<PAGE>
GOVERNMENT INCOME FUND SERIES
[AMERICAN NATIONAL]
PRIMARY FUND SERIES
TAX FREE FUND SERIES
[SM&R CAPITAL FUNDS]
P R O S P E C T U S
SM&R CAPITAL FUNDS, INC. - One Moody Plaza - Galveston,
Texas 77550
Telephone Number: (409) 763-8272 - Toll Free: 1 (800)
231-4639
December 29, 1995 as amended April 1, 1996
<TABLE>
<S> <C> <C>
DIRECTORS OFFICERS
Samuel K. Finegan Michael W. McCroskey Michael W. McCroskey, President and CEO
Brent E. Masel, M.D. Andrew J. Mytelka Brenda T. Koelemay, Vice President and Treasurer
Allan W. Matthews Edwin K. Nolan Emerson V. Unger, Vice President
Lea McLeod Matthews Louis E. Pauls, Jr. Teresa E. Axelson, Vice President and Secretary
Shannon L. Moody
</TABLE>
INVESTMENT ADVISOR AND MANAGER UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc. Securities Management and Research,
Inc.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
CUSTODIAN TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc. Securities Management and Research,
Inc.
One Moody Plaza One Moody Plaza
Galveston, Texas 77550 Galveston, Texas 77550
LEGAL COUNSEL INDEPENDENT AUDITORS
Greer, Herz & Adams, L.L.P. KPMG Peat Marwick LLP
One Moody Plaza 700 Louisiana
Galveston, Texas 77550 Houston, Texas 77002
- --------------------------------------------------------------------------------
PLEASE READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE. SHARES OF THE FUND
ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY ANY BANK.
FURTHER, SHARES OF THE FUND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE U.S.
GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), THE FEDERAL
RESERVE BOARD OR ANY OTHER AGENCY. SHARES OF THE FUND INVOLVE INVESTMENT RISKS,
INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
Information contained in this Prospectus should be read carefully by a
prospective investor before an investment is made. Additional information about
the Fund has been filed with the Securities and Exchange Commission in a
Statement of Additional Information dated December 29, 1995 as amended April 1,
1996 which information is incorporated herein by reference and is available
without charge upon written request to Securities Management and Research, Inc.
("SM&R"), One Moody Plaza, 14th Floor, Galveston, Texas 77550, or by phoning
Toll Free 1-800-231-4639 or 1-409-763-8272.
This Prospectus contains information about the SM&R Capital Funds, Inc. (the
"Fund") a diversified, open-end management investment company consisting of
three separate series ("Series") each of which has its own investment objective
designed to meet different investment goals. These investment objectives and
suitability are further described under "The Fund at a Glance" and "Investment
Objectives and Policies". For investment purposes, each Series is a separate
fund and a separate series of capital securities is issued for each Series.
Form 9201 (4/96)
1
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TABLE OF CONTENTS
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<S> <C>
THE FUND AT A GLANCE...................................................... 2
TABLE OF FEES AND EXPENSES................................................ 4
FINANCIAL HIGHLIGHTS...................................................... 5
PERFORMANCE............................................................... 8
INVESTMENT OBJECTIVES AND POLICIES........................................ 8
ADDITIONAL INVESTMENT POLICIES AND TECHNIQUES............................. 13
THE FUND AND ITS MANAGEMENT............................................... 14
PURCHASE OF SHARES........................................................ 15
WHEN ARE PURCHASES EFFECTIVE?............................................. 16
APPLICATIONS
DETERMINATION OF OFFERING PRICE........................................... 17
SPECIAL PURCHASE PLANS.................................................... 19
RETIREMENT PLANS.......................................................... 21
DIVIDENDS AND DISTRIBUTIONS............................................... 22
TAXES..................................................................... 22
HOW TO REDEEM............................................................. 23
OTHER INFORMATION CONCERNING THE FUND..................................... 26
APPENDIX.................................................................. 27
</TABLE>
THE FUND AT A GLANCE
SM&R Capital Funds, Inc. (the "Fund") was incorporated under the laws of
Maryland on November 6, 1991. The Fund offers three separate Series each of
which pursues unique investment objectives. The investment objectives and
investor suitability profile of each Series are as follows:
AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES ("GOVERNMENT INCOME SERIES")
OBJECTIVE: To provide a high level of current income, liquidity and safety of
principal consistent with prudent investment risks through investment in a
portfolio consisting primarily of securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities.
INVESTOR SUITABILITY PROFILE: The Government Income Series is for the investor
desiring the security of investing primarily in the strength and stability of
the U.S. Government, its agencies or instrumentalities in order to meet their
current needs. However, an investor should keep in mind the Series may invest in
other instruments in order to meet it's objectives.
AMERICAN NATIONAL PRIMARY FUND SERIES ("PRIMARY SERIES")
OBJECTIVE: To seek maximum current income consistent with capital preservation
and liquidity through investment primarily in commercial paper.
INVESTOR SUITABILITY PROFILE: The Primary Series is for the fixed income
investor who desires minimal investment risk yet is looking to move cautiously
into the investment arena.
AMERICAN NATIONAL TAX FREE FUND SERIES ("TAX FREE SERIES")
OBJECTIVE: To provide as high a level of interest income largely exempt from
federal income taxes as is consistent with preservation of capital through
investment of at least 80% of its net assets in tax-exempt securities during
normal market conditions.
INVESTOR SUITABILITY PROFILE: The Tax Free Series is for the investor desiring
income exempt from federal income tax and, under certain conditions, exempt from
state and local taxes based on his tax bracket. An investor must keep in mind
that income may be subject to the Alternative Minimum Tax (AMT) under certain
conditions.
2
<PAGE>
Each Series is, for investment purposes, in effect a separate investment fund,
and a separate class of capital stock is issued for each. In other respects, the
Fund is treated as one entity. Each share of capital stock issued with respect
to a Series represents a pro-rata interest in the assets of that Series and has
no interest in the assets of any other Series. Each Series bears its own
liabilities. An investor should keep in mind that investments in the Primary
Series are not insured or guaranteed by the U.S. Government.
PORTFOLIO TURNOVER RATES: Historical turnover rates for each Series are
included in the Financial Highlights tables herein. Each of the Series do not
expect their portfolio turnover rates to exceed eighty percent (80%). An
explanation of turnover rate calculations and brokerage fees can be found in the
Fund's Statement of Additional Information.
MANAGEMENT: Securities Management and Research, Inc. ("SM&R") makes the
investment choices for the Fund. SM&R has served as adviser and distributor to
mutual funds since 1966. Refer to THE FUND AND ITS MANAGEMENT for additional
information.
PORTFOLIO MANAGEMENT PERSONAL INVESTING: The Fund's Board of Directors has
approved a Code of Ethics which prescribes policies relative to the personal
investment practices of its portfolio management. These policies are stated in
the Fund's Statement of Additional Information.
PURCHASING SHARES: Shares of the Government Income Series and the Tax Free
Series are offered at their respective net asset value plus a sales charge of
4.5% of the public offering price which is reduced on purchases of $100,000 or
more. Shares of the Primary Series are offered at net asset value. The
Government Income Series and Tax Free Series minimum initial and subsequent
investments are $100 and $20, respectively. The Primary Series' minimum initial
and subsequent investments are $1,000 and $100, respectively. See "SPECIAL
PURCHASE PLANS" and "PURCHASE OF SHARES".
REDEMPTIONS: Information on redeeming shares can be found under the heading
"HOW TO REDEEM".
3
<PAGE>
TABLE OF FEES AND EXPENSES
- --------------------------------------------------------------------------------
The purpose of the following table is to assist an investor in understanding the
various costs and expenses that an investor will bear directly or indirectly.
The fees and expenses are based on the average net assets of each Series of the
Fund for the fiscal year ended August 31, 1995. Total operating expenses have
been adjusted to reflect current expense reimbursement levels. If there were no
fee waivers or expense reimbursements, management fees, service fees and other
expenses, respectively, would have been .50%, .25%, and .31% with respect to the
Government Income Series, .50%, .25%, and .46% with respect to the Primary
Series, and .50%, .25%, and .50% with respect to the Tax Free Series for the
periods ended August 31, 1995.
SHAREHOLDER TRANSACTION EXPENSES
<TABLE>
<CAPTION>
Government Primary Tax Free
Income Series Series Series
<S> <C> <C> <C>
Maximum Sales Load Imposed on Purchases
(as a percentage of offering price) 4.50% None 4.50%
Maximum Sales Load Imposed on Reinvested
Dividends (as a percentage of offering price) None None None
Deferred Sales Load None None None
Redemption Fees* None None None
Exchange Fees None None None
</TABLE>
ANNUAL FUND OPERATING EXPENSES
(As a Percentage of Average Net Assets)
<TABLE>
<CAPTION>
Government Primary Tax Free
Income Series Series Series
<S> <C> <C> <C>
Management Fee, After Expense
Reimbursement 0.44%** 0.13%** 0.00%**
Service Fee 0.25% 0.25% 0.00%**
Other Expenses After Expense
Reimbursement 0.31% 0.46% 0.00%**
Total Fund Operating Expense After
Expense Reimbursement 1.00%** 0.84%** 0.00%**
</TABLE>
*An $8.00 transaction fee is charged for each expedited wire redemption.
**After fee waivers or expense reimbursements.
Investors should be aware that this table is not intended to reflect in detail
the fees and expenses associated with an individual shareholder's own investment
in any of the series listed. It is being provided to assist investors in gaining
a more complete understanding of fees, charges and expenses which are discussed
in greater detail in the appropriate sections of the Prospectus.
EXAMPLE OF EXPENSES
The following example illustrates the expenses an investor would pay on a
$1,000 investment in each series over various time periods, assuming (1) 5%
annual return and (2) redemption at the end of each period. Because the Series
have no redemption fee you would pay the same expenses whether or not you
redeemed your investment at the end of each period. An investor should not view
this example as a representation of past or future expenses and actual expenses
may be more or less than those shown.
<TABLE>
<CAPTION>
1 Year 3 Years 5 Years 10 Years
<S> <C> <C> <C> <C>
Government Income
Series $55 $75 $98 $162
Primary Series 8 25 44 98
Tax Free Series 45 45 45 45
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
GOVERNMENT INCOME SERIES
The table that follows has been audited by KPMG Peat Marwick LLP, independent
auditors, whose unqualified report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 16, 1992
(date
operations
commenced) thru
Year Ended August 31 August 31
-------------------------- ---------------
1995 1994 1993 1992
------ ------ ------ ---------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $10.07 $10.87 $10.56 $10.00
Investment income from
investment operations
Net investment income 0.70 0.54 0.50 0.25
Net realized and
unrealized gain
(loss) on
investments during
the period 0.44 (0.79) 0.49 0.55
------ ------ ------ -------
TOTAL FROM
INVESTMENT
OPERATIONS 1.14 (0.25) 0.99 0.80
------ ------ ------ -------
Less Distributions
Distributions from
net investment
income (0.70) (0.55) (0.50) (0.24)
Distributions from
capital gains 0.00 0.00 (0.18) 0.00
------ ------ ------ -------
TOTAL DISTRIBUTIONS (0.70) (0.55) (0.68) (0.24)
------ ------ ------ -------
Net Asset Value End of
period $10.51 $10.07 $10.87 $10.56
------ ------ ------ -------
------ ------ ------ -------
TOTAL RETURN 11.85% (2.41)% 10.23% 7.96%**
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
RATIOS/SUPPLEMENTAL DATA
<TABLE>
<S> <C> <C> <C> <C>
Net Assets, End of Period
(000's omitted) $20,466 $19,790 $19,783 $12,529
Ratio of Expenses to average
net assets 0.70%(1) 1.12% 1.07% 1.00%*
Ratio of Net investment income
to average net assets 6.90% 5.11% 5.07% 4.82%*
Portfolio turnover rate 2.20% 45.48% 18.14% 49.70%
</TABLE>
*Ratios annualized
**Amounts are not annualized.
(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 1.06% for the year ended August 31, 1995.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
PRIMARY SERIES
The table below has been audited by KPMG Peat Marwick LLP, independent
auditors, whose unqualified report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
March 16, 1992
(date
operations
commenced) thru
Year Ended August 31, August 31
-------------------------- ---------------
1995 1994 1993 1992
------ ------ ------ ---------------
<S> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income from
investment operations
Net investment
income 0.05 0.03 0.02 0.015
------ ------ ------ -------
TOTAL FROM
INVESTMENT
OPERATIONS 0.05 0.03 0.02 0.015
------ ------ ------ -------
Less Distributions
Dividends from net
investment income (0.05) (0.03) (0.02) (0.015)
------ ------ ------ -------
Net Asset Value End of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ -------
------ ------ ------ -------
TOTAL RETURN 5.01% 2.91% 2.59% 1.50%**
------ ------ ------ -------
------ ------ ------ -------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of
Period (000's
omitted) $20,984 $15,208 $15,539 $12,432
Ratio of Expenses to
average net
assets(1) 0.84% 0.79% 0.85% 0.70%*
Ratio of Net
investment income
to average net
assets 4.91% 2.88% 2.47% 2.99%*
Portfolio turnover
rate(2) 0.00% 0.00% 0.00% 0.00%
</TABLE>
* Ratios annualized
** Amounts are not annualized
(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 1.21%, 1.20%, 1.23% and 1.04% (annualized)
for the years ended August 31, 1995, 1994, 1993 and the period ended August 31,
1992, respectively.
(2) The Primary Series experienced no portfolio turnover because the
majority of securities held during such periods had maturities of one year or
less at the time of acquisition.
6
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
TAX FREE SERIES
The table below has been audited by KPMG Peat Marwick LLP, independent
auditors, whose unqualified report thereon appears in the Statement of
Additional Information. This information should be read in conjunction with the
related financial statements and notes thereto included in the Statement of
Additional Information.
<TABLE>
<CAPTION>
September 9, 1993
(date operations
Year Ended commenced) thru
August 31 August 31
---------- -----------------
1995 1994
---------- -----------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 9.62 $10.00
Investment income from investment operations
Net investment income 0.51 0.24
---------- -------
Net realized and unrealized gain (loss) on investments
during the period 0.33 (0.38)
---------- -------
TOTAL FROM INVESTMENT OPERATIONS 0.84 (0.14)
---------- -------
Less Distributions
Dividends from net investment income (0.51) (0.24)
---------- -------
Net Asset Value End of Period $ 9.95 $ 9.62
---------- -------
---------- -------
TOTAL RETURN 9.15% (1.49%)*
---------- -------
---------- -------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $8,399 $7,259
Ratio of Expenses to average net assets -- (1) 1.11%*
Ratio of Net investment income to average net assets 5.43% 2.50%*
Portfolio turnover rate 12.63% 16.49%
</TABLE>
* Ratios annualized
(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 1.25% for the year ended August 31, 1995.
7
<PAGE>
PERFORMANCE
Each Series' performance may be quoted in advertising in terms of yield or
total return. All advertisements will disclose the maximum sales charge to which
investments in shares of each Series may be subject. If any advertised
performance data does not reflect the maximum sales charge (if any), such
advertisement will disclose that the sales charge has not been deducted in
computing the performance data, and that, if reflected, the maximum sales charge
would reduce the performance quoted. See the Statement of Additional Information
for further details concerning performance comparisons used in advertisements by
each Series. Further information regarding each Series' performance is contained
in the Fund's Annual Report to shareholders which is available upon request and
without charge. An investor should keep in mind when reviewing performance that
past performance of a fund is not indicative of future results, but is an
indication of the return to the investor only for the limited historical period.
Standardized total return for shares of a Series reflects the deduction of the
maximum initial sales charge at the time of purchase. A Series' total return
shows it's overall change in value, including changes in share price and
assuming all the Series' dividends and capital gain distributions are reinvested
and that all charges and expenses are deducted. A cumulative total return
reflects a Series 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 Series performance had
been constant over the entire period. Because average annual returns tend to
even out variations in a Series' return, investors should recognize that such
returns are not the same as actual year-by-year results. To illustrate the
components of overall performance, a Series may separate its cumulative and
average annual returns into income results and capital gain or loss. The average
annual total return for the twelve month period ending August 31, 1995 and from
inception to June 30, 1995 for the Government Income Fund was 6.86% and 6.32%,
respectively; the Primary Fund was 5.01% and 3.39%, respectively; and the Tax
Free Fund was 4.27% and .23%, respectively.
A Series' 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 Series and market conditions. A shareholder's investment in a
Series is not insured or guaranteed. These factors should be carefully
considered by the investor before making any investment in any Series.
INVESTMENT OBJECTIVES AND POLICIES
Each Series of the Fund pursues its own investment objective through the
investment policies and techniques, described below. These policies and
techniques are not fundamental and may be changed by the Board of Directors of
the Fund without the approval of the shareholders. In addition, the Fund has
adopted certain restrictions as fundamental policies for each Series of the
Fund, which may not be changed without shareholder approval. (See the Fund's
Statement of Additional Information for a description of the investment
restrictions adopted as fundamental policies). Since each Series has a different
investment objective, each can be expected to have different investment results
and incur different market and financial risks. The Fund may in the future
establish other series with different investment objectives.
