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As filed with the Securities and Exchange Commission on April 29, 1999.
Registration No. 33-36423
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 |X|
[Check appropriate box or boxes.]
Post-Effective Amendment No. 11
AMERICAN NATIONAL INVESTMENT ACCOUNTS, 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
TERESA E. AXELSON JERRY L. ADAMS
2450 SOUTH SHORE BOULEVARD WITH COPY TO: GREER, HERZ & ADAMS, L.L.P.
SUITE 400 ONE MOODY PLAZA
LEAGUE CITY, TEXAS 77573 GALVESTON, TEXAS 77550
[Name and Address of Agent for Service]
FREDERICK R. BELLAMY
SUTHERLAND, ASBILL & BRENNAN, L.L.P.
1275 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004-2415
It is proposed that this filing will become effective (check appropriate box):
[ ] 75 days after filing pursuant to paragraph (a) Rule 485
[ ] on (date) pursuant to paragraph (a)(2) 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
[ ] immediately upon filing pursuant to paragraph (b) of Rule 485
[X] on May 1, 1999 pursuant to paragraph (b) 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.
1
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LOGO
P R O S P E C T U S
MAY 1, 1999
==============================================
American National Investment Accounts, Inc. is
comprised of the following portfolios:
. GROWTH PORTFOLIO
. MANAGED PORTFOLIO
. BALANCED PORTFOLIO
. MONEY MARKET PORTFOLIO
==============================================
The Securities and Exchange You cannot purchase shares of these
Commission has not approved or portfolios directly, but only through
disapproved these securities or variable annuity and variable life
passed upon the adequacy of this insurance contracts issued by American
prospectus. Any representation to National Insurance Company.
the contrary is a criminal offense.
An investment in the Fund is not a deposit of the bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Money Market Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible to lose money by
investing in the Money Market Portfolio.
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Table of Contents
==============================================================================
RISK/RETURN SUMMARY....................................................... 1
Growth Portfolio..................................................... 1
Managed Portfolio.................................................... 2
Balanced Portfolio................................................... 3
Money Market Portfolio............................................... 4
Types of Investment Risk............................................. 5
Bar Charts and Performance Tables.................................... 6
GENERAL................................................................... 9
INVESTMENT OBJECTIVES AND POLICIES........................................ 9
Growth Portfolio..................................................... 10
Managed Portfolio.................................................... 10
Balanced Portfolio................................................... 11
Money Market Portfolio............................................... 12
RISK FACTORS.............................................................. 14
PRICING OF PORTFOLIO SHARES............................................... 16
TAXES..................................................................... 16
THE PORTFOLIOS AND MANAGEMENT............................................. 17
FINANCIAL HIGHLIGHTS...................................................... 18
Growth Portfolio..................................................... 19
Managed Portfolio.................................................... 20
Balanced Portfolio................................................... 21
Money Market Portfolio............................................... 22
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Risk/Return Summary Growth Portfolio
================================================================================
Growth Portfolio's The Growth Portfolio seeks to achieve capital appreciation.
investment objective
Growth Portfolio's The Growth Portfolio normally invests at least 85% of its
principal total assets in common stocks. In selecting stocks, this
investment portfolio:
strategies . chooses the stocks of financially sound companies that
have a proven ability to make and sustain a profit over
time, and
. places an emphasis on companies with growth potential.
The Growth Portfolio 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."
The Growth Portfolio may also invest in debt obligations
(such as convertible preferred stocks, debentures, and
notes), including below investment grade bonds ("junk"
bonds).
Principal risks of You could lose money on your investment in the Growth
investing in the Portfolio, or it could underperform other investments, if
Growth Portfolio any of the following occurs:
. the stock market goes down (market risk)
. the investment decisions of management (such as sector
overweighting and underweighting and individual stock
selection) do not achieve the desired results
(investment style or management risk)
. interest rates increase (interest rate risk)
. issuers of debt obligations default or are unable to pay
amounts due (credit risk)
. the portfolio cannot find a buyer for securities
(liquidity risk)
Investments by the Growth Portfolio in smaller companies
may involve greater risks than larger established
companies.
Who may want to This portfolio may be appropriate if you:
invest in the . have long time horizons (ten years or more)
Growth Portfolio . are willing to accept higher short-term risk along with
higher potential long-term returns
. want to diversify your portfolio
. are investing for retirement or other goals that are
many years in the future
This portfolio may NOT be appropriate:
. if you are investing with a shorter time horizon
. if you are uncomfortable with an investment that will go
up and down in value
. as your complete portfolio
1
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Risk/Return Summary Managed Portfolio
================================================================================
Managed Portfolio's The Managed Portfolio seeks to achieve growth of capital
investment and/or current income.
objective
Managed The Managed Portfolio normally invests at least 75% of its
Portfolio's assets in equity securities. This portfolio may also invest
principal in preferred stocks and investment grade debt securities
investment (such as publicly traded corporate bonds, debentures,
strategies notes, commercial paper, repurchase agreements, and
certificates of deposit). In selecting common and preferred
stocks, the portfolio focuses on companies with consistent
and increasing dividend payment histories and future
earnings potential sufficient to continue such dividend
payments. This portfolio'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 Managed Portfolio 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
portfolio 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 risks of You could lose money on your investment in the Managed
investing in the Portfolio, or it could underperform other investments, if
Equity Income any of the following occurs:
Portfolio . the stock market goes down and/or interest rates increase
(market risk and/or interest rate risk)
. the investment decisions of management (such as sector
overweighting and underweighting and individual stock
selection) do not achieve the desired results (investment
style or management risk)
. issuers of debt obligations default or are unable to pay
amounts due (credit risk)
. the portfolio cannot find a buyer for securities
(liquidity risk)
Investments by the Managed Portfolio in smaller companies
may involve greater risks than larger established
companies.
Who may want to This portfolio may be appropriate if you:
invest in the . have long-term investment goals
Managed Portfolio . 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 portfolio may NOT be appropriate if you:
. are investing for maximum return
. require a high degree of stability of your principal
2
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Risk/Return Summary Balanced Portfolio
================================================================================
Balanced The Balanced Portfolio seeks to conserve principal, produce
Portfolio's reasonable current income, and achieve long-term capital
investment appreciation.
objectives
Balanced The Balanced Portfolio uses a "balanced" approach by
Portfolio's investing part of the assets in common stocks and the
principal remainder in a combination of U.S. Government bonds,
convertible investment-grade corporate bonds, collateralized mortgage
investment obligations, mortgage-backed securities, convertible
strategies bonds, and money market instruments. The ratio of stocks to
bonds changes in response to changing economic conditions.
This flexibility may help to reduce price volatility.
This portfolio invests in a balance of stocks, bonds, and
cash. The stocks 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 portfolio invests at least 25%
of assets in fixed income securities, all of which are
rated BBB or better (investment grade).
Principal risks of You could lose money on your investment in the Balanced
investing in the Portfolio, or it could underperform other investments, if
Balanced Portfolio any of the following occurs:
. interest rates increase or the stock market goes down
(interest rate risk or market risk)
. issuers of debt obligations default or are unable to pay
amounts due (credit risk)
. the investment decisions of management do not achieve the
desired results (investment style or management risk)
Investments by the Balanced Portfolio in smaller companies
may involve greater risks than larger established
companies.
Who may want to This portfolio may be appropriate if you:
invest in the . are seeking conservation of the purchasing power of your
Balanced Portfolio 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
. are retired or nearing retirement
This portfolio 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
3
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Risk/Return Summary Money Market Portfolio
================================================================================
Money Market The Money Market Portfolio seeks the highest current income
Portfolio's consistent with the preservation of capital and maintenance
investment of liquidity.
objective
Money Market The Money Market Portfolio seeks to achieve its objective
Portfolio's by investing in high-quality short-term money market
principal instruments, including: obligations of the U.S. Government
investment and its agencies, certificates of deposit, banker's
strategies acceptances, commercial paper, collateralized mortgage
obligations, and corporate bonds and notes. This portfolio
limits its investments to those short-term securities that
it determines present minimal credit risk and meet certain
rating requirements (in the two highest short-term rating
categories).
Principal risks of The Money Market Portfolio is subject to the following
investing in the risks:
Money Market . that interest rates may rise (thus causing a decline in
Portfolio the market value of debt securities) (interest rate risk
or market risk)
. that the portfolio's investments may be downgraded in
credit rating or go into default (credit risk)
However, the risks of investment in the Money Market
Portfolio may be expected to be less than for other mutual
funds. By limiting its investments as described above, this
portfolio may not achieve as high a level of current income
as a portfolio investing in lower-rated securities.
Although the Money Market Portfolio seeks to preserve the
value of your investment at $1.00 per share, it is possible
to lose money by investing in the Money Market Portfolio.
You should keep in mind that an investment in the Money
Market Portfolio is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other
government agency.
Who may want to This portfolio may be appropriate if you:
invest in the . require stability of principal
Money Market . are more concerned with safety of principal than with
Portfolio investment returns
This portfolio may NOT be appropriate if you:
. want federal deposit insurance
. are seeking an investment that is likely to outpace
inflation
. are investing for retirement or other goals that are
many years in the future
. are investing for growth or maximum current income
4
<PAGE>
Risk/Return Summary
================================================================================
Types of Investment Risk
As indicated above, each of the four portfolios 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 portfolios, but may have a greater impact on the Balanced and
Managed Portfolios.
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 portfolios, but may have a greater
impact on the Money Market and Balanced Portfolios.
LIQUIDITY RISK. The risk that certain securities or other investments may be
difficult or impossible to sell at the time the portfolio would like to sell
them or at the price the portfolio values them. The portfolio 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 portfolio management
or performance. This risk applies to all of the portfolios.
INVESTMENT STYLE OR MANAGEMENT RISK. The risk that a portfolio may fail to
produce its intended results because:
. management fails to properly implement the selected investment strategy;
or
. the securities that fit the portfolio's investment style do worse than
securities that fit other investment styles.
This risk is common to all mutual funds. This risk applies to all of the
portfolios.
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. This risk applies to all of
the portfolios. It will generally have a large impact on the Growth and Managed
Portfolios, some impact on the Balanced Portfolio, and less impact on the Money
Market Portfolio.
5
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Risk/Return Summary
================================================================================
Bar Charts and Performance Tables
The bar charts and performance tables shown below provide some indication of the
risks of investing in the portfolios and the variability of returns:
. by showing each portfolio's performance for each full calendar year since
its inception, and
. by showing how each portfolio's average annual returns for 1, 5, and
since inception years compare to those of both a broad-based securities
market index and an index of funds with similar investment objectives.
The returns shown are net of expenses, but do not reflect additional fees and
expenses that are deducted by the variable annuity or variable life insurance
product through which you invest. If the additional fees and expenses that are
deducted in connection with the variable annuity and variable life insurance
contracts were included, the performance shown would be lower. Keep in mind that
a portfolio's past performance is not necessarily an indication of how it will
perform in the future.
6
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Risk/Return Summary
================================================================================
Growth Portfolio
[EDGAR Representation of Data Points Used in Printed Graphic]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
(2.82)% 7.10% 6.91% 28.50% 17.98% 20.72% 18.62%
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[Insert Barchart AVERAGE ANNUAL TOTAL
Here] RETURNS (FOR THE PERIODS PAST ONE PAST 5 SINCE INCEPTION
ENDING DECEMBER 31, 1998) YEAR YEARS ON 02/20/90
-------------------------------------------------------------------------
GROWTH PORTFOLIO 18.62% 18.34% 13.43%
-------------------------------------------------------------------------
S&P 500(R) /1/ 28.61% 24.05% 19.50%
-------------------------------------------------------------------------
LIPPER GROWTH FUND INDEX /2/ 25.69% 19.82% 16.86%
-------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the Growth Portfolio's highest return
for a quarter was 17.05% (12/31/98) and its lowest return for a quarter was a
negative 8.90% (9/30/98)
MANAGED PORTFOLIO
[EDGAR Representation of Data Points Used in Printed Graphic]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
(0.03)% 10.97% 1.35% 27.19% 17.69% 22.41% 15.85%
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL
RETURNS (FOR THE PERIODS PAST ONE PAST 5 SINCE INCEPTION
[Insert Barchart ENDING DECEMBER 31, 1998) YEAR YEARS ON 02/20/90
Here] -------------------------------------------------------------------------
MANAGED PORTFOLIO 15.85% 16.56% 12.73%
-------------------------------------------------------------------------
S&P 500(R) /1/ 28.61% 24.05% 19.50%
-------------------------------------------------------------------------
LIPPER EQUITY INCOME
FUND INDEX /3/ 11.78% 16.62% 15.36%
-------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the Managed Portfolio's highest return
for a quarter was 15.79% (12/31/98) and its lowest return for a quarter was a
negative 8.18% (9/39/98)
________________________________________________________________________________
/1/ The S&P 500(R) 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(R) are registered trademarks of Standard & Poor's Corporation.
/2/ 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.
/3/ 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.
7
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RISK/RETURN SUMMARY
================================================================================
Balanced Portfolio
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
(0.02)% 4.58% 0.15% 22.80% 12.23% 18.80% 16.58%
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL
RETURNS (FOR THE PERIODS PAST ONE PAST 5 SINCE INCEPTION
ENDING DECEMBER 31, 1998) YEAR YEARS ON 02/20/90
[INSERT BAR CHART -------------------------------------------------------------------------
HERE] BALANCED PORTFOLIO 16.58% 13.84% 10.12%
-------------------------------------------------------------------------
LEHMAN BROTHERS
INTERMEDIATE
GOVERNMENT/
Corporate Index /1/ 8.44% 6.60% 6.99%
-------------------------------------------------------------------------
LIPPER BALANCED
FUND INDEX /2/ 15.09% 13.88% 12.66%
-------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the Balanced Portfolio's highest
return for a quarter was 10.69% (12/31/91) and its lowest return for a quarter
was a negative 5.36% (3/31/92)
MONEY MARKET PORTFOLIO
[EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC]
1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ----
2.21% 2.13% 3.31% 5.11% 4.61% 4.78% 4.65%
<TABLE>
<CAPTION>
-------------------------------------------------------------------------
<S> <C> <C> <C> <C>
[INSERT BAR CHART HERE] AVERAGE ANNUAL TOTAL
RETURNS (FOR THE PERIODS PAST ONE PAST 5 SINCE INCEPTION
ENDING DECEMBER 31, 1998) YEAR YEARS ON 02/20/90
-------------------------------------------------------------------------
MONEY MARKET PORTFOLIO 4.65% 4.50% 4.36%
-------------------------------------------------------------------------
LIPPER MONEY MARKET
FUND INDEX /3/ 5.10% 4.90% 4.38%
-------------------------------------------------------------------------
</TABLE>
During the period shown in the bar chart, the Money Market Portfolio's highest
return for a quarter was 1.28% (6/30/95) and its lowest return for a quarter was
0.44% (12/31/92). You can call 1-800-306-2959 to obtain the Money Market
Portfolio's current 7-day yield.
________________________________________________________________________________
/1/ The Lehman Brothers Intermediate Government/Corporate Index is an unmanaged
index generally representative of the performance of the bond market as a whole.
/2/ 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%.
/3/ The Lipper Money Market Fund Index is a widely recognized performance index
of high quality financial instruments rated in top two grades with dollar
weighted average maturities of less than 90 days that intend to keep constant
net asset value.
8
<PAGE>
GENERAL
================================================================================
American National Investment Accounts, Inc. ("we" or the "Company") consists of
four separate portfolios (each a "portfolio" and collectively, the
"portfolios"). Securities Management and Research, Inc. ("SM&R") manages each of
the portfolios.
These portfolios are used solely as investment options for variable annuity and
variable life insurance contracts offered by American National Insurance Company
("American National"). THIS MEANS THAT YOU CANNOT PURCHASE SHARES OF THESE
PORTFOLIOS DIRECTLY, BUT ONLY THROUGH AMERICAN NATIONAL VARIABLE ANNUITY AND
VARIABLE LIFE INSURANCE CONTRACTS. In the future, the portfolios may sell their
shares to other insurance companies or for other purposes, such as tax qualified
retirement plans.
These portfolios are entirely separate from other American National or SM&R
mutual funds, even when they have the same investment objectives and principal
investment strategies. The investment performance of these portfolios will
differ from the performance of other American National and SM&R mutual funds
because of differences in size, securities held, and administrative and
insurance costs associated with separate accounts in variable annuity and
variable life insurance contracts.
A NOTE AS AN INDIRECT INVESTOR IN THE PORTFOLIOS, YOU WILL INCUR VARIOUS
ABOUT OPERATING COSTS, INCLUDING MANAGEMENT, ADVISORY, AND
FEES AND ADMINISTRATIVE EXPENSES. YOU WILL ALSO INCUR FEES ASSOCIATED WITH
EXPENSES THE VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT THROUGH
WHICH YOU INVEST. ALTHOUGH THE PORTFOLIOS DO NOT IMPOSE A SALES
CHARGE UPON THE PURCHASE OR REDEMPTION OF THEIR SHARES, EACH
SEPARATE ACCOUNT TO WHICH THE PORTFOLIOS OFFER THEIR SHARES MAY
IMPOSE A SALES OR REDEMPTION CHARGE. DETAILED INFORMATION ABOUT
THE COST OF INVESTING IN EACH OF THESE PORTFOLIOS IS PRESENTED IN
THE "FEE TABLE" SECTION OF THE ACCOMPANYING PROSPECTUS FOR THE
VARIABLE ANNUITY OR VARIABLE LIFE INSURANCE CONTRACT THROUGH
WHICH PORTFOLIO SHARES ARE OFFERED.
INVESTMENT OBJECTIVES AND POLICIES
================================================================================
Each portfolio pursues its own investment objective through various investment
policies and techniques. ONLY THE PRINCIPAL INVESTMENT STRATEGIES OF EACH
PORTFOLIO AND THE PRINCIPAL TYPES OF SECURITIES EACH PORTFOLIO PLANS TO PURCHASE
ARE DESCRIBED BELOW. These policies and techniques are not fundamental and may
be changed by the Board of Directors without shareholder approval.
Because of the market risks inherent in any investment, the portfolios may not
achieve their investment objectives. In addition, effective
9
<PAGE>
management of each portfolio is subject to general economic conditions and to
the ability and investment techniques of management. The net asset value of each
portfolio's shares will vary and the redemption value of shares may be either
higher or lower than the shareholder's cost. Since each portfolio has a
different investment objective, each will have different investment results and
incur different market, financial, and other risks.
GROWTH PORTFOLIO
The Growth Portfolio considers its portfolio investments and the composition of
its total portfolio from the viewpoint of potential capital appreciation. The
Growth Portfolio adjusts this composition from time to time in light of current
conditions. Under normal conditions, the Growth Portfolio invests at least 85%
of its total assets in common stocks.
The Growth Portfolio invests in the stocks of financially sound companies that
have a proven ability to make and sustain a profit over time. We place an
emphasis on companies with growth potential. The Growth Portfolio 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 Portfolio limits cash to 15% of its assets unless circumstances dictate
otherwise.
Because of the Growth Portfolio's goal of seeking long-term capital growth,
certain sectors of the market will have greater weight in the Growth Portfolio's
portfolio while other sectors of the market will have lower representation. For
example, the Growth Portfolio 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 Portfolio 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
Portfolio'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 Portfolio 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. The Growth Portfolio may (but is not required to) take temporary
defensive positions inconsistent with the Portfolio's principal investment
strategies in response to adverse market, economic, political or other
conditions. For example, the Growth Portfolio may, on a temporary basis, 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. If the Portfolio takes such defensive measures, the Portfolio may
not achieve its investment objective.
MANAGED PORTFOLIO
The Managed Portfolio 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
Managed Portfolio's investment objectives under
10
<PAGE>
current conditions. In pursuit of its objectives, the Managed Portfolio 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 Managed Portfolio 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 portfolio unless circumstances dictate otherwise.
Certain sectors of the market will have greater weight in the Managed
Portfolio's portfolio while other sectors of the market will have lower
representation. For example, the Managed Portfolio 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 Managed Portfolio generally underrepresents certain sectors of
the market tending to have below average dividend yields, such as technology. As
a result of such strategic overweighting and underweighting, the Managed
Portfolio's performance may differ substantially from broad market indexes like
the S&P 500.
Corporate debt obligations purchased by the Managed Portfolio 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.
BALANCED PORTFOLIO
The Balanced Portfolio 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 Portfolio'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.
11
<PAGE>
The Balanced Portfolio 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 Portfolio may also invest
in repurchase agreements. This balanced investment policy is intended to reduce
risk and to obtain results in keeping with the Balanced Portfolio's objectives.
The Balanced Portfolio will invest in fixed-income securities and equity
securities as described above. However, the Balanced Portfolio 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 portfolio 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
Portfolio's shareholders assuming no change in its current investment objective
and portfolio. Diversifying the Balanced Portfolio'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
Portfolio 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.
MONEY MARKET PORTFOLIO
The Money Market Portfolio seeks to achieve its objective by investing in short-
term money market instruments determined to be of high quality by SM&R pursuant
to guidelines established by the Board of Directors. The Money Market Portfolio
may invest in the following types of high quality debt obligations:
(1) U.S. Government Obligations. U.S. Government Obligations consist of
marketable securities issued or guaranteed as to both principal and
interest by the U.S. Government, its agencies, or instrumentalities. U.S.
Government Obligations include U.S. Treasury Bonds, Notes and Bills and
securities issued by instrumentalities of the U.S. Government.
12
<PAGE>
(2) Certificates of Deposit. Certificates of deposit are negotiable
certificates issued against funds deposited in a commercial bank for a
definite period of time and earning a specified return. The Money Market
Portfolio will invest only in certificates of deposit of U.S. banks that
have total assets in excess of $1 billion at the time of investment.
(3) Banker's Acceptances. Banker's acceptances are short-term instruments
issued by banks, generally for the purpose of financing imports or exports.
An acceptance is a time draft drawn on a bank by the importer or exporter
to obtain a stated amount of funds to pay for specific merchandise. The
draft is then "accepted" and is an irrevocable obligation of the issuing
bank.
(4) 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.
(5) Bonds and Notes. The Money Market Portfolio may invest in corporate bonds
or notes with a remaining maturity of one year or less.
(6) Collateralized Mortgage Obligations. Collateralized mortgage obligations
or "CMOs" are debt obligations collateralized by a portfolio or pool of
mortgages, mortgage-backed securities, or U.S. Government securities.
The Money Market Portfolio does not currently intend to invest in unrated
securities, securities subject to demand features, floating rate instruments,
securities subject to guarantees, and variable rate instruments.
The Money Market Portfolio limits its investments to those short-term securities
that the Board determines present minimal credit risk and that are "Eligible
Securities" when acquired by the Portfolio. As used in this Prospectus,
"Eligible Securities" means securities that are:
(a) rated in one of the two highest short-term rating categories, or
(b) whose issuer has another class of debt obligations rated in one of the two
highest short-term rating categories.
To rely on a rating assigned to other debt obligations, those obligations must
be of comparable priority and security. All ratings must have been issued by
the requisite NRSROs. Currently, five organizations are NRSROs: Moody's, S&P,
Fitch Investors Service, Inc., Duff and Phelps, Inc., and Thomson BankWatch,
Inc. A discussion of the ratings categories of S&P and Moody's is contained in
the Appendix.
The Money Market Portfolio generally limits its investments in securities, as
follows:
. It will not invest in securities issued by any one issuer, other than the
U.S. Government, its agencies, or instrumentalities, in an amount that
exceeds 5% of its total assets.
. It will not invest more than 5% of its total assets in securities relying
on ratings in the second highest rating category.
. It will not invest more than 1% of its total assets in securities of any
one issuer that rely on ratings in the second highest rating category.
