
Fund, Inc., ("we," "SM&R Equity Funds" or the "Fund" or "Funds") offer Class T
shares through this Prospectus. The funds offer Class T shares at net asset
value plus an initial sales charge. Class T shares do not impose any
distribution and service (12b-1) fees.
The Funds offer five other classes through separate prospectuses: (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 Securities Management and Research, Inc. ("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, may have expense ratios and
performance that differs from those of Class T shares. You are encouraged to
consider all of the 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, CALL
INVESTOR SERVICES AT (800) 231-4639.
ELIGIBLE PURCHASERS OF
CLASS T SHARES
In general, Class T shares may only be purchased by existing shareholders that
owned shares of the funds on December 31, 1998 and certain other designated
persons. The other designated persons that can purchase Class T shares include:
(a) present and retired directors, officers, and full-time employees of the
Company.
(b) present and retired directors, officers, registered representatives, and
full-time employees of SM&R and their spouses;
(c) present and retired officers, directors, insurance agents and full-time
employees (and their spouses) of: (1) American National Insurance Company
("American National"), (2) American National subsidiaries, and (3) any
corporation or partnership for which any of American National's present
directors serve as a director or partner;
(d) present and retired partners and full-time employees of legal counsel to
SM&R (and officers and directors of any professional corporations which
are partners of such legal counsel) and their spouses;
(e) members of the immediate family (any parent, spouse of a parent, child,
spouse of a child, spouse, brother, or sister, including step and adoptive
relationships), grandchildren, grandparents and in-laws of any person
named in (a), (b), (c), or (d) above;
(f) any trust, pension, profit-sharing, IRA, or other benefit plan for any of
such persons mentioned in (a), (b), (c), (d) or (e) (although shares of
the Tax Free Fund should not be purchased by these entities);
(g) custodial accounts for minor children of such persons mentioned in (a),
(b), (c), (d) or (e) pursuant to the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts;
(h) persons who have received a distribution from a pension, profit-sharing,
or other benefit plan, to the extent such distribution represents the
proceeds of a redemption of shares of any fund managed by SM&R; and
(i) persons purchasing shares for a federal or state sponsored post-secondary
education funding program.
YOU HAVE THE SOLE RESPONSIBILITY OF NOTIFYING SM&R THAT YOU INTEND TO QUALIFY
UNDER ONE OF THESE CATEGORIES.
10
<PAGE>
SHARES OF THE FUNDS
-------------------------------------------------------------------
OPENING AN ACCOUNT. Your ability to open a new account depends on the basis of
your eligibility to purchase Class T shares, as follows:
- If you are eligible to purchase Class T shares because you are an existing
shareholder of a fund (and owned shares on December 31, 1998), you can
purchase additional Class T shares of the fund in which you are invested,
but cannot open a new account in another fund. For example, if you own
shares of the Growth Fund only (and you owned shares of that fund on
December 31, 1998), you may purchase additional Class T shares of that
fund. However, you cannot purchase Class T shares of the Equity Income
Fund.
- If you are a designated person listed in (a)-(i) above, you can open a new
account in Class T shares and may purchase Class T shares of any fund
managed by SM&R. YOU ARE ALSO ELIGIBLE FOR WAIVER OF THE INITIAL SALES
CHARGE AS DESCRIBED BELOW.
CLASS T SALES CHARGES
The offering price of Class T shares is the net asset value plus a "front-end"
sales charge. The sales charge is a percentage of the offering price, as shown
in the following table:
<TABLE>
<CAPTION>
SALES CHARGE
SALES CHARGE AS A % OF
AS A % OF NET AMOUNT
AMOUNT OF INVESTMENT OFFERING PRICE INVESTED
<S> <C> <C>
Less than $50,000 5.75% 6.1%
$50,000 but less than $100,000 4.5% 4.7%
$100,000 but less than $250,000 3.5% 3.6%
$250,000 but less than $500,000 2.5% 2.6%
$500,000 and over None None
</TABLE>
SALES CHARGE REDUCTIONS AND WAIVERS
DISCOUNTS THROUGH CONCURRENT PURCHASES. To qualify for a reduced sales charge on
Class T shares, you may combine concurrent purchases of Class T shares of funds
managed by SM&R that impose a front-end sales charge. 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 in connection with employee benefit plans not qualified under Section
401 of the Internal Revenue Code will qualify for the above quantity discounts
only if the fund will realize economies of scale in sales effort and sales
related expenses as a result of the employer's or the plan's bearing the expense
of any payroll deduction plan, making the fund's prospectus available to
individual investors or employees, forwarding investments by such employees to
the funds, and the like.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION. If you already own Class A or Class T
shares of a fund managed by SM&R on which you paid a front-end sales charge, you
may be able to receive
11
<PAGE>
SHARES OF THE FUNDS
-------------------------------------------------------------------
a discount when you buy additional shares. The current net asset value for the
shares you already own may be "accumulated" -- I.E., combined together with the
dollar amount being invested -- to achieve quantities eligible for discount.
LETTER OF INTENT. You may qualify for a reduced sales charge on purchases of
Class T shares of funds managed by SM&R 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 managed by SM&R 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 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 funds to sell the full amount of shares specified.
WAIVER OF INITIAL SALES CHARGE FOR CERTAIN PURCHASERS. After SM&R receives a
written request, those designated person listed in (a)-(i) above may purchase
Class T shares of the funds at net asset value per share without the imposition
of any sales charge.
12
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-------------------------------------------------------------------
Each Fund pursues its own investment objective through various investment
policies and techniques. ONLY THE PRINCIPAL INVESTMENT STRATEGIES OF EACH FUND
AND THE PRINCIPAL TYPES OF SECURITIES EACH FUND PLANS TO PURCHASE ARE DESCRIBED
BELOW. More investment information is in the Statement of Additional
Information. These policies and techniques are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Changes in a Fund's holdings, a Fund's performance, and the contribution of
various investments are discussed in the shareholder reports sent to you.
- SM&R HAS CONSIDERABLE LEEWAY IN CHOOSING INVESTMENT STRATEGIES AND
SELECTING SECURITIES IT BELIEVES WILL HELP THE FUNDS ACHIEVE THEIR
OBJECTIVES.
Because of the market risks inherent in any investment, the Funds may not
achieve their investment objectives. In addition, effective management of each
Fund is subject to general economic conditions and to the ability and investment
techniques of management. The net asset value of each Fund's shares will vary
and the redemption value of shares may be either higher or lower than the
shareholder's cost. Since each Fund has a different investment objective, each
will have different investment results and incur different market, financial,
and other risks.
During unfavorable market conditions, each Fund may, but is not required to,
make temporary investments that are not consistent with a Fund's investment
objectives and principal strategies. Such defensive measures may include
increasing cash, investing more assets in bonds or money market instruments, and
where permitted by the individual Fund discussions that follow, investing in
derivatives or other instruments. If a Fund takes such defensive measures, it
may not achieve its investment objectives.
A Fund may trade actively and frequently to achieve its investment objective. A
high turnover rate may increase transaction costs, affecting the Fund's
performance over time. A high turnover rate may also result in higher capital
gains distributions, increasing your tax liability.
SM&R GROWTH FUND, INC.
The Growth Fund considers its portfolio investments and the composition of its
total portfolio from the viewpoint of potential capital appreciation. The
Growth Fund adjusts this composition from time to time in light of current
conditions. Under normal conditions, the Growth Fund invests at least 85% of
its total assets in common stocks.
The Growth Fund invests in the stocks of financially sound companies that have
a proven ability to make and sustain a profit over time. Management places an
emphasis on companies with growth potential. The Growth Fund does not employ
exotic investment strategies, such as using options and futures.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on
a fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual
13
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-------------------------------------------------------------------
economic sectors, is also dictated by a combination of disciplines and human
judgement to varying degrees. We believe in never having less than half or
more than double the market weighting in any one sector. The Growth Fund
limits cash to 15% of its assets unless circumstances dictate otherwise.
Because of the Growth Fund's goal of seeking long-term capital growth, certain
sectors of the market will have greater weight in the Growth Fund's portfolio
while other sectors of the market will have lower representation. For example,
the Growth Fund generally overweights the technology sector, which represents
approximately 15% to 20% of the Standard & Poor's 500 Index, in the portfolio
relative to its market weight. This overweighting reflects the higher growth
prospects of technology companies relative to the average company in the
market. At varying times, we may also overweight other sectors of the market
providing above average growth prospects, like healthcare and consumer
staples.
Conversely, the Growth Fund generally underrepresents certain sectors of the
market in its portfolio that tend to have below average growth
characteristics, like utilities, basic materials, and communications services.
As a result of such strategic overweighting and underweighting, the Growth
Fund's performance may differ substantially from broad market indexes like the
S&P 500 and tend to incur more price volatility than these indexes.
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 and Moody's corporate bond
ratings. Investments in convertible securities having these ratings may
involve greater risks than convertible securities having higher ratings.
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. Common stocks and convertible securities purchased will be of
companies that SM&R believes will provide an opportunity for capital
appreciation. 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, in certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets, and in repurchase
agreements.
SM&R EQUITY INCOME FUND, INC.
The Equity Income Fund considers its portfolio investments and the composition
of its total portfolio not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. We
adjust this composition of portfolio investments from time to time to best
accomplish the Equity Income Fund's investment objectives under current
conditions. In pursuit of its objectives, the Equity Income Fund will invest
in common stocks, preferred stocks, and marketable debt securities selected in
accordance with its investment objectives. Common and preferred stocks
purchased will generally be of companies with consistent and increasing
dividend payment histories that SM&R believes will have further earnings
potential sufficient to continue such dividend payments. Debt securities
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.
14
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-------------------------------------------------------------------
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, the Equity Income Fund will invest at
least 75% of its assets in equity securities rather than debt securities.
We view common stocks, as well as investments in preferred stocks and bonds
convertible into common stock, from their potential for capital appreciation
in addition to their current and potential income yield. Our goal is to
maintain a portfolio dividend yield (before fees and expenses) at least 50%
greater than that of the S&P 500 Index.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on
a fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual sectors, is also dictated by a
combination of disciplines and human judgement to varying degrees. We believe
in never having less than half or more than double the market weighting in any
one sector. Cash is limited to 15% of the fund unless circumstances dictate
otherwise.
Certain sectors of the market will have greater weight in the Equity Income
Fund's portfolio while other sectors of the market will have lower
representation. For example, the Equity Income Fund generally overweights the
finance sector in its portfolio relative to that sector's market weight. This
reflects the greater dividend prospects of financial companies like banks,
insurance companies, and real estate investment trusts as compared to the
average company in the market. At varying times, we may also overweight other
sectors of the market that provide above average dividend prospects, like
utilities and energy.
Conversely, the Equity Income Fund generally underrepresents certain sectors
of the market tending to have below average dividend yields, like technology,
consumer staples, and healthcare. As a result of such strategic overweighting
and underweighting, the Equity Income Fund's performance may differ
substantially from broad market indexes like the S&P 500.
Corporate debt obligations purchased by the Equity 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.
SM&R BALANCED FUND, INC.
The Balanced Fund uses a "balanced" approach by investing part of its assets
in stocks of well-known companies and the remainder in a combination of
high-grade bonds, bonds convertible into the common stock of the issuing
corporations, and money market instruments. We change the ratio of stocks to
bonds in response to changing economic conditions. This flexibility helps to
reduce price volatility.
15
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-------------------------------------------------------------------
The Balanced Fund's goal is relative stability of principal through a balance
of stocks, bonds, and cash. The stocks serve to capture the benefits that
ownership in corporate America brings. The bonds, meanwhile, can serve as a
stabilizing force during times of eroding stock market value, as well as
provide a fixed income payment stream into the portfolio.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual sectors, is also dictated by a
combination of disciplines and human judgement to varying degrees. We believe
in never having less than half or more than double the market weighting in any
one sector. Cash is limited to 15% of the portfolio unless circumstances
dictate otherwise. The Balanced Fund will only purchase corporate bonds 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
Balanced Fund may also invest in repurchase agreements. This balanced
investment policy is intended to reduce risk and to obtain results in keeping
with the Balanced Fund's objectives.
The Balanced Fund will invest in fixed-income securities and equity securities
as described above. However, the Balanced 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 Balanced Fund's shareholders assuming no change in its current
investment objective and portfolio. Diversifying the Balanced 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.
16
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
-------------------------------------------------------------------
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity and debt holdings consistent with SM&R's outlook
and evaluation of trends in the economy and the financial markets. The
Balanced Fund determines its level of commitment to common stocks and specific
common stock investments 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
occurs coincidentally with accelerating growth and profitability of the
companies.
17
<PAGE>
OTHER RISK FACTORS
-------------------------------------------------------------------
The following discussion relates to all three Funds. The Fund summaries
located at the beginning of this prospectus identifies some specific risks
applicable to each individual Fund.
GENERAL. There is no assurance that a Fund will achieve its goals. Generally,
if the securities owned by a fund increase in value, the value of the shares
of the fund which you own will increase. Similarly, if the securities owned by
a Fund decrease in value, the value of your shares will also go down. In this
way, you participate in any change in the value of the securities owned by a
Fund.
The risk inherent in investing in any fund is a risk common to any security.
That is, the value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates and the market's perception of the
underlying portfolio securities held by that Fund. Each Fund's share value
depends on general economic and securities market conditions, the investment
decisions of its management, and numerous other factors. All of these factors
are inherently uncertain and, in some cases, unforeseeable.
Any of the Funds could lose money if the stock markets in general go down or
if the particular stocks purchased by a Fund go down in value. In addition,
the Funds could lose money if prevailing interest rates increase or if the
debt securities purchased by a Fund are downgraded or defaulted upon.
STOCK INVESTMENT RISKS. Because each Fund invests a substantial portion of its
assets in stocks, the value of each Fund's portfolio will be affected by
changes in the stock markets. At times, the stock markets can be volatile and
stock prices can change substantially. This market risk will affect each
Fund's net asset value per share, which will fluctuate as the values of each
Fund's portfolio securities change. Stock prices do not always change
uniformly or at the same time and the various stock markets do not always move
in the same direction at the same time. Other factors specific to a particular
company also affect that company's stock price (for example, poor earnings,
loss of major customers, or major litigation). The Funds cannot always predict
the factors that will affect a stock's price. The Funds, however, do attempt
to limit market risk by diversifying their investments.
For the Growth Fund and the Equity Income Fund, the portfolio managers decide
to overweight or underweight certain industry sectors and to purchase
individual stocks based on their assessment of the future growth or income
prospects of an industry sector or particular stock. If certain industries or
investments do not perform as a Fund expects (I.E., do not grow in value or
produce dividend income as expected), that Fund could underperform its peers
or lose money.
The Growth Fund is generally considered more aggressive than the Equity Income
and Balanced Funds because it invests for capital appreciation in common
stocks, emphasizing "growth" stocks that tend to be more volatile than other
investments. Investors in the Growth Fund should expect greater fluctuations
in share price, yield, and total return than with less aggressive funds.
DEBT SECURITIES RISKS. Debt securities are subject to changes in their values
due to changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise.
Accordingly, if interest rates go down after a security is purchased, such
security might be valued and/or sold at a price greater than its cost. On the
other hand, when prevailing interest rates rise, the
18
<PAGE>
OTHER RISK FACTORS
-------------------------------------------------------------------
values of already-issued debt securities generally fall. Accordingly, if
interest rates increase after a security is purchased, such security might be
valued and/or sold at a price less than its cost. The magnitude of these
fluctuations will generally be greater for longer-term debt securities than
shorter-term debt securities.
The Funds could lose money if any bonds they own are downgraded in credit
rating or go into default. In general, lower-rated bonds, such as junk bonds,
have higher credit risks. The Growth Fund is the only Fund permitted to invest
in junk bonds. Junk bonds have additional risks, including limitations on a
fund's ability to re-sell the lower-rated debt securities and less readily
available market quotations for such securities. If there are not readily
available market quotations for a debt security, its value is determined
largely by the investment manager's judgment. When and if the debt security is
sold, the investment manager may find that its estimation of the debt
security's value is substantially different than the actual price at which it
can be sold. Moreover, substantial redemptions of fund shares could require a
fund to sell portfolio securities at a time when a sale might not be
favorable.
OTHER RISKS. Each investor will be subject to all the risks normally attendant
to business operations, changes in general economic conditions, governmental
rules and fiscal policies, acts of God, and other factors beyond the control
of the Funds' management.
SMALLER COMPANY RISKS. Smaller companies in which each of the Funds may invest
may involve greater risks than large established companies. Such smaller
companies may have limited product lines, markets, financial resources, and
management depth. Their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies.
Smaller companies may also be more vulnerable than larger companies to adverse
business or market developments. As a result, the prices of smaller companies
may fluctuate to a greater degree than the prices of securities of larger
companies.
19
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
-------------------------------------------------------------------
INVESTMENT ADVISER
Each Fund's Board of Directors has delegated to Securities Management and
Research, Inc. ("SM&R"), the Fund's investment adviser, the management of the
Fund's day-to-day business and affairs. In addition, SM&R invests the Funds'
assets, provides administrative services, and serves as transfer agent,
custodian, dividend paying 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"). SM&R was incorporated in 1964 and has managed mutual
funds since 1966. SM&R also serves as investment adviser to other clients
including banks, employee benefit plans, other investment companies, banks,
foundations and endowment funds.
ADVISORY AGREEMENTS
GROWTH FUND. We deduct an investment advisory fee from the value of the shares
each day. We calculate this fee for the Growth Fund at 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>
We adjust the basic advisory fee rate by comparing the fund's investment
performance during the previous thirty-six (36) months with the investment
performance of the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. over the same period. Specifically, we adjust
the basic advisory fee 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 (1/12) of the resulting dollar figure.
<TABLE>
<CAPTION>
PERFORMANCE
PERFORMANCE COMPARED ADJUSTMENT
TO LIPPER INDEX AMOUNT
<S> <C>
0.10% to 0.99% above +0.02%
1.00% to 1.99% above +0.04%
2.00% to 2.99% above +0.06%
3.00% to 3.99% above +0.08%
4.00% to 4.99% above +0.10%
5.00% to 5.99% above +0.12%
6.00% to 6.99% above +0.14%
7.00% to 7.99% above +0.16%
8.00% to 8.99% above +0.18%
9.00% and above +0.20%
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.
EQUITY INCOME AND BALANCED FUNDS. We deduct an investment advisory fee from the
value
20
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
-------------------------------------------------------------------
of the shares each day. We calculate this fee for the Equity Income and Balanced
Funds at 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>
SM&R received total advisory fees from the Growth, Equity Income, and Balanced
Funds for the fiscal year ended December 31, 1999 of 0.48%, 0.68%, and 0.75%,
respectively, of each Fund's average daily net assets. Each fund's advisory fees
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.
ADMINISTRATIVE SERVICES
Pursuant to Administrative Service Agreements with the funds, SM&R provides all
non-investment related management, executive, administrative, transfer agent,
and operational services to the Funds. Under the agreements, SM&R receives an
administrative service fee from each fund at the annual rate of average daily
net asset values as follows:
<TABLE>
<CAPTION>
ON THE PORTION OF THE FUND'S ADMINISTRATIVE SERVICE FEE
AVERAGE DAILY NET ASSETS 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>
In each fund's administrative service agreement, SM&R has agreed to pay (or to
reimburse each fund for) each fund's regular operating expenses in excess of
1.25% per year of such fund's average daily net assets. Regular operating
expenses include the advisory fee and administrative service fee, if any, paid
to SM&R, but do not include 12b-1 fees, class-specific expenses, interest,
taxes, commissions, and other expenses incidental to portfolio transactions.
SM&R received total administrative service fees of 0.22% for the Growth Fund;
0.22% for the Equity Income Fund; and 0.25% for the Balanced Fund for the fiscal
year ended December 31, 1999 of each fund's average daily net assets.
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in providing
investment advisory services to the funds. While the following individual is
primarily responsible for the day-to-day portfolio management of the funds, 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, CO-MANAGER.
Mr. Dixon joined Securities Management and Research, Inc. in 1993. Mr. Dixon
serves as Co-Portfolio Manager of the SM&R Growth Fund, SM&R Equity Income
Fund and SM&R Balanced Fund. He was previously Portfolio Manager of the SM&R
Growth Fund, SM&R Equity Income Fund and SM&R Balanced Fund. Mr. Dixon also
serves as Vice President of the American National Investment Accounts, Inc.,
Portfolio Manager for it's American National ("A.N.") Government Bond
Portfolio and the A.N. High Yield Bond Portfolio, Co-Manager of it's, A.N.
Growth Portfolio, A.N. Equity Income Portfolio, A.N. Balanced Portfolio and
A.N. International Stock
21
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
-------------------------------------------------------------------
Portfolio. He also serves as Portfolio Manager of the SM&R Investments,
Inc.--SM&R Government Bond Fund and SM&R Tax Free Fund. 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.
ANDREW R. DUNCAN, SR. SECURITIES ANALYST/ PORTFOLIO MANAGER. Mr. Duncan joined
SM&R's staff in 1997 as Sr. Securities Analyst/ Portfolio Manager. Mr. Duncan
serves as Portfolio Manager of the SM&R Equity Income Fund, SM&R Balanced
Fund, the American National Investment Accounts, Inc.--American National
("A.N.") Equity Income Portfolio, A.N. Balanced Portfolio, and the A.N.
International Stock Portfolio. He graduated from West Virginia University in
1995 with a BS/BA degree in Finance and from Texas A&M University in 1996 with
an MS in Finance.
ANDRE J. HODLEWSKY, SECURITIES ANALYST/ PORTFOLIO MANAGER. Mr. Hodlewsky joined
SM&R in 1998 as Securities Analyst. Mr. Hodlewsky serves as Portfolio Manager
of the SM&R Growth Fund and the American National Investment Accounts,
Inc.--American National ("A.N.") Growth Portfolio and A.N. Small-Cap/Mid-Cap
Portfolio. He graduated from the University of Wisconsin in 1990 with a BA in
Graphic Design and Industrial Design and from the University of Wisconsin in
1999 with an MBA in Marketing and Finance. Prior to joining SM&R's staff, he
held a position at Rockwell from 1995 to 1997 in their Internet and Multi-
Media Design Group and Mandel Company in Milwaukee, Wisconsin, from 1993 to
1995 in the Prepress Technology Division.
22
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The condensed financial information on the following pages relfect all of the
fees and expenses imposed by each of the Funds which contributed to the changes
in the share price of each Fund during the period. It also shows the changes in
share price for this period in comparison to changes over the last five fiscal
years or less, if the fund is not five years old.
On a per-share basis, the table includes as appropriate
- share price at the beginning of the period
- investment income and capital gains or losses
- distributions of income and capital gains paid to shareholders
- share price at the end of the period
The table also includes some key statistics for the period as appropriate
- Total Return -- the overall percentage of return of the fund, assuming the
reinvestment of all distributions
- Expense Ratio -- operating expenses as a percentage of average net assets
- Net Income Ratio -- net investment income as a percentage of average net
assets
- Portfolio Turnover -- the percentage of the fund's buying and selling
activity
The Financial Highlights have been audited by the Fund's independent auditors,
Tait, Weller & Baker. Their Independent Auditor's Report is included in the
fund's annual report for the year ended December 31, 1999, which is incorporated
by reference into the Statement of Additional Information and is available upon
request.
23
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------
GROWTH FUND
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 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), 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 years
ended December 31, 1997, 1998 and 1999 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.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $ 5.69 $ 5.24 $ 4.95 $ 4.39 $ 3.83
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.03 0.04 0.06 0.05 0.08
- -------------------------------------------------------------------------------
Net Realized and
Unrealized Gain (Loss) on
Securities 1.35 0.85 1.03 0.73 0.88
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total from investment
operations 1.38 0.89 1.09 0.78 0.96
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.03) (0.04) (0.06) (0.05) (0.08)
- -------------------------------------------------------------------------------
Distributions from
Capital Gains (0.27) (0.40) (0.74) (0.17) (0.32)
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total distributions (0.30) (0.44) (0.80) (0.22) (0.40)
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $ 6.77 $ 5.69 $ 5.24 $ 4.95 $ 4.39
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
TOTAL RETURN 24.49% 18.35% 22.24% 17.64% 25.20%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR
(000'S OMITTED) $230,203 $203,109 $178,344 $152,758 $134,821
- -------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 0.87% 0.85% 0.96% 1.15% 0.98%
- -------------------------------------------------------------------------------
Ratio of Net Income to
Average Net Assets 0.44% 0.69% 1.03% 1.02% 1.67%
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 16.13% 27.31% 46.79% 18.72% 37.00%
- -------------------------------------------------------------------------------
</TABLE>
24
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------
EQUITY INCOME FUND
The following financial highlights table is intended to help you understand the
Equity Income Fund's financial performance for the past five years. Certain
information reflects financial results for a single Equity 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 Equity Income Fund (assuming reinvestment of all dividends and
distributions), 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 Equity Income Fund, which for the years ended December 31,
1997, 1998 and 1999 have been audited by Tait, Weller & Baker, independent
auditors, whose report, along with the Equity 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 Equity Income Fund's former
independent auditors.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $28.02 $26.99 $25.05 $22.59 $18.90
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.54 0.62 0.63 0.58 0.62
- -------------------------------------------------------------------------------
Net Realized and
Unrealized Gain (Loss) on
Securities (0.96) 2.50 4.96 3.10 4.82
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total from investment
operations (0.42) 3.12 5.59 3.68 5.44
- -------------------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.54) (0.62) (0.64) (0.58) (0.63)
- -------------------------------------------------------------------------------
Distributions from
Capital Gains (1.76) (1.47) (3.01) (0.64) (1.12)
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
Total distributions (2.30) (2.09) (3.65) (1.22) (1.75)
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $25.30 $28.02 $26.99 $25.05 $22.59
====== ====== ====== ====== ======
- -------------------------------------------------------------------------------
TOTAL RETURN (1.39)% 12.11% 22.72% 16.46% 29.12%
- -------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR
(000'S OMITTED) $187,988 $218,980 $198,687 $165,786 $141,058
- -------------------------------------------------------------------------------
Ratio of Expenses to
Average Net Assets 1.05% 1.01% 1.05% 1.10% 1.12%
- -------------------------------------------------------------------------------
Ratio of Net Income to
Average Net Assets 1.94% 2.22% 2.28% 2.42% 2.89%
- -------------------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 9.81% 19.29% 39.14% 27.07% 44.00%
- -------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
FINANCIAL HIGHLIGHTS
-------------------------------------------------------------------
BALANCED FUND
The following financial highlights table is intended to help you understand the
Balanced Fund's financial performance for the past five years. Certain
information reflects financial results for a single Balanced 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 Balanced Fund (assuming reinvestment of all dividends and distributions),
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
Balanced Fund, which for the years ended December 31, 1997, 1998 and 1999 have
been audited by Tait, Weller & Baker, independent auditors, whose report, along
with the Balanced 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 Balanced Fund's former independent auditors.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
1999 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------
NET ASSET VALUE,
BEGINNING OF YEAR $19.63 $18.32 $17.90 $16.85 $ 14.32
======= ======= ======= ======= =======
- ----------------------------------------------------------------------
INCOME FROM INVESTMENT
OPERATIONS
Net Investment Income 0.42 0.48 0.57 0.49 0.49
- ----------------------------------------------------------------------
Net Realized and
Unrealized Gain (Loss) on
Securities 1.84 1.96 2.50 1.48 2.67
======= ======= ======= ======= =======
- ----------------------------------------------------------------------
Total from investment
operations 2.26 2.44 3.07 1.97 3.16
- ----------------------------------------------------------------------
LESS DISTRIBUTIONS
Dividends from Net
Investment Income (0.42) (0.47) (0.59) (0.49) (0.49)
- ----------------------------------------------------------------------
Distributions from
Capital Gains (0.80) (0.66) (2.06) (0.43) (0.14)
======= ======= ======= ======= =======
- ----------------------------------------------------------------------
Total distributions (1.22) (1.13) (2.65) (0.92) (0.63)
======= ======= ======= ======= =======
- ----------------------------------------------------------------------
NET ASSET VALUE, END OF
YEAR $20.67 $19.63 $18.32 $17.90 $ 16.85
======= ======= ======= ======= =======
- ----------------------------------------------------------------------
TOTAL RETURN 11.87% 13.83% 17.46% 11.86% 22.29%
- ----------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
NET ASSETS, END OF YEAR
(000'S OMITTED) $30,146 $29,367 $25,838 $23,188 $21,757
- ----------------------------------------------------------------------
Ratio of Expenses with
reimbursement to Average
Net Assets 1.25% 1.25% 1.26% 1.21% 1.26%
- ----------------------------------------------------------------------
Ratio of Expenses without
reimbursement to Average
Net Assets 1.41% 1.37% 1.36% 1.34% 1.46%
- ----------------------------------------------------------------------
Ratio of Net Income to
Average Net Assets 2.15% 2.55% 3.02% 2.83% 2.99%
- ----------------------------------------------------------------------
PORTFOLIO TURNOVER RATE 18.01% 16.01% 27.52% 23.78% 16.39%
- ----------------------------------------------------------------------
</TABLE>
26
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IMPORTANT SHAREHOLDER FACTS AND INFORMATION
THIS SECTION OF THE PROSPECTUS IS PROVIDED TO HELP YOU BECOME FAMILIAR WITH THE
TYPES OF ACCOUNTS AND SERVICES AVAILABLE IN THE SM&R EQUITY FUNDS. IT EXPLAINS
THE VARIOUS SERVICES AVAILABLE TO YOU AND FEATURES YOU CAN ESTABLISH AS PART OF
YOUR ACCOUNT IN THE "FUNDS" AS WELL AS ACCOUNT POLICIES AND FEES THAT MAY APPLY
TO YOUR ACCOUNT.
WEB SITE: www.smrinvest.com
BUSINESS HOURS:
8:00 A.M. TO 4:30 P.M. CENTRAL TIME EACH DAY THE NEW YORK STOCK EXCHANGE
IS OPEN FOR TRADING ("REGULAR TRADING DAY")
24-HOUR ACCESS TO ACCOUNT INFORMATION. SEE "VOICE RESPONSE UNIT" UNDER
"OTHER SERVICES" IN THIS GUIDE
MAILING ADDRESS:
SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
OVERNIGHT MAILING ADDRESS AND STREET ADDRESS:
SECURITIES MANAGEMENT AND RESEARCH, INC.
2450 SOUTH SHORE BOULEVARD, SUITE 400
LEAGUE CITY, TEXAS 77573
IMPORTANT PHONE NUMBERS:
INVESTOR HOTLINE/VOICE RESPONSE:
1-877-239-2049
INVESTOR SERVICES DEPARTMENT:
1-800-231-4639
FAX NUMBERS:
TRANSFER AGENCY:
1-281-538-4983
WIRING INSTRUCTIONS:
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 GOVERNMENT BOND FUND)
FUND ACCOUNT NUMBER (NUMBER APPEARS ON YOUR CONFIRMATION STATEMENT)
YOUR NAME (E.G., MARY SMITH)
THIRD PARTY CHECKS
To prevent fraud, SM&R will not accept checks made payable to third parties to
open new accounts. Tax-deferred rollover checks, properly endorsed, will be
accepted.
MINIMUM INVESTMENT AMOUNTS:
<TABLE>
<CAPTION>
INITIAL ADDITIONAL
INVESTMENT INVESTMENT
<S> <C> <C>
Regular Accounts $ 100 $ 20
Automatic Investment Plan $ 100 $ 20
Retirement Plans $ 100 $ 20
</TABLE>
The Funds' low investment minimums make investing easy. Once you decide on a
fund, an investment amount, and a share class simply talk to your
representative or broker-dealer, or fill out an application and send in your
investment.
The Funds reserve the right to change the amount of these minimums from time
to time or to waive them in whole or in part for certain types of accounts.
CERTIFICATES
Share certificates are not issued by the Funds. Your purchases are maintained
on the records of the Funds in book shares. This provides you with easy access
to your shares. You have the same rights of share ownership as you would if
certificates had been issued.
SPECIAL FEES:
- Tax-deferred: $7.50 per account custodian fee deducted annually
- Wiring fee: $10.00 for wire redemption proceeds under $10,000
SIGNATURE GUARANTEE REQUIREMENTS:
Required on all redemptions in amounts of $50,000 or more. Other requirements
apply and are discussed later in this guide.
TELEPHONE SERVICES:
SM&R will automatically establish a telephone redemption/exchange option for
all non-qualified and non-tax deferred accounts, unless you instruct us not to
do so. These services are not available to participants of post-secondary
education programs. Refer to "Telephone Services" later in this guide.
PLEASE KEEP IN MIND THAT ACCOUNT POLICIES (INCLUDING FEES), SERVICES AND
FEATURES MAY BE MODIFIED OR DISCONTINUED WITHOUT SHAREHOLDER APPROVAL OR PRIOR
NOTICE. DURING TIMES OF ECONOMIC TURMOIL OR MARKET VOLATILITY, SEVERE WEATHER,
OR NATURAL DISASTER YOU MAY NOT BE ABLE TO REACH SM&R BY TELEPHONE TO INSTITUTE
A REDEMPTION OR EXCHANGE.
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TYPES OF ACCOUNTS AVAILABLE
BELOW IS A BRIEF EXPLANATION OF THE DIFFERENT ACCOUNTS AVAILABLE IN THE FUNDS.
INDIVIDUAL OR JOINT OWNERSHIP
Individual accounts are owned by one person. Joint accounts have two or more
owners.
A UNIFORM GIFT OR TRANSFER TO MINOR (UGMA OR UTMA)
An UGMA/UTMA account is a custodial account managed for the benefit of a
minor. To open an UGMA or UTMA account, you must include the minor's Social
Security number on the application.
TRUST
An established trust can open an account. The names of each trustee, the
name of the trust and the date of the trust agreement must be included on
the application.
BUSINESS ACCOUNTS
Corporations, partnerships, and sole proprietorships may also open an
account. The application must be signed by an authorized officer of the
corporation or a general partner or owner of the business.
TAX-DEFERRED ACCOUNTS
If you are eligible, you may set up one or more tax-deferred accounts. A
tax-deferred account allows you to shelter your investment income and capital
gains from current income taxes, while saving for retirement. A contribution
to certain types of these plans may also be tax deductible. Tax-deferred
accounts include retirement plans described below and the Education IRA.
Distributions from these plans are generally subject to income tax and may be
subject to an additional tax if withdrawn prior to age 59 1/2 or used for a
non-qualifying purpose. Information concerning IRAs and TSAs, and the forms
necessary to adopt such plans, can be obtained by contacting your registered
representative, your broker-dealer, or by calling SM&R. INVESTORS SHOULD
CONSULT THEIR TAX ADVISER OR LEGAL COUNSEL BEFORE SELECTING A TAX-DEFERRED
ACCOUNT.
Securities Management and Research, Inc. serves as custodian for the
tax-deferred accounts offered by the funds. You will be charged an annual
account maintenance fee of $7.50 for each tax-deferred account you have. The
fee will be automatically deducted from your account (usually in the last
quarter). The custodian reserves the right to change the amount of this fee or
to waive it in whole or in part for certain types of accounts.
TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS
Traditional IRAs allow most individuals with earned income to contribute up
to the lesser of $2000 or 100% of compensation annually.
ROTH INDIVIDUAL RETIREMENT ACCOUNTS
Roth IRAs allow most individuals with earned income to contribute up to the
lesser of $2000 or 100% of compensation annually.
EDUCATION IRA
This plan allows individuals, subject to certain income limitations, to
contribute up to $500 annually per child under the age of 18.
SIMPLIFIED EMPLOYEE PENSION PLAN
This plan allows small business owners (including sole proprietors) to make
tax-deductible contributions for themselves and any eligible employee(s). A
SEP requires an IRA (a SEP-IRA) to be set up for each SEP participant.
SIMPLE
This plan allows employee pre-tax contributions up to $6,000 annually and
may be matched by the employer up to a maximum of 3% of employees'
compensations.
PROFIT SHARING OR MONEY PURCHASE PENSION PLAN
These plans are open to corporations, partnerships and sole proprietors to
benefit their employees and themselves.
SECTION 403(b)(7) PLAN
Employees of educational organizations or other qualifying, tax-exempt
organizations may be eligible to participate in a Section 403(b)(7) Plan.
PRICING OF FUND SHARES
GENERAL (HOW SHARES ARE PRICED). Each Fund's offering price is calculated once
each day the New York Stock Exchange (the "Exchange") is open for regular
trading. The offering price equals a Fund's net asset value plus the sales
charge, if any, computed at the rate set forth in
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the applicable tables for the classes. (See "Sales Charge Reductions and
Waivers" in the prospectus.) You may purchase shares of the SM&R Primary Fund
and SM&R Money Market Fund without a sales charge. Accordingly, the offering
price for shares of these funds is net asset value. Although the legal rights
of the Class A, B, and C shares are substantially identical, the different
expenses borne by each class will result in different net asset values and
dividends. The net asset value of the Class B and C shares generally will be
lower than the Class A shares as a result of differences in service and
distribution (12b-1) fees charged.
A NOTE ON PRICING. Each Fund's investments will be priced at their market value
when market quotations are readily available. When these quotations are not
readily available, investments will be priced at their fair value, calculated
according to procedures adopted by the Funds' Board of Directors. The Funds
also may use fair value pricing if the value of a security held by the Fund is
materially affected by events occurring after the close of regular trading of
the primary markets or exchanges on which the security is traded. In these
situations, prices used by the Fund to calculate its net asset value may
differ from quoted or published prices for the underlying securities.
SHARE PRICE -- EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS. Each Fund's share
price, called its net asset value, or NAV, is calculated once each day at the
close of regular trading (currently 3:00 p.m. Central Time). NAV is not
calculated on holidays or other days the Exchange is closed. In the event the
Exchange closes early on a particular day, we will determine the net asset
value of the Funds as of such earlier closing time. Below is the method used
by the Funds to calculate the NAV on any given day.
<TABLE>
<S> <C> <C>
Total Assets - Liabilities
Net Asset Value = --------------------------
Number of Shares Outstanding
</TABLE>
Knowing the daily net asset value is useful to you as a shareholder because it
indicates the current value of your investment. Each Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day, less any
applicable transaction fee.
The price you pay or receive for shares of a Fund depends, in part, on the day
and time you make your purchase or redemption. Purchases and redemptions will be
executed on each day the Exchange is open for regular trading at the next NAV
determined THAT DAY if:
- SM&R receives your request in good order prior to the close of the regular
trading day;
- a securities dealer having a dealer contract with SM&R receives your order
prior to the close of the regular trading day and reports your order to
SM&R prior to SM&R's close of business (currently 4:30 p.m. Central Time)
on the same day; or
- SM&R is advised of bank wire purchases received by Moody National Bank
before 3 p.m. Central Time.