Because of the market risks inherent in any investment, attainment of each
Series' investment objective cannot be assured. In addition, effective
management of each Series is subject to general economic conditions and to the
ability and investment techniques of management. The net asset value of each
Series' shares will vary and the redemption value of shares owned may be either
higher or lower than the shareholder's cost.
GOVERNMENT INCOME SERIES
The Government Income Series seeks to achieve its objectives through
investment of 65% of its total assets in securities issued or guaranteed by the
U.S. Government, its agencies or instrumentalities ("U.S. Government
Obligations") which include, but are not limited to, U.S. Treasury Bonds, Notes
and Bills and securities issued by instrumentalities of the U.S. Government.
There are two broad categories of U.S. Government Obligations; (1) direct
obligations of the U.S. Treasury and (2) obligations issued or guaranteed by
agencies or instrumentalities of the U.S. Government. Some obligations issued or
guaranteed by
8
<PAGE>
agencies or instrumentalities of the U.S. Government are backed by the full
faith and credit of the United States (such as Government National Mortgage
Association Certificates) and others are backed exclusively by the agency or
instrumentality with limited rights of the issuer to borrow from the U.S.
Treasury (such as Federal National Mortgage Association Bonds). 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 as it is not
obligated by law to do so.
MORTGAGE-BACKED SECURITIES--It is anticipated that a substantial portion of the
Government Income Series' portfolio will consist of mortgage-backed securities
("Mortgage-Backed Securities") issued or guaranteed by the U.S. Government, its
agencies or instrumentalities. These securities represent part ownership of
pools of mortgage loans secured by real property, such as certificates issued by
the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), the
Federal National Mortgage Association ("FNMA" or "Fannie Mae") and the Federal
Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac"). Mortgage-Backed
Securities also include mortgage pass-through certificates representing
participation interests in pools of mortgage loans originated by the U.S.
Government and guaranteed by U.S. Government agencies such as GNMA, FNMA or
FHLMC. Such certificates, which are ownership interests in the underlying
mortgage loans, differ from conventional debt securities which provide for
periodic payment of interest in fixed amounts and principal payments at maturity
or on specified dates. Pass-through certificates, both principal and interest
payments, including prepayments, are passed through to the holder of the
certificate and provide for monthly payments of interest and principal. GNMA, a
federal agency, issues pass-through certificates that are guaranteed as to
timely payment of principal and interest. FNMA, a federally chartered and
privately owned corporation, issues mortgage pass-through securities and
guarantees them as to timely payment of principal and interest. FHLMC, a
corporate instrumentality of the United States, issues participation
certificates that represent an interest in mortgages from FHLMC's portfolio.
FHLMC guarantees the timely payment of interest and the ultimate collection of
principal. FNMA and FHLMC are not backed by the full faith and credit of the
United States, although FNMA and FHLMC are authorized to borrow from the U.S.
Treasury to meet their obligations. Those mentioned are but a few of the
Mortgage-Backed Securities currently available. The Government Income Series
will not purchase interest-only or principal-only mortgage-backed securities.
The yield characteristics of Mortgage-Backed Securities differ from
traditional debt securities. Among the major differences are that interest and
principal payments are made more frequently, usually monthly, and that principal
may be prepaid at any time because the underlying mortgage loans generally may
be prepaid at any time. The average mortgage in a pool may be expected to be
repaid within about twelve (12) years. If mortgage interest rates decrease, the
value of the Fund's securities will generally increase, however, it is
anticipated that the average life of the mortgages in the pool will decrease as
borrowers refinance and prepay mortgages to take advantage of lower interest
rates. The proceeds to the Fund from such prepayments will have to be invested
at the then prevailing lower interest rates. On the other hand, if interest
rates increase, the value of the Fund's securities generally will decrease while
it is anticipated that borrowers will not refinance and, therefore, the average
life of the mortgages in the pool will be longer. In addition, if the Government
Income Series purchases such a security at a premium, a prepayment rate faster
than expected will reduce yield to maturity, while a prepayment rate slower than
expected will have the opposite effect of increasing yield to maturity.
Conversely, if the Government Income Series purchases these securities at a
discount, faster than expected prepayments will increase yield to maturity,
while slower than expected prepayments will reduce yield to maturity.
COLLATERALIZED MORTGAGE OBLIGATIONS--The Government Income Series may invest a
portion of its assets in collateralized mortgage obligations or "CMOs", which
are debt obligations collateralized by a portfolio or pool of mortgages,
mortgage-backed securities or U.S. Government securities. Collateralized
obligations in which the Government Income Series 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
9
<PAGE>
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. A more complete description of CMOs is
contained in the Statement of Additional Information.
The Government Income Series may also invest in parallel pay CMOs and Planned
Amortization Class CMOs ("PAC Bonds"). Parallel pay CMOs are structured to
provide payments of principal on each payment date to more than one class. PAC
Bonds generally require payments of a specified amount of principal on each
payment date. PAC Bonds are always parallel pay CMOs with the required principal
payment on such securities having the highest priority after interest has been
paid to all classes.
ZERO COUPON BONDS--The Government Income Series may invest in zero coupon bonds,
which are debt obligations issued or purchased at a significant discount from
face value. The Government Income Series will only purchase zero coupon bonds
which are U.S. Government Obligations. The discount approximates the total
amount of interest the bonds will accrue and compound over the period until
maturity or the first interest payment date at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon bonds do not
entitle the holder to any periodic payments of interest prior to maturity. Its
value as an investment consists of the difference between its face value at the
time of maturity and the price for which it was acquired which is generally an
amount significantly less than face value (sometimes referred to as a "deep
discount" price). Zero coupon bonds require a higher rate of return to attract
investors who are willing to defer receipt of cash. Accordingly, although not
providing current income, SM&R believes that zero coupon bonds can be
effectively used to lock in a higher rate of return in a declining interest
environment. Such investments may experience greater volatility in market value
than debt obligations which make regular payments of interest. The Series will
accrue income on such investments for tax and accounting purposes, as required,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Series' distribution obligations.
OTHER INVESTMENTS--The Government Income Series shall also invest in commercial
paper, certificates of deposit and repurchase agreements of the same type and
rating as the Primary Series may invest (See "PRIMARY SERIES").
PRIMARY SERIES
The Primary Series seeks to achieve its objective by investing primarily in
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 Primary Series will invest only 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
("NRSROs")(See the "Appendix" hereto for information about such ratings and such
rating organizations).
OTHER INVESTMENTS--The Primary Series may invest in (i) U. S. Government
Obligations (Refer to the "GOVERNMENT INCOME SERIES" above for an explanation of
U. S. Government Obligations); (ii) other corporate obligations, such as bonds,
debentures or notes maturing in five (5) years or less at the time of purchase
which at the date of the investment are rated "A" or higher by an NRSRO; and
(iii) negotiable certificates of deposit of banks (including U. S. dollar
denominated obligations of foreign branches of U. S. banks and U. S. branches of
foreign banks and savings and loan associations and banker's acceptances of U.
S. banks which banks and savings and loan associations have total assets at the
date of investment (as of the date of their most recent published financial
statements) of at least $1 billion (See "INVESTMENT OBJECTIVES AND POLICIES",
"Certificates of Deposit" in the Statement of Additional Information for a
description of the securities) and (iv) repurchase agreements with respect to
any type of instrument in
10
<PAGE>
which the Primary Series is authorized to invest even though the underlying
instrument may mature in more than two (2) years. (See "Repurchase Agreements"
heading.) Obligations of foreign branches of U.S. banks are subject to somewhat
different risk than those of domestic banks. These risks include foreign
economic and political developments, foreign governmental restrictions which may
adversely effect payment of principal and interest on the obligations, foreign
withholding and other taxes on interest income, and difficulties in obtaining
and enforcing a judgement against a foreign branch of a domestic bank. In
addition, different risks may result from the fact that foreign branches of U.S.
banks and U.S. branches of foreign banks are not necessarily subject to the same
or similar regulatory requirements that apply to domestic banks. For instance,
such branches may not be subject to the types of requirements imposed on
domestic banks with respect to mandatory reserves, loan limitations,
examinations, accounting, auditing, record keeping and the public availability
of information. Such obligations are not traded on any national securities
exchange. While the Primary Series does not presently invest in obligations of
foreign branches of U.S. banks, it may do so in the future. Investments in such
obligations will not be made in excess of 5% of the Primary Series' total assets
and will be made only when SM&R believes the risks described above are minimal.
TAX FREE SERIES
The Tax Free Series, as a matter of fundamental policy, will seek to achieve
its objective by investing at least 80% of the value of its net assets in
municipal securities the interest on which is exempt from federal income taxes.
The Tax Free Series has no restrictions on the maturity of municipal
securities in which it may invest. Accordingly, it will seek to invest in
municipal securities of such maturities which, in the judgement of SM&R, the
adviser, will provide a high level of current income consistent with prudent
investment, with consideration given to market conditions.
The Tax Free Series will invest, without percentage limitations, in municipal
securities having at the time of purchase one of the four highest municipal
ratings by Moody's Investors Service, Inc. ("Moody's"), Standard & Poor's
Corporation ("S&P") or Fitch Investors Service in securities which are not
rated, provided that, in the opinion of the adviser, such securities are
comparable in quality to those within the four highest ratings. The rating
agencies consider that bonds rated in the fourth highest category may have some
speculative characteristics and that changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. SM&R will only
purchase bonds rated in such fourth category if it is of the opinion that the
purchase of such bonds is consistent with the Tax Free Series' investment
objective. In the event the rating of an issue held by the Tax Free Series is
changed by the rating service, such change will be considered by the Tax Free
Series in its evaluation of the overall investment merits of that security but
such change will not necessarily result in an automatic sale of the security.
Any security held which is subsequently downgraded below BB by S&P or Ba by
Moody's will be sold as soon as it is advantageous to do so after the downgrade.
A description of the ratings may be found in the Appendix to this Prospectus.
Purchasing unrated municipal securities, which may be less liquid than
comparable rated municipal securities, involves somewhat greater risk and
consequently the Tax Free Series may not invest more than 20% of its net assets
in unrated municipal securities. To attempt to minimize the risk of such
investments SM&R will, prior to acquiring unrated securities, consider the terms
of the offering and various other factors to determine the issuers comparative
credit rating and whether the securities are consistent with the Tax Free
Series' investment objective and policies. In making such determinations SM&R
will typically (a) interview representatives of the issuer at the issuer's
offices, conduct a tour and inspection of the physical facilities of the issuer
in an effort to evaluate the issuer and its operations, (b) perform an analysis
of the issuer's financial and credit position, including comparisons of all
appropriate ratios, and (c) compare other similar securities offerings to the
issuer's proposed offering.
During normal market conditions, the Tax Free Series will have at least 80% of
its net assets invested in municipal securities the income of which is fully
exempt from federal income taxation. Furthermore, under normal market conditions
up to 20% of the Tax Free Series' net assets, and up to 50% of its net assets as
a temporary defensive measure during abnormal market conditions, may be invested
in
11
<PAGE>
the following types of taxable fixed income obligations: (1) obligations issued
or guaranteed by the U.S. Government, its agencies, instrumentalities or
authorities (Refer to "GOVERNMENT INCOME SERIES" above for an explanation of
U.S. Government obligations); (2) corporate debt securities which at the date of
the investment are rated A or higher by Moody's or by S&P; (3) commercial paper
which at the date of the investment is rated in one of the two top categories by
Moody's or by S&P or if not rated, is issued by a company which at the date of
the investment has an outstanding debt issue rated A or higher by Moody's or A
or higher by S&P; (4) certificates of deposit issued by U.S. banks which at the
date of the investment have capital surplus and undivided profits of $1 billion
as of the date of their most recently published financial statements; and (5)
repurchase agreements secured by U.S. Government securities, provided that no
more than 15% of the Series' net assets will be invested in illiquid securities
including repurchase agreements with maturities in excess of seven days. To the
extent income dividends include income from taxable sources, a portion of a
shareholder's dividend income may be taxable. (See "DIVIDENDS AND
DISTRIBUTIONS").
MUNICIPAL SECURITIES
The term "municipal securities," as used in this Prospectus means obligations
issued by or on behalf of states, territories and possessions of the U.S. and
the District of Columbia and their political subdivisions, agencies, and
instrumentalities, the interest on which is exempt from federal income tax. An
opinion as to the tax-exempt status of a municipal security generally is
rendered to the issuer by the issuer's counsel at the time of issuance of the
security.
Municipal securities are used to raise money for various public purposes such
as constructing public facilities and making loans to public institutions.
Certain types of municipal bonds are issued to obtain funding for privately
operated facilities. Further information on the maturity and funding
classifications of municipal securities is included in the Statement of
Additional Information.
Yields on municipal securities vary, depending on a variety of factors,
including the general condition of the financial markets and of the municipal
securities market, the size of a particular offering, the maturity of the
obligation and the credit rating of the issuer. Like other interest-bearing
securities, the value of municipal securities changes as interest rates
fluctuate. For example, if interest rates increase from the time a security is
purchased, if sold, the security may be at a price less than its purchase cost.
Conversely, if interest rates decline from the time a security is purchased, if
sold, the security may be sold at a price greater than its purchase cost.
Generally, municipal securities of longer maturities produce higher current
yields than municipal securities with shorter maturities but are subject to
greater price fluctuation due to changes in interest rates, tax laws and other
general market factors. Lower-rated municipal securities generally produce a
higher yield with shorter maturities than higher-rated municipal securities due
to the perception of a greater degree of risk as to the ability of the issuer to
pay principal and interest.
The Tax Free Series may purchase municipal bonds for which the payments of
principal and interest are secured by an escrow account of securities backed by
the full faith and credit of the U.S. Government ("defeased") and municipal
securities whose principal and interest payments are insured by a commercial
insurance company as long as the underlying credit is investment grade (BBB or
better by S&P and Fitch and Baa or better by Moody's) ("insured"). The Tax Free
Series may also purchase unrated securities of issuers which the adviser
believes would have been rated BBB or Baa had the issuer requested a rating from
S&P, Fitch or Moody's. Such implied investment grade rating will be determined
by the adviser upon its performance of a credit analysis of the issue and the
issuer. Such credit analysis may consist of a review of such items as the
issuer's debt characteristics, financial information, structure of the issue,
liquidity of the issue, quality of the issuer, current economic climate,
financial adviser and underwriter. Insured and defeased bonds are further
described in the Statement of Additional Information. In general, these types of
municipal securities will not be treated as an obligation of the original
municipality for purposes of determining industry concentration.
OTHER INVESTMENTS--The Tax Free Series may purchase "floating rate" and
"variable rate" obligations. These obligations bear interest at rates that are
not fixed, but vary with changes in specified market rates or indices on
pre-designated dates. See the Statement of Additional Information for details of
these types of investments.
12
<PAGE>
The Series may purchase and sell municipal securities on a "when-issued" and
"delayed-delivery" basis (See "ADDITIONAL INVESTMENT POLICIES AND
TECHNIQUES--When Issued and Delayed Delivery Purchases" below). Zero coupon
bonds may also be purchased as part of the Tax Free Series portfolio and are
explained above under the Government Income Series.
ADDITIONAL INVESTMENT POLICIES AND TECHNIQUES
The following policies and techniques are available to one or more of the
Series:
LENDING OF SECURITIES. In order to increase the return on its investment, the
Government Income Series may lend portfolio securities to broker-dealers and
other financial institutions in amounts up to 10% of the value of the net assets
of such series. Loans of portfolio securities will always be collateralized by
cash to at least 102% of the market value of the securities loaned including
accrued interest and will be made to borrowers deemed by the adviser to be
creditworthy. Lending portfolio securities involves risk of delay in the
recovery of the loaned securities and in some cases the loss of rights in the
collateral should the borrower fail financially (See the Statement of Additional
Information).
WHEN-ISSUED AND DELAYED DELIVERY PURCHASES. The Government Income Series and Tax
Free Series may purchase and sell portfolio securities on a "when-issued" and
"delayed delivery" basis. No income accrues in connection with such transactions
prior to actual delivery of such securities. These transactions are subject to
market fluctuation; the value of the securities at delivery may be more or less
than their purchase price, and yields generally available on comparable
securities when delivery occurs may be higher than yields on the securities
obtained pursuant to such transactions. While awaiting delivery of the
securities purchased on a when-issued and delayed delivery basis, the Series
will hold in a segregated account cash, short-term money market instruments,
high quality debt securities or portfolio securities sufficient to cover any
commitment or limit any potential risk. (See "When Issued and Delayed Delivery
Transactions" in the Statement of Additional Information).
REPURCHASE AGREEMENTS. Each Series may occasionally enter into repurchase
agreements. Under a repurchase agreement, a series will acquire and hold an
obligation (government security, certificate of deposit, or banker's acceptance)
for not more than seven days, subject to the agreement by the seller (a Federal
Reserve System member bank or a registered securities dealer) to repurchase the
obligation at an agreed upon repurchase price and date, thereby determining the
yield during the Series' holding period. During the holding period, the seller
must provide additional collateral if the market value of the obligation falls
below the repurchase price. Refer to the Statement of Additional Information for
a further explanation.