(See "Investment Objectives and Policies" in the Statement of Additional
Information for a more detailed explanation of the investment categories.) The
Portfolio will maintain a dollar-weighted average portfolio maturity of 90 days
or less, and will not invest in any security with a remaining maturity of over
397 days (13 months). Investments in money market instruments are subject to
the ability of the issuer to make payment at maturity. In addition, the Money
Market Portfolio's performance will vary depending on changes in short-term
interest rates. However, both the financial and market risks of investment in
the Money Market Portfolio may be expected to be less than for any other
portfolio. By limiting its investments to Eligible Securities, the Money Market
Portfolio may not achieve as high a level of current income as a fund investing
in lower-rated securities.
13
<PAGE>
RISK FACTORS
The following discussion relates to all four portfolios. The risk/return summary
located at the beginning of this prospectus identifies some specific risks
applicable to each individual portfolio.
GENERAL. There is no assurance that a portfolio will achieve its goals.
Generally, if the securities owned by a portfolio increase in value, the value
of the shares of the portfolio which you own will increase. Similarly, if the
securities owned by a portfolio 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 portfolio.
The risk inherent in investing in any portfolio is a risk common to any
security. That is, the value of a portfolio'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 portfolio. Each portfolio'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 portfolios could lose money if the stock markets in general go down
or if the particular stocks purchased by a portfolio go down in value. In
addition, the portfolios could lose money if prevailing interest rates increase
or if the debt securities purchased by a portfolio are downgraded or defaulted
upon.
MARKET RISKS. Because several of the portfolios invest a substantial portion of
their assets in stocks, changes in the stock markets will affect their value.
Moreover, because certain portfolios may invest in debt obligations which are
traded on securities exchanges, the value of such portfolios will also be
affected by changes in the stock markets.
At times, the stock markets can be volatile and stock and debt prices can change
substantially. This market risk will affect each portfolio's net asset value per
share, which will fluctuate as the values of each portfolio's securities change.
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 the price of that company's stock
or debt obligations (for example, poor earnings, loss of major customers, or
major litigation). The portfolios cannot always predict the factors that will
affect a security's price. The portfolios, however, do attempt to limit market
risk by diversifying their investments. The portfolios diversify their
investments by generally investing only a small percentage of their assets in
the debt obligations of any one company and by not holding a substantial amount
of the debt obligations of any one company.
For the Growth Portfolio and the Managed Portfolio, 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 portfolio expects (i.e., do not grow in value or
produce dividend income as expected), that portfolio could underperform its
peers or lose money.
The Growth Portfolio is generally considered more aggressive than the Managed
and Balanced Portfolios 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 Portfolio should expect greater
fluctuations in share price, yield, and total return than with less aggressive
portfolios.
DEBT SECURITIES RISKS. Debt securities are subject to changes in their values
due to changes in prevailing interest rates. The magnitude of these fluctuations
will often be greater for longer-term debt securities than shorter-term debt
securities. 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. If interest rates were to drop dramatically, some of the
securities could be called and/or prepaid, requiring reinvesting in securities
at much lower yields.
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. In such circumstances, the value of existing bonds
decrease because the interest payments from existing bonds are less attractive
than new issues with higher interest
14
<PAGE>
rates and investors would lose money if they liquidate holdings.
The portfolios could lose money if any bonds they own are downgraded in credit
rating or go into default. A moratorium, default, or other non-payment of
interest or principal when due could, in addition to affecting the market value
and liquidity of the particular security, affect the market value and liquidity
of other securities. A change in credit rating of an issuer can also affect the
bond's value, thus affecting the market value of the funds.
The portfolios invest predominately in investment grade bonds in order to
minimize credit risk. In general, lower-rated bonds, such as junk bonds, have
higher credit risks. The Growth Portfolio is the only portfolio permitted to
invest in junk bonds. (See "Investment Objectives and Policies" for more
information about the ratings required for investments by each specific
portfolio.) Junk bonds have additional risks, including limitations on a
portfolio's ability to resell 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 portfolio shares could require a portfolio to sell
portfolio securities at a time when a sale might not be favorable.
U.S. GOVERNMENT OBLIGATIONS. Investments in U.S. Government Obligations are not
all backed by the "full faith and credit" of the United States Government. Some
are backed only by the rights of the issuer to borrow from the U.S. Treasury and
others are supported only by the credit of the issuing instrumentality. 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.
SMALLER COMPANY RISKS. Smaller companies in which the Growth, Managed, and
Balanced Portfolios 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.
INVESTMENT STYLE RISK. Each portfolio faces the risk that the returns on the
securities in which it invests may trail the returns from other assets classes
or the market as a whole. In other words, securities that fit a portfolio's
investment style may do worse than other styles. For example, returns from
"growth" stocks may trail other types of stocks, such as "value" stocks.
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 portfolios' management.
YEAR 2000 RISKS. Many services provided to the portfolios and their shareholders
depend on the smooth functioning of computer systems. Many computer software
systems in use today cannot distinguish the year 2000 from the year 1900 because
of the way dates are encoded and calculated, referred to as the "Year 2000
Problem." The Year 2000 Problem could have a negative impact on handling
securities trades, payment of interest and dividends, pricing, and account
services. Like other mutual portfolios, financial and business organizations,
and individuals around the world, the portfolios could be adversely affected if
the computer systems used by SM&R (which acts as their investment adviser,
underwriter, custodian, and transfer agent) do not properly process and
calculate date-related information and data from and after January 1, 2000. SM&R
is taking steps to address the Year 2000 Problem with respect to the computer
systems that it uses and to obtain assurances that comparable steps are being
taken by any other service providers. At this time, however, there can be no
assurance that these steps will be sufficient to avoid any adverse impact on the
portfolios and their shareholders.
15
<PAGE>
Pricing of Portfolio Shares
================================================================================
General (How Shares are Priced). We determine each portfolio's offering price
once each business day. The offering price equals a portfolio's net asset value.
Each portfolio (other than the Money Market Portfolio) prices investments at
their market value when market quotations are readily available. When these
quotations are not readily available, portfolios price investments at their fair
value, calculated in accordance with procedures adopted by the Company's Board
of Directors.
The Money Market Portfolio values all of its securities using the amortized cost
method, which does not take into account unrealized capital gains or losses. The
other portfolios may use the amortized cost method only for valuing debt
securities having maturities of 60 days or less.
EFFECTIVE DATE OF PURCHASES AND REDEMPTIONS (WHEN SHARES ARE PRICED).
Calculation of net asset value is made once each business day at the close of
the New York Stock Exchange (currently 3:00 p.m. Central Time). We generally
base purchase and redemption orders for each portfolio on the portfolio's net
asset value next computed after you submit a request in good order to American
National, but only if American National sends us the required information on a
timely basis. In unusual circumstances, any portfolio may temporarily suspend
the processing of sell requests, or may postpone payment of proceeds for up to
three business days or longer, as allowed by federal securities laws.
Please refer to your variable annuity or variable life insurance product
prospectus for information on how to purchase or invest, and on how you can
withdraw money and obtain other benefits from your contract. Those prospectuses
describe certain limits and restrictions and all applicable fees and charges,
including sales charges and withdrawal (surrender) charges.
TAXES
================================================================================
The tax consequences of your investment depend upon the provisions of the
variable annuity or variable life insurance contract through which you invest.
For more information on taxes, please refer to the accompanying prospectus of
the insurance company separate account that offers your variable annuity or
variable life insurance contract.
16
<PAGE>
The Portfolios and Management
================================================================================
The Company's Board of Directors has delegated to Securities Management and
Research, Inc. ("SM&R"), the portfolio's investment adviser, the management of
the portfolios' day-to-day business and affairs. In addition, SM&R invests the
portfolios' assets, provides administrative services, and serves as transfer
agent, custodian, dividend paying agent, and underwriter. SM&R's address is
2450 South Shore Boulevard, Suite 400, League City, Texas 77573.
SM&R is a wholly-owned subsidiary of American National. SM&R was incorporated
in 1964 and has managed mutual portfolios since 1966. SM&R does and may, from
time to time, serve as investment adviser to other clients including banks,
employee benefit plans, other investment companies, banks, foundations and
endowment portfolios.
ADVISORY AGREEMENT
Under the Advisory Agreement with the Company, SM&R is paid an investment
advisory fee, which is calculated separately for each portfolio, as compensation
for its services. We deduct an investment advisory fee from the value of the
shares each month. We calculate the investment advisory fee at the annual rate
of 0.50% of each portfolio's average daily net asset value.
ADMINISTRATIVE SERVICES
Pursuant to an Administrative Service Agreement with the Company, SM&R provides
all non-investment related management, executive, administrative, transfer
agent, and operational services to the portfolios. Under this agreement, SM&R
receives an administrative service fee from each portfolio at the annual rate of
0.25% of the average daily net asset value of the portfolios computed each
month.
In this agreement, SM&R has agreed to pay (or to reimburse each portfolio for)
each portfolio's regular operating expenses in excess of 1.50% per year of the
Company'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 interest, taxes, commissions, and other expenses incidental to portfolio
transactions.
VOLUNTARY REIMBURSEMENT AND WAIVERS
In order to improve the yield and total return, SM&R may from time to time
voluntarily waive or reduce all or any portion of any portfolio's advisory fee,
administrative fee, and/or expenses. Currently, SM&R has agreed to reimburse:
. the Growth Portfolio for total operating expenses in excess of 0.87% of
average daily net assets;
. the Money Market Portfolio for total operating expenses in excess of 0.87%
of average daily net assets;
. the Balanced Portfolio for total operating expenses in excess of 0.90% of
average daily net assets; and
. the Managed Portfolio for total operating expenses in excess of 0.93% of
average daily net assets.
SM&R may rescind fee waivers and/or reductions, other than those stated in the
Administrative Service Agreement, at any time without notice to investors.
After applicable fee waivers, SM&R received the following compensation from the
portfolios (as a percentage of average daily net assets) for the year ended
December 31, 1998:
ADVISORY ADMINISTRATIVE
PORTFOLIO FEE FEE
- -------------------------------------------------
Growth Portfolio 0.36% 0.25%
- -------------------------------------------------
Managed Portfolio 0.44% 0.25%
- -------------------------------------------------
Balanced Portfolio 0.16% 0.25%
- -------------------------------------------------
Money Market
Portfolio -- 0.25%
- -------------------------------------------------
17
<PAGE>
PORTFOLIO MANAGEMENT
SM&R's portfolio management team uses a disciplined, team approach in providing
investment advisory services to the portfolios. While the following individuals
are primarily responsible for the day-to-day portfolio management of the
portfolios, 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, MANAGED, AND BALANCED PORTFOLIOS. Mr. Dixon joined SM&R 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.
FINANCIAL HIGHLIGHTS
================================================================================
The condensed financial information on the following pages reflects all of the
fees and expenses imposed by each portfolio. However, this data does not
reflect the fees and charges deducted by American National under your variable
annuity or variable life insurance contract.
18
<PAGE>
Financial Highlights Growth Portfolio
================================================================================
The following financial highlights table is intended to help you understand the
Growth Portfolio'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 Portfolio
(assuming reinvestment of all dividends and distributions). This information has
been audited by Tait, Weller & Baker for the years ended December 31, 1998 and
1997. Their report, along with the Growth Portfolio's financial statements, are
included in 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 Portfolio's former independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.60 $ 1.45 $ 1.27 $ 1.04 $ 1.08
Income From Investment Operations
Net Investment Income 0.02 0.03 0.02 0.02 0.02
Net Realized and Unrealized Gain (Loss) on Securities 0.27 0.27 0.21 0.27 0.05
------- ------- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.29 0.30 0.23 0.29 0.07
Less Distributions
Dividends from Net Investment Income (0.02) (0.03) (0.02) (0.02) (0.02)
Distributions from Capital Gains (0.06) (0.12) (0.03) (0.04) (0.09)
------- ------- ------ ------ ------
TOTAL DISTRIBUTIONS (0.08) (0.15) (0.05) (0.06) (0.11)
------- ------- ------ ------ ------
Net Asset Value, End of Year $ 1.81 $ 1.60 $ 1.45 $ 1.27 $ 1.04
TOTAL RETURN 18.62% 20.72% 17.98% 28.50% 6.91%
======= ======= ====== ====== ======
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $15,702 $11,127 $7,278 $4,781 $3,037
Ratio of Expenses to Average Net Assets
with reimbursements 0.87% 0.87% 0.87% 0.87% 0.90%
Ratio of Expenses to Average Net Assets
without reimbursements 1.01% 1.09% 1.25% 1.32% 1.13%
Ratio of Net Income to Average Net Assets 1.00% 1.69% 1.84% 1.99% 2.04%
Portfolio Turnover Rate 25.75% 45.37% 21.24% 42.06% 46.18%
</TABLE>
19
<PAGE>
Financial Highlights Managed Portfolio
================================================================================
The following financial highlights table is intended to help you understand the
Managed Portfolio's financial performance for the past five years. Certain
information reflects financial results for a single Managed Portfolio 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 Managed Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker for
the years ended December 31, 1998 and 1997. Their report, along with the Managed
Portfolio's financial statements, are included in 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 Managed Portfolio's former
independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.56 $ 1.37 $ 1.21 $ 1.00 $ 1.11
Income From Investment Operations
Net Investment Income 0.02 0.03 0.03 0.03 0.02
Net Realized and Unrealized Gain (Loss) on Securities 0.22 0.28 0.19 0.24 ----
------- ------- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.24 0.31 0.22 0.27 0.02
Less Distributions
Dividends from Net Investment Income (0.02) (0.03) (0.03) (0.03) (0.03)
Distributions from Capital Gains (0.03) (0.09) (0.03) (0.03) (0.10)
------- ------- ------ ------ ------
TOTAL DISTRIBUTIONS (0.05) (0.12) (0.06) (0.06) (0.13)
------- ------- ------ ------ ------
Net Asset Value, End of Year $ 1.75 $ 1.56 $ 1.37 $ 1.21 $ 1.00
======= ======= ====== ====== ======
TOTAL RETURN 15.85% 22.41% 17.69% 27.19% 1.35%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $15,051 $ 9,783 $6,273 $4,028 $2,795
Ratio of Expenses to Average Net Assets
with reimbursements 0.93% 0.93% 0.93% 0.93% 0.98%
Ratio of Expenses to Average Net Assets
without reimbursements 0.99% 1.10% 1.14% 1.26% 1.23%
Ratio of Net Income to Average Net Assets 1.44% 1.91% 2.29% 2.57% 2.36%
Portfolio Turnover Rate 24.83% 35.08% 20.79% 30.87% 26.26%
</TABLE>
20
<PAGE>
FINANCIAL HIGHLIGHTS BALANCED PORTFOLIO
================================================================================
The following financial highlights table is intended to help you understand the
Balanced Portfolio's financial performance for the past five years. Certain
information reflects financial results for a single Balanced Portfolio 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 Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker for
the years ended December 31, 1998 and 1997. Their report, along with the
Balanced Portfolio's financial statements, are included in 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
Portfolio's former independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.39 $ 1.27 $ 1.18 $ 0.99 $ 1.06
Income From Investment Operations
Net Investment Income 0.04 0.04 0.04 0.04 0.03
Net Realized and Unrealized Gain (Loss) on Securities 0.19 0.20 0.10 0.19 (0.03)
------- ------- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.23 0.24 0.14 0.23 0.00
Less Distributions
Dividends from Net Investment Income (0.04) (0.05) (0.04) (0.04) (0.03)
Distributions from Capital Gains (0.04) (0.07) (0.01) ---- (0.04)
------- ------- ------ ------ ------
TOTAL DISTRIBUTIONS (0.08) (0.12) (0.05) (0.04) (0.07)
------- ------- ------ ------ ------
Net Asset Value, End of Year $ 1.54 $ 1.39 $ 1.27 $ 1.18 $ 0.99
======= ======= ====== ====== ======
TOTAL RETURN 16.58% 18.80% 12.23% 22.80% 0.15%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $ 7,827 $ 5,595 $4,281 $3,399 $2,660
Ratio of Expenses to Average Net Assets
with reimbursements 0.90% 0.90% 0.90% 0.90% 0.96%
Ratio of Expenses to Average Net Assets
without reimbursements 1.24% 1.30% 1.48% 1.37% 1.25%
Ratio of Net Income to Average Net Assets 2.79% 3.43% 3.25% 3.19% 3.34%
Portfolio Turnover Rate 14.14% 23.02% 16.71% 15.97% 46.14%
</TABLE>
21
<PAGE>
FINANCIAL HIGHLIGHTS MONEY MARKET PORTFOLIO
================================================================================
The following financial highlights table is intended to help you understand the
Money Market Portfolio's financial performance for the past five years. Certain
information reflects financial results for a single Money Market Portfolio 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 Money Market Portfolio (assuming reinvestment of all dividends and
distributions). This information has been audited by Tait, Weller & Baker for
the years ended December 31, 1998 and 1997. Their report, along with the Money
Market Portfolio's financial statements, are included in 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 Money Market
Portfolio's former independent auditors.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income From Investment Operations
Net Investment Income 0.05 0.05 0.08 0.05 0.02
------- ------- ------ ------ ------
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.08 0.05 0.02
Less Distributions
Dividends from Net Investment Income (0.05) (0.05) (0.08) (0.05) (0.02)
------- ------- ------ ------ ------
TOTAL DISTRIBUTIONS (0.05) (0.05) (0.08) (0.05) (0.02)
------- ------- ------ ------ ------
Net Asset Value, End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ====== ====== ======
TOTAL RETURN 4.65% 4.78% 4.61% 5.11% 3.31%
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Year (000's omitted) $ 4,354 $ 2,821 $2,532 $2,398 $2,284
Ratio of Expenses to Average Net Assets
with reimbursements 0.87% 0.87% 0.87% 0.87% 0.91%
Ratio of Expenses to Average Net Assets
without reimbursements 1.37% 1.23% 1.22% 1.21% 1.14%
Ratio of Net Income to Average Net Assets 4.55% 4.62% 4.51% 5.03% 3.32%
</TABLE>
22
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS INC. - GROWTH PORTFOLIO
In 1998, the U.S. economy exhibited steady growth, declining inflation (with a
threat of deflation), an end to the recurring budget deficit, large increases in
business profits, as well as increases in employment and real incomes, and a
continuation of unprecedented stock market gains. Interest rates declined over
the past year with help from the Federal Reserve. The Federal Reserve cut
interest rates a total of 50 basis points (0.5%) in 1998 primarily to ensure
liquidity for the markets. 1998 also introduced us to Long Term Capital
Management and emerging market risk. Long Term Capital Management is a hedge
fund that made strong bets on emerging markets that did not go their way. This
riled the markets in August and September of 1998 at a time when the markets
needed no additional help in terms of volatility. The Southeast Asia currency
crisis, Russia defaulting on its bonds, and renewed currency problems in Latin
America all contributed to a roller coaster like year in domestic U.S. equity
markets.
Although the market was volatile in 1998, it finished very strong, notching a
fourth consecutive year of +20% gains. This ended the best four year run for the
market since Standard and Poor's began tracking indices in 1923. In addition,
this was the first time that the S&P 500 produced 20% returns or better in four
consecutive calendar years. For the fifth year in a row, large capitalization
stocks were the best performing category of stocks. This phenomenon became even
more pronounced in 1998 as the top 30 stocks were responsible for 40% of the
index's market value. The S&P 500 broke into record territory in 1998 but not
without going through some heart-stopping declines such as the 19.8% decline
during August and September which was just short of the 20% mark which
traditionally signifies a bear market. The 10% mark, which traditionally
signifies a market correction, was easily surpassed. Utilizing 20/20 hindsight,
and the fact that other indexes suffered a decline far greater than 20%, it is
safe to say that the market did in fact endure a very sharp, 31-day bear market.
The markets rebounded admirably by year-end and the average equity fund returned
11.17% for 1998.
For 1999, we believe the U.S. economy will continue to grow, but at a reduced
rate of approximately 2.0-2.5%. Inflation will likely remain historically low
(2.0%-2.5%) but will increase slightly over 1998. The threat of deflation will
actually increase but will be offset by inflationary increases in wages and
benefits.
The American National Investment Account's Growth Portfolio has the potential to
do well in the 1999 economic environment. The Growth Portfolio historically
performs better in down markets due to the value based, defensive nature of our
stock picking methodologies. The Growth Portfolio seeks to identify superior
stocks from well-managed companies utilizing two valuation disciplines. Our
disciplines screen potential investments for both cash flow and earnings in
order to select undervalued securities to be purchased and held for long-term
capital appreciation. The purpose of this approach is to purchase future company
earnings at a discount relative to peer companies, all else being equal. The
disciplines provide a conservative and defensive group of stocks from which to
select for inclusion in the fund.
Within the Growth Portfolio, we noted particular strength from our holdings in
the consumer cyclicals, technology, communication services, utilities, and
transportation sectors. For 1998, our overweighing of technology relative to the
market helped our relative performance. For 1998, shareholders of the Growth
Portfolio enjoyed a total return of 19.64%. The portfolio's growth attributes
are achieved by investing primarily in large capitalization growth companies.
The fund makes an effort to overweight sectors by no more than twice the S&P 500
sector weights and underweight by no more than half the S&P 500 sector weights.
We continue to seek out undervalued companies undergoing positive changes in
fundamentals and selling those issues that have hit their price targets or whose
fundamentals do not warrant inclusion in our portfolio. This process has served
the portfolio well over the last several years and should continue to do so
going forward. Areas of the market that we will be watching closely in 1999 will
be healthcare, financials, capital goods, consumer cyclicals, technology,
communication services, and electric utilities. Uncharacteristically, one of the
top growth sectors for 1998 that also provided excellent value, was utilities.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN ANIA GROWTH
PORTFOLIO, LIPPER ANALYTICAL GROWTH FUND INDEX AND THE S&P 500
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/1/91 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Lipper Growth Fund Index $10,000 $11,896 $12,804 $14,590 $14,112 $18,720 $22,002 $28,170 $35,408
S&P 500 $10,000 $11,663 $12,551 $13,813 $13,995 $19,248 $23,664 $31,556 $40,582
ANIA Growth Portfolio $10,000 $11,374 $11,053 $11,838 $12,656 $16,264 $19,188 $23,164 $27,478
</TABLE>
AVERAGE
ANNUAL RETURN
From Inception 13.76%
5 Year 18.34%
1 Year 18.62%
Past performance does not guarantee future results. Investment return and
principal value of an investment will fluctuate and, investments when
redeemed, may be worth more or less than their original cost
The Growth Portfolio's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. The Portfolio began operations in March 1, 1991.
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS INC. - MANAGED PORTFOLIO
The American National Investment Account's Managed Portfolio can be described by
examining the objectives and strategy of the fund set forth in the prospectus.
The portfolio's objective is to provide current income, along with an
opportunity for increased share price over time. The portfolio is guided by a
strategy of investing in select fixed income securities but primarily in the
stocks of well-established companies with records of consistent and increasing
dividend payments. The portfolio produced a total return of 16.36% during 1998.
During 1998, the portfolio continued to benefit from its overweighted positions
in the finance, technology and consumer cyclical sectors. The best performing
sectors in the portfolio during 1998 were technology, as earlier mentioned, and
communication services, both high-flying sectors of the market. Within the fund,
the technology holdings produced a 44% return for the year while the
communication services holdings returned 38%.
We currently expect the U.S. economy to continue moderate growth with low
inflation. While we foresee weaker profits (relative to 1998) in the short run,
we are optimistic long term. We believe that unless foreign economies fail to
recover from recent contagions, multinational companies will likely enjoy
accelerated earnings momentum between 1999 and 2002 as demographics ultimately
spur areas such as Asia to move higher.