If we receive your order after the close of the regular trading day or on any
day that the Exchange is closed, we will execute your purchase or redemption
at the price determined on the next regular trading day. In unusual
circumstances, the Funds may temporarily suspend the processing of sale
requests, or may postpone payment of proceeds for up to three business days or
longer, as allowed by federal securities laws.
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HOW TO PURCHASE SHARES
YOU SHOULD REFER TO THE FIRST PAGE OF THIS SHAREHOLDER'S GUIDE "IMPORTANT
SHAREHOLDER FACTS AND INFORMATION" FOR THE APPROPRIATE ADDRESSES AND TELEPHONE
NUMBERS.
<TABLE>
<CAPTION>
METHOD OPENING AN ACCOUNT ADDING TO AN ACCOUNT
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
BY MAIL OR THROUGH A - Determine the Fund and the Class in which - Make your check payable to SM&R.
REGISTERED you want to invest. - Use the investment slip on your
REPRESENTATIVE - Complete and sign the account application confirmation, or
- Make the check payable to SM&R. - Write a note specifying:
- Mail the application and your check to SM&R -- Your account number
at the address on the first page of this -- The Fund name
guide. -- Share class
- Or deliver the information to your -- The name(s) in which the account is
representative (provided he or she has a registered.
broker-dealer arrangement with SM&R). - Mail to the address indicated on the cover
page of this guide.
- ---------------------------------------------------------------------------------------------------------------------
BY PHONE WIRE - Call Investors Services to obtain a - Call Investors Services at the number on the
reference number (call by noon, Central Time, first page of this guide, on any business
if you want wired funds to be credited that day.
day). - You can send your investment either by:
Instruct your bank to wire or transfer -- Federal Funds Wire (offers immediate
your purchase (your bank may charge a access to funds), or
wiring fee) using the information on the -- Electronic transfer via ACH which
first page of this guide. avoids wiring fees, if your bank account
- Complete the account application and mail to is set up on file
the appropriate address.
- Wires received before 3:00 p.m. Central Time
on regular trading days will receive that
day's closing price (if not, you will
receive the next trading day's closing
price).
- ---------------------------------------------------------------------------------------------------------------------
BY EXCHANGE - You can make an additional investment by exchange from an existing Fund in the SM&R Mutual
Funds to an existing account by calling Investor Services.
- You can only exchange shares in the same class with identical registrations.
- There is no sales charge or redemption fee when exchanging funds within the SM&R Mutual
Funds.
- Orders placed before 3 p.m. Central Time on regular trading days will receive that day's
closing price (if not, you will receive the next regular trading day's closing price).
- Exchanges are limited to three per calendar quarter, and twelve per calendar year.
- Exchanges between accounts that do not have identical ownership registration must be made in
writing.
- Be sure you read the prospectus for the Fund into which you are exchanging.
KEY POINT: AN EXCHANGE REPRESENTS THE SALE OF SHARES OF ONE FUND AND THE PURCHASE OF SHARES OF
ANOTHER FUND. THIS TRANSACTION MAY PRODUCE A TAXABLE GAIN OR LOSS IN A NON-TAX DEFERRED
ACCOUNT.
- ---------------------------------------------------------------------------------------------------------------------
AUTOMATIC INVESTMENT - You can transfer money automatically from - To establish automatic investing for an
PLAN THROUGH THE your bank account into your Fund account on a existing account, call Investor Services for
AUTOMATED CLEARING monthly basis. an application.
HOUSE (ACH) - Initial investment minimum is $100 if you - The minimum is $20.
invest at least $20 per month with this
service.
- To enroll, check off the box on the account
application and provide:
1. Your bank account information,
2. The amount and date of your monthly
investment, and
3. A voided check.
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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HOW TO REDEEM SHARES
You have several convenient ways for you to redeem your shares in any of the
SM&R Equity Funds. Redemptions will be at net asset value, which is determined
on the date your request is received by SM&R in good order.
<TABLE>
<CAPTION>
METHODS REQUIREMENTS
<S> <C>
- -----------------------------------------------------------------------------------
CALL US - Call Investor Service during normal business hours on any
business day.
- This service is only available for those accounts which
are non-qualified and non-tax deferred:
1. The amount requested is $500 or more per account
2. The amount is less than $50,000 in aggregate
3. The proceeds are to be mailed to the address of
record or electronically transferred to the bank
account indicated on your fund account.
4. There has been no change of address for either you or
your bank for 30 days
5. Telephone services have not been declined.
6. The security procedures discussed on page 9 of this
guide have been met.
7. There are no outstanding certificate shares on the
account.
- All authorized requests received before 3:00 p.m. Central
Time on regular trading days will be processed at that
day's closing price. Requests received after 3:00 p.m.
will be processed the following regular trading day.
- We can either:
-- wire the proceeds the next business day into your
bank account of record (service charges may apply)
-- electronically transmit the proceeds to your bank
account of record via the ACH service
-- mail you a check
- All telephone calls are recorded for your protection. We
are not responsible for acting on telephone orders we
believe to be genuine. (Refer to "Security Procedures"
later in this guide)
- See exceptions below for requests that must be made in
writing.
- A $10.00 fee is charged for redemptions by wire under
$10,000.
- To redeem from a tax-deferred account, call Investor
Services for a special withdrawal form.
- -----------------------------------------------------------------------------------
WRITE US - You can mail a redemption request to the appropriate
address listed on the first page of this guide.
- Your letter of instruction must:
-- list your account number and the fund name
-- indicate the number of shares or dollar value you
wish to redeem
-- be signed by the registered owner(s)
-- include any outstanding share certificates issued
prior to January 1, 1999
-- include special withdrawal forms for tax deferred
accounts
- Refer to "Signature Guarantee" below for requests that
must be signature guaranteed.
- -----------------------------------------------------------------------------------
FAX US You may fax your request for redemption from a non-qualified
and non-tax deferred account, if your request meets
requirements stated in 2-7 under "Call Us" above. Your fax
requests must be received by SM&R before 3:00 p.m. Central
Time on regular trading days to receive that day's price.
- -----------------------------------------------------------------------------------
SELL YOUR SHARES IN You may also redeem your shares by coming to SM&R's home
PERSON office, and deliver your request in person prior to
3:00 p.m. Central Time on regular trading days to receive
that day's price.
- -----------------------------------------------------------------------------------
SYSTEMATIC WITHDRAWAL You can withdraw money automatically from your Fund account
PLAN (SWP) on a monthly, quarterly, semi-annual, and annual basis --
without redemption fees -- on or about the 20th of the month
and if:
- Your account value is $5,000 or more
- You complete the relevant section of the application
- The withdrawal can be mailed to you at your address of
record, or deposited directly to your bank account via
ACH
The minimum withdrawal is $50 per month.
The maximum amount is 1% of your account per month or 12%
annually.
To obtain proper forms, contact Investor Services.
See "Important Facts About Redeeming" later in this guide
for more information.
- -----------------------------------------------------------------------------------
</TABLE>
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PAYMENT OF REDEMPTION PROCEEDS
Under normal circumstances, shares you purchased by wire, certified check, money
order, or other immediately available funds, when redeemed, will be mailed no
later than the 7th calendar day following receipt of your redemption request.
For shares recently purchased by a personal check or ACH (discussed later in
this guide) 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.
We reserve the right to redeem "in kind" by paying you the proceeds of a
redemption in securities rather than in cash.
SIGNATURE REQUIREMENTS BASED ON ACCOUNT TYPE
<TABLE>
<S> <C>
INDIVIDUAL OR JOINT TENANTS Written instructions must be signed by each shareholder,
exactly as the names appear in the account registration.
UGMA OR UTMA Written instructions must be signed by the custodian in
his/her capacity as it appears in the account registration
until the minor reaches the age of majority as defined by
the state in which the UGMA or UTMA was established.
SOLE PROPRIETOR, GENERAL Written instructions must be signed by an authorized
PARTNER individual in his/her capacity as it appears on the account
registration.
CORPORATION, ASSOCIATION Written instructions must be signed by the person(s)
authorized to act on the account. In addition, a certified
copy of the corporate resolution authorizing the signer to
act must accompany the request.
TRUST Written instructions must be signed by the trustee(s). If
the name of the current trustee(s) does not appear on the
account application, a current certificate of incumbency
dated within 60 days must also be submitted.
IRA OR TSA A special withdrawal form must be signed by the account
(INCLUDES ALL TYPES OF IRAS) owner, and you may obtain this form by contacting Investor
Services at the number on the first page of this guide. If
you do not want federal income tax withheld from your
redemption, you must state that you elect not to have such
withholding apply. In addition, your instructions must state
whether the distribution is normal (after age 59 1/2) or
premature (before age 59 1/2) and, if premature, whether any
exceptions such as death or disability apply with regard to
the 10% additional tax on early distributions.
In addition, TSA's will have a mandatory withholding tax
applied to all distributions if the account owner is under
70 1/2.
EXECUTORS OF SHAREHOLDER Written instructions must be signed by the executor. A copy
ESTATES of the order appointing the executor, certified within the
past 12 months must accompany the letter of instructions. A
signature guarantee must be provided as discussed below.
</TABLE>
SIGNATURE GUARANTEE
To protect you and the Funds against fraud, certain redemption requests must be
made in writing with your signature guaranteed. A signature guarantee can be
obtained at most banks and securities dealers. A notary public is not authorized
to provide a signature guarantee.
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<TABLE>
<S> <C>
The following circumstances require a signature WHO CAN PROVIDE A SIGNATURE GUARANTEE:
guarantee: - Commercial Bank
- - Redemptions from one or more of the Funds total - Trust Company
$50,000 or more - Savings Association
- - You want the proceeds sent to an address other than - Credit Union
the address currently appearing on your account - Member of Medallion Program
- - You want the proceeds sent to a bank account not - Member of a U.S. Stock Exchange
listed on your account - Authorized SM&R Representatives
- - You want the proceeds payable to anyone other than
the registered owner(s) of the account
- - Either your address or the address of your bank NOTARY PUBLIC NOT ACCEPTABLE
account has been changed within 30 days
- - The account is registered in the name of a
fiduciary, corporation or any other organization. In
these cases, additional documentation is required:
Corporate accounts: certified copy of corporate
resolution
Fiduciary accounts: copy of the power of attorney
or other governing document
- - The Funds or their transfer agent believe a
signature guarantee would protect against claims
based on transfer instructions
</TABLE>
IMPORTANT FACTS ABOUT REDEEMING
SYSTEMATIC WITHDRAWAL PLAN. It may not be advisable for shareholders to
maintain a Withdrawal Account while concurrently purchasing shares of the Fund
because of the sales charge or CDSC (as applicable) involved in additional
purchases. See "Class B Waivers of Contingent Deferred Sales Charges" in the
prospectus for a discussion of the CDSC waivers available. You should
carefully consider such purchases and contact your representative regarding
their advisability. While you are participating in a Systematic Withdrawal
Plan 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. 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. Retirement Plan Accounts
are subject to special withdrawal requirements. Call Investor Services for
assistance.
REINVESTMENT PRIVILEGE. Within ninety (90) days of a redemption (60 days for
tax-deferred plans) of Class A or Class T shares of a Fund, a shareholder may
reinvest all or part of the proceeds in the same class of the same Fund from
which the redemption was processed 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
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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 your registered representative, your
broker-dealer or SM&R.
"GOOD ORDER" means the request for redemption must include:
(1) your letter of instruction or a stock assignment specifying the fund,
account number, and number of shares or dollar amount to be redeemed.
The letter of instruction and stock powers must be signed and executed
exactly as the fund shares are registered and any outstanding share
certificates returned. It is suggested that certificates be returned by
certified mail for your protection;
(2) any required signature guarantees (see "Signature Guarantees" above);
and
(3) 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 it is your responsibility to ensure that all requests
are submitted to the Fund's transfer agent in good order for processing.
TEXAS OPTIONAL RETIREMENT PROGRAM. You may not redeem shares in any account
established under the Texas Optional Retirement Program, unless SM&R receives
satisfactory evidence from the state that one of the following conditions
exist:
(1) death of the employee;
(2) termination of service with the employer; or
(3) retirement of employee.
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 $500. 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 Funds may,
from time to time, change such required minimum investment.
TRANSACTIONS THROUGH PROCESSING ORGANIZATIONS:
You may also purchase or sell shares of the Funds through a broker-dealer, bank
or other financial institution, or an organization that provides recordkeeping
and consulting services to 401(k) plans or other employee benefit plans (a
"Processing Organization"). Processing Organizations may charge you a fee for
this service and may require different minimum initial and subsequent
investments than the Funds. Processing Organizations may also impose other
charges or restrictions different from those applicable to shareholders who
invest in the Funds directly. If you utilize a Processing Organization the Funds
are not responsible for failure of any Processing Organization to carry out its
obligations to its customers. YOU MAY NOT BE CONSIDERED THE SHAREHOLDER OF
RECORD OF YOUR SHARES. THEREFORE, YOU MAY NOT BE
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ABLE TO UTILIZE SERVICES AVAILABLE ONLY TO SHAREHOLDERS OF THE FUNDS. YOU SHOULD
KEEP THIS IN MIND WHEN ESTABLISHING AN ACCOUNT IN ANY FUND.
OTHER SERVICES
In addition to the plans described under "Sales Charge Reductions and Waivers,"
that permit you to reduce the initial sales charge assessed on Class A shares or
the CDSC on Class B shares, the Funds offer other services and plans described
below. 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 electronic transfers (ACH) plan described below, you
should check with your financial institution for any additional charges imposed
by them for this service. For additional information on these plans and services
you should contact your registered representative, broker-dealer or SM&R. Before
beginning any of the plans or services described below you should consult a tax
advisor.
ELECTRONIC TRANSFERS (ACH). The electronic transfer option allows you to move
money between your account(s) and your bank, savings and loan, or credit union
account using Automated Clearing House ("ACH") network. To arrange for
electronic transfers, complete the relevant Special Investor Services 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 bank, savings and loan, or credit union account. YOUR
FINANCIAL INSTITUTION MUST BE A MEMBER OF THE AUTOMATED CLEARING HOUSE (ACH)
NETWORK FOR YOU TO TAKE ADVANTAGE OF THIS SERVICE.
TELEPHONE SERVICES. You can only use telephone services for transaction amounts
of $500 or more. Through this service, you will be able to purchase additional
shares for an existing SM&R mutual fund account by ACH. You may also use the
telephone services to redeem and exchange shares on those accounts for which
you have an executed account application on file. For example, we permit
exchanges by telephone from a joint account only to another joint account
registered in the identical names. There may be additional restrictions on
telephone transactions by joint account owners. If you initially choose not to
have this option and wish to establish it at a later date, it would be
necessary for you to complete the required form requesting this option.
Contact your registered representative for more information. PLEASE NOTE THAT
THE TELEPHONE REDEMPTION OPTION IS NOT AVAILABLE FOR QUALIFIED AND
TAX-DEFERRED ACCOUNTS.
While telephone redemption is easy and convenient, this account feature involves
risk of loss from unauthorized or fraudulent transactions. SM&R will take
reasonable precautions to protect your account from fraud. You should do the
same by keeping your account information private, and by immediately reviewing
any account statements that we send to you. Make sure to contact SM&R's
Investors Services Department immediately about any transaction you believe to
be unauthorized.
SECURITY PROCEDURES
TELEPHONE TRANSACTIONS
The Funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions: The caller must 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
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SHAREHOLDER'S GUIDE TO INVESTING WITH SM&R'S MUTUAL FUNDS
-------------------------------------------------------------------
(iv) the Social Security or Employer Identification Number listed on
the account(s).
Anyone with the required account information indicated above (including your
broker) can request a telephone transaction in your account. All calls are
recorded and/or monitored for verification, record keeping and
quality-assurance purposes. Requested proceeds will be forwarded only to an
address or bank account designated on the account at the time of the
transaction.
VOICE RESPONSE UNITS
The Funds now have available to shareholders a means by which they can access
account information, fund prices, and take advantage of other features
24-hours a day. To obtain account information you will be required to know
your fund number, account number, and your PIN number. As indicated under
"Telephone Services" above, you should keep your account information private.
We also suggest that you change your PIN number periodically and not provide
the number to anyone.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone or through the voice response
unit that comply with the current security procedures and other requirements.
SM&R believes that such security procedures and other requirements are
reasonable.
During times of economic turmoil or market volatility, severe weather, or
natural disaster you may not be able to reach SM&R by telephone to institute a
redemption or exchange.
For additional restrictions refer to "Exchange Privilege" below.
AUTOMATIC DIVIDEND INVESTMENT. Your dividends and distributions may be paid in
cash or invested in any SM&R Mutual Fund at net asset value. Unless you
specify otherwise, your dividends and distributions will automatically be
reinvested in the same SM&R Mutual Fund. You may invest your dividends and
distributions (1) into another SM&R Mutual Fund in the same class of shares;
or (2) from Class A shares into SM&R Money Market Fund, or vice versa.
You must comply with the following requirements to invest your dividends and
distributions in shares of another SM&R Mutual Fund:
(1) Your account balance (a) in the SM&R Mutual Fund paying the dividend
must be at least $5,000; and (b) the SM&R Mutual Fund receiving the
dividend must have an account balance of at least $500.
(2) Both accounts must have identical registration information, that is they
cannot be in different names; and
(3) You must have elected, in writing, to reinvest dividends into another
SM&R Mutual Fund.
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. SM&R can establish a Group Systematic
Investment Plan with an employer having 5 or more participants under a single
payroll deduction arrangement. Under this investment plan there is a minimum
investment of $20 per individual. Any such plan may be terminated by SM&R or
the shareholder at any time upon sixty (60) days written notice. However, all
other investment amount minimums apply. Contact SM&R for further information
regarding these plans.
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EXCHANGE PRIVILEGE. As an investor in the Funds, you may be permitted to
exchange shares that you own for shares of other mutual funds managed by SM&R
without the payment of an exchange fee, subject to certain conditions.
EXCHANGES BETWEEN A FUND AND ANOTHER FUND MANAGED BY SM&R ARE AVAILABLE ONLY
IN STATES WHERE THE APPLICABLE FUNDS ARE REGISTERED AND THE EXCHANGE MAY BE
LEGALLY MADE. YOU SHOULD CONTACT SM&R TO DETERMINE WHETHER A FUND IS
REGISTERED IN A PARTICULAR STATE AND WHETHER AN EXCHANGE IS PERMITTED.
WE RESERVE THE RIGHT TO TERMINATE OR CHANGE THE TERMS OF ANY EXCHANGE
PRIVILEGE AT ANY TIME.
You may exchange Class A, Class B, or Class C shares that you own in the Funds,
without an exchange fee or sales charge, for shares of the corresponding class
of another fund managed by SM&R. You also may exchange your Class A or
Class B shares for shares of the SM&R Investments, Inc. -- Primary or Money
Market Funds, subject to two conditions:
- any applicable CDSC period has expired on the shares you wish to exchange
(I.E., 13 months in the case of Class A share purchases of $1 million or
more and 6 years in the case of Class B share purchases), and
- you meet any minimum investment requirement for the shares you wish to
acquire.
You CANNOT exchange Class C shares for shares of the Money Market Fund or
Primary Fund.
We waive any sales charges on Class A and Class T shares acquired through an
exchange if you previously paid a sales charge on amounts invested in those
shares. For example, assume you purchase Class A shares of an Equity Income
Fund. You then exchange your Class A shares for shares of the Money Market
Fund. Later, you re-exchange those shares of the Money Market Fund for Class A
shares of the Tax Free Fund. We would not impose any sales charge upon the
re-exchange into Class A shares of the Tax Free Fund because you previously
paid a sales charge on amounts invested in those shares. In other words, we
will never impose a front-end sales charge on the same investment TWICE.
Shares of any fund managed by SM&R 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 that are registered in the
same name, address and, if applicable, taxpayer identification number;
(b) the shares of the Fund acquired through exchange must be qualified for
sale in the state in which you reside;
(c) the dollar amount of a written exchange must meet the minimum investment
requirement applicable to the shares of the fund that you would acquire
through the exchange;
(d) the minimum dollar amount of a telephone exchange is $500;
(e) SM&R must have received full payment for the shares being exchanged;
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(f) 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);
(g) any shares that you wish to exchange must have been held for at least
ten (10) business days; and
(h) you have received a prospectus for the fund 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.
AUTOMATIC CONVERSIONS. 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 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 exchanges Class B shares of a fund for Class B shares of another fund
managed by SM&R, the purchase date of the original investment will be used to
determine the appropriate conversion date.
ABUSIVE TRADING PRACTICES. Excessive, short-term (market-timing) or other
abusive trading practices may disrupt portfolio management strategies and harm
fund performance. To minimize harm to the Fund and its shareholders, we
reserve the right to reject any purchase order (including exchanges) from any
investor we believe has a history of abusive trading or whose trading, in our
judgement, has been or may be disruptive to a fund. In making this judgement,
we may consider trading done in multiple accounts under common ownership or
control.
DISTRIBUTIONS AND TAXABILITY. To avoid taxation of the Funds, the IRS Code
requires each Fund to distribute net income and any capital gains realized on
its investments annually. A Fund's income from dividends and interest and any
net realized short-term gains are paid to shareholders as ordinary income
dividends. Net realized long-term gains are paid to shareholders as capital
gains distributions.
You should verify your tax liability with your tax professional because
dividends you receive from the Funds, whether reinvested or taken as cash, are
generally considered taxable. Some dividends paid in January may be taxable as
if they had been paid the previous December. The Form 1099 that is mailed to
you every January details your dividends and their federal tax category.
DISTRIBUTION SCHEDULE. The following schedule of distributions is provided to
let you know when you can expect to receive a distribution from the SM&R
Mutual Funds you own. These distributions, under normal circumstances and if
earned, will be declared and paid in the months indicated in the following
chart.
38
<PAGE>
DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------
<TABLE>
<CAPTION>
DIVIDENDS CAPITAL GAINS
<S> <C> <C>
SM&R GROWTH FUND June and December
December
- ---------------------------------------------------
SM&R EQUITY INCOME March, June, December
FUND September,
December
- ---------------------------------------------------
SM&R BALANCED FUND March, June, December
September,
December
- ---------------------------------------------------
</TABLE>
DISTRIBUTIONS AFFECT ON NAVS. In order to be entitled to a dividend, an
investor must have acquired shares of a fund prior to the close of business on
the distribution record date. A shareholder should be cautioned, however,
before purchasing shares of a fund immediately prior to a distribution.
Dividends and distributions paid by the Funds have the effect of reducing net
asset value per share on the record date by the amount of the payment.
Therefore, a dividend or distribution of record shortly after the purchase of
shares by a shareholder represents, in substance, a return of capital.
DIVIDEND REINVESTMENTS. Dividends and capital gains will be automatically
reinvested at net asset value in additional shares of the Fund 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
applicable Fund(s). Dividends on 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. This is a convenient way
to accumulate additional shares and maintain or increase the shareholder's
earning base. Of course, any shares so acquired remain at market risk.
Shareholders have the right to change their election with respect to the
receipt of distributions by notifying SM&R in writing, but any such change
will be effective only as to distributions for which the record date is seven
or more business days after SM&R has received the shareholder's written
request.
BACKUP WITHHOLDING. Backup withholding for federal income tax may be applied,
where required by current IRS requirements, at the rate of 31% from taxable
dividends, distributions, and redemption proceeds (including exchanges) if you
fail to furnish the funds with a correct and properly certified Social
Security or Employer Identification Number when you sign your application, or
if you underreport your income to the Internal Revenue Service.
TAXABILITY OF REDEMPTIONS AND EXCHANGES. You should consult with a tax advisor
concerning the tax reporting requirements in effect on the redemption or
exchange of such shares. Any time you sell or exchange shares, it is
considered a taxable event for you. Depending on the purchase price and the
sale price of the shares you sell or exchange, you may have a gain or a loss
on the transaction. You are responsible for any tax liabilities generated by
your transactions.
RIGHTS RESERVED BY THE COMPANY. The Company, acting through its transfer agent,
reserves the right:
- to waive, lower, or raise investment minimums;
- to accept initial purchases by telephone from a registered representative;
- to refuse any purchase order;
39
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DISTRIBUTIONS AND TAXES
-------------------------------------------------------------------
- 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 the account owners or other parties or
there is reason to believe a fraudulent transaction may occur, or has
occurred;
- 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 not act on instructions believed not to be genuine;
- to eliminate duplicate mailings of fund material to shareholders who
reside at the same address; or
- to otherwise modify the conditions of purchase and any services at any
time.
40
<PAGE>
APPENDIX A
(Description of Ratings Used in all Prospectuses)
- --------------------------------------------------------------------------------
BOND RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM BOND
(BONDS THAT EXTEND LONGER THAN ONE YEAR) 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 than 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 likely 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, it 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 LONG-TERM BOND
(BONDS THAT EXTEND LONGER THAN ONE YEAR) 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
A-1
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN ALL PROSPECTUSES)
- --------------------------------------------------------------------------------
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 larger than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack 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.
PREFERRED STOCK RATING
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S PREFERRED STOCK RATING:
AAA This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rate "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred stock
obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the "A"
category.
A-2
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN ALL PROSPECTUSES)
- --------------------------------------------------------------------------------
BB Preferred stock rated "BB," "B," and "CCC" are regarded, on balance, as
B predominantly speculative with respect to the issuer's capacity to pay
CCC preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest. 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:
aaa An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings and
asset protection will remain relatively well maintained in the foreseeable
future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in the
"aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba An issue is rated "ba" considered to have speculative elements and its
future cannot be considered well assured. Earnings and asset protection may
be very moderate and not well safeguarded during adverse periods.
Uncertainty of position characterizes preferred stocks in this class.
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.
A-3
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS
-------------------------------------------------------------------
The following documents contain more information about the funds and are
available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI).
The SAI contains additional information about all aspects of the funds. A
current SAI has been filed with the Securities and Exchange Commission and is
incorporated herein by reference.
ANNUAL AND SEMI-ANNUAL REPORTS.
The funds' annual and semi-annual reports provide additional information about
the funds' investments. The annual report for the fiscal year ended
December 31, 1999 will contain a discussion of the market conditions and
investment strategies that significantly affected each fund's performance during
the last fiscal year.
REQUESTING DOCUMENTS.
You may request a free copy of the SAI and these reports, make shareholder
inquiries, or request further information about the funds either by contacting
your broker or by contacting the funds at:
SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
TELEPHONE: 1-800-231-4639 (TOLL FREE) OR
1-281-334-2469 (COLLECT)
PUBLIC INFORMATION.
You can review and copy information about the funds, including the SAI, 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. 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.
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
Investment Company
File Nos. 811-00623
811-01916
811-02818
<PAGE>
[LOGO]
SM&R EQUITY FUNDS
CLASS J
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
Prospectus, May 1, 2000
An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
(This class may not be available in all states)
<PAGE>
TABLE OF CONTENTS
------------------------------------------------
<TABLE>
<S> <C>
FUND SUMMARIES.......................................... 1
SM&R Growth Fund...................................... 1
SM&R Equity Income Fund............................... 3
SM&R Balanced Fund.................................... 5
ADDITIONAL EXPLANATION OF RISK FACTORS.................. 8
PERFORMANCE............................................. 10
EXPENSES OF THE FUNDS................................... 17
Fees and Expenses of the Funds........................ 17
CHOOSING A SHARE CLASS THAT BEST SUITS YOU.............. 19
Distribution and Shareholder Service (12b-1) Fee...... 19
INVESTMENT OBJECTIVES, POLICIES AND RISKS............... 21
Growth Fund........................................... 22
Equity Income Fund.................................... 23
Balanced Fund......................................... 25
OTHER RISK FACTORS...................................... 28
PURCHASES AND REDEMPTIONS............................... 31
Purchasing Shares..................................... 31
Pricing of Fund Shares................................ 31
Special Services...................................... 33
Retirement Plans...................................... 35
Dividends, Distributions, and Taxes................... 36
Redeeming Shares...................................... 37
THE FUNDS AND THEIR MANAGEMENT.......................... 41
FINANCIAL HIGHLIGHTS.................................... 45
Growth Fund........................................... 46
Equity Income Fund.................................... 47
Balanced Fund......................................... 48
APPENDIX................................................ A-1
</TABLE>
WHY READING THIS PROSPECTUS IS IMPORTANT TO YOU
This prospectus explains the investment objective, risks and strategies of each
of the SM&R Mutual Funds. Reading the prospectus will help you to decide which
SM&R Mutual Fund, if any, is the right investment for you. We suggest that you
keep this prospectus for future reference.
ii
<PAGE>
FUND SUMMARY SM&R Growth Fund, Inc.
---------------------------------------------------
INVESTMENT OBJECTIVE
The Growth Fund seeks to achieve capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Growth Fund normally invests at least 85% of its total
assets in common stocks. In selecting stocks, Securities
Management and Research, Inc. ("SM&R"), the Growth Fund's
investment advisor:
- chooses the stocks of financially sound companies that have
a proven ability to make and sustain a profit over time
- places an emphasis on companies with growth potential
The Growth Fund generally purchases a higher proportion of
stocks (relative to their market weight) from those sectors of
the market with higher growth prospects, referred to as
"overweighting." Examples of sectors with higher growth
prospects currently include technology, healthcare, and
consumer staples. On the other hand, the fund generally
purchases a smaller proportion of stocks (relative to their
market weight) from sectors of the market with below average
growth characteristics (for example, utilities and basic
materials), referred to as "underweighting."
The Growth Fund may also invest in debt obligations (such as
convertible preferred stocks, debentures, and notes), including
below investment grade bonds ("junk" bonds).
1
<PAGE>
FUND SUMMARY SM&R GROWTH FUND, INC.
---------------------------------------------------
PRINCIPAL RISK FACTORS
The Growth Fund is subject to the risks common to all mutual
funds that invest in equity securities, and you could lose
money investing in this fund. The principal risks of investing
in the Growth Fund are as follows:
- the market value of the fund's securities could decline
(market risk).
- SM&R's investment decisions (such as sector overweighting
and underweighting and individual stock selection) could
fail to achieve the desired results (investment style or
management risk).
- growth stocks can have relatively wide price swings as a
result of the high valuations they carry (growth stock
risk).
- interest rates could increase which can cause the value of
a debt security to decline (interest rate risk).
- issuers of debt obligations could default or be unable to
pay amounts due (credit risk).
WHO MAY WANT TO INVEST IN THE FUND
The fund may be appropriate if you:
- have long term investment goals (ten years or more)
- are willing to accept higher short-term risk along with
higher potential long-term returns
- want to diversify your portfolio
The fund may NOT be appropriate:
- if you are investing with a shorter time horizon (less than
ten years)
- if you are uncomfortable with an investment that will go up
and down in value
- as your complete portfolio
2
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
---------------------------------------------------
INVESTMENT OBJECTIVE
The Equity Income Fund seeks current income with a secondary
objective of long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the fund's
investment advisor, normally invests at least 75% of the Equity
Income Fund's assets in equity securities. This fund may also
invest in preferred stocks and investment grade debt securities
(such as publicly traded corporate bonds, debentures, notes,
commercial paper, repurchase agreements, and certificates of
deposit). In selecting common and preferred stocks, the fund
focuses on companies with consistent and increasing dividend
payment histories and future earnings potential sufficient to
continue such dividend payments. This fund's goal is to
maintain a portfolio dividend yield (before fees and expenses)
at least 50% greater than that of the S&P 500 Index.
The Equity Income Fund generally purchases a higher proportion
of stocks (relative to their market weight) from those sectors
of the market with greater dividend prospects, referred to as
"overweighting." Examples of sectors with greater dividend
prospects currently include financial companies like banks,
insurance companies, and real estate investment trusts. On the
other hand, the fund generally purchases a smaller proportion
of stocks (relative to their market weight) from sectors of the
market with below average dividend yields (such as technology
and consumer staples), referred to as "underweighting."
3
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
---------------------------------------------------
PRINCIPAL RISK FACTORS
The Equity Income Fund is subject to the risks common to all
mutual funds that invest in equity securities and you could
lose money investing in this fund. The principal risks of
investing in the Equity Income Fund are as follows:
- the market value of the fund's securities could decline
(market risk).
- SM&R's investment decisions (such as sector overweighting
and underweighting and individual stock selection) could
fail to achieve the desired results (investment style or
management risk).
- growth stocks can have relatively wide price swings as a
result of the high valuations they carry (growth stock
risk).
- interest rates could increase which can cause the value of
debt securities to decline (interest rate risk).
- issuers of debt obligations could default or be unable to
pay amounts due (credit risk).
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- have medium-term investment goals (five years or more)
- are comfortable with moderate to aggressive risk
- are looking for a fund with both growth and income
components
- are seeking to participate in the equity market
- are willing to accept higher short-term risk along with
higher potential long-term returns
This fund may NOT be appropriate if you:
- are investing with a shorter-time horizon (less than five
years)
- are investing for maximum return
- require a high degree of stability of your principal
4
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
---------------------------------------------------
INVESTMENT OBJECTIVE
The Balanced Fund seeks to conserve principal, produce current
income, and achieve long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the Balanced
Fund's investment advisor, uses a "balanced" approach by
investing part of the assets in common stocks and the remainder
in a combination of U.S. Government bonds, investment grade
corporate bonds, collateralized mortgage obligations, mortgaged
backed securities, convertible bonds, and money market
instruments. The balance of stocks to bonds and money market
instruments changes in response to changing economic
conditions. This flexibility may help to reduce price
volatility.
The stocks in this fund are diversified and are selected based
upon two models. One model is based on profitability
measurements and the other model is based on the corporation's
return on invested cash. The bonds, meanwhile, may serve as a
stabilizing force during times of eroding stock market value,
as well as provide a fixed income payment stream. The fund
invests at least 25% of assets in fixed income securities, all
of which are rated BBB or better (investment grade).
5
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
---------------------------------------------------
PRINCIPAL RISK FACTORS
The Balanced Fund is subject to the risks common to all mutual
funds that invest in equity securities and you could lose money
investing in this fund. The principal risks of investing in the
Balanced Fund are as follows:
- the market value of the fund's securities could decline
(market risk).
- SM&R's investment decisions (such as determining the ratio
of stocks to bonds and individual stock selection) could
fail to achieve the desired results (investment style or
management risk).
- growth stocks can have relatively wide price swings as a
result of the high valuations they carry (growth stock
risk).
- interest rates could increase which can cause the value of
debt securities to decline (interest rate risk).
- issuers of debt obligations could default or be unable to
pay amounts due (credit risk).
- the fund could be unable to find a buyer for its securities
(liquidity risk).
- the income you receive from the portfolio is based
primarily on interest rates, which can vary widely over the
short- and long-term. If interest rates drop, your income
from the portfolio may drop as well (income risk).
6
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
---------------------------------------------------
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- are seeking conservation of the purchasing power of your
capital, but also want to participate in equity investments
- are looking for a more conservative alternative to a
growth-oriented portfolio
- want a well-diversified and relatively stable investment
allocation
- need a core investment
This fund may NOT be appropriate if you:
- are investing for maximum return over a long time horizon
- require a high degree of stability of your principal
7
<PAGE>
ADDITIONAL EXPLANATION OF RISK FACTORS
------------------------------------------------
COMMON RISK FACTORS FOR
ALL OF SM&R'S MUTUAL FUNDS
Please remember that mutual fund shares are:
- Not guaranteed to achieve their investment goal
- Not insured, endorsed or guaranteed by the FDIC, a bank or any government
agency
- Subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in an SM&R Mutual Fund could fluctuate in
value over time and could result in a loss of money.
RISK FACTORS SPECIFIC TO THE
SM&R'S EQUITY FUNDS
IMPORTANT
The following factors may affect the value of your investment IN ONE OR MORE OF
THE SM&R EQUITY FUNDS.
CREDIT RISK. The risk that the issuer of a security, or a party to a contract,
will default or otherwise not honor a financial obligation. THIS RISK APPLIES TO
ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON THE BALANCED AND EQUITY
INCOME FUNDS.
INTEREST RATE RISK. The risk of declines in market value of an income-bearing
investment due to changes in prevailing interest rates. With fixed-rate
securities, a rise in interest rates typically causes a decline in market
values, while a fall in interest rates typically causes an increase in market
values. THIS RISK APPLIES TO ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON
THE BALANCED AND EQUITY INCOME FUNDS.
LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the fund would like to sell them or
at the price the fund values them. The fund may have to sell at a lower price,
sell other securities instead, or forego an investment opportunity, any of which
could have a negative effect on fund management or performance. THIS RISK
APPLIES ONLY TO THE BALANCED FUND.
8
<PAGE>
ADDITIONAL EXPLANATION OF RISK FACTORS
------------------------------------------------
INVESTMENT STYLE OR MANAGEMENT RISK. The risk that a strategy used by a fund's
management may fail to produce the intended result because:
- management fails to properly implement the selected investment strategy; or
- the securities that fit the fund's investment style do worse than securities
that fit other investment styles
THIS RISK IS COMMON TO ALL MUTUAL FUNDS AND APPLIES TO ALL OF THE FUNDS.
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. The fluctuations may cause a security to be
worth less than the price originally paid for it, or less than it was worth at
an earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. THIS RISK IS COMMON TO ALL STOCKS AND BONDS
AND THE MUTUAL FUNDS THAT INVEST IN THEM AND APPLIES TO ALL OF THE FUNDS.
9
<PAGE>
PERFORMANCE
------------------------------------------------
PERFORMANCE
The bar charts and average annual return tables shown below illustrate the risks
of investing in the funds and the difference in returns by:
- showing performance for each year over a ten year period, and
- showing how average annual returns for 1, 5, and 10 years compare to those
of a broad measure of market performance.
PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW THE FUNDS WILL PERFORM IN THE FUTURE.
The returns shown in the bar charts below show the percentage gain or loss for
Class T shares of the Funds. These bar charts include the effects of Fund
expenses, but not sales charges and account fees. The returns shown would be
lower if such sales charges were included.
10
<PAGE>
PERFORMANCE
------------------------------------------------
SM&R GROWTH FUND
A bar chart for Class T shares of the Growth Fund is included at this time, as
the Class J shares (inception on 1/1/99) have not been made available for public
distribution.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -2.94%
1991 36.98%
1992 -2.50%
1993 8.17%
1994 4.98%
1995 25.20%
1996 17.64%
1997 22.24%
1998 18.35%
1999 24.49%
</TABLE>
During the ten year period shown in the bar chart, the Growth Fund's highest
return for a quarter was 19.41% achieved December 31, 1998 and its lowest return
for a quarter was a negative 13.16% for the quarter September 30, 1990.
Class J has not been made available for public distribution. Accordingly, annual
total returns for Class J cannot be provided. Instead, the following table
reflects the annual total returns for the Growth Fund Class T shares, and
includes the applicable Class T sales charge and fees and expenses. If this
class had been made available for public distribution, the financial performance
would have been lower because of the different sales charges and fees and
expenses, including 12b-1 fees.