ILLIQUID SECURITIES. Each of the Series may invest up to 15% of its net assets
in illiquid securities, including foreign securities not listed on foreign or
domestic exchanges and repurchase agreements maturing in excess of seven days.
RISK FACTORS. The risk inherent in investing in any series of the Fund is that
common to any security, that the value of its shares will fluctuate in response
to changes in economic conditions, interest rates and the market's perception of
the underlying portfolio securities held by each series of the Fund. Market
prices of the securities in which a Series invests will fluctuate and will tend
to vary inversely with changes in prevailing interest rates. If interest rates
increase from the time a security is purchased, such security, if sold, might be
sold at a price less than its purchase cost. Conversely, if interest rates
decline from the time a security is purchased, such security, if sold, might be
sold at a price greater than its purchase cost. Substantial redemptions could
require a Series to sell portfolio securities at a time when a sale might not be
favorable.
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 as it is not obligated by
law to do so. The Fund's adviser will invest in U. S. obligations not backed by
the "full faith and credit" of the U. S. Government only when it is satisfied
that the credit risk with respect thereto is minimal.
The Primary Series, consistent with its investment objective, will attempt to
maximize yield by trying to
13
<PAGE>
take advantage of changing conditions and trends. It may also attempt to take
advantage of what are believed to be disparities in yield relationships between
different instruments. This procedure may increase or decrease the portfolio
yield depending upon the Primary Series' ability to correctly time and execute
such transactions. Although the Primary Series' assets will be invested in
securities with short maturities, the Primary Series will manage its portfolio
as described above. (See "PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION" in
the Statement of Additional Information.)
The Tax Free Series' ability to achieve its objective depends partially on the
prompt payment by issuers of the interest on and principal of the municipal
securities held. 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
the other municipal securities held. Additionally, the market for municipal
securities is often thin and can be temporarily affected by large purchases and
sales. As a result, the Tax Free Series will attempt to minimize risk by
diversifying its investments by investing no more than 5% of its net assets in
the securities of any one issuer (limitation does not apply to investments
issued or guaranteed by the U.S. Government or its instrumentalities) and by
investing no more than 25% of its net assets in municipal securities issued in
any one state or territory. Each political subdivision, agency, instrumentality
and each multi-state agency of which a state is a member will be regarded as a
separate issuer for the purpose of determining diversification.
THE FUND AND ITS MANAGEMENT
A Board consisting of nine directors has overall responsibility for overseeing
the affairs of the Fund in a manner reasonably believed to be in the best
interest of the Fund. The Board has delegated to SM&R, the adviser, the
management of the Fund's day-to-day business and affairs. In addition, SM&R
invests the Fund's assets, provides administrative services and serves as
transfer agent, dividend paying agent and underwriter.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). The Moody Foundation, a private foundation, owns
approximately 23.7% of American National's common stock and the Libbie Shearn
Moody Trust, a private trust, owns approximately 37.6% of such shares. SM&R was
incorporated in 1964 and has managed investment companies since 1966. SM&R is
also investment adviser to three other registered investment companies, the
American National Growth Fund, Inc., American National Income Fund, Inc., and
the Triflex Fund, Inc. (collectively, the "American National Funds Group"). SM&R
also serves as investment adviser to the American National Investment Accounts,
Inc., an investment company used to fund benefits under contracts issued by
American National and for The Moody National Bank of Galveston (the "Bank"), a
national bank. SM&R may, from time to time, serve as investment adviser to other
clients including employee benefit plans, other investment companies, banks,
foundations and endowment funds.
The following persons are officers of both SM&R and the Fund: Michael W.
McCroskey, Vera M. Young, Emerson V. Unger, Teresa E. Axelson and Brenda T.
Koelemay.
PORTFOLIO MANAGEMENT
While the following individuals are primarily responsible for the day-to-day
portfolio management of their respective Series, 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 polices.
Vera M. Young, Vice President of Securities Management and Research, Inc.,
Vice President, Portfolio Manager of the Primary Series. Ms. Young has served as
Portfolio Manager of the Primary Series since its inception. She also serves as
Portfolio Manager of the American National Investment Accounts, Inc.--Money
Market Portfolio, a series mutual fund used exclusively for variable contracts
issued by American National. She also serves as Assistant Vice President,
Securities for American National. Ms. Young has been managing fixed income
investments for American National since 1964 and has served as portfolio manager
for various funds for over ten years.
Terry E. Frank, Vice President, Portfolio Manager of the Government Income
Series and Tax Free Series. Ms. Frank has served as Portfolio Manager of the
Government Income Series for two years and the Tax Free Series since its
inception. She joined SM&R's investment staff in 1991 and prior to that time she
held positions with American Capital Asset
14
<PAGE>
Management and Gibraltar Savings Association as a securities analyst and
Equitable Investment Services as a research analyst.
ADVISORY AGREEMENT
Under its Advisory Agreement with the Fund, SM&R receives the following
investment advisory fees:
GOVERNMENT INCOME SERIES AND TAX FREE SERIES-- A monthly investment advisory fee
computed by applying to the average daily net asset value of each Series each
month one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
On the Portion of Each Series Investment Advisory
Average Daily Net Assets Fee Annual Rate
<S> <C>
Not exceeding $100,000,000 .50 of 1%
Exceeding $100,000,000 but not
exceeding $300,000,000 .45 of 1%
Exceeding $300,000,000 .40 of 1%
</TABLE>
PRIMARY SERIES--An investment advisory fee, computed and paid monthly, at the
annual rate of .50 of 1% of the Primary Series' average daily net asset value.
As compensation for its services, SM&R is paid an investment advisory fee,
which is calculated separately for each Series. SM&R received total advisory
fees from the Government Income Series, Primary Series and Tax Free Series for
the fiscal year ended August 31, 1995 which represented 0.14%, 0.13% and 0.00%,
respectively, of each Series average daily net assets. The ratio of total
expenses to average net assets for each Series can be found on pages 5, 6 and 7.
ADMINISTRATIVE SERVICE AGREEMENT
Under its Administrative Service Agreement with the Fund, SM&R receives a
management and administrative service fee from each Series which is computed by
applying to the aggregate average daily net asset value of each Series of the
Fund each month one-twelfth (1/12th) of the annual rate as follows:
<TABLE>
<CAPTION>
Administrative
On the Portion of the Series's Service Fee
Average Daily Net Assets Annual Rate
<S> <C>
Not exceeding $100,000,000 .25 of 1%
Exceeding $100,000,000 but not exceeding
$200,000,000 .20 of 1%
Exceeding $200,000,000 but not exceeding
$300,000,000 .15 of 1%
Exceeding $300,000,000 .10 of 1%
</TABLE>
SM&R has agreed to pay (or to reimburse each Series for) each Series' expenses
(including the advisory fee and administrative service fee, if any, paid to
SM&R, but exclusive of interest, taxes, commissions and other expenses
incidental to portfolio transactions) in excess of 1.25% per year of such
Series' average daily net assets. SM&R received service fees of 0.25% for the
Government Income Series; 0.25% for the Primary Series and 0% for the Tax Free
Series for the fiscal year ended August 31, 1995 of each Series average daily
net assets.
FEE WAIVERS
In order to improve the yield and total return of any Series of the Fund, SM&R
may, from time to time, voluntarily waive or reduce all or any portion of its
advisory fee, administrative fee and/or assume certain or all expenses of any
Series of the Fund while retaining its ability to be reimbursed for such fees
prior to the end of the fiscal year. 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. Effective February 6, 1996, SM&R has
agreed to continue to waive advisory and administrative service fees and/or
reimburse expenses incurred by the Fund's Series to the extent that total
expenses exceed average daily net assets as follows: Primary Series--.80%;
Government Income Series--1.00%; and Tax Free Series--100%.
For additional information about the expenses of the Fund, see the Statement
of Additional Information.
PURCHASE OF SHARES
Shares of each Series of the Fund may be purchased from registered
representatives of SM&R and certain other authorized broker-dealers. Such
15
<PAGE>
purchases will be at the offering price (the "Offering Price") for such shares
determined as and when provided below. (See "DETERMINATION OF OFFERING PRICE" in
this Prospectus). A monthly confirmation will be sent to the investor. Initial
and subsequent purchases are to be sent directly to SM&R at the following
address:
Securities Management and Research, Inc.
One Moody Plaza, 14th Floor
Galveston, Texas 77550
Certificates are not normally issued for shares of each Series in an effort to
minimize the risk of loss or theft. However, purchases are confirmed to
investors and credited to their accounts on the books maintained by SM&R and an
investor has the same rights of share ownership as if certificates had been
issued.
OPENING AN ACCOUNT: To purchase shares an investor must submit a fully
completed Application and Investor Suitability Form. Special forms are required
when establishing an IRA/SEP or 403(b) plan. Call the Shareholder Relations
Department (800) 231-4639 and request forms for establishing these plans.
SUBSEQUENT PURCHASES BY MAIL: Investors must include their name, the account
number and the name of the Fund being purchased.
PURCHASES BY WIRE: To ensure proper crediting of the investment, an investor
must have an executed Application and Investor Suitability Form on file with the
transfer agent. The investor may then wire his investment using the following
instructions:
The Moody National Bank of Galveston
2302 Postoffice Street
Galveston, Texas 77550
For the Account of Securities Management
and Research, Inc.
ABA 113100091, Wire Acct. #035 868 9
FBO Name of Fund / Fund Account Number
Investor's Name
If wires are received after 3:00 p.m. Central Time or during a bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day.
PURCHASE AMOUNTS. The minimum initial and subsequent purchase amounts is $100
and $20, respectively, for the Government Income and Tax Free Series' and $1,000
and $100, respectively, for the Primary Series (except as a part of certain
systematic investment programs, see "SPECIAL PURCHASE PLANS" for additional
information on reduction of the minimums). The Fund reserves the right to reject
any purchase.
WHEN ARE PURCHASES EFFECTIVE?
Purchases received in proper form by SM&R prior to the close of the New York
Stock Exchange (currently 3:00 p.m., Central Time) (the "Exchange") on any SM&R
business day, or received prior thereto on any SM&R business day by a securities
dealer having a dealer contract with SM&R and reported to SM&R prior to SM&R's
close of business (currently 4:30 p.m., Central Time) on the same day, will be
effective and executed at the applicable Offering Price determined at the close
of the Exchange on that day. It is the responsibility of any such dealer and not
SM&R to establish procedures to assure that purchases received before the close
of the Exchange on an SM&R business day will be reported to SM&R before SM&R's
close of business on that same day. Purchases received after the close of the
Exchange, on customary national business holidays, or on an SM&R holiday will be
effective upon and made at the Offering Price determined as of the close of the
Exchange on SM&R's next business day such Exchange is open for trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange, on
customary national business holidays, or on an SM&R holiday, will be effective
on and made at the Offering Price determined on SM&R's next business day.
Procedures for transmitting Federal Funds by wires are available at any national
bank, or any state bank which is a member of the Federal Reserve System.
16
<PAGE>
TO BE COMPLETED FOR
AMERICAN NATIONAL PRIMARY SERIES ACCOUNTS ONLY (4/96)
<TABLE>
<S> <C>
REDEMPTION BY Primary Series Account
TELEPHONE OR No. ----------------------------------------------------------------------------------------------------------
WIRE
(Bank) / / I (we) hereby authorize American National Primary Series (the "Series") and SM&R (the "Transfer
Agent") to honor any telephonic or telegraphic instructions for redemption, without signature
guarantee, of any or all shares held in my (our) account, provided that the proceeds are transmitted
only to the bank account designated below. If the procedure for telephone redemption, as described in
the Prospectus, have been followed, neither the Series nor the Transfer Agent shall have any liability
to me (us) for acting upon such instructions regardless of the authority or absence thereof of the
person giving the instructions, and I (we) will indemnify and hold harmless the Series and the
Transfer Agent from and against all losses, claims, expenses and liabilities that may arise out of or
be in any way connected with a redemption of shares under the telephone redemption procedure, as
described in the prospectus.
(Not Available for tax qualified plans)
------------------------------------------------------------------------------------------------------------
Name of Account at Bank Bank Account No.
------------------------------------------------------------------------------------------------------------
Name of Bank (including name of branch and bank's routing code) ABA/Routing No.
------------------------------------------------------------------------------------------------------------
Clearing Bank Information, if applicable (name of bank and ABA No.)
------------------------------------------------------------------------------------------------------------
Address of Bank City State Zip
( )
------------------------------------------------------------------------------------------------------------
Phone Number of Bank
TELEPHONE (SM&R) / / I (we) hereby authorize American National Primary Series (the "Series") and SM&R (the "Transfer
EXCHANGE Agent") to honor any telephonic or telegraphic instructions for redemption, without signature
BETWEEN FUNDS guarantee of any or all shares held in my (our) account, provided that the proceeds are transmitted
only to the account designated below. Neither the Series nor the Transfer Agent shall have any
liability to me (us) for acting upon such instructions regardless of the authority or absence
thereof of the person giving the instructions, and I (we) will indemnify and hold harmless the
Series and the Transfer Agent from and against all losses, claims, expenses, and liabilities that
may arise out of or be in any way connected with the redemption of shares under the telephone
redemption procedure, as described in the Prospectus.
-------------------------------------------------------------------------
Name of Fund Account Number
(Registration on accounts must be identical)
---------------------------------- ----------------------------------
Signature Owner Signature Joint Owner
CHECK WRITING / / I (we) hereby elect redemption by special check drawn against my (our) American National Primary Series
OPTION Account (minimum check $250). NOTE: WHEN ELECTING CHECK WITHDRAWAL, SIGN THE SIGNATURE CARD ON THE
Not Available APPROPRIATE SIGNATURE LINES ON THE SPECIAL CHECK WRITING OPTION SIGNATURE CARD BELOW.
for IRA, SEP, I (we) understand there is a fifteen (15) business day hold on all monies invested and no check will be
TSA honored prior to the proceeds being available.
</TABLE>
- ------------------------------------------------------------------------------
SPECIAL CHECK WRITING OPTION SIGNATURE CARD
AMERICAN NATIONAL PRIMARY SERIES ONLY
Account Number: _____________________ Date: ______________________________
- --------------------------------------------------------------------------------
Print or type name(s) of registered owner(s) of American National Primary Series
Account
All registered owner(s) of the Account named above must sign below. By signing
this card, the signatory(s) agree(s) to all the terms and conditions set forth
on the reverse hereof.
<TABLE>
<S> <C>
SIGNATURES SOCIAL SECURITY OR TAX I.D. NUMBER
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
</TABLE>
/ / Check here if both signatures are required on checks.
/ / Check here if only one signature is required on checks.
IF NO BOX IS CHECKED, BOTH SIGNATURES WILL BE REQUIRED.
If a Pension or Corporate account, indicate below how checks are to be printed.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
Form 9354
<PAGE>
TERMS AND CONDITIONS
1. REDEMPTION AUTHORIZATION: The Signatory(s) whose signature(s) appear on
the reverse side, intending to be legally bound, hereby agree each with the
other and with SM&R ("Transfer Agent") that the Transfer Agent is appointed
agent for such person(s) and, as such agent, is directed to redeem shares of the
Primary Series (the "Series") registered in the name of such Signatory(s) upon
receipt of, and in the amount of, checks drawn upon the above numbered account
and to deposit the proceeds of such redemptions in said account or otherwise
arrange for application of such proceeds to payments of said checks. The
Transfer Agent is expressly authorized to commingle such proceeds in this
account with the proceeds of the redemption of the shares of other stockholders
of the Series.
The Transfer Agent is expressly authorized to honor checks as redemption
instructions hereunder without requiring signature guarantees, and shall not be
liable for any loss or liability resulting from the absence of any such
guarantee. The Transfer Agent will arrange for the shareholder's checks to be
honored by Moody National Bank (the "Bank") for this purpose.
2. CHECK PAYMENT: The Signatory(s) authorize and direct the Transfer Agent
to have the Bank pay each check presented hereunder, subject to all laws and
Bank rules and regulations pertaining to checking accounts. In addition the
Signatory(s) agree(s) that:
(a) No check shall be issued or honored, or any redemption effected, in
an amount less than $250.
(b) No check shall be issued or honored, or redemption effected, for any
amounts represented by shares for which certificates have been issued.
(c) No check shall be issued or honored, or redemption effected, for any
amounts represented by shares unless payment for such shares has been made
in full and any checks given in such payment have been collected through
normal banking channels.
(d) Checks issued hereunder cannot be cashed over the counter at any
Bank; and
(e) Checks shall be subject to any further limitations set forth in the
Prospectus issued by the Series, including without limitation any additions,
amendments and supplements thereto.
3. DUAL OWNERSHIP: If more than one person is indicated as a registered
owner of the shares of the Series, as by joint ownership, ownership in common,
or tenants by the entireties, then (a) each registered owner must sign this
signature card, (b) each registered owner must sign each check issued hereunder
unless the parties have indicated on the face of this card that only one need
sign, in which case the Transfer Agent is authorized to act upon such signature,
and (c) each Signatory guarantees to the Transfer Agent the genuineness and
accuracy of the signature of the other Signatory(s).