Within this slow growth economy, we will continue endeavoring to achieve our
style specific goals by identifying stocks of superior companies utilizing our
conservative and defensive valuation disciplines. We continually seek out
undervalued companies undergoing positive changes in fundamentals and selling
those issues which have hit their price targets or whose fundamentals do not
warrant inclusion within the conservatively run Managed Portfolio. This process
has served the portfolio well over the last several years and should continue to
do so going forward.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN ANIA MANAGED PORTFOLIO, LIPPER
EQUITY INCOME FUND INDEX AND THE S&P 500
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/1/91 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Lipper Equity Income Fund Ind $10,000 $11,574 $12,702 $14,588 $14,454 $18,766 $22,138 $28,150 $31,466
S&P 500 $10,000 $11,663 $12,551 $13,813 $13,995 $19,248 $23,664 $31,556 $40,582
ANIA Managed Portfolio $10,000 $11,264 $10,921 $12,119 $12,283 $15,623 $18,386 $22,443 $25,993
</TABLE>
AVERAGE
ANNUAL RETURN
From Inception 12.96%
5 Year 16.56%
1 Year 15.85%
Past performance does not guarantee future results. Investment return and
principal value of an investment will fluctuate and investments, when redeemed,
may be worth more or less than their original cost.
The Managed Portfolio's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. The Portfolio began operations in March 1, 1991.
<PAGE>
PORTFOLIO MANAGER'S DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS INC. - BALANCED PORTFOLIO
The American National Investment Account's Balanced Portfolio is the lowest risk
portfolio in the American National Investment Accounts Group. The portfolio can
best be described with the objective and strategy outlined in the prospectus.
The portfolio maintains the objective of providing reasonable current income and
share price appreciation, while protecting the initial investment. The
portfolio's investment strategy is to use a balanced approach by investing in a
combination of the high-yielding stock of well-known companies, as well as bonds
and money market instruments. Throughout 1998, the portfolio's conservative
blend of about 55% stocks, 25% bonds and 20% money market instruments has served
the portfolio well. The equity portion of the portfolio produced a total return
(capital appreciation and dividend income) of about 20% while the bond portion
of the portfolio returned about 10%. Combined, the portfolio produced a total
return of 17.2% for the year.
Within the portfolio, we maintained our fixed income strategy of structuring
maturities at the mid-term to long end of the yield curve. Within the equity
portion of the portfolio, we utilize the same conservative and defensive stock
selection disciplines used in the American National Investment Account's Managed
and Growth Portfolios. The key is identifying stocks of superior companies and
purchasing them at discounted valuations. During 1998, we noted particular
strength from our equity holdings in the technology, communication services, and
healthcare sectors. In all three sectors, our holdings produced returns in
excess of 40%.
On the negative side, a poorly performing sector for the portfolio on the year
was basic materials. This sector suffered from excess capacity and commodity
price deflation, which impacted the group as a whole. Recently a select group
of steel companies was added to the portfolio with the aim of boosting sector
performance, as the steel pricing trough appears to have bottomed and
improvements in industry fundamentals should lie ahead.
Balanced Portfolio investors were rewarded again in 1998 by their investment in
the portfolio, with a fourth consecutive year of double-digit returns. Although
the portfolio has not produced the spectacular returns witnessed by some total
equity portfolios over the last year or two, we have achieved our goal of
providing consistently positive performance in the strong up market and believe
the portfolio is well positioned should equity markets turn downward. The
conservative and low risk balanced approach has enabled us to provide upside
potential while protecting the downside via this uniquely positioned portfolio.
<TABLE>
<CAPTION>
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN ANIA BALANCED
PORTFOLIO, LEHMAN INTERMEDIATE GOVERNMENT/CORP. INDEX, LIPPER BALANCED
FUND INDEX AND THE S&P 500
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
3/1/91 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
Lehman Int. Gov/Corp Index* $10,000 $11,257 $12,065 $13,125 $12,871 $14,845 $15,446 $16,661 $18,066
Lipper Balanced Fund Index** $10,000 $11,620 $12,487 $13,980 $13,694 $17,102 $19,334 $23,258 $26,767
S&P 500 $10,000 $11,663 $12,551 $13,813 $13,995 $19,248 $23,664 $31,556 $40,582
ANIA Balanced Portfolio $10,000 $11,512 $11,308 $11,826 $11,845 $14,545 $16,324 $19,393 $22,608
</TABLE>
AVERAGE ANNUAL RETURN
From Inception 10.97%
5 Year 13.84%
1 Year 16.58%
Past performance does not guarantee future results. Investment return and
principal value of an investment will fluctuate and investments, when redeemed,
may be worth more or less than their original cost.
The Balanced Portfolio's performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in net
asset value. The Portfolio began operations in March 1, 1991.
<PAGE>
FOR MORE INFORMATION ABOUT THE PORTFOLIOS
================================================================================
The following documents contain more information about GROWTH PORTFOLIO
the portfolios and are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI). The SAI MANAGED PORTFOLIO
contains additional information about all aspects of
the portfolios. A current SAI has been filed with
the Securities and Exchange Commission and is BALANCED PORTFOLIO
incorporated herein by reference.
ANNUAL AND SEMI-ANNUAL REPORTS. The portfolios' MONEY MARKET
annual and semi-annual reports provide additional PORTFOLIO
information about the portfolios' investments. The
annual report for the fiscal year ended December 31,
1998 contains a discussion of the market conditions
and investment strategies that significantly affected
each portfolio'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 portfolios
either by contacting your broker or by contacting the portfolios at:
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
2450 SOUTH SHORE BOULEVARD, SUITE 400
LEAGUE CITY, TEXAS 77573
Telephone: 1-800-231-4639 (Toll Free) or
1-281-334-2469 (Collect)
- --------------------------------------------------------------------------------
PUBLIC INFORMATION. You can review and copy information about the portfolios,
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 portfolios 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 No. 811-06155
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
MAY 1, 1999
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
Growth Portfolio
Managed Portfolio
Balanced Portfolio
Money Market Portfolio
2450 SOUTH SHORE BOULEVARD, SUITE 400
LEAGUE CITY, TEXAS 77573
1-281-231-4639
TOLL FREE 1-800-526-8346
This Statement of Additional Information is NOT a prospectus, but should be
read in conjunction with the prospectus dated May 1, 1999 (the "Prospectus"). A
copy of the Prospectus is available without charge upon written request to
American National Investment Accounts, Inc., 2450 South Shore Boulevard, Suite
400, League City, Texas 77573, or by phoning 281-334-2469 or (Toll Free) 800-
231-4639. Terms not defined herein have the same meaning as given to them in
the Prospectus.
Shares of American National Investment Accounts, Inc. (the "Company") are
currently sold only to separate accounts (the "Separate Accounts") of American
National Insurance Company ("American National") to fund benefits under variable
life insurance policies and variable annuity contracts (all of such insurance
policies and variable annuity contracts are referred to as the "Contract" or
"Contracts") issued by American National. The Separate Accounts invest in
shares of the Company through subaccounts that correspond to each of the
portfolios. The Separate Accounts will redeem shares of the Company to the
extent necessary to provide benefits under the Contracts or for such other
purposes as may be consistent with the Contracts. Securities Management and
Research, Inc. ("SM&R") is the investment adviser for the Company.
No dealer, sales representative, or other person has been authorized to
give any information or to make any representations other than those contained
in this Statement of Additional Information and/or the Prospectus, and if given
or made, such information or representations must not be relied upon as having
been authorized by the Company. 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.
<PAGE>
TABLE OF CONTENTS
-----------------
PAGE
----
GENERAL HISTORY OF THE COMPANY................................. 1
INVESTMENT OBJECTIVES AND POLICIES............................. 1
Fundamental Investment Policies........................... 1
INVESTMENT TECHNIQUES.......................................... 3
U.S. Treasury Securities.................................. 3
U.S. Government Obligations............................... 3
Collateralized Mortgage Obligations....................... 4
Repurchase Agreements..................................... 5
Ratings................................................... 5
Lending of Securities..................................... 5
Commercial Paper.......................................... 6
Illiquid Securities....................................... 6
144A Securities and Section 4(2) Commercial Paper......... 6
Certificate of Deposits and Bankers Acceptances 6
American Depository Receipts ("ADRs")..................... 7
Money Market Portfolio Investments........................ 7
PORTFOLIO TURNOVER............................................. 8
MANAGEMENT OF THE COMPANY...................................... 9
Officers and Directors of the Company..................... 9
Remuneration of Directors................................. 13
POLICY REGARDING PERSONAL INVESTING............................ 13
Personal Investing By Portfolio Managers.................. 14
Personal Investing by Other SM&R Officers and Employees... 14
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES............ 14
INVESTMENT ADVISORY AND OTHER SERVICES......................... 14
Control and Management of SM&R............................ 14
Investment Advisory Agreement............................. 15
Advisory Fees Paid........................................ 16
Administrative Service Agreement.......................... 17
Expenses Borne by the Portfolios.......................... 17
UNDERWRITER.................................................... 18
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION................ 18
FUND SHARES.................................................... 20
Capital Stock............................................. 20
i
<PAGE>
Voting Rights............................................. 20
PURCHASE, REDEMPTION AND PRICING OF SHARES..................... 21
Purchasing and Redeeming Shares........................... 21
Determination of Net Asset Value.......................... 21
Money Market Portfolio.................................... 21
Growth, Balanced, and Managed Portfolios.................. 22
TAX STATUS..................................................... 22
Subchapter M.............................................. 22
Section 817(h)............................................ 23
CUSTODIAN...................................................... 24
TRANSFER AGENT AND DIVIDEND PAYING AGENT....................... 24
COUNSEL AND AUDITORS........................................... 24
FINANCIAL STATEMENTS........................................... 24
PERFORMANCE AND ADVERTISING DATA............................... 24
Money Market Portfolio---Yield............................ 25
Total Return.............................................. 25
APPENDIX....................................................... A-1
ii
<PAGE>
GENERAL HISTORY OF THE COMPANY
American National Investment Accounts, Inc. (the "Company") provides a
range of investment alternatives through its four separate portfolios (each a
"Portfolio"; collectively, the "Portfolios"):
. the Growth Portfolio;
. the Managed Portfolio;
. the Balanced Portfolio; and
. the Money Market Portfolio.
Each Portfolio is, for investment purposes, in effect a separate mutual fund. A
separate class of capital stock is issued for each Portfolio.
The Company was incorporated under the laws of the State of Maryland on
March 14, 1988. The Company is registered under the Investment Company Act of
1940, as amended (the "1940 Act" or the "Act") as a diversified, open-end
management investment company commonly known as a mutual fund. A mutual fund is
a company in which a number of persons invest which in turn invests in the
securities of other companies. The Company is an open-end investment company
because it generally must redeem an investor's shares upon request. The Company
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 Company's management
or investment policies or practices.
INVESTMENT OBJECTIVES AND POLICIES
As noted in the Prospectus under "Investment Objectives and Policies," each
Portfolio has its own investment objective and follows policies and techniques
designed to achieve that objective.
FUNDAMENTAL INVESTMENT POLICIES
Each Portfolio's investment objective and the following investment policies
have been adopted as fundamental policies. (A fundamental policy may not be
changed without the approval of shareholders.)
Each Portfolio:
(1) Will not issue senior securities, except as permitted by sections 18(f) and
(g) and the rules thereunder of the 1940 Act.
(2) Will not make short sales of securities.
(3) Will not engage in margin transactions or arbitrage.
(4) Will not buy or sell real estate although a Portfolio may invest in the
securities of real estate investment trusts.
(5) Will not purchase or sell commodities or commodity contracts.
(6) Will not invest in companies for the purpose of exercising management or
control.
<PAGE>
(7) Will not invest in oil, gas or other mineral leases, rights on royalty
contracts or in real estate or real estate limited partnerships.
(8) Will not underwrite securities of other issuers, except where the Company
may be deemed to be a statutory underwriter for purposes of certain federal
securities laws in connection with the disposition of portfolio securities,
restricted securities or not readily marketable securities.
(9) Will not borrow money.
(10) Will not lend money, and the Money Market Portfolio will not lend
securities except that the Portfolio may purchase obligations subject to
repurchase agreements. The purchase of publicly held debt securities is
not considered lending money for the purpose of this restriction.
(11) Will not purchase securities (including commercial paper) of any issuer if
such purchase would at that time (i) cause more than 5% of the value of the
individual Portfolio's total assets to be invested in securities of any one
issuer other than the U.S. Government or its corporate instrumentalities or
(ii) cause the Portfolio to own more than 10% of the outstanding voting
securities of any issuer.
(12) Will not concentrate its investments in any one industry by investment of
more than 25% of the value of its total assets in such industry.
(13) Will not invest more than 5% of the value of its total assets in securities
of companies having a record of less than three years continuous
operations.
(14) Will not invest more than 5% of the value of its total assets in any
closed-end investment company and will not hold more than 3% of the
outstanding voting stock of any closed-end investment company.
(15) Will not purchase or retain securities of any issuer if any officer or
director of the Company or of its investment manager owns individually more
than one-half of one percent ( 1/2 of 1%) of the securities of that issuer,
and collectively the officers and directors of the Company and investment
manager together own more than 5% of the securities of that issuer.
(16) Will not acquire securities of other open-end investment companies, except
in connection with a merger, consolidation, or acquisition of assets
approved by the shareholders.
(17) Will not purchase from or sell to any officer or director of the Company or
its investment manager any securities other than shares of the capital
stock of the Portfolio.
(18) Will not invest more than 5% of the value of its total assets in securities
which are not readily marketable including restricted securities.
The above investment policies are fundamental policies that may be changed
by a Portfolio only with the approval of a majority of the outstanding shares of
the Portfolio, as determined by the provisions of the 1940 Act. This means that
shareholders of a Portfolio must approve any change to the foregoing policies
before that change may be effected. Such approval requires the affirmative vote
of the lesser of (i) 67% or more of the voting securities present at a meeting
if the holders of more than 50% of voting securities are represented at that
meeting or (ii) more than 50% of the outstanding voting securities of the
Portfolio.
Any investment policy which involves a maximum percentage of securities or
assets shall not be considered to be violated unless an excess over the
percentage occurs immediately after an acquisition of securities or utilization
of assets and results therefrom.
2
<PAGE>
INVESTMENT TECHNIQUES
U.S. TREASURY SECURITIES
Each Portfolio may invest in U.S. Treasury securities, including bills,
notes and bonds issued by the U.S. Treasury. These instruments are direct
obligations of the U.S. Government and, as such, are backed by the full faith
and credit of the United States. They differ primarily in their interest rates,
the lengths of their maturities, and the dates of their issuances.
U.S. GOVERNMENT OBLIGATIONS
Each Portfolio may invest in direct or implied debt obligations of the U.S.
Government, its agencies or instrumentalities ("U.S. Government Obligations").
Such obligations include, but are not limited to, Government National Mortgage
Association ("GNMA" or "Ginnie Mae"), the Farmers Home Administration, the
Export-Import Bank, the Tennessee Valley Authority, the Resolution Trust
Corporation, the Federal National Mortgage Association ("FNMA" or "Fannie Mae"),
the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"), the
United States Postal Service, the Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks, and Federal Land Banks. 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.
In the case of U.S. Government Obligations not backed by the full faith and
credit of the United States, the Company must look principally to the agency
issuing or guaranteeing the obligation for ultimate repayment and may not be
able to assert a claim against the U.S. if the agency or instrumentality does
not meet its commitments. There is no guarantee that the U.S. Government will
support securities not backed by its full faith and credit. Accordingly,
although these securities have historically involved little risk of loss of
principal if held to maturity, they may involve more risk than securities backed
by the U.S. Government's full faith and credit.
The Portfolios 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. Except in the case of the Money Market Portfolio, the
Portfolios do not presently intend to invest any significant amount in such
obligations and would do so in the future only to increase a Portfolio's
liquidity on a short-term basis during adverse and unusual market conditions.
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COLLATERALIZED MORTGAGE OBLIGATIONS
The Balanced Portfolio and the Money Market Portfolio each 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. The issuer's
obligation to make interest and principal payments is secured by the underlying
pool or portfolio of securities. Collateralized obligations in which the
Balanced and Money Market Portfolios 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.
The Money Market Portfolio will not invest in any CMOs that are not fully
collateralized obligations. "Fully collateralized" means that the collateral
will generate cash flows sufficient to meet obligations to holders of the
collateralized obligations under even the most conservative prepayment and
interest rate projections. Thus, the collateralized obligations are structured
to anticipate a worst case prepayment condition and to minimize the reinvestment
rate risk for cash flows between coupon dates for the collateralized
obligations. A worst case prepayment condition generally assumes immediate
prepayment of all securities purchased at a premium and zero prepayment of all
securities purchased at a discount. Reinvestment rate risk may be minimized by
assuming very conservative reinvestment rates and by other means such as by
maintaining the flexibility to increase principal distributions in a low
interest rate environment. The requirements as to collateralization are
determined by the issuer or sponsor of the collateralized obligation in order to
satisfy the U.S. Government agency or instrumentality guaranteeing the
obligation.
Collateralized obligations are designed to be retired as the underlying
securities are repaid. In the event of prepayment on or call of such securities,
the class of collateralized obligations first to mature generally will be paid
down first. Therefore, although in most cases the issuer of collateralized
obligations will not supply additional collateral in the event of such
prepayment, there will be sufficient collateral to secure collateralized
obligations that remain outstanding.
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REPURCHASE AGREEMENTS
Each Portfolio 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 Portfolio will acquire and hold a
security (government security, certificate of deposit, or banker's acceptance)
subject to the seller's agreement to repurchase the securities at a
predetermined price within a specified time (normally one day to one week),
thereby determining the yield during the Portfolio's holding period.
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 Portfolio and is
unrelated to the interest rate on the underlying instrument. In these
transactions, the securities acquired by a Portfolio (including accrued interest
earned thereon) must have a total value in excess of the value of the repurchase
agreement and are held by the Portfolio'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 Portfolio purchasing such agreement will take title to, or actual
delivery of the security. A default by the seller might cause a Portfolio to
experience a loss or delay in the liquidation of the collateral securing the
repurchase agreement. A Portfolio might also incur disposition costs in
liquidating the collateral.
The Portfolios will enter into repurchase agreements only with sellers who
are believed to present minimal credit risks and will monitor the value of the
collateral during the holding period. Credit risks are evaluated pursuant to
guidelines adopted and regularly reviewed by the Board which set forth credit
worthiness standards for the banks and registered government security dealers
with whom the Portfolios may enter into such repurchase agreements. Such
arrangements permit each Portfolio to keep all of its assets at work while
retaining flexibility in pursuit of investments of a longer-term nature. No
Portfolio will purchase repurchase agreements maturing more than seven (7) days
after such purchase.
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
Portfolio 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 Portfolio not within the
control of that Portfolio and therefore the realization by that Portfolio on
such collateral may be automatically stayed. Finally, it is possible that a
Portfolio 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 Portfolios' management acknowledges these risks, it is
expected that they can be controlled through careful monitoring procedures.
RATINGS
If the rating of a security purchased by a Portfolio is subsequently
reduced below the minimum rating required for purchase or a security purchased
by the Portfolio ceases to be rated, neither event will require the sale of the
security. However, SM&R will consider any such event in determining whether the
Portfolio should continue to hold the security. For subsequent downgrades of
securities purchased by the Money Market Portfolio, steps shall be taken to
reassess promptly whether such security continues to present minimal credit
risks and the Portfolio shall take such action as is determined to be in the
best interests of the Portfolio and its shareholders.
LENDING OF SECURITIES
Although there is no present intent to do so, the Balanced Portfolio 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
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operations. By lending its portfolio securities, the Balanced Portfolio 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 Portfolio. The
Balanced Portfolio 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 Portfolio 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
Portfolio at any time, and (d) the Balanced Portfolio receive reasonable
interest on the loans (which may include the Balanced Portfolio's investing any
cash collateral in interest bearing short-term investments), any distribution on
the loaned securities and any increase in their market value.
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 Portfolios will not invest in variable amount master
demand notes.
ILLIQUID SECURITIES
Each Portfolio may invest up to 5% 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 Portfolio. 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 their securities were publicly traded. A
Portfolio's investments in illiquid securities are subject to the risk that
should the Portfolio 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 Portfolio'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
Portfolio 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 Portfolio 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.
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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 Portfolios are subject to regulation and examination by the
Office of Thrift Supervision. Such certificates of deposit held by a Portfolio
do not benefit materially from insurance from the Federal Deposit Insurance
Corporation.
The Money Market Portfolio may not invest in any certificate of deposit or
bankers' acceptance of a commercial bank unless: the bank is organized and
operating in the United States, has total assets of at least $1 billion and is a
member of the Federal Deposit Insurance Corporation; or the bank is a foreign
branch of a United States bank or a United States branch of a foreign bank which
bank has $1 billion of total assets.
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 Portfolio's investments. The economies of many
countries in which a Portfolio 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 Portfolio's shareholders.
MONEY MARKET PORTFOLIO INVESTMENTS.
Pursuant to the 1940 Act, the Money Market Portfolio may invest only in
United States dollar-denominated instruments that present minimal credit risks,
have a remaining maturity of 397 calendar days or less, and which are at the
time of acquisition "eligible securities" as defined in Rule 2a-7 under the 1940
Act. Generally, an eligible security is:
. A security with a remaining maturity of 397 calendar days or less ("Short-
term") that has received a rating from two nationally recognized
statistical rating organizations ("NRSROs"), or if rated by only one NRSRO,
from that NRSRO, in one of the two highest rating categories ("Acceptable
Rating") for debt obligations; or
. A security with a remaining maturity of 397 calendar days or less issued by
an issuer that has received an Acceptable Rating from at least two NRSROs,
or if rated by only one NRSRO, from that NRSRO, with respect to a class of
debt obligations (or any debt obligation within that class) that is
comparable in priority and security with the security (a "Comparable
Security").
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If a security is acquired based on the rating of only one NRSRO, such
acquisition must be ratified by the Board. While Rule 2a-7 permits money market
funds to invest in certain unrated securities of comparable quality to eligible
rated securities, the Money Market Portfolio currently does not intend to invest
in unrated securities.
SM&R has the responsibility of determining that each investment by the
Money Market Portfolio presents minimal credit risks. SM&R's determination of
minimal credit risk will be based on an analysis of the issuer's (and, if
applicable, any guarantor's) capacity to repay its Short-term debt obligations.
The analysis cannot rely on ratings alone, but must be made on factors
pertaining to credit quality in addition to any rating that the security or the
issuer may have been assigned. The extensiveness of the evaluation may vary
with the type and maturity of the instrument involved and the SM&R's familiarity
with the issuer.
The Money Market Portfolio will maintain a dollar-weighted average
portfolio maturity appropriate to its objective of maintaining a stable net
asset value per share, provided, however, that the Portfolio will not (1)
purchase any instrument with a remaining maturity at the date of acquisition of
greater than 397 calendar days, or (2) maintain a dollar-weighted average
portfolio Maturity that exceeds 90 days. The "maturity" of a portfolio
instrument is the period remaining (calculated from the trade date or such other
date on which the Portfolio's interest in the security is subject to market
action) until the date on which, in accordance with the terms of the security,
the principal amount must unconditionally be paid, or in the case of a security
called for redemption, the date on which the redemption must be made.
The Money Market Portfolio will maintain a diversified portfolio in
accordance with the provisions of Rule 2a-7. In meeting diversification
requirements of the Rule, SM&R classifies securities into First and Second Tier
Securities, as defined in the 1940 Act. A "First Tier Security" is an Eligible
Security that (1) has been rated by at least two NRSROs (or if rated by only one
NRSRO, by that NRSRO) in the highest rating category for Short-term debt
obligations; (2) has been issued by an issuer that is rated with respect to a
Comparable Security, by at least two NRSROs (or if rated by only one NRSRO, by
that NRSRO) in the highest rating category for Short-term debt obligations; (3)
has been issued by a registered investment company that is a money market fund;
or (4) is a "Government Security," as defined in Section 2(a)(16) of the 1940
Act. A "Second Tier Security" is an Eligible Security that is not a First Tier
Security.