11
<PAGE>
PERFORMANCE
------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS PAST
(FOR THE PERIODS ENDING ONE PAST PAST
DECEMBER 31, 1999) YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
GROWTH FUND 17.28% 20.14% 13.91%
S&P 500-REGISTERED TRADEMARK-* 21.03% 28.55% 18.19%
LIPPER GROWTH FUND INDEX** 50.93% 30.51% 19.20%
</TABLE>
* The S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of
500 Stocks, a widely recognized, unmanaged index of common stock prices.
Standard & Poor's, S&P, and S&P 500-Registered Trademark- are registered
trademarks of Standard & Poor's Corporation.
** The Lipper Growth Fund Index is a widely recognized, equally weighted
performance index (adjusted for capital gains distributions and income
dividends) of the 30 largest open-end funds which invest in companies whose
long term earnings are expected to grow significantly faster than the
earnings of the stocks represented in the major unmanaged stock indices.
Comparative data for this index will no longer be available from Lipper
effective December, 2000. A new comparative index will be selected at that
time.
12
<PAGE>
PERFORMANCE
------------------------------------------------
SM&R EQUITY INCOME FUND
A bar chart for Class T shares of the Equity Income Fund is included at this
time, as the Class J shares (inception on 1/1/99) have not been made available
for public distribution.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 0.75%
1991 29.06%
1992 3.31%
1993 10.63%
1994 -0.61%
1995 29.12%
1996 16.46%
1997 22.72%
1998 12.11%
1999 -1.39%
</TABLE>
During the ten year period shown in the bar chart, the Equity Income Fund's
highest return for a quarter was 11.12% achieved December 31, 1991 and its
lowest return for a quarter was a negative 8.72% for the quarter September 30,
1999.
Class J has not been made available for public distribution. Accordingly, annual
total returns for Class J cannot be provided. Instead, the following table
reflects the annual total returns for the Equity Income Fund Class T shares, and
includes the applicable Class T sales charge and fees and expenses. If this
class had been made available for public distribution, the financial performance
would have been lower because of the different sales charges and fees and
expenses, including 12b-1 fees.
13
<PAGE>
PERFORMANCE
------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (FOR PAST
THE PERIODS ENDING DECEMBER 31, ONE PAST PAST
1999) YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
EQUITY INCOME FUND (7.06)% 13.97% 11.00%
S&P 500-REGISTERED TRADEMARK-* 21.03% 28.55% 18.19%
LIPPER EQUITY INCOME FUND 4.20% 17.80% 13.04%
INDEX**
</TABLE>
* The S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of
500 Stocks, a widely recognized, unmanaged index of common stock prices.
Standard & Poor's, S&P, and S&P 500-Registered Trademark- are registered
trademarks of Standard & Poor's Corporation.
** The Lipper Equity Income Fund Index is a widely recognized, equally weighted
performance index (adjusted for capital gains distributions and income
dividends) of the 10 largest open-end funds which seek relatively high
current income and growth of income through investing 60% or more of their
portfolios in equities.
14
<PAGE>
PERFORMANCE
------------------------------------------------
SM&R BALANCED FUND
A bar chart for Class T shares of the Balanced Fund is included at this time, as
the Class J shares (inception on 1/1/99) have not been made available for public
distribution.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 1.37%
1991 24.53%
1992 3.00%
1993 6.31%
1994 1.49%
1995 22.29%
1996 11.86%
1997 17.46%
1998 13.83%
1999 11.87%
</TABLE>
During the ten year period shown in the bar chart, the Balanced Fund's highest
return for a quarter was 10.18% achieved December 31, 1998 and its lowest return
for a quarter was a negative 7.64% for the quarter September 30, 1990.
Class J has not been made available for public distribution. Accordingly, annual
total returns for Class J cannot be provided. Instead, the following table
reflects the annual total returns for the Balanced Fund Class T shares, and
includes the applicable Class T sales charge and fees and expenses. If this
class had been made available for public distribution, the financial performance
would have been lower because of the different sales charges and fees and
expenses, including 12b-1 fees.
15
<PAGE>
PERFORMANCE
------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (FOR PAST
THE PERIODS ENDING DECEMBER 31, ONE PAST PAST
1999) YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
BALANCED FUND 5.43% 14.04% 10.47%
LEHMAN BROTHERS INTERMEDIATE 0.38% 7.10% 7.26%
GOVERNMENT/CORPORATE INDEX*
LIPPER BALANCED FUND INDEX** 8.96% 16.33% 12.26%
</TABLE>
* The Lehman Brothers Intermediate Government/Corporate Index is an unmanaged
index generally representative of the performance of the bond market as a
whole.
** The Lipper Balanced Fund Index is a widely recognized, equally weighted
performance index (adjusted for capital gains distributions and income
dividends) of the 30 largest open-end funds whose primary objective is to
conserve principal by maintaining a balanced portfolio of stocks and bonds.
The stock/ bond ratio typically ranges around 60%/40%.
16
<PAGE>
EXPENSES OF THE FUNDS
------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the funds. The amounts shown are based upon Class T shares of
the fund since Class J has not been made available to the public at this time.
SHAREHOLDER EXPENSES
(fees paid directly from your investment)
THERE ARE NO SHAREHOLDER TRANSACTION CHARGES IN CONNECTION WITH PURCHASES OR
REDEMPTIONS OF CLASS J SHARES OF THE FUNDS, OTHER THAN A $10.00 TRANSACTION FEE
CHARGED FOR EACH EXPEDITED WIRE REDEMPTION AND A $7.50 PER ACCOUNT ANNUAL
CUSTODIAN FEE FOR TAX DEFERRED ACCOUNTS.
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from fund assets)
<TABLE>
EQUITY
GROWTH INCOME BALANCED
FUND FUND FUND
---- ---- ----
CLASS J CLASS J CLASS J
---- ---- ----
<S> <C> <C> <C>
Management Fees 0.48% 0.68% 0.75%
Distribution and/or Service (12b-1) Fees 0.75% 0.75% 0.75%
Other Expenses(2) 0.39% 0.37% 0.66%
Total Annual Fund Operating Expenses(3) 1.62% 1.80% 2.16%
Net Expense 1.62% 1.80% 2.16%
</TABLE>
FOOTNOTES TO FEES AND EXPENSES
(1) The "Management Fees" and "Other Expenses" shown for the funds are for the
year ended December 31, 1999.
(2) "Other Expenses" include the 0.25% Administrative Service Fee. Because
Class J shares were not available prior to the date of this Prospectus,
"Other Expenses" for Class J shares are based on the expenses and average
net assets of the Growth, Equity Income, and Balanced Fund for the fiscal
year ended December 31, 1999.
(3) The Fee Table does not reflect any fees waived or expenses assumed either
contractually or voluntarily by the funds' manager, Securities Management
and Research, Inc. ("SM&R"). Pursuant to the Administrative Service
Agreement, SM&R will pay (or reimburse) each fund for regular operating
expenses in excess of 1.25% per year of such fund's average daily net
assets. Regular operating expenses include the advisory fee and
administrative fee, but do not include the 12b-1 fee or class-specific
expenses.
17
<PAGE>
EXPENSES OF THE FUNDS
------------------------------------------------
EXPENSES
The tables below show the total expenses you would pay on a $10,000 investment
over one, three-, five-, and ten-year periods. These examples are intended to
help you compare the cost of investing in the funds with the cost of investing
in other mutual funds and are for illustration only. These examples also assume
that your investment has a 5% return each year, that you reinvest all of your
dividends and that the funds' operating expenses remain the same. YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER THAN SHOWN.
EXAMPLES OF EXPENSES
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Growth Fund (Class J) $165 $511 $ 881 $1,922
Equity Income Fund (Class J) $183 $566 $ 975 $2,116
Balanced Fund (Class J) $219 $676 $1,159 $2,493
</TABLE>
Because there are no sales charges or redemption fees, you would pay the same
expenses, based on these assumptions, if you did redeem your shares.
18
<PAGE>
CHOOSING A SHARE CLASS THAT BEST SUITS YOU
------------------------------------------------
The SM&R Growth Fund, Inc., SM&R Equity Income Fund, Inc., and the SM&R Balanced
Fund, Inc., ("we," "SM&R Equity Funds" or the "Fund" or "Funds") offer Class J
shares through certain financial intermediaries (such as broker-dealers,
investment advisers and mutual fund "supermarkets") that have distribution
agreements with Securities Management and Research, Inc. ("SM&R"). Policies and
fees established by these financial intermediaries may be different than those
discussed in this prospectus. Additionally, not all of the services discussed
may be available to you, and these financial intermediaries may charge you
separately for using their services. Please keep in mind that the funds are not
responsible for the failure of any financial intermediary not carrying out its
obligations to its customers.
Class J shares of the Funds 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, however,
are subject to an ongoing asset-based distribution (12b-1) fee.
The Funds also offer other classes of shares through separate prospectuses:
(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
were shareholders of the funds on December 31, 1998 and certain designated
persons; and (5) Class Y "institutional" shares. Class A, B, C, T, and Y shares
are subject to different sales charges and other expenses and, accordingly, may
have expense ratios and performance that differs from those of Class J shares.
You are encouraged to consider all of the 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, CALL INVESTOR SERVICES AT (800) 231-4639.
DISTRIBUTION AND SHAREHOLDER SERVICE (12b-1) FEE
Class J shares pay SM&R, the principal underwriter, a distribution (12b-1) fee
of 0.75%. This fee is computed as an annual percentage of the average daily net
assets of the class. BECAUSE DISTRIBUTION (12b-1) FEES ARE PAID OUT OF FUND
ASSETS ON AN ONGOING BASIS, THE FEES
19
<PAGE>
CHOOSING A SHARE CLASS THAT BEST SUITS YOU
------------------------------------------------
MAY, OVER TIME, INCREASE THE COST OF AN INVESTMENT IN A FUND AND COST INVESTORS
MORE THAN OTHER TYPES OF SALES LOADS.
The distribution fee is for services that are primarily intended to result in or
are primarily attributable to the distribution of Class J shares. This fee
compensates SM&R, or enables SM&R to compensate other persons (including
distributors of the shares), for providing such services.
20
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
Each fund pursues its own investment objective through various investment
policies and techniques. ONLY THE PRINCIPAL INVESTMENT STRATEGIES OF EACH FUND
AND THE PRINCIPAL TYPES OF SECURITIES EACH FUND PLANS TO PURCHASE ARE DESCRIBED
BELOW. More investment information is in the Statement of Additional
Information. These policies and techniques are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Changes in a Fund's holdings, a Fund's performance, and the contribution of
various investments are discussed in the shareholder reports sent to you.
- SM&R HAS CONSIDERABLE LEEWAY IN CHOOSING INVESTMENT STRATEGIES AND SELECTING
SECURITIES IT BELIEVES WILL HELP THE FUNDS ACHIEVE THEIR OBJECTIVES.
Because of the market risks inherent in any investment, the Funds may not
achieve their investment objectives. In addition, effective management of each
Fund is subject to general economic conditions and to the ability and investment
techniques of management. The net asset value of each Fund's shares will vary
and the redemption value of shares may be either higher or lower than the
shareholder's cost. Since each Fund has a different investment objective, each
will have different investment results and incur different market, financial,
and other risks.
During unfavorable market conditions, each Fund may, but is not required to,
make temporary investments that are not consistent with a Fund's investment
objectives and principal strategies. Such defensive measures may include
increasing cash, investing more assets in bonds or money market instruments, and
where permitted by the individual Fund discussions that follow, investing in
derivatives or other instruments. If a Fund takes such defensive measures, it
may not achieve its investment objectives.
A Fund may trade actively and frequently to achieve its investment objective. A
high turnover rate may increase transaction costs, affecting the Fund's
performance over time. A high turnover rate may also result in higher capital
gains distributions, increasing your tax liability.
21
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
SM&R GROWTH FUND, INC.
The Growth Fund considers its portfolio investments and the composition of its
total portfolio from the viewpoint of potential capital appreciation. The
Growth Fund adjusts this composition from time to time in light of current
conditions. Under normal conditions, the Growth Fund invests at least 85% of
its total assets in common stocks.
The Growth Fund invests in the stocks of financially sound companies that have
a proven ability to make and sustain a profit over time. Management places an
emphasis on companies with growth potential. The Growth Fund does not employ
exotic investment strategies, such as using options and futures.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on
a fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual economic sectors, is also dictated
by a combination of disciplines and human judgement to varying degrees. We
believe in never having less than half or more than double the market
weighting in any one sector. The Growth Fund limits cash to 15% of its assets
unless circumstances dictate otherwise.
Because of the Growth Fund's goal of seeking long-term capital growth, certain
sectors of the market will have greater weight in the Growth Fund's portfolio
while other sectors of the market will have lower representation. For example,
the Growth Fund generally overweights the technology sector, which represents
approximately 15% to 20% of the Standard & Poor's 500 Index, in the portfolio
relative to its market weight. This overweighting reflects the higher growth
prospects of technology companies relative to the average company in the
market. At varying times, we
22
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
may also overweight other sectors of the market providing above average growth
prospects, like healthcare and consumer staples.
Conversely, the Growth Fund generally underrepresents certain sectors of the
market in its portfolio that tend to have below average growth
characteristics, like utilities, basic materials, and communications services.
As a result of such strategic overweighting and underweighting, the Growth
Fund's performance may differ substantially from broad market indexes like the
S&P 500 and tend to incur more price volatility than these indexes.
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 and Moody's corporate bond
ratings. Investments in convertible securities having these ratings may
involve greater risks than convertible securities having higher ratings.
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. Common stocks and convertible securities purchased will be of
companies that SM&R believes will provide an opportunity for capital
appreciation. 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, in certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets, and in repurchase
agreements.
SM&R EQUITY INCOME FUND, INC.
The Equity Income Fund considers its portfolio investments and the composition
of its total portfolio not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. We
adjust this composition of portfolio investments from time to time to best
accomplish the Equity Income Fund's investment objectives under current
conditions. In pursuit of its objectives, the Equity Income Fund will invest
in
23
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
common stocks, preferred stocks, and marketable debt securities selected in
accordance with its investment objectives. Common and preferred stocks
purchased will generally be of companies with consistent and increasing
dividend payment histories that SM&R believes will have further earnings
potential sufficient to continue such dividend payments. Debt securities
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, the Equity Income Fund will invest at
least 75% of its assets in equity securities rather than debt securities.
We view common stocks, as well as investments in preferred stocks and bonds
convertible into common stock, from their potential for capital appreciation
in addition to their current and potential income yield. Our goal is to
maintain a portfolio dividend yield (before fees and expenses) at least 50%
greater than that of the S&P 500 Index.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on
a fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual sectors, is also dictated by a
combination of disciplines and human judgement to varying degrees. We believe
in never having less than half or more than double the market weighting in any
one sector. Cash is limited to 15% of the fund unless circumstances dictate
otherwise.
Certain sectors of the market will have greater weight in the Equity Income
Fund's portfolio while other sectors of the market
24
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
will have lower representation. For example, the Equity Income Fund generally
overweights the finance sector in its portfolio relative to that sector's
market weight (which is approximately 16% of the Standard & Poor's 500 Index).
This reflects the greater dividend prospects of financial companies like
banks, insurance companies, and real estate investment trusts as compared to
the average company in the market. At varying times, we may also overweight
other sectors of the market that provide above average dividend prospects,
like utilities and energy.
Conversely, the Equity Income Fund generally underrepresents certain sectors
of the market tending to have below average dividend yields, like technology,
consumer staples, and healthcare. As a result of such strategic overweighting
and underweighting, the Equity Income Fund's performance may differ
substantially from broad market indexes like the S&P 500.
Corporate debt obligations purchased by the Equity 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.
SM&R BALANCED FUND, INC.
The Balanced Fund uses a "balanced" approach by investing part of its assets
in stocks of well-known companies and the remainder in a combination of
high-grade bonds, bonds convertible into the common stock of the issuing
corporations, and money market instruments. We change the ratio of stocks to
bonds in response to changing economic conditions. This flexibility helps to
reduce price volatility.
The Balanced Fund's goal is relative stability of principal through a balance
of stocks, bonds, and cash. The stocks serve to capture the benefits that
ownership in corporate America brings. The bonds,
25
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
meanwhile, can serve as a stabilizing force during times of eroding stock
market value, as well as provide a fixed income payment stream into the
portfolio.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill
and foresight, and relative valuation to industry peers and the market as a
whole. We utilize this combination of disciplines and human judgement to drive
our stock selection process. We believe in evaluating each company's prospects
as opposed to relying on broad forecasts of industry prospects. We do not
attempt to time economic, market, style or capitalization cycles.
Diversification, or weighting of individual sectors, is also dictated by a
combination of disciplines and human judgement to varying degrees. We believe
in never having less than half or more than double the market weighting in any
one sector. Cash is limited to 15% of the portfolio unless circumstances
dictate otherwise. The Balanced Fund will only purchase corporate bonds 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
Balanced Fund may also invest in repurchase agreements. This balanced
investment policy is intended to reduce risk and to obtain results in keeping
with the Balanced Fund's objectives.
The Balanced Fund will invest in fixed-income securities and equity securities
as described above. However, the Balanced 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
26
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
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 Balanced Fund's shareholders assuming no change in its current
investment objective and portfolio. Diversifying the Balanced 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.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity to debt holdings consistent with SM&R's outlook
and evaluation of trends in the economy and the financial markets. The
Balanced Fund determines its level of commitment to common stocks and specific
common stock investments 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.
27
<PAGE>
OTHER RISK FACTORS
------------------------------------------------
The following discussion relates to all three Funds. The Fund summaries located
at the beginning of this prospectus identifies some specific risks applicable to
each individual Fund.
GENERAL. There is no assurance that a Fund will achieve its goals. Generally, if
the securities owned by a Fund increase in value, the value of the shares of
the fund which you own will increase. Similarly, if the securities owned by a
Fund decrease in value, the value of your shares will also go down. In this
way, you participate in any change in the value of the securities owned by a
Fund.
The risk inherent in investing in any fund is a risk common to any security.
That is, the value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates and the market's perception of the
underlying portfolio securities held by that Fund. Each Fund's share value
depends on general economic and securities market conditions, the investment
decisions of its management, and numerous other factors. All of these factors
are inherently uncertain and, in some cases, unforeseeable.
Any of the Funds could lose money if the stock markets in general go down or
if the particular stocks purchased by a Fund go down in value. In addition,
the Funds could lose money if prevailing interest rates increase or if the
debt securities purchased by a fund are downgraded or defaulted upon.
STOCK INVESTMENT RISKS. Because each Fund invests a substantial portion of its
assets in stocks, the value of each Fund's portfolio will be affected by
changes in the stock markets. At times, the stock markets can be volatile and
stock prices can change substantially. This market risk will affect each
Fund's net asset value per share, which will fluctuate as the values of each
Fund's portfolio securities change. Stock prices do not always change
uniformly or at the same time and the various stock markets do not always move
in the same direction at the same time. Other factors specific to a particular
company also affect that company's stock price (for example, poor earnings,
loss of major customers, or major litigation). The Funds cannot always predict
the factors that will affect a stock's price. The Funds, however, do attempt
to limit market risk by diversifying their investments.
28
<PAGE>
OTHER RISK FACTORS
------------------------------------------------
For the Growth Fund and the Equity Income Fund, the portfolio managers decide
to overweight or underweight certain industry sectors and to purchase
individual stocks based on their assessment of the future growth or income
prospects of an industry sector or particular stock. If certain industries or
investments do not perform as a fund expects (I.E., do not grow in value or
produce dividend income as expected), that fund could underperform its peers
or lose money.
The Growth Fund is generally considered more aggressive than the Equity Income
and Balanced Funds because it invests for capital appreciation in common
stocks, emphasizing "growth" stocks that tend to be more volatile than other
investments. Investors in the Growth Fund should expect greater fluctuations
in share price, yield, and total return than with less aggressive funds.
DEBT SECURITIES RISKS. Debt securities are subject to changes in their values
due to changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise.
Accordingly, if interest rates go down after a security is purchased, such
security might be valued and/or sold at a price greater than its cost. On the
other hand, when prevailing interest rates rise, the values of already-issued
debt securities generally fall. Accordingly, if interest rates increase after
a security is purchased, such security might be valued and/or sold at a price
less than its cost. The magnitude of these fluctuations will often be greater
for longer-term debt securities than shorter-term debt securities.
The Funds could lose money if any bonds they own are downgraded in credit
rating or go into default. In general, lower-rated bonds, such as junk bonds,
have higher credit risks. The Growth Fund is the only Fund permitted to invest
in junk bonds. Junk bonds have additional risks, including limitations on a
fund's ability to re-sell the lower-rated debt securities and less readily
available market quotations for such securities. If there are not readily
available market quotations for a debt security, its value is determined
largely by the investment manager's judgment. When and if the debt security is
sold, the investment manager may find that its estimation of the debt
security's value is substantially different than
29
<PAGE>
OTHER RISK FACTORS
------------------------------------------------
the actual price at which it can be sold. Moreover, substantial redemptions of
fund shares could require a fund to sell portfolio securities at a time when a
sale might not be favorable.
OTHER RISKS. Each investor will be subject to all the risks normally attendant
to business operations, changes in general economic conditions, governmental
rules and fiscal policies, acts of God, and other factors beyond the control
of the Funds' management.
SMALLER COMPANY RISKS. Smaller companies in which each of the Funds may invest
may involve greater risks than large established companies. Such smaller
companies may have limited product lines, markets, financial resources, and
management depth. Their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies.
Smaller companies may also be more vulnerable than larger companies to adverse
business or market developments. As a result, the prices of smaller companies
may fluctuate to a greater degree than the prices of securities of larger
companies.
30
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
PURCHASING SHARES
You may purchase Class J shares of a fund through certain financial
intermediaries (such as broker-dealers and mutual fund "supermarkets") that have
distribution agreements with SM&R and are authorized to accept orders on the
funds behalf. Such purchases will be at the offering price for such shares
determined as and when provided below (See "Pricing of Fund Shares"). These
mutual fund "supermarkets" may charge you a fee for this service and may require
different minimum initial and subsequent purchases than the funds. Supermarkets
may also impose other charges or restrictions different from those applicable to
individuals who invest in other classes of the funds directly.
Certificates are not issued for shares of the funds. 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.
Investors whose shares are held in the name of a broker-dealer or other party
are not shareholders of record and therefore may not be able to utilize services
available to shareholders of record.
OPENING AN ACCOUNT: To purchase shares, you must submit a completed account
application. Special forms or information may be required when establishing an
IRA/SEP or 403(b) plan. Please note that third party checks will not be accepted
to open a new account, except for IRA Rollover checks that are properly
endorsed.
MINIMUM PURCHASE REQUIREMENT: The minimum initial investment is $2,000 and all
subsequent investments must be at least $500. The Company reserves the right to
reject any purchase.
PRICING OF FUND SHARES
GENERAL (HOW SHARES ARE PRICED). We determine each fund's offering price once
each day the New York Stock Exchange (the "Exchange") is open for regular
trading. The offering price equals a fund's net asset value plus the sales
charge, if any. You may purchase shares offered in this prospectus without a
sales charge. Accordingly, the
31
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
offering price for shares offered in this prospectus is that fund's (or class')
net asset value.
A NOTE ON PRICING. Each Fund's investments will be priced at their market value
when market quotations are readily available. When these quotations are not
readily available, investments will be priced at their fair value, calculated
according to procedures adopted by the Funds' Board of Directors. The Funds also
may use fair value pricing if the value of a security held by the Fund is
materially affected by events occurring after the close of regular trading of
the primary markets or exchanges on which the security is traded. In these
situations, prices used by the Fund to calculate its net asset value may differ
from quoted or published prices for the underlying securities.
SHARE PRICE -- EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS. Each Fund's share
price, called its net asset value, or NAV, is calculated once each day at the
close of regular trading (currently 3:00 p.m. Central Time). NAV is not
calculated on holidays or other days the Exchange is closed. In the event the
Exchange closes early on a particular day, we will determine the net asset value
of the Funds as of such earlier closing time. Below is the method used by the
Funds to calculate the NAV on any given day.
<TABLE>
<S> <C> <C>
Total Assets - Liabilities
Net Asset Value = ----------------------------
Number of Shares Outstanding
</TABLE>
Knowing the daily net asset value is useful to you as a shareholder because it
indicates the current value of your investment. Each Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day, less any
applicable transaction fee.
The price you pay or receive for shares of a Fund depends, in part, on the day
and time you make your purchase or redemption. Purchases and redemptions will be
executed on each day the Exchange is open for regular trading at the next NAV
determined that day if:
- SM&R receives your request in good order prior to the close of the regular
trading day;
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
- a securities dealer having a dealer contract with SM&R receives your order
prior to the close of the regular trading day and reports your order to
SM&R prior to SM&R's close of business (currently 4:30 p.m. Central Time)
on the same day; or
- SM&R is advised of bank wire purchases received by Moody National Bank
before 3 p.m. Central Time.
If we receive your order after the close of the regular trading day or on any
day that the Exchange is closed, we will execute your purchase or redemption
at the price determined on the next regular trading day. In unusual
circumstances, the Funds may temporarily suspend the processing of sale
requests, or may postpone payment of proceeds for up to three business days or
longer, as allowed by federal securities laws.
SPECIAL SERVICES
EXCHANGE PRIVILEGE. As an investor in a fund, you may be permitted to exchange
shares that you own in a fund with shares of some of the other mutual funds
managed by SM&R without the payment of an exchange fee, subject to certain
conditions. EXCHANGES BETWEEN A FUND AND ANOTHER FUND MANAGED BY SM&R ARE
AVAILABLE ONLY IN STATES WHERE THE APPLICABLE FUNDS ARE REGISTERED AND THE
EXCHANGE MAY BE LEGALLY MADE. YOU SHOULD CONTACT SM&R TO DETERMINE WHETHER A
FUND IS REGISTERED IN A PARTICULAR STATE AND WHETHER AN EXCHANGE IS PERMITTED.
WE MAY TERMINATE OR CHANGE THE TERMS OF ANY EXCHANGE OFFER AT ANY TIME.
33
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
You may exchange Class J shares of a fund, without an exchange fee, for shares
of the corresponding class of another fund managed by SM&R. 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.
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 that are registered in the
same name, address and, if applicable, taxpayer identification number;
(b) the shares of the fund acquired through exchange must be qualified for
sale in the state in which you reside;
(c) the dollar amount of a written exchange must meet the minimum investment
requirement applicable to the shares of the fund that you would acquire
through the exchange;
(d) the minimum dollar amount of a telephone exchange is $500;
(e) SM&R must have received full payment for the shares being exchanged;
(f) 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);
(g) any shares that you wish to exchange must have been held for at least
ten (10) business days; 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
34
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
INCOME TAX PURPOSES. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR THE TAX TREATMENT
AND EFFECT OF EXCHANGES.
ABUSIVE TRADING PRACTICES. Excessive, short-term (market-timing) or other
abusive trading practices may disrupt portfolio management strategies and harm
fund performance. To minimize harm to the Fund and its shareholders, we reserve
the right to reject any purchase order (including exchanges) from any investor
we believe has a history of abusive trading or whose trading, in our judgement,
has been or may be disruptive to a fund. In making this judgement, we may
consider trading done in multiple accounts under common ownership or control.
RETIREMENT PLANS
The following retirement plans may invest in Class J shares of the Funds:
- Individual Retirement Accounts (IRAs), which include traditional IRAs, Roth
IRAs, Education IRAs, and SIMPLE IRAs,
- Simplified Employee Pension Plans (SEPs),
- 403(b) Custodial Accounts (TSAs), and
- corporate retirement plans.
These plans allow you to shelter investment income from federal income tax while
saving for retirement. Information concerning IRAs and TSAs, and the forms
necessary to adopt such plans, can be obtained by contacting your financial
advisors. A regular fund application should be used when establishing a
corporate retirement plan. (See "Purchasing Shares" for the minimum initial and
subsequent purchase requirements.) 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 an IRA, SEP,
or TSA in the Funds and will be automatically deducted from each account. An
individual considering a retirement plan may wish to consult with an attorney or
tax adviser.
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
DIVIDENDS, DISTRIBUTIONS, AND TAXES
DISTRIBUTION SCHEDULE. The following schedule of distributions is provided to
let you know when you can expect to receive a distribution from the SM&R Mutual
Funds you own. These distributions, under normal circumstances and if earned,
will be declared and paid in the months indicated in the following chart.
<TABLE>
<CAPTION>
<S> <C> <C>
DIVIDENDS CAPITAL GAINS
- -----------------------------------------------------------------------------
SM&R GROWTH FUND June and December December
- -----------------------------------------------------------------------------
SM&R EQUITY INCOME FUND March, June, September, December
December
- -----------------------------------------------------------------------------
SM&R BALANCED FUND March, June, September, December
December
- -----------------------------------------------------------------------------
</TABLE>
DISTRIBUTIONS AFFECT ON NAVS. In order to be entitled to a dividend, an investor
must have acquired shares of a fund prior to the close of business on the
distribution record date. A shareholder should be cautioned, however, before
purchasing shares of a fund immediately prior to a distribution. Dividends and
distributions paid by the Funds have the effect of reducing net asset value per
share on the record date by the amount of the payment. Therefore, a dividend or
distribution of record shortly after the purchase of shares by a shareholder
represents, in substance, a return of capital.
DIVIDEND REINVESTMENTS. Dividends and capital gains will be automatically
reinvested at net asset value in additional shares of the Fund 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 applicable Fund(s).
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.
36
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
This is a convenient way to accumulate additional shares and maintain or
increase the shareholder's earning base. Of course, any shares so acquired
remain at market risk.
Shareholders have the right to change their election with respect to the receipt
of distributions by notifying SM&R in writing, but any such change will be
effective only as to distributions for which the record date is seven or more
business days after SM&R has received the shareholder's written request.
BACKUP WITHHOLDING. Backup withholding for federal income tax may be applied,
where required by current IRS requirements, at the rate of 31% from taxable
dividends, distributions, and redemption proceeds (including exchanges) if you
fail to furnish the funds with a correct and properly certified Social Security
or Employer Identification Number when you sign your application, or if you
underreport your income to the Internal Revenue Service.
TAXABILITY OF REDEMPTIONS AND EXCHANGES. You should consult with a tax advisor
concerning the tax reporting requirements in effect on the redemption or
exchange of such shares. Any time you sell or exchange shares, it is considered
a taxable event for you. Depending on the purchase price and the sale price of
the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
REDEEMING SHARES
You can redeem fund shares at the net asset value determined on the date the
request is received by SM&R in proper form. A redemption request must be
processed through your financial intermediary.
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. We
currently charge a fee in the amount of $10.00 for redemptions by wire under
$10,000.
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
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 a 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.
SYSTEMATIC WITHDRAWAL PLAN. The funds have 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 Services" 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.
For further information about the "Systematic Withdrawal Plan," contact your
investment adviser or broker-dealer.
"GOOD ORDER" means the request for redemption must include:
(1) 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;
(2) any required signature guarantees (see "Signature Guarantees" below);
and
38
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
(3) 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
that all requests are submitted to the fund's transfer agent in proper form for
processing.
SIGNATURE GUARANTEES. To protect you and the Funds against fraud, certain
redemption requests must be made in writing with your signature guaranteed. A
signature guarantee can be obtained at most banks and securities dealers. A
notary public is not authorized to provide a signature guarantee.
The following circumstances require a signature guarantee:
- Redemptions from one or more of the Funds total $50,000 or more
- You want the proceeds sent to an address other than the address currently
appearing on your account
- You want the proceeds sent to a bank account not listed on your account
- You want the proceeds payable to anyone other than the registered owner(s)
of the account
- Either your address or the address of your bank account has been changed
within 30 days
- The account is registered in the name of a fiduciary, corporation or any
other organization. In these cases, additional documentation is required:
Corporate accounts: certified copy of corporate resolution
Fiduciary accounts: copy of the power of attorney or other governing
document
- - The Funds or their transfer agent believe a signature guarantee would protect
against claims based on transfer instructions
WHO CAN PROVIDE A SIGNATURE GUARANTEE:
- Commercial Bank
- Trust Company
- Savings Association
39
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
- Credit Union
- Member of Medallion Program
- Member of a U.S. Stock Exchange
- Authorized SM&R Representatives
NOTARY PUBLIC NOT ACCEPTABLE
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 $500. You will be notified
that the value of your account is less than the required minimum and allowed at
least 60 days to make an additional investment to increase the value of your
account above the required minimum. The Funds may, from time to time, change
such required minimum investment.
RIGHTS RESERVED BY THE FUNDS. The Funds, acting through its transfer agent,
reserve the right:
- to waive, raise or lower investment minimums;
- to accept subsequent purchases by telephone from financial intermediaries;
- 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 the account owners or other parties or there
is reason to believe a fraudulent transaction may occur or has occurred;
- to act on instructions not believed to be genuine;
- to eliminate duplicate mailings of fund material to shareholders who reside
at the same address; or
- to otherwise modify the conditions of purchase and any services at any time.
40
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
INVESTMENT ADVISER
Each Fund's Board of Directors has delegated to Securities Management and
Research, Inc. ("SM&R"), the Fund's investment adviser, the management of the
Fund's day-to-day business and affairs. In addition, SM&R invests the Funds'
assets, provides administrative services, and serves as transfer agent,
custodian, dividend paying 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"). SM&R was incorporated in 1964 and has managed mutual
funds since 1966. SM&R also serves as investment adviser to other clients
including banks, employee benefit plans, other investment companies, banks,
foundations and endowment funds.
ADVISORY AGREEMENTS
GROWTH FUND. We deduct an investment advisory fee from the value of the shares
each day. We calculate this fee for the Growth Fund at the annual rate as
follows:
<TABLE>
<CAPTION>
<S> <C>
BASIC
ADVISORY
ON THE PORTION OF EACH FUND'S FEE ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------- -----
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>
We adjust the basic advisory fee rate by comparing the fund's investment
performance during the previous thirty-six (36) months with the investment
performance of the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. over the same period. Specifically, we adjust
the basic advisory fee 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.
41
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
The advisory fee for such month will be one-twelfth ( 1/12th) of the resulting
dollar figure.
<TABLE>
<CAPTION>
<S> <C>
PERFORMANCE
PERFORMANCE COMPARED ADJUSTMENT
TO LIPPER INDEX AMOUNT
- ------------------------------------------------ -------------
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%
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
EQUITY INCOME AND BALANCED FUNDS. We deduct an investment advisory fee from the
value of the shares each day. We calculate this fee for the Equity Income and
Balanced Funds at the annual rate as follows:
<TABLE>
<CAPTION>
<S> <C>
ON THE PORTION OF EACH FUND'S BASIC ADVISORY
AVERAGE DAILY NET ASSETS FEE ANNUAL RATE
- ---------------------------------------- -----
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>
42
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
SM&R received total advisory fees from the Growth, Equity Income, and Balanced
Funds for the fiscal year ended December 31, 1999 of 0.48%, 0.68%, and 0.75%,
respectively, of each fund's average daily net assets. Each fund's advisory fees
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.
ADMINISTRATIVE SERVICES
Pursuant to Administrative Service Agreements with the funds, SM&R provides all
non-investment related management, executive, administrative, transfer agent,
and operational services to the Funds. Under the agreements, SM&R receives an
administrative service fee from each fund at the annual rate of average daily
net asset values as follows:
<TABLE>
<CAPTION>
<S> <C>
ADMINISTRATIVE
ON THE PORTION OF EACH FUND'S SERVICE FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
- ---------------------------------------- ----
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>
In each fund's administrative service agreement, SM&R has agreed to pay (or to
reimburse each fund for) each fund's regular operating expenses in excess of
1.25% per year of such fund's average daily net assets. Regular operating
expenses include the advisory fee and administrative service fee, if any, paid
to SM&R, but do not include 12b-1 fees, class-specific expenses, interest,
taxes, commissions, and other expenses incidental to portfolio transactions.
SM&R received total administrative service fees of 0.22% for the Growth Fund;
0.22% for the Equity Income Fund; and 0.25% for the Balanced Fund for the fiscal
year ended December 31, 1999 of each fund's average daily net assets.
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in providing
investment advisory services to the funds. While the following individual is
primarily responsible for the day-to-day portfolio management of the funds, all
accounts are reviewed on
43
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
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, EQUITY INCOME FUND AND BALANCED 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.
ANDREW R. DUNCAN, SR. SECURITIES ANALYST/PORTFOLIO MANAGER. Mr. Duncan joined
SM&R's staff in 1997 as Sr. Securities Analyst/Portfolio Manager. Mr. Duncan
serves as a Portfolio Manager of the SM&R Equity Income Fund, SM&R Balanced
Fund, the American National Investment Accounts, Inc. Equity Income Portfolio,
Balanced Portfolio, and the International Stock Portfolio. He graduated from
West Virginia University in 1995 with a BS/BA degree in Finance and from Texas
A&M University in 1996 with an MS in Finance.
ANDRE J. HODLEWSKY, SECURITIES ANALYST/PORTFOLIO MANAGER. Mr. Hodlewsky joined
SM&R in 1998 as Securities Analyst. Mr. Hodlewsky serves as a Portfolio
Manager of the SM&R Growth Fund, Inc. and the American National Investment
Accounts, Inc. Small-Cap/ Mid-Cap Portfolio. He graduated from the University
of Wisconsin in 1990 with a BA in Graphic Design and Industrial Design and
from the University of Wisconsin in 1999 with an MBA in Marketing and Finance.
Prior to joining SM&Rs staff, he held a position at Rockwell from 1995 to 1997
in their Internet and Multi-Media Design Group and Mandel Company in
Milwaukee, Wisconsin, from 1993 to 1995 in the Prepress Technology Division.
44
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The condensed financial information on the following pages relfect all of the
fees and expenses imposed by each of the Funds which contributed to the changes
in the share price of each Fund during the period. It also shows the changes in
share price for this period in comparison to changes over the last five fiscal
years or less, if the fund is not five years old.
On a per-share basis, the table includes as appropriate
- share price at the beginning of the period
- investment income and capital gains or losses
- distributions of income and capital gains paid to shareholders
- share price at the end of the period
The table also includes some key statistics for the period as appropriate
- Total Return -- the overall percentage of return of the fund, assuming the
reinvestment of all distributions
- Expense Ratio -- operating expenses as a percentage of average net assets
- Net Income Ratio -- net investment income as a percentage of average net
assets
- Portfolio Turnover -- the percentage of the fund's buying and selling
activity
The Financial Highlights have been audited by the Fund's independent auditors,
Tait, Weller & Baker. Their Independent Auditor's Report is included in the
fund's annual report for the year ended December 31, 1999, which is incorporated
by reference into the Statement of Additional Information and is available upon
request.