4. TERMINATION: The Transfer Agent or the Series may at any time terminate
this account, related share redemption service for the Signatory(s) hereto
without prior notice by the Transfer Agent to any of the Signatory(s).
5. HEIRS AND ASSIGNS: These terms and conditions shall bind the respective
heirs, executors, administrators, and assigns of the Signatory(s).
<PAGE>
SM&R CAPITAL FUNDS, INC. APPLICATION
Complete This Form and Mail To:
<TABLE>
<S> <C> <C>
Home Office Use (4/96)
</TABLE>
Securities Management and Research, Inc.
<TABLE>
<S> <C> <C>
Account Number
</TABLE>
One Moody Plaza
<TABLE>
<S> <C> <C>
Account Type Social Code
</TABLE>
Galveston, TX 77550
<TABLE>
<S> <C> <C>
FI Number LOI Amount
</TABLE>
To establish IRA, SEP and TSA Plans use the special forms kit developed for
their establishment.
- --------------------------------------------------------------------------------
1 ACCOUNT REGISTRATION
Select ONLY ONE type of registration and complete the information associated
with that section.
- --------------------------------------------------------------------------------
/ / -- INDIVIDUAL / / -- JOINT TENANT WITH "RIGHTS OF SURVIVORSHIP"
<PAGE>
If this is to be a Joint Tenant Account, complete all information in this
section.
<TABLE>
<S> <C> <C>
- -------------------------------------------------- ------------------------------ --------------------
Individual (First, Middle, Last) Social Security Number DOB (MM/DD/YY)
- -------------------------------------------------- ------------------------------ --------------------
Joint Tenant (First, Middle, Last) Relationship Social Security Number DOB (MM/DD/YY)
</TABLE>
- --------------------------------------------------------------------------------
/ / -- UNIFORM GIFT/TRANSFER TO MINORS
<TABLE>
<S> <C> <C>
- -------------------------------------------------- ------------------------------
Name of Custodian (One Only) (First, Middle, Last) Minor's state of residence
- -------------------------------------------------- ------------------------------ --------------------
Minor's DOB
(MM/DD/YY)
Name of Minor (One Only) (First, Middle, Last) Minor's Social Security Number
</TABLE>
- --------------------------------------------------------------------------------
/ / -- PENSION/PROFIT SHARING, DEFERRED COMPENSATION PLANS
Plan Type: / / 401(k) / / Profit Sharing / / Money Purchase / / Defined Benefit
/ / Deferred Comp / / Other _______
<TABLE>
<S> <C> <C>
- -------------------------------------------------- ------------------------------ --------------------
Trustee(s)/Custodian Tax I.D. Number Trust Dated
- -------------------------------------------------- --------------------------------------------------------
Name of Plan For the Benefit of
</TABLE>
- --------------------------------------------------------------------------------
/ / -- INDIVIDUAL TRUST, NON-QUALIFIED, CORPORATION, ESTATES, ASSOCIATIONS,
COMPANIES, OTHERS
<TABLE>
<S> <C> <C>
- -------------------------------------------------- ------------------------------
Name(s) of Trustee(s) Tax I.D. Number
- -------------------------------------------------- --------------------------------------------------------
Name of Company or Trust For the Benefit of
</TABLE>
- --------------------------------------------------------------------------------
2 MAILING ADDRESS
----------------------------------------------------------------------------
Street Address (P.O. Box acceptable if street address
given) Apt.# City State Zip Code
----------------------------------------------------------------------------
Residence Address
<TABLE>
<S> <C> <C> <C>
( ) ( ) Citizenship: / / U.S. / / Non-U.S.
----------------------------- ------------------------- ------------------
Business Phone Home Phone Indicate Country
</TABLE>
<PAGE>
3 INITIAL INVESTMENT (CHECK ONE)
- --------------------------------------------------------------------------------
/ / Mail Order
Enclosed is/are my check(s) made payable to Securities Management and
Research, Inc. for investment.
- --------------------------------------------------------------------------------
/ / Telephone Buy Order (Not Applicable to Primary Series)
Date: __________________Fund: __________________Person Taking Order:
_____________________
- --------------------------------------------------------------------------------
/ / Federal Fund Wire
Before making an initial investment by wire, SM&R must receive an
executed application and suitability form with proper taxpayer I.D.
certification. Then direct your Federal funds wire to Moody National
Bank Galveston, Texas. Attention: Securities Management and Research,
Inc., ABA 113100091 Wire Account #035 868 9. Include the Fund name,
your Account Number and the Account Registration.
- --------------------------------------------------------------------------------
/ / Pre-Authorized Checks (Complete #8 below)
This is a service available to shareholders, making possible regular
monthly purchases of Fund shares to allow dollar cost averaging. You will
receive a monthly confirmation reflecting each purchase and your bank
account will reflect the amount of the draft. Check prospectus for
minimums.
Please draw $__________________ from my checking account Monthly beginning
__________________ / / 7th / / 21st
$ ______________________________ into the ______________________________
Fund
$ ______________________________ into the ______________________________
Fund
$ ______________________________ into the ______________________________
Fund
$ ______________________________ into ANICO insurance policy
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
/ / Other Payment Methods
/ / Billing-Franchise # ------ / / Military Allotment / / Civil Service Allotment
Complete Form 9341 Complete Form 9340
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4 FUND SELECTION(S) & DISTRIBUTION OPTION
Please check the box beside the name of each fund being purchased, select
reinvest or cash for dividends and capital gains, and specify the dollar
amount of each purchase.
<TABLE>
<C> <S> <C> <C> <C>
X Fund Name Dividends Capital Gains Amount
Government Income Series ($100 min) / / Reinvest / / Cash / / Reinvest / / Cash $
Tax Free Series ($100 min) / / Reinvest / / Cash / / Reinvest / / Cash $
Primary Series ($1,000 min) / / Reinvest / / Cash / / Reinvest / / Cash $
Insurance, if any $
</TABLE>
ALL DISTRIBUTIONS MUST BE REINVESTED IF A WITHDRAWAL PLAN IS ELECTED. ALL
DISTRIBUTIONS WILL BE REINVESTED UNLESS CASH IS CHECKED ABOVE.
----------------------------------------------------------------------------
Fill in ONLY if distribution checks are to be mailed to you at another
address or paid to someone other than the registered owner(s) as shown
above.
Name: ____________________________________________________________________
Address: ___________________________________________________________________
- --------------------------------------------------------------------------------
5 SYSTEMATIC WITHDRAWAL
A Systematic Withdrawal Plan (SWP) is available to shareholders who own
shares of the Fund worth $5,000 or more. SWP is subject to restrictions
described in the Fund's Prospectus.
This option will begin the month following receipt of this request.
1. The amount of each withdrawal shall be $______________________________.
2. Systematic withdrawals shall be made (choose one only):
/ / Monthly / / Quarterly (Mar, June, Sept,
Dec) / / Semi-Annually / / Annually
3. Please have my withdrawals mailed. I understand that the SWP checks will
be made payable to me and sent to my account mailing address unless a
special designation is referenced below:
Withdrawals are to commence on or around the 20th of _______________
(Month, Year).
- --------------------------------------------------------------------------------
Fill in ONLY if SWP checks are to be mailed to you at another address or
paid to someone other than the registered owner(s) as shown above. If
check is to be sent to a bank account, provide a void check.
Name: __________________________________________________________________
Address: _________________________________________________________________
<PAGE>
- --------------------------------------------------------------------------------
6 LETTER OF INTENT (Not Applicable to Primary Series)
Under the terms of the current prospectus, I intend to purchase, within
thirteen months from the date of receipt, shares of one or more of the
American National Funds Group and/or Government Income and/or Tax Free
Series (Excluding the Primary Series). The total amount of my purchase (at
the offering price on the date of receipt by the transfer agent) will equal
an aggregate amount not less than:
<TABLE>
<S> <C> <C> <C> <C> <C>
/ / $50,000* / / $100,000** / / $250,000 / / $500,000 / / $1,000,000 / / $1,500,000
</TABLE>
(*Growth, Income and Triflex Funds Only) (**Government Income Series and Tax
Free Series Only)
Shares of the named Funds owned by me at the date of this Letter (including
shares owned by my spouse and our children who are under the age of majority or
such other persons as described in a "single purchaser" in the current
prospectus) are held in the below-specified accounts (Please Print):
<TABLE>
<S> <C> <C> <C>
Fund Name Account Number Account Registration Owner's Relationship to Investor*
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
*Must be self, spouse or child; if child, indicate current age
/ / This is a new Letter of Intent. Date
- ------------------------------.
/ / This is an existing Letter of Intent. The Letter of Intent was signed on
(date) __________________ for (amount) $__________________
This LOI expires on the earlier of (1) 13-months from the date of first
purchase, or (2) the release to me of my shares held in escrow.
Additionally, escrow shares are not subject to the exchange privilege and,
unless agreed to by SM&R, will not be released unless my intended
investment, equals or exceeds the specified amount.
- --------------------------------------------------------------------------------
7 RIGHT OF ACCUMULATION (Not Applicable to Primary Series)
If account is entitled to a Reduced Sales Charge under the terms of the
current Prospectus, please provide the following information.
<TABLE>
<S> <C> <C> <C>
Fund Name Account Number Account Registration Owner's Relationship to Investor
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
8 SIGNATURE(S) & CERTIFICATION
I/We hereby authorize Securities Management and Research, Inc. ("SM&R"), or
its duly authorized agents, as agent for the SM&R Capital Funds, Inc., to
honor any requests made in accordance with the terms of this application,
and I/we further affirm that neither SM&R ("Transfer Agent") nor SM&R
Capital Funds, Inc. shall be held liable for any loss, liability, cost or
expense for acting in accordance with this application, or any section
thereof. I/We certify that I/we have full right, power, authority and legal
capacity to purchase shares and affirm that I/we have received and read the
Prospectus and agree to its terms. Under penalties of perjury, I/we certify
(1) that the number shown on this form is my/our correct taxpayer
identification number and (2) that I/we are not subject to backup
withholding either because (a) I/we are exempt from backup withholding, or
(b) I/we have not been notified by the Internal Revenue Service that I/we
are subject to backup withholding as a result of a failure to report all
interest or dividends, or the Internal Revenue Service has notified me/us
that I/we are no longer subject to backup withholding. If you have been
notified by the Internal Revenue Service that you are currently subject to
backup withholding, strike out phrase (2) above.
- --------------------------------------------------------------------------------
INDIVIDUAL (OR CUSTODIAN) DATE
- --------------------------------------------------------------------------------
CO-OWNER (OR CORPORATE OFFICER, PARTNER OR TRUSTEE) DATE
- --------------------------------------------------------------------------------
(IF APPLICABLE, TRUSTEE) DATE
- --------------------------------------------------------------------------------
(IF APPLICABLE, TRUSTEE) DATE
- --------------------------------------------------------------------------------
<PAGE>
9 REPRESENTATIVE INFORMATION
/ / Yes, I have completed and attached "Investor Suitability Form" new
account information (Form 8045).
/ / Primary Series Account Only Information (Form 9354), if applicable.
----------------------------------------------------------------------------
Representative Name (print)
---------------------------------------------------------------------------
Representative Signature
---------------------------------------------------------------------------
SM&R Representative Social Security Number
- --------------------------------------------------------------------------------
10 BROKER-DEALER USE ONLY -- Please Print
We hereby submit this application for the purchase of shares of the Fund(s)
indicated in accordance with the terms of our selling agreement with
Securities Management and Research, Inc. ("SM&R"), and with the prospectus
for the Fund(s). We agree to notify SM&R of any purchases of shares made
under a Letter of Intent or Rights of Accumulation or otherwise eligible for
reduced or eliminated sales charges. If this Application includes a
Telephone Exchange Privilege authorization, a Telephone Redemption Privilege
authorization or a Systematic Withdrawal Plan request, we guarantee the
signature(s) in this Application.
----------------------------------------------------------------------------
Dealer Name
---------------------------------------------------------------------------
Main Office Adress
---------------------------------------------------------------------------
Branch # Rep # Representative Name (print)
---------------------------------------------------------------------------
Branch Address Phone Number
---------------------------------------------------------------------------
Authorized Signature Securities Dealer Title
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACCEPTED: Securities Management and Research, Inc. By
- ------------------------ Date
- ------------------------
- --------------------------------------------------------------------------------
<PAGE>
PRE-AUTHORIZED CHECK PLAN
AUTHORIZATION
I hereby authorize _____________________________________________________________
Name of bank Branch
of ____________________________________________________________________ to honor
City State
pre-authorized checks drawn on me by SECURITIES MANAGEMENT & RESEARCH, INC., One
Moody Plaza, Galveston, Texas 77550, and to charge such checks against my
checking account until further notice to you from me. I agree there will be no
liability incurred by you for payment or non-payment of any such checks drawn on
me.
_______________ ___________________________________________________
Date Signature of Customer
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(To be completed by SM&R Home Office)
---------------------------------------------------------------------------------- ----------------------------------
Date first check to be deposited by SM&R Transit Number
32 31 30 29 28 27 26 25 24 23 22 21 20 19 18 17 16 15 14 13
</TABLE>
- --------------------------------------------------------------------------------
Securities Management & Research, Inc. - One Moody Plaza - Galveston, Texas
77550
AUTHORIZATION
I hereby authorize SECURITIES MANAGEMENT & RESEARCH, INC. to deposit
pre-authorized checks:
<TABLE>
<S> <C>
/ / Monthly / / New Account
/ / Quarterly / / Existing Account
/ / 7th / / Bank Change
/ / 21st / / Accumulation Account
/ / Growth Fund $ ------------ / / IRA Account
/ / Income Fund $ ------------ / / Profit Sharing Account
/ / Triflex Fund $ ------------ / / Pension Account
/ / Government Income Series $ ------------
/ / Tax Free Series $ ------------
$20 minimum per Fund.
/ / Primary Series $ ------------
$100 minimum investment.
</TABLE>
Credit to the Account of:
- ------------------------------------ ---------------------------
Exact Name on Registration Fund Account No.(s), if known
I agree that if, at any time, such checks are not honored for payment by said
bank, the pre-authorized check plan shall be discontinued. I further understand
that all shares purchased and credited to the above named are conditional, being
subject to checks being honored for payment by said bank.
- ------------------ ---------------------------------------
Date Signature of Customer
A "VOIDED" check must be attached to reverse of bottom half of Authorization.
Form 8006
Rev. 8/93
<PAGE>
To: The bank named on the reverse side
In order to induce you to comply with the request of your customer to provide
the service authorized on the other side of this card, Securities Management &
Research, Inc. of Galveston, Texas, (the "Company") undertakes and agrees:
(1) To indemnify you and hold harmless from any loss you may suffer as a conse-
quence of your action resulting from or in connection with the execution and
issuance of any check or drafts, whether or not genuine, purporting to be
executed or issued by or on behalf of the Company and received by you in the
regular course of business for the purpose of payment in connection with the
authorization signed by your depositors, including any costs or expenses
reasonably incurred in connection therewith. In the event that any such check or
drafts should be dishonored, whether with or without cause and whether
intentionally or inadvertently, to indemnify you for any loss even though
dishonor results in the forfeiture of insurance.
(1) To refund to you any amount erroneously paid by you to the Company on any
such check or draft if claim for the amount of such erroneous payment is made by
you within twelve months of the date of check or drafts on which such erroneous
payment was made.
Michael W. McCroskey, President
Securities Management & Research, Inc.
Authorized in a resolution adopted by the Board of Directors of Securities
Management & Research, Inc., of Galveston, Texas on September 14, 1967.
STAPLE VOIDED CHECK BELOW
- --------------------------------------------------------------------------------
<PAGE>
SM&R REPRESENTATIVE USE ONLY
INVESTOR SUITABILITY FORM--NEW ACCOUNT INFORMATION
Article III, Sections 2 & 21 of the Rules of Fair Practice require a
Representative to obtain the information contained in this form in order to
accept a new account in the American National Funds Group, SM&R Capital Funds,
Inc., and other mutual funds sold by SM&R Representatives.
FOR OUTSIDE FUNDS, ALL INFORMATION REQUESTED ON THIS FORM MUST BE COMPLETED--NO
EXCEPTIONS.
- --------------------------------------------------------------------------------
ORDER RECEIVED BY: Telephone
- --------- Letter
- --------- In Person
- --------- Other
- ---------
- ------------------ Shares or $
- ------------------ of
- --------------------------------------------- (Security Being Purchased)
SOURCE OF CUSTOMER: / / Referral / / Advertising / / Direct Mail Reply / /
Existing Client / / Friend/Relative / /
- ------------------
- --------------------------------------------------------------------------------
A. ACCOUNT TYPE:
------------------------ Individual
------------------------ Joint
Distribution Option
------------------------ Corporation
/ / Cash (Indicate
------------------------ Partnership
/ / Mo. / / Qtrly
------------------------ Other Legal Entity (Type)
------------------------
/ / Semi-Annual)
/ / Reinvest
SIGNATORS:
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- --------------------------------------------------------------------------------
B. SECURITIES REGISTRATION OF CUSTOMER
Name(s) DOB: Purchaser
DOB: Joint Owner
- --------------------------------------------------------------------------------
Address
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Social Security No. (Individual, Joint Accounts, Taxpayer ID No. (Trust, Estate, Pension Trust,
Custodial Accounts for Minors) Corporation, Partnership, etc.)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C>
C. SOURCES OF FUNDS FOR INVESTMENT
A. / / Current Earnings C. / / Gift or Inheritance E. / / Death Benefit G. / / Other Policy Proceeds
B. / / Savings D. / / Sale of Assets F. / / Maturity Proceeds H. / / ---------------------
</TABLE>
- --------------------------------------------------------------------------------
D. Is the Customer or proposed Customer employed by or associated with a member
of the NASD or NYSE? / / Yes / / No
If yes, provide the name, address and phone number of the firm:
----------------------------------------------------------------------------
What is Customer's occupation?