Immediately after the acquisition of any security (other than a Government
Security), SM&R shall confirm that the Portfolio has not invested more than 5%
of its total assets in securities issued by any one issuer; provided, however,
that the Portfolio may invest up to 25% of its total assets in the First Tier
Securities of a single issuer for a period of up to three (3) business days
after the purchase; provided, further, that the Portfolio may not make more than
one investment in accordance with the foregoing provision at any time.
Immediately after the acquisition of a Second Tier Security, SM&R shall confirm
that the Portfolio has not invested more than (1) the greater of 1% of its total
assets or one million dollars in securities issued by that issuer that are
Second Tier Securities, and (2) 5% of its total assets in securities which, when
acquired were, or have become, Second Tier Securities.
PORTFOLIO TURNOVER
Portfolio turnover for a Portfolio is calculated by dividing the lesser of
annual purchases or sales of portfolio securities by the monthly average of the
value of the Portfolio'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 Portfolio's portfolio
securities were replaced within one year. In general, it is intended that
portfolio changes in the Portfolios 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 Portfolio
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
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corresponding greater expenses than a lower rate. A Portfolio and its
shareholders must bear such higher expenses.
The portfolio turnover rates for the Portfolios for past three fiscal years
are as follows:
Year ended Year ended Year ended
December 31, 1996 December 31, 1997 December 31, 1998
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Growth Portfolio 21.24% 45.37% 25.75%
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Managed Portfolio 20.79% 35.08% 24.83%
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Balanced Portfolio 16.71% 23.02% 14.14%
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The Money Market Portfolio experienced no portfolio turnover because it invests
only in short-term money market instruments.
No brokerage commissions have been paid during the Portfolios' three most
recent periods to any broker which is an affiliated person of the Portfolios,
which is an affiliated person of a broker which is an affiliated person of the
Portfolios or an affiliated person of which is an affiliated person of the
Portfolios, American National, or SM&R.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company has the responsibility for the
overall management of the Company, including general supervision and review of
investment activities. The directors, in turn, elect the officers of the
Company who are responsible for administering day-to-day operations of the
Company.
OFFICERS AND DIRECTORS OF THE COMPANY
Information about each of the officers and directors of the Company 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. 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 Portfolios, as defined in the 1940 Act, are
indicated by an asterisk(*).
<TABLE>
<CAPTION>
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POSITIONS HELD WITH THE PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS, AND AGE COMPANY PAST 5 YEARS
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<S> <C> <C>
Ernest S. Barratt, Ph.D./(1)/ Director Professor and Chief of Psychophysiology Laboratory, Department
Age 74 of Psychiatry and Behavioral Sciences, University of Texas
Department of Psychiatry and Medical Branch, a medical school and hospital system, 1981 to
Behavioral Sciences, University present; Director of the SM&R Investments, Inc., an affiliated
of Texas Medical Branch, investment company, 1997 to present.
Galveston, Texas 77550-2777
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MICHAEL W. MCCROSKEY* Director and President President, Chief Executive Officer, Director and member of the
Age 55 since 1994 Executive Committee of SM&R, June 1994 to present; President
and Director of the Company, June 1994 to present;
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</TABLE>
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<TABLE>
<CAPTION>
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POSITIONS HELD WITH THE PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS, AND AGE COMPANY PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
President and Director of SM&R Growth Fund, Inc., SM&R Equity
Income Fund, Inc., and SM&R Balanced Fund, Inc. (hereinafter
referred to as the "SM&R Equity Funds"), June 1994 to present;
President, Chief Executive Officer, and Director of SM&R
Investments, Inc., June 1994 to present; Executive Vice
President, American National, 1996 to present; Senior Vice
President, American National, 1991 to 1996; Vice President of
Standard Life and Accident Insurance Company, 1988 to present;
Assistant Secretary of American National Life Insurance
Company of Texas, 1986 to present; Vice President, Investments
of American National Property and Casualty Company, 1994 to
present; Vice President, Investments of American National
General Insurance Company, 1994 to present; Vice President,
Pacific Property and Casualty, 1996 to present, life, health
and accident insurance subsidiaries of American National; Vice
President, Garden State Life Insurance Company, 1994 to
present; Director and President, ANREM Corporation, 1977 to
present; President and Director of ANTAC Corporation, 1995 to
present; Director, Comprehensive Investment Services, Inc.,
1997 to present.
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ALLAN W. MATTHEWS*/(1)(2)/ Director since 1997 Program Officer, The Moody Foundation (a charitable
Age 33 foundation), April 1991 to present; Director of SM&R
7114 Youpon Investments, Inc., 1991 to present.
Galveston, Texas 77551
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LEA MCLEOD MATTHEWS*/(2)/ Director since 1994 Publications Editor, National Western Life Insurance Co., 1990
Age 36 to present; Associate in Customer Service Designation;
850 E. Anderson Lane Director of SM&R Investments, Inc., 1994 to present; Director
Austin, Texas 78752-1602 of Garden State Life Insurance Company, 1993 to present;
Director of Kids Exchange of Austin (a non-profit
corporation), 1996 to present; Consultant to Austin Writers
League.
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ANN MCLEOD MOODY*/(2)/ Director since 1997 Director of Moody Gardens, Inc., 1994 to present; Director of
Age 61 Bank of Galveston, National Association, 1989 to present;
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</TABLE>
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<TABLE>
<CAPTION>
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POSITIONS HELD WITH THE PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS, AND AGE COMPANY PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
5 Colony Park Drive Director of The Westcap Corporation, 1990 to present; Director
Galveston, Texas 77551 of Seal Fleet, Inc., 1972 to 1996; Director of SM&R
Investments, Inc., 1997 to present.
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EDWIN K. NOLAN/(1)/ Director since 1997 Investor and Attorney, Law Offices, Edwin K. Nolan, P. C.,
Age 55 Canyon Lake, Texas, 1977 to present; Director/Owner, Canyon
#7 Mt. Lookout Drive Lake Aviation, Inc. (Aviation Service), Canyon Lake, Texas,
Canyon Lake, Texas 78133 1986 to present; Director/Owner, Canyon Lake Airport, Inc.
(Airport), Canyon Lake, Texas, 1985 to 1995; Director, Hancock
Mini Mart, Inc., 1995 to present; Director of SM&R
Investments, Inc., 1997 to present.
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ROBERT V. SHATTUCK, JR. Director since 1997 Attorney, Law Offices of Robert V. Shattuck, Jr., Galveston,
Age 57 Texas, 1986 to present; Director of SM&R Investments, Inc.,
1013 23rd Street 1997 to present.
Galveston, Texas 77550
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JAMIE G. WILLIAMS Director since 1997 Academic Language Therapist and Educational Consultant, 1974
Age 52 to present; Director of The Learning Therapist Graduate
3328 Stanford Certificate Program, 1986 to 1995; Adult Assessment Clinic and
Dallas, Texas 75225 Adolescent Academic Development Programs, Division of Evening,
Summer and Continuing Studies, Southern Methodist University,
1994 to 1995; Adjunct Instructor in Department of Psychology,
Dedman College, Southern Methodist University, 1988 to 1995;
Director of SM&R Investments, Inc., 1997 to present.
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FRANK P. WILLIAMSON Director since 1997 Retired; Owner of Professional Pharmacy, 1964 to 1999;
Age 66 Director of SM&R Investments, Inc., 1997 to present.
301 Barracuda
Galveston, Texas 77550
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GORDON D. DIXON Vice President, Portfolio Director, Senior Vice President, Chief Investment Officer of
Age 53 Manager of the Growth, SM&R and a member of the investment and executive committees
Managed, and Balanced of SM&R, 1993 to present; Vice President, Portfolio Manager of
Portfolios the SM&R Growth Fund;
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</TABLE>
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<TABLE>
<CAPTION>
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POSITIONS HELD WITH THE PRINCIPAL OCCUPATIONS DURING
NAME, ADDRESS, AND AGE COMPANY PAST 5 YEARS
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Portfolio Manager of the SM&R Equity Income Fund, October 1998
to present; Portfolio Manager of the SM&R Balanced Fund,
October 1998 to present; Vice President of Stocks for American
National, 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.
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EMERSON V. UNGER, C.L.U. Vice President since 1983 Vice President of SM&R, SM&R Investments, Inc., and SM&R
Age 53 Equity Funds since 1983.
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BRENDA T. KOELEMAY Vice President and Vice President and Treasurer of SM&R, SM&R Investments, Inc.
Age 44 Treasurer since 1992 and SM&R Equity Funds since 1992; Treasurer of Comprehensive
Investment Services, Inc. since 1997.
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TERESA E. AXELSON Vice President and Vice President and Secretary of SM&R, the SM&R Equity Funds,
Age 51 Secretary since 1983 and SM&R Investments, Inc. since 1983.
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TERRY E. FRANK Vice President and Portfolio Vice President and Portfolio Manager of SM&R Investments,
Age 44 Manager of the Money Inc.'s Government Bond Fund since 1993; Vice President and
Market Portfolio since 1998 Portfolio Manager of SM&R Investments, Inc.'s Tax Free Fund
since 1993; Vice President and Portfolio Manager of SM&R
Investments, Inc.'s Primary Fund since November 1998; Vice
President and Portfolio Manager of SM&R Investments, Inc.'s
Money Market Fund since January 1999; Member of the Fixed
Income Investment Committee of SM&R since 1991.
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JOHN S. MAIDLOW Assistant Portfolio Manager Assistant Portfolio Manager of SM&R Investments, Inc.'s
Age 52 of the Money Market Primary Fund since November 1998; Assistant Portfolio Manager
Portfolio since 1998 of SM&R Investments, Inc.'s Money Market Fund since January
1999; trust officer with American Industries Trust Companies,
from 1992 to 1996.
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</TABLE>
___________________________________
* "Interested persons" as defined by the 1940 Act.
(1) Members of the audit committee.
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(2) Mr. Matthews and Ms. Matthews are children of Mrs. Ann Moody. Mrs. Moody
is the wife of Robert L. Moody. (See "Control and Management of SM&R"
below.)
Directors of the Company who are affiliated with SM&R receive no
compensation for attendance at Board or Committee meetings. No officer receives
compensation from the Company. Officers and directors of the Company affiliated
with SM&R may receive indirect compensation from the Company to the extent of
underwriting commissions and investment advisory and service fees paid to SM&R.
By resolution of the Boards of Directors, the Company pays the fees and
expenses of only those directors who are not officers or employees of SM&R or
the Company. During the fiscal year ended December 31, 1998, the Company paid
$42,187 to such directors for fees and expenses in attending meetings of the
Boards of Directors.
REMUNERATION OF DIRECTORS
Each director is reimbursed for expenses incurred in connection with each
meeting of the Board of Directors or any Committee attended. Each director
receives a fee, allocated among the funds of American National 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, 1998 for each
director.
<TABLE>
<CAPTION>
Pension Or
Retirement
Benefits Estimated *Total
Accrued As Annual Compensation
Aggregate Part Of Benefits from All Funds
Compensation Company Upon Managed by
Director from Company Expenses Retirement SM&R
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Ernest S. Barratt, Ph.D. $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Allan W. Matthews $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Lea McLeod Matthews $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Michael W. McCroskey - None None -
- -----------------------------------------------------------------------------------------
Ann McLeod Moody $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Edwin K. Nolan $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Robert V. Shattuck, Jr. $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Jamie G. Williams $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
Frank P. Williamson $5,000 None None $8,000
- -----------------------------------------------------------------------------------------
</TABLE>
*Mr. McCroskey serves as a director for five other funds managed by SM&R. All
other directors serve on the board of one other fund managed by SM&R.
POLICY REGARDING PERSONAL INVESTING
The following policies have been made a part of the Company's Code of
Ethics.
13
<PAGE>
PERSONAL INVESTING BY PORTFOLIO MANAGERS
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 Portfolios. Any beneficial interest in a security held by a portfolio
manager must be sold at least 24 hours prior to any investment by the
Portfolios. 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 Portfolios 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 Portfolios for the same or related security.
3. Any beneficial interest in a security issued by the Government or any
Agency of the United States, a State, or any political subdivision
thereof may be traded or held.
4. Any beneficial interest in a security for which a written approval is
first obtained from the President and Chief Executive Officer may be
traded or held.
PERSONAL INVESTING BY OTHER SM&R OFFICERS AND EMPLOYEES
Officers and employees of SM&R other than portfolio managers may trade in
(or otherwise acquire) or hold any security for his own account (or an account
in which he has beneficial interest). However, the trade must not occur within
24 hours of a trade in the Portfolios for the same or related security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of April 1, 1999, no officer or director of the Company owned shares of
the Portfolios.
As of April 1, 1999, American National and SM&R owned 96% and 4% of the
outstanding shares of the Growth Portfolio; 96% and 4% of the outstanding
shares of the Managed Portfolio; 93% and 7% of the outstanding shares of the
Balanced Portfolio; and 93% and 7% of the outstanding shares of the Money
Market Portfolio, respectively. See "Control and Management of SM&R" below.
INVESTMENT ADVISORY AND OTHER SERVICES
CONTROL AND MANAGEMENT OF SM&R
SM&R has been the investment adviser, manager and underwriter of the
Company since the Company began business in 1990. SM&R acts pursuant to a
written agreement periodically approved by the directors and shareholders of the
Company. SM&R is also the investment adviser, manager and underwriter of the
SM&R Equity Funds and SM&R Investments, Inc. SM&R's address is 2450 South Shore
Boulevard, Suite 400, League City, Texas 77573.
SM&R is a wholly-owned subsidiary of American National, a Texas life
insurance company with its principal offices at One Moody Plaza, Galveston,
Texas 77550. As of April 1, 1999, 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.
14
<PAGE>
Moody, Frances Moody Newman, and Ross R. Moody. The Moody National Bank of
Galveston (the "Bank") is trustee of the Libbie S. Moody Trust. Other trusts for
which the Bank serves as trustee own approximately 6.2% of American National's
common stock.
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, 1999, 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 49.6% 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 Company, SM&R Equity Funds, 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 Company and SM&R in the
specified capacities:
. Michael W. McCroskey, President and Director of the Company, is also
President, Chief Executive Officer, Director and a member of the
executive committee of SM&R, and President and Director of the SM&R
Equity Funds and SM&R Investments, Inc.;
. Gordon D. Dixon, Vice President, Portfolio Manager of the Growth,
Balanced, and Managed Portfolios, is also Director, Senior Vice
President, Chief Investment Officer and a member of the investment and
executive committees of SM&R; Vice President, Portfolio Manager of the
SM&R Growth Fund, Inc.; and Portfolio Manager of the SM&R Equity Income
Fund, Inc. and SM&R Balanced Fund, Inc.;
. Emerson V. Unger, Vice President of the Company, is also Vice President
of SM&R and Vice President of the SM&R Equity Funds and SM&R
Investments, Inc.;
. Teresa E. Axelson, Vice President and Secretary of the Company, is also
Vice President and Secretary of SM&R, the SM&R Equity Funds, and SM&R
Investments, Inc.; and
. Brenda T. Koelemay, Vice President and Treasurer of the Company, is also
Vice President and Treasurer of SM&R, the SM&R Equity Funds, and SM&R
Investments, Inc.
INVESTMENT ADVISORY AGREEMENT
Under an Investment Advisory Agreement (an "Advisory Agreement") between
the Company and SM&R dated February 8, 1991, SM&R acts as investment adviser for
and provides certain administrative services to the Company.
As investment adviser, SM&R manages the investment and reinvestment of each
Portfolio'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 Portfolio investment programs.
All investments are reviewed quarterly by the Board of Directors to determine
whether or not such investments are within the policies, objectives and
restrictions of each Portfolio.
15
<PAGE>
The Advisory Agreement will continue in effect from year to year only so
long as such continuance is specifically approved at least annually by the Board
of Directors or by vote of a majority of the outstanding voting securities of
the Company, 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 management to submit continuation of the Advisory
Agreements annually only to the Company's Board of Directors for their approval
or disapproval. The Advisory Agreement was most recently approved by the Board
of Directors on February 19, 1998, and by the shareholders on April 1, 1992.
The Advisory Agreement may be terminated without penalty by vote of the Board of
Directors or by vote of the holders of a majority of the outstanding voting
securities of the Company, 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
Portfolio'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 Portfolio's outstanding shares.
Under the Advisory Agreement, SM&R is paid a monthly advisory fee. The fee
is computed by applying to the average daily net asset value of the Company each
month one-twelfth (1/12th) of the annual rate of 0.50%. Such monthly fee is
allocated among the Portfolios based on the percentage of each Portfolios'
respective net assets to the total net assets of the Company.
The average daily net asset value of each Portfolio 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 Portfolio's 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 shares
outstanding. Expenses and fees of each Portfolio, 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 Portfolio will be
valued as of the close of trading on each day when the New York Stock Exchange
is open for trading. Securities listed on national securities exchanges will be
valued at the last sales price on such day, or if there is no sale, then at the
closing bid price therefor on such day on such exchange. The value of unlisted
securities will be determined on the basis of the latest bid prices therefor on
such day. If no quotations are available for a security or other property, it
will be valued at fair value as determined in good faith by SM&R on a consistent
basis.
ADVISORY FEES PAID
For the past three fiscal years, SM&R received investment advisory fees
from each Portfolio as follows:
Advisory Fees for Advisory Fees for Advisory Fees for
the Year ended the Year ended the Year ended
December 31, December 31, December 31,
1996 1997 1998
- --------------------------------------------------------------------------------
Growth Portfolio $30,323 $46,499 $63,214
- --------------------------------------------------------------------------------
Managed Portfolio $26,036 $40,851 $57,632
- --------------------------------------------------------------------------------
Balanced Portfolio $19,354 $24,587 $30,684
- --------------------------------------------------------------------------------
Money Market Portfolio $12,287 $13,299 $16,655
- --------------------------------------------------------------------------------
16
<PAGE>
ADMINISTRATIVE SERVICE AGREEMENT
Under an Administrative Service Agreement between the Company and SM&R
dated February 8, 1991, SM&R provides all non-investment related management,
executive, administrative and operational services to each Portfolio. Pursuant
to the Administrative Service Agreement, SM&R also acts as transfer agent for
the Company's 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 Portfolios. SM&R's duties as administrator
include, among other things: administering the Portfolios' 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
Portfolio.
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 the Administrative Service Agreement, SM&R receives from each
Portfolio an administrative service fee for providing administrative services.
The fee is computed by applying to the average daily net asset value of the
Company each month one-twelfth (1/12th) of the annual rate of 0.25%. Such
monthly fee is allocated among the Portfolios based on the percentage of each
Portfolios' respective net assets to the total net assets of the Company. The
administrative service fee is payable to SM&R whether or not the actual expenses
to SM&R for providing administrative services is more or less than the amount of
such fee.
For the past three fiscal years, SM&R received administrative service fees
pursuant to the Administrative Service Agreement from each Portfolio as follows:
<TABLE>
<CAPTION>
Administrative Service Administrative Service Administrative Service
Fees for Fees for Fees for
the Year ended the Year ended the Year ended
December 31, December 31, December 31,
1996 1997 1998
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Growth Portfolio $15,161 $23,249 $31,607
- -------------------------------------------------------------------------------------------
Managed Portfolio $13,018 $20,425 $28,816
- -------------------------------------------------------------------------------------------
Balanced Portfolio $ 9,677 $12,294 $15,342
- -------------------------------------------------------------------------------------------
Money Market Portfolio $ 6,143 $ 6,650 $ 8,328
- -------------------------------------------------------------------------------------------
</TABLE>
EXPENSES BORNE BY THE PORTFOLIOS
The Company has agreed to pay other expenses incurred in the operation of
the Company, 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 and fees and expenses of qualifying Company
shares for sale and maintaining such qualifications under the various state
securities laws
17
<PAGE>
where Company shares are offered for sale, fees and expenses of directors not
affiliated with SM&R, costs of maintaining corporate existence, costs for
printing and mailing prospectuses and shareholder reports to existing
shareholders and expenses of shareholders' meetings.
SM&R has agreed in its Administrative Service Agreement with the Company to
pay (or to reimburse the Company for) the Company's regular operating expenses
of any kind, exclusive of interest, taxes, commissions, and other expenses
incidental to portfolio transactions (and, with the prior approval of any state
securities commissioner deemed by the Company's counsel to be required by law,
extraordinary expenses beyond SM&R's control), but including the advisory fee,
in excess of 1.50% per year of the Company's average daily net assets.
SM&R intends to voluntarily reimburse the Growth Portfolio and the Money
Market Portfolio for expenses in excess of 0.87%; the Balanced Portfolio for
expenses in excess of 0.90% and the Managed Portfolio for expenses in excess of
0.93%, of each of such Portfolio's average daily net assets. Fee waivers and/or
reductions, other than those stated in the Administrative Service Agreement, may
be rescinded by SM&R at any time without notice to investors. Such
reimbursement obligation is more restrictive than required by California, the
only State having an expense reimbursement provision applicable to the Company.
Such reimbursements, when required, will be made monthly.
For the years ended December 31, 1996, 1997 and 1998, expense
reimbursements made to each Portfolio were: Growth Portfolio $23,213, $20,044,
and $19,150; Managed Portfolio $10,783, $13,886, and $8,529; Balanced Portfolio
$22,510, $19,877, and $22,488; and Money Market Portfolio $8,646, $9,686, and
$19,062, respectively.
In practice, American National reimburses SM&R for all Portfolio expenses
that SM&R waives or reimburses.
Each daily charge for the fees is divided among each of the Portfolios in
proportion to their net assets on that day.
SM&R has entered into a Service Agreement with American National pursuant
to which American National will furnish certain services and facilities required
by SM&R from time to time for the conduct of its business. Such services will
not include investment advice or personnel. SM&R will reimburse American
National for the costs of such services.
UNDERWRITER
SM&R serves as the principal underwriter of the Company's shares and
continuously offers and sells the shares to insurance company separate accounts.
SM&R does not receive any additional compensation for its services as an
underwriter.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
SM&R, which supervises each Portfolio's investments, is responsible for
effecting portfolio transactions through eligible securities brokers and
dealers, subject to the general supervision of the Board of Directors.
Investment decisions are made by an Investment Committee of SM&R, and orders are
placed by persons supervised by that committee.
SM&R is responsible for the selection of brokers and dealers to effect the
transactions and the negotiation of brokerage commissions, if any. Transactions
on a stock exchange in equity securities will be executed primarily through
brokers that will receive a commission paid by the Portfolio. The Money Market
Portfolio, on the other hand, will not normally incur any brokerage commissions.
Fixed income securities, as well as equity securities traded in the Over-The-
Counter market, are generally traded on a "net" basis with dealers acting as
principals for their own accounts without a stated commission, although the
price of the security usually includes a profit to the dealer. In underwritten
offerings, securities are purchased at a fixed price that includes an amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. Certain of these securities may also be purchased
directly from an issuer, in which case neither commissions nor discounts are
paid. The Company may not engage in any transactions in which SM&R or its
affiliates act as principal, including over-the-counter purchases and negotiated
trades in which such a party acts as a principal.
18
<PAGE>
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 Portfolio 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 Portfolio 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 Portfolios. While SM&R is able to
fulfill its obligation to each Portfolio without such information, its expenses
might be materially increased if it had to obtain and assemble such information
through its staff. However, the value of such information is not determinable.
SM&R also uses such information when rendering investment advisory services to
the SM&R Equity Funds, SM&R Investments, Inc., and to American National and its
other accounts.
SM&R will authorize each Portfolio 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 Portfolios 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 Portfolio may
give consideration to sales of shares of each Portfolio as a factor in the
selection of brokers and dealers to execute Portfolio transactions.