45
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
GROWTH FUND
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 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). This information is derived from the
financial statements of the Growth Fund, which for the years ended December 31,
1997, 1998 and 1999 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. IF
CLASS J 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 5.69 $ 5.24 $ 4.95 $ 4.39 $ 3.83
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.04 0.06 0.05 0.08
Net Realized and Unrealized Gain
(Loss) on Securities 1.35 0.85 1.03 0.73 0.88
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.38 0.89 1.09 0.78 0.96
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.03) (0.04) (0.06) (0.05) (0.08)
Distributions from Capital Gains (0.27) (0.40) (0.74) (0.17) (0.32)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.30) (0.44) (0.80) (0.22) (0.40)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 6.77 $ 5.69 $ 5.24 $ 4.95 $ 4.39
======== ======== ======== ======== ========
TOTAL RETURN 24.49% 18.35% 22.24% 17.64% 25.20%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $230,203 $203,109 $178,344 $152,758 $134,821
Ratio of Expenses to Average Net Assets 0.87% 0.85% 0.96% 1.15% 0.98%
Ratio of Net Income to Average Net
Assets 0.44% 0.69% 1.03% 1.02% 1.67%
Portfolio Turnover Rate 16.13% 27.31% 46.79% 18.72% 37.00%
</TABLE>
46
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
EQUITY INCOME FUND
The following financial highlights table is intended to help you understand the
Equity Income Fund's financial performance for the past five years. Certain
information reflects financial results for a single Equity 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 Equity Income Fund (assuming reinvestment of all dividends and
distributions). This information is derived from the financial statements of the
Equity Income Fund, which for the years ended December 31, 1997, 1998 and 1999
have been audited by Tait, Weller & Baker, independent auditors, whose report,
along with the Equity 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 Equity Income Fund's former independent auditors. IF CLASS J
SHARES OF THE EQUITY INCOME FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE
YEARS, THE FINANCIAL PERFORMANCE OF CLASS J SHARES OF THE EQUITY INCOME FUND
WOULD HAVE BEEN LOWER THAN DEPICTED BECAUSE OF THE IMPOSITION OF DISTRIBUTION
AND/OR SERVICE (12b-1) FEES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 28.02 $ 26.99 $ 25.05 $ 22.59 $ 18.90
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.54 0.62 0.63 0.58 0.62
Net Realized and Unrealized Gain
(Loss) on Securities (0.96) 2.50 4.96 3.10 4.82
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.42) 3.12 5.59 3.68 5.44
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.54) (0.62) (0.64) (0.58) (0.63)
Distributions from Capital Gains (1.76) (1.47) (3.01) (0.64) (1.12)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (2.30) (2.09) (3.65) (1.22) (1.75)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 25.30 $ 28.02 $ 26.99 $ 25.05 $ 22.59
======== ======== ======== ======== ========
TOTAL RETURN (1.39)% 12.11% 22.72% 16.46% 29.12%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $187,988 $218,980 $198,687 $165,786 $141,058
Ratio of Expenses to Average Net Assets 1.05% 1.01% 1.05% 1.10% 1.12%
Ratio of Net Income to Average Net
Assets 1.94% 2.22% 2.28% 2.42% 2.89%
Portfolio Turnover Rate 9.81% 19.29% 39.14% 27.07% 44.00%
</TABLE>
47
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
BALANCED FUND
The following financial highlights table is intended to help you understand the
Balanced Fund's financial performance for the past five years. Certain
information reflects financial results for a single Balanced 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 Balanced Fund (assuming reinvestment of all dividends and distributions).
This information is derived from the financial statements of the Balanced Fund,
which for the years ended December 31, 1997, 1998 and 1999 have been audited by
Tait, Weller & Baker, independent auditors, whose report, along with the
Balanced 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 Balanced Fund's former independent auditors. IF CLASS J SHARES OF THE
BALANCED FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE YEARS, THE FINANCIAL
PERFORMANCE OF CLASS J SHARES OF THE BALANCED FUND WOULD HAVE BEEN LOWER THAN
DEPICTED BECAUSE OF THE IMPOSITION OF DISTRIBUTION AND/OR SERVICE (12b-1) FEES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 19.63 $ 18.32 $ 17.90 $ 16.85 $ 14.32
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.42 0.48 0.57 0.49 0.49
Net Realized and Unrealized Gain (Loss) on
Securities 1.84 1.96 2.50 1.48 2.67
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 2.26 2.44 3.07 1.97 3.16
------- ------- ------- ------- -------
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.42) (0.47) (0.59) (0.49) (0.49)
Distributions from Capital Gains (0.80) (0.66) (2.06) (0.43) (0.14)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS (1.22) (1.13) (2.65) (0.92) (0.63)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 20.67 $ 19.63 $ 18.32 $ 17.90 $ 16.85
======= ======= ======= ======= =======
TOTAL RETURN 11.87% 13.83% 17.46% 11.86% 22.29%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $30,146 $29,367 $25,838 $23,188 $21,757
Ratio of Expenses with reimbursement to
Average Net Assets 1.25% 1.25% 1.26% 1.21% 1.26%
Ratio of Expenses without reimbursement to
Average Net Assets 1.41% 1.37% 1.36% 1.34% 1.46%
Ratio of Net Income to Average Net Assets 2.15% 2.55% 3.02% 2.83% 2.99%
Portfolio Turnover Rate 18.01% 16.01% 27.52% 23.78% 16.39%
</TABLE>
48
<PAGE>
APPENDIX A
(Description of Ratings Used in Prospectuses)
-------------------------------------------------------------------
BOND RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM BOND (BONDS THAT EXTEND
LONGER THAN ONE YEAR) 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 than
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 likely
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, it 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.
A-1
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
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 LONG-TERM BOND (BONDS THAT
EXTEND LONGER THAN ONE YEAR) 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 larger than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in
the future.
Baa Bonds which are rated "Baa" are considered as medium-grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective
A-2
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
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.
PREFERRED STOCK RATING
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S PREFERRED STOCK RATING:
AAA This is the highest rating that may be assigned by Standard & Poor's to a
preferred stock issue and indicates an extremely strong capacity to pay the
preferred stock obligations.
AA A preferred stock issue rate "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations is
very strong, although not as overwhelming as for issues rated "AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to pay
the preferred stock obligations. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a
A-3
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
preferred stock in this category than for issues in the "A" category.
<TABLE>
<S> <C>
BB Preferred stock rated "BB," "B," and "CCC" are
B regarded, on balance, as predominantly speculative with
CCC respect to the issuer's capacity to pay preferred stock
obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest. While such issues
will likely have some quality and protective
characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse
conditions.
</TABLE>
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S PREFERRED STOCK RATING:
aaa An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
A-4
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
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.
A-5
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS
------------------------------------------------
<TABLE>
<S> <C>
The following documents contain more SM&R GROWTH
information about the funds and are FUND, INC.
available free upon request: SM&R EQUITY INCOME
FUND, INC.
STATEMENT OF ADDITIONAL INFORMATION SM&R BALANCED
(SAI) The SAI contains additional FUND, INC.
information about all aspects of the
funds. A current SAI has been filed
with the Securities and Exchange
Commission and is incorporated herein
by reference.
ANNUAL AND SEMI-ANNUAL REPORTS
The funds' annual and semi-annual
reports provide additional information
about the funds' investments. The
annual report for the fiscal year ended
December 31, 1999 will contain a
discussion of the market conditions and
investment strategies that
significantly affected each fund's
performance during the last fiscal
year.
</TABLE>
REQUESTING DOCUMENTS
You may request a free copy of the SAI and these reports, make shareholder
inquiries, or request further information about the funds either by contacting
your broker or by contacting the funds at:
SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
TELEPHONE: 1-800-231-4639 (TOLL FREE) OR
1-281-334-2469 (COLLECT)
PUBLIC INFORMATION
You can review and copy information about the funds, including the SAI, 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. 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.
Investment Company
File Nos. 811-00623
811-01916
811-02818
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
[LOGO]
SM&R EQUITY FUNDS
CLASS Y (INSTITUTIONAL SALES)
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
Prospectus, May 1, 2000
The Securities and Exchange Commission has not approved or disapproved these
securities or passed upon the adequacy of this prospectus. Any representation to
the contrary is a criminal offense.
An investment in the Funds is not a deposit in a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency.
(This class may not be available in all states.)
<PAGE>
TABLE OF CONTENTS
------------------------------------------------
<TABLE>
<S> <C>
FUND SUMMARIES.......................................... 1
SM&R Growth Fund...................................... 1
SM&R Equity Income Fund............................... 3
SM&R Balanced Fund.................................... 5
ADDITIONAL EXPLANATION OF RISK FACTORS.................. 8
PERFORMANCE............................................. 11
EXPENSES OF THE FUNDS................................... 17
Fees and Expenses of the Funds........................ 17
CHOOSING A SHARE CLASS THAT BEST SUITS YOU.............. 19
Distribution and Shareholder Service (12b-1) Fee......
INVESTMENT OBJECTIVES, POLICIES AND RISKS............... 21
Growth Fund........................................... 22
Equity Income Fund.................................... 23
Balanced Fund......................................... 25
OTHER RISK FACTORS...................................... 28
PURCHASES AND REDEMPTIONS............................... 31
Purchasing Shares..................................... 31
Pricing of Fund Shares................................ 32
Other Services........................................ 34
Retirement Plans...................................... 38
Dividends, Distributions, and Taxes................... 39
Redeeming Shares...................................... 40
THE FUNDS AND THEIR MANAGEMENT.......................... 45
FINANCIAL HIGHLIGHTS.................................... 50
Growth Fund........................................... 51
Equity Income Fund.................................... 52
Balanced Fund......................................... 53
APPENDIX................................................ A-1
</TABLE>
WHY READING THIS PROSPECTUS IS IMPORTANT TO YOU
This prospectus explains the investment objective, risks and strategies of each
of the SM&R Mutual Funds. Reading the prospectus will help you to decide which
SM&R Mutual Fund, if any, is the right investment for you. We suggest that you
keep this prospectus for future reference.
ii
<PAGE>
Fund SUMMARY SM&R Growth Fund, Inc.
---------------------------------------------------
INVESTMENT OBJECTIVE
The Growth Fund seeks to achieve capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
The Growth Fund normally invests at least 85% of its total
assets in common stocks. In selecting stocks, Securities
Management and Research, Inc. ("SM&R"), the Growth Fund's
investment advisor:
- chooses the stocks of financially sound companies that have
a proven ability to make and sustain a profit over time
- places an emphasis on companies with growth potential
The Growth Fund generally purchases a higher proportion of
stocks (relative to their market weight) from those sectors of
the market with higher growth prospects, referred to as
"overweighting." Examples of sectors with higher growth
prospects currently include technology, healthcare, and
consumer staples. On the other hand, the fund generally
purchases a smaller proportion of stocks (relative to their
market weight) from sectors of the market with below average
growth characteristics (for example, utilities and basic
materials), referred to as "underweighting."
The Growth Fund may also invest in debt obligations (such as
convertible preferred stocks, debentures, and notes), including
below investment grade bonds ("junk" bonds).
1
<PAGE>
FUND SUMMARY SM&R GROWTH FUND, INC.
---------------------------------------------------
PRINCIPAL RISK FACTORS
The Growth Fund is subject to the risks common to all mutual
funds that invest in equity securities, and you could lose
money investing in this fund. The principal risks of investing
in the Growth Fund are as follows:
- the market value of the fund's securities could decline
(market risk).
- SM&R's investment decisions (such as sector overweighting
and underweighting and individual stock selection) could
fail to achieve the desired results (investment style or
management risk).
- growth stocks can have relatively wide price swings as a
result of the high valuations they carry (growth stock
risk).
- interest rates could increase which can cause the value of
a debt security to decline (interest rate risk).
- issuers of debt obligations could default or be unable to
pay amounts due (credit risk).
WHO MAY WANT TO INVEST IN THE FUND
The fund may be appropriate if you:
- have long term investment goals (ten years or more)
- are willing to accept higher short-term risk along with
higher potential long-term returns
- want to diversify your portfolio
The fund may NOT be appropriate:
- if you are investing with a shorter time horizon (less than
ten years)
- if you are uncomfortable with an investment that will go up
and down in value
- as your complete portfolio
2
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
---------------------------------------------------
INVESTMENT OBJECTIVE
The Equity Income Fund seeks current income with a secondary
objective of long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the fund's
investment advisor, normally invests at least 75% of the Equity
Income Fund's assets in equity securities. This fund may also
invest in preferred stocks and investment grade debt securities
(such as publicly traded corporate bonds, debentures, notes,
commercial paper, repurchase agreements, and certificates of
deposit). In selecting common and preferred stocks, the fund
focuses on companies with consistent and increasing dividend
payment histories and future earnings potential sufficient to
continue such dividend payments. This fund's goal is to
maintain a portfolio dividend yield (before fees and expenses)
at least 50% greater than that of the S&P 500 Index.
The Equity Income Fund generally purchases a higher proportion
of stocks (relative to their market weight) from those sectors
of the market with greater dividend prospects, referred to as
"overweighting." Examples of sectors with greater dividend
prospects currently include financial companies like banks,
insurance companies, and real estate investment trusts. On the
other hand, the fund generally purchases a smaller proportion
of stocks (relative to their market weight) from sectors of the
market with below average dividend yields (such as technology
and consumer staples), referred to as "underweighting."
3
<PAGE>
FUND SUMMARY SM&R EQUITY INCOME FUND, INC.
---------------------------------------------------
PRINCIPAL RISK FACTORS
The Equity Income Fund is subject to the risks common to all
mutual funds that invest in equity securities and you could
lose money investing in this fund. The principal risks of
investing in the Equity Income Fund are as follows:
- the market value of the fund's securities could decline
(market risk).
- SM&R's investment decisions (such as sector overweighting
and underweighting and individual stock selection) could
fail to achieve the desired results (investment style or
management risk).
- growth stocks can have relatively wide price swings as a
result of the high valuations they carry (growth stock
risk).
- interest rates could increase which can cause the value of
debt securities to decline (interest rate risk).
- issuers of debt obligations could default or be unable to
pay amounts due (credit risk).
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- have medium-term investment goals (five years or more)
- are comfortable with moderate to aggressive risk
- are looking for a fund with both growth and income
components
- are seeking to participate in the equity market
- are willing to accept higher short-term risk along with
higher potential long-term returns
This fund may NOT be appropriate if you:
- are investing with a shorter-time horizon (less than five
years)
- are investing for maximum return
- require a high degree of stability of your principal
4
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
---------------------------------------------------
INVESTMENT OBJECTIVE
The Balanced Fund seeks to conserve principal, produce current
income, and achieve long-term capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Securities Management and Research, Inc. ("SM&R"), the Balanced
Fund's investment advisor, uses a "balanced" approach by
investing part of the assets in common stocks and the remainder
in a combination of U.S. Government bonds, investment grade
corporate bonds, collateralized mortgage obligations, mortgaged
backed securities, convertible bonds, and money market
instruments. The balance of stocks to bonds and money market
instruments changes in response to changing economic
conditions. This flexibility may help to reduce price
volatility.
The stocks in this fund are diversified and are selected based
upon two models. One model is based on profitability
measurements and the other model is based on the corporation's
return on invested cash. The bonds, meanwhile, may serve as a
stabilizing force during times of eroding stock market value,
as well as provide a fixed income payment stream. The fund
invests at least 25% of assets in fixed income securities, all
of which are rated BBB or better (investment grade).
5
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
---------------------------------------------------
PRINCIPAL RISK FACTORS
The Balanced Fund is subject to the risks common to all mutual
funds that invest in equity securities and you could lose money
investing in this fund. The principal risks of investing in the
Balanced Fund are as follows:
- the market value of the fund's securities could decline
(market risk).
- SM&R's investment decisions (such as determining the ratio
of stocks to bonds and individual stock selection) could
fail to achieve the desired results (investment style or
management risk).
- growth stocks can have relatively wide price swings as a
result of the high valuations they carry (growth stock
risk).
- interest rates could increase which can cause the value of
debt securities to decline (interest rate risk).
- issuers of debt obligations could default or be unable to
pay amounts due (credit risk).
- the fund could be unable to find a buyer for its securities
(liquidity risk).
- the income you receive from the portfolio is based
primarily on interest rates, which can vary widely over the
short- and long-term. If interest rates drop, your income
from the portfolio may drop as well (income risk).
6
<PAGE>
FUND SUMMARY SM&R BALANCED FUND, INC.
---------------------------------------------------
WHO MAY WANT TO INVEST IN THE FUND
This fund may be appropriate if you:
- are seeking conservation of the purchasing power of your
capital, but also want to participate in equity investments
- are looking for a more conservative alternative to a
growth-oriented portfolio
- want a well-diversified and relatively stable investment
allocation
- need a core investment
This fund may NOT be appropriate if you:
- are investing for maximum return over a long time horizon
- require a high degree of stability of your principal
7
<PAGE>
ADDITIONAL EXPLANATION OF RISK FACTORS
------------------------------------------------
COMMON RISK FACTORS FOR ALL OF SM&R'S MUTUAL FUNDS
Please remember that mutual fund shares are:
- Not guaranteed to achieve their investment goal
- Not insured, endorsed or guaranteed by the FDIC, a bank or any government
agency
- Subject to investment risks, including possible loss of your original
investment
Like most investments, your investment in an SM&R Mutual Fund could fluctuate in
value over time and could result in a loss of money.
RISK FACTORS SPECIFIC TO THE SM&R'S EQUITY FUNDS
IMPORTANT
The following factors may affect the value of your investment IN ONE OR MORE OF
THE SM&R EQUITY FUNDS.
CREDIT RISK. The risk that the issuer of a security, or a party to a contract,
will default or otherwise not honor a financial obligation. THIS RISK APPLIES TO
ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON THE BALANCED AND EQUITY
INCOME FUNDS.
INTEREST RATE RISK. The risk of declines in market value of an income-bearing
investment due to changes in prevailing interest rates. With fixed-rate
securities, a rise in interest rates typically causes a decline in market
values, while a fall in interest rates typically causes an increase in market
values. THIS RISK APPLIES TO ALL OF THE FUNDS, BUT MAY HAVE A GREATER IMPACT ON
THE BALANCED AND EQUITY INCOME FUNDS.
LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the fund would like to sell them or
at the price the fund values them. The fund may have to sell at a lower price,
sell other securities instead, or forego an investment opportunity, any of which
could have a negative effect on fund management or performance. THIS RISK
APPLIES ONLY TO THE BALANCED FUND.
8
<PAGE>
ADDITIONAL EXPLANATION OF RISK FACTORS
------------------------------------------------
INVESTMENT STYLE OR MANAGEMENT RISK. The risk that a strategy used by a fund's
management may fail to produce the intended result because:
- management fails to properly implement the selected investment strategy; or
- the securities that fit the fund's investment style do worse than securities
that fit other investment styles
THIS RISK IS COMMON TO ALL MUTUAL FUNDS AND APPLIES TO ALL OF THE FUNDS.
MARKET RISK. The risk that the market value of a security may move up and down,
sometimes rapidly and unpredictably. The fluctuations may cause a security to be
worth less than the price originally paid for it, or less than it was worth at
an earlier time. Market risk may affect a single issuer, industry, sector of the
economy, or the market as a whole. THIS RISK IS COMMON TO ALL STOCKS AND BONDS
AND THE MUTUAL FUNDS THAT INVEST IN THEM AND APPLIES TO ALL OF THE FUNDS.
9
<PAGE>
PERFORMANCE
------------------------------------------------
PERFORMANCE
The bar charts and average annual return tables shown below illustrate the risks
of investing in the funds and the difference in returns by:
- showing performance for each year over a ten year period, and
- showing how average annual returns for 1, 5, and 10 years compare to those
of a broad measure of market performance.
PAST PERFORMANCE IS NOT NECESSARILY AN INDICATION OF
HOW THE FUNDS WILL PERFORM IN THE FUTURE.
The returns shown in the bar charts below show the percentage gain or loss for
Class T shares of the Funds. These bar charts include the effects of Fund
expenses, but not sales charges and account fees. No sales charges apply to
Class Y shares.
10
<PAGE>
PERFORMANCE
------------------------------------------------
SM&R GROWTH FUND
A bar chart for Class T shares of the Growth Fund is included at this time, as
the Class Y shares (inception on 1/1/99) have not been made available for public
distribution.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 -2.94%
1991 36.98%
1992 -2.50%
1993 8.17%
1994 4.98%
1995 25.20%
1996 17.64%
1997 22.24%
1998 18.35%
1999 24.49%
</TABLE>
During the ten year period shown in the bar chart, the Growth Fund's highest
return for a quarter was 19.41% achieved December 31, 1998 and its lowest return
for a quarter was a negative 13.16% for the quarter September 30, 1990.
Class Y has not been made available for public distribution. Accordingly, annual
total returns for Class Y cannot be provided. Instead, the following table
reflects the annual total returns for the Growth Fund Class T shares, and
includes the applicable Class T sales charge and fees and expenses. If this
class had been made available for public distribution, the financial performance
would have been lower because of the different sales charges (if applicable) and
fees and expenses.
11
<PAGE>
PERFORMANCE
------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS PAST
(FOR THE PERIODS ENDING ONE PAST PAST
DECEMBER 31, 1999) YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
GROWTH FUND 17.28% 20.14% 13.91%
S&P 500-REGISTERED TRADEMARK-* 21.03% 28.55% 18.19%
LIPPER GROWTH FUND INDEX** 50.93% 30.51% 19.20%
</TABLE>
* The S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of
500 Stocks, a widely recognized, unmanaged index of common stock prices.
Standard & Poor's, S&P, and S&P 500-Registered Trademark- are registered
trademarks of Standard & Poor's Corporation.
** The Lipper Growth Fund Index is a widely recognized, equally weighted
performance index (adjusted for capital gains distributions and income
dividends) of the 30 largest open-end funds which invest in companies whose
long term earnings are expected to grow significantly faster than the
earnings of the stocks represented in the major unmanaged stock indices.
Comparative data for this index will no longer be available from Lipper
effective December, 2000. A new comparative index will be selected at that
time.
12
<PAGE>
PERFORMANCE
------------------------------------------------
SM&R EQUITY INCOME FUND
A bar chart for Class T shares of the Equity Income Fund is included at this
time, as the Class Y shares (inception on 1/1/99) have not been made available
for public distribution.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 0.75%
1991 29.06%
1992 3.31%
1993 10.63%
1994 -0.61%
1995 29.12%
1996 16.46%
1997 22.72%
1998 12.11%
1999 -1.39%
</TABLE>
During the ten year period shown in the bar chart, the Equity Income Fund's
highest return for a quarter was 11.12% achieved December 31, 1991 and its
lowest return for a quarter was a negative 8.72% for the quarter September 30,
1999.
Class Y has not been made available for public distribution. Accordingly, annual
total returns for Class Y cannot be provided. Instead, the following table
reflects the annual total returns for the Equity Income Fund Class T shares, and
includes the applicable Class T sales charge and fees and expenses. If this
class had been made available for public distribution, the financial performance
would have been lower because of the different sales charges (if applicable) and
fees and expenses.
13
<PAGE>
PERFORMANCE
------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (FOR PAST
THE PERIODS ENDING DECEMBER 31, ONE PAST PAST
1999) YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
EQUITY INCOME FUND (7.06)% 13.97% 11.00%
S&P 500-REGISTERED TRADEMARK-* 21.03% 28.55% 18.19%
LIPPER EQUITY INCOME FUND 4.20% 17.80% 13.04%
INDEX**
</TABLE>
* The S&P 500-Registered Trademark- is the Standard & Poor's Composite Index of
500 Stocks, a widely recognized, unmanaged index of common stock prices.
Standard & Poor's, S&P, and S&P 500-Registered Trademark- are registered
trademarks of Standard & Poor's Corporation.
** The Lipper Equity Income Fund Index is a widely recognized, equally weighted
performance index (adjusted for capital gains distributions and income
dividends) of the 10 largest open-end funds which seek relatively high
current income and growth of income through investing 60% or more of their
portfolios in equities.
14
<PAGE>
PERFORMANCE
------------------------------------------------
SM&R BALANCED FUND
A bar chart for Class T shares of the Balanced Fund is included at this time, as
the Class Y shares (inception on 1/1/99) have not been made available for public
distribution.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<S> <C>
1990 1.37%
1991 24.53%
1992 3.00%
1993 6.31%
1994 1.49%
1995 22.29%
1996 11.86%
1997 17.46%
1998 13.83%
1999 11.87%
</TABLE>
During the ten year period shown in the bar chart, the Balanced Fund's highest
return for a quarter was 10.18% achieved December 31, 1998 and its lowest return
for a quarter was a negative 7.64% for the quarter September 30, 1990.
Class Y has not been made available for public distribution. Accordingly, annual
total returns for Class Y cannot be provided. Instead, the following table
reflects the annual total returns for the Balanced Fund Class T shares, and
includes the applicable Class T sales charge and fees and expenses. If this
class had been made available for public distribution, the financial performance
would have been lower because of the different sales charges (if applicable) and
fees and expenses.
15
<PAGE>
PERFORMANCE
------------------------------------------------
<TABLE>
AVERAGE ANNUAL TOTAL RETURNS (FOR PAST
THE PERIODS ENDING DECEMBER 31, ONE PAST PAST
1999) YEAR 5 YEARS 10 YEARS
<S> <C> <C> <C>
BALANCED FUND 5.43% 14.04% 10.47%
LEHMAN BROTHERS INTERMEDIATE 0.38% 7.10% 7.26%
GOVERNMENT/CORPORATE INDEX*
LIPPER BALANCED FUND INDEX** 8.96% 16.33% 12.26%
</TABLE>
* The Lehman Brothers Intermediate Government/Corporate Index is an unmanaged
index generally representative of the performance of the bond market as a
whole.
** The Lipper Balanced Fund Index is a widely recognized, equally weighted
performance index (adjusted for capital gains distributions and income
dividends) of the 30 largest open-end funds whose primary objective is to
conserve principal by maintaining a balanced portfolio of stocks and bonds.
The stock/ bond ratio typically ranges around 60%/40%.
16
<PAGE>
EXPENSES OF THE FUNDS
------------------------------------------------
FEES AND EXPENSES OF THE FUNDS
The following table describes the fees and expenses that you may pay if you buy
and hold shares of the funds. The amounts shown are based upon Class T shares of
the fund since Class J has not been made available to the public at this time.
SHAREHOLDER EXPENSES
(fees paid directly from your investment)
THERE ARE NO SALES CHARGES OR OTHER SHAREHOLDER TRANSACTION CHARGES IN
CONNECTION WITH PURCHASES OR REDEMPTIONS OF CLASS J SHARES OF THE FUNDS, OTHER
THAN A $10.00 TRANSACTION FEE CHARGED FOR EACH EXPEDITED WIRE REDEMPTION AND A
$7.50 PER ACCOUNT ANNUAL CUSTODIAN FEE FOR TAX DEFERRED ACCOUNTS.
ANNUAL FUND OPERATING EXPENSES(1)
(expenses that are deducted from fund assets)
<TABLE>
EQUITY
GROWTH INCOME BALANCED
FUND FUND FUND
---- ---- ----
CLASS Y CLASS Y CLASS Y
---- ---- ----
<S> <C> <C> <C>
Management Fees 0.48% 0.68% 0.75%
Other Expenses(2) 0.39% 0.37% 0.66%
Total Annual Fund Operating Expenses(3) 0.87% 1.05% 1.41%
Net Expense 0.87% 1.05% 1.41%
</TABLE>
FOOTNOTES TO FEES AND EXPENSES
(1) The "Management Fees" and "Other Expenses" shown for the funds are for the
year ended December 31, 1999.
(2) "Other Expenses" include the 0.25% Administrative Service Fee. Because
Class J shares were not available prior to the date of this Prospectus,
"Other Expenses" for Class J shares are based on the expenses and average
net assets of the Growth, Equity Income, and Balanced Fund for the fiscal
year ended December 31, 1999.
(3) The Fee Table does not reflect any fees waived or expenses assumed either
contractually or voluntarily by the funds' manager, Securities Management
and Research, Inc. ("SM&R"). Pursuant to the Administrative Service
Agreement, SM&R will pay (or reimburse) each fund for regular operating
expenses in excess of 1.25% per year of such fund's average daily net
assets. Regular operating expenses include the advisory fee and
administrative fee, but do not include the 12b-1 fee or class-specific
expenses.
17
<PAGE>
EXPENSES OF THE FUNDS
------------------------------------------------
EXPENSES
The tables below show the total expenses you would pay on a $10,000 investment
over one, three-, five-, and ten-year periods. These examples are intended to
help you compare the cost of investing in the funds with the cost of investing
in other mutual funds and are for illustration only. These examples also assume
that your investment has a 5% return each year, that you reinvest all of your
dividends and that the funds' operating expenses remain the same. YOUR ACTUAL
COSTS MAY BE HIGHER OR LOWER THAN SHOWN.
EXAMPLES OF EXPENSES
<TABLE>
<CAPTION>
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
--------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Growth Fund (Class Y) $ 89 $278 $ 482 $1,073
Equity Income Fund (Class Y) $107 $334 $ 579 $1,283
Balanced Fund (Class Y) $144 $446 $ 771 $1,691
</TABLE>
Because there are no sales charges or redemption fees, you would pay the same
expenses, based on these assumptions, if you did redeem your shares.
18
<PAGE>
CHOOSING A SHARE CLASS THAT BEST SUITS YOU
------------------------------------------------
The SM&R Growth Fund, Inc., SM&R Equity Income Fund, Inc., and the SM&R Balanced
Fund, Inc., ("we," "SM&R Equity Funds" or the "Fund" or "Funds") offer Class
Y shares through certain financial intermediaries (such as broker-dealers,
investment advisers and mutual fund "supermarkets") that have distribution
agreements with Securities Management and Research, Inc. ("SM&R"). Policies and
fees established by these financial intermediaries may be different than those
discussed in this prospectus. Additionally, not all of the services discussed
may be available to you, and these financial intermediaries may charge you
separately for using their services. Please keep in mind that the funds are not
responsible for the failure of any financial intermediary not carrying out its
obligations to its customers.
Class Y shares of the Funds are offered to institutions and certain other
investors at net asset value, with no sales charges or distribution and service
(12b-1) fees. As a result, 100% of your purchase is immediately invested.
Class Y shares may be purchased by:
(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 net asset value agreement with SM&R;
and
(e) other investors, including individuals, with initial investments of
$500,000 or more.
NOTIFYING SM&R OF AN INTENT TO QUALIFY UNDER ONE OF THESE CATEGORIES IS THE SOLE
RESPONSIBILITY OF THE PROSPECTIVE INVESTOR.
19
<PAGE>
CHOOSING A SHARE CLASS THAT BEST SUITS YOU
------------------------------------------------
The Funds also offer other classes of shares through separate prospectuses:
(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
were shareholders of the funds on December 31, 1998 and certain designated
persons; and (5) Class J shares sold only through special "network" distribution
arrangements. Class A, B, C, T, and J shares are subject to different sales
charges and other expenses and, accordingly, may have expense ratios and
performance that differs from those of Class Y shares. FOR MORE INFORMATION ON
THE OTHER CLASSES OF SHARES OR TO REQUEST A PROSPECTUS FOR ANOTHER CLASS, CALL
INVESTOR SERVICES AT (800) 231-4639.
20
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
Each fund pursues its own investment objective through various investment
policies and techniques. ONLY THE PRINCIPAL INVESTMENT STRATEGIES OF EACH FUND
AND THE PRINCIPAL TYPES OF SECURITIES EACH FUND PLANS TO PURCHASE ARE DESCRIBED
BELOW. More investment information is in the Statement of Additional
Information. These policies and techniques are not fundamental and may be
changed by the Board of Directors without shareholder approval.
Changes in a Fund's holdings, a Fund's performance, and the contribution of
various investments are discussed in the shareholder reports sent to you.
- SM&R HAS CONSIDERABLE LEEWAY IN CHOOSING INVESTMENT STRATEGIES AND SELECTING
SECURITIES IT BELIEVES WILL HELP THE FUNDS ACHIEVE THEIR OBJECTIVES.
Because of the market risks inherent in any investment, the Funds may not
achieve their investment objectives. In addition, effective management of each
Fund is subject to general economic conditions and to the ability and investment
techniques of management. The net asset value of each Fund's shares will vary
and the redemption value of shares may be either higher or lower than the
shareholder's cost. Since each Fund has a different investment objective, each
will have different investment results and incur different market, financial,
and other risks.
During unfavorable market conditions, each Fund may, but is not required to,
make temporary investments that are not consistent with a Fund's investment
objectives and principal strategies. Such defensive measures may include
increasing cash, investing more assets in bonds or money market instruments, and
where permitted by the individual Fund discussions that follow, investing in
derivatives or other instruments. If a Fund takes such defensive measures, it
may not achieve its investment objectives.
A Fund may trade actively and frequently to achieve its investment objective. A
high turnover rate may increase transaction costs, affecting the Fund's
performance over time. A high turnover rate may also result in higher capital
gains distributions, increasing your tax liability.
21
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
SM&R GROWTH FUND, INC.
The Growth Fund considers its portfolio investments and the composition of its
total portfolio from the viewpoint of potential capital appreciation. The Growth
Fund adjusts this composition from time to time in light of current conditions.
Under normal conditions, the Growth Fund invests at least 85% of its total
assets in common stocks.
The Growth Fund invests in the stocks of financially sound companies that have a
proven ability to make and sustain a profit over time. Management places an
emphasis on companies with growth potential. The Growth Fund does not employ
exotic investment strategies, such as using options and futures.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill and
foresight, and relative valuation to industry peers and the market as a whole.
We utilize this combination of disciplines and human judgement to drive our
stock selection process. We believe in evaluating each company's prospects as
opposed to relying on broad forecasts of industry prospects. We do not attempt
to time economic, market, style or capitalization cycles. Diversification, or
weighting of individual economic sectors, is also dictated by a combination of
disciplines and human judgement to varying degrees. We believe in never having
less than half or more than double the market weighting in any one sector. The
Growth Fund limits cash to 15% of its assets unless circumstances dictate
otherwise.
Because of the Growth Fund's goal of seeking long-term capital growth, certain
sectors of the market will have greater weight in the Growth Fund's portfolio
while other sectors of the market will have lower representation. For example,
the Growth Fund generally overweights the technology sector, which represents
approximately 15% to 20% of the Standard & Poor's 500 Index, in the portfolio
relative to its market weight. This overweighting reflects the higher growth
prospects of technology companies relative to the average company in the market.
At varying times, we may also overweight
22
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
other sectors of the market providing above average growth prospects, like
healthcare and consumer staples.
Conversely, the Growth Fund generally underrepresents certain sectors of the
market in its portfolio that tend to have below average growth characteristics,
like utilities, basic materials, and communications services. As a result of
such strategic overweighting and underweighting, the Growth Fund's performance
may differ substantially from broad market indexes like the S&P 500 and tend to
incur more price volatility than these indexes.
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 and Moody's corporate bond ratings.
Investments in convertible securities having these ratings may involve greater
risks than convertible securities having higher ratings.
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. Common stocks and convertible securities purchased will be of
companies that SM&R believes will provide an opportunity for capital
appreciation. 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, in certificates of deposit in domestic banks and savings
institutions having at least $1 billion of total assets, and in repurchase
agreements.
SM&R EQUITY INCOME FUND, INC.
The Equity Income Fund considers its portfolio investments and the composition
of its total portfolio not only from the viewpoint of present and potential
yield, but also from the viewpoint of potential capital appreciation. We adjust
this composition of portfolio investments from time to time to best accomplish
the Equity Income Fund's investment objectives under current conditions. In
pursuit of its objectives, the Equity Income Fund will invest in common stocks,
23
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
preferred stocks, and marketable debt securities selected in accordance with its
investment objectives. Common and preferred stocks purchased will generally be
of companies with consistent and increasing dividend payment histories that SM&R
believes will have further earnings potential sufficient to continue such
dividend payments. Debt securities 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, the Equity Income Fund will invest
at least 75% of its assets in equity securities rather than debt securities.
We view common stocks, as well as investments in preferred stocks and bonds
convertible into common stock, from their potential for capital appreciation in
addition to their current and potential income yield. Our goal is to maintain a
portfolio dividend yield (before fees and expenses) at least 50% greater than
that of the S&P 500 Index.
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then, we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill and
foresight, and relative valuation to industry peers and the market as a whole.
We utilize this combination of disciplines and human judgement to drive our
stock selection process. We believe in evaluating each company's prospects as
opposed to relying on broad forecasts of industry prospects. We do not attempt
to time economic, market, style or capitalization cycles. Diversification, or
weighting of individual sectors, is also dictated by a combination of
disciplines and human judgement to varying degrees. We believe in never having
less than half or more than double the market weighting in any one sector. Cash
is limited to 15% of the fund unless circumstances dictate otherwise.
Certain sectors of the market will have greater weight in the Equity Income
Fund's portfolio while other sectors of the market will have lower
representation. For example, the Equity Income Fund generally overweights the
finance sector in its portfolio relative to that sector's market weight (which
is approximately 16% of the Standard & Poor's
24
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
500 Index). This reflects the greater dividend prospects of financial companies
like banks, insurance companies, and real estate investment trusts as compared
to the average company in the market. At varying times, we may also overweight
other sectors of the market that provide above average dividend prospects, like
utilities and energy.
Conversely, the Equity Income Fund generally underrepresents certain sectors of
the market tending to have below average dividend yields, like technology,
consumer staples, and healthcare. As a result of such strategic overweighting
and underweighting, the Equity Income Fund's performance may differ
substantially from broad market indexes like the S&P 500.
Corporate debt obligations purchased by the Equity 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.
SM&R BALANCED FUND, INC.
The Balanced Fund uses a "balanced" approach by investing part of its assets in
stocks of well-known companies and the remainder in a combination of high-grade
bonds, bonds convertible into the common stock of the issuing corporations, and
money market instruments. We change the ratio of stocks to bonds in response to
changing economic conditions. This flexibility helps to reduce price volatility.
The Balanced Fund's goal is relative stability of principal through a balance of
stocks, bonds, and cash. The stocks serve to capture the benefits that ownership
in corporate America brings. The bonds, meanwhile, can serve as a stabilizing
force during times of eroding stock market value, as well as provide a fixed
income payment stream into the portfolio.
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<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
We identify candidate stock investments based on (1) low equity valuation
(price) and (2) improving earnings. Then we evaluate each candidate stock on a
fundamental basis by examining past financial performance, managerial skill and
foresight, and relative valuation to industry peers and the market as a whole.
We utilize this combination of disciplines and human judgement to drive our
stock selection process. We believe in evaluating each company's prospects as
opposed to relying on broad forecasts of industry prospects. We do not attempt
to time economic, market, style or capitalization cycles. Diversification, or
weighting of individual sectors, is also dictated by a combination of
disciplines and human judgement to varying degrees. We believe in never having
less than half or more than double the market weighting in any one sector. Cash
is limited to 15% of the portfolio unless circumstances dictate otherwise. The
Balanced Fund will only purchase corporate bonds 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 Balanced Fund may also invest in
repurchase agreements. This balanced investment policy is intended to reduce
risk and to obtain results in keeping with the Balanced Fund's objectives.