----------------------------------------------------------
Name and Address of Customer's Employer:
- --------------------------------------------------------------------------------
E. Does Customer have other securities holdings?: / / Yes / / No
Types: / / Stocks / / Bonds / / Mutual Funds / / Variable
Products / / Other
Are they redeeming other mutual fund shares to make this purchase? / /
Yes / / No
- --------------------------------------------------------------------------------
F. PERTINENT ADDITIONAL INFORMATION (CHECK APPROPRIATE BOXES)
<TABLE>
<S> <C>
/ / Application Attached / / Check Attached Payable To:
/ / Prototype Attached (IRA, TSA, Pension/Profit Sharing) -------------------------------------------
/ / Letter of Intent Dated ------------ for $ ------------ / / Other ------------------------------------
/ / Signed Arbitration Agreement (reverse side.)
/ / Signed Statement of Refusal to Provide Financial Information, if applicable (reverse side.)
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Registered Representative's Name (print) Representative Social Security Number
Registered Representative Signature Date
</TABLE>
- --------------------------------------------------------------------------------
ACCEPTED: Securities Management and Research, Inc. By:
- ------------------------------------ Date:
- ------------------
PURCHASER SIGNATURE REQUIRED ON REVERSE SIDE
<PAGE>
INVESTMENT SUITABILITY--TO BE COMPLETED BY REGISTERED REPRESENTATIVE AND
INDIVIDUAL INVESTOR.
NASD rules require the Registered Representative to have reasonable grounds for
believing that any sale is suitable for the customer. Therefore, Registered
Representatives are required to make inquiries concerning the financial
condition of a proposed purchaser (the "Purchaser") of securities. Purchasers
are urged to supply such information so that the representative can make an
informed judgment as to the suitability for a particular Purchaser of
securities. However, Purchasers are not required to divulge such information. If
the Purchaser chooses not to do so, the Purchaser must execute Statement of
Refusal to Provide Financial Information below signifying his/ her refusal and
acknowledge that the representative requested the suitability information.
1. OCCUPATION _______________________ Phone No. Employer ______________________
Name and Address of Employer _______________________________________________
____________________________________________________________________________
<TABLE>
<S> <C> <C> <C> <C>
2. TAX STATUS
/ / Single / / Head of Household / / Married filing separate / / Other -----------------
/ / Married filing joint / / Corporation return
return or Qualifying widow(er)
with dependent child
3. MARITAL STATUS
A. / / Married B. / / Single C. / / Widowed
4. DEPENDENTS
A. / / Spouse B. / / Children: Ages ----------------- C. / / Other -----------------
5. PRIMARY PURPOSE OF INVESTMENT:
INDIVIDUAL BUSINESS
A. / / Education D. / / Tax Shelter A. / / Retirement Plan D. / / Buy-Sell
B. / / Savings E. / / Retirement B. / / Key Man E. / / Depreciation Reserve
C. / / Estate Plan F. / / ------------- C. / / Deferred Compensation F. / / -----------------
6. INVESTMENT PROFILE
1. What is your current investment preference?
/ / High Growth Potential / / Income and Growth Potential / / Maximum Safety/Modest Return
2. What is your Risk comfort level?
/ / High / / Moderate / / Limited
3. What is your financial goal time horizon?
/ / 1-5 Years / / 5-10 Years / / 10 Years and Beyond
4. What is your age range?
/ / 21-40 / / 41-59 / / 60+
5. What is your tax bracket?
/ / 15% / / 28% / / 28%+
<CAPTION>
6.
</TABLE>
<TABLE>
<S> <C>
7. Are you responsible for the financial welfare of anyone other than your immediate family (i.e. alimony, child, or
parental support, etc.)? / / Yes / / No
</TABLE>
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C>
Estimated Annual Income *Estimated Net Worth Life Insurance Face Amount Is the applicant a policyholder of
$ $ $ American National?
/ / Yes / / No
</TABLE>
- --------------------------------------------------------------------------------
*Net Worth is exclusive of home, furnishings and automobile
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Purchaser Signature Joint Owner Signature
</TABLE>
- --------------------------------------------------------------------------------
FOR THE AMERICAN NATIONAL FUNDS GROUP AND SM&R CAPITAL FUNDS ONLY!
STATEMENT OF REFUSAL TO PROVIDE FINANCIAL INFORMATION (SIGNATURES REQUIRED ONLY
IF INFORMATION NOT PROVIDED.)
I(we) fully understand that the Representative, acting on behalf of Securities
Management and Research, Inc., has requested the above suitability information
to determine whether my/our purchase of securities is an appropriate investment
considering my/our financial condition. I(we) refuse to provide the requested
information and by my/our signature(s) below agree not to seek recission of the
policy or mutual fund investment or damages based on its unsuitability.
<TABLE>
<S> <C>
- ------------------------------------------------------------------ ----------------------------------------------------------
Signature of Purchaser Signature Joint Owner (Must sign)
</TABLE>
REPRESENTATIVE EXPLANATION OF CUSTOMERS REFUSAL TO PROVIDE INFORMATION ON THIS
FORM.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PURCHASERS AGREEMENT TO ARBITRATION
THIS SECTION IS NOT APPLICABLE TO MISSOURI RESIDENTS!
The following conditions are agreed to by all parties to this agreement.
1. Arbitration is final and binding on the parties.
2. The parties are waiving their right to seek remedies in court, including the
right to jury trial
3. Pre-arbitration discovery is generally more limited than and different from
court proceedings
4. The arbitrators' award is not required to include factual findings or legal
reasoning and any party's right to appeal or to seek modification of rulings
by the arbitrators is strictly limited.
5. The panel of arbitrators will typically include a minority of arbitrators
who were or are affiliated with the securities industry
By signature below, I(we) understand that I(we) have the right to any dispute
between us arising under the federal securities laws to be resolved through
litigation in the courts. In lieu of using the courts, I(we) may agree, after
any such dispute has arisen, to settle it by arbitration before an appropriate
group of arbitrators. However, I(we) understand that any other dispute between
us arising out of any transaction or this agreement shall be settled by
arbitration before the National Association of Securities Dealers, Inc., which
must be commenced by a written notice of intent to arbitrate. Judgment upon any
award rendered may be entered in any appropriate court.
I(we) further understand that we may not bring a putative or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against anyone who has initiated in court a putative class action; or who is a
member of a putative class action until (a) the class certification is denied;
or (2) the class is decertified; or (3) I(we) are excluded from the class by the
court. Such forbearance to enforce an agreement to arbitrate shall not
constitute a waiver of any rights under this agreement except to the extent
stated herein.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Signature of Purchaser Signature Joint Owner (Must sign)
</TABLE>
Form 8045
Rev. 4/96
<PAGE>
SM&R's business holiday's are Good Friday, Labor Day, Thanksgiving Day, the
Friday following Thanksgiving Day, two (2) days at Christmas and New Years Day.
If Christmas Day is a weekday other than Monday, Christmas Day and Christmas Eve
Day are business holidays. If Christmas Day is Monday, Christmas Day and the
preceding Friday will be business holidays. If Christmas Day is a Saturday, the
preceding Thursday and Friday will be business holidays. If Christmas Day is a
Sunday, the preceding Friday and the following Monday will be business holidays.
If New Years Day is a Saturday the preceding Friday will be a business holiday
and if New Years Day is a Sunday the following Monday will be a business
holiday.
DETERMINATION OF OFFERING PRICE
The offering price for shares of each Series is determined once each day that
such Series' net asset value is determined. Net asset value per share is
determined by dividing the market value of the securities owned by the Series,
plus any cash or other assets (including dividends accrued but not collected),
less all liabilities of such Series (including accrued expenses but excluding
capital and surplus), by the number of shares of the Series outstanding. Net
asset value is currently determined as of 3:00 p.m., Central Time on each
business day and on any other day in which there is a sufficient degree of
trading in such Series' investment securities that the current net asset value
of such Series' shares might be materially affected by changes in the value of
its portfolio of investment securities. Each Series of the Fund reserves the
right to compute such Series' net asset value at a different time, or to compute
such value more often than once daily as provided in the Fund's current
prospectus.
The offering price for shares of the Government Income Series and the Tax Free
Series is that Series' net asset value plus the sales charge computed at the
rates set forth in the applicable tables below. Shares of the Primary Series may
be purchased without a sales charge. Accordingly, the offering price for shares
of the Primary Series is that Series' net asset value. During such times that
the Primary Series is invested primarily in commercial paper having maturities
of less than sixty (60) days, the offering price for such series will be
relatively stable. However, even during such times, the Primary Series cannot
assure a dollar for dollar return on the amount invested.
For a more complete description of the procedures involved in valuing various
fund assets, see "Offering Price" in the Fund's Statement of Additional
Information.
17
<PAGE>
GOVERNMENT INCOME SERIES AND TAX FREE SERIES
<TABLE>
<CAPTION>
(2)
(1) Sales Charge as a (3)
Sales Charge as a Percentage of Discount to Selected
Percentage of Net Amount Dealers as a Percentage
Amount of Investment Offering Price Invested of Offering Price
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over* None None None
</TABLE>
* In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers, in quarterly installments, from its own
profits and resources, a per annum percent of the amount invested as follows:
Year 1-- Government Income and Tax Free Series 0.35% and Year 2-- 0.25%,
respectively. The Primary Series 0.10% for Years 1 and 2. In the third and
subsequent years, SM&R may pay 0.075% per annum, in quarterly installments, to
those representatives and broker-dealers with accounts totaling assets of $1
million or more.
The reduced sales charge rates set forth above apply to purchases of the
Government Income Series and Tax Free Series, either singly or in combination
with purchases of shares of the American National Funds Group at the respective
sales charges applicable to each, made at one time by:
(1) Any individual;
(2) Any individual, his or her spouse, and trusts or custodial agreements
for their minor children;
(3) A trustee or fiduciary of a single trust estate or single fiduciary
account.
Purchases in the Government Income Series will also receive a reduction in
sales charge pursuant to the rates set forth in the table above for purchases
either singly or in combination with purchases of shares of the American
National Funds Group at the respective sales charges applicable to each, made at
one time by:
(1) Tax-exempt organizations specified in Sections 501(c)(3) or (13) of the
Internal Revenue Code, or employees' trusts, pension, profit-sharing, or
other employee benefit plans qualified under Section 401 of the Internal
Revenue Code; and
(2) Employees or employers on behalf of employees under any employee benefit
plan not qualified under Section 401 of the Internal Revenue Code.
Furthermore, purchases by any "company" or employee benefit plans not
qualified under Section 401 of the Internal Revenue Code will qualify for the
above quantity discounts only if the Government Income Series will realize
economies of scale in sales effort and sales related expenses as a result of the
employer's or the plan's bearing the expense of any payroll deduction plan,
making the Fund prospectus available to individual investors or employees,
forwarding investments by such employees to the Fund, and the like.
All direct sales expenses, including the cost of prospectuses for prospective
shareholders, are paid by SM&R, and no sales expense is borne by the Fund.
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SPECIAL PURCHASE PLANS
The Fund offers the following services to its shareholders to facilitate
investment in the Fund. At this time, there is no charge to the shareholder for
these services. For additional information contact your registered
representative or SM&R.
RIGHT OF ACCUMULATION--Dollar amount(s) of shares being purchased plus the
current offering value of your combined holdings of the Government Income
Series, the Tax Free Series and the American National Funds Group (the
Government Income Series, the Tax Free Series and the funds in the American
National Funds Group, shall be collectively referred to hereinafter as the
"Group"). Shareholders of the Government Income Series or the Tax Free Series
must, at the time of purchase, give their representative or SM&R a list of other
accounts maintained in the Group to qualify for this privilege. There is no
retroactive reduction of the sales charge for shares previously purchased. When
necessary, SM&R has the right to require verification of holdings to be included
in determining the applicable sales charge.
LETTER OF INTENT--An investor may immediately qualify for a reduced sales charge
on purchases of shares of the Group by completing the Letter of Intent section
of the application. Under a Letter of Intent an investor expresses an intention
to invest during the next 13 months a specified amount in the Group which, if
made at one time, would qualify for a reduced sales charge. A minimum initial
investment equal to ten percent (10%) of the amount necessary for the applicable
reduced sales charge is required when a Letter of Intent is executed. Five
percent (5%) of the total intended purchase amount will be held in escrow in
shares of the Group registered in the investor's name to assure that the full
applicable sales charge will be paid if the intended purchase is not completed.
Shares held in escrow under a Letter of Intent are not subject to the exchange
privilege until the Letter of Intent is completed or canceled. A Letter of
Intent does not represent a binding obligation on the part of the investor to
purchase or the Group to sell the full amount of shares specified. (See the
Investor's Letter of Intent on the Application and "SPECIAL PURCHASE PLANS" in
the Statement of Additional Information.)
GROUP SYSTEMATIC INVESTMENT PLAN--A group of 5 or more employees may initially
invest a minimum of $100 ($20 per individual) in the Government Income Series or
Tax Free Series followed by additional payments of at least $20 for each
individual investing under a single payroll deduction plan. Any such plan may be
terminated by SM&R or the shareholder at any time upon sixty (60) days written
notice.
PURCHASES AT NET ASSET VALUE--After receipt of written request by SM&R, no sales
charge will be imposed on sales charge shares of the Government Income Series
and the Tax Free Series to: (a) present and retired directors, officers and
full-time employees of the Fund; (b) present and retired directors, officers,
registered representatives and full-time employees of SM&R and their spouses;
(c) present and retired officers, directors, insurance agents and full-time
employees and their spouses of American National and its subsidiaries and its
"affiliated persons," as defined in the Investment Company Act of 1940, and of
any corporation or partnership for which any of American National's present
directors serve as a director or partner, and their spouses; (d) present and
retired partners and full-time employees of legal counsel to SM&R and officers
and directors of any professional corporations which are partners of such legal
counsel and their spouses; (e) any child, step-child, grandchild, parent,
grandparent, brother or sister of any person named in (a), (b), (c), or (d)
above and their spouses; (f) any trust, pension, profit-sharing, IRA or other
benefit plan for any of such persons mentioned in (a), (b), (c), (d) or (e)
above; (g) custodial accounts for minor children of such persons mentioned in
(a), (b), (c), (d) or (e) pursuant to the Uniform Gifts to Minors or Uniform
Transfers to Minors Acts; (h) persons who have received a distribution from a
pension, profit-sharing or other benefit plan, to the extent such distribution
represents the proceeds of a redemption of shares of the Government Income
Series and/or any fund in the Group; (i) persons receiving rebated amounts
through ANPAC's "Cash Back Program" to the extent the proceeds represent the
amount of the rebate, (j) trust companies and bank trust departments for funds
over which they exercise exclusive discretionary investment authority or they
serve as a directed
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trustee and which are held in a fiduciary, agency, advisory, custodial or
similar capacity; (k) accounts managed by Securities Management and Research,
Inc.; (l) stockholders of American National Insurance Company; (m) policy
holders of American National subsidiaries who have entered into an NAV agreement
with SM&R; (n) registered representatives and employees of securities dealers
with whom SM&R has a selling agreement; and (o) officers, directors, trustees,
employees and members of any business, trade, professional, charitable, civic or
similar associations and clubs with an active membership of at least 100 persons
who have entered into an NAV agreement with SM&R.
Shares of the Tax Free Series may also be purchased without a sales charge,
upon proper notification to SM&R, by those individuals mentioned in (a), (b),
(c), (d), (e), (i), (j), (k), (l), (m) (n) and (o) above.
Neither the Funds nor SM&R are responsible for determining whether or not a
prospective investor qualifies under any of the above categories for receipt of
net asset value. This determination is the sole responsibility of the
prospective investor.
PRE-AUTHORIZED CHECK PLANS--An investor may invest in shares of each Series
through the use of a pre-authorized check plan ($20 dollars or more in the case
of investments in the Government Income Series and Tax Free Series and $100
dollars or more in the case of investments in the Primary Series). Such
purchases are processed on or about the 7th and 21st of each month and each
investor may invest in up to five different accounts in the Group on either
date. Such purchases will enable an investor in the Government Income Series to
lower his or her average cost per share through the principle of "dollar cost
averaging". As discussed earlier, (See DETERMINATION OF OFFERING PRICE) the
Primary Series may have a relatively stable price per share. During such times,
the benefits of "dollar cost averaging" may not be available to investors in
such Series. (See "SPECIAL PURCHASE PLANS" in the Statement of Additional
Information.)