For the years ended December 31, 1996, 1997, and 1998, SM&R paid brokerage
fees on the purchase and sale of portfolio securities for the Company of
$11,495, $35,534, and $35,608, respectively. No brokerage commissions have been
paid during the three most recent fiscal years to: (i) any broker that is an
affiliated person of the Company or an affiliated person of that person; or (ii)
any broker an affiliated person of which is an affiliated person of the Company
or SM&R.
The Company, the SM&R Equity Funds, 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 Company, the SM&R Equity Funds, 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.
The Company's Board of Directors has determined that such ability to effect
simultaneous transactions may be in the best interests of each Portfolio. 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 Portfolios,
which in other cases these practices could produce better executions.
19
<PAGE>
FUND SHARES
CAPITAL STOCK
The authorized Capital Stock of the Company consists of Two Billion
(2,000,000,000) shares, par value $.01 per share. The shares of Capital Stock
are divided into four portfolios: Growth Portfolio Capital Stock (115,000,000
shares); Money Market Portfolio Capital Stock (1,050,000,000 shares); Balanced
Portfolio Capital Stock (115,000,000 shares); and Managed Portfolio Capital
Stock (120,000,000 shares).
Prior to the Company's offering of any shares to the Separate Accounts,
SM&R provided the Company with initial capital by purchasing 100,000 shares of
each Portfolio at a purchase price of $1.00 per share. In addition, American
National purchased 1,750,000 shares of each Portfolio at a price of $1.00 per
share. Such shares were acquired by American National in connection with the
formation of the Company, were acquired for investment and can be disposed of
only by redemption. Both SM&R's and American National's shares will be redeemed
only when permitted by the 1940 Act and when the other assets of the Portfolios
are large enough that such redemption will not have a material adverse effect
upon investment performance. SM&R and American National will vote their shares
in the same manner and in the same proportion as the other shares held in the
Separate Accounts are voted. The Company will offer all other shares only to
the Separate Accounts.
The assets received by the Company for the issuance or sale of shares of
each Portfolio and all income, earnings, profits and proceeds thereof, subject
only to the rights of creditors, are specifically allocated to such Portfolio.
They constitute the underlying assets of each Portfolio, are required to be
segregated on the books of account and are to be charged with the expenses of
such Portfolio. Any general expenses not readily identifiable as belonging to a
particular Portfolio shall be allocated among all Portfolios by or under the
direction of the directors in such manner as the directors determine to be fair
and equitable.
All shares, when issued, will be fully paid and non-assessable, will have
no conversion, exchange, preemptive, or other subscription rights, will be
freely transferable and redeemable, and will have one vote and equal rights to
share in dividends and assets. Cumulative voting is not authorized. 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.
Each share of capital stock represents an interest in the assets of a
particular Portfolio and has no interest in the assets of any other Portfolio.
Shares of a Portfolio are equal with respect to distributions from income and
capital gains, except as described below. In the event of liquidation, each
share of a Portfolio is entitled to an equal portion of all the assets of that
Portfolio after all debts and expenses have been paid.
VOTING RIGHTS
The voting rights of Contract owners, and limitations on those rights, are
explained in the accompanying prospectuses for the Contracts. American
National, as the owner of the assets in the Separate Accounts, is entitled to
vote all of the shares of the Company, but it will generally do so in accordance
with the instructions of Contract owners. American National has agreed to vote
shares of the Company held in the Separate Accounts for which no timely voting
instructions from Contract owners are received, as well as shares it owns, in
the same proportion as those shares for which voting instructions are received.
A meeting may be called by the Board of Directors in their discretion or by
Contract owners holding at least ten (10%) percent of the outstanding shares of
any Portfolio. Contract owners will receive assistance in communicating with
other Contract owners in connection with the election or removal of directors
similar to the provisions contained in Section 16(c) of the 1940 Act. Under
certain circumstances, however, American National may disregard voting
instructions received from Contract owners. For additional information
describing how American National will vote the shares of the Company, see
"VOTING RIGHTS" in the accompanying prospectuses for the Contracts.
20
<PAGE>
PURCHASE, REDEMPTION AND PRICING OF SHARES
PURCHASING AND REDEEMING SHARES
Shares of each Portfolio are sold only to the corresponding subaccount of
the Separate Accounts. Shares are sold and redeemed at their net asset value as
next determined following receipt of a net premium or a surrender request by
American National without the addition of any selling commission or sales load
or redemption charge. The redemption price may be more or less than the
shareholder's cost.
The Portfolios' shares are also sold and redeemed as a result of transfer
requests, loans, loan repayments and similar Separate Account transactions, in
each case without any sales load or commission and at the net asset value per
share computed for the day as of which such Separate Account's transactions are
effected.
DETERMINATION OF NET ASSET VALUE
The net asset value per share of each Portfolio is determined by adding the
value of all Portfolio assets, deducting all Portfolio liabilities and dividing
by the number of outstanding shares of such Portfolio. Expenses and fees of
each Portfolio, including the advisory fee and the expense limitation
reimbursement, if any, are accrued daily and taken into account in determining
net asset value. The portfolio securities of the Portfolios are valued as of
the close of trading on each day when the New York Stock Exchange is open for
trading. Securities listed on national securities exchanges are valued at the
last sales price on such day, or if there is no sale, then at the closing bid
price therefor on such day on such exchange. The value of unlisted securities
is determined on the basis of the latest bid prices therefor on such day. If no
quotations are available for a security or other property, it is valued at fair
value as determined in good faith by the Board of Directors (or their delegate)
on a consistent basis.
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 Portfolio of its securities is not reasonably practicable or
it is not reasonably practicable for a Portfolio 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 Portfolio's security holders.
MONEY MARKET PORTFOLIO
All Money Market Portfolio securities are valued by the basis of the
amortized cost valuation technique. This involves valuing a security at its
cost and, thereafter, assuming a constant amortization to maturity of any
discount or premium, regardless of the impact of fluctuating interest rates on
the market instrument. During periods of declining interest rates, the daily
yield on shares of the Money Market Portfolio may tend to be higher than a like
computation made by funds with identical investments utilizing a method of
valuation based upon market prices and estimates of market prices for all of its
portfolio instruments. Thus, if the use of amortized cost by the Money Market
Portfolio resulted in a lower aggregate portfolio value on a particular day, a
prospective investor in the Portfolio would be able to obtain a somewhat higher
yield than would result from investment in a fund with identical investments
utilizing solely market values, and existing investors in the Money Market
Portfolio would receive less investment income. The converse would apply in a
period of rising interest rates.
The valuation of the Money Market Portfolio instruments based upon their
amortized cost is subject to the Portfolio's adherence to certain conditions
with respect to its operation. The Portfolio must maintain a dollar-weighted
average portfolio maturity of 90 days or less, purchase instruments having
remaining maturities of one year or less only, and invest only in securities
determined by the directors to be of high quality with minimal credit risks.
21
<PAGE>
The Money Market Portfolio follows procedures established by the directors
that are designed to stabilize, to the extent reasonably possible, the Money
Market Portfolio price per share as computed for the purpose of sales and
redemptions at $1.00. There can be no assurance that the Money Market Portfolio
will at all times be able to maintain a continuous $1.00 net asset value per
share. Procedures to be followed will include review of the Money Market
Portfolio's holdings by the directors at such intervals as it may deem
appropriate to determine whether the Money Market Portfolio's net asset value
calculated by using available market quotations deviates from $1.00 per share
and, if so, whether such deviation may result in material dilution or is
otherwise unfair to existing shareholders. In the event the directors determine
that such a deviation exists, it must take such corrective action as it regards
as necessary and appropriate, including the sale of portfolio instruments prior
to maturity to realize capital gains or losses or to shorten average portfolio
maturity, withholding dividends, or establishing a net asset value per share by
using available market quotations.
GROWTH, BALANCED, AND MANAGED PORTFOLIO
The value of these Portfolios' securities is determined by one or more of
the following methods:
. The securities traded on the New York Stock Exchange ("NYSE") or
American Stock Exchange ("ASE") are valued at the closing sale price
on that day, or if there were no sales during the day, at the last
previous sale or bid price reported.
. The securities which are not listed on the NYSE or ASE, but are listed
on other national securities exchanges, are valued in a manner similar
to that described in the preceding paragraph, using values reported by
the principal exchange on which the securities are traded, except that
the prices are taken at the time trading closes on the NYSE.
. Over-The-Counter securities are valued at the bid prices.
. Debt securities having maturities of 60 days or less are valued using
the amortized cost technique. Debt securities with maturities in
excess of 60 days are valued on the basis of prices provided by an
independent pricing service or brokers. Prices provided by the pricing
service may be determined without exclusive reliance on quoted prices,
and may reflect appropriate factors such as yield, type of issue,
coupon rate, maturity and seasoning differential.
. Securities in corporate short-term notes are valued at cost plus
amortized discount, which approximates market value. If no quotations
are available, securities and all other assets are valued in good
faith at fair value, using the methods determined by the directors on
a consistent basis.
TAX STATUS
SUBCHAPTER M
Each Portfolio is a separate entity for federal income tax purposes and
each Portfolio has elected to be treated as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986 (the "Code"). Each Portfolio
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 Portfolio will be required to pay federal income taxes.
22
<PAGE>
In order to qualify as a regulated investment company, each Portfolio must
meet several requirements. These requirements include the following: (1) at
least 90% of the Portfolio's gross income must be derived from dividends,
interest, payments with respect to securities loans, gains from the sale or
disposition of stock, securities or foreign currencies or other income
(including gains from options, futures or forward contracts) derived in
connection with the Portfolio's investment business and (2) at the close of each
quarter of the Portfolio's taxable year, (a) at least 50% of the value of the
Portfolio'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 Portfolio and not more than 10% of the outstanding voting securities of
such issuer) and (b) not more than 25% of the value of the Portfolio'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 Portfolio controls and which are determined to
be engaged in similar or related trades or businesses.
SECTION 817(H)
Each Portfolio intends to comply with Section 817(h) of the Code and the
regulations issued thereunder. Pursuant to that Section, the only shareholders
of the Company and its Portfolios will be SM&R, American National, and the
Separate Accounts. The prospectus that describes the variable insurance policies
issued through the Separate Accounts provides additional discussion of the
taxation of the Separate Accounts and of the owner of the variable insurance
policy.
In addition, Section 817(h) of the Code and Treasury Department temporary
regulations thereunder impose certain diversification requirements on the
Separate Accounts. These requirements, which are in addition to the
diversification requirements applicable to the Portfolios under Subchapter M and
the 1940 Act, may affect the securities in which the Portfolios may invest. The
consequences of failure to meet the requirements of Section 817(h) could result
in taxation of the insurance company offering the variable insurance policy and
immediate taxation of the owner of the policy to the extent of appreciation on
investment under the policy.
The Secretary of the Treasury is expected to issue additional regulations
that will prescribe the circumstances in which a policyowner's control of the
investments of the Separate Accounts may cause the policyowner, rather than
American National, to be treated as the owner of the assets of the Separate
Accounts.
The Company may therefore find it necessary to take action to assure that
the variable insurance policies continue to qualify as a variable insurance
policy under federal tax laws. The Company, for example, may be required to
alter the investment objectives of any Portfolio or substitute the shares of one
Portfolio for those of another. No such change of investment objectives or
substitution of securities will take place without notice to the shareholders of
the affected Portfolio and the approval of a majority of such shareholders and
without prior approval of the SEC, to the extent legally required.
THE PRECEDING IS A BRIEF SUMMARY OF SOME OF THE RELEVANT TAX
CONSIDERATIONS. IT IS NOT INTENDED AS A COMPLETE EXPLANATION OR A SUBSTITUTE
FOR CAREFUL TAX PLANNING AND CONSULTATION WITH INDIVIDUAL TAX ADVISORS.
23
<PAGE>
CUSTODIAN
The cash and securities of the Company are held by SM&R, 2450 South Shore
Boulevard, Suite 400, League City, Texas 77573, pursuant to a Custodian
Agreement dated August 1, 1995. As custodian, SM&R will hold and administer the
Company's cash and securities and maintain certain financial and accounting
books and records as provided for in such Custodian Agreement. The compensation
paid to the Custodian is paid by the Company and is based upon and varies with
the number, type and amount of transactions conducted by the Custodian.
SM&R has entered into a sub-custodial agreement with Moody National Bank of
Galveston (the "Bank") effective August 1, 1995. Under the sub-custodian
agreement, the cash and securities of the Company will be held by the Bank which
will be authorized to use the facilities of the Depository Trust Company and the
facilities of the book-entry system of the Federal Reserve Bank with respect to
securities of the Company held by it on behalf of SM&R for the Company.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
SM&R, 2450 South Shore Boulevard, Suite 400, League City, Texas 77573, is
the transfer agent and dividend paying agent for the Company, the SM&R Equity
Funds, and SM&R Investments, Inc. (See "Administrative Service Agreement"
herein.)
COUNSEL AND AUDITORS
The Company's General Counsel is Greer, Herz & Adams, L.L.P., 18th Floor,
One Moody Plaza, Galveston, Texas 77550. Tait, Weller & Baker, 8 Penn Center,
Philadelphia, PA 19103, is the Company's independent auditor and performs annual
audits of the Company's financial statements.
FINANCIAL STATEMENTS
Audited financial statements dated December 31, 1998 are attached as
"Exhibit 1."
PERFORMANCE AND ADVERTISING DATA
A Portfolio'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 Portfolio and market conditions. A shareholder's
investment in a Portfolio is not insured or guaranteed. These factors should be
carefully considered by the investor before making any investment in any
Portfolio.
Quotations of performance may from time to time be used in advertisements,
sales literature, shareholder reports or other communications to shareholders or
prospective investors. Performance information for each Portfolio may be
compared in advertisements, sales literature, shareholder reports or other
communications to the Standard & Poor's 500 Composite Stock Price Index ("S&P
500") and to other investment products tracked by Lipper Analytical Services,
Lehman Brothers or Morningstar. Each Portfolio's performance may be quoted in
advertising in terms of yield or total return. Total returns, yields and other
performance information may be quoted numerically or in a table, graph or
similar illustration for each of the Portfolios.
Each Portfolio's yield and total return fluctuate in response to market
conditions and other factors. Investment return and principal value will
fluctuate, and shares, when redeemed, may be worth more or less than their
original cost. There can be no assurance that the Money Market Portfolio will be
able to maintain a stable net asset value of $1.00 per share.
Total returns and yields quoted for the Portfolios include each Portfolio's
expenses and charges and expenses attributable to the American National Variable
Universal Life and Variable Annuity
24
<PAGE>
Separate Accounts. Inclusion of the variable universal life and variable annuity
separate account charges have the effect of reducing each Portfolio's
performance quoted for the product. When reviewing performance, you should keep
in mind the effect the inclusion or exclusion of the variable products charges
have on performance quoted when comparing the performance of the Portfolios with
other portfolios or funds.
An investor should keep in mind when reviewing performance that past
performance of a Portfolio is not indicative of future results, but is an
indication of the return to the investor only for the limited historical period.
MONEY MARKET PORTFOLIO--YIELD
The Money Market Portfolio will attempt, consistent with safety of
principal, to achieve
the highest possible yield from its investments. The Money Market Portfolio's
yield is its current investment income expressed in annualized terms. Yield
quotations for the Money Market Portfolio will include an annualized historical
yield, carried at least to the nearest hundredth of one percent, based on a
specific seven-calendar-day period. Yield quotations are calculated by (1)
determining the net change (exclusive of capital changes and income other than
investment income) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, subtracting a hypothetical
charge reflecting deductions from shareholder accounts, (2) dividing the
difference by the value of the account at the beginning of the base period to
get the base period return, then (3) multiplying the base period return by the
quotient obtained by dividing 365 by 7. The resulting yield figure is carried
to the nearest hundredth of one percent.
The Money Market Portfolio's effective yield for a specified seven-
calendar-day period is computed by (1) determining the net change (exclusive of
capital changes) in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of the period, (2) subtracting a
hypothetical charge reflecting deductions from shareholder accounts; (3)
dividing the difference by the value of the account at the beginning of the base
period to get the base period return, and then (4) compounding the base period
return by adding 1, raising the sum to a power equal to 365 divided by 7 and
subtracting 1 from the result according to the following formula: EFFECTIVE
YIELD = [(BASE PERIOD RETURN + 1)/356/7/]-1. The resulting yield figure is
carried to the nearest hundredth of one percent.
The calculations include (1) the value of additional shares purchased with
dividends declared on the original shares and dividends declared on both the
original shares and any additional shares, and (2) all fees (other than
nonrecurring fees or sales charges) charged to all shareholder accounts, in
proportion to the length of the base period and the Money Market Portfolio's
average account size. The calculations do not reflect any realized gains or
losses from the sale of securities or any unrealized appreciation or
depreciation on portfolio securities. Income other than investment income is
excluded. The yield computation may be of limited use for comparative purposes
as charges at the account level will decrease the yield. The amount or specific
rate of any nonrecurring sales charge not included in the calculation of yield
will be disclosed.
Current and compounded yields fluctuate daily and will vary with factors
such as interest rates, the quality and length of maturities and the type
investments in the Money Market Portfolio's portfolio. Neither principal nor
interest is insured or guaranteed.
TOTAL RETURN
Standardized total returns quoted in advertising and sales literature
reflect all aspects of a Portfolio's return, including the effect of reinvesting
dividends and capital gain distributions, any change in the Portfolio's net
asset value per share over the period and maximum sales charge, if any,
applicable to purchases of the Portfolio's shares.
25
<PAGE>
Total return is the change in value of an investment in a Portfolio over a
given period, assuming reinvestment of any dividends and capital gains. A
cumulative total return reflects actual 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 Portfolio's performance had been constant over the entire period. Because
average annual returns tend to even out variations in a Portfolio's return,
investors should recognize that such returns are not the same as actual year-by-
year results.
The average annual total returns for the Portfolios for the periods ended
December 31, 1998 are:
Since Inception
Past One Year Past Five Years on February 20, 1990
- --------------------------------------------------------------------------------
Growth Portfolio 18.62% 18.34% 13.43%
- --------------------------------------------------------------------------------
Managed Portfolio 15.85% 16.56% 12.73%
- --------------------------------------------------------------------------------
Balanced Portfolio 16.58% 13.84% 10.12%
- --------------------------------------------------------------------------------
Money Market Portfolio 4.65% 4.50% 4.36%
- --------------------------------------------------------------------------------
The average annual total return figures for the Portfolios are computed for
a class according to a formula prescribed by the SEC. The formula can be
expressed as follows:
P(1 + T)/n/ = ERV
Where P = a hypothetical initial payment of $1,000;
T = average annual total return;
n = number of years; and
ERV = Ending Redeemable Value of a hypothetical $1,000 investment
made at the beginning of 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. 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.
Yield and total return figures are based on historical earnings and are not
intended to indicate future performances. A Portfolio'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 Portfolio and
market conditions. A shareholder's investment in a Portfolio is not insured or
guaranteed. These factors should be carefully considered by the investor before
making any investment in any Portfolio.
26
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX
(Description of Ratings Used in Prospectus and Statement of Additional
Information)
- --------------------------------------------------------------------------------
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
A-1
<PAGE>
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.
DESCRIPTION OF FITCH IBCA BOND RATINGS:
AAA Highest credit quality. "AAA" ratings denote the lowest expectation of
credit risk. They are assigned only in case of exceptionally strong
capacity for timely payment of financial commitments. This capacity is
highly unlikely to be adversely affected by foreseeable events.
AA Very high credit quality. "AA" ratings denote a very low expectation
of credit risk. They indicate very strong capacity for timely payment of
financial commitments. This capacity is not significantly vulnerable to
foreseeable events.
A High credit quality. "A" ratings denote a low expectation of credit
risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable
to changes in circumstances or in economic conditions than is the case
for higher ratings.
BBB Good credit quality. "BBB" ratings indicate that there is currently a
low expectation of credit risk. The capacity for timely payment of
financial commitments is considered adequate, but adverse changes in
circumstances and in economic conditions are more likely to impair this
capacity. This is the lowest investment-grade category.
COMMERCIAL PAPER RATINGS
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S THREE HIGHEST COMMERCIAL PAPER
RATINGS:
A-1 This designation indicates that the degree of safety regarding timely
payment is strong. Those issues determined to possess extremely strong
safety characteristics are denoted with a plus sign (+) designation.
A-2
<PAGE>
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as high as
for issues designated "A-1."
A-3 Issues carrying this designation have an adequate capacity for timely
payment. They are, however, more vulnerable to the adverse effects of
changes in circumstances than obligations carrying the higher
designations.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S THREE HIGHEST COMMERCIAL PAPER
RATINGS:
Prime-1 Issuers rated Prime-1 (or supporting institutions) have a superior
ability for repayment of senior short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the following
characteristics:
. Leading market positions in well-established industries.
. High rates of return on funds employed.
. Conservative capitalization structure with moderate reliance on debt
and ample asset protection.
. Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
. Well-established access to a range of financial markets and assured
sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt obligations. This will
normally be evidenced by many of the characteristics cited above but to
a lesser degree. Earnings trends and coverage ratios, while sound, may
be more subject to variation. Capitalization characteristics, while
still appropriate, may be more affected by external conditions. Ample
alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable
ability for repayment of senior short-term obligations. The effect of
industry characteristics and market compositions may be more pronounced.
Variability in earnings and profitability may result in changes in the
level of debt protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is maintained.
DESCRIPTION OF FITCH IBCA SHORT-TERM DEBT RATINGS (INCLUDING COMMERCIAL PAPER):
F1 Highest credit quality. Indicates the strongest capacity for timely
payment of financial commitments; may have an added "v" to denote
any exceptionally strong credit feature.
F2 Good credit quality. A satisfactory capacity for timely payment of
financial commitments, but the margin of safety is not as great as in
the case of the higher ratings.
F3 Fair credit quality. The capacity for timely payment of financial
commitments is adequate; however, near-term adverse changes could
result in a reduction to non-investment grade.
B Speculative. Minimal capacity for timely payment of financial
commitments, plus vulnerability to near-term adverse changes in
financial and economic conditions.
Description of Duff & Phelp's highest commercial ratings:
A-3
<PAGE>
High Grade
D-1+ Highest certainty of timely payment. Short-term liquidity,
including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free
U.S. Treasury short-term obligations.
D-1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors. Risk
factors are minor.
D-1- High certainty of timely payment. Liquidity factors are strong and
supported by good fundamental protection factors. Risk factors are
very small.
Good Grade
D-2 Good certainty of timely payment. Liquidity factors and company
fundamentals are sound. Although ongoing funding needs may enlarge
total financing requirements, access to capital markets is good.
Risk factors are small.
DESCRIPTION OF THOMSON BANKWATCH, INC.'S TWO HIGHEST COMMERCIAL RATINGS:
TBW-1 The highest category; indicates a very high likelihood that
principal and interest will be paid on a timely basis.
TBW-2 The second-highest category; while the degree of safety regarding
timely repayment of principal and interest is strong, the relative
degree of safety is not as high as for issues rated TBW-1.
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, B, CCC Preferred stock rated "BB," "B," and "CCC" are regarded, on balance,
as predominantly speculative with 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.
A-4
<PAGE>
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.
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.