The Balanced Fund will invest in fixed-income securities and equity securities
as described above. However, the Balanced 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 Balanced Fund's
shareholders
26
<PAGE>
INVESTMENT OBJECTIVES, POLICIES AND RISKS
------------------------------------------------
assuming no change in its current investment objective and portfolio.
Diversifying the Balanced 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.
SM&R, through an ongoing program of asset allocation, will determine the
appropriate level of equity to debt holdings consistent with SM&R's outlook and
evaluation of trends in the economy and the financial markets. The Balanced Fund
determines its level of commitment to common stocks and specific common stock
investments 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.
27
<PAGE>
OTHER RISK FACTORS
------------------------------------------------
The following discussion relates to all three Funds. The Fund summaries located
at the beginning of this prospectus identifies some specific risks applicable to
each individual Fund.
GENERAL. There is no assurance that a Fund will achieve its goals. Generally, if
the securities owned by a fund increase in value, the value of the shares of
the fund which you own will increase. Similarly, if the securities owned by a
Fund decrease in value, the value of your shares will also go down. In this
way, you participate in any change in the value of the securities owned by a
Fund.
The risk inherent in investing in any fund is a risk common to any security.
That is, the value of a Fund's shares will fluctuate in response to changes in
economic conditions, interest rates and the market's perception of the
underlying portfolio securities held by that Fund. Each Fund's share value
depends on general economic and securities market conditions, the investment
decisions of its management, and numerous other factors. All of these factors
are inherently uncertain and, in some cases, unforeseeable.
Any of the Funds could lose money if the stock markets in general go down or
if the particular stocks purchased by a Fund go down in value. In addition,
the Funds could lose money if prevailing interest rates increase or if the
debt securities purchased by a fund are downgraded or defaulted upon.
STOCK INVESTMENT RISKS. Because each Fund invests a substantial portion of its
assets in stocks, the value of each Fund's portfolio will be affected by
changes in the stock markets. At times, the stock markets can be volatile and
stock prices can change substantially. This market risk will affect each
Fund's net asset value per share, which will fluctuate as the values of each
Fund's portfolio securities change. Stock prices do not always change
uniformly or at the same time and the various stock markets do not always move
in the same direction at the same time. Other factors specific to a particular
company also affect that company's stock price (for example, poor earnings,
loss of major customers, or major litigation). The Funds cannot always predict
the factors that will affect a stock's price. The Funds, however, do attempt
to limit market risk by diversifying their investments.
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<PAGE>
OTHER RISK FACTORS
------------------------------------------------
For the Growth Fund and the Equity Income Fund, the portfolio managers decide
to overweight or underweight certain industry sectors and to purchase
individual stocks based on their assessment of the future growth or income
prospects of an industry sector or particular stock. If certain industries or
investments do not perform as a fund expects (I.E., do not grow in value or
produce dividend income as expected), that fund could underperform its peers
or lose money.
The Growth Fund is generally considered more aggressive than the Equity Income
and Balanced Funds because it invests for capital appreciation in common
stocks, emphasizing "growth" stocks that tend to be more volatile than other
investments. Investors in the Growth Fund should expect greater fluctuations
in share price, yield, and total return than with less aggressive funds.
DEBT SECURITIES RISKS. Debt securities are subject to changes in their values
due to changes in prevailing interest rates. When prevailing interest rates
fall, the values of already-issued debt securities generally rise.
Accordingly, if interest rates go down after a security is purchased, such
security might be valued and/or sold at a price greater than its cost. On the
other hand, when prevailing interest rates rise, the values of already-issued
debt securities generally fall. Accordingly, if interest rates increase after
a security is purchased, such security might be valued and/or sold at a price
less than its cost. The magnitude of these fluctuations will often be greater
for longer-term debt securities than shorter-term debt securities.
The Funds could lose money if any bonds they own are downgraded in credit
rating or go into default. In general, lower-rated bonds, such as junk bonds,
have higher credit risks. The Growth Fund is the only Fund permitted to invest
in junk bonds. Junk bonds have additional risks, including limitations on a
fund's ability to re-sell the lower-rated debt securities and less readily
available market quotations for such securities. If there are not readily
available market quotations for a debt security, its value is determined
largely by the investment manager's judgment. When and if the debt security is
sold, the investment manager may find that its estimation of the debt
security's value is substantially different than the actual price at which it
can be sold.
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<PAGE>
OTHER RISK FACTORS
------------------------------------------------
Moreover, substantial redemptions of fund shares could require a fund to sell
portfolio securities at a time when a sale might not be favorable.
OTHER RISKS. Each investor will be subject to all the risks normally attendant
to business operations, changes in general economic conditions, governmental
rules and fiscal policies, acts of God, and other factors beyond the control
of the funds' management.
SMALLER COMPANY RISKS. Smaller companies in which each of the funds may invest
may involve greater risks than large established companies. Such smaller
companies may have limited product lines, markets, financial resources, and
management depth. Their securities may trade less frequently and in more
limited volume than the securities of larger or more established companies.
Smaller companies may also be more vulnerable than larger companies to adverse
business or market developments. As a result, the prices of smaller companies
may fluctuate to a greater degree than the prices of securities of larger
companies.
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
PURCHASING SHARES
You may purchase Class Y shares of a fund through certain financial
intermediaries (such as broker-dealers and mutual fund "supermarkets") that have
distribution agreements with SM&R and are authorized to accept orders on the
funds behalf. Such purchases will be at the offering price for such shares
determined as and when provided below (See "Pricing of Fund Shares"). These
financial intermediaries may charge you a fee for this service and may require
different minimum initial and subsequent purchased than the funds. These
financial intermediaries may also impose other charges or restrictions different
from those applicable to individuals who invest in other classes of the funds
directly. You should carefully review all account statements 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.
P.O. Box 58969
Houston, Texas 77258-8969
Certificates are not issued for shares of the funds. 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.
Investors whose shares are held in the name of a broker-dealer or other party
are not shareholders of record and therefore may not be able to utilize services
available to shareholders of record.
OPENING AN ACCOUNT: To purchase shares, you must submit a completed account
application. If you would like to take advantage of the electronic services
available, please complete the applicable 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
special forms when establishing retirement plans.
MINIMUM PURCHASE REQUIREMENT: For Class Y shares, the minimum initial investment
is $500,000 (we may waive this minimum for certain institutional investors). All
subsequent investments must be at least $2,000. The Company reserves the right
to reject any purchase.
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
PURCHASES BY MAIL: Make your check(s) payable to SM&R and send the check(s) 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 and the 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 AND PURCHASER SUITABILITY FORM ON FILE WITH
THE TRANSFER AGENT. You may then wire your investment to The Moody National Bank
of Galveston ("Moody National Bank") 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 Y of the Growth Fund)
Fund Account Number (number appears on your confirmation
statement)
Investor's Name (E.G., First National Bank)
PURCHASES BY EXCHANGE: Call Investor Services if you have established telephone
exchange privileges on your account. See "Special Purchase Plans and
Services--Exchange Privilege" for procedures and additional information relating
to telephone exchanges. For limitations on exchanges, see "Excessive Trading"
also under "Special Purchase Plans and Services."
PRICING OF FUND SHARES
GENERAL (HOW SHARES ARE PRICED). We determine each fund's offering price once
each day the New York Stock Exchange (the "Exchange") is open for regular
trading. You may purchase Class Y shares without a sales charge. Accordingly,
the offering price for Class Y shares of a fund is the net asset value per
share.
A NOTE ON PRICING. Each Fund's investments will be priced at their market value
when market quotations are readily available. When these quotations are not
readily available, investments will be priced at their fair value, calculated
according to procedures adopted by the
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
Funds' Board of Directors. The Funds also may use fair value pricing if the
value of a security held by the Fund is materially affected by events occurring
after the close of regular trading of the primary markets or exchanges on which
the security is traded. In these situations, prices used by the Fund to
calculate its net asset value may differ from quoted or published prices for the
underlying securities.
SHARE PRICE -- EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS. Each Fund's share
price, called its net asset value, or NAV, is calculated once each day at the
close of regular trading (currently 3:00 p.m. Central Time). NAV is not
calculated on holidays or other days the Exchange is closed. In the event the
Exchange closes early on a particular day, we will determine the net asset value
of the Funds as of such earlier closing time. Below is the method used by the
Funds to calculate the NAV on any given day.
<TABLE>
<S> <C> <C>
Total Assets - Liabilities
Net Asset Value = ----------------------------
Number of Shares Outstanding
</TABLE>
Knowing the daily net asset value is useful to you as a shareholder because it
indicates the current value of your investment. Each Fund's NAV, multiplied by
the number of shares you own, gives you the dollar amount you would have
received had you sold all of your shares back to the Fund that day, less any
applicable transaction fee.
The price you pay or receive for shares of a Fund depends, in part, on the day
and time you make your purchase or redemption. Purchases and redemptions will be
executed on each day the Exchange is open for regular trading at the next NAV
determined that day if:
- SM&R receives your request in good order prior to the close of the regular
trading day;
- a securities dealer having a dealer contract with SM&R receives your order
prior to the close of the regular trading day and reports your order to
SM&R prior to SM&R's close of business (currently 4:30 p.m. Central Time)
on the same day; or
- SM&R is advised of bank wire purchases received by Moody National Bank
before 3 p.m. Central Time.
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
If we receive your order after the close of the regular trading day or on any
day that the Exchange is closed, we will execute your purchase or redemption at
the price determined on the next regular trading day. In unusual circumstances,
the Funds may temporarily suspend the processing of sale requests, or may
postpone payment of proceeds for up to three business days or longer, as allowed
by federal securities laws.
OTHER SERVICES
The funds offer services and plans designed to facilitate investments. 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 broker-dealer, investment adviser 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 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 Special Investor Services 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 FINANCIAL INSTITUTION 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).
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PURCHASES AND REDEMPTIONS
------------------------------------------------
TELEPHONE SERVICES. You can only use telephone services for transaction amounts
of $500 or more. Through this service, you will be able to purchase additional
shares for an existing SM&R mutual fund account by ACH. You may also use the
telephone services to redeem and exchange shares on those accounts for which you
have an executed account application on file. 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). We permit transfers by
telephone from a joint account only to another joint account registered in the
identical names. There may be additional restrictions on telephone transactions
by joint account owners. Contact your broker-dealer or SM&R for more
information. PLEASE NOTE THAT THE TELEPHONE REDEMPTION OPTION IS NOT AVAILABLE
TO RETIREMENT PLANS.
SECURITY PROCEDURES
TELEPHONE TRANSACTIONS. The Funds have implemented the following security
procedures intended to protect your account from losses resulting from
unauthorized or fraudulent telephone instructions: The caller must 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).
Anyone with the required account information indicated above (including your
broker) can request a telephone transaction in your account. All calls are
recorded and/or monitored for verification, record keeping and quality-assurance
purposes. Requested proceeds will be forwarded only to an address or bank
account designated on the account at the time of the transaction.
VOICE RESPONSE UNITS
The Funds now have available to shareholders a means by which they can access
account information, fund prices, and take advantage of
35
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
other features 24-hours a day. To obtain account information you will be
required to know your fund number, account number, and your PIN number. As
indicated under "Telephone Services" above, you should keep your account
information private. We also suggest that you change your PIN number
periodically and not provide the number to anyone.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone or through the voice response
unit that comply with the current security procedures and other requirements.
SM&R believes that such security procedures and other requirements are
reasonable.
During times of economic turmoil or market volatility, severe weather, or
natural disaster you may not be able to reach SM&R by telephone to institute a
redemption or exchange.
For additional restrictions refer to "Exchange Privilege" below.
EXCHANGE PRIVILEGE. As an investor in a fund, you may be permitted to exchange
shares that you own in a fund with shares of some of the other mutual funds
managed by SM&R without the payment of an exchange fee, subject to certain
conditions. EXCHANGES BETWEEN A FUND AND ANOTHER FUND MANAGED BY SM&R ARE
AVAILABLE ONLY IN STATES WHERE THE APPLICABLE FUNDS ARE REGISTERED AND THE
EXCHANGE MAY BE LEGALLY MADE. YOU SHOULD CONTACT SM&R TO DETERMINE WHETHER A
FUND IS REGISTERED IN A PARTICULAR STATE AND WHETHER AN EXCHANGE IS PERMITTED.
WE MAY TERMINATE OR CHANGE THE TERMS OF ANY EXCHANGE OFFER AT ANY TIME.
You may exchange Class Y shares of a fund, without an exchange fee, for Class Y
shares of another fund managed by SM&R. You also may exchange your Class Y
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. You cannot exchange shares of the Money Market Fund or
Primary Fund for Class B or C shares of another fund.
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PURCHASES AND REDEMPTIONS
------------------------------------------------
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 that are registered in the
same name, address and, if applicable, taxpayer identification number;
(b) the shares of the fund acquired through exchange must be qualified for
sale in the state in which you reside;
(c) the dollar amount of a written exchange must meet the minimum investment
requirement applicable to the shares of the fund that you would acquire
through the exchange;
(d) the minimum dollar amount of a telephone exchange is $500;
(e) SM&R must have received full payment for the shares being exchanged;
(f) 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);
(g) any shares that you wish to exchange must have been held for at least
ten (10) business days; 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.
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<PAGE>
PURCHASES AND REDEMPTIONS
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ABUSIVE TRADING PRACTICES. Excessive, short-term (market-timing) or other
abusive trading practices may disrupt portfolio management strategies and harm
fund performance. To minimize harm to the Fund and its shareholders, we reserve
the right to reject any purchase order (including exchanges) from any investor
we believe has a history of abusive trading or whose trading, in our judgement,
has been or may be disruptive to a fund. In making this judgement, we may
consider trading done in multiple accounts under common ownership or control.
RETIREMENT PLANS
The following retirement plans may invest in Class Y shares of the Funds:
- Individual Retirement Accounts (IRAs), which include traditional IRAs, Roth
IRAs, Education IRAs, and SIMPLE IRAs,
- Simplified Employee Pension Plans (SEPs),
- 403(b) Custodial Accounts (TSAs), and
- corporate retirement plans.
These plans allow you to shelter investment income from federal income tax while
saving for retirement. Information concerning IRAs and TSAs, and the forms
necessary to adopt such plans, can be obtained by contacting your registered
representative or calling SM&R. A regular fund application should be used when
establishing a corporate retirement plan. (See "Purchasing Shares" for the
minimum initial and subsequent purchase requirements.) 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 an IRA, SEP, or TSA in the Funds and will be automatically deducted
from each account. An individual considering a retirement plan may wish to
consult with an attorney or tax adviser.
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DIVIDENDS, DISTRIBUTIONS, AND TAXES
DISTRIBUTION SCHEDULE. The following schedule of distributions is provided to
let you know when you can expect to receive a distribution from the SM&R Mutual
Funds you own. These distributions, under normal circumstances and if earned,
will be declared and paid in the months indicated in the following chart.
<TABLE>
<CAPTION>
<S> <C> <C>
DIVIDENDS CAPITAL GAINS
- -----------------------------------------------------------------------------
SM&R GROWTH FUND June and December December
- -----------------------------------------------------------------------------
SM&R EQUITY INCOME FUND March, June, September, December
December
- -----------------------------------------------------------------------------
SM&R BALANCED FUND March, June, September, December
December
- -----------------------------------------------------------------------------
</TABLE>
DISTRIBUTIONS AFFECT ON NAVS. In order to be entitled to a dividend, an investor
must have acquired shares of a fund prior to the close of business on the
distribution record date. A shareholder should be cautioned, however, before
purchasing shares of a fund immediately prior to a distribution. Dividends and
distributions paid by the Funds have the effect of reducing net asset value per
share on the record date by the amount of the payment. Therefore, a dividend or
distribution of record shortly after the purchase of shares by a shareholder
represents, in substance, a return of capital.
DIVIDEND REINVESTMENTS. Dividends and capital gains will be automatically
reinvested at net asset value in additional shares of the Fund 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 applicable Fund(s).
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.
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<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
This is a convenient way to accumulate additional shares and maintain or
increase the shareholder's earning base. Of course, any shares so acquired
remain at market risk.
Shareholders have the right to change their election with respect to the receipt
of distributions by notifying SM&R in writing, but any such change will be
effective only as to distributions for which the record date is seven or more
business days after SM&R has received the shareholder's written request.
BACKUP WITHHOLDING. Backup withholding for federal income tax may be applied,
where required by current IRS requirements, at the rate of 31% from taxable
dividends, distributions, and redemption proceeds (including exchanges) if you
fail to furnish the Funds with a correct and properly certified Social Security
or Employer Identification Number when you sign your application, or if you
underreport your income to the Internal Revenue Service.
TAXABILITY OF REDEMPTIONS AND EXCHANGES. You should consult with a tax advisor
concerning the tax reporting requirements in effect on the redemption or
exchange of such shares. Any time you sell or exchange shares, it is considered
a taxable event for you. Depending on the purchase price and the sale price of
the shares you sell or exchange, you may have a gain or a loss on the
transaction. You are responsible for any tax liabilities generated by your
transactions.
REDEEMING SHARES
You can redeem fund shares at the net asset value determined on the date the
request is received by SM&R in proper form. A redemption request must be
processed through your financial intermediary.
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. We
currently charge a fee in the amount of $10.00 for redemptions by wire under
$10,000.
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PURCHASES AND REDEMPTIONS
------------------------------------------------
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 a 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. Telephone
privileges are not available to shareholders automatically. 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 business days;
(c) the proceeds of the redemption are $500 or more and do not exceed
$50,000; and
(d) the security procedures discussed under "Special Purchase Plans And
Services--Exchange Privilege" have been met.
These instructions may be changed only in writing, accompanied by a signature
guarantee and additional documentation may be required for corporations.
During times of economic turmoil or market volatility or as a result of severe
weather or a natural disaster, it may be difficult to contact SM&R by telephone
to institute a redemption or exchange.
SYSTEMATIC WITHDRAWAL PLAN. Each Fund has a Systematic Withdrawal Plan
("Withdrawal Account"), which permits shareholders having an account value of
$50,000 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
41
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
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. 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.
"GOOD ORDER" means the request for redemption must include:
(1) 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;
(2) any required signature guarantees (see "Signature Guarantees" below);
and
(3) 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
that all requests are submitted to SM&R in proper form for processing.
SIGNATURE GUARANTEES. To protect you and the Funds against fraud, certain
redemption requests must be made in writing with your signature guaranteed. A
signature guarantee can be obtained at most
42
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
banks and securities dealers. A notary public is not authorized to provide a
signature guarantee.
The following circumstances require a signature guarantee:
- Redemptions from one or more of the Funds total $50,000 or more
- You want the proceeds sent to an address other than the address currently
appearing on your account
- You want the proceeds sent to a bank account not listed on your account
- You want the proceeds payable to anyone other than the registered owner(s)
of the account
- Either your address or the address of your bank account has been changed
within 30 days
- The account is registered in the name of a fiduciary, corporation or any
other organization. In these cases, additional documentation is required:
Corporate accounts: certified copy of corporate resolution
Fiduciary accounts: copy of the power of attorney or other governing
document
- The Funds or their transfer agent believe a signature guarantee would
protect against claims based on transfer instructions
WHO CAN PROVIDE A SIGNATURE GUARANTEE:
- Commercial Bank
- Trust Company
- Savings Association
- Credit Union
- Member of Medallion Program
- Member of a U.S. Stock Exchange
- Authorized SM&R Representatives
NOTARY PUBLIC NOT ACCEPTABLE
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 $10,000. You will be notified
that the value of your account is less than the required minimum and allowed at
least 60 days to make
43
<PAGE>
PURCHASES AND REDEMPTIONS
------------------------------------------------
an additional investment to increase the value of your account above the
required minimum. The Funds may, from time to time, change such required minimum
investment.
RIGHTS RESERVED BY THE FUNDS. The Funds, acting through its transfer agent,
reserve the right:
- to waive, raise or lower investment minimums;
- to accept subsequent purchases by telephone from financial intermediaries;
- 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 the account owners or other parties or there
is reason to believe a fraudulent transaction may occur or has occurred;
- to act on instructions not believed to be genuine;
- to eliminate duplicate mailings of fund material to shareholders who reside
at the same address; or
- to otherwise modify the conditions of purchase and any services at any time.
44
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
INVESTMENT ADVISER
Each Fund's Board of Directors has delegated to Securities Management and
Research, Inc. ("SM&R"), the Fund's investment adviser, the management of the
Fund's day-to-day business and affairs. In addition, SM&R invests the Funds'
assets, provides administrative services, and serves as transfer agent,
custodian, dividend paying 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"). SM&R was incorporated in 1964 and has managed mutual
funds since 1966. SM&R also serves as investment adviser to other clients
including banks, employee benefit plans, other investment companies, banks,
foundations and endowment funds.
ADVISORY AGREEMENTS
GROWTH FUND. We deduct an investment advisory fee from the value of the shares
each day. We calculate this fee for the Growth Fund at the annual rate as
follows:
<TABLE>
<CAPTION>
<S> <C>
BASIC
ADVISORY
ON THE PORTION OF THE FUND'S FEE ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------- -----
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>
We adjust the basic advisory fee rate by comparing the fund's investment
performance during the previous thirty-six (36) months with the investment
performance of the Lipper Growth Fund Index (the "Lipper Index") published by
Lipper Analytical Services, Inc. over the same period. Specifically, we adjust
the basic advisory fee 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
45
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
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.
<TABLE>
<CAPTION>
<S> <C>
PERFORMANCE
PERFORMANCE COMPARED ADJUSTMENT
TO LIPPER INDEX AMOUNT
- -------------------------------------------------- -------------
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%
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
EQUITY INCOME AND BALANCED FUNDS. We deduct an investment advisory fee from the
value of the shares each day. We calculate this fee
46
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
for the Equity Income and Balanced Funds at the annual rate as follows:
<TABLE>
<CAPTION>
<S> <C>
BASIC
ADVISORY
ON THE PORTION OF THE FUND'S FEE ANNUAL
AVERAGE DAILY NET ASSETS RATE
- ----------------------------------------------- -----
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>
SM&R received total advisory fees from the Growth, Equity Income, and Balanced
Funds for the fiscal year ended December 31, 1999 of 0.48%, 0.68%, and 0.75%,
respectively, of each fund's average daily net assets. Each Fund's advisory fees
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.
ADMINISTRATIVE SERVICES
Pursuant to the Administrative Service Agreements with the Funds, SM&R provides
all non-investment related management, executive, administrative, transfer
agent, and operational services to the Funds. Under the agreements, SM&R
receives an administrative service fee from each Fund at the annual rate of
average daily net asset values as follows:
<TABLE>
<CAPTION>
<S> <C>
ADMINISTRATIVE
ON THE PORTION OF THE FUND'S SERVICE FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
- ---------------------------------------- ----
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>
In each Fund's administrative service agreement, SM&R has agreed to pay (or to
reimburse each fund for) each Fund's regular operating expenses in excess of
1.25% per year of such Fund's average daily net assets. Regular operating
expenses include the advisory fee and administrative service fee, if any, paid
to SM&R, but do not include
47
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
12b-1 fees, class-specific expenses, interest, taxes, commissions, and other
expenses incidental to portfolio transactions.
SM&R received total administrative service fees of 0.22% for the Growth Fund;
0.22% for the Equity Income Fund; and 0.25% for the Balanced Fund for the fiscal
year ended December 31, 1999 of each fund's average daily net assets.
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in providing
investment advisory services to the funds. While the following individual is
primarily responsible for the day-to-day portfolio management of the funds, 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, EQUITY INCOME FUND AND BALANCED 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.
ANDREW R. DUNCAN, SR. SECURITIES ANALYST/PORTFOLIO MANAGER. Mr. Duncan joined
SM&R's staff in 1997 as Sr. Securities Analyst/Portfolio Manager. Mr. Duncan
serves as a Portfolio Manager of the SM&R Equity Income Fund, SM&R Balanced
Fund, the American National Investment Accounts, Inc. Equity Income Portfolio,
48
<PAGE>
THE FUNDS AND THEIR MANAGEMENT
------------------------------------------------
Balanced Portfolio, and the International Stock Portfolio. He graduated from
West Virginia University in 1995 with a BS/BA degree in Finance and from Texas
A&M University in 1996 with an MS in Finance.
ANDRE J. HODLEWSKY, SECURITIES ANALYST/PORTFOLIO MANAGER. Mr. Hodlewsky joined
SM&R in 1998 as Securities Analyst. Mr. Hodlewsky serves as a Portfolio
Manager of the SM&R Growth Fund, Inc. and the American National Investment
Accounts, Inc. Small-Cap/Mid-Cap Portfolio. He graduated from the University
of Wisconsin in 1990 with a BA in Graphic Design and Industrial Design and
from the University of Wisconsin in 1999 with an MBA in Marketing and Finance.
Prior to joining SM&R's staff, he held a position at Rockwell from 1995 to
1997 in their Internet and Multi-Media Design Group and Mandel Company in
Milwaukee, Wisconsin, from 1993 to 1995 in the Prepress Technology Division.
49
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
UNDERSTANDING THE FINANCIAL HIGHLIGHTS
The condensed financial information on the following pages relfect all of the
fees and expenses imposed by each of the Funds which contributed to the changes
in the share price of each Fund during the period. It also shows the changes in
share price for this period in comparison to changes over the last five fiscal
years or less, if the fund is not five years old.
On a per-share basis, the table includes as appropriate
- share price at the beginning of the period
- investment income and capital gains or losses
- distributions of income and capital gains paid to shareholders
- share price at the end of the period
The table also includes some key statistics for the period as appropriate
- Total Return -- the overall percentage of return of the fund, assuming the
reinvestment of all distributions
- Expense Ratio -- operating expenses as a percentage of average net assets
- Net Income Ratio -- net investment income as a percentage of average net
assets
- Portfolio Turnover -- the percentage of the fund's buying and selling
activity
The Financial Highlights have been audited by the Fund's independent auditors,
Tait, Weller & Baker. Their Independent Auditor's Report is included in the
fund's annual report for the year ended December 31, 1999, which is incorporated
by reference into the Statement of Additional Information and is available upon
request.
50
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
GROWTH FUND
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 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). This information is derived from the
financial statements of the Growth Fund, which for the years ended December 31,
1997, 1998 and 1999 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. IF
CLASS Y SHARES OF THE GROWTH FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE
YEARS, THE FINANCIAL PERFORMANCE OF CLASS Y SHARES OF THE GROWTH FUND WOULD HAVE
BEEN LOWER THAN DEPICTED BECAUSE OF THE IMPOSITION OF FEES AND EXPENSES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 5.69 $ 5.24 $ 4.95 $ 4.39 $ 3.83
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.04 0.06 0.05 0.08
Net Realized and Unrealized Gain
(Loss) on Securities 1.35 0.85 1.03 0.73 0.88
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS 1.38 0.89 1.09 0.78 0.96
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.03) (0.04) (0.06) (0.05) (0.08)
Distributions from Capital Gains (0.27) (0.40) (0.74) (0.17) (0.32)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (0.30) (0.44) (0.80) (0.22) (0.40)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 6.77 $ 5.69 $ 5.24 $ 4.95 $ 4.39
======== ======== ======== ======== ========
TOTAL RETURN 24.49% 18.35% 22.24% 17.64% 25.20%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $230,203 $203,109 $178,344 $152,758 $134,821
Ratio of Expenses to Average Net Assets 0.87% 0.85% 0.96% 1.15% 0.98%
Ratio of Net Income to Average Net
Assets 0.44% 0.69% 1.03% 1.02% 1.67%
Portfolio Turnover Rate 16.13% 27.31% 46.79% 18.72% 37.00%
</TABLE>
51
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
EQUITY INCOME FUND
The following financial highlights table is intended to help you understand the
Equity Income Fund's financial performance for the past five years. Certain
information reflects financial results for a single Equity 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 Equity Income Fund (assuming reinvestment of all dividends and
distributions). This information is derived from the financial statements of the
Equity Income Fund, which for the years ended December 31, 1997, 1998 and 1999
have been audited by Tait, Weller & Baker, independent auditors, whose report,
along with the Equity 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 Equity Income Fund's former independent auditors. IF CLASS Y
SHARES OF THE EQUITY INCOME FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE
YEARS, THE FINANCIAL PERFORMANCE OF CLASS Y SHARES OF THE EQUITY INCOME FUND
WOULD HAVE BEEN LOWER THAN DEPICTED BECAUSE OF THE IMPOSITION OF FEES AND
EXPENSES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 28.02 $ 26.99 $ 25.05 $ 22.59 $ 18.90
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.54 0.62 0.63 0.58 0.62
Net Realized and Unrealized Gain
(Loss) on Securities (0.96) 2.50 4.96 3.10 4.82
-------- -------- -------- -------- --------
TOTAL FROM INVESTMENT OPERATIONS (0.42) 3.12 5.59 3.68 5.44
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.54) (0.62) (0.64) (0.58) (0.63)
Distributions from Capital Gains (1.76) (1.47) (3.01) (0.64) (1.12)
-------- -------- -------- -------- --------
TOTAL DISTRIBUTIONS (2.30) (2.09) (3.65) (1.22) (1.75)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 25.30 $ 28.02 $ 26.99 $ 25.05 $ 22.59
======== ======== ======== ======== ========
TOTAL RETURN (1.39)% 12.11% 22.72% 16.46% 29.12%
======== ======== ======== ======== ========
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $187,988 $218,980 $198,687 $165,786 $141,058
Ratio of Expenses to Average Net Assets 1.05% 1.01% 1.05% 1.10% 1.12%
Ratio of Net Income to Average Net
Assets 1.94% 2.22% 2.28% 2.42% 2.89%
Portfolio Turnover Rate 9.81% 19.29% 39.14% 27.07% 44.00%
</TABLE>
52
<PAGE>
FINANCIAL HIGHLIGHTS
------------------------------------------------
BALANCED FUND
The following financial highlights table is intended to help you understand the
Balanced Fund's financial performance for the past five years. Certain
information reflects financial results for a single Balanced 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 Balanced Fund (assuming reinvestment of all dividends and distributions).
This information is derived from the financial statements of the Balanced Fund,
which for the years ended December 31, 1997, 1998 and 1999 have been audited by
Tait, Weller & Baker, independent auditors, whose report, along with the
Balanced 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 Balanced Fund's former independent auditors. IF CLASS Y SHARES OF THE
BALANCED FUND HAD BEEN IN EXISTENCE DURING THE PAST FIVE YEARS, THE FINANCIAL
PERFORMANCE OF CLASS Y SHARES OF THE BALANCED FUND WOULD HAVE BEEN LOWER THAN
DEPICTED BECAUSE OF THE IMPOSITION OF FEES AND EXPENSES.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 19.63 $ 18.32 $ 17.90 $ 16.85 $ 14.32
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.42 0.48 0.57 0.49 0.49
Net Realized and Unrealized Gain (Loss) on
Securities 1.84 1.96 2.50 1.48 2.67
------- ------- ------- ------- -------
TOTAL FROM INVESTMENT OPERATIONS 2.26 2.44 3.07 1.97 3.16
LESS DISTRIBUTIONS
Dividends from Net Investment Income (0.42) (0.47) (0.59) (0.49) (0.49)
Distributions from Capital Gains (0.80) (0.66) (2.06) (0.43) (0.14)
------- ------- ------- ------- -------
TOTAL DISTRIBUTIONS (1.22) (1.13) (2.65) (0.92) (0.63)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 20.67 $ 19.63 $ 18.32 $ 17.90 $ 16.85
======= ======= ======= ======= =======
TOTAL RETURN 11.87% 13.83% 17.46% 11.86% 22.29%
======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $30,146 $29,367 $25,838 $23,188 $21,757
Ratio of Expenses with reimbursement to
Average Net Assets 1.25% 1.25% 1.26% 1.21% 1.26%
Ratio of Expenses without reimbursement to
Average Net Assets 1.41% 1.37% 1.36% 1.34% 1.46%
Ratio of Net Income to Average Net Assets 2.15% 2.55% 3.02% 2.83% 2.99%
Portfolio Turnover Rate 18.01% 16.01% 27.52% 23.78% 16.39%
</TABLE>
53
<PAGE>
APPENDIX A
(Description of Ratings Used in Prospectuses)
-------------------------------------------------------------------
BOND RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM BOND (BONDS THAT EXTEND
LONGER THAN ONE YEAR) 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 than 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 likely
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, it 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 LONG-TERM BOND (BONDS THAT
EXTEND LONGER THAN ONE YEAR) 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
A-1
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
"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 larger than the Aaa securities.
A Bonds which are rated "A" possess many favorable investment attributes and
are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment sometime in the
future.
Baa Bonds which are rated "Baa" are considered as medium grade obligations,
I.E., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack 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.
PREFERRED STOCK RATING
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S PREFERRED STOCK RATING:
AAA This is the highest rating that may be assigned by Standard & Poor's to
a preferred stock issue and indicates an extremely strong capacity to
pay the preferred stock obligations.
A-2
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
AA A preferred stock issue rated "AA" also qualifies as a high-quality,
fixed-income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated
"AAA."
A An issue rated "A" is backed by a sound capacity to pay the preferred
stock obligations, although it is somewhat more susceptible to the
adverse effects of changes in circumstances and economic conditions.
BBB An issue rated "BBB" is regarded as backed by an adequate capacity to
pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to make payments for a preferred stock in this category than for
issues in the "A" category.
BB Preferred stock rated "BB," "B," and "CCC" are regarded, on balance,
B as predominantly speculative with respect to the issuer's capacity to pay
CCC preferred stock obligations. "BB" indicates the lowest degree of
speculation and "CCC" the highest. 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:
aaa An issue which is rated "aaa" is considered to be a top-quality preferred
stock. This rating indicates good asset protection and the least risk of
dividend impairment within the universe of preferred stocks.
aa An issue which is rated "aa" is considered a high-grade preferred stock.
This rating indicates that there is a reasonable assurance the earnings
and asset protection will remain relatively well maintained in the
foreseeable future.
a An issue which is rated "a" is considered to be an upper-medium grade
preferred stock. While risks are judged to be somewhat greater then in the
"aaa" and "aa" classification, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa An issue which is rated "baa" is considered to be a medium-grade preferred
stock, neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
ba An issue which is rated "ba" is considered to have speculative elements
and its future cannot be considered well assured. Earnings and asset
protection may be very moderate and not well safeguarded during adverse
periods. Uncertainty of position characterizes preferred stocks in this
class.
A-3
<PAGE>
APPENDIX A
(DESCRIPTION OF RATINGS USED IN PROSPECTUSES)
-------------------------------------------------------------------
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.
A-4
<PAGE>
FOR MORE INFORMATION ABOUT THE FUNDS
------------------------------------------------
<TABLE>
<S> <C>
The following documents contain more SM&R GROWTH
information about the Funds and are FUND, INC.
available free upon request: SM&R EQUITY INCOME
STATEMENT OF ADDITIONAL INFORMATION FUND, INC.
(SAI) SM&R BALANCED
The SAI contains additional information FUND, INC.
about all aspects of the Funds. A
current SAI has been filed with the
Securities and Exchange Commission and
is incorporated herein by reference.
ANNUAL AND SEMI-ANNUAL REPORTS
The Funds' annual and semi-annual
reports provide additional information
about the Funds' investments. The
annual report for the fiscal year ended
December 31, 1999 will contain a
discussion of the market conditions and
investment strategies that
significantly affected each Fund's
performance during the last fiscal
year.
</TABLE>
REQUESTING DOCUMENTS
You may request a free copy of the SAI and these reports, make shareholder
inquiries, or request further information about the funds either by contacting
your broker or by contacting the funds at:
SECURITIES MANAGEMENT AND RESEARCH, INC.
P.O. BOX 58969
HOUSTON, TEXAS 77258-8969
TELEPHONE: 1-800-231-4639 (TOLL FREE) OR
281-334-2469 (COLLECT)
PUBLIC INFORMATION
You can review and copy information about the Funds, including the SAI, 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. 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.
Investment Company
File Nos. 811-00623
811-01916
811-02818
<PAGE>
(This page has been left blank intentionally.)
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 2000
------------------------
SM&R GROWTH FUND, INC.
SM&R EQUITY INCOME FUND, INC.
SM&R BALANCED FUND, INC.
CLASSES A, B, C, T, Y AND J
------------------------
Mailing Address: P.O. Box 58969
Houston, Texas 77258-8969
Street Address: 2450 South Shore Boulevard
League City, Texas 77573
This Statement is NOT a prospectus, but should be read in conjunction with
the funds' current prospectus or prospectuses dated May 1, 2000 that is relevant
to the class or classes of shares that you own or wish to purchase (each such
prospectus is referred to herein as a "Prospectus" and collectively as the
"Prospectuses"). To obtain a Prospectus contact your registered representative,
broker-dealer, financial intermediary, or Securities Management and Research,
Inc. ("SM&R"), at the address noted above, or by calling:
Investor Services
Telephone Number: (281) 334-2469
Toll Free 1-(800) 231-4639
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 Company or SM&R. No Prospectus or
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.
Terms not defined herein have the same meaning as given to them in the
Prospectuses.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE FUNDS................................................... 1
INVESTMENT OBJECTIVES AND POLICIES.......................... 1
PORTFOLIO TURNOVER.......................................... 6
MANAGEMENT OF THE FUNDS..................................... 6
REMUNERATION OF DIRECTORS................................... 9
POLICY REGARDING PERSONAL INVESTING......................... 10
PERSONAL INVESTING BY OTHER SM&R OFFICERS AND EMPLOYEES..... 10
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES......... 10
CONTROL AND MANAGEMENT OF SM&R.............................. 11
INVESTMENT ADVISORY AGREEMENT............................... 12
ADMINISTRATIVE SERVICE AGREEMENT............................ 15
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION............. 16
DESCRIPTION OF FUND SHARES.................................. 17
PURCHASE, REDEMPTION AND PRICING OF SHARES.................. 18
DETERMINATION OF NET ASSET VALUE.......................... 18
DETERMINATION OF OFFERING PRICE........................... 19
REDUCTION AND/OR WAIVER OF INITIAL SALES CHARGES (CLASS A
AND CLASS T SHARES)..................................... 21
REDUCTION AND/OR WAIVER OF CONTINGENT DEFERRED SALES
CHARGES (CLASS B SHARES)................................ 23
FUND AND CLASS EXPENSES................................... 24
SHAREHOLDER SERVICING AND DISTRIBUTION PLAN................. 24
SPECIAL PURCHASE PLANS...................................... 25
REDEMPTION.................................................. 27
TAXES....................................................... 29
THE UNDERWRITER............................................. 32
AUDITORS AND FINANCIAL STATEMENTS........................... 33
CUSTODIAN................................................... 33
COUNSEL..................................................... 33
TRANSFER AGENT AND DIVIDEND PAYING AGENT.................... 34
PERFORMANCE AND ADVERTISING DATA............................ 34
PERFORMANCE MEASURES........................................ 36
</TABLE>
i
<PAGE>
THE FUNDS
The SM&R Growth Fund, Inc. (the "Growth Fund"), the SM&R Equity Income Fund,
Inc. (the "Equity Income Fund"), and the SM&R Balanced Fund, Inc. (the "Balanced
Fund") (each a "Fund" and collectively 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 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 reduce the risk inherent in all investments in
securities by spreading their investment over a number of companies. However,
diversification cannot eliminate such risks. Registration under the 1940 Act
does not imply any supervision by the Securities and Exchange Commission (the
"SEC") over the Funds' management or investment policies or practices.