WEALTH ACCUMULATION PLAN--Shareholders having account balances of at least
$5,000 in the SM&R Capital Funds American National Primary Fund Series ("Primary
Series") may open a Wealth Accumulation Account, which will provide them with an
automatic dollar cost averaging plan. Automatic monthly purchases of the shares
of other funds in the American National Funds Group will be made by exchanges
from the shareholder's Primary Series Wealth Accumulation Account. Purchases of
the other funds must be at least $100 and, unless terminated by the shareholder,
will continue as long as the balance of the Primary Series Wealth Accumulation
Account is sufficient. Additional investments may be made to a Primary Series
account designated as a Wealth Accumulation Account to extend the purchase
period under the plan. However, if additional investments are received by SM&R
less than fifteen (15) days prior to the 20th of the month, such investments
will not be available for use under the Wealth Accumulation Account until the
20th of the following month. If the 20th of the month is an SM&R holiday, the
purchase will be processed on the next business day.
Purchases made will be subject to the applicable sales charge of the fund
whose shares are being purchased. Changes in amounts to be purchased, the funds
being purchased, and termination of a Wealth Accumulation Account will be made
within five (5) business days after written instructions are received by SM&R in
proper form (ie: signed by the owner(s) of record exactly as registered).
Shareholders' rights to make additional investments in any of the American
National Funds Group, to exchange shares within the American National Funds
Group, and to redeem shares are not affected by a shareholder's participation in
a Wealth Accumulation Plan. However, check writing privileges and expedited
redemption by telephone are not available for the Primary Series accounts
designated as a part of the Wealth Accumulation Plan.
EXCHANGE PRIVILEGE--SM&R desires to make it convenient for all shareholders to
exchange from one Series to another within the Fund and the American National
Funds Group without the payment of an exchange fee. However, some Series and
some members of the American National Funds Group have no sales charges and/or
variable sales charges which complicates the exchange process.
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In an effort to simplify the procedure, but at the same time consistently treat
all investors the same, the following rules and procedures have been adopted.
Shares held in accounts opened for more than one (1) year may be exchanged on
the basis of their respective net asset values, without a sales charge. This
privilege is only available in states where the various members of the Group are
registered and the exchange may be legally made. The Exchange Privilege is not
available to shareholders of the Primary Series.
Shares of any Series or fund held in escrow under a Letter of Intent are not
eligible for the exchange privilege and will not be released unless the Letter
of Intent balance invested during the period equals or exceeds the Letter of
Intent amount or the shareholder requests, in writing, that the Letter of Intent
be canceled and adjustments made prior to the exchange.
Shares of the Primary Series acquired through an exchange from one of the
members of the Group and all additional shares acquired through reinvested
dividends on such exchanged shares may be RE-EXCHANGED for shares of the members
of the Group. RE-EXCHANGES may not be effected through the use of the Primary
Series check writing option. (See "Check Writing Option") The RE-EXCHANGE
privilege may not be used to avoid payment of a differential in sales charge
between the members of the Group.
To effect an exchange or re-exchange (a) a prospectus must be provided to the
investor covering the shares to be taken in exchange; (b) written authorization
requesting the exchange and advising that such exchange is eligible for reduced
or no sales charges must be received by SM&R; (c) an appropriate application
must be completed if an account does not presently exist in the Series or fund
shares being exchanged to; and (d) the amount being exchanged must at least
equal the minimum initial or subsequent investment amounts, whichever is
applicable. SM&R reserves the right, upon sixty (60) days prior written notice,
to restrict the frequency of or to otherwise modify, condition, terminate or
impose additional charges upon the exchange privilege. Furthermore, the exchange
of a Series or fund shares may constitute a sale of shares which represents a
taxable event.
Any gain or loss realized on such an exchange may be recognized for federal
and state income tax purposes. The investor should consult its own tax adviser
for the treatment of exchanges for tax purposes.
RETIREMENT PLANS
The following retirement plans may be funded with shares of the Government
Income Series or the Primary Series: Individual Retirement Accounts (IRAs);
Simplified Employee Pension Plans (SEPs); 403(b) Custodial Accounts (TSAs) and
corporate retirement plans. Information concerning IRAs and TSAs and the forms
necessary to adopt such plans, can be obtained by contacting your registered
representative or calling SM&R. A regular Fund application should be used when
establishing a corporate retirement plan. The minimum initial purchase for each
Series is $100. The minimum subsequent purchase is $20 for the Government Income
Series and $100 for the Primary Series. SM&R acts as trustee or custodian for
IRAs, SEPs and TSAs for the Fund. An annual custodial fee of $7.50 will be
charged for any part of a calendar year in which an investor has an IRA, SEP or
TSA in the Fund and will be automatically deducted from each account. Documents
and forms containing detailed information regarding these plans are available
from your representative or SM&R. An individual considering a retirement plan
may wish to consult with an attorney or tax adviser.
Because IRAs, SEPs, TSAs, other tax exempt persons and other qualified plans
are exempt from federal income tax, they will be unable to benefit from the
general tax-exempt nature of the Tax Free Series. Accordingly, the Tax Free
Series is not generally considered to be suited for such plans or persons.
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<PAGE>
DIVIDENDS AND DISTRIBUTIONS
The Government Income Series and Tax Free Series will declare and pay
dividends from net investment income monthly and net realized short-term or
long-term capital gains, if any, annually.
At 3:00 p.m., Central Time, on each day that the Exchange is open for trading
other than SM&R's business holidays described above, the Primary Series will
declare a dividend of all of its net investment income to shareholders already
of record. Such dividends will be paid monthly.
Unless the shareholder elects otherwise in writing to SM&R or on the
application, dividends and capital gains will be automatically reinvested in the
shareholder's account in additional shares of the respective Series making such
distribution. Such reinvestment will be made at the net asset value on the
distribution date, without sales charge. Dividends and capital gains declared in
December to shareholders of record in December and paid the following January
will be taxable to shareholders as if received in December. This is a convenient
way to accumulate additional shares and maintain or increase the shareholder's
earning base. Of course, any shares so acquired remain at market risk.
Shareholders have the right to change their election with respect to the
receipt of distributions by notifying SM&R in writing, but any such change will
be effective only as to distributions for which the record date is seven or more
business days after SM&R has received the shareholder's written request.
In order to be entitled to a dividend, an investor must have acquired shares
of a series prior to the close of business on the record date. A shareholder
should be cautioned, however, before purchasing shares of a series immediately
prior to a distribution. Dividends and distributions paid by the Fund have the
effect of reducing net asset value per share on the record date by the amount of
the payment. Therefore, a dividend or distribution of record shortly after the
purchase of shares by an investor represents in substance, a return of capital.
TAXES
Each Series of the Fund is treated as a separate entity for federal income tax
purposes. The Fund has elected to be treated as a regulated investment company
under Subchapter M of the Code. The Fund intends to distribute all of its net
investment income and net realized capital gains to shareholders in a timely
manner, therefore, it is not expected that the Fund will be required to pay
federal income taxes.
For federal income tax purposes, any income dividends derived from taxable
investments which the shareholder receives from such Series of the Fund, as well
as any distributions derived from net short-term capital gain are treated as
ordinary income whether the shareholder has elected to receive them in cash or
in additional shares. Distributions derived from net long-term capital gain will
be taxable as long-term capital gains regardless of the length of time the
shareholder has owned such Series' shares and regardless of whether such
distributions are received in cash or in additional shares. In determining the
amount of capital gains, if any, available for distribution, net capital gains
are offset against available net capital losses, if any, carried forward from
previous years.
The Tax Free Series expects the dividends it pays to shareholders from
interest on municipal securities generally to be exempt from federal income tax
because the Series intends to satisfy certain requirements of the Internal
Revenue Code, as amended. Such exempt-interest dividends are derived from
interest income exempt from regular federal income tax, and not subject to
regular federal income tax for the Series' shareholders. Shareholders will,
however, be required to disclose on their federal income tax return the amount
of tax-exempt interest earned during the year, including exempt-interest
dividends received.
Current federal tax law limits the types and volume of securities qualifying
for the federal income tax exemption of interest and makes interest on certain
tax-exempt securities and distributions by the Tax Free Series of such interest
a tax preference item for purposes of the individual and corporate
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<PAGE>
alternative minimum tax. All exempt-interest dividends may affect a corporate
shareholder's alternative minimum tax liability. Current federal tax law may
also affect the availability of municipal obligations for investment by the
Series and the value of the Series' portfolio.
Redemptions and exchanges of shares in each Series of the Fund are taxable
events on which a shareholder may realize a gain or loss. Shareholders of the
Tax Free Series should be careful about redeeming shares immediately prior to
the record date of an "exempt-interest dividend" because the redemption may
cause the shareholder to realize a taxable gain even though a portion of the
redemption proceeds may represent a pro rata share of tax exempt interest earned
by the Series. Shareholders should consult with their tax advisers concerning
the tax reporting requirements in effect on the redemption or exchange of such
shares.
The Fund may be required to report to the Internal Revenue Service ("IRS") any
taxable dividends or other reportable payment (including share redemption
proceeds) and withhold 31% of any such payments made to individuals and other
non-exempt shareholders who have not provided a correct taxpayer identification
number and made certain required certifications that appear in the Application.
A shareholder may also be subject to backup withholding if the IRS or a broker
notifies the Fund that the number furnished by the shareholder is incorrect or
that the shareholder is subject to backup withholding for previous
under-reporting of interest or dividend income.
Shareholders who are not U.S. persons for purposes of federal income taxation
should consult with their financial or tax advisors regarding the applicability
of U.S. withholding taxes to distributions received by them from the Fund.
Many states grant tax-free status to dividends paid to shareholders of mutual
funds from interest income earned by the fund from direct obligations of the
U.S. Government, subject in some states to minimum investment requirements that
must be met within the fund.
At the end of each calendar year, the Fund will advise its shareholders
regarding the tax status of all distributions made during each taxable year,
including the portion of the dividends which comprise taxable income, exempt
income and interest income that is a tax preference item under the alternative
minimum tax. Shareholders should consult their own tax advisers with respect to
the application of their state and their local tax laws to these distributions
and redemption proceeds received from the Fund. Additional information regarding
taxation is included in the Statement of Additional Information.
IMPORTANT: The Fund reserves the right to (1) refuse to open an account for
any person failing to provide a taxpayer identification number, certified as
correct and (2) close an account by redeeming its shares in full, at the then
current net asset value, upon receipt of notice from the IRS that the taxpayer
identification number certified as correct by the shareholder is in fact
incorrect.
HOW TO REDEEM
Shares of the Fund will be redeemed at the net asset value determined on the
date the request is received by SM&R in "Proper Form", as defined in "PROPER
FORM" below, at no charge. A redemption request must be addressed to Securities
Management and Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas
77550.
If uncertain of the redemption requirements, investors should call or write
SM&R. Payment will be made as soon as practicable and normally within seven days
after receipt of a redemption request in Proper Form.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be
available immediately. For shares purchased by non-guaranteed funds (such as a
personal check), the Fund reserves the right to hold the proceeds until such
time as the Fund has received assurance that an investment check has cleared the
bank on which it was drawn.
SYSTEMATIC WITHDRAWAL PLAN--The Fund has a Systematic Withdrawal Plan,
("Withdrawal Account") which permits shareholders having an account value of
$5,000 or more to automatically withdraw a minimum of $50 monthly or each
calendar quarter. The Fund and SM&R discourage shareholders from
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<PAGE>
maintaining a Withdrawal Account while concurrently purchasing shares of the
Government Income Series or the Tax Free Series because of the sales charge
involved in additional purchases. Dividends and capital gains distributions will
automatically be reinvested in additional shares at net asset value. As with
other redemptions, a withdrawal payment is a sale for federal income tax
purposes. The Systematic Withdrawal Plan will automatically terminate if all
shares are liquidated or withdrawn from the account. Certificates are not issued
for shares held in a Withdrawal Account and certificates held, if any, must be
surrendered when shares are transferred to a Withdrawal Account. No account
covered by a Letter of Intent can be changed to a Systematic Withdrawal Plan
until such time as the Letter of Intent is fulfilled or terminated, nor can an
account under a Systematic Withdrawal Plan be placed under a Letter of Intent.
REINVESTMENT PRIVILEGE--Within ninety (90) days of a redemption (sixty (60) days
for qualified plans), a shareholder may invest all or part of the redemption
proceeds in shares of any of the funds managed by SM&R at the net asset value
next computed after receipt of the proceeds to be reinvested by SM&R. The
shareholder must ask SM&R for this privilege at the time of reinvestment. Prior
to reinvestment of redemption proceeds, a shareholder is encouraged to consult
with his accountant or tax advisor to determine any possible tax ramifications
of such a transaction. Each fund managed by SM&R may amend, suspend or cease
offering this privilege at any time as to shares redeemed after the date of the
amendment, suspension or cessation.
For further information about the "Systematic Withdrawal Plan" and
"Reinvestment Privilege", contact a registered representative or SM&R.
"PROPER FORM"--means the request for redemption must include: (1) your share
certificates, if issued; (2) your letter of instruction or a stock assignment
specifying the Series, account number, and number of shares or dollar amount to
be redeemed. Both share certificates and stock powers, if any, must be endorsed
and executed exactly as the Series shares are registered. It is suggested that
certificates be returned by certified mail for the investor's protection; (3)
any required signature guarantees (see "Signature Guarantees" below); and (4)
other supporting legal documents, if required in the case of estates, trusts,
guardianships, divorce, custodianships, corporations, partnerships, pension or
profit sharing plans, retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
that all requests are submitted to the Fund's transfer agent in Proper Form for
processing.
SIGNATURE GUARANTEES--This guarantee carries with it certain statutory
warranties which are relied upon by the transfer agent. This guarantee is
designed to protect the investor, the Fund, SM&R and its representatives through
the signature verification of each investor wishing to redeem or exchange
shares. Signature must guarantees are required when: (1) the proceeds of the
redemption exceed $25,000; (2) the proceeds (in any amount) are to be paid to
someone OTHER THAN the registered owner(s) of the account; (3) the proceeds (in
any amount) are to be sent to any address OTHER THAN the shareholder's address
of record, pre-authorized bank account or exchanged to one of the other funds
managed by SM&R; (4) in transactions involving share certificates, if the
redemption proceeds are in excess of $25,000; or (5) the Fund or its transfer
agent believes a signature guarantee would protect against potential claims
based on the transfer instructions, including, when (a) the current address of
one or more joint owners of an account cannot be confirmed, (b) multiple owners
have a dispute or give inconsistent instructions, (c) the Fund or transfer agent
have been notified of an adverse claim, (d) the instructions received by the
Fund or transfer agent are given by an agent, not the actual registered owner,
(e) it is determined that joint owners who are married to each other are
separated or may be subject to divorce proceedings, or (f) the authority of a
representative of a corporation, partnership, association or other entity has
not been established to the satisfaction of the Fund or transfer agent.
Acceptable guarantees can be obtained from an "eligible guarantor institution"
as defined in rules adopted by the Securities and Exchange Commission. Eligible
guarantor institutions include
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<PAGE>
banks, brokers, dealers, municipal securities dealers or brokers, government
securities dealers or broker, credit unions (if authorized under state law),
national securities exchanges, registered securities associations and
institutions that participate in the Securities Transfer Agent Medallion Program
("STAMP") or other recognized signature guarantee medallion program or an SM&R
representative who has executed an agreement and received authorization from
SM&R. IMPORTANT: Witnessing or notarization is not sufficient.
TEXAS OPTIONAL RETIREMENT PROGRAM GOVERNMENT INCOME SERIES AND PRIMARY SERIES
ONLY--Redemption of shares in any account established under the Texas Optional
Retirement Program may not be redeemed unless satisfactory evidence is received
by SM&R from the state that one of the following conditions exist. (1) death of
the employee; (2) termination of service with the employer; or (3) retirement of
employee.
EXPEDITED TELEPHONE REDEMPTION PRIMARY SERIES ONLY--Shareholders redeeming at
least $1,000 of the Primary Series may redeem by telephoning SM&R at
1-800-231-4639. An authorization form must have been completed and filed with
SM&R before a telephone redemption request will be honored. To minimize the
risks associated with telephone redemptions, telephone redemptions will only be
made after the caller has provided the shareholder's account number and other
information deemed appropriate by the transfer agent. To further reduce the risk
of an attempted fraudulent use of the telephone redemption procedure, payment
will only be made by check to either the bank account designated on the
authorization form or, at the shareholder's direction, to purchase shares of one
or more of the other American National Funds for the shareholder's account with
an identical registration.
A check will be mailed on the next business day following receipt of the
telephone request. There is no charge for this service unless the shareholder
requests that the redemption proceeds be wired as provided below.
EXPEDITED WIRE REDEMPTION PRIMARY SERIES ONLY--Shareholders redeeming at least
$1,000 of the Primary Series and who have filed an expedited redemption
authorization form with SM&R, may at the time of redemption, request that
Federal Funds be wired to the bank designated on the form. Redemption proceeds
will normally be wired on the next banking day following receipt of the
redemption request. However, if the request is received after 3:00 p.m., Central
Time, proceeds normally will be wired no later than the second banking day
following receipt of the request. There is a $8.00 per transaction fee for this
service which will be automatically deducted from the shareholder's account and
the fee is subject to change without further notice. Subject to compliance with
the same risk minimizing procedures utilized in expedited telephone redemptions,
SM&R currently permits shareholder's to request expedited wire redemptions by
telephone.