A-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 1
SCHEDULE OF INVESTMENTS December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
COMMON STOCK SHARES VALUE COMMON STOCK SHARES VALUE
<S> <C> <C> <C> <C> <C>
AUTO & TRUCK MANUFACTURERS-2.24% DIVERSIFIED-2.19%
DaimlerChrysler AG * 1,247 $ 119,790 AlliedSignal, Incorporated 3,200 $ 141,800
Ford Motor Company 1,500 88,031 Coltec Industries, Incorporated* 5,600 109,200
General Motors Corporation 2,000 143,125 U.S. Industries, Incorporated 5,000 93,125
--------- ---------
350,946 344,125
BANKS-5.32% DRUGS-7.61%
Banc One Corporation 3,300 168,506 Bristol-Myers Squibb Company 2,000 267,625
BankAmerica Corporation 2,000 120,250 Merck & Company, Incorporated 1,000 147,687
Comerica, Incorporated 1,350 92,053 Pfizer, Incorporated 3,200 401,400
Dime Bancorp, Incorporated 7,000 185,062 Schering-Plough Corporation 4,800 265,200
First Union Corporation 1,600 97,300 Warner-Lambert Company 1,500 112,781
Morgan (J.P.) & Company 500 52,531 ---------
Wells Fargo Company 3,000 119,813 1,194,693
---------
835,515 ELECTRICAL EQUIPMENT-3.00%
BEVERAGES-2.51% General Electric Company 3,700 377,631
Anheuser-Busch Companies, Incorporated 6,000 393,750 York International Corporation 2,300 93,869
---------
CHEMICALS-2.33% 471,500
Cabot Corporation 800 22,350
Hercules, Incorporated 2,600 71,175 ELECTRONICS/INSTRUMENTS-0.77%
Monsanto Company 3,500 166,250 Avnet, Incorporated 2,000 121,000
Praxair, Incorporated 3,000 105,750
--------- ENVIRONMENTAL-0.47%
365,525 Waste Management, Incorporated 1,595 74,367
COMMUNICATION EQUIPMENT-4.48% EXPLORATION & DRILLING-1.07%
Ascend Communications, Incorporated* 4,500 295,875 Global Marine Incorporated* 2,500 22,969
Lucent Technologies, Incorporated 2,800 308,000 Tidewater, Incorporated 3,500 81,156
Northern Telecom Limited 2,000 100,250 Union Pacific Resources Group, Inc. 7,000 63,438
--------- ----------
704,125 167,563
COMPUTER RELATED-2.38% FINANCIAL SERVICES-2.30%
Cisco Systems, Incorporated* 2,550 236,672 Associates First Capital Corporation 786 33,307
Sun Microsystems, Incorporated* 1,600 137,000 Countrywide Credit Industries, Inc. 3,000 150,563
--------- Morgan Stanley, Dean Witter, Discover
373,672 and Company 1,000 71,000
Reliance Group Holdings, Incorporated 8,200 105,575
COMPUTER SOFTWARE-9.26% --------
BMC Software, Incorporated* 3,200 142,600 360,445
HBO & Company 4,000 114,750 FOOD PRODUCERS-3.44%
MAPICS, Incorporated* 5,000 82,500 ConAgra, Incorporated 3,000 94,500
Microsoft Corporation* 3,900 540,881 IBP, Incorporated 2,500 72,812
Network Associates, Incorporated* 3,000 198,750 Interstate Bakeries Corporation 4,500 118,969
Novell, Incorporated* 12,000 217,500 McCormick & Company, Incorporated 2,000 67,625
Synopsys, Incorporated* 2,900 157,325 Tyson Foods, Incorporated 3,600 76,500
--------- Universal Foods Corporation 4,000 109,750
1,454,306 ---------
CONSTRUCTION-0.55% 540,156
Centex Corporation 1,900 85,619 FOOD RETAILERS-1.96%
Albertson's, Incorporated 1,300 82,794
Safeway, Incorporated* 3,700 225,469
COSMETICS/TOILETRIES-1.16% ---------
Procter & Gamble Company 2,000 182,625 308,263
FURNITURE/APPLIANCES-0.35%
Whirlpool Corporation 1,000 55,375
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO, CONTINUED
COMMON STOCK SHARES VALUE COMMON STOCK SHARES VALUE
<S> <C> <C> <C> <C> <C>
INSURANCE COMPANIES-3.76% PHOTOGRAPHY/IMAGING-2.63%
American General Corporation 2,000 $ 156,000 Xerox Corporation 3,500 $ 413,000
CIGNA Corporation 2,100 162,356
Citigroup, Incorporated 5,500 272,250 PRINTING/PUBLISHING-0.44%
--------- Banta Corporation 2,500 68,438
590,606
LEISURE TIME-0.63% PROFESSIONAL SERVICE-0.97%
Brunswick Corporation 4,000 99,000 Service Corporation International 4,000 152,250
MACHINERY/EQUIPMENT-1.97% RETAIL - GENERAL-2.30%
Deere & Company 2,000 66,250 Federated Department Stores, Inc.* 2,600 113,262
Flowserve Corporation 3,500 57,969 J. C. Penney Company, Incorporated 5,300 248,437
Foster Wheeler Corporation 1,000 13,187 ----------
Pall Corporation 6,800 172,125 361,699
--------- RETAIL - SPECIALTY-2.49%
309,531 Group 1 Automotive, Incorporated* 10,000 260,000
MEDICAL PRODUCTS/SUPPLIES-3.68% Officemax, Incorporated* 4,300 52,675
Abbott Laboratories 2,000 98,000 Tiffany & Company 1,500 77,812
Beckman Coulter, Incorporated 2,000 108,500 ----------
Bergen Brunswig Corporation (Class A) 5,000 174,375 390,487
Biomet, Incorporated 4,900 197,225 SEMICONDUCTORS-2.34%
--------- Intel Corporation 3,100 367,544
578,100
MEDICAL SERVICES-2.63% STEEL-1.52%
Aetna, Incorporated 2,000 157,250 Allegheny Teledyne, Incorporated 4,000 81,750
PacifiCare Health Systems, LTV Corporation 15,000 87,187
Incorporated (Class B)* 1,600 127,200 USX-U. S. Steel Group 3,000 69,000
United Healthcare Corporation 3,000 129,188 ----------
--------- 237,937
413,638 TELECOM - CELLULAR-0.64%
METALS & MINING-0.50% U S West, Incorporated 1,554 100,427
Kinross Gold Corporation* 33,616 77,737
TELEPHONE-1.36%
NATURAL GAS-1.09% Alltel Corporation 2,000 119,625
Enron Corporation 3,000 171,188 MediaOne Group, Incorporated* 2,000 94,000
----------
OIL DOMESTIC-2.05% 213,625
Amoco Corporation 2,000 120,750 TRUCKING & SHIPPING-1.25%
Kerr-McGee Corporation 2,100 80,325 Republic Services, Inc. (Class A)* 5,400 99,563
Murphy Oil Corporation 800 33,000 USFreightways Corporation 3,300 96,113
Unocal Corporation 3,000 87,563 ----------
--------- 195,676
321,638
OIL INTERNATIONAL-4.01% TOTAL COMMON STOCK-90.18% 14,159,484
Chevron Corporation 1,000 82,937 (Cost $10,124,834) ----------
Elf Aquitaine ADR 3,000 169,875
Royal Dutch Petroleum Company 5,000 239,375 COMMERCIAL PAPER FACE
Schlumberger Limited 3,000 138,375 AMOUNT
---------
630,562 CHEMICAL-SPECIALTY-1.67%
PAPER/FOREST PRODUCTS-0.53% Eastman Kodak Company, 5.50%,
Caraustar Industries, Incorporated 2,900 82,831 01/12/99 $262,000 261,559
ENERGY-MISCELLANEOUS-2.11%
Penn Fuel Corporation, 6.00%,
01/04/99 332,000 331,833
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO, CONTINUED
COMMERCIAL PAPER FACE VALUE
AMOUNT
<S> <C> <C>
UTILITY - MISCELLANEOUS-5.86%
Empire District Electric Company, 6.60%, 01/08/99 $722,000 $721,073
Orange & Rockland Utilities, Incorporated, 6.20%, 01/06/99 200,000 199,828
-----------
920,901
-----------
TOTAL COMMERCIAL PAPER-9.64%
(Cost $1,514,293) 1,514,293
-----------
TOTAL INVESTMENTS-99.82%
(Cost $11,639,127) 15,673,777
CASH AND OTHER ASSETS, LESS LIABILITIES-0.18% 28,152
-----------
NET ASSETS-100.00% $15,701,929
===========
</TABLE>
ABBREVIATIONS
ADR-American Depository Receipt
*-Non-income producing securities
See notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO
COMMON STOCK SHARES VALUE COMMON STOCK SHARES VALUE
<S> <C> <C> <C> <C> <C>
AUTO & TRUCK MANUFACTURERS-1.17% ELECTRICAL EQUIPMENT-3.32%
DaimlerChrysler AG* 436 $ 41,883 Emerson Electric Company 1,000 $ 60,500
Ford Motor Company 1,318 77,350 General Electric Company 3,500 357,219
General Motors Corporation 800 57,250 York International Corporation 2,000 81,625
--------- ---------
176,483 499,344
BANKS-7.14% ELECTRIC POWER-0.97%
Banc One Corporation 2,750 140,422 Allegheny Energy, Incorporated 800 27,600
BankAmerica Corporation 2,000 120,250 DTE Energy Company 2,000 85,750
Comerica, Incorporated 3,000 204,563 UtiliCorp United, Incorporated 900 33,019
Dime Bancorp, Incorporated 4,000 105,750 ---------
First Union Corporation 2,400 145,950 146,369
Fleet Financial Group, Incorporated 3,568 159,445 ELECTRONICS/INSTRUMENTS-1.01%
Morgan (J.P.) & Company 500 52,531 Avnet, Incorporated 2,500 151,250
TCF Financial Corporation 6,000 145,125
--------- ENVIRONMENTAL-0.45%
1,074,036 Waste Management, Incorporated 1,450 67,606
BEVERAGES-1.96%
Anheuser-Busch Companies, Incorporated 4,500 295,312 EXPLORATION & DRILLING-1.05%
Global Marine Incorporated* 1,600 14,700
CHEMICALS-2.10% Tidewater, Incorporated 3,900 90,431
Goodrich (B.F.) Company 5,000 179,375 Union Pacific Resources Group, Inc. 5,846 52,979
Hercules, Incorporated 2,300 62,962 ---------
Praxair, Incorporated 2,100 74,025 158,110
--------- FINANCIAL SERVICES-2.21%
316,362 Associates First Capital Corporation 690 29,239
COMMUNICATIONS EQUIPMENT-4.18% Countrywide Credit Industries, Inc. 2,800 140,525
Ascend Communications, Incorporated* 4,125 271,219 Morgan Stanley, Dean Witter,
Lucent Technologies, Incorporated 2,700 297,000 Discover and Company 1,000 71,000
Northern Telecom Limited 1,200 60,150 Reliance Group Holdings, Incorporated 7,100 91,412
--------- ---------
628,369 332,176
COMPUTER RELATED-4.99% FOODS PRODUCERS-2.88%
Cisco Systems, Incorporated* 2,550 236,672 ConAgra, Incorporated 4,000 126,000
Sun Microsystems, Incorporated* 6,000 513,750 IBP, Incorporated 4,500 131,062
--------- Interstate Bakeries Corporation 4,100 108,394
750,422 McCormick & Company, Incorporated 2,000 67,625
COMPUTER SOFTWARE-7.32% ---------
HBO & Company 2,100 60,244 433,081
MAPICS, Incorporated* 5,000 82,500 FOODS RETAILERS-2.01%
Microsoft Corporation* 3,800 527,013 Albertson's, Incorporated 1,500 95,531
Network Associates, Incorporated* 2,850 188,813 Safeway, Incorporated* 3,400 207,188
Novell, Incorporated* 5,600 101,500 ---------
Synopsys, Incorporated* 2,600 141,050 302,719
---------
1,101,120 FURNITURE/APPLIANCES-0.37%
CONSTRUCTION-0.57% Whirlpool Corporation 1,000 55,375
Centex Corporation 1,900 85,619
INSURANCE COMPANIES-2.63%
DIVERSIFIED-2.06% CIGNA Corporation 1,800 139,163
AlliedSignal, Incorporated 2,900 128,506 Citigroup, Incorporated 5,200 257,400
Coltec Industries, Incorporated* 5,000 97,500 ---------
U.S. Industries, Incorporated 4,500 83,813 396,563
--------- LEISURE TIME-0.49%
309,819 Brunswick Corporation 3,000 74,250
DRUGS-2.94%
Schering-Plough Corporation 8,000 442,000
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO, CONTINUED
COMMON STOCK SHARES VALUE COMMON STOCK SHARES VALUE
<S> <C> <C> <C> <C> <C>
MACHINERY/EQUIPMENT-2.29% REAL ESTATE/REITS-3.04%
Aeroquip-Vickers, Incorporated 3,000 $ 89,812 CenterPoint Properties Corporation 1,800 $ 60,862
Deere & Company 2,000 66,250 Crescent Real Estate Equities Company 5,000 115,000
Flowserve Corporation 2,500 41,406 Equity Office Properties Trust 10,000 240,000
Foster Wheeler Corporation 2,000 26,375 Health & Retirement Property Trust 3,000 42,188
Pall Corporation 4,800 121,500 ----------
--------- 458,050
345,343 RETAIL - DISCOUNT-0.41%
MEDICAL PRODUCTS/SUPPLIES-4.60% Kmart Corporation* 4,000 61,250
Abbott Laboratories 6,000 294,000
Beckman Coulter, Incorporated 1,000 54,250 RETAIL - GENERAL-2.34%
Bergen Brunswig Corporation (Class A) 5,000 174,375 Federated Department Stores, Inc.* 2,500 108,906
Biomet, Incorporated 4,200 169,050 J. C. Penney Company, Incorporated 5,200 243,750
--------- ----------
691,675 352,656
MEDICAL SERVICES-1.88% RETAIL - SPECIALTY-0.78%
Aetna Incorporated 1,200 94,350 Officemax, Incorporated* 4,100 50,225
PacifiCare Health Systems, Inc. (Class B)* 1,400 111,300 Tiffany & Company 1,300 67,438
United Healthcare Corporation 1,800 77,513 ----------
--------- 117,663
283,163 SEMICONDUCTORS-2.21%
METALS & MINING-0.34% Intel Corporation 2,800 331,975
Kinross Gold Corporation* 22,411 51,825
STEEL-1.54%
NATURAL GAS-0.87% Allegheny Teledyne, Incorporated 4,000 81,750
Enron Corporation 2,300 131,244 LTV Corporation 14,000 81,375
USX-U. S. Steel Group 3,000 69,000
OIL DOMESTIC-0.62% ----------
Kerr-McGee Corporation 1,800 68,850 232,125
Murphy Oil Corporation 600 24,750 TELECOM - CELLULAR-0.87%
--------- GTE Corporation 1,000 65,000
93,600 U S West, Incorporated 1,027 66,370
OIL INTERNATIONAL-5.25% ----------
Chevron Corporation 1,000 82,937 131,370
Elf Aquitaine ADR 1,000 56,625 TELEPHONE-1.03%
Exxon Corporation 1,000 73,125 Alltel Corporation 1,800 107,662
Royal Dutch Petroleum Company 6,000 287,250 MediaOne Group, Incorporated* 1,000 47,000
Schlumberger Limited 4,000 184,500 ----------
Texaco, Incorporated 2,000 105,750 154,662
--------- TOBACCO-0.46%
790,187 UST, Incorporated 2,000 69,750
PAPER/FOREST PRODUCTS-0.73%
Caraustar Industries, Incorporated 2,600 74,262 TRUCKING & SHIPPING-0.58%
Weyerhaeuser Company 700 35,569 USFreightways Corporation 3,000 87,375
--------- ----------
109,831
PHOTOGRAPHY/IMAGING-2.35% TOTAL COMMON STOCK-86.38% 13,001,242
Xerox Corporation 3,000 354,000 (Cost $9,533,674) ----------
PRINTING/PUBLISHING-0.40% PREFERRED STOCK
Banta Corporation 2,200 60,225 FINANCIAL SERVICES-0.71%
Conseco Incorporated (Series D)
PROFESSIONAL SERVICE-1.97% (Convertible) 1,000 106,000
Service Corporation International 7,800 296,888 OIL DOMESTIC-0.65%
Unocal Capital Trust (Convertible) 2,000 97,750
----------
TOTAL PREFERRED STOCK-1.36% 203,750
(Cost $167,289) ----------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
MANAGED PORTFOLIO, CONTINUED
FACE FACE
CORPORATE BONDS AMOUNT VALUE COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
ENVIRONMENTAL-1.11% UTILITY - MISCELLANEOUS-4.08%
Sanifill Incorporated, 5.00%, 03/01/06 Empire District Electric Company,
(Convertible) $100,000 $166,625 6.60%, 01/08/99 $300,000 $ 299,615
--------- Orange & Rockland Utilities,
TOTAL CORPORATE BONDS-1.11% 166,625 Incorporated, 6.50%, 01/07/99 314,000 313,659
(Cost $97,306) --------- ----------
613,274
COMMERCIAL PAPER ----------
TOTAL COMMERCIAL PAPER-10.94% 1,647,139
CONSTRUCTION-1.66% (Cost $1,647,139) ----------
Centex Corporation, 6.55%, 01/06/99 250,000 249,772 TOTAL INVESTMENTS-99.79% 15,018,756
(Cost $11,445,408) ----------
CONTAINERS-1.99% CASH AND OTHER ASSETS, LESS LIABILITIES-0.21% 32,019
Crown Cork & Steel Company, Incorporated, ----------
6.10%, 01/04/99 300,000 299,847 NET ASSETS-100.00% $15,050,775
ELECTRIC POWER-0.66%
Indiana Michigan Power Company, ABBREVIATIONS
6.20%, 01/05/99 100,000 99,931 ADR-American Depository Receipt
REIT-Real Estate Investment Trust
ENERGY MISCELLANEOUS-2.55% *-Non-income producing security
Penn Fuel Corporation,
6.40%, 01/11/99 385,000 384,315
</TABLE>
See notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
COMMON STOCK SHARES VALUE COMMON STOCK SHARES VALUE
<S> <C> <C> <C> <C> <C>
AUTO & TRUCK MANUFACTURERS-0.80% ELECTRICAL EQUIPMENT-2.01%
DaimlerChrysler AG* 124 $ 11,912 General Electric Company 1,100 $ 112,269
Ford Motor Company 500 29,344 York International Corporation 1,100 44,894
General Motors Corporation 300 21,469 ---------
--------- 157,163
62,725
ELECTRIC POWER-0.80%
BANKS-3.15% Allegheny Energy, Incorporated 400 13,800
Banc One Corporation 660 33,701 DTE Energy Company 700 30,012
BankAmerica Corporation 600 36,075 UtiliCorp United, Incorporated 500 18,344
Comerica, Incorporated 900 61,369 ---------
Dime Bancorp, Incorporated 1,600 42,300 62,156
First Union Corporation 400 24,325
Morgan (J.P.) & Company 200 21,013 ELECTRONICS/INSTRUMENTS-0.77%
Wells Fargo Company 700 27,956 Avnet, Incorporated 1,000 60,500
---------
246,739 ENVIRONMENTAL-0.87%
Waste Management, Incorporated 1,450 67,606
BEVERAGES-0.50%
Anheuser-Busch Companies, Incorporated 600 39,375 EXPLORATION & DRILLING-0.28%
Global Marine Incorporated* 900 8,269
CHEMICALS-0.70% Tidewater, Incorporated 500 11,594
Cabot Corporation 600 16,762 Union Pacific Resources Group, Inc. 254 2,302
Hercules, Incorporated 500 13,687 ---------
Praxair, Incorporated 700 24,675 22,165
---------
55,124 FINANCIAL SERVICES-1.97%
Associates First Capital Corporation 262 11,102
COMMUNICATIONS EQUIPMENT-1.66% Countrywide Credit Industries, Inc. 1,400 70,262
Lucent Technologies, Incorporated 1,000 110,000 Morgan Stanley, Dean Witter,
Northern Telecom Limited 400 20,050 Discover and Company 300 21,300
--------- Reliance Group Holdings, Inc. 4,000 51,500
130,050 ---------
154,164
COMPUTER RELATED-2.38%
Cisco Systems, Incorporated* 900 83,531 FOOD PRODUCERS-1.40%
Sun Microsystems, Incorporated* 1,200 102,750 IBP, Incorporated 900 26,212
--------- Interstate Bakeries Corporation 2,100 55,519
186,281 Universal Foods Corporation 1,000 27,437
---------
COMPUTER SOFTWARE-4.76% 109,168
HBO & Company 800 22,950
Microsoft Corporation* 1,300 180,294 FOOD RETAILERS-1.81%
Network Associates, Incorporated* 750 49,687 Albertson's, Incorporated 600 38,213
Novell, Incorporated* 2,100 38,062 Safeway, Incorporated* 1,700 103,594
Synopsys, Incorporated* 1,500 81,375 ---------
--------- 141,807
372,368
INSURANCE COMPANIES-1.90%
CONSTRUCTION-0.40% American General Corporation 300 23,400
Centex Corporation 700 31,544 CIGNA Corporation 600 46,388
Citigroup, Incorporated 1,600 79,200
---------
COSMETICS & TOILETRIES-1.40% 148,988
Procter & Gamble Company 1,200 109,575
LEISURE TIME-0.54%
Brunswick Corporation 1,700 42,075
DIVERSIFIED-1.96%
AlliedSignal, Incorporated 1,400 62,037 MACHINERY & EQUIPMENT-0.60%
Coltec Industries, Incorporated* 2,500 48,750 Flowserve Corporation 900 14,906
U.S. Industries, Incorporated 2,300 42,838 Foster Wheeler Corporation 500 6,594
--------- Pall Corporation 1,000 25,313
153,625 ---------
46,813
DRUGS-8.62%
Bristol-Myers Squibb Company 800 107,050
Pfizer, Incorporated 1,000 125,438
Schering-Plough Corporation 8,000 442,000
---------
674,488
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO, CONTINUED
COMMON STOCK SHARES VALUE COMMON STOCK SHARES VALUE
<S> <C> <C> <C> <C> <C>
MEDICAL PRODUCTS/SUPPLIES-4.36% RETAIL - GENERAL-1.34%
Abbott Laboratories 2,200 $ 107,800 Federated Department Stores, Inc.* 900 $ 39,206
Beckman Coulter, Incorporated 400 21,700 J. C. Penney Company, Incorporated 1,400 65,625
Bergen Brunswig Corporation (Class A) 1,750 61,031 ---------
Biomet, Incorporated 2,500 100,625 104,831
Johnson & Johnson 600 50,325
--------- RETAIL - SPECIALTY-0.55%
341,481 Officemax, Incorporated* 1,400 17,150
Tiffany & Company 500 25,937
MEDICAL SERVICES-1.52% ---------
Aetna, Incorporated 400 31,450 43,087
PacifiCare Health Systems,
Incorporated (Class B)* 500 39,750 SEMICONDUCTORS-1.36%
United Healthcare Corporation 1,100 47,369 Intel Corporation 900 106,706
---------
118,569 STEEL-0.85%
Allegheny Teledyne, Incorporated 1,000 20,438
NATURAL GAS-0.95% LTV Corporation 4,000 23,250
Enron Corporation 1,300 74,181 USX-U. S. Steel Group 1,000 23,000
---------
OIL DOMESTIC-0.51% 66,688
Amoco Corporation 400 24,150
Kerr-McGee Corporation 200 7,650 TELECOM - CELLULAR-0.92%
Murphy Oil Corporation 200 8,250 GTE Corporation 500 32,500
--------- U S West, Incorporated 616 39,809
40,050 ---------
72,309
OIL INTERNATIONAL-1.14%
Chevron Corporation 600 49,763 TELEPHONE-0.90%
Elf Aquitaine ADR 700 39,637 Alltel Corporation 700 41,869
--------- MediaOne Group, Incorporated* 600 28,200
89,400 ---------
70,069
PAPER/FOREST PRODUCTS-0.34%
Caraustar Industries, Incorporated 400 11,425 TOBACCO-0.31%
Weyerhaeuser Company 300 15,244 UST, Incorporated 700 24,413
---------
26,669 TRUCKING & SHIPPING-0.19%
USFreightways Corporation 500 14,562
PRINTING/PUBLISHING-0.32% ---------
Banta Corporation 900 24,638 TOTAL COMMON STOCK-55.87% 4,372,720
(Cost $2,779,351) ---------
PROFESSIONAL SERVICES-0.68%
Service Corporation International 1,400 53,287 PREFERRED STOCK
OIL DOMESTIC-0.31%
REAL ESTATE/REITS-0.20% Unocal Capital Trust (Convertible) 500 24,438
Health & Retirement Property Trust 1,100 15,469 ---------
TOTAL PREFERRED STOCK-0.31% 24,438
RETAIL - DISCOUNT-0.15% (Cost $26,541) ---------
Toys "R" Us, Incorporated* 700 11,812
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO, CONTINUED
FACE FACE
BONDS AND NOTES AMOUNT VALUE COMMERCIAL PAPER AMOUNT VALUE
<S> <C> <C> <C> <C> <C>
GOVERNMENT AGENCIES-12.51% CHEMICAL - SPECIALTY-3.52%
Federal Home Loan Mortgage Corporation, Eastman Kodak Company, 5.50%,
7.83%, 04/13/05 $150,000 $155,056 01/12/99 $276,000 $ 275,535
Federal Home Loan Mortgage Corporation,
7.70%, 05/17/06 80,000 80,759 CONSTRUCTION-1.28%
Federal Home Loan Mortgage Corporation, Centex Corporation, 6.55%,
Pool #540341, 9.00%, 09/01/19 5,106 5,400 01/06/99 100,000 99,909
Federal Home Loan Mortgage Corporation,
Pool #360100, 9.00%, 04/01/20 19,524 20,635 ENERGY/MISCELLANEOUS-4.47%
Federal National Mortgage Association, Penn Fuel Corporation, 6.00%,
7.55%, 04/22/02 50,000 53,628 01/04/99 350,000 349,824
Federal National Mortgage Association,
7.55%, 06/10/04 250,000 252,657 METAL PRODUCTS-2.51%
Federal National Mortgage Association, Reynolds Metals Company, 5.85%,
7.70%, 04/10/07 400,000 410,811 01/06/99 197,000 196,840
---------
978,946 UTILITY/MISCELLANEOUS-6.66%
Empire District Electric Company,
U S TREASURY SECURITIES-11.50% 6.60%, 01/08/99 380,000 379,512
U S Treasury Bonds, 6.00%, 02/15/26 680,000 742,050 Orange & Rockland Utilities,
U S Treasury Notes, 5.875%, 02/15/04 150,000 158,297 Incorporated, 6.50%, 01/07/99 142,000 141,846
--------- ----------
900,347 521,358
--------- ----------
TOTAL BONDS AND NOTES-24.01% TOTAL COMMERCIAL PAPER-18.44%
(Cost $1,684,163) 1,879,293 (Cost $1,443,466) 1,443,466
--------- ----------
TOTAL INVESTMENTS-98.63%
(Cost $5,933,521) 7,719,917
CASH AND OTHER ASSETS, LESS LIABILITIES-1.37% 107,301
----------
NET ASSETS-100.00% $7,827,218
==========
ABBREVIATIONS
ADR-American Depository Receipt
*-Non-income producing securities
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS December 31, 1998
- -----------------------------------------------------------------------------------------------------------------------------------
MONEY MARKET PORTFOLIO
STATED MATURITY FACE
RATE(%) DATE AMOUNT VALUE
FEDERAL AGENCIES-
<S> <C> <C> <C> <C>
Federal Farm Credit Bank 4.85% 02/01/99 $500,000 $ 497,912
Federal Home Loan Bank 5.10% 01/13/99 271,000 270,538
Federal Home Loan Mortgage Corporation 5.10% 01/12/99 172,000 171,731
Federal Home Loan Mortgage Corporation 5.12% 01/04/99 565,000 564,758
Federal Home Loan Mortgage Corporation 5.10% 01/08/99 122,000 121,879
Federal Home Loan Mortgage Corporation 5.08% 01/06/99 319,000 318,775
Federal Home Loan Mortgage Corporation 5.08% 01/14/99 518,000 517,048
Federal Home Loan Mortgage Corporation 5.10% 01/15/99 580,000 578,848
Federal Home Loan Mortgage Corporation 5.14% 01/08/99 188,000 187,812
Federal National Mortgage Association 5.09% 01/21/99 729,000 726,937
Federal National Mortgage Association 5.14% 01/05/99 340,000 339,806
---------
TOTAL FEDERAL AGENCIES-98.67%
(Cost $4,296,044) 4,296,044
CASH AND OTHER ASSETS, LESS LIABILITIES-1.33% 57,776
---------
NET ASSETS-100.00% $4,353,820
=========
</TABLE>
See notes to financial statements.