The Funds are each divided into six classes of shares (the "Classes") of
common stock designated as:
- Class A (front-end load);
- Class B (back-end load);
- Class C (level load);
- Class Y (institutional shareholders);
- Class J (network); and
- Class T (existing Class T shareholders and certain designated persons).
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.
The Growth Fund was originally incorporated in Florida on March 5, 1953. The
Equity Income Fund was originally incorporated in Texas on July 15, 1969. The
Balanced Fund was originally incorporated in Texas on January 9, 1978.
Each of these three funds was reincorporated under the laws of the State of
Maryland on August 23, 1989. Effective December 31, 1998, each Fund adopted its
current name.
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 POLICIES
Each Fund's investment objective and the following fundamental investment
limitations can not be changed in any material way without the approval of a
majority of the Fund's shares. For these purposes, a "majority" means the lesser
of (i) 67% or more of voting securities present at a meeting if the holders of
more than 50% of voting securities are represented at the meeting or (ii) more
than 50% of the outstanding voting securities of the Fund.
DIVERSIFICATION. With respect to 75% of the Fund's total assets, a Fund 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.
<PAGE>
INDUSTRY CONCENTRATION. A 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).
BORROWING. A 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.
LOANS. A 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.
UNDERWRITING. A 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.
REAL ESTATE. A 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.
COMMODITIES. A 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.
SENIOR SECURITIES. A Fund may not issue senior securities to the extent
such issuance would violate applicable law.
In addition to the above, the Balanced Fund has adopted, as a fundamental
policy, that it will be a "balanced fund."
The above mentioned investment limitations are considered at the time
investment securities are purchased.
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.
No assurance can be given that the U.S. Government would lend money to or
otherwise provide financial support to U.S. Government sponsored
instrumentalities.
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 credit
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.
2
<PAGE>
INVESTMENT IN COVERED CALL OPTIONS. Although there is no present intent to
do so, the Balanced 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 Balanced Fund's assets are
subject to call options. A covered call option is an option on a security which
the Balanced 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 Balanced 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
Balanced Fund's custodian until the option expires, is exercised, or a closing
purchase transaction is made. The Balanced 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 Balanced Fund's management believes that such premiums will maximize
the Balanced Fund's return without subjecting it to substantial risks.
The Balanced 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 Balanced Fund will
make a "closing purchase transaction" if such is available. In such a
transaction, the Balanced 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 Balanced Fund's portfolio
against which a call option has been written, the Balanced Fund will effect a
closing purchase transaction so as to close out any existing call option on that
security. The Balanced 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 Balanced Fund upon writing a call option will
increase the Balanced 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 Balanced 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 Balanced 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.
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. Each fund may purchase repurchase agreements either
for defensive purposes due to market conditions or to generate income from its
excess cash balances. In a repurchase agreement, a fund purchases a U.S.
government security subject to resale to a bank or dealer at an
3
<PAGE>
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. 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. 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.
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
Balanced 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 Balanced 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 Balanced Fund. The Balanced 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 SEC thereunder, which currently require that (a) the
borrower pledge and maintain with the Balanced 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 Balanced Fund at any time, and (d) the Balanced Fund
receive reasonable interest on the loans (which may include the Balanced 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.
The principal risk of lending is the potential insolvency of the borrower.
In this event, the Fund could experience delays in recovering its securities and
possible capital loss.
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.
4
<PAGE>
ILLIQUID SECURITIES. Each Fund may invest up to 15% of its net assets in
illiquid securities, including domestic or foreign securities not listed on
domestic or foreign exchanges and repurchase agreements maturing in excess of
seven days. Non-publicly traded securities may be less liquid than publicly
traded securities. Although these securities may be resold in privately
negotiated transactions, the prices realized from these sales could be less than
those originally paid by a Fund. In addition, companies whose securities are not
publicly traded are not subject to the disclosure and other investor protection
requirements that may be applicable if these securities were publicly traded. A
Fund's investments in illiquid securities are subject to the risk that should
the Fund desire to sell any of these securities when a ready buyer is not
available at a price that SM&R deems representative of their value, the value of
the Fund's net assets could be adversely affected.
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. Due to changing markets or other factors, 144A securities may be
subject to a greater possibility of becoming illiquid than securities which have
been registered with the SEC for sale.
Any such security may be determined to be LIQUID under procedures adopted by
the Board. These procedures consider trading activity, availability of reliable
price information, and other relevant information to determine whether 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.
AMERICAN DEPOSITORY RECEIPTS ("ADRS"). ADRs are U.S. dollar-denominated
securities of foreign corporations which are traded in the U.S. on national
securities exchanges or over-the-counter and are issued by domestic banks. The
banks act as custodian of the shares of the foreign stock and collect dividends
on the stock which are either reinvested or distributed to the ADR holder in
U.S. dollars. While ADRs are not considered foreign securities, they may entail
certain political, economic and regulatory risks. Such risks may include
political or social instability, excessive taxation and limitations on the
removal of funds or other assets which could adversely affect the value of a
fund's investments. The economies of many countries in which a fund may invest
may not be as developed as the U.S. economy and may be subject to significantly
different forces. Foreign companies are not registered with the SEC 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.
5
<PAGE>
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
Balanced 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.
The portfolio turnover rates for the Funds for past three fiscal years are
as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
Growth Fund 47% 27% 16%
- --------------------------------------------------------------------------------------------------
Equity Income Fund 39% 19% 10%
- --------------------------------------------------------------------------------------------------
Balanced Fund 28% 16% 18%
- --------------------------------------------------------------------------------------------------
</TABLE>
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.
MANAGEMENT OF THE FUNDS
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 each 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.
6
<PAGE>
OFFICERS AND DIRECTORS OF THE FUNDS
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 2450 South Shore Boulevard, Suite 400, League City,
Texas 77573. Directors who are deemed to be "interested persons" of the Funds,
as defined in the 1940 Act, are indicated by an asterisk(*).
<TABLE>
<CAPTION>
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POSITIONS HELD WITH
NAME, ADDRESS, AND AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
MICHAEL W. MCCROSKEY* Director and Presi- President, Chief Executive Officer,
Age 56 dent Director and 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,
Inc., June 1994 to present; Executive Vice
President, American National Insurance
Company ("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 Corpo-
ration, 1977 to present; President and
Director of ANTAC Corporation, 1995 to
present; Director, Comprehensive
Investment Services, Inc., 1997 to
present.
- ---------------------------------------------------------------------------------------------------
RALPH S. CLIFFORD(1)(2) Director since 1972 Retired attorney, Clifford, Clifford &
Age 84 Olson; Retired Director of Henry County
12304 Blue Sage Rd. Bank; Retired Director of Illini Beef
Oklahoma City, Oklahoma Packers, Inc.; Retired Director of
Industrial Relations of Deere & Company.
- ---------------------------------------------------------------------------------------------------
PAUL D. CUMMINGS(2) Director since 1969 Retired President and Director of Globe
Age 85 (for Balanced Fund, Life and Accident Insurance Company.
3102 Belaire Drive since 1971)
Oklahoma City, Oklahoma
- ---------------------------------------------------------------------------------------------------
JACK T. CURRIE(1) Director since 1971 Director of American Indemnity Financial
Age 71 Corporation, holding company for casualty
515 Post Oak Boulevard, Suite 750 insurance company, 1978 to present;
Houston, Texas Director of Stewart & Stevenson Services,
Inc., designs and constructs power
generating systems, 1990 to present.
- ---------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
POSITIONS HELD WITH
NAME, ADDRESS, AND AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
IRA W. PAINTON, C.L.U.(1) Chairman of the Retired President of the Funds, 1968 to
Age 82 Board since 1989 1993; Retired President and Director of
12004 Dahoon Drive and Director since SM&R.
Oklahoma City, Oklahoma 1967
- ---------------------------------------------------------------------------------------------------
DONALD P. STEVENS(2) Director, since Assistant to the President for Government
Age 53 1985 Relations of The University of Texas
University of Texas Medical Medical Branch, a medical school and
Branch, Station 1, Box 41 hospital system, 1975 to present; Vice
Galveston, Texas President of Jamail Galveston Foundation,
1993 to present.
- ---------------------------------------------------------------------------------------------------
STEVEN H. STUBBS, C.F.A. Director since 1987 Former Director, President and Chief
Age 61 Executive Officer of The Westcap
514 Poplar Ave. Corporation, 1994 to 1996; and Former
Philadelphia, Mississippi President and Chief Executive Officer of
SM&R and the Funds, 1987 to 1994.
- ---------------------------------------------------------------------------------------------------
GORDON D. DIXON Vice President; Director, Senior Vice President, Chief
Age 54 Co-Manager of the Investment Officer of SM&R and a member of
Growth Fund, Equity the investment and executive committees of
Income Fund; SM&R, 1993 to present; Vice President of
Balanced Fund the American National Investment Accounts,
Inc., Portfolio Manager for its American
National ("A.N.") Government Bond
Portfolio and the A. N. High Yield Bond
Portfolio, May 2000 to present; Co-Manager
of its A. N. International Stock
Portfolio, May 2000 to present; Co-Manager
of the American National Investment
Accounts, Inc.--A. N. Growth Portfolio, A.
N. Equity Income Portfolio and A. N. Bal-
anced Portfolio, May 2000 to present;
Portfolio Manager of the American National
Investment Accounts, Inc.--A. N. Growth
Portfolio, A. N. Equity Income Portfolio
and A. N. Balanced Portfolio, October 1998
to May 2000; Portfolio Manager of the SM&R
Investments, Inc.--SM&R Government Bond
Fund and SM&R Tax Free Fund, May 2000 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.
- ---------------------------------------------------------------------------------------------------
EMERSON V. UNGER, C.L.U. Vice President Vice President of SM&R since 1983, SM&R
Age 54 Investments, Inc. since 1992, and American
National Investment Accounts, Inc. since
1991.
- ---------------------------------------------------------------------------------------------------
BRENDA T. KOELEMAY Vice President and Vice President and Treasurer of SM&R, SM&R
Age 45 Treasurer Investments, Inc. and American National
Investment Accounts, Inc. since 1992;
Treasurer of Comprehensive Investment
Services, Inc. since 1997; Senior Manager,
KPMG Peat Marwick LLP, July 1980 to April
1992.
- ---------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
POSITIONS HELD WITH
NAME, ADDRESS, AND AGE THE FUNDS PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
TERESA E. AXELSON Vice President and Vice President and Secretary of SM&R,
Age 52 Secretary since 1983; Vice President and Secretary
of SM&R Investments, Inc., and American
National Investment Accounts, Inc., 1991
to present.
- ---------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
* "Interested persons" as defined by the 1940 Act.
(1) Members of the nominating committee.
(2) Members of the audit committee.
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 Funds for which he serves as a director,
which consists of an annual retainer component and a meeting fee component. Set
forth below is information regarding compensation paid or accrued during the
fiscal year ended December 31, 1999 for each director of each Fund.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
GROWTH FUND, EQUITY INCOME FUND, AND BALANCED FUND
- ---------------------------------------------------------------------------------------------
PENSION OR TOTAL
RETIREMENT COMPENSATION
AGGREGATE BENEFITS ESTIMATED FROM ALL
COMPENSATION ACCRUED AS ANNUAL FUNDS
FROM EACH PART OF FUND BENEFITS UPON MANAGED BY
DIRECTOR FUND EXPENSES RETIREMENT SM&R
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ralph S. Clifford $3,333 None None $10,000
- ---------------------------------------------------------------------------------------------
Paul D. Cummings $3,333 None None $10,000
- ---------------------------------------------------------------------------------------------
Jack T. Currie $3,333 None None $10,000
- ---------------------------------------------------------------------------------------------
Michael W. McCroskey -- None None --
- ---------------------------------------------------------------------------------------------
Ira W. Painton $4,667 None None $14,000
- ---------------------------------------------------------------------------------------------
Donald P. Stevens $3,333 None None $10,000
- ---------------------------------------------------------------------------------------------
Steven H. Stubbs $3,333 None None $10,000
- ---------------------------------------------------------------------------------------------
</TABLE>
Directors of the Funds who are affiliated with SM&R receive no compensation
for attendance at Board or committee meetings. No officer receives compensation
from the Funds. 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, 1999, each Fund paid
$22,657 to such directors for fees and expenses in attending meetings of the
Boards of Directors.
Directors, officers, full-time employees, and other affiliated persons of
the Funds, SM&R, or American National may purchase Class T shares of the Funds
at net asset value per share without the imposition of any sales charge. (For
more information, see "Eligible Purchasers of Class T Shares" and "Sales Charge
Reductions and Waivers" in the Prospectus for Class T shares.) The difference
between the price at which these shares are sold to the public and the price at
which these shares are sold to directors and affiliated persons arises because
SM&R does not pay commissions on sales of shares to these types of purchasers.
9
<PAGE>
POLICY REGARDING PERSONAL INVESTING
Each Fund, its investment adviser and principal underwriter have adopted
codes of ethics under rule 17j-1 of the Investment Company Act of 1940.
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.
Furthermore, portfolio managers are prohibited from acquiring any security
of an initial public offering and must receive prior written approval from
SM&R's Chief Executive Officer before investing in any private placement
securities.
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 April 1, 2000, American National Insurance Company owned 5.21% of the
outstanding shares of the Growth Fund; no person owned 5% or more of the
outstanding shares of the Equity Income Fund (either of record or beneficially).
As of April 1, 2000, American National Insurance Company ("American National")
and SM&R were the only shareholders known to the Balanced Fund to own five
percent (5%) or more of its outstanding shares. On that date, American National
owned approximately 16.24% and SM&R owned approximately 8.54% of the Balanced
Fund's common stock. While such ownership does not directly affect a
shareholder's voting rights, it obviously gives American National and SM&R a
strong voice in the Balanced 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.
The officers and directors of each Fund as a group owned less than 1% of the
outstanding shares of each Fund as of April 1, 2000.
10
<PAGE>
CONTROL AND MANAGEMENT OF SM&R
SM&R has been the investment adviser, manager and underwriter of the Growth
Fund since 1966, of the Equity Income Fund since it began business in 1969, and
of the Balanced Fund since it began business in 1978. SM&R acts pursuant to a
written agreement periodically approved by the directors and 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 is a wholly-owned subsidiary of American National, a Texas life
insurance company with its principal offices at 2450 South Shore Boulevard,
League City, Texas 77573. As of April 1, 2000, the Moody Foundation, a
charitable foundation established for charitable and educational purposes, owned
approximately 23.7% of American National's common stock and the Libbie S. Moody
Trust, a private trust, owned approximately 37.6% of such shares. The trustees
of the Moody Foundation are Robert L. Moody, Frances Moody Newman, and Ross R.
Moody. Ms. Newman is Robert L. Moody's mother. Ross R. Moody is Robert L.
Moody's son. The Moody National Bank of Galveston (the "Bank") is trustee of the
Libbie S. Moody Trust.
The Bank's controlling stockholder is Moody Bank Holding Company, Inc.
("MBHC"). Moody Bancshares, Inc. ("Bancshares") is the sole shareholder of MBHC.
As of April 1, 2000, the Three R Trusts (trusts established by Robert L. Moody
for the benefit of his children) owned 100% of Bancshares' Class B stock (which
elects a majority of Bancshares' and MBHC's Directors) and 51.3% 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.
Greer, Herz & Adams, L.L.P., 18th Floor, One Moody Plaza, Galveston, Texas acts
as General Counsel to American National, the Bank, Bancshares, MBHC, the Funds,
American National Investment Accounts, Inc., SM&R Investments, Inc., and SM&R.
Robert L. Moody is:
- Chairman of the Board of Directors, Chief Executive Officer, and President
of American National,
- Chairman of the Board of Directors and Chief Executive Officer of the
Bank,
- President and Director of Bancshares, and
- President and Director of MBHC, the Bank's controlling stockholder.
The following persons are affiliated with the Funds and SM&R in the
specified capacities:
- 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, Vice
President of the Fund, Co-Portfolio Manager of the Growth Fund, Equity
Income Fund, Balanced Fund, and Vice President of the American National
Investment Accounts, Inc., Portfolio Manager of its American National
("A.N.") Government Bond Portfolio and A.N. High Yield Portfolio,
Co-Portfolio Manager of its A.N. Growth Portfolio, A.N. Equity Income
Portfolio, A.N. Balanced Portfolio and A.N. International Stock Portfolio;
Portfolio Manager of SM&R Investments, Inc.--SM&R Government Bond Fund and
SM&R Tax Free Fund;
- 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.;
11
<PAGE>
- 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 Investments, 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 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 most recently approved by its Board of Directors on
November 19, 1998, 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.
INVESTMENT ADVISORY FEE
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>
- ----------------------------------------------------------------------------
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>
12
<PAGE>
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 regular 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.
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
PERFORMANCE COMPARED ADJUSTMENT COMPARED TO LIPPER ADJUSTMENT
TO LIPPER INDEX AMOUNT 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>
13
<PAGE>
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%.
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
14
<PAGE>
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 past three fiscal years, SM&R received investment advisory fees from
each Fund as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
ADVISORY FEES FOR THE ADVISORY FEES FOR THE ADVISORY FEES FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Growth Fund $1,011,542 $ 922,010 $1,005,753
- -----------------------------------------------------------------------------------------------------------------
Equity Income Fund $1,270,994 $1,426,042 $1,468,951
- -----------------------------------------------------------------------------------------------------------------
Balanced Fund $ 186,693 $ 198,438 $ 222,265
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
ADMINISTRATIVE SERVICE AGREEMENT
Under an Administrative Service Agreement between each Fund and SM&R dated
November 30, 1989, as amended on November 19, 1998, 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.
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
ON THE PORTION OF THE SERVICE FEE ANNUAL
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.
15
<PAGE>
For the past three fiscal years, SM&R received administrative service fees
pursuant to the Administrative Service Agreement from each Fund as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
ADMINISTRATIVE ADMINISTRATIVE ADMINISTRATIVE
SERVICE FEES FOR THE SERVICE FEES FOR THE SERVICE FEES FOR THE
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Growth Fund $387,654 $423,595 $464,872
- --------------------------------------------------------------------------------------------------------------
Equity Income Fund $416,699 $465,270 $479,149
- --------------------------------------------------------------------------------------------------------------
Balanced Fund $ 62,231 $ 66,146 $ 74,100
- --------------------------------------------------------------------------------------------------------------
</TABLE>
EXPENSES BORNE BY THE FUNDS
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, SEC 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,
other expenses incidental to portfolio transactions, and 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 Equity Income and Growth
Funds under the 1.25% expense limitation was required for the fiscal years ended
December 31, 1997, 1998 and 1999. During the fiscal years ended December 31,
1997, 1998, and 1999, SM&R reimbursed $24,234, $33,454 and $45,768,
respectively, in excess expenses to the Balanced Fund.
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. Such services and information may be used by SM&R
in servicing any fund it manages. Not all of these services or information are
always used by SM&R in connection with the Funds. While SM&R is able to fulfill
its obligation to each Fund without such information, its expenses might be
materially
16
<PAGE>
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. For the past three
fiscal years, SM&R paid brokerage fees on the purchase and sale of portfolio
securities for each Fund of the following approximate amounts:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
BROKERAGE FEES PAID BROKERAGE FEES PAID BROKERAGE FEES PAID
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
Growth Fund $416,000 $196,000 $123,792
- -----------------------------------------------------------------------------------------------------------
Equity Income Fund $345,000 $147,000 $ 11,309
- -----------------------------------------------------------------------------------------------------------
Balanced Fund $ 33,000 $ 16,000 $ 3,942
- -----------------------------------------------------------------------------------------------------------
</TABLE>
No brokerage commissions have been paid during the three most recent fiscal
years to: (i) any broker that is an affiliated person of the Funds or an
affiliated person of that person; or (ii) any broker an affiliated person of
which is an affiliated person of the Funds or SM&R.
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 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.
DESCRIPTION OF FUND SHARES
Each of the Funds has authorized capital stock of two billion common shares
with a par value of $0.01 each. The Funds are each divided into six Classes of
shares of common stock designated as:
- Class T (existing Class T shareholders and certain designated persons);
- Class A (front-end load);
- Class B (back-end load);
- Class C (level load);
- Class J (network); and
- Class Y (institutional shareholders);
17
<PAGE>
The shares of each Fund, when issued, will be fully paid and non-assessable,
will have no conversion, preemptive, or other subscription rights, and will be
freely transferable and redeemable.
Each share of capital stock represents an interest in the assets of a
particular Fund and has no interest in the assets of any other Fund. Shares of a
Fund are equal with respect to distributions from income and capital gains,
except as described below. In the event of liquidation, each share of a Fund is
entitled to an equal portion of all the assets of that Fund after all debts and
expenses have been paid.
Each Class 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 and its proportionate share of the general
liabilities of that Fund. 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 fees ("12b-1 fees") of that Class and any
Class-specific expenses. Class B and Class C shares are subject to higher 12b-1
fees, which will cause such Classes to have a higher expense ratio and pay lower
dividends than the Class A shares.
VOTING RIGHTS
Within the respective Funds, all shares have equal voting, participation,
and liquidation rights, but do not have cumulative voting rights. With respect
to election of directors, non-cumulative voting 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.
On certain matters, such as the election of directors or amendment of the
investment advisory contract, all shares of each Fund vote together, with each
share having one vote. 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 generally are required for approval of the proposal.
PURCHASE, REDEMPTION AND PRICING OF SHARES
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. 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.
Certificates representing shares purchased are not issued. Investors have
the same ownership rights with respect to shares purchased as if certificates
had been issued. A confirmation will be sent to the investor promptly after each
share purchase.
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 applicable 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
18
<PAGE>
in determining net asset value. The portfolio securities of the Funds are valued
as of the close of trading on each day that the New York Stock Exchange is open
for trading. 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 each Fund (or
their delegate) on a consistent basis.
DETERMINATION OF 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 order plus the sales
charge. The sales charge is a percentage of the net asset value per share and
will vary as shown below. Purchases received by SM&R at its office in League
City, Texas prior to 3:00 p.m. Central Time, on any day that the New York Stock
Exchange is open for trading, will be executed at the applicable offering price
determined on that day. Purchases received by SM&R thereafter will be executed
at the offering price determined on the next day that the New York Stock
Exchange is open for trading.
SM&R is not in receipt of purchase (and redemption or transfer) orders given
to a dealer until the dealer transmits the order to SM&R and SM&R actually
receives the order at its League City office. It is the responsibility of any
such dealer and not SM&R to establish procedures to assure that orders 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.
CLASS T SHARES (EXISTING SHAREHOLDERS). The offering price of the Class T
shares is the net asset value per share plus an initial 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. 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" below and "Sales Charge Reductions and Waivers"
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>
- ---------------------------------------------------------------------------------------------------------
DISCOUNT TO
SALES CHARGE AS A SALES CHARGE AS A SELECTED 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 and over None None None
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
* For Class T shares, SM&R may, in certain circumstances, 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 5.00% 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. For amounts
invested over certain levels, or "breakpoints" (beginning at $50,000), you pay
reduced sales charges. If you invest $1 million or more in Class A shares, there
is no initial
19
<PAGE>
sales charge, but such shares will be subject to a contingent deferred sales
charge ("CDSC") of 1.00% of the net asset value on redemptions within 13 months
of purchase. Certain 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" below and "Sales Charge
Reductions and Waivers" in the Prospectuses.
The offering price of Class A shares is the next determined net asset value
per share plus a sales charge (expressed as a percentage of the offering price)
shown in the following table:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DISCOUNT TO
SALES CHARGE AS A SALES CHARGE AS A SELECTED 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 5.00% 5.3% 4.50%
- ---------------------------------------------------------------------------------------------------------
$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 $1,000,000 1.5% 1.5% 1.00%
- ---------------------------------------------------------------------------------------------------------
$1,000,000 and over None* None None
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- ------------------------
* 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, but are 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.
Each Class B share converts automatically to Class A shares of equal dollar
value after the investor has owned 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.
20
<PAGE>
The conversion benefits shareholders because Class A shares are subject to a
lower ongoing Distribution Fee. If an investor converts Class B shares for
Class B shares of another fund managed by SM&R, the purchase date of the
original investment will be used to determine the appropriate conversion date.
CLASS C SHARES (LEVEL LOAD). The Funds offer Class C shares at their
respective net asset value plus an initial sales charge of 1.00% of the 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. Class Y shares are no-load shares of the Funds offered
through certain financial intermediaries (such as broker-dealers and investment
advisers) that have distribution agreements with SM&R. Class Y shares are
available to institutions and certain other investors, as described in the
Prospectus for the Class Y shares. 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. Accordingly, the Offering Price for
Class Y shares is that Class' net asset value.
CLASS J SHARES. Class J shares of the Funds are offered through mutual fund
"supermarkets" that have distribution agreements with SM&R. Class J shares are
offered at net asset value without the imposition of any sales charge on
purchases or redemptions. Accordingly, the Offering Price for Class J shares is
that Class' net asset value. Class J shares are subject to an annual 12b-1 fee
of 0.75% of the average daily net asset value of the Class J shares.
REDUCTION AND/OR WAIVER OF INITIAL SALES CHARGES (CLASS A AND CLASS T SHARES)
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 managed by SM&R 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 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 in connection with 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.
These discounts through concurrent purchases are applicable both 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.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION. If you already own Class T or
Class A shares of a fund managed by SM&R, on which you paid a front-end sales
load, you may be able to receive a discount when you buy additional shares. The
current net asset value of the shares you already own may be
"accumulated"--I.E., combined together with the dollar amount being invested--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 managed by SM&R by completing a
Letter of Intent (See "Letter of
21
<PAGE>
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 managed by SM&R currently owned,
and previously subject to a front-end sales load, may also be included in the
aggregate amount of an investment covered by a Letter of Intent.
For example, if an investor owns Class A shares of one or more of the Funds
and/or another fund managed by SM&R 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.
22
<PAGE>
WAIVER OF CLASS A AND CLASS T INITIAL SALES CHARGE FOR SPECIAL
PURCHASERS. After receipt of written request by SM&R, Class A and Class T
shares of the Funds may be purchased by certain purchasers designated in the
Class T and Class A Prospectuses 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)
The CDSC will be waived on the following redemptions of Class B shares:
(1) 12% FREE AMOUNT. We waive the CDSC on redemptions pursuant to a
systematic withdrawal plan of up to 12% of account value per year. We
apply this 12% waiver on a per fund basis to the account value determined
at the time you elect a systematic withdrawal plan (amounts not subject
to a CDSC, such as appreciation and reinvested dividends, are withdrawn
first).
(2) DEATH OR DISABILITY. We waive the CDSC on redemptions of Class B shares
following the shareholder's death or disability, so long as:
(a) the disability began after the shares were purchased;
(b) SM&R is notified of such death or disability at the time of the
redemption request and receives satisfactory evidence of such death
or disability;
(c) the redemptions are made within one year following death or initial
determination of disability; and
(d) the shares were held at the time of death or initial determination of
disability.
For purposes of this waiver, the death or disability must meet the
definition in Section 72(m)(7) of the Internal Revenue Code (the "Code").
If the shares are held in a joint account, then all registered joint
owners must be dead or disabled.
(3) MINIMUM REQUIRED DISTRIBUTIONS. We waive the CDSC on redemptions of
Class B shares in connection with certain distributions from four types
of qualified retirement plans: IRAs, custodial accounts maintained
pursuant to Code Section 403(b), deferred compensation plans qualified
under Code 457 and plans qualified under Code Section 401. To qualify for
the waiver, the redemptions must result from one of the following:
(a) required minimum distributions to plan participants or beneficiaries
who are age 70 1/2 or older to the extent it does not exceed 12%
annually of the participant's or beneficiary's account value;
(b) tax-free rollovers or transfers of assets to another IRA,
Section 403(b) plan, Section 457 plan or Section 401 plan invested in
Class B shares of one or more funds managed by SM&R;
(c) tax-free returns of excess contributions or returns of excess
deferral amounts; and
(d) distributions upon the death or disability (as defined in the Code)
of the participant or beneficiary.
(4) SMALL ACCOUNTS. We waive the CDSC on redemptions by the funds of small
accounts (Accounts with a value less than $500).
(5) SM&R INVESTMENTS. We waive the CDSC on redemptions of shares owned by
SM&R or any of its affiliates.
23
<PAGE>
FUND AND CLASS EXPENSES
Expenses that are directly attributable to a particular Class of shares
("Class Expenses") will be borne solely by that Class. Class expenses include:
(1) asset-based 12b-1 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.
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").
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 12-1
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- 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
24
<PAGE>
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.
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.
SPECIAL PURCHASE PLANS
AUTOMATIC INVESTMENT PLAN AND ELECTRONIC TRANSFERS
Classes A, B and C provide a convenient, voluntary method of purchasing
their shares through the "Automatic Investment Plan." Classes A, B, C, T and Y
allow for the use of the "Electronic Transfers." These plans are referred to as
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.
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
25
<PAGE>
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 is available for purchases of Class A,
Class B, or Class C shares. This 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 $100
($20 per individual) 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
You may make exchanges without charge, between the corresponding Class of
funds managed by SM&R on terms described in the Prospectuses.
You may exchange shares you own in the SM&R Investments, Inc. Primary Fund
for shares of the SM&R Investment, Inc. Money Market Fund and vice versa.
You also may exchange your Class A, B, T, Y, and J shares for shares of the
Primary Fund and Money Market Fund, subject to two conditions:
- any applicable CDSC period has expired on the shares you wish to exchange
(I.E., 13 months in the case of Class A 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.
You CANNOT exchange Class C shares for shares of the Money Market Fund or
Primary Fund.
You may exchange shares you own in the Primary Fund or Money Market Fund for
Class A, T, Y, and J shares of another fund managed by SM&R, provided you meet
any eligibility requirements and pay any sales charge applicable to the acquired
shares. You cannot exchange shares of the Money Market Fund or Primary Fund for
Class B or C shares of another fund.
26
<PAGE>
We waive any sales charges on Class A and Class T shares acquired through an
exchange if you previously paid a sales charge on amounts invested in those
shares. In other words, we will never impose a front-end sales charge on the
same investments twice. If the exchanged shares were acquired through
reinvestment of dividends or capital gains distributions while in a Class that
imposes a front-end sales charge, we deem those amounts invested in shares to
have previously paid a sales charge for purposes of the exchange privilege.
For example, you purchase Class T shares of the Growth Fund. You then
exchange all your Class T shares (including shares acquired through reinvestment
of dividends and capital gains distributions) for shares of the Money Market
Fund. Later, you re-exchange those shares of the Money Market Fund for Class T
shares of the Equity Income Fund. We would not impose any sales charge upon re-
exchange into Class T shares because you previously paid a sales charge on those
amounts invested in shares.
Shares of any fund 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 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, must be accompanied by certificates
endorsed for transfer (if certificates have been issued), and must contain a
signature guarantee. The signature guarantee carries with it certain statutory
warranties relied upon by the transfer agent. This guarantee is designed to
protect the investor, the funds, SM&R, and its representatives through the
signature verification of each investor wishing to redeem or exchange shares.
Signatures may be guaranteed by an "eligible guarantor institution" as
defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions generally include banks, brokers, dealers, municipal
securities dealers or brokers, government securities dealers or brokers, credit
unions, 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. WITNESSING OR NOTARIZATION IS NOT SUFFICIENT.
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 $50,000 or less. In all other cases the signatures on the
27
<PAGE>
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 Shareholder's Guide in the prospectus. Corporations,
executors, divorced persons, administrators, trustees or guardians will be
required to submit further documentation. Any applicable CDSC will be deducted
upon redemption.
Shares are redeemed at the net asset value per share next computed after the
request and certificates issued prior to January 1, 1999, if any, are received
in "Good Order." (See "Important Facts About Redeeming" in the Shareholder's
Guide in the prospectus). A shareholder may receive more or less than he paid
for his shares, depending on the prevailing market value of the Fund's portfolio
securities 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 ten (10) 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 a Fund to fairly determine the value of its
net assets; or for such other periods as the SEC 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 ($50,000 or more for Class Y) 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
28
<PAGE>
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 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.
TAXES
ELECTION TO BE TAXED AS A REGULATED INVESTMENT COMPANY
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 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. In addition, each Fund must distribute to its shareholders at least
90% of its net investment income and net tax-exempt income for each of its
taxable years. If a Fund fails to qualify as a regulated investment company, the
Fund will be
29
<PAGE>
subject to federal, and possibly state, corporate taxes on its taxable income
and gains, and distributions to its shareholders will be taxed as ordinary
dividend income to the extent of such Fund's available earnings and profits.
EXCISE TAX
In order to avoid federal excise taxes, each Fund is required to distribute
to its shareholders at least 98% of its taxable ordinary income earned during
the calendar year and 98% of its capital gain net income earned during the
twelve month period ending on October 31 (in addition to undistributed amounts
from the prior year). The Funds intend to declare and pay sufficient dividends
in a manner that will comply with such distribution requirements but can give no
assurances that their distributions will be sufficient to eliminate all such
excise taxes.
DISTRIBUTIONS OF INVESTMENT INCOME AND CAPITAL GAINS
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. Distributions which are declared in October, November or
December and paid to shareholders in January of the following year will be
treated for tax purposes as if they had been received by the shareholders on
December 31 of the year in which they were declared.
A percentage of the dividends paid by each Fund to corporate shareholders
may in certain circumstances qualify for the dividends received deduction
available to corporations. The dividends received deduction will be available
only with respect to dividends designated by the Fund as eligible for such
treatment. Dividends so designated must be attributable to dividends earned by
the Fund from U.S. corporations and must not have been earned from investments
that were debt-financed or held by the Fund for less than the requisite period.
Similarly, the deduction may be reduced or eliminated if the investment in the
Fund by the corporate shareholder was debt-financed or held less than the
requisite period. All dividends from the Funds, including dividends eligible for
the dividends-received deduction, are included in a corporation's alternative
minimum taxable income calculation.
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.
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
that must be met within each Fund. Because the rules on exclusion of this income
are different for corporations, corporate shareholders should consult with their
corporate tax advisors about whether any of the distributions may be exempt from
corporate income or franchise taxes.
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.
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<PAGE>
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.
REDEMPTION OF FUND SHARES
Redemptions and exchanges of Fund shares are taxable transactions for
federal and state income tax purposes. The tax law generally requires that
shareholders recognize a gain or loss in an amount equal to the difference
between the amount received by the shareholder and the shareholder's tax basis.
If the Fund shares are held as a capital asset, the shareholder will realize
capital gain or loss and if the shares have been held for more than one year at
the time of the redemption or exchange, the shareholder will realize long term
gain or loss for federal income tax purposes. Any loss incurred on the
redemption or exchange of shares held for six months or less will be treated as
a long term capital loss to the extent of any long-term capital gains
distributed to the shareholder on those shares. In addition, all or a portion of
any loss realized upon the redemption of Fund shares will be disallowed to the
extent the shareholder buys other shares in the Fund (through reinvestment of
dividends or otherwise) within 30 days before or after the share redemption.
(Any loss disallowed under this rule will be added to the shareholder's tax
basis in the new Fund shares acquired during such period.) Shareholders should
consult with their tax advisor concerning the tax reporting requirements in
effect on the redemption or exchange of such shares.
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.
BACKUP WITHHOLDING
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.
NON-U.S. INVESTORS
Ordinary dividends generally will be subject to U.S. income tax withholding.
The non-U.S. investor's home country may also tax ordinary dividends, capital
gain distributions and gains arising from redemptions and exchanges of fund
shares. Fund shares held by the estate of a non-U.S. investor may be subject to
U.S. estate tax. Non-U.S. investors may wish to contact their tax advisors to
determine the U.S. and non-U.S. tax consequences of an investment in the Funds.
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.
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<PAGE>
THE UNDERWRITER
SM&R serves as principal underwriter of the shares of the Funds pursuant to
an agreement dated May 1, 1993, as amended on November 19, 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 November 19,
1998. 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.
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 funds managed by SM&R. 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.
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. Such allowances are the
same for all broker-dealers.
The aggregate amount of sales charge received by SM&R from the sale of Fund
shares for the past three fiscal years is as follows:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
SALES CHARGES RECEIVED SALES CHARGES RECEIVED SALES CHARGES RECEIVED
BY SM&R FOR THE YEAR BY SM&R FOR THE YEAR BY SM&R FOR THE YEAR
ENDED DECEMBER 31, 1997 ENDED DECEMBER 31, 1998 ENDED DECEMBER 31, 1999
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Growth Fund $405,080 $441,976 $287,994
- ---------------------------------------------------------------------------------------------------------------------
Equity Income Fund $697,920 $830,130 $451,011
- ---------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 54,962 $ 76,199 $ 72,599
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE>
Of such amounts received from the Funds during such periods, SM&R retained
approximately:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998 DECEMBER 31, 1999
- ----------------------------------------------------------------------------------------------------------------------
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
RETAINED REALLOWED RETAINED REALLOWED RETAINED REALLOWED
BY TO BY TO BY TO
SM&R DEALERS SM&R DEALERS SM&R DEALERS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Growth Fund $54,000 $5,433 $39,904 $ 5,175 $73,142 $5,106
- ----------------------------------------------------------------------------------------------------------------------
Equity Income Fund $48,000 $9,704 $(1,159) $10,123 $77,587 $6,203
- ----------------------------------------------------------------------------------------------------------------------
Balanced Fund $ 2,000 $ 353 $ 732 $ 346 $11,528 $ 382
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
AUDITORS AND FINANCIAL STATEMENTS
Tait, Weller & Baker, 8 Penn Center, Philadelphia, PA 19103, serves as the
Fund's independent auditors and perform annual audits of the Fund's financial
statements.
The Board appointed Tait, Weller & Baker to serve as the independent
auditors to the Funds for the years ended December 31, 1997, 1998 and 1999.
Shareholders of the Funds ratified the selection of Tait, Weller & Baker for the
year ended December 31, 1997 at a meeting of the Shareholders held on May 28,
1998. Due to a concern over a potential conflict of interest, KPMG resigned as
auditors to the Funds on December 15, 1997. 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 the Funds.
Each Fund's audited financial statements for the year ended December 31,
1999 are incorporated herein by reference from each Fund's Annual Report dated
December 31, 1999, filed with the SEC on March 6, 2000.