Despite the precautions stated above, shareholders electing the telephone
redemption option and having the option of using the telephone to request an
expedited wire redemption are giving up a measure of security that they would
have if they were to redeem their shares or request an expedited wire redemption
only in writing. If SM&R does not follow the above procedures, the Series'
and/or SM&R may be liable for any losses arising from such activity.
CHECK WRITING OPTION PRIMARY SERIES ONLY--A check writing option is available in
connection with the Primary Series to investors having $1,000 or more of such
Series. $250 is the minimum check amount under the check writing option. This
option is not available on IRA's, SEP's or TSA's. Shareholders wishing to avail
themselves of this option must complete the check writing option signature card
in the prospectus. After obtaining specimen signatures and the fully executed
card, SM&R will order checks and arrange for the shareholder's checks to be
honored by a bank. Investments made by personal check or third party check will
be held for fifteen (15) business days following the investment during which
time checks may not be drawn on the amount of such investment. This service may
be terminated or suspended or additional charges may be imposed for this
service. Shareholders will be provided the initial checkbook free of charge.
There
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<PAGE>
will be a $5 fee for re-orders. Shareholders will be allowed to write ten (10)
checks free each calendar quarter.
When a check is presented for payment, SM&R, as the shareholder's agent, will
cause the Fund to redeem a sufficient number of full and fractional shares to
cover the amount of the check. Shareholders will continue to be entitled to
dividends on their shares up to the time the check is presented to SM&R for
payment. If the amount of the check is greater than the value of the shares held
in the shareholder's account for more than fifteen (15) business days at the
time the check is presented for payment, the check will be returned to the payee
as not being covered by sufficient funds, and the shareholder will be subject to
extra charges as a result.
NOTE: The Fund reserves the right to redeem shares in any account (which will be
promptly paid to the shareholder) if, due to your redemptions, the value of your
account falls below $100 in the case of the Government Income Series and Tax
Free Series or $1,000 in the Primary Series. You will be notified that the value
of your account is less than the required minimum indicated above and allowed at
least 60 days to make an additional investment to increase the value of your
account above the required minimum. The Board of Directors may, from time to
time, change such required minimum investment.
OTHER INFORMATION CONCERNING THE FUND
SHARING OF FUND EXPENSES. Each Series bears its proportionate share of the
Fund's general expenses not susceptible of direct allocation. Such general
expenses include the Fund's organizational expenses, directors' fees and joint
fidelity bonds, which are pro-rated based on the relative amount of each Series'
assets, and prospectus and shareholder report expenses, which are pro-rated
based on the relative number of each Series' shareholders. Organizational
expenses for the Tax-Free Series were paid by the adviser.
AUTHORIZED STOCK. The authorized capital stock of the Fund consists of Two
Hundred Million (200,000,000) shares, par value $.01 per share. The shares of
capital stock are divided into three Series: the Government Income Series
(50,000,000 shares), the Primary Series (100,000,000 shares) and the Tax Free
Series (50,000,000 shares). The shares of each Series, when issued, will be
fully paid and non-assessable, will have no conversion or similar rights, and
will be freely transferable.
Each share of stock will have a pro-rata interest in the assets of the Series
to which the stock of that class relates and will have no interest in the assets
of any other Series. Holders of shares of any Series are entitled to redeem
their shares as set forth under HOW TO REDEEM.
VOTING RIGHTS. Within the respective Series, all shares have equal voting,
participation and liquidation rights, but have no subscription, preemptive,
conversion or cumulative voting rights.
On certain matters, such as the election of directors, all shares of each
Series vote together, with each share having one vote. On other matters
affecting a particular Series, such as the Investment Advisory Contract or
fundamental investment policies, only shares of that Series are entitled to
vote, and a majority of the shares of that Series are required for approval of
the proposal.
ADDITIONAL INFORMATION. This Prospectus and the Statement of Additional
Information referred to on the cover page do not contain all the information set
forth in the registration statement, certain portions of which have been omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
The omitted information may be obtained from the Commission's principal office
in Washington, D.C., upon payment of the fees prescribed by the Commission.
For further information, shareholders may also contact SM&R, whose address and
phone number are set forth on the cover of this Prospectus.
26
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APPENDIX
(Description of Ratings Used in Prospectus)
- --------------------------------------------------------------------------------
BOND RATINGS
Description of Standard & Poor's Corporation's bond rating:
AAA Bonds rated "AAA" have the highest rating assigned by Standard & Poor's to
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA Bonds rated "AA" have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A Bonds rated "A" have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than bonds in higher
rated categories.
BBB Bonds rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing circum-
stances are more likely to lead to a weakened capacity to pay interest and
repay principal for bonds in this category than for bonds in higher rated
categories.
BB,B Bonds rated BB, B are regarded, on balance, as predominately speculative
with respect to capacity to pay interest and repay principal in accordance
with the terms of the obligation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Description of Moody's Investor's Service, Inc.'s bond ratings:
Aaa Bonds which are rated "Aaa" are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt-edge". Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong position
of such issues.
Aa Bonds which are rated "Aa" are judged to be of high quality by all
standards. Together with the Aaa group, they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds be-
cause margins of protection may not be as large as in Aaa securities,
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat greater than in Aaa securities
A Bonds which are rated "A" possess many favorable investment attributes 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
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<TABLE>
<S> <C>
great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Ba Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
</TABLE>
Description of Fitch Investors Service bond ratings:
AAA Bonds considered to be investment grade and of the highest credit quality.
The obligor has an exceptionally strong ability to pay interest and repay
principal, which is unlikely to be affected by reasonably foreseeable
events.
AA Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA". Because bonds rated in
the "AAA" and "AA" categories are not significantly vulnerable to
foreseeable future developments, short-term debt of these issuers is
generally rated "F-1+".
A Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic
conditions and circumstances than bonds with higher ratings.
BBB Bonds considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and cir-
cumstance, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of
these bonds will fall below investment grade is higher than bonds with
higher ratings.
MUNICIPAL NOTE RATINGS
Description of Moody's Investor Service Inc.'s municipal note ratings:
MIG-1/VMG1 Notes are of the best quality enjoying strong protection from
established cash flows of funds for their servicing or from
established and broad- based access to the market for refinancing,
or both.
MIG-2/VMG2 Notes are of high quality, with margins of protection ample,
although not so large as in the preceding group.
MIG-3/VMG3 Notes are of favorable quality, with all security elements accounted
for, but lacking the undeniable strength of the preceding grades.
Market access for refinancing, in particular, is likely to be less
well established.
MIG-4/VMG3 Notes are of adequate quality, carrying specific risk but having
protection and not distinctly or predominantly speculative.
Description of Standard and Poor's municipal note ratings:
Until June 29, 1984, S&P used the same rating symbols for notes and bonds.
After June 29, 1984, for new municipal note issues due in three years or less
the ratings below usually will be assigned. Notes maturing beyond three years
will most likely receive a bond rating of the type recited above.
SP-1 Issues carrying this designation have a very strong or strong capacity to
pay principal and interest. Issues determined to possess overwhelming
safety characteristics will be given a "plus" (+) designation.
28
<PAGE>
<TABLE>
<S> <C>
SP-2 Issues carrying this designation have a satisfactory capacity to pay
principal and interest.
</TABLE>
COMMERCIAL PAPER RATINGS
Description of Standard & Poor's Corporation's three highest commercial paper
ratings:
Commercial paper rated "A" by Standard & Poor's Corporation has the following
characteristics: Liquidity ratios are adequate to meet cash requirements.
Long-term senior debt is generally rated "A" or better. The issuer has access to
at least two additional channels of borrowing. Basic earnings and cash flow have
an upward trend with allowance made for unusual circumstances. Typically, the
issuer's industry is well established and the issuer has a strong position
within the industry. the reliability and quality of management are unquestioned.
Relative strength or weakness of the above factors determine whether the
issuer's commercial paper is rated A-1, A-2 or A-3. A-1 is the highest
commercial paper rating assigned by Standard & Poor's Corporation. A-2 is the
second highest of such ratings.
Description of Moody's Investors Service, Inc.'s three highest commercial
paper ratings:
Among the factors considered by Moody's Investors Service, Inc. is assigning
commercial paper ratings are the following: (1) evaluation of the management of
the issuer; (2) economic evaluation of the issuer's industry or industries and
an appraisal of the risks which may be inherent in certain areas; (3) evaluation
of the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition of the management
of obligations which may be present or may arise as a result of public interest
questions and proportions to meet such obligations. Relative differences in
strength and weakness in respect to these criteria would establish a rating in
one of three classifications; P-1, P-2 or P-3. P-1 is the highest commercial
paper rating assigned by Moody's Investors Service, Inc. P-2 is the second
highest of such ratings.
Description of Fitch Investors Service commercial paper, medium-term notes,
and municipal and investment notes.
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
F-1+.
F-2 Good Credit Quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as
great as for issues assigned "F-1+" and "F-1" ratings.
F-3 Fair Credit Quality. Issues assigned this rating have characteristics
suggesting that the degree of assurance for timely payment is adequate,
however, near-term adverse changes could cause these securities to be
rated below investment grade.
F-5 Weak Credit Quality. Issues assigned this rating have characteristics
suggesting a minimal degree of assurance for timely payment and are
vulnerable to near-term adverse changes in financial and economic
conditions.
Description of Duff & Phelp's two highest commercial ratings:
Duff & Phelp's commercial paper ratings place emphasis on liquidity,
considering not only cash from operations, but access to alternative sources of
funds, including trade credit, bank lines and capital markets. Relative
differences in strength and weakness is rated by Duff & Phelp's as Duff-1 or
Duff-2; Duff-1 being the highest commercial paper rating and Duff-2 being the
second highest rating.
Description of Thompson Bankwatch, Inc.'s two highest commercial ratings:
Thompson Bankwatch, Inc.'s ratings of United States commercial banks, thrifts,
and non-bank banks, non-United States banks, and broker-dealers are based upon
among other things, five years's financial information and the issuer's most
recent
29
<PAGE>
regulatory filings. Relative differences in strength and weakness are rated by
Thompson Bankwatch, Inc. as TBW-1 or TBW-2; TBW-1 being the highest commercial
paper rating and TBW-2 being the second highest rating.
FEDERAL FUNDS
As used in this Prospectus and in the Fund's Statement of Additional
Information, "Federal Funds" means a commercial bank's deposits in a Federal
Reserve Bank which can be transferred from one member bank's account to that of
another member bank on the same day. Federal Funds are considered to be
immediately available funds.
30
<PAGE>
PROSPECTUS
[American National Logo]
Government
Income Fund
Series
Primary
Fund Series
Tax Free
Fund Series
[SM&R CAPITAL FUNDS LOGO]
Securities Management & Research, Inc.
One Moody Plaza
Galveston, TX 77550
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 14
GALVESTON, TEXAS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 29, 1995 as amended April 1, 1996
- ----------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
Mailing and Street Address: Telephone Number: (409) 763-8272
One Moody Plaza, 14th Floor Toll Free 1-(800) 231-4639
Galveston, Texas 77550
- ----------------------------------------------------------------------
This Statement of Additional Information is NOT a prospectus, but
should be read in conjunction with the Prospectus (the "Prospectus")
dated December 29, 1995 as amended April 1, 1996. A copy of the
Prospectus may be obtained from your registered representative or
Securities Management and Research, Inc. ("SM&R"), One Moody Plaza,
14th Floor, Galveston, Texas 77550 (Telephone No. (409)-763-8272 or
Toll Free 1-(800)-231-4639).
- ----------------------------------------------------------------------
No dealer, sales representative, or other person has been
authorized to give any information or to make any representations
other than those contained in this Statement of Additional Information
(and/or the Prospectus referred to above), and if given or made, such
information or representations must not be relied upon as having been
authorized by the Fund or SM&R. Neither the Prospectus nor this
Statement of Additional Information constitutes an offer or
solicitation by anyone in any state in which such offer or
solicitation is not authorized, or in which the person making such
offer or solicitation is not qualified to do so, or to any person to
whom it is unlawful to make such offer or solicitation.
- ----------------------------------------------------------------------
TABLE OF CONTENTS
- ----------------------------------------------------------------------
THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . 2
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . 11
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . 11
POLICY ON PERSONAL INVESTING . . . . . . . . . . . . . . . . . . . 13
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES . . . . . . . 14
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION . . . . . . . . . 16
CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED . . . 18
SPECIAL PURCHASE PLANS . . . . . . . . . . . . . . . . . . . . . . 20
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
THE UNDERWRITER. . . . . . . . . . . . . . . . . . . . . . . . . . 24
CUSTODIAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
AUDITORS AND FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . 24
TRANSFER AGENT AND DIVIDEND PAYING AGENT . . . . . . . . . . . . . 25
OTHER PERFORMANCE QUOTATIONS . . . . . . . . . . . . . . . . . . . 25
COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
FINANCIAL STATEMENTS OF THE FUND
1
<PAGE>
THE FUND
SM&R Capital Funds, Inc. (the "Fund") is a diversified, open-end
management investment company incorporated under the laws of Maryland
on November 6, 1991.
The Fund consists of three (3) separate series: the American
National Government Income Fund Series (the "Government Income
Series"), the American National Primary Fund Series (the "Primary
Series") and the American National Tax Free Series (the "Tax Free
Series"). Each Series is, for investment purposes, in effect a
separate investment fund, and a separate class of capital stock is
issued for each. In other respects, the Fund is treated as one
entity. Each share of capital stock issued with respect to a Series
represents a pro-rata interest in the assets of that Series and has no
interest in the assets of any other Series. Each Series bears its own
liabilities and also its proportionate shares of the general
liabilities of the Fund.
The Fund is registered under the Investment Company Act of 1940
(the "1940 Act") as a diversified, open-end management investment
company, commonly called a "mutual fund". This registration does not
imply any supervision by the Securities and Exchange Commission (the
"Commission") over the Fund's management or its investment policies or
practices.
INVESTMENT OBJECTIVES AND POLICIES
As noted in the Prospectus under "INVESTMENT OBJECTIVES AND
POLICIES", each Series has its own investment objective and follows
policies and techniques designed to achieve those objectives. In
addition, the following restrictions have been adopted as fundamental
policies for all Series of the Fund, which means that they may not be
changed without the approval of shareholders. Exceptions may become
applicable as new series are added to the Fund.
The Fund does not:
1. Issue senior securities.
2. Make short sales of securities.
3. Purchase securities on margin (but it may obtain such
short-term credits as may be necessary for the clearance of
purchases and sales of securities).
4. Acquire, lease or hold real estate except such as may
be necessary or advisable for the maintenance of its
offices.
5. Write or purchase from others, put and call options, or
any combination thereof.
2
<PAGE>
6. Purchase or sell commodities or commodity contracts including
futures contracts.
7. Invest in companies for the purpose of exercising control or
management.
8. Invest in oil, gas or other mineral exploration or
development programs. However, any Series may invest in
securities which are secured by real estate or real estate
mortgages; securities of issuers which invest or deal in
real estate mortgages and securities of issuers which invest
in or sponsor oil, gas, or other mineral exploration,
provided such securities meet the criterion set forth under
"INVESTMENT OBJECTIVES AND POLICIES" in the Prospectus.
9. Act as underwriter of securities issued by other persons
except insofar as the Fund may be technically deemed
an underwriter under the federal securities laws in
connection with the disposition of portfolio securities.
10. Borrow money, except for such action by any Series for
temporary or emergency purposes in an amount not to exceed
10% of such Series' net assets.
11. Lend any funds or other assets of any Series, except
that the Government Income Series may from time to time lend
the securities it holds to qualified broker-dealers or other
institutional investors. Such loans shall not exceed ten
percent (10%) of the Government Income Series' net assets at
the time of the most recent loan and shall be made pursuant
to written agreements and shall be continuously secured by
collateral in the form of cash, U.S. Government securities,
or irrevocable standby letters of credit in an amount equal
to at least 102% of the market value at all times of the
loaned securities plus the accrued interest and dividends.
During the time securities are on loan, the Government
Income Series will continue to receive the interest and
dividends, or amounts equivalent thereto, on the loaned
securities while receiving a fee from the borrower or
earning interest on the investment of the cash collateral.
The right to terminate the loan will be given to either
party subject to appropriate notice. Upon termination of
the loan, the borrower will return to the lender securities
identical to the loaned securities. The Government Income
Series will not have the right to vote securities on loan,
but would terminate the loan and retain the right to vote if
that were considered important with respect to the
investment.
12. Pledge or mortgage any of the assets of any Series,
except for such action by any Series for temporary or
emergency purposes in an amount not to exceed 10% of such
Series' net assets.
13. Invest more than 5% of the value of the net assets of a
Series, at time of purchase in the securities of any one
issuer, but this limitation does not apply to investments in
securities issued or guaranteed by the U.S. government or
its instrumentalities.