9
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF ASSETS AND LIABILITIES December 31, 1998
- ----------------------------------------------------------------------------------------------------------------------------------
GROWTH MANAGED BALANCED MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
ASSETS
<S> <C> <C> <C> <C>
Investments in securities, at value $15,673,777 $15,018,756 $7,719,917 $4,296,044
Cash and cash equivalents 33,667 33,402 83,904 64,894
Receivable for:
Investment securities sold - - 945 -
Dividends 11,681 14,709 3,065 -
Interest 85 1,809 31,138 361
Expense reimbursement 182 - 556 2,753
---------- ---------- ---------- ----------
TOTAL ASSETS 15,719,392 15,068,676 7,839,525 4,364,052
LIABILITIES
Accrued:
Investment advisory fee 5,606 5,272 2,777 1,600
Service fee 2,803 2,636 1,388 800
Audit fee 3,000 3,000 3,000 3,000
Shareholder reporting expense 2,000 2,000 2,000 2,000
Other liabilities 4,054 4,993 3,142 2,832
---------- ---------- ---------- ----------
TOTAL LIABILITIES 17,463 17,901 12,307 10,232
---------- ---------- ---------- ----------
NET ASSETS $15,701,929 $15,050,775 $7,827,218 $4,353,820
========== ========== ========== ==========
SHARES OUTSTANDING 8,683,588 8,577,638 5,094,868 4,353,820
========== ========== ========== ==========
NET ASSET VALUE PER SHARE $1.81 $1.75 $1.54 $1.00
========== ========== ========== ==========
STATEMENTS OF OPERATIONS Year Ended December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH MANAGED BALANCED MONEY MARKET
PORTFOLIO PORTFOLIO PORTFOLIO PORTFOLIO
INVESTMENT INCOME
<S> <C> <C> <C> <C>
Dividends $ 145,542 $ 176,256 $ 49,565 -
Interest 102,023 118,941 193,296 $ 205,046
---------- ---------- ---------- ----------
TOTAL INVESTMENT INCOME 247,565 295,197 242,861 205,046
EXPENSES
Investment advisory fees 63,214 57,632 30,684 16,655
Service fees 31,607 28,816 15,342 8,328
Custody and transaction fees 21,597 19,997 17,994 9,355
Directors' fees and expenses 10,571 10,571 10,571 10,474
Shareholder reporting expenses 2,875 2,875 2,875 2,875
Professional fees 3,379 3,379 3,379 3,379
Registration fees 507 507 507 507
Insurance expenses 375 376 376 376
---------- ---------- ---------- ----------
TOTAL EXPENSES 134,125 124,153 81,728 51,949
LESS EXPENSES REIMBURSED (19,150) (8,529) (22,488) (19,062)
---------- ---------- ---------- ----------
NET EXPENSES 114,975 115,624 59,240 32,887
---------- ---------- ---------- ----------
INVESTMENT INCOME-NET 132,590 179,573 183,621 172,159
---------- ---------- ---------- ----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain (loss) on investments 267,352 80,897 67,581 -
Change in unrealized appreciation of investments 1,899,902 1,590,285 758,264 -
---------- ---------- ---------- ----------
NET GAIN ON INVESTMENTS 2,167,254 1,671,182 825,845 -
---------- ---------- ---------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $2,299,844 $1,850,755 $1,009,466 $ 172,159
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
10
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
GROWTH PORTFOLIO
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
----------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income-net $ 132,590 $ 157,371
Net realized gain (loss) on investments 267,352 875,594
Change in unrealized appreciation 1,899,902 641,115
----------- -----------
Net increase in net assets resulting from operations 2,299,844 1,674,080
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income-net (131,790) (158,902)
Capital gains (495,322) (775,516)
----------- -----------
Total distributions to shareholders (627,112) (934,418)
CAPITAL SHARE TRANSACTIONS-Net 2,902,281 3,108,985
----------- -----------
TOTAL INCREASE 4,575,013 3,848,647
NET ASSETS
Beginning of year 11,126,916 7,278,269
----------- -----------
End of year $15,701,929 $11,126,916
=========== ===========
MANAGED PORTFOLIO
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
----------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income-net $ 179,573 $ 156,264
Net realized gain (loss) on investments 80,897 630,123
Change in unrealized appreciation 1,590,285 819,659
----------- -----------
Net increase in net assets resulting from operations 1,850,755 1,606,046
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income-net (177,776) (158,852)
Capital gains (251,773) (513,633)
----------- -----------
Total distributions to shareholders (429,549) (672,485)
CAPITAL SHARE TRANSACTIONS-Net 3,846,583 2,576,293
----------- -----------
TOTAL INCREASE 5,267,789 3,509,854
NET ASSETS
Beginning of year 9,782,986 6,273,132
----------- -----------
End of year $15,050,775 $ 9,782,986
=========== ===========
</TABLE>
See notes to financial statements.
11
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CHANGES IN NET ASSETS
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCED PORTFOLIO
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
----------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income-net $ 183,621 $ 168,655
Net realized gain (loss) on investments 67,581 350,655
Change in unrealized appreciation 758,264 332,627
---------- ----------
Net increase in net assets resulting from operations 1,009,466 851,937
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income-net (185,328) (168,712)
Capital gains (175,856) (267,353)
---------- ----------
Total distributions to shareholders (361,184) (436,065)
CAPITAL SHARE TRANSACTIONS-Net 1,584,014 898,313
---------- ----------
TOTAL INCREASE 2,232,296 1,314,185
NET ASSETS
Beginning of year 5,594,922 4,280,737
---------- ----------
End of year $7,827,218 $5,594,922
========== ==========
MONEY MARKET PORTFOLIO
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997
----------- -------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income-net $ 172,159 $ 123,016
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income-net (172,159) (123,016)
CAPITAL SHARE TRANSACTIONS-Net 1,533,151 288,794
---------- ----------
TOTAL INCREASE 1,533,151 288,794
NET ASSETS
Beginning of year 2,820,669 2,531,875
---------- ----------
End of year $4,353,820 $2,820,669
========== ==========
</TABLE>
See notes to financial statements.
12
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the year.
GROWTH PORTFOLIO
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.60 $ 1.45 $ 1.27 $ 1.04 $ 1.08
Investment income-net 0.02 0.03 0.02 0.02 0.02
Net realized and unrealized gain (loss) on
investments during the year 0.27 0.27 0.21 0.27 0.05
------- ------- ------- ------- -------
Total from investment operations 0.29 0.30 0.23 0.29 0.07
Less distributions from
Investment income-net (0.02) (0.03) (0.02) (0.02) (0.02)
Capital gains (0.06) (0.12) (0.03) (0.04) (0.09)
------- ------- ------- ------- -------
Total distributions (0.08) (0.15) (0.05) (0.06) (0.11)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 1.81 $ 1.60 $ 1.45 $ 1.27 $ 1.04
======= ======= ======= ======= =======
Total return 18.62% 20.72% 17.98% 28.50% 6.91%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $15,702 $11,127 $ 7,278 $ 4,781 $ 3,037
Ratio of expenses to average net assets (1) 0.87% 0.87% 0.87% 0.87% 0.90%
Ratio of net investment income to average net assets 1.00% 1.69% 1.84% 1.99% 2.04%
Portfolio turnover rate 25.75% 45.37% 21.24% 42.06% 46.18%
MANAGED PORTFOLIO
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
Net Asset Value, Beginning of Year $ 1.56 $ 1.37 $ 1.21 $ 1.00 $ 1.11
Investment income-net 0.02 0.03 0.03 0.03 0.02
Net realized and unrealized gain (loss) on
investments during the year 0.22 0.28 0.19 0.24 -
------- ------- ------- ------- -------
Total from investment operations 0.24 0.31 0.22 0.27 0.02
Less distributions from
Investment income-net (0.02) (0.03) (0.03) (0.03) (0.03)
Capital gains (0.03) (0.09) (0.03) (0.03) (0.10)
------- ------- ------- ------- -------
Total distributions (0.05) (0.12) (0.06) (0.06) (0.13)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 1.75 $ 1.56 $ 1.37 $ 1.21 $ 1.00
======= ======= ======= ======= =======
Total return 15.85% 22.41% 17.69% 27.19% 1.35%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $15,051 $ 9,783 $ 6,273 $ 4,028 $ 2,795
Ratio of expenses to average net assets (2) 0.93% 0.93% 0.93% 0.93% 0.98%
Ratio of net investment income to average net assets 1.44% 1.91% 2.29% 2.57% 2.36%
Portfolio turnover rate 24.83% 35.08% 20.79% 30.87% 26.26%
</TABLE>
(1) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.01%, 1.09%, 1.25%, 1.32%
and 1.13% for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(2) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 0.99%, 1.10%, 1.14%, 1.26%
and 1.23% for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
See notes to financial statements.
13
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
- ------------------------------------------------------------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the year.
BALANCED PORTFOLIO
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.39 $ 1.27 $ 1.18 $ 0.99 $ 1.06
Investment income-net 0.04 0.04 0.04 0.04 0.03
Net realized and unrealized gain (loss) on investments
during the year 0.19 0.20 0.10 0.19 (0.03)
------- ------- ------- ------- -------
Total from investment operations 0.23 0.24 0.14 0.23 0.00
Less distributions from
Investment income-net (0.04) (0.05) (0.04) (0.04) (0.03)
Capital gains (0.04) (0.07) (0.01) - (0.04)
------- ------- ------- ------- -------
Total distributions (0.08) (0.12) (0.05) (0.04) (0.07)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 1.54 $ 1.39 $ 1.27 $ 1.18 $ 0.99
======= ======= ======= ======= =======
Total return 16.58% 18.80% 12.23% 22.80% 0.15%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 7,827 $ 5,595 $ 4,281 $ 3,399 $ 2,660
Ratio of expenses to average net assets (1) 0.90% 0.90% 0.90% 0.90% 0.96%
Ratio of net investment income to average net assets 2.79% 3.43% 3.25% 3.19% 3.34%
Portfolio turnover rate 14.14% 23.02% 16.71% 15.97% 46.14%
MONEY MARKET PORTFOLIO
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
Net Asset Value, Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income-net 0.05 0.05 0.08 0.05 0.02
------- ------- ------- ------- -------
Total from investment operations 0.05 0.05 0.08 0.05 0.02
------- ------- ------- ------- -------
Less distributions from
Investment income-net (0.05) (0.05) (0.08) (0.05) (0.02)
------- ------- ------- ------- -------
Total distributions (0.05) (0.05) (0.08) (0.05) (0.02)
------- ------- ------- ------- -------
Net Asset Value, End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return 4.65% 4.78% 4.61% 5.11% 3.31%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 4,354 $ 2,821 $ 2,532 $ 2,398 $ 2,284
Ratio of expenses to average net assets (2) 0.87% 0.87% 0.87% 0.87% 0.91%
Ratio of net investment income to average net assets 4.55% 4.62% 4.51% 5.03% 3.32%
</TABLE>
(1) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.24%, 1.30%, 1.48%, 1.37%
and 1.25% for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
(2) Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.37%, 1.23%, 1.22%, 1.21%
and 1.14% for the years ended December 31, 1998, 1997, 1996, 1995 and 1994,
respectively.
See notes to financial statements.
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS December 31, 1998
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
NOTE 1-SIGNIFICANT ACCOUNTING POLICIES
The American National Investment Accounts, Inc. (the "Fund") is a diversified
open-end management investment company registered as a series fund under the
Investment Company Act of 1940, as amended. The Fund is comprised of the
Growth, Managed, Balanced and Money Market Portfolios.
Shares of the Fund, other than the initial capitalization, will be sold only to
separate accounts of American National Insurance Company ("American National").
The following is a summary of significant accounting policies consistently
followed by the Fund in the preparation of its financial statements. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting year. Actual results could differ from those estimates.
INVESTMENT VALUATIONS:
GROWTH, MANAGED AND BALANCED PORTFOLIOS
Investments listed on national exchanges are valued at the last sales price of
the day, or if there were no sales, then at the last bid price. Debt obligations
that are issued or guaranteed by the U.S. Government, its agencies, authorities,
and instrumentalities are valued on the basis of prices provided by an
independent pricing service. Prices provided by the pricing service may be
determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as yield, type of issue, coupon rate, maturity and
seasoning differential. Securities for which market quotations are not readily
available are valued as determined by the Board of Directors. Commercial paper
is stated at amortized cost, which is equivalent to fair value.
MONEY MARKET PORTFOLIO
Investments are valued at amortized cost (premiums and discounts are amortized
on a straight-line basis), which has been determined by the Fund's Board of
Directors to closely approximate the fair value of such securities. The Fund
intends to maintain a continuous net asset value per share of $1.00, rounded to
the nearest cent.
INVESTMENT TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date (date order to buy
or sell is executed). Dividend income is recognized on the ex-dividend date,
and interest income is recognized on an accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost for
financial reporting and federal income tax purposes.
FEDERAL INCOME TAXES:
For federal income tax purposes, each portfolio is treated as a separate entity.
The Fund intends 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. At December 31, 1998, the Growth Portfolio, Managed Portfolio and
the Balanced Portfolio had capital loss carryforwards that will expire in 2006
of approximately $70,000, $24,000 and $14,000, respectively.
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering at net asset value. The
Fund repurchases its shares at net asset value. Dividends and other
distributions are recorded by the Fund on the ex-dividend date and may be
reinvested at net asset value. For the Money Market Portfolio, distributions
are computed daily and distributed monthly.
EXPENSES:
Operating expenses directly attributable to a portfolio are charged to that
portfolio's operations. Expenses of the Fund, which are not directly
attributable to the operations of any portfolio, are prorated among all
portfolios of the Fund based on the relative net assets of each portfolio.
NOTE 2-INVESTMENT ADVISORY AND SERVICE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
The Fund has entered into an investment advisory agreement and an administrative
service agreement with Securities Management and Research, Inc. ("SM&R"). SM&R
is a wholly-owned subsidiary of American National.
The investment advisory agreement provides SM&R with a monthly advisory fee
based on an annualized rate of 1/2 of 1% of the Fund's average daily net assets.
For its fee, SM&R will provide investment advice and, in general, will conduct
the management and investments of the Fund.
The administrative service agreement provides SM&R with a monthly service fee
based on an annualized rate of 1/4 of 1% of the Fund's average daily net assets.
For its fee, SM&R will provide certain administrative services for the Fund.
In addition to the investment advisory fee and the administrative fee, the Fund
is responsible for paying most other operating expenses including outside
director's fees and expenses, safekeeping fees, legal fees, auditing services,
insurance, interest and miscellaneous expenses.
All offering and organization costs were paid by American National. Effective
May 1, 1994, SM&R has agreed to reimburse the Fund for expenses of any kind
(exclusive of interest, commissions and other expenses incidental to portfolio
transactions) which exceed the following percentages of each portfolio's average
daily net assets:
Growth 0.87%
Managed 0.93%
Balanced 0.90%
Money Market 0.87%
Prior to May 1, 1994, the reimbursement percentage was 1.50% of each portfolio's
average daily net assets.
As of December 31, 1998, SM&R and American National had the following ownership
in the Portfolios:
<TABLE>
<CAPTION>
AMERICAN NATIONAL AMERICAN NATIONAL
SM&R CORPORATE ACCOUNTS SEPARATE ACCOUNTS
------------------------------ ------------------------------ -----------------------------
PERCENT OF SHARES PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
<S> <C> <C> <C> <C> <C> <C>
Growth 378,834 4.36% 2,660,840 30.64% 5,643,914 65.00%
Managed 372,468 4.34% 2,612,361 30.46% 5,592,809 65.20%
Balanced 367,014 7.20% 2,571,632 50.48% 2,156,222 42.32%
Money Market 336,714 7.73% 2,358,195 54.17% 1,658,911 38.10%
</TABLE>
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
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, other than commercial paper, were
as follows:
PURCHASES SALES
Growth $5,750,232 $2,952,701
Managed $5,103,266 $2,567,109
Balanced $1,315,592 $ 784,395
Gross unrealized appreciation and depreciation as of December 31,1998 were as
follows:
APPRECIATION DEPRECIATION
Growth $4,775,115 $ 740,465
Managed $4,241,197 $ 667,849
Balanced $1,971,901 $ 185,505
NOTE 4-CAPITAL STOCK
GROWTH PORTFOLIO
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
-------------------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
---------------- ------------ ----------- ----------
<S> <C> <C> <C> <C>
Sale of capital shares 1,744,719 $ 2,975,649 1,626,208 $2,618,935
Investment income dividends reinvested 75,309 131,790 101,211 158,902
Distributions made from net realized gains reinvested 315,491 495,322 493,960 775,516
--------- ------------ --------- ----------
Subtotals 2,135,519 3,602,761 2,221,379 3,553,353
Redemptions of capital shares (413,303) (700,480) (269,044) (444,368)
--------- ------------ --------- ----------
Net increase in capital shares outstanding 1,722,216 $ 2,902,281 1,952,335 $3,108,985
============ ==========
Shares outstanding at beginning of year 6,961,372 5,009,037
--------- ---------
Shares outstanding at end of year 8,683,588 6,961,372
========= =========
The components of net assets at December 31, 1998,
are as follows:
Capital Stock-8,683,588 shares of $.01 par value $ 11,737,529
outstanding (115,000,000 authorized)(par and
additional paid-in capital)
Accumulated net realized gain (loss) on investments (70,250)
Net unrealized appreciation of investments 4,034,650
------------
Net assets $ 15,701,929
============
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
MANAGED PORTFOLIO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Sale of capital shares 2,507,388 $ 4,170,741 1,754,279 $2,697,284
Investment income dividends reinvested 103,963 177,776 103,150 158,852
Distributions made from net realized gains reinvested 162,434 251,773 333,200 513,633
---------- ------------ --------- ----------
Subtotals 2,773,785 4,600,290 2,190,629 3,369,769
Redemptions of capital shares (461,532) (753,707) (508,525) (793,476)
---------- ------------ --------- ----------
Net increase in capital shares outstanding 2,312,253 $ 3,846,583 1,682,104 $2,576,293
============ ==========
Shares outstanding at beginning of year 6,265,385 4,583,281
---------- ---------
Shares outstanding at end of year 8,577,638 6,265,385
========== =========
The components of net assets at December 31, 1998, are as follows:
Capital Stock-8,577,638 shares of $.01 par value $ 11,500,950
outstanding (120,000,000 authorized)(par and
additional paid-in capital)
Accumulated net realized gain (loss) on investments (23,523)
Net unrealized appreciation of investments 3,573,348
------------
Net assets $ 15,050,775
============
BALANCED PORTFOLIO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ----------
Sale of capital shares 1,000,879 $ 1,484,090 588,279 $ 798,835
Investment income dividends reinvested 123,552 185,328 122,255 168,712
Distributions made from net realized gains reinvested 123,843 175,856 193,156 267,353
---------- ------------ --------- ----------
Subtotals 1,248,274 1,845,274 903,690 1,234,900
Redemptions of capital shares (177,843) (261,260) (256,939) (336,587)
---------- ------------ --------- ----------
Net increase in capital shares outstanding 1,070,431 $ 1,584,014 646,751 $ 898,313
============ ==========
Shares outstanding at beginning of year 4,024,437 3,377,686
---------- ---------
Shares outstanding at end of year 5,094,868 4,024,437
========== =========
The components of net assets at December 31, 1998,
are as follows:
Capital Stock-5,094,868 shares of $.01 par value $ 6,055,301
outstanding (115,000,000 authorized)(par and
additional paid-in capital)
Accumulated net realized gain (loss) on investments (14,479)
Net unrealized appreciation of investments 1,786,396
------------
Net assets $ 7,827,218
============
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
MONEY MARKET PORTFOLIO
YEAR ENDED YEAR ENDED
DECEMBER 31, 1998 DECEMBER 31, 1997
--------------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Sales of capital shares 14,329,299 $ 14,329,299 420,449 $ 420,449
Investment income dividends reinvested 172,322 172,322 123,016 123,016
---------- ------------ --------- ----------
Subtotals 14,501,621 14,501,621 543,465 543,465
Redemptions of capital shares (12,968,470) (12,968,470) (254,671) (254,671)
---------- ------------ --------- ----------
Net increase in capital shares outstanding 1,533,151 $ 1,533,151 288,794 $ 288,794
============ ==========
Shares outstanding at beginning of year 2,820,669 2,531,875
---------- ---------
Shares outstanding at end of year 4,353,820 2,820,669
========== =========
The components of net assets at December 31, 1998,
are as follows:
Capital Stock-4,353,820 shares of $.01 par value
outstanding (1,050,000,000 authorized)(par and
additional paid-in capital) $ 4,353,820
------------
Net assets $ 4,353,820
============
</TABLE>
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
American National Investment Accounts, Inc.