CUSTODIAN
The cash and securities of the Funds are held by SM&R, 2450 South Shore
Boulevard, Suite 400, League City, Texas 77573, 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, as custodian, 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.
COUNSEL
The Fund's General Counsel is Greer, Herz & Adams, L.L.P., 18th Floor, One
Moody Plaza, Galveston, Texas 77550.
33
<PAGE>
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.) A discussion of SM&R's duties as
transfer agent is set forth above under "Administrative Service Agreement."
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 total return fluctuates 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 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, 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.
The Funds, annual reports contain additional performance information and
will be made available to you upon request and without charge.
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.
34
<PAGE>
The average annual total returns for each Fund for the following periods
ended December 31, 1999 are:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR THE PERIODS ENDING
DECEMBER 31, 1999) PAST ONE YEAR PAST 5 YEARS PAST 10 YEARS
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
SM&R Growth Fund Class T 17.28% 20.14% 13.91%
- --------------------------------------------------------------------------------------------------
SM&R Equity Income Fund Class T (7.06)% 13.97% 11.00%
- --------------------------------------------------------------------------------------------------
SM&R Balanced Fund Class T 5.43% 14.04% 10.47%
- --------------------------------------------------------------------------------------------------
</TABLE>
The average annual total return figures for the Funds are computed for a
Class according to a formula prescribed by the SEC. The formula can be expressed
as follows:
P(1 + T)to the power of n = ERV
<TABLE>
<S> <C> <C>
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 the 1-, 5- or 10-year periods at
the end of a 1-, 5- or 10-year period (or fractional portion
thereof), assuming reinvestment of all dividends and
distributions.
</TABLE>
The ERV assumes complete redemption of the hypothetical investment at the
end of the measuring period. The ERV assumes the deduction of all nonrecurring
charges deducted at the end of each period.
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
35
<PAGE>
2. the redeemable value of the $10,000 investment as of December 31 of the
preceding year for years two through ten.
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, 1989 initial ten thousand dollar investment less
the maximum $575 sales load to the redeemable value on December 31, 1989 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).
MULTI-CLASS PERFORMANCE
The Funds converted from a single-class to a multi-class structure. That
single class of outstanding shares was converted to Class T Shares, effective
December 31, 1998. Existing shareholders of a Fund as of December 31, 1998
became shareholders in Class T.
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. 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.
PERFORMANCE MEASURES
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.
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.
36
<PAGE>
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>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE/DEFENSE--0.49%
Boeing Company 28,000 $ 1,163,750
AUTO & TRUCK MANUFACTURERS--1.30%
DaimlerChrysler AG 8,541 668,333
Ford Motor Company 24,800 1,325,250
General Motors Corporation 14,700 1,068,506
------------
3,062,089
AUTO PARTS MANUFACTURERS--0.30%
Dana Corporation 23,300 697,544
BANKS--4.32%
Bank of America
Corporation 40,000 2,007,500
Comerica, Incorporated 40,000 1,867,500
Morgan (J.P.) & Company 15,000 1,899,375
PNC Bank Corporation 30,000 1,335,000
U.S. Bancorp 60,700 1,445,419
Wells Fargo Company 40,000 1,617,500
------------
10,172,294
BEVERAGES--1.85%
Anheuser-Busch Companies,
Incorporated 37,000 2,622,375
Coca-Cola Company 30,000 1,747,500
------------
4,369,875
CHEMICALS--1.48%
B.F.Goodrich Company 22,400 616,000
Hercules, Incorporated 30,600 852,975
Praxair, Incorporated 40,000 2,012,500
------------
3,481,475
COMMUNICATIONS EQUIPMENT--5.87%
Lucent Technologies,
Incorporated 92,962 6,954,720
Nortel Networks
Corporation 68,000 6,868,000
------------
13,822,720
COMPUTER RELATED--11.09%
Apple Computer,
Incorporated* 24,200 2,488,063
Cisco Systems,
Incorporated* 75,000 8,034,375
EMC Corporation* 45,000 4,916,250
Sun Microsystems,
Incorporated* 138,200 10,701,862
------------
26,140,550
COMPUTER SOFTWARE--16.10%
BMC Software,
Incorporated* 80,000 6,395,000
Microsoft Corporation* 98,000 11,441,500
Novell, Incorporated* 166,000 6,629,625
VERITAS Software
Corporation* 92,400 13,224,750
ZipLink, Incorporated* 20,000 250,000
------------
37,940,875
COSMETICS & TOILETRIES--2.05%
Procter & Gamble Company 44,200 4,842,663
</TABLE>
<TABLE>
DIVERSIFIED--0.49%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
Minnesota Mining and
Manufacturing Company 11,900 $ 1,164,712
DRUGS--1.14%
Merck & Company,
Incorporated 40,000 2,682,500
ELECTRICAL EQUIPMENT--5.08%
General Electric Company 63,000 9,749,250
Solectron Corporation* 23,300 2,216,413
------------
11,965,663
EXPLORATION & DRILLING--0.96%
Global Marine,
Incorporated* 32,000 532,000
Kerr-McGee Corporation 13,000 806,000
Tidewater, Incorporated 17,000 612,000
Union Pacific Resources
Group, Incorporated 25,408 323,952
------------
2,273,952
FINANCIAL SERVICES--2.02%
American General
Corporation 20,000 1,517,500
Countrywide Credit
Industries, Incorporated 44,000 1,111,000
Morgan Stanley, Dean
Witter, Discover and
Company 15,000 2,141,250
------------
4,769,750
FOOD PRODUCERS--3.50%
Bergen Brunswig
Corporation (Class A) 82,500 685,781
IBP, Incorporated 58,000 1,044,000
Interstate Bakeries
Corporation 66,000 1,196,250
McCormick & Company,
Incorporated 58,000 1,725,500
Smithfield Foods,
Incorporated* 65,000 1,560,000
Universal Foods
Corporation 100,000 2,037,500
------------
8,249,031
FOOD RETAILERS--1.35%
Albertson's, Incorporated 40,000 1,290,000
Safeway, Incorporated* 53,000 1,884,812
------------
3,174,812
FURNITURE/APPLIANCE/TOOLS--0.85%
Black & Decker Corporation 38,200 1,995,950
HOMEBUILDING/SUPPLIES--0.29%
Centex Corporation 27,700 683,844
INSURANCE COMPANIES--4.16%
CIGNA Corporation 33,000 2,658,563
Citigroup, Incorporated 119,250 6,625,828
Conseco, Incorporated 28,800 514,800
------------
9,799,191
</TABLE>
38
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND, CONTINUED
<TABLE>
LEISURE TIME--0.54%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
Brunswick Corporation 57,000 $ 1,268,250
MEDIA-TV/RADIO/CABLE--1.63%
MediaOne Group,
Incorporated* 50,000 3,840,625
MEDICAL PRODUCTS & SUPPLIES--1.57%
Beckman Coulter,
Incorporated 18,000 915,750
Johnson & Johnson 30,000 2,793,750
------------
3,709,500
MEDICAL SERVICES--0.54%
Aetna, Incorporated 23,000 1,283,687
MANUFACTURING-DIVERSIFIED--0.73%
Tyco International LTD 44,000 1,710,500
NATURAL GAS--1.73%
Enron Corporation 92,000 4,082,500
OIL DOMESTIC--1.42%
Unocal Corporation 100,000 3,356,250
OIL INTERNATIONAL--4.41%
BP Amoco p.l.c. ADR 60,000 3,558,750
Chevron Corporation 44,000 3,811,500
Royal Dutch Petroleum
Company ADR 50,000 3,021,875
------------
10,392,125
RETAIL DISCOUNT--1.76%
Wal-Mart Stores,
Incorporated 60,000 4,147,500
RETAIL GENERAL--1.07%
Federated Department
Stores, Incorporated* 37,000 1,870,812
J. C. Penney Company,
Incorporated 33,200 661,925
------------
2,532,737
RETAIL SPECIALTY--0.86%
Group 1 Automotive,
Incorporated* 70,000 975,625
Loew's Companies,
Incorporated 17,500 1,045,625
------------
2,021,250
SEMICONDUCTORS--2.34%
Intel Corporation 67,000 5,514,938
SPECIALTY PRINTING/SERVICES--0.56%
Banta Corporation 58,000 1,308,625
STEEL--1.16%
Allegheny Technologies,
Incorporated 26,500 594,594
LTV Corporation 180,000 742,500
USX-U. S. Steel Group 42,000 1,386,000
------------
2,723,094
</TABLE>
<TABLE>
TELECOM - LONG DISTANCE--3.06%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
A T & T Corporation 62,100 $ 3,151,575
MCI WorldCom Incorporated* 76,500 4,059,281
------------
7,210,856
TELEPHONE--3.22%
Alltel Corporation 47,000 3,886,312
U S West, Incorporated New 51,365 3,698,280
------------
7,584,592
TRUCKING & SHIPPING--0.63%
USFreightways Corporation 31,000 1,484,125
------------
TOTAL COMMON STOCK--91.92%
(Cost $115,520,018) 216,624,394
------------
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT
CHEMICALS--1.68%
<S> <C> <C>
Nalco Chemical Company,
6.70%, 01/04/00 $3,968,000 3,965,783
FINANCIAL SERVICES--1.97%
Countrywide Home Loans
Incorporated, 5.25%,
01/07/00 4,009,000 4,005,492
Penn Power & Light Energy
Trust, 6.80%, 01/18/00 627,000 624,980
------------
4,630,472
FOOD PRODUCERS--1.06%
ConAgra Incorporated,
6.62%, 01/05/00 2,505,000 2,503,152
OIL SERVICES--1.51%
UOP, 7.50%, 01/06/00 3,570,000 3,566,274
UTILITY-MISCELLANEOUS--1.84%
Hawaiian Electric
Industries Incorporated,
7.50%, 01/12/00 2,384,000 2,378,532
Illinios Power Company,
4.35%, 01/03/00 1,945,000 1,944,530
------------
4,323,062
------------
TOTAL COMMERCIAL PAPER--8.06%
(Cost $18,988,743) 18,988,743
------------
TOTAL INVESTMENTS--99.98%
(Cost $134,508,761) 235,613,137
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.02% 47,166
------------
NET ASSETS--100.00% $235,660,303
============
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
</TABLE>
See notes to financial statements.
39
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value $235,613,137
Cash 14,405
Prepaid Expenses 53,640
Receivable for:
Capital stock sold 12,429
Dividends 155,203
Expense reimbursement 3,974
Other assets 93,341
------------
TOTAL ASSETS 235,946,129
------------
LIABILITIES
Capital stock reacquired 146,342
Accrued:
Investment advisory fee 90,456
Service fee 41,936
Distribution fee 4,592
Other liabilities 2,500
------------
TOTAL LIABILITIES 285,826
------------
NET ASSETS (applicable to shares outstanding) $235,660,303
============
NET ASSETS:
Class A $ 3,775,728
- --------------------------------------------------------------------------
Class B $ 1,547,447
- --------------------------------------------------------------------------
Class C $ 133,707
- --------------------------------------------------------------------------
Class T $230,203,421
- --------------------------------------------------------------------------
TOTAL NET ASSETS $235,660,303
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
Outstanding 561,223
- --------------------------------------------------------------------------
Class B:
Authorized 200,000,000
Outstanding 232,236
- --------------------------------------------------------------------------
Class C:
Authorized 200,000,000
Outstanding 19,348
- --------------------------------------------------------------------------
Class T:
Authorized 100,000,000
Outstanding 34,014,863
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 6.73
Offering price per share: (Net Assets value of $6.73 /
95.00%) $ 7.08
- --------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 6.66
- --------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 6.91
Offering price per share: (Net Assets value of $6.91 /
99.00%) $ 6.98
- --------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 6.77
Offering price per share: (Net Assets value of $6.77 /
94.25%) $ 7.18
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
40
<PAGE>
STATEMENT OF OPERATIONS Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SM&R GROWTH FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 2,294,099
Interest 409,683
-----------
TOTAL INVESTMENT INCOME 2,703,782
EXPENSES
Investment advisory fees 1,005,753
Service fees 464,872
Professional fees 33,321
Custodian and transactions fees 80,519
Directors' fees 22,657
Qualification fees 46,347
Shareholder reporting expenses 100,839
Insurance expenses 39,257
Distribution fees 9,664
-----------
NET EXPENSES 1,803,229
-----------
INVESTMENT INCOME--NET 900,553
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 10,640,352
Change in unrealized appreciation of investments for the
year 35,737,960
-----------
NET GAIN ON INVESTMENTS 46,378,312
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $47,278,865
===========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 900,553 $ 1,282,676
Net realized gain on investments 10,640,352 8,728,659
Change in unrealized appreciation 35,737,960 21,620,022
------------ ------------
Net increase in net assets resulting from operations 47,278,865 31,631,357
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (4,775) --
Class B -- --
Class C -- --
Class T (860,216) (1,255,603)
Capital gains
Class A (138,389) --
Class B (57,657) --
Class C (4,941) --
Class T (8,774,058) (13,647,821)
------------ ------------
Total distributions to shareholders (9,840,036) (14,903,424)
CAPITAL SHARE TRANSACTIONS--NET
Class A 3,388,463 --
Class B 1,388,166 --
Class C 115,090 --
Class T (9,779,453) 8,037,187
------------ ------------
Total net capital share transactions (4,887,734) 8,037,187
------------ ------------
TOTAL INCREASE 32,551,095 24,765,120
NET ASSETS
Beginning of year 203,109,208 178,344,088
------------ ------------
End of year $235,660,303 $203,109,208
============ ============
</TABLE>
See notes to financial statements.
41
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
SM&R GROWTH FUND
<TABLE>
<CAPTION>
CLASS T SHARES
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 5.69 $ 5.24 $ 4.95 $ 4.39 $ 3.83
Investment income--net 0.03 0.04 0.06 0.05 0.08
Net realized and unrealized gain (loss) on
investments 1.35 0.85 1.03 0.73 0.88
-------- -------- -------- -------- --------
Total from Investment Operations 1.38 0.89 1.09 0.78 0.96
Less distributions from
Investment income--net (0.03) (0.04) (0.06) (0.05) (0.08)
Capital gains (0.27) (0.40) (0.74) (0.17) (0.32)
-------- -------- -------- -------- --------
Total Distributions (0.30) (0.44) (0.80) (0.22) (0.40)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 6.77 $ 5.69 $ 5.24 $ 4.95 $ 4.39
======== ======== ======== ======== ========
Total Return * 24.49 % 18.35 % 22.24 % 17.64 % 25.20 %
======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $230,203 $203,109 $178,344 $152,758 $134,821
Ratio of expenses to average net assets 0.87 % 0.85 % 0.96 % 1.15 % 0.98 %
Ratio of net investment income to average
net assets 0.44 % 0.69 % 1.03 % 1.02 % 1.67 %
Portfolio turnover rate 16.13 % 27.31 % 46.79 % 18.72 % 37.00 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $ 5.69 $ 5.69 $ 5.69
Investment income--net 0.01 0.00 0.00
Net realized and unrealized gain (loss) on investments 1.30 1.24 1.49
------ ------ ------
Total from Investment Operations 1.31 1.24 1.49
Less distributions from
Investment income--net -- -- --
Capital gains (0.27) (0.27) (0.27)
------ ------ ------
Total Distributions (0.27) (0.27) (0.27)
------ ------ ------
Net Asset Value, End of Year $ 6.73 $ 6.66 $ 6.91
====== ====== ======
Total Return * 23.45 % 22.04 % 26.44 %
====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $3,776 $1,547 $ 134
Ratio of expenses to average net assets 1.51 % 2.01 % 2.26 %
Ratio of net investment income to average net assets (0.19)% (0.69)% (0.94)%
Portfolio turnover rate 16.13 % 16.13 % 16.13 %
</TABLE>
* Does not include the effect of sales charge.
See notes to financial statements.
42
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE/DEFENSE--0.39%
Boeing Company 18,600 $ 773,063
AUTO & TRUCK MANUFACTURERS--3.75%
Ford Motor Company 100,381 5,364,110
General Motors Corporation 28,000 2,035,250
------------
7,399,360
AUTO PARTS MANUFACTURERS--0.35%
Dana Corporation 23,000 688,562
BANKS--6.67%
Bank of America
Corporation 60,000 3,011,250
Comerica, Incorporated 34,500 1,610,719
Morgan (J.P.) & Company 9,500 1,202,938
PNC Bank Corporation 33,400 1,486,300
U.S. Bancorp 121,400 2,890,837
Wells Fargo Company 73,500 2,972,156
------------
13,174,200
BEVERAGES--1.80%
Anheuser-Busch Companies,
Incorporated 50,000 3,543,750
CHEMICALS--2.60%
B.F. Goodrich Company 75,000 2,062,500
Hercules, Incorporated 32,600 908,725
Praxair, Incorporated 43,000 2,163,438
------------
5,134,663
DIVERSIFIED--0.39%
Minnesota Mining and
Manufacturing Company* 7,900 773,212
DRUGS--2.57%
Schering-Plough
Corporation 120,000 5,062,500
ELECTRIC POWER--1.83%
Constellation Energy Group 26,300 762,700
DTE Energy Company 65,000 2,039,375
UtiliCorp United,
Incorporated 42,000 816,375
------------
3,618,450
ELECTRONICS/INSTRUMENTS--0.67%
Raytheon Company
(Class B) 50,000 1,328,125
EXPLORATION & DRILLING--2.17%
Kerr-McGee Corporation 27,200 1,686,400
Tidewater, Incorporated 40,000 1,440,000
Transocean Sedco Forex
Incorporated* 11,616 391,314
Union Pacific Resources
Group, Incorporated 60,000 765,000
------------
4,282,714
FINANCIAL SERVICES--3.25%
Morgan Stanley, Dean
Witter, Discover and
Company 45,000 6,423,750
</TABLE>
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
FOODS PRODUCERS--3.68%
Bergen Brunswing
Corporation (Class A) 112,500 $ 935,156
ConAgra, Incorporated 40,000 902,500
Interstate Bakeries
Corporation 73,000 1,323,125
McCormick & Company,
Incorporated 70,000 2,082,500
Universal Foods
Corporation 99,600 2,029,350
------------
7,272,631
FOODS RETAILERS--0.90%
Albertson's, Incorporated 55,000 1,773,750
FURNITURE/APPLIANCES--3.04%
Black & Decker Corporation 40,000 2,090,000
Whirlpool Corporation 60,000 3,903,750
------------
5,993,750
INSURANCE--5.22%
CIGNA Corporation 36,600 2,948,588
Citigroup, Incorporated 122,250 6,792,516
Conseco, Incorporated 31,100 555,912
------------
10,297,016
LEISURE TIME--0.71%
Brunswick Corporation 63,200 1,406,200
MACHINERY & EQUIPMENT--2.20%
Deere & Company 100,000 4,337,500
MEDICAL PRODUCTS & SUPPLIES--2.39%
Abbott Laboratories 130,000 4,720,625
METALS & MINING--1.07%
Phelps Dodge Corporation 31,500 2,114,438
NATURAL GAS--2.20%
Enron Corporation 98,000 4,348,750
OIL INTERNATIONAL--9.44%
BP Amoco p.l.c. ADR 47,110 2,794,212
Chevron Corporation 30,000 2,598,750
Exxon Corporation 40,000 3,222,500
Royal Dutch Petroleum
Company ADR 66,700 4,031,181
Schlumberger Limited 60,000 3,375,000
Texaco, Incorporated 48,000 2,607,000
------------
18,628,643
PAPER/FOREST PRODUCTS--0.69%
Glatfelter (P.H.) Company 94,000 1,368,875
PHOTOGRAPHY/IMAGING--0.60%
Xerox Corporation 52,000 1,179,750
PRINTING & PUBLISHING--0.70%
Deluxe Corporation 50,000 1,371,875
</TABLE>
43
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND, CONTINUED
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
REAL ESTATE/REITS--3.15%
CenterPoint Properties
Corporation 63,000 $ 2,260,125
Crescent Real Estate
Equities Company 65,000 1,194,375
Hospitality Properties
Trust 50,000 953,125
Liberty Trust Properties 75,000 1,818,750
------------
6,226,375
RETAIL GENERAL--0.67%
J. C. Penney Company,
Incorporated 66,400 1,323,850
RETAIL SPECIALTY--0.39%
Loew's Companies,
Incorporated 13,000 776,750
SPECIALTY PRINTING/SERVICES--0.72%
Banta Corporation 63,000 1,421,437
STEEL--1.56%
Allegheny Technologies,
Incorporated 30,000 673,125
LTV Corporation 200,000 825,000
USX-U. S. Steel Group 48,000 1,584,000
------------
3,082,125
TELECOM - CELLULAR--2.15%
GTE Corporation 60,000 4,233,750
TELECOM - LONG DISTANCE--2.96%
A T & T Corporation 41,400 2,101,050
MCI WorldCom Incorporated* 70,650 3,748,866
------------
5,849,916
TELEPHONE UTILITY--3.96%
Alltel Corporation 51,000 4,217,062
US West, Incorporated New 50,000 3,600,000
------------
7,817,062
TOBACCO--1.17%
Nabisco Group Holdings
Corporation 41,248 438,260
R.J. Reynolds Tobacco
Holdings, Incorporated 13,749 242,326
UST, Incorporated 65,000 1,637,187
------------
2,317,773
TRANSPORT, TRUCKING & SHIPPING--0.83%
USFreightways Corporation 34,000 1,627,750
------------
TOTAL COMMON STOCK--76.84%
(Cost $112,125,558) 151,692,940
------------
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
BEVERAGES--3.12%
Whitman Corporation,
6.60%, 01/03/00 $1,173,000 $ 1,172,568
Whitman Corporation,
7.00%, 01/21/00 5,000,000 4,980,495
------------
6,153,063
COMMUNICATION EQUIPMENT--1.09%
Cox Enterprises
Incorporated, 6.70%,
01/20/00 2,161,000 2,153,333
CONSTRUCTION--1.38%
Centex Corporation, 6.70%,
1/14/00 2,723,000 2,716,391
CONTAINERS--0.79%
Crown Cork & Seal Company,
Incorporated, 6.47%,
01/05/00 1,571,000 1,569,865
FINANCIAL SERVICES--9.10%
Countrywide Home Loans
Incorporated, 5.35%,
01/12/00 4,796,000 4,788,159
Kerr-McGee Credit
Corporation, 6.25%,
01/13/00 1,071,000 1,068,723
PS Colorado Credit
Corporation, 7.40%,
01/07/00 4,748,000 4,742,139
Penn Power & Light Energy
Trust, 6.20%, 01/18/00 2,775,000 2,766,682
SAFECO Credit Company
Incorporated, 6.00%,
02/11/00 4,632,000 4,600,337
------------
17,966,040
FOOD RETAILERS--1.49%
Safeway, Incorporated,
7.22%, 01/04/00 2,935,000 2,933,231
FURNITURE/APPLIANCES--0.34%
Maytag Corporation, 6.37%,
01/11/00 676,000 674,799
OIL SERVICES--3.40%
UOP, 7.50%, 01/06/00 6,719,000 6,711,988
RETAIL-SPECIALTY--0.10%
Mattel, Incorporated,
6.80%, 01/18/00 200,000 199,356
TRUCKING & SHIPPING--1.34%
Ryder System Incorporated,
6.40%, 01/10/00 2,649,000 2,644,732
</TABLE>
44
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND, CONTINUED
<TABLE>
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
UTILITY - MISCELLANEOUS--0.93%
Equitable Resources
Incorporated, 6.00%,
02/17/00 $1,844,000 $ 1,829,548
------------
TOTAL COMMERCIAL PAPER--23.08%
(Cost $45,552,346) 45,552,346
------------
TOTAL INVESTMENTS--99.92%
(Cost $157,677,904) 197,245,286
CASH AND OTHER ASSETS, LESS
LIABILITIES--0.08% 163,450
------------
NET ASSETS--100.00% $197,408,736
============
ABBREVIATIONS
ADR--American Depository Receipt
REIT--Real Estate Investment Trust
*--Non-income producing securities
</TABLE>
See notes to financial statements.
45
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value $197,245,286
Cash 16,747
Prepaid Expenses 55,738
Receivable for:
Capital stock sold 2,079
Dividends 296,411
Expense reimbursement 4,578
Other assets 62,725
------------
TOTAL ASSETS 197,683,564
------------
LIABILITIES
Capital stock reacquired 107,904
Accrued:
Investment advisory fee 115,673
Service fee 37,939
Distribution fee 10,812
Other liabilities 2,500
------------
TOTAL LIABILITIES 274,828
------------
NET ASSETS (applicable to shares outstanding) $197,408,736
============
NET ASSETS:
Class A $ 4,802,233
- --------------------------------------------------------------------------
Class B $ 4,342,642
- --------------------------------------------------------------------------
Class C $ 275,457
- --------------------------------------------------------------------------
Class T $187,988,404
- --------------------------------------------------------------------------
TOTAL NET ASSETS $197,408,736
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
Outstanding 193,714
- --------------------------------------------------------------------------
Class B:
Authorized 200,000,000
Outstanding 178,102
- --------------------------------------------------------------------------
Class C:
Authorized 200,000,000
Outstanding 11,065
- --------------------------------------------------------------------------
Class T:
Authorized 50,000,000
Outstanding 7,429,380
- --------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 24.79
Offering price per share: (Net Assets value of $24.79 /
95.00%) $ 26.09
- --------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 24.38
- --------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 24.90
Offering price per share: (Net Assets value of $24.90 /
99.00%) $ 25.15
- --------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 25.30
Offering price per share: (Net Assets value of $25.30 /
94.25%) $ 26.84
- --------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
46
<PAGE>
STATEMENT OF OPERATIONS Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY INCOME FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 5,104,491
Interest 1,309,618
------------
TOTAL INVESTMENT INCOME 6,414,109
EXPENSES
Investment advisory fees 1,468,951
Service fees 479,149
Professional fees 24,223
Custodian and transactions fees 81,957
Directors' fees 22,657
Qualification fees 47,892
Shareholder reporting expenses 57,593
Insurance expenses 44,628
Distribution fees 24,635
------------
NET EXPENSES 2,251,685
------------
INVESTMENT INCOME--NET 4,162,424
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 14,349,426
Change in unrealized depreciation of investments for the
year (21,207,921)
------------
NET GAIN (LOSS) ON INVESTMENTS (6,858,495)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (2,696,071)
============
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998
-------------- ------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 4,162,424 $ 4,709,723
Net realized gain on investments 14,349,426 7,281,961
Change in unrealized appreciation (depreciation) (21,207,921) 11,740,055
------------ ------------
Net increase (decrease) in net assets resulting from
operations (2,696,071) 23,731,739
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (78,842) --
Class B (70,041) --
Class C (3,669) --
Class T (3,930,511) (4,712,876)
Capital gains
Class A (275,259) --
Class B (286,638) --
Class C (17,868) --
Class T (12,377,832) (10,909,343)
------------ ------------
Total distributions to shareholders (17,040,660) (15,622,219)
CAPITAL SHARE TRANSACTIONS--NET
Class A 5,364,444 --
Class B 4,939,043 --
Class C 313,991 --
Class T (12,451,982) 12,183,537
------------ ------------
Total net capital share transactions (1,834,504) 12,183,537
------------ ------------
TOTAL INCREASE (21,571,235) 20,293,057
NET ASSETS
Beginning of year 218,979,971 198,686,914
------------ ------------
End of year $197,408,736 $218,979,971
============ ============
</TABLE>
See notes to financial statements.
47
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
SM&R EQUITY INCOME FUND
<TABLE>
<CAPTION>
CLASS T SHARES
-----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 28.02 $ 26.99 $ 25.05 $ 22.59 $ 18.90
Investment income--net 0.54 0.62 0.63 0.58 0.62
Net realized and unrealized gain (loss) on
investments (0.96) 2.50 4.96 3.10 4.82
-------- -------- -------- -------- --------
Total from Investment Operations (0.42) 3.12 5.59 3.68 5.44
Less distributions from
Investment income--net (0.54) (0.62) (0.64) (0.58) (0.63)
Capital gains (1.76) (1.47) (3.01) (0.64) (1.12)
-------- -------- -------- -------- --------
Total Distributions (2.30) (2.09) (3.65) (1.22) (1.75)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 25.30 $ 28.02 $ 26.99 $ 25.05 $ 22.59
======== ======== ======== ======== ========
Total Return * (1.39)% 12.11 % 22.72 % 16.46 % 29.12 %
======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $187,988 $218,980 $198,687 $165,786 $141,058
Ratio of expenses to average net assets 1.05 % 1.01 % 1.05 % 1.10 % 1.12 %
Ratio of net investment income to average
net assets 1.94 % 2.22 % 2.28 % 2.42 % 2.89 %
Portfolio turnover rate 9.81 % 19.29 % 39.14 % 27.07 % 44.00 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $28.02 $28.02 $28.02
Investment income--net 0.58 0.47 0.38
Net realized and unrealized gain (loss) on investments (1.47) (1.88) (1.36)
------ ------ ------
Total from Investment Operations (0.89) (1.41) (0.98)
Less distributions from
Investment income--net (0.58) (0.47) (0.38)
Capital gains (1.76) (1.76) (1.76)
------ ------ ------
Total Distributions (2.34) (2.23) (2.14)
------ ------ ------
Net Asset Value, End of Year $24.79 $24.38 $24.90
====== ====== ======
Total Return * (3.01)% (4.86)% (3.32)%
====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $4,802 $4,343 $ 275
Ratio of expenses to average net assets 1.51 % 2.01 % 2.26 %
Ratio of net investment income to average net assets 1.53 % 1.03 % 0.78 %
Portfolio turnover rate 9.81 % 9.81 % 9.81 %
</TABLE>
* Does not include the effect of sales charge.
See notes to financial statements.
48
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
<TABLE>
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
AEROSPACE/DEFENSE--0.28%
Boeing Company 2,200 $ 91,437
AUTO & TRUCK MANUFACTURERS--1.19%
Ford Motor Company 3,300 176,344
General Motors Corporation 3,000 218,062
-----------
394,406
AUTO PARTS MANUFACTURERS--0.19%
Dana Corporation 2,100 62,869
BANKS--2.59%
Bank of America Corporation 5,000 250,937
Comerica, Incorporated 3,750 175,078
PNC Bank Corporation 3,200 142,400
U.S. Bancorp 5,300 126,206
Wells Fargo Company 4,000 161,750
-----------
856,371
BEVERAGES--0.64%
Anheuser-Busch Companies,
Incorporated 3,000 212,625
CHEMICALS--1.03%
B.F.Goodrich Company 3,136 86,240
Hercules, Incorporated 2,800 78,050
Praxair, Incorporated 3,500 176,094
-----------
340,384
COMMUNICATIONS EQUIPMENT--2.41%
Lucent Technologies,
Incorporated 6,600 493,762
Nortel Networks Corporation 3,000 303,000
-----------
796,762
COMPUTER RELATED--7.03%
Cisco Systems, Incorporated* 6,000 642,750
EMC Corporation* 6,600 721,050
Sun Microsystems,
Incorporated* 12,400 960,225
-----------
2,324,025
COMPUTER SOFTWARE--6.40%
Microsoft Corporation* 6,700 782,225
Novell, Incorporated* 7,200 287,550
VERITAS Software
Corporation* 7,300 1,044,813
-----------
2,114,588
COSMETICS & TOILETRIES--1.96%
Procter & Gamble Company 5,900 646,419
DIVERSIFIED--0.27%
Minnesota Mining and
Manufacturing Company 900 88,087
DRUGS--2.41%
Warner-Lambert Company 9,700 794,794
</TABLE>
<TABLE>
ELECTRICAL EQUIPMENT--3.48%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
General Electric Company 5,400 $ 835,650
Solectron Corporation* 3,300 313,913
-----------
1,149,563
ELECTRIC POWER--0.75%
Allegheny Energy,
Incorporated 2,100 56,569
DTE Energy Company 4,000 125,500
UtiliCorp United,
Incorporated 3,450 67,059
-----------
249,128
EXPLORATION & DRILLING--0.85%
Global Marine, Incorporated* 2,800 46,550
Kerr-McGee Corporation 1,200 74,400
Tidewater, Incorporated 1,500 54,000
Union Pacific Resources
Group, Incorporated 8,393 107,011
-----------
281,961
FINANCIAL SERVICES--1.56%
American General Corporation 1,800 136,575
Countrywide Credit
Industries, Incorporated 6,000 151,500
Morgan Stanley, Dean Witter,
Discover and Company 1,600 228,400
-----------
516,475
FOOD PRODUCERS--1.94%
Bergen Brunswig Corporation
(Class A) 11,500 95,594
IBP, Incorporated 5,500 99,000
Interstate Bakeries
Corporation 9,000 163,125
Smithfield Foods,
Incorporated* 5,000 120,000
Universal Foods Corporation 8,000 163,000
-----------
640,719
FOOD RETAILERS--1.09%
Albertson's, Incorporated 3,100 99,975
Safeway, Incorporated* 7,300 259,606
-----------
359,581
HOMEBUILDING/SUPPLIES--0.16%
Centex Corporation 2,200 54,312
INSURANCE COMPANIES--2.72%
CIGNA Corporation 3,000 241,688
Citigroup, Incorporated 10,500 583,406
Conseco, Incorporated 4,200 75,075
-----------
900,169
LEISURE TIME--0.34%
Brunswick Corporation 5,000 111,250
MEDIA-TV/RADIO/CABLE--1.21%
MediaOne Group,
Incorporated* 5,200 399,425
</TABLE>
49
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND, CONTINUED
<TABLE>
MEDICAL PRODUCTS & SUPPLIES--1.67%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
Beckman Coulter,
Incorporated 1,700 $ 86,488
Johnson & Johnson 5,000 465,625
-----------
552,113
MEDICAL SERVICES--0.36%
Aetna, Incorporated 2,100 117,206
MANUFACTURING-DIVERSIFIED--0.67%
Tyco International LTD 5,700 221,587
NATURAL GAS--1.07%
Enron Corporation 8,000 355,000
OIL INTERNATIONAL--3.51%
BP Amoco p.l.c. ADR 5,292 313,882
Chevron Corporation 4,400 381,150
Royal Dutch Petroleum
Company ADR 7,700 465,369
-----------
1,160,401
RETAIL GENERAL--0.63%
Federated Department Stores,
Incorporated* 3,000 151,688
J. C. Penney Company,
Incorporated 2,800 55,825
-----------
207,513
RETAIL SPECIALTY--0.27%
Loew's Companies,
Incorporated 1,500 89,625
SEMICONDUCTORS--1.40%
Intel Corporation 5,600 460,950
SPECIALTY PRINTING/SERVICES--0.51%
Banta Corporation 5,500 124,094
Toys 'R' Us, Incorporated* 3,000 42,937
-----------
167,031
STEEL--0.73%
Allegheny Technologies,
Incorporated 2,000 44,875
LTV Corporation 16,000 66,000
USX-U. S. Steel Group 4,000 132,000
-----------
242,875
TELECOM - CELLULAR--0.85%
GTE Corporation 4,000 282,250
TELECOM - LONG DISTANCE--1.80%
A T & T Corporation 4,800 243,600
MCI WorldCom Incorporated* 6,600 350,213
-----------
593,813
TELEPHONE--2.26%
Alltel Corporation 4,400 363,825
US West, Incorporated New 5,342 384,624
-----------
748,449
</TABLE>
<TABLE>
TRUCKING & SHIPPING--0.39%
<CAPTION>
COMMON STOCK SHARES VALUE
<S> <C> <C>
USFreightways Corporation 2,700 $ 129,262
-----------
TOTAL COMMON STOCK--56.62%
(Cost $10,614,193) 18,713,425
-----------
<CAPTION>
FACE
BONDS AND NOTES AMOUNT
<S> <C> <C>
AUTO & TRUCK MANUFACTURERS--1.49%
DaimlerChrysler North
America, 7.20%, 09/01/09 $ 500,000 490,903
BANKS--1.35%
Morgan (J.P.) & Company,
Incorporated, 6.00%,
01/15/09 500,000 447,087
GOVERNMENT AGENCIES--10.37%
Federal Home Loan Mortgage
Corporation, 7.00%,
09/15/07 1,000,000 991,970
Federal Home Loan Mortgage
Corporation, Pool #302886,
8.00%, 05/01/17 16,023 16,179
Federal Home Loan Mortgage
Corporation, Pool #298759,
8.00%, 08/01/17 98,493 99,454
Federal Home Loan Mortgage
Corporation, Pool #284839,
8.50%, 01/01/17 29,627 30,371
Federal National Mortgage
Association, 7.55%,
04/22/02 685,000 698,425
Federal National Mortgage
Association, 7.70%,
04/10/07 1,500,000 1,473,305
Federal National Mortgage
Association, Pool #041669,
8.00%, 02/01/17 17,334 17,543
Federal National Mortgage
Association, Pool #48974,
8.00%, 06/01/17 99,766 101,010
-----------
3,428,257
REAL ESTATE/REITS--1.42%
Weingarten Realty Investors,
7.35%, 07/20/09 500,000 469,293
U S TREASURY SECURITIES--9.48%
U S Treasury Bond, 6.000%,
02/15/26 2,350,000 2,149,517
U S Treasury Note, 5.875%,
02/15/04 1,000,000 983,438
-----------
3,132,955
-----------
TOTAL BONDS AND NOTES--24.11%
(Cost $7,896,541) 7,968,495
-----------
</TABLE>
50
<PAGE>
SCHEDULE OF INVESTMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND, CONTINUED
<TABLE>
AEROSPACE/DEFENSE--2.96%
<CAPTION>
FACE
COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C>
Litton Industries
Incorporated, 5.50%,
01/06/00 $ 980,000 $ 979,251
BEVERAGES--2.25%
Whitman Corporation, 6.60%,
01/03/00 745,000 744,726
CHEMICALS--2.55%
Nalco Chemical Company,
6.70%, 01/04/00 842,000 841,530
FINANCIAL SERVICES--7.96%
Countrywide Home Loans
Incorporated, 5.25%,
01/07/00 1,508,000 1,506,680
Penn Power & Light Energy
Trust, 6.80%, 01/18/00 1,128,000 1,124,366
-----------
2,631,046
FOOD PRODUCERS--2.49%
ConAgra, Incorporated,
6.62%, 01/05/00 822,000 821,393
-----------
TOTAL COMMERCIAL PAPER--18.21%
(Cost $6,017,946) 6,017,946
-----------
TOTAL INVESTMENTS--98.94%
(Cost $24,528,680) 32,699,866
CASH AND OTHER ASSETS, LESS
LIABILITIES--1.06% 349,733
-----------
NET ASSETS--100.00% $33,049,599
===========
ABBREVIATIONS
ADR--American Depository Receipt
REIT--Real Estate Investment Trust
*--Non-income producing securities
</TABLE>
See notes to financial statements.