14. Purchase any security (other than United States
Government obligations) if, as a result, the Fund would hold
more than (a) 10% of the total value of any class of
outstanding securities of an issuer or (b) 10% of the
outstanding voting securities of an issuer.
15. Concentrate more than 25% of the net assets of a Series
in any one industry or group of industries; provided
however, there is no limitation with respect to investments
in obligations issued or guaranteed by the United States
Government or its agencies or instrumentalities. For
purposes of this restriction, telephone, gas and electric
public utilities are each regarded as separate industries.
16. Purchase any securities issued by a corporation which
has not been in continuous operation for three years, but
such period may include the operation of a predecessor.
17. Will not purchase or retain securities of any issuer if
any officer or
3
<PAGE>
director of the Fund or of its investment manager own
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 Fund and investment
manager together own more than 5% of the securities of that
issuer.
18. Purchase securities of other investment companies except
pursuant to a plan of merger, consolidation or
acquisition of assets approved by the Fund's shareholders.
19. Invest no more than 15% of its net assets in restricted
securities for which there are no readily available market
quotations, or foreign securities which are not listed on
foreign or domestic exchanges, including securities
restricted as to disposition under the Federal Securities
Laws and repurchase agreements maturing more than seven days
from the date of acquisition.
20. Invest in foreign securities.
21. Purchase warrants.
If a percentage restriction on investment or utilization of
assets as set forth is adhered to at the time an investment is made, a
later change in the percentage resulting from a change in the value or
cost of a Series' assets will not be considered a violation of the
restriction except as provided in 17. above.
In order to change any of the foregoing restrictions, approval
must be obtained by stockholders of each Series that would be
affected. 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.
LENDING OF PORTFOLIO SECURITIES - Consistent with applicable
regulatory requirements, the Government Income Series may lend its
portfolio securities to broker-dealers and other financial
institutions, to a maximum of 10% of the value of the net assets of
such Series at the time of the most recent loan where such loans are
callable at any time and are continuously secured by cash collateral,
which collateral is equal at all times to at least 102% of the market
value of the securities loaned, including accrued interest. The
market value of the securities loaned shall be monitored daily. Such
cash collateral shall be invested in sufficiently liquid securities to
provide for repayment to the borrower upon demand. Such investments
shall be segregated from other short-term securities of the Government
Income Series. The Government Income Series will receive amounts
equal to earned income for having made the loan. Any cash collateral
pursuant to these loans will be invested in short-term instruments.
The Government Income Series will be the beneficial owner of the
loaned securities in that any gain or loss in the market price during
the loan inures to the Government Income Series and its shareholders.
Thus, when the loan is terminated, the value of the securities may be
more or less than their value at the beginning of the loan. In
determining whether to lend its portfolio securities to a broker-
dealer or other financial institution, the Government Income Series
will take into account the creditworthiness of such borrower and will
monitor such creditworthiness on an ongoing basis inasmuch as default
by the other party may cause delays or other collection difficulties.
The Government Income Series may pay placing brokers' fees in
connection with loans of its portfolio securities.
The primary risk in lending securities is that the borrower may
become insolvent on a day on which the loaned security is rapidly
advancing in price. In such event, if the borrower fails to return
the loaned securities, the existing collateral might be insufficient
to purchase back the full amount of the security loaned, and the
borrower would be unable to furnish additional collateral. The
borrower would be liable for any shortage; but the Government Income
Series would be unsecured creditors with respect to such shortage and
might not be able to recover all or any of it. However, this risk may
be minimized by a careful selection of borrowers and securities to be
lent and by monitoring collateral.
The Government Income Series will not lend securities to broker-
dealers affiliated with SM&R. This restriction will not affect the
ability of either Series to maximize its securities lending
opportunities.
4
<PAGE>
U.S. Treasury Securities - Any Series 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.
OBLIGATIONS ISSUED OR GUARANTEED BY U.S. GOVERNMENT AGENCIES AND
INSTRUMENTALITIES - Any Series may invest in direct or implied
obligations of the U.S. Government, its agencies or instrumentalities
established or sponsored by the U.S. Government ("U. S. Government
Obligations"). These U. S. Government Obligations, including those
that are guaranteed by federal agencies or instrumentalities, may or
may not be backed by the full faith and credit of the United States.
Obligations of the Government National Mortgage Association ("GNMA" or
"Ginnie Mae"), the Farmers Home Administration and the Export-Import
Bank are backed by the full faith and credit of the United States.
Securities in which the Fund may invest that are not backed by the
full faith and credit of the United States include, among others,
obligations issued by 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") and the United States Postal Service, each of which
has the right to borrow from the United States Treasury to meet its
obligations, and obligations of the Federal Farm Credit Bank and the
Federal Home Loan Bank, the obligations of which may be satisfied only
by the individual credit of the issuing agency. Investments in
Freddie Mac, and Fannie Mae and other obligations may include
collateralized mortgage obligations and real estate mortgage
investment conduits issued or guaranteed by such entities. In the
case of U. S. Government Obligations not backed by the full faith and
credit of the United States, the Fund 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.
MORTGAGE-BACKED SECURITIES ISSUED OR GUARANTEED BY U.S. GOVERNMENT
INSTRUMENTALITIES - The Government Income Series may invest in
mortgage-backed securities issued or guaranteed by U.S. Government
agencies such as GNMA, FNMA or FHLMC and representing undivided
ownership interests in pools of mortgages. The mortgages backing
these securities may include conventional 30-year fixed rate
mortgages, 15-year fixed rate mortgages, graduated payment mortgages
and adjusted rate mortgages. The U.S. Government or the issuing
agency guarantees the payment of the interest on and principal of
these securities. However, the guarantees do not extend to the
securities' yield or value, which are likely to vary inversely with
fluctuations in interest rates, nor do the guarantees extend to the
yield or value of the Government Income Series' shares. These
securities are in most cases "pass-through" instruments, through which
the holders receive a share of all interest and principal payments
from the mortgages underlying the securities, net of certain fees.
Because the principal amounts of such underlying mortgages may
generally be prepaid in whole or in part by the mortgagees at any time
without penalty and the prepayment characteristics of the underlying
mortgages vary, it is not possible to predict accurately the average
life of a particular issue of pass-through securities. Mortgage-
backed securities are subject to more rapid repayment than their
stated maturity date would indicate as a result of the pass-through of
prepayments on the underlying mortgage obligations. The remaining
maturity of a mortgage-backed security will be deemed to be equal to
the average maturity of the mortgages underlying such security
determined by SM&R on the basis of assumed prepayment rates with
respect to such mortgages. The remaining expected average life of a
pool of mortgages underlying a mortgage-backed security is a
prediction of when the mortgages will be repaid and is based upon a
variety of factors such as the demographic and geographic
characteristics of the borrowers and the mortgaged properties, the
length of time that each of the mortgages has been outstanding, the
interest rates payable on the mortgages and the current interest rate
environment. While the timing of prepayments of graduated payment
mortgages differs somewhat from that of conventional mortgages, the
prepayment experience of graduated payment mortgages is basically the
same as that of the conventional mortgages of the same maturity dates
over the life of the pool. During periods of declining interest
rates, prepayment of mortgages underlying mortgage-backed securities
can be expected to accelerate. When the mortgage obligations are
prepaid, the Government Income Series reinvests the prepaid amounts in
other income producing securities, the yields of which reflect
interest rates prevailing at the time. Therefore, the Government
Income Series' ability to maintain a portfolio of high-yielding
mortgage-backed securities will be adversely affected to the extent
that prepayments of mortgages must be reinvested in securities which
have lower yields than the prepaid mortgage-backed
5
<PAGE>
securities. Moreover, prepayments of mortgages which underlie
securities purchased by the Government Income Series at a premium
would result in capital losses.
COLLATERALIZED OBLIGATIONS - The Government Income Series may invest a
portion of its assets in collateralized mortgage obligations or "CMOs"
issued or guaranteed by a U.S. Government agency or instrumentality,
such as the FHLMC. A collateralized mortgage obligation is a debt
security issued by a corporation, trust or custodian or by a U.S.
Government agency or instrumentality, that is 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. A variety of types of collateralized obligations are
available currently and others may become available in the future.
The Government Income Series will currently INVEST ONLY IN
COLLATERALIZED OBLIGATIONS THAT ARE FULLY COLLATERALIZED. 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.
MUNICIPAL SECURITIES - The Tax Free Series intends under normal
market conditions to invest at least 80% of its net assets in
municipal securities.
As used in the Prospectus and this Statement of Additional
Information, the term "municipal securities" means obligations
including municipal bonds and notes and tax exempt commercial paper
issued by or on behalf of states, territories and possessions of the
United States, the District of Columbia and their political
subdivisions, agencies and instrumentalities, the interest from which
is, in the opinion of counsel to the issuers of such securities,
exempt from federal income tax. To the extent that an investment in
municipal securities does not run counter to any of the investment
policies of the Tax Free Series or any of the investment restrictions
to which the Tax Free Series is subject, the Series may invest in any
combination of the various types of municipal securities described
below which, in the judgment of SM&R, the adviser, will contribute to
the attainment of the Series' investment objective. Such combination
of municipal securities may vary from time to time.
Discussed below are the major attributes of the various municipal
and other securities in which the Tax Free Series may invest.
MUNICIPAL BONDS, which meet longer term capital needs and generally
have maturities of more than one year when issued, have two principal
classifications: general obligation bonds and revenue bonds.
General Obligation Bonds - Issuers of general obligation bonds
include states, counties, cities, towns and regional districts. The
proceeds of these obligations are used to fund a wide range of public
projects, including construction or improvement of schools, highways
and roads and water and sewer systems. The basic security behind
general obligation bonds is the issuer's pledge of its full faith and
credit and taxing power for the payment of principal and interest.
The taxes that can be levied for the payment of debt service may be
limited or unlimited as to the rate or amount of special assessments.
REVENUE BONDS - The principal security for a revenue bond is
generally the net
6
<PAGE>
revenues derived from a particular facility, group of facilities,
or, in some cases, the proceeds of a special excise or other specific
revenue source. Revenue bonds are issued to finance a wide
variety of capital projects including: electric, gas, water and
sewer systems; highways, bridges, and tunnels; port and airport
facilities; colleges and universities; and hospitals. Although the
principal security behind these bonds may vary, many provide
additional security in the form of a debt service reserve fund whose
money may be used to make principal and interest payments on the
issuer's obligations. Housing finance authorities have a wide range
of security, including partially or fully insured mortgages, rent
subsidized and/or collateralized mortgages, and/or the net revenues
from housing or other public projects. Some authorities provide
further security in the form of a state's ability (without obligation)
to make up deficiencies in the debt service reserve fund.
Industrial Development Bonds are, in most cases, revenue bonds
and are issued for or on behalf of public authorities to raise money
to finance various privately operated facilities for business and
manufacturing, housing, sports and pollution control. These bonds are
also used to finance public facilities such as airports, mass transit
systems, ports and parking. The payment of the principal and interest
on such bonds is dependent solely on the ability of the facilities
user to meet its financial obligations and the pledge, if any, of real
and personal property so financed as security for such payment. The
Tax Free Series will purchase Industrial Revenue Development Bonds
only to the extent the interest paid is tax-exempt pursuant to the Tax
Reform Act of 1986, which limited the types of facilities that may be
financed with tax-exempt industrial development and private activity
bonds.
MUNICIPAL NOTES generally are used to provide for short-term working
capital needs and generally have maturities of one year or less.
Municipal notes include:
Tax Anticipation Notes which are issued to finance working
capital needs of municipalities and are issued in anticipation of
various seasonal tax revenue, such as income, sales, use and business
taxes, and are payable from these specific future taxes.
Revenue Anticipation Notes which are issued in expectation of
receipt of other types of revenue, such as federal revenues available
under federal revenue sharing programs.
Bond Anticipation Notes which are issued to provide interim
financing until long-term financing can be arranged. In most cases,
the long-term bonds then provide the money for the repayment of the
notes.
Construction Loan Notes which are sold to provide construction
financing. After successful completion and acceptance, many projects
receive permanent financing through the Federal Housing Administration
under "Fannie Mae" (the Federal National Mortgage Association) or
"Ginnie Mae" (the Government National Mortgage Association).
Tax-Exempt Commercial Paper (Short-Term Discount Notes) which is
a short-term obligation with a stated maturity of 365 days or less.
It is issued by state and local governments or their agencies to
finance seasonal working capital needs or as short-term financing in
anticipation of longer-term financing.
VARIABLE OR FLOATING RATE DEMAND NOTES ("VRDNs") are tax-exempt
obligations which contain a floating or variable interest rate
adjustment formula and an unconditional right of demand to receive
payment of the unpaid principal balance plus accrued interest upon a
short notice period (generally up to 30 days) prior to specified
dates, either from the issuer or by drawing on a bank letter of
credit, a guarantee or insurance issued with respect to such
instrument. The interest rates are adjustable at intervals ranging
from daily to up to six months to some prevailing market rate for
similar investments, such adjustment formula being calculated to
maintain the market value of the VRDN at approximately the par value
of the VRDN upon the adjustment date. The adjustments are typically
based upon the prime rate of a bank or some other appropriate interest
rate adjustment index. The Tax Free Series will decide which variable
or floating rate demand instruments it will purchase in accordance
with procedures prescribed by its Board of Directors to minimize
credit risks. Any VRDN must be of high quality as determined by the
adviser and subject to review by the Board with respect to both its
long-term and short-term aspects, except where credit support for the
instrument is provided even in the event of default on the underlying
security, the Series may rely only on the high quality character of
the short-term aspect of the
7
<PAGE>
demand instrument.
DEFEASED BONDS OR ESCROW SECURED BONDS are created when an issuer
refunds in advance of maturity (or pre-refunds) an outstanding bond
issue which is not immediately callable, and it becomes necessary or
desirable to set aside funds for redemption of the bonds at a future
date. In an advance refunding, the issuer will use the proceeds of a
new bond issue to purchase high grade, interest bearing debt
securities which are then deposited in an irrevocable escrow account
held by a trustee bank to secure all future payments of principal and
interest of the advance refunded bond. Escrow secured bonds will
often receive a triple A rating from Moody's and S&P. The Tax Free
Series will purchase escrow secured bonds without additional insurance
only when the escrow is invested in U.S. government securities backed
by the full faith and credit of the U.S. government.
INSURED BONDS are bonds that, in addition to being secured by the
issuer's revenues, are also backed by insurance policies written by
commercial insurance companies. Issuers of municipal bonds enter into
a contractual agreement with an insurance company to pay the
bondholder any principal and interest that is due on a stated maturity
date which has not been paid by the issuer. Once issued, this default
insurance usually extends for the term of the issue and cannot be
canceled by the insurance company. The bondholder who has not
received payments for principal or interest on the stated due dates
for the insured bond must notify the insurance company and surrender
any unpaid bonds and coupons for payment of the face amount of the
insured principal and interest. The commercial insurance companies
represent some of the largest and financially strongest insurance
companies in the U.S.
Although insured municipal bonds sell at yields lower than they
would without the insurance, they tend to have yields higher than
Aaa/AAA-rated noninsured municipal bonds.
In addition, other types of municipal securities similar to the
above described municipal bonds and municipal notes are, or may become
available. For the purpose of the Fund's investment restrictions set
forth in this Statement of Additional Information, the identification
of the "issuer" of a municipal security which is not a general
obligation bond is made by the adviser on the basis of the
characteristics of the obligation, the most significant of which is
the source of funds for the payment of principal and interest on such
security.
RISKS RELATING TO MUNICIPAL SECURITIES - There can be no assurance
that the Tax Free Series will achieve its investment objective.
Yields on municipal securities are dependent on a variety of factors,
including the general conditions of the money market and the municipal
bond market, the size of a particular offering, the maturity of the
obligations and the rating of the issue. Municipal securities with
longer maturities tend to produce higher yields and are generally
subject to potentially greater capital appreciation and depreciation
than obligations with shorter maturities and lower yields. The market
prices of municipal securities usually vary, depending upon available
yields. An increase in interest rates will generally reduce the value
of portfolio investments, and a decline in interest rates will
generally increase the value of portfolio investments. The ability of
the Series to achieve its investment objective is also dependent on
the continuing ability of the issuers of municipal securities in which
the Series invests to meet their obligations for the payment of
interest and principal when due. The ratings of Moody's and Standard
& Poor's represent their opinion as to the quality of municipal
securities which they undertake to rate. Ratings are not absolute
standards of quality; consequently, municipal securities with the same
maturity, coupon and rating may have different yields. There are
variations in municipal securities, both within a particular
classification and between classifications, depending on numerous
factors. It should also be pointed out that, unlike other types of
investments, municipal securities have traditionally not been subject
to regulation by, or registration with, the Securities and Exchange
Commission, although there have been proposals which would provide for
such regulation in the future.
The federal bankruptcy statutes relating to the debts of
political subdivisions and authorities of states of the United States
provide that, in certain circumstances, such subdivisions or
authorities may be authorized to initiate bankruptcy proceedings
without prior notice to or consent of creditors, which proceedings
could result in material and adverse changes in the rights of holders
of their obligations