We have audited the accompanying statements of assets and liabilities of
American National Investment Accounts, Inc. (comprised of Growth, Managed,
Balanced and Money Market portfolios), including the schedule of investments as
of December 31, 1998, the related statements of operations for the year then
ended, the statements of changes in net assets and the financial highlights for
each of the two years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits. The financial highlights for each of
the three 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 require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
American National Investment Accounts, Inc. as of December 31, 1998, the results
of its operations, the changes in its net assets and the financial highlights
for each of the periods indicated, in conformity with generally accepted
accounting principles.
Tait, Weller & Baker, CPA
Philadelphia, Pennsylvania
January 29, 1999
20
<PAGE>
PART C OTHER INFORMATION
ITEM 23. EXHIBITS.
(a) See Exhibit 1 to Post-Effective Amendment No. 7 to Form
N-1A for a copy of Registrant's Articles of Incorporation.
(b). See Exhibit 2 to Post-Effective Amendment No. 7 to Form N-1A for a copy
of Registrant's By-Laws.
(c). See Exhibit 4 to Post-Effective Amendment No. 7 to Form N-1A for a
specimen of Registrant's stock certificate.
(d). See Exhibit 5 to Post-Effective Amendment No. 7 to Form N-1A for a copy
of Registrant's Investment Advisory Agreement.
(e). See Exhibit 6a to Post-Effective Amendment No. 7 to Form N-1A for a
copy of Registrant's Fund Participation Agreement with the American
National Variable Annuity Separate Account and Exhibit 6b with the
American National Variable Life Separate Account.
(f). None.
(g). See Exhibit 8a and Exhibit 8b to Post-Effective Amendment No. 7 to Form
N-1A for a copy of Registrant's current Custodian Agreement and Sub-
Custodian Agreement.
(h). None.
(i). Exhibit i to Form N-1A, for the consent and opinion of Registrant's
counsel, Greer, Herz & Adams, L.L.P. is filed herewith.
(j). Exhibit j to Form N-1A, for the consent of independent auditor, Tait,
Weller & Baker, CPA, is filed herewith.
(k). Not Applicable.
(l). See Exhibit 13 to Post-Effective Amendment No. 7 to Form N-1A for copies
of the stock purchase letters.
54
<PAGE>
(m). None.
(n). Financial Data Schedules is filed herewith.
(o). None.
(p). Control List is filed herewith.
(q). See Exhibit 17 to Post-Effective Amendment No. 9 to Form
N-1A, for a revised Power of Attorney.
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
All persons under common control with the Registrant are shown on the list
as Exhibit (p), which will be filed by Amendment.
ITEM 25. INDEMNIFICATION.
The 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 the Registrant's By-Laws, a copy of which is attached as Exhibit
2 to Post-Effective Amendment No. 7 to Form N-1A.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
55
<PAGE>
Securities Management and Research, Inc. ("SM&R") serves as investment adviser
to Registrant, the American National Growth Fund, Inc., the American National
Income Fund, Inc., and the Triflex Fund, Inc., (collectively herein referred to
as the "American National Funds Group") and the SM&R Capital Funds, Inc. See
"Investment Adviser" in Part A and "Investment Advisory and Other Services" in
Part B.
ROBERT A. FRUEND, C.L.U.
Director of SM&R, 2450 South Shore Boulevard, Suite 400, League City,
Texas; Executive Vice President and Director of Ordinary Agencies of
American National Insurance Company; Vice President and Director of
American National Life Insurance Company of Texas, all located at One
Moody Plaza, Galveston, Texas; Director and Chairman of the Board of
American National Property and Casualty Company; Director and Chairman
of the Board of American National General Insurance Company; Director
of American National Insurance Service Company; Director of American
National Lloyds Insurance Company; Director and Chairman of the Board,
Pacific Property and Casualty Inc., all located at 1949 East Sunshine,
Springfield, Missouri.
R. EUGENE LUCAS
Director and Member of the Executive Committee of SM&R, 2450 South Shore
Boulevard, Suite 400, League City, Texas; Director of American
National Insurance Company; Director of ANREM Corporation, both
located at One Moody Plaza, Galveston, Texas; President and Director
of Gal-Tex Hotel Corporation; Gal-Tenn Hotel Corporation, both located
at 504 Moody National Bank Tower, Galveston, Texas.
RONALD J. WELCH
Director of SM&R, 2450 South Shore Boulevard, Suite 400, League City,
Texas; Executive Vice President and Chief Actuary of American National
Insurance Company; 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, Inc., all located
at 1949 East Sunshine Street, Springfield, Missouri.
G. RICHARD FERDINANDSTEN
Director and Member of Executive Committee of SM&R, 2450 South Shore
Boulevard, Suite 400, League City, Texas; Director, Senior Vice
President and Chief Operating Officer, American National Insurance
Company; 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 and Vice Chairman of the Board,
American National Property and Casualty; Director and Vice Chairman of
the Board, Pacific Property & Casualty, Inc.; 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.
MICHAEL W. MCCROSKEY
Director, President, Chief Executive Officer and member of the Executive
Committee of SM&R; President and Director of the Fund; President and
Director of the SM&R Growth Fund, Inc., SM&R Income Fund, Inc., and
SM&R Balanced Fund, Inc.
56
<PAGE>
(hereinafter referred to as the "SM&R Equity Funds"); President and
Director of the SM&R Investments, Inc. all located at 2450 South Shore
Boulevard, Suite 400, League City, Texas; Executive Vice President,
American National; Assistant Secretary of American National Life
Insurance Company of Texas; President and Director, ANREM Corporation;
Director and President, ANTAC Corporation; Director, all located at
One Moody Plaza, Galveston, Texas; Comprehensive Investment Services,
2450 South Shore Boulevard, Suite 400, League City, Texas; Vice
President of Standard Life and Accident Insurance Company, 201 Robert
S. Kerr Avenue, Oklahoma City, Oklahoma; Vice President, Garden State
Life Insurance Company, 2450 South Shore Boulevard, League City,
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.
GORDON D. DIXON
Director, Senior Vice President, Chief Investment Officer and a member of
the investment and executive committees of SM&R; Vice President,
Portfolio Manager of the American National Investment Accounts-Growth,
Managed and Balanced Portfolios, SM&R Growth Fund, Inc., SM&R Income
Fund, Inc., and SM&R Balanced Fund, Inc., all located at 2450 South
Shore Boulevard, Suite 400, League City, Texas; Vice President, Stocks
of American National Insurance Company, One Moody Plaza, Galveston,
Texas; Director and President, Comprehensive Investment Services, 2450
South Shore Boulevard, Suite 400, League City, Texas; Vice President,
Investments for Garden State Life Insurance Company, 2450 South Shore
Boulevard, Suite 301, League City, Texas.
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.
WILLIAM J. KEARNS, JR.
Senior Vice President, National Marketing and Sales Director of SM&R, 2450
South Shore Boulevard, Suite 400, League City, Texas; Vice President
for Private Label Funds for Standish, Ayers & Wood in Boston,
Massachusetts.
EMERSON V. UNGER, C.L.U.
Vice President of SM&R; Vice President of the SM&R Equity Funds and the
SM&R Investments, Inc., 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
SM&R Equity Funds and the SM&R Investments, Inc.; Treasurer,
Comprehensive Investment Services, 2450 South Shore Boulevard, Suite
400, League City, Texas.
TERESA E. AXELSON
Vice President and Secretary of SM&R, the SM&R Equity Funds and the SM&R
Investments, Inc., 2450 South Shore Boulevard, Suite 400, League City,
Texas.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Not applicable.
(b) Not applicable.
(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.
ITEM 29. MANAGEMENT SERVICES.
There are no management-related service contracts to which the Registrant is a
party not discussed under Part A or Part B of this Registration Statement.
ITEM 30. UNDERTAKINGS.
The Fund undertakes to furnish each person to whom a prospectus is delivered a
copy of its latest Annual Report to shareholders, without charge, upon request.
57
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant, AMERICAN NATIONAL INVESTMENT ACCOUNTS,
INC., certifies that it meets all of the requirements for effectiveness of this
POST-EFFECTIVE AMENDMENT NO. 11 to Registration Statement, pursuant to Rule
485(a) under the Securities Act of 1933 and has duly caused this POST-EFFECTIVE
AMENDMENT NO. 11 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Galveston and State of
Texas, on the 28th day of April, 1999.
AMERICAN NATIONAL INVESTMENT ACCOUNTS, 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. 11 to the registration statement has been signed below by the
following persons in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER: PRINCIPAL ACCOUNTING OFFICER:
/s/ MICHAEL W. McCROSKEY /s/ BRENDA T. KOELEMAY
- ---------------------------------- -----------------------------
Michael W. McCroskey, President Brenda T. Koelemay, Treasurer
Date: April 28, 1999 Date: April 28, 1999
DIRECTORS
/s/ ERNEST S. BARRATT, PH.D. /s/ EDWIN K. NOLAN
- ---------------------------------- -----------------------------
*Ernest S. Barratt, Ph.D. *Edwin K. Nolan
By: Michael W. McCroskey By: Michael W. McCroskey
Date: April 28, 1999 Date: April 28, 1999
/s/ ALLAN W. MATTHEWS /s/ ROBERT B. SHATTUCK, JR.
- ---------------------------------- -----------------------------
*Allan W. Matthews *Robert V. Shattuck, Jr.
By: Michael W. McCroskey By: Michael W. McCroskey
Date: April 28, 1999 Date: April 28, 1999
/s/ LEA MCLEOD MATTHEWS /s/ JAMIE G. WILLIAMS
- ---------------------------------- -----------------------------
*Lea McLeod Matthews *Jamie G. Williams
By: Michael W. McCroskey By: Michael W. McCroskey
Date: April 28, 1999 Date: April 28, 1999
/s/ MICHAEL W. MCCROSKEY /s/ FRANK P. WILLIAMSON
- ---------------------------------- -----------------------------
*Michael W. McCroskey *Frank P. Williamson
By: Michael W. McCroskey By: Michael W. McCroskey
Date: April 28, 1999 Date: April 28, 1999
/s/ ANN MCLEOD MOODY
- ----------------------------------
*Ann McLeod Moody
By: Michael W. McCroskey
Date: April 28, 1999
*Pursuant to a Power of Attorney executed by the Board of Directors dated
December 4, 1997, attached as Exhibit 99.B17 to Post-Effective Amendment No. 9.
58
<PAGE>
EXHIBIT INDEX
TO
POST-EFFECTIVE AMENDMENT NO. 11
UNDER THE SECURITIES ACT OF 1933
AND
AMENDMENT NO. 11
UNDER THE INVESTMENT COMPANY ACT OF 1940
FOR
AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
("Registrant")
PART C ITEM AND CAPTION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
<TABLE>
<S> <C> <C>
(a) Attached as Exhibit "1" to the
Financial Statements: - Statement of Additional Information.
------------------------ ---------------------------------------
(b) Exhibits Attached This Filing:
Exhibit (i) Consent and Opinion of Registrant's counsel, Greer,
Herz & Adams, L.L.P.
Exhibit (j) Consent of Tait, Weller and Baker, independent accountants
of Registrant
Exhibit (p) Control List
Exhibit 27.1 Growth Portfolio
Exhibit 27.2 Managed Portfolio
Exhibit 27.3 Balanced Portfolio
Exhibit 27.4 Money Market Portfolio
</TABLE>
<PAGE>
EXHIBIT (i)
[LETTERHEAD OF GREER, HERZ & ADAMS, L.L.P. APPEARS HERE]
April 28, 1999
American National Investment Accounts, Inc.
2450 South Shore Boulevard, Suite 400
League City, Texas 77573
RE: American National Investment Accounts, Inc. (the "Company") Post-
Effective Amendment No. 11 under the Securities Act of 1933 (the
"33 Act") and Post-Effective Amendment No. 11 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, or course, assume that the Company will not sell more than
the 2,000,000,000 shares authorized, nor sell more than the 115,000,000 shares
initially authorized for the Growth Portfolio, the 115,000,000 shares initially
authorized for the Balanced Portfolio, the 120,000,000 shares initially
authorized for the Managed Portfolio, or the 1,050,000,000 shares initially
authorized for the Money Market Portfolio, 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 29, 1999 on the financial
statements and financial highlights of American National Investment Accounts,
Inc. (comprised of Growth, Managed, Balanced and Money Market portfolios). Such
financial statements and financial highlights appear in the 1998 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-1/A of
American National Investment Accounts, Inc. We also consent to the references
to our Firm in the Registration Statement and Prospectus.
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
April 28, 1999
<PAGE>
EXHIBIT (p)
CONTROL LIST
The Registrant, American National Investment Accounts, Inc., is advised and
managed by Securities Management & Research, Inc. ("SM&R"), a Florida
corporation and registered investment adviser and broker-dealer. SM&R is a
wholly-owned subsidiary of American National Insurance Company, a Texas
insurance company. The Libbie Shearn Moody Trust owns approximately 37.58% of
the outstanding stock of American National Insurance Company. The Moody
Foundation, which has a 75% contingent remainder interest in the Libbie Shearn
Moody Trust, owns approximately 23.7% of the outstanding stock of American
National Insurance Company.
The Trustees of The Moody Foundation are Mrs. Frances Moody Newman, Robert
L. Moody and Ross Rankin Moody. Robert L. Moody is a life income beneficiary of
the Libbie Shearn Moody Trust and Chairman of the Board, Director, President and
Chief Executive Officer of American National Insurance Company. Robert L. Moody
has assigned his interest in the Libbie Shearn Moody Trust to National Western
Life Insurance Company, a Colorado insurance company of which he is also
Chairman of the Board, a Director and controlling shareholder.
The Moody National Bank of Galveston is the trustee of the Libbie Shearn
Moody Trust and various other trusts which, in the aggregate, own approximately
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: Alternative Benefit Management, Inc.
Entity Form: a Nevada corporation
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
<PAGE>
Ownership or Other Basis of Control: American National Insurance Company owns a
98% interest.
Entity: American National of Delaware Corporation
Entity Form: a Delaware corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company
Entity: American National Financial Corporation
Entity Form: a Texas corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: American National Financial Corporation (Delaware)
Entity Form: a Delaware corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: American National Financial Corporation (Nevada)
Entity Form: a Nevada corporation (inactive)
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: American National General Insurance Company
Entity Form: a Missouri insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: American National Insurance Service Company
Entity Form: a Missouri corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
2
<PAGE>
Entity: American National Life Insurance Company of Texas
Entity Form: a Texas insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company
Entity: American National Lloyds Insurance Company
Entity Form: a Texas corporation
Ownership or Other Basis for Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: American National Property and Casualty Company
Entity Form: a Missouri insurance company
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: ANDV 97, Inc.
Entity Form: a Texas company
Ownership or Other Basis of Control: Wholly owned subsidiary of ANTAC, Inc.
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
3
<PAGE>
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Property and Casualty Company.
Entity: ANPAC Lloyds Insurance Management, Inc.
Entity Form: a Texas corporation
Ownership or Other Basis for Control: Wholly owned subsidiary of American
National Property and Casualty Company
Entity: ANREM Corporation
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of Securities
Management and Research, Inc.
Entity: ANTAC, Inc.
Entity Form: a Texas corporation
Ownership or Other Basis of Control: Wholly owned subsidiary of American
National Insurance Company.
Entity: 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: 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.
4
<PAGE>
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: 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: MR/SA Partnership
Entity Form: a Nevada general partnership
Ownership or Other Basis of Control: ANTAC, Inc. owns a 50% interest.
Entity: Pacific Property and Casualty Company
5
<PAGE>
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: 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: SM&R Balanced Fund, Inc.
Entity Form: a Maryland corporation - a registered investment company
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, 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 Growth Fund, Inc.
Entity Form: a Maryland corporation - registered investment company
6
<PAGE>
Ownership or Other Basis of Control: Investment Advisory Agreement with
Securities Management and Research, Inc. Also, American National Insurance
Company and Securities Management and Research, Inc. own 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: Terra Venture Bridgeton Project Joint Venture
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: Wholly owned by American National
Insurance Company.
Entity: Third and Catalina, Ltd.
Entity Form: a Texas limited partnership
Ownership or Other Basis of Control: American National Insurance Company owns a
49% limited partnership interest.
Entity: Timbermill, Ltd.
Entity Form: a Texas joint venture
Ownership or Other Basis of Control: American National Insurance Company owns a
99% limited partnership interest.
7
<PAGE>
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.
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000867050
<NAME> AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
<SERIES>
<NUMBER> 01
<NAME> GROWTH PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 11,639,127
<INVESTMENTS-AT-VALUE> 15,673,777
<RECEIVABLES> 11,948
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 33,667
<TOTAL-ASSETS> 15,719,392
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,463
<TOTAL-LIABILITIES> 17,463
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,650,693
<SHARES-COMMON-STOCK> 6,683,586
<SHARES-COMMON-PRIOR> 6,961,372
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (70,250)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,034,650
<NET-ASSETS> 15,701,929
<DIVIDEND-INCOME> 145,542
<INTEREST-INCOME> 102,023
<OTHER-INCOME> 0
<EXPENSES-NET> 114,975
<NET-INVESTMENT-INCOME> 132,590
<REALIZED-GAINS-CURRENT> 267,352
<APPREC-INCREASE-CURRENT> 1,899,902
<NET-CHANGE-FROM-OPS> 2,299,644
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 131,790
<DISTRIBUTIONS-OF-GAINS> 495,322
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,744,713
<NUMBER-OF-SHARES-REDEEMED> (413,303)
<SHARES-REINVESTED> 390,800
<NET-CHANGE-IN-ASSETS> 2,902,281
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 156,920
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 63,214
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 134,125
<AVERAGE-NET-ASSETS> 13,285,904
<PER-SHARE-NAV-BEGIN> 1.60
<PER-SHARE-NII> .02
<PER-SHARE-GAIN-APPREC> .27
<PER-SHARE-DIVIDEND> .02
<PER-SHARE-DISTRIBUTIONS> (.06)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.81
<EXPENSE-RATIO> .87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would hve been 1.01%.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000867050
<NAME> AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
<SERIES>
<NUMBER> 02
<NAME> MANAGED PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 11,445,408
<INVESTMENTS-AT-VALUE> 15,018,756
<RECEIVABLES> 16,518
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 33,402
<TOTAL-ASSETS> 15,068,676
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,901
<TOTAL-LIABILITIES> 17,901
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 11,415,174
<SHARES-COMMON-STOCK> 8,577,638
<SHARES-COMMON-PRIOR> 6,265,385
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (23,523)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 3,573,348
<NET-ASSETS> 15,050,775
<DIVIDEND-INCOME> 176,256
<INTEREST-INCOME> 118,941
<OTHER-INCOME> 0
<EXPENSES-NET> 115,624
<NET-INVESTMENT-INCOME> 179,573
<REALIZED-GAINS-CURRENT> 80,897
<APPREC-INCREASE-CURRENT> 1,590,285
<NET-CHANGE-FROM-OPS> 1,850,755
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 177,776
<DISTRIBUTIONS-OF-GAINS> 251,773
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 2,507,388
<NUMBER-OF-SHARES-REDEEMED> (461,532)
<SHARES-REINVESTED> 266,397
<NET-CHANGE-IN-ASSETS> 3,846,583
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 145,566
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 57,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 124,153
<AVERAGE-NET-ASSETS> 12,497,832
<PER-SHARE-NAV-BEGIN> 1.56
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.22
<PER-SHARE-DIVIDEND> 0.02
<PER-SHARE-DISTRIBUTIONS> (0.03)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.75
<EXPENSE-RATIO> 0.93
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of expenses
to average net asset would have been 0.99%.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000867050
<NAME> AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
<SERIES>
<NUMBER> 03
<NAME> BALANCE PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 5,933,521
<INVESTMENTS-AT-VALUE> 7,719,917
<RECEIVABLES> 35,704
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 83,904
<TOTAL-ASSETS> 7,839,525
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,307
<TOTAL-LIABILITIES> 12,307
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,004,352
<SHARES-COMMON-STOCK> 5,094,866
<SHARES-COMMON-PRIOR> 4,024,437
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (14,479)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,786,396
<NET-ASSETS> 7,827,218
<DIVIDEND-INCOME> 49,565
<INTEREST-INCOME> 193,296
<OTHER-INCOME> 0
<EXPENSES-NET> 59,240
<NET-INVESTMENT-INCOME> 183,621
<REALIZED-GAINS-CURRENT> 67,581
<APPREC-INCREASE-CURRENT> 758,264
<NET-CHANGE-FROM-OPS> 1,009,466
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 185,328
<DISTRIBUTIONS-OF-GAINS> 175,856
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,000,879
<NUMBER-OF-SHARES-REDEEMED> (177,843)
<SHARES-REINVESTED> 247,395
<NET-CHANGE-IN-ASSETS> 1,584,014
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 95,503
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 30,684
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 81,728
<AVERAGE-NET-ASSETS> 6,586,095
<PER-SHARE-NAV-BEGIN> 1.39
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.19
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> (0.04)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.54
<EXPENSE-RATIO> 0.90
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would have been 1.24%.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000867050
<NAME> AMERICAN NATIONAL INVESTMENT ACCOUNTS, INC.
<SERIES>
<NUMBER> 04
<NAME> MONEY MARKET PORTFOLIO
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 4,296,044
<INVESTMENTS-AT-VALUE> 4,296,044
<RECEIVABLES> 3,114
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 64,894
<TOTAL-ASSETS> 4,384,052
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 10,232
<TOTAL-LIABILITIES> 10,232
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 4,310,282
<SHARES-COMMON-STOCK> 4,353,820
<SHARES-COMMON-PRIOR> 2,820,669
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 4,353,820
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 205,046
<OTHER-INCOME> 0
<EXPENSES-NET> 32,887
<NET-INVESTMENT-INCOME> 172,159
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 172,159
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 172,159
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 14,329,299
<NUMBER-OF-SHARES-REDEEMED> (12,968,470)
<SHARES-REINVESTED> 172,322
<NET-CHANGE-IN-ASSETS> 1,533,151
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,655
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 51,949
<AVERAGE-NET-ASSETS> 3,781,699
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.87
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net of a reimbursement from Securities
Management and Research, Inc. Without this reimbursement, the ratio of expenses
to average net assets would have been 1.37%.
</FN>
</TABLE>