51
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
<TABLE>
<S> <C>
ASSETS
Investments in securities, at value $32,699,866
Cash 953
Prepaid Expenses 25,699
Receivable for:
Capital stock sold 162,773
Investment securities sold 1,643
Dividends 13,981
Interest 156,291
Expense reimbursement 2,940
Other assets 19,092
---------------
TOTAL ASSETS 33,083,238
---------------
LIABILITIES
Capital stock reacquired 2,500
Accrued:
Investment advisory fee 20,455
Service fee 6,818
Distribution fee 2,866
Other liabilities 1,000
---------------
TOTAL LIABILITIES 33,639
---------------
NET ASSETS (applicable to shares outstanding) $33,049,599
===============
NET ASSETS:
Class A $ 1,776,531
- -----------------------------------------------------------------------------
Class B $ 1,118,515
- -----------------------------------------------------------------------------
Class C $ 8,488
- -----------------------------------------------------------------------------
Class T $30,146,065
- -----------------------------------------------------------------------------
TOTAL NET ASSETS $33,049,599
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 200,000,000
Outstanding 87,511
- -----------------------------------------------------------------------------
Class B:
Authorized 200,000,000
Outstanding 54,193
- -----------------------------------------------------------------------------
Class C:
Authorized 200,000,000
Outstanding 419
- -----------------------------------------------------------------------------
Class T:
Authorized 50,000,000.000
Outstanding 1,458,601
- -----------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 20.30
Offering price per share: (Net Assets value of $20.30 /
95.00%) $ 21.37
- -----------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 20.64
- -----------------------------------------------------------------------------
Class C:
Net asset value and redemption price per share $ 20.25
Offering price per share: (Net Assets value of $20.25 /
99.00%) $ 20.45
- -----------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 20.67
Offering price per share: (Net Assets value of $20.67 /
94.25%) $ 21.93
- -----------------------------------------------------------------------------
</TABLE>
See notes to financial statements.
52
<PAGE>
STATEMENT OF OPERATIONS Year Ended December 31, 1999
- --------------------------------------------------------------------------------
SM&R BALANCED FUND
<TABLE>
<S> <C>
INVESTMENT INCOME
Dividends $ 249,571
Interest 764,019
----------
TOTAL INVESTMENT INCOME 1,013,590
EXPENSES
Investment advisory fees 222,265
Service fees 74,100
Professional fees 12,100
Custodian and transactions fees 27,171
Directors' fees 22,661
Qualification fees 34,729
Shareholder reporting expenses 15,990
Insurance expenses 7,669
Distribution fees 6,054
----------
TOTAL EXPENSES 422,739
LESS EXPENSES REIMBURSED (45,768)
----------
NET EXPENSES 376,971
----------
INVESTMENT INCOME--NET 636,619
----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 1,497,455
Change in unrealized appreciation of investments for the
year 1,358,236
----------
NET GAIN ON INVESTMENTS 2,855,691
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $3,492,310
==========
</TABLE>
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1999 1998
-------------- -----------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 636,619 $ 682,321
Net realized gain on investments 1,497,455 482,000
Change in unrealized appreciation 1,358,236 2,417,733
----------- -----------
Net increase in net assets resulting from operations 3,492,310 3,582,054
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (33,803) --
Class B (17,701) --
Class C (82) --
Class T (597,705) (663,775)
Capital gains
Class A (65,054) --
Class B (39,133) --
Class C (200) --
Class T (1,121,320) (908,074)
----------- -----------
Total distributions to shareholders (1,874,998) (1,571,849)
CAPITAL SHARE TRANSACTIONS--NET
Class A 1,735,203 --
Class B 1,087,152 --
Class C 8,444 --
Class T (765,616) 1,518,827
----------- -----------
Total net capital share transactions 2,065,183 1,518,827
----------- -----------
TOTAL INCREASE 3,682,495 3,529,032
NET ASSETS
Beginning of year 29,367,104 25,838,072
----------- -----------
End of year $33,049,599 $29,367,104
=========== ===========
</TABLE>
See notes to financial statements.
53
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
SM&R BALANCED FUND
<TABLE>
<CAPTION>
CLASS T SHARES
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 19.63 $ 18.32 $ 17.90 $ 16.85 $ 14.32
Investment income--net 0.42 0.48 0.57 0.49 0.49
Net realized and unrealized gain (loss) on
investments 1.84 1.96 2.50 1.48 2.67
------- ------- ------- ------- -------
Total from Investment Operations 2.26 2.44 3.07 1.97 3.16
Less distributions from
Investment income--net (0.42) (0.47) (0.59) (0.49) (0.49)
Capital gains (0.80) (0.66) (2.06) (0.43) (0.14)
------- ------- ------- ------- -------
Total Distributions (1.22) (1.13) (2.65) (0.92) (0.63)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 20.67 $ 19.63 $ 18.32 $ 17.90 $ 16.85
======= ======= ======= ======= =======
Total Return * 11.87 % 13.83 % 17.46 % 11.86 % 22.29 %
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $30,146 $29,367 $25,838 $23,188 $21,757
Ratio of expenses with reimbursement to average
net assets 1.25 % 1.25 % 1.26 % 1.21 % 1.26 %
Ratio of expenses without reimbursement to
average net assets 1.41 % 1.37 % 1.36 % 1.34 % 1.46 %
Ratio of net investment income to average net
assets 2.15 % 2.55 % 3.02 % 2.83 % 2.99 %
Portfolio turnover rate 18.01 % 16.01 % 27.52 % 23.78 % 16.39 %
</TABLE>
<TABLE>
<CAPTION>
CLASS A SHARES CLASS B SHARES CLASS C SHARES
---------------- ---------------- ----------------
PERIOD FROM PERIOD FROM PERIOD FROM
JANUARY 1, 1999 JANUARY 1, 1999 JANUARY 1, 1999
TO TO TO
DECEMBER 31, DECEMBER 31, DECEMBER 31,
---------------- ---------------- ----------------
1999 1999 1999
---------------- ---------------- ----------------
<S> <C> <C> <C>
Net Asset Value, Beginning of Year $19.63 $19.63 $19.63
Investment income--net 0.47 0.40 0.41
Net realized and unrealized gain (loss) on investments 1.47 1.81 1.42
------ ------ ------
Total from Investment Operations 1.94 2.21 1.83
Less distributions from
Investment income--net (0.47) (0.40) (0.41)
Capital gains (0.80) (0.80) (0.80)
------ ------ ------
Total Distributions (1.27) (1.20) (1.21)
------ ------ ------
Net Asset Value, End of Year $20.30 $20.64 $20.25
====== ====== ======
Total Return * 10.13 % 11.52 % 9.58 %
====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $1,777 $1,119 $ 8
Ratio of expenses to average net assets 1.51 % 2.01 % 2.26 %
Ratio of net investment income to average net assets 1.87 % 1.36 % 1.13 %
Portfolio turnover rate 18.01 % 18.01 % 18.01 %
</TABLE>
* Does not include the effect of sales charge.
See notes to financial statements.
54
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1999
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The SM&R Equity Funds (the "Funds") are diversified open-end management
investment companies registered under the Investment Company Act of 1940, as
amended. The Funds are comprised of the SM&R Growth Fund, Inc., SM&R Equity
Income Fund, Inc. and SM&R Balanced Fund, Inc. Operations commenced January 31,
1969 for the SM&R Growth Fund, May 1, 1970 for the SM&R Equity Income Fund and
November 20, 1987 for the SM&R Balanced Fund for performance and tracking
information.
The Funds have adopted a Multiple Class Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Each had a single class of shares,
and are offering five new classes as of January 1, 1999. The existing shares are
the Class T shares, and the newly offered classes are: the Class A shares
subject to an initial sales charge of up to 5.00% and a distribution and
shareholder servicing plan ("12b-1 Plan"); the Class B shares subject to a
contingent deferred sales charge and a 12b-1 Plan; the Class C shares subject to
an initial sales charge of 1.00%, a contingent deferred sales charge, and a
12b-1 Plan; the Class J shares (Network class) subject to a 12b-1 Plan, only;
and the Class Y shares (Institutional class) subject to no charges. The Class J
and Y shares have not commenced operations.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
SECURITY VALUATION:
Investments in securities listed on national exchanges are valued at the last
sales price of the day, or if there were no sales, then at the last bid price.
Debt obligations that are issued or guaranteed by the U.S. Government, its
agencies, authorities, and instrumentalities are valued on the basis of prices
provided by an independent pricing service. Prices provided by the pricing
service represent valuations at bid prices or on a basis determined without
exclusive reliance on quoted prices and may reflect appropriate factors such as
institution-size trading in similar groups of securities, yield quality, coupon
rate, maturity, type of issue, individual trading characteristics and other
market data. Securities for which market quotations are not readily available
are valued as determined by the Board of Directors. Commercial paper is stated
at amortized cost, which is equivalent to value.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date (date order to buy
or sell is executed). Dividend income is recognized on the ex-dividend date, and
interest income is recognized on an accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost for
financial reporting and federal income tax purposes.
FEDERAL INCOME TAXES:
For federal income tax purposes, each fund is treated as a separate entity. The
Funds intend to comply with requirements of the Internal Revenue Code relating
to regulated investment companies and intend to distribute substantially all of
its taxable income to its shareholders. Therefore, no provision for federal
income taxes is recorded in the accompanying financial statements.
55
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering at net asset value plus a
sales charge. The Funds repurchase shares at net asset value. Dividends and
other distributions are recorded by the Funds on the ex-dividend date and may be
reinvested at net asset value.
EXPENSES:
Distribution, qualification fees or other fees directly attributable to the
funds' class of shares are charged to that funds class operations. All other
operating expenses not directly attributable to a Funds' operations are prorated
among the Funds based on the relative amount of each Funds' net assets or
shareholders, and then allocated among the classes of that fund.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY AND ADMINISTRATIVE SERVICE FEES:
Securities Management and Research, Inc. ("SM&R") is the investment advisor and
principal underwriter for the Funds. Investment advisory and service fees paid
to SM&R are computed as a percentage of the average daily net assets as follows:
<TABLE>
<CAPTION>
INVESTMENT SERVICE
NET ASSETS ADVISORY FEE FEE
<S> <C> <C>
Not exceeding $100,000,000 0.750% 0.250%
Exceeding $100,000,000 but not exceeding $200,000,000 0.625% 0.200%
Exceeding $200,000,000 but not exceeding $300,000,000 0.500% 0.150%
Exceeding $300,000,000 0.400% 0.100%
</TABLE>
The investment advisory agreement for the Growth Fund provides for incentive
fees that will increase or decrease the basic investment advisory fee, based on
the performance of the fund in relation to a specified industry index for the
funds with similar objectives over a rolling 36-month period. For the year ended
December 31, 1999, the investment advisory fee was decreased by approximately
$417,135.
SM&R has agreed to reimburse the Funds for regular operating expenses, other
than taxes, interest, and expenses directly related to the purchase and sale of
investment securities, in excess of 1.25% per annum of the average daily net
assets. Regular operating expenses include the advisory fee and administrative
service fee, but does not include the distribution and shareholder servicing
fee.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Funds have adopted a 12b-1 Plan, with respect to the Funds' Class A shares,
Class B shares and Class C shares (the "Class A Plan, the "Class B Plan" and the
"Class C Plan", respectively and collectively, the "Plans"). The Plans permit
each class a distribution fee to compensate SM&R, or enable SM&R to compensate
other persons, including Distributors, for distribution costs such as service
fees paid to dealers, printing and distribution of prospectuses to prospective
investors, sales literature and other sales and distribution related activities.
The Funds pay compensation for Class A shares at 0.25% per annum of the average
daily net assets, for Class B shares at 0.50% per annum of the average daily net
assets and for Class C shares at 0.75% per annum of the average daily net
assets.
The Class B and Class C Plans also permit a shareholder servicing fee of 0.25%
per annum of the average daily net assets to compensate SM&R, or enable SM&R to
compensate Service Providers, for providing ongoing servicing to
56
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
shareholders of the Funds. For the year ended December 31, 1999, the Growth
Fund, Equity Income Fund and Balanced Fund paid $5,072, $13,823 and $3,188,
respectively as compensation under the Plans.
SALES CHARGES:
During the year ended December 31, 1999, SM&R, as principal underwriter,
received as sales charges on sale of shares of capital stock of the Funds and
made reallowances to dealers as follows:
<TABLE>
<CAPTION>
SALES SALES
CHARGES CHARGES
RECEIVED BY SM&R REALLOWED TO DEALERS
<S> <C> <C>
Growth $287,994 $5,106
Equity Income $451,011 $6,203
Balanced $ 72,599 $ 382
</TABLE>
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of December 31, 1999, SM&R and American National had
the following ownership in the Funds:
<TABLE>
<CAPTION>
SM&R AMERICAN NATIONAL
---------------------------- -----------------------------
PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING
<S> <C> <C> <C> <C>
Growth 282,179 0.81% 1,320,628 3.79%
Equity Income 19,129 0.24% -- --
Balanced 128,985 8.06% 226,482 14.15%
</TABLE>
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENTS
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investments in securities, other than
commercial paper and short-term bonds and notes, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Growth $32,394,449 $59,754,114
Equity Income $18,691,604 $59,717,314
Balanced $ 4,824,462 $ 8,033,701
</TABLE>
Gross unrealized appreciation and depreciation as of December 31, 1999, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
<S> <C> <C>
Growth $111,453,311 $10,348,935
Equity Income $ 51,528,644 $11,961,262
Balanced $ 9,343,394 $ 1,172,208
</TABLE>
57
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 4--CAPITAL STOCK
SM&R GROWTH FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sale of capital shares:
Class T 2,035,769 $ 12,211,276 3,216,790 $ 17,622,633
Class A 588,609 3,552,451 -- --
Class B 231,719 1,382,526 -- --
Class C 26,871 160,112 -- --
Investment income dividends reinvested:
Class T 135,539 838,061 218,060 1,223,816
Class A 737 4,653 -- --
Class B -- -- -- --
Class C -- -- -- --
Distributions from net realized gains reinvested:
Class T 1,351,172 8,566,392 2,698,983 13,324,090
Class A 21,368 134,830 -- --
Class B 9,225 57,657 -- --
Class C 762 4,941 -- --
Redemptions of capital shares outstanding:
Class T (5,230,280) (31,395,182) (4,442,745) (24,133,352)
Class A (49,491) (303,471) -- --
Class B (8,708) (52,017) -- --
Class C (8,285) (49,963) -- --
---------- ------------ ---------- ------------
Net increase (decrease) in capital shares outstanding (894,993) $ (4,887,734) 1,691,088 $ 8,037,187
============ ============
Shares outstanding at beginning of year 35,722,663 34,031,575
---------- ----------
Shares outstanding at end of year 34,827,670 35,722,663
========== ==========
Net assets as of December 31, 1999, are comprised of the following:
Capital (par value and additional paid-in) $132,803,933
Undistributed net investment income 35,562
Accumulated net realized gain on investments 1,716,432
Net unrealized appreciation of investments 101,104,376
------------
Net Assets $235,660,303
============
</TABLE>
58
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R EQUITY INCOME FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Sales of capital shares:
Class T 397,021 $ 11,261,285 1,059,139 $ 29,994,912
Class A 191,346 5,356,418 -- --
Class B 171,923 4,819,232 -- --
Class C 10,458 300,119 -- --
Investment income dividends reinvested:
Class T 138,309 3,781,416 161,711 4,549,911
Class A 3,176 78,839 -- --
Class B 2,803 68,163 -- --
Class C 147 3,669 -- --
Distributions from net realized gains reinvested:
Class T 486,492 11,987,183 -- --
Class A 11,388 275,259 -- --
Class B 12,064 286,638 -- --
Class C 737 17,868 404,882 10,559,672
Redemptions of capital shares outstanding:
Class T (1,406,392) (39,481,866) (1,172,234) (32,920,958)
Class A (12,196) (346,072) -- --
Class B (8,688) (234,990) -- --
Class C (277) (7,665) -- --
---------- ------------ ---------- ------------
Net increase (decrease) in capital shares outstanding (1,689) $ (1,834,504) 453,498 $ 12,183,537
============ ============
Shares outstanding at beginning of year 7,813,950 7,360,452
---------- ----------
Shares outstanding at end of year 7,812,261 7,813,950
========== ==========
Net assets as of December 31, 1999, are comprised of the following:
Capital (par value and additional paid-in) $156,308,955
Undistributed net investment income 79,361
Accumulated net realized gain on investments 1,453,038
Net unrealized appreciation of investments 39,567,382
------------
Net Assets $197,408,736
============
</TABLE>
59
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R EQUITY FUNDS
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R BALANCED FUND
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Sales of capital shares:
Class T 82,302 $ 1,632,418 204,284 $ 3,794,519
Class A 85,863 1,702,510 -- --
Class B 51,561 1,034,545 -- --
Class C 406 8,177 -- --
Investment income dividends reinvested:
Class T 29,462 581,088 33,827 644,627
Class A 1,721 33,823 -- --
Class B 886 17,701 -- --
Class C 4 82 -- --
Distributions from net realized gains reinvested:
Class T 55,122 1,104,641 50,226 901,681
Class A 3,303 65,034
Class B 1,954 39,133
Class C 10 200
Redemptions of capital shares outstanding:
Class T (204,696) (4,083,763) (202,186) (3,822,000)
Class A (3,376) (66,164) -- --
Class B (208) (4,227) -- --
Class C (1) (15) -- --
--------- ----------- --------- -----------
Net increase in capital shares outstanding 104,313 $ 2,065,183 86,151 $ 1,518,827
=========== ===========
Shares outstanding at beginning of year 1,496,411 1,410,260
--------- ---------
Shares outstanding at end of year 1,600,724 1,496,411
========= =========
Net assets as of December 31, 1999, are comprised of the
following:
Capital (par value and additional paid in capital) $24,595,266
Accumulated net realized gain on investments 283,147
Net unrealized appreciation of investments 8,171,186
-----------
Net Assets $33,049,599
===========
</TABLE>
60
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
SM&R Equity Funds
We have audited the accompanying statements of assets and liabilities of SM&R
Equity Funds (comprised of SM&R Growth Fund, Inc., SM&R Equity Income Fund, Inc.
and SM&R Balanced Fund, Inc.), including the schedule of investments as of
December 31, 1999, the related statements of operations for the year then ended,
the statements of changes in net assets for each of the two years then ended,
and the financial highlights for each of the three years in the period then
ended. These financial statements and financial highlights are the
responsibility of the Funds' management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for each of the the two years in the period
ended December 31, 1996 were audited by other auditors whose report dated
February 7, 1997 issued an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards required that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1999, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of SM&R
Equity Funds as of December 31, 1999, the results of their operations for the
year then ended, the changes in their net assets for each of the two years then
ended, and the financial highlights for each of the three years in the period
then ended, in conformity with generally accepted accounting principles.
Tait, Weller & Baker
Philadelphia, Pennsylvania
January 28, 2000
61
<PAGE>
DISTRIBUTIONS
- --------------------------------------------------------------------------------
Distributions per share for the year ended December 31, 1999.
<TABLE>
<CAPTION>
RECORD INVESTMENT LONG-TERM SHORT-TERM
DATE INCOME CAPITAL GAIN CAPITAL GAIN
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
SM&R Growth Fund, Inc. Class T 6/23/99 $0.01300
12/14/99 $0.01280 $0.2666
SM&R Growth Fund, Inc. Class A 6/23/99 N/A
12/14/99 $0.00920 $0.2666
SM&R Growth Fund, Inc. Class B 6/23/99 N/A
12/14/99 N/A $0.2666
SM&R Growth Fund, Inc. Class C 6/23/99 N/A
12/14/99 N/A $0.2666
SM&R Equity Income Fund, Inc.
Class T 3/17/99 $0.11200
6/23/99 $0.01500
9/22/99 $0.14500
12/14/99 $0.12900 $1.7568
SM&R Equity Income Fund, Inc.
Class A 3/17/99 $0.02400
6/23/99 $0.07000
9/22/99 $0.08600
12/14/99 $0.04000 $1.7568
SM&R Equity Income Fund, Inc.
Class B 3/17/99 $0.01200
6/23/99 $0.04500
9/22/99 $0.06100
12/14/99 $0.03520 $1.7568
SM&R Equity Income Fund, Inc.
Class C 3/17/99 $0.00500
6/23/99 $0.04100
9/22/99 $0.04600
12/14/99 $0.29000 $1.7568
SM&R Balanced Fund, Inc. Class T 3/17/99 $0.10600
6/23/99 $0.11200
9/22/99 $0.10600
12/14/99 $0.09800 $0.5027 $0.3020
SM&R Balanced Fund, Inc. Class A 3/17/99 $0.02200
6/23/99 $0.04500
9/22/99 $0.07500
12/14/99 $0.32300 $0.5027 $0.3020
SM&R Balanced Fund, Inc. Class B 3/17/99 $0.01100
6/23/99 $0.03700
9/22/99 $0.06100
12/14/99 $0.29400 $0.5027 $0.3020
SM&R Balanced Fund, Inc. Class C 3/17/99 $0.04800
6/23/99 $0.05500
9/22/99 $0.04500
12/14/99 $0.26200 $0.5027 $0.3020
</TABLE>
62
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) 1.a. Registrant's Amended and Restated Articles of Incorporation are
incorporated herein by reference to Exhibit (a) to Post-Effective
Amendment No. 97 to this Form N-1A Registration Statement.
b. Registrant's Articles of Amendment dated December 7, 1998 are
incorporated herein by reference to Exhibit (a) to Post-Effective
Amendment No. 97 to this Form N-1A Registration Statement.
2. Registrant's Articles Supplementary are incorporated herein by
reference to Exhibit (a) to Post-Effective Amendment No. 97 to this
Form N-1A Registration Statement.
(b) Registrant's By-Laws are incorporated herein by reference to Exhibit 2 to
Post-Effective Amendment No. 91 to this Form N-1A Registration Statement.
(c) A specimen of Registrant's stock certificate is incorporated herein by
reference to Exhibit 4 to Post-Effective Amendment No. 91 to this Form N-1A
Registration Statement.
(d) Registrant's Investment Advisory Agreement is incorporated herein by
reference to Exhibit 5 to Post-Effective Amendment No. 91 to this Form N-1A
Registration Statement.
(e) Registrant's Underwriting Agreement is incorporated herein by reference
to Exhibit (e) to Post-Effective Amendment No. 97 to this Form N-1A
Registration Statement.
(f) Not Applicable.
(g) 1. Registrant's Custodian Agreement is incorporated herein by reference
to Exhibit 8a to Post-Effective Amendment No. 91 to this Form N-1A
Registration Statement.
2. Registrant's Sub-Custodian Agreement is incorporated herein by
reference to Exhibit 8b to Post-Effective Amendment No. 91 to this
Form N-1A Registration Statement.
(h) Not applicable.
(i) Consent and opinion of Registrant's counsel, Greer, Herz & Adams, L.L.P.,
is filed herewith.
(j) Consent of Tait, Weller & Baker, accountant of Registrant, is filed
herewith.
<PAGE>
(k) Not Applicable.
(l) Not Applicable.
(m) Registrant's Distribution and Shareholder Servicing Plan is incorporated
herein by reference to Exhibit (m) to Post-Effective Amendment No. 97 to
this Form N-1A Registration Statement.
(n) Financial Data Schedule is incorporated by reference as filed with Form
N-SAR-B on 2/22/00.
(o) Registrant's Multiple Class Plan is incorporated herein by reference to
Exhibit (o) to Post-Effective Amendment No. 97 to this Form N-1A
Registration Statement.
(p) List of persons controlled by or under common control with Registrant
is filed herewith.
(q) Power of Attorney is incorporated herein by reference to Exhibit 17 to
Post-Effective Amendment No. 91 to this Form N-1A Registration Statement.
ITEM 24. 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 (p).
ITEM 25. 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 2
to Post-Effective Amendment No. 91 to Form N-1A.
Registrant, together with SM&R Equity Income Fund, Inc. and SM&R
Balanced Fund, Inc. (collectively referred to as the "SM&R Equity Funds"),
has purchased a directors' and officers' liability policy. At a Joint Boards
of Directors' Meeting of Registrant and the other SM&R Equity Funds held on
May 19, 1999, 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 is located at 1600 M
Street, 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, $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 1999 for
all three funds in the SM&R Equity Funds is $70,098. Registrant's share
of such fee, based upon the proportion of its total assets to those of the
other SM&R Equity Funds, is $31,680.
C-2
<PAGE>
Additionally, Registrant is required to maintain a secured letter of
credit. However, due to the restrictions on the making of loans, Registrant and
Securities Management and Research, Inc. ("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 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
SM&R serves as investment adviser to Registrant and the other funds in the
SM&R Equity Funds, American National Investment Accounts, Inc. ("Investment
Accounts") and SM&R Investments, Inc. See "The Funds and Management" in Part A
and "ADVISORY AGREEMENT" and "MANAGEMENT OF THE COMPANY" in Part B. The address
of SM&R is 2450 South Shore Boulevard, Suite 400, League City, Texas 77573.
DIRECTORS AND OFFICERS OF SM&R
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.
MICHAEL W. MCCROSKEY
C-3
<PAGE>
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 SM&R Equity Funds; President and Director of
Investment Accounts; President and Director of SM&R Investments, Inc.;
Director, Comprehensive Investment Services, all located at 2450 South Shore
Boulevard, Suite 400, League City, Texas; 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, 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 FERDINANDTSEN
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, all
located at One Moody Plaza, Galveston, Texas; Director, Comprehensive
Investment Services, 2450 South Shore Boulevard, Suite 400, League City,
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 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.
C-4
<PAGE>
GORDON DIXON
DIRECTOR, SENIOR VICE PRESIDENT, CHIEF INVESTMENT OFFICER AND
MEMBER OF INVESTMENT AND EXECUTIVE COMMITTEES OF SM&R
Vice President and Co-Portfolio Manager of Registrant; Co-Portfolio Manager
of the SM&R Equity Income Fund, Inc. and the SM&R Balanced Fund, Inc.; Vice
President of Investment Accounts; Portfolio Manager of the Government Bond and
High Yield Bond Portfolios of the Investment Accounts; Co-Portfolio Manager of
the Growth, Equity Income, Balanced and International Stock Portfolios of
Investment Accounts; Director and President, Comprehensive Investment Services,
all located at 2450 South Shore Boulevard Suite 400, League City, Texas; Vice
President of Stocks for American National, 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.
DAVID A. BEHRENS
Director of SM&R, 2450 South Shore Boulevard, League City, Texas; Executive
Vice President, Independent Marketing, American National Insurance Company,
One Moody Plaza, Galveston, Texas; Allstate Financial Distributors, Inc.,
Lincoln, NE.
K. DAVID WHEELER
SENIOR VICE PRESIDENT, INSTITUTIONAL SALES AND PRIVATE CLIENT
SERVICES OF SM&R
2450 South Shore Boulevard, Suite 400, League City, Texas; Senior
Institutional Consultant, Bank South, Atlanta, Georgia.
EMERSON V. UNGER, C.L.U.
VICE PRESIDENT OF SM&R
Vice President of the funds in the SM&R Equity Funds, Investment Accounts
and SM&R Investments, Inc., all located at 2450 South Shore Boulevard,
Suite 400, League City, Texas.
BRENDA T. KOELEMAY
VICE PRESIDENT AND TREASURER OF SM&R
Vice President and Treasurer of the funds in the SM&R Equity Funds,
Investment Accounts and SM&R Investments, Inc.; Treasurer, Comprehensive
Investment Services, all located at 2450 South Shore Boulevard, Suite 400,
League City, Texas.
C-5
<PAGE>
TERESA E. AXELSON
VICE PRESIDENT AND SECRETARY OF SM&R
Vice President and Secretary of the funds in the SM&R Equity Funds,
Investment Accounts and SM&R Investments, Inc., all located at 2450 South
Shore Boulevard, Suite 400, League City, Texas.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) SM&R serves as the principal underwriter and investment adviser for
Registrant, the other SM&R Equity Funds, Investment Accounts, and SM&R
Investments, Inc. See "The Funds and Management" in Part A.
(b)
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
<S> <C> <C>
R. Eugene Lucas Director None
Moody National Bank Tower
Galveston, Texas
Michael W. McCroskey Director and President, President and
2450 South Shore Boulevard Chief Executive Officer Director
Suite 400
League City, Texas
G. Richard Ferdinandtsen Director None
One Moody Plaza
Galveston, Texas
Ronald J. Welch Director None
One Moody Plaza
Galveston, Texas
</TABLE>
C-6
<PAGE>
<TABLE>
<CAPTION>
POSITIONS AND POSITIONS AND
NAME AND PRINCIPAL OFFICES WITH OFFICES WITH
BUSINESS ADDRESS UNDERWRITER REGISTRANT
<S> <C> <C>
Gordon D. Dixon Director, Senior Vice Vice President
2450 South Shore Boulevard President, Chief Portfolio Manager
Suite 400 Investment Officer
League City, Texas
David A. Behrens Director None
One Moody Plaza
Galveston, Texas
K. David Wheeler Senior Vice President None
2450 South Shore Boulevard Institutional Sales
Suite 400 and Private Client
League City, Texas Services
Emerson V. Unger, C.L.U. Vice President Vice President
2450 South Shore Boulevard
Suite 400
League City, Texas
Brenda T. Koelemay Vice President and Vice President and
2450 South Shore Boulevard Treasurer Treasurer
Suite 400
League City, Texas
Teresa E. Axelson Vice President and Vice President and
2450 South Shore Boulevard Secretary Secretary
Suite 400
League City, Texas
</TABLE>
(c) Not Applicable.
ITEM 28. 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 2450 South Shore
Boulevard, Suite 400, League City, Texas 77573.
C-7
<PAGE>
ITEM 29. 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.
100 Registration Statement.
ITEM 30. UNDERTAKINGS.
TEXAS OPTIONAL RETIREMENT PROGRAM. Registrant and the other SM&R Equity
Funds 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 the SM&R Equity Funds 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-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, Registrant, SM&R GROWTH FUND, INC., certifies that it
meets all of the requirements for effectiveness of this POST-EFFECTIVE
AMENDMENT NO. 100 to the Registration Statement pursuant to Rule 485(b) under
the Securities Act of 1933 and has duly caused it to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of League City and
State of Texas, on the 27th day of April, 2000.
SM&R 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. 100 has been signed below by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
PRINCIPAL EXECUTIVE AND FINANCIAL OFFICER: PRINCIPAL ACCOUNTING OFFICER:
<S> <C>
/s/ Michael W. McCroskey /s/ Brenda T. Koelemay
- --------------------------------------- ---------------------------------------
Michael W. McCroskey, President Brenda T. Koelemay, Treasurer
Date: April 27, 2000 Date: April 27, 2000
---------------------------------- ----------------------------------
<CAPTION>
DIRECTORS
<S> <C>
/s/ Ralph S. Clifford /s/ Paul D. Cummings
--------------------------------------- ---------------------------------------
* Ralph S. Clifford by * Paul D. Cummings by
Michael W. McCroskey, Power of Attorney Michael W. McCroskey, Power of Attorney
Date: April 27, 2000 Date: April 27, 2000
---------------------------------- ----------------------------------
/s/ Jack T. Currie /s/ Ira W. Painton
--------------------------------------- ---------------------------------------
* Jack T. Currie by * Ira W. Painton by
Michael W. McCroskey, Power of Attorney Michael W. McCroskey, Power of Attorney
Date: April 27, 2000 Date: April 27, 2000
---------------------------------- ----------------------------------
/s/ Donald P. Stevens /s/ Steven H. Stubbs
--------------------------------------- ---------------------------------------
* Donald P Stevens by * Steven H. Stubbs by
Michael W. McCroskey, Power of Attorney Michael W. McCroskey, Power of Attorney
Date: April 27, 2000 Date: April 27, 2000
---------------------------------- ----------------------------------
/s/ Michael W. McCroskey
---------------------------------------
Michael W. McCroskey
Date: April 27, 2000
</TABLE>
* PURSUANT TO A POWER OF ATTORNEY EXECUTED BY THE BOARD OF DIRECTORS DATED
DECEMBER 16, 1994. ATTACHED AS EXHIBIT 99.B17 TO POST-EFFECTIVE AMENDMENT
NO. 91.
<PAGE>
EXHIBIT INDEX
Item 23.
Exhibit 99.B(i) Consent and Opinion of Registrant's Counsel, Greer,
Herz and Adams, L.L.P.
99.B(j) Consent of Tait, Weller and Baker, Independent
Accountant of Registrant.
99.B(p) List of persons controlled by or under Common
Control with Registrant.
<PAGE>
Exhibit (i)
April 27, 2000
SM&R Growth Fund, Inc.
2450 South Shore Boulevard, Suite 400
League City, Texas 77573
RE: SM&R Growth Fund, Inc. (the "Company") Post-Effective Amendment
No. 100 under the Securities Act of 1933 (the "33 Act") and
Post-Effective Amendment No. 30 to the Investment Company Act
of 1940 (the "40 Act")
Gentlemen:
We have assisted you in preparing the above referenced post-effective
amendments to your '33 Act and '40 Act Registration Statements referenced above.
In connection therewith, we have examined the Company's Articles of
Incorporation and such other corporate records, prospectuses and other material
we deemed appropriate. On the basis of such examination, we are of the opinion
that the Company's shares, when sold, will be legally issued, fully paid and
non-assessable. We, of course, assume that the Company will not sell more than
the 2,000,000,000 shares authorized by its Articles of Incorporation, and that
all sales will be for full value received at the time of sale.
We consent to the attachment of this opinion to and its use in connection
with the above referenced post-effective amendments.
Yours very truly,
/S/ JERRY L. ADAMS
Jerry L. Adams
<PAGE>
Exhibit (j)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our report dated January 28, 2000 on the financial
statements and financial highlights of SM&R Growth Fund, Inc. Such financial
statements and financial highlights appear in the 1999 Annual Report to
Shareholders which appears in the Statement of Additional Information filed in
the Post-Effective Amendment to the Registration Statement on Form N-1A of SM&R
Growth Fund, Inc. We also consent to the references to our Firm in the
Registration Statement and Prospectus.
TAIT, WELLER & BAKER
PHILADELPHIA, PENNSYLVANIA
APRIL 27, 2000
<PAGE>
EXHIBIT (p)
CONTROL LIST
The Registrant, SM&R Growth Fund, Inc., is advised and managed by
Securities Management and 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
44% 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: Alamo Quarry Market, Ltd.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANTAC, Inc. owns a 17.5% interest.
ENTITY: Alternative Benefit Management, Inc.
ENTITY FORM: a Nevada corporation
<PAGE>
OWNERSHIP OR OTHER BASIS OF CONTROL: ANTAC, Inc. owns all of the outstanding
common stock.
ENTITY: American Hampden Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns
a 98% interest.
ENTITY: American National de Mexico Compania de Seguras de Vida, S.A. de C.V.
ENTITY FORM: a Mexico insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: ANMEX International, Inc. owns 99.9%, and
ANMEX International Services, Inc. owns 0.10%.
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
2
<PAGE>
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 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, American National Insurance
Company and Securities Management and Research, Inc. own 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 Promotora de Ventas, S.A. de C.V.
ENTITY FORM: a Mexico marketing company
OWNERSHIP OR OTHER BASIS OF CONTROL: ANMEX International, Inc. owns 99.9%, and
ANMEX International Services, Inc. owns 0.10%.
ENTITY: American National Property and Casualty Company
ENTITY FORM: a Missouri insurance company
3
<PAGE>
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: AN/WRI Partnership, Ltd.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: Eagle AN, L.P. owns an 80% limited
partnership interest
ENTITY: ANDV 97, Inc.
ENTITY FORM: a Texas company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of ANTAC, Inc.
ENTITY: ANIND TX, Inc.
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of ANREM
Corporation
ENTITY: ANMEX International, Inc.
ENTITY FORM: a Nevada corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: ANMEX International Services, Inc.
ENTITY FORM: a Nevada corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: ANPAC General Agency of Texas
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.
4
<PAGE>
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: Beechwood Business Park Joint Venture.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANDV 97, Inc. owns a 50% limited
partnership interest.
ENTITY: Comprehensive Investment Services, Inc.
ENTITY FORM: a Nevada corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Eagle 99, Inc.
ENTITY FORM: a Nevada corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of ANTAC, Inc.
ENTITY: Eagle AN, L. P.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: Eagle 99, Inc. owns a 99% limited
partnership interest, and ANIND TX, Inc. owns a 1% general partnership interest.
5
<PAGE>
ENTITY: Eagle Ind., L. P.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest, and ANIND TX, Inc. owns a 1% general
partnership interest.
ENTITY: Fairway Plaza Associates, L.P.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANREM Corporation owns a 50% limited
partnership interest.
ENTITY: Galveston Health Network, Inc.
ENTITY FORM: a Texas corporation (inactive)
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
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: Hicks, Muse, Tate & Furst Equity Fund III, L.P.
ENTITY FORM: a Delaware limited partnership
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OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
limited partnership interest.
ENTITY: Hicks, Muse, Tate & Furst Equity Fund IV, L.P.
ENTITY FORM: a Delaware limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
limited partnership interest.
ENTITY: I-10 Westview Partnership
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANDV 97, Inc. owns a 50% interest.
ENTITY: IAH 97 Joint Venture
ENTITY FORM: a Texas general partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANDV 97, Inc. has a 50% interest.
ENTITY: Kearns Building Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National owns a 85% interest.
ENTITY: Lincolnshire Equity Fund, L.P.
ENTITY FORM: a Delaware limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
limited partnership interest.
ENTITY: Lincolnshire Equity Fund II, L.P.
ENTITY FORM: a Delaware limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
limited partnership interest.
ENTITY: Pacific Property and Casualty Company
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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: PCO Corporate Drive Limited Partnership
ENTITY FORM: a North Carolina limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: Eagle AN, L.P. owns a 1% 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.
ENTITY: Securities Management and Research, Inc.
ENTITY FORM: a Florida corporation - a registered broker-dealer and investment
adviser
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Servicios de Administracion American National, S.A. de C.V.
ENTITY FORM: a Mexico administrative services company
OWNERSHIP OR OTHER BASIS OF CONTROL: ANMEX International Services, Inc. owns
99.9%, ANMEX International, Inc. owns 0.10%
ENTITY: SM&R Balanced Fund, Inc.
ENTITY FORM: a Maryland corporation - a registered investment company
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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 stock of the Company.
ENTITY: SM&R Equity Income Fund, 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, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
ENTITY: SM&R Investments, 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, American National Insurance
Company and Securities Management and Research, Inc. own stock of the Company.
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: Starvest Partners, L.P.
ENTITY FORM: a Delaware limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
limited partnership interest.
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: Thomas Weisel Capital Partners, L.P.
ENTITY FORM: a limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
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: ANDV 97, Inc. owns a 99% limited
partnership interest.
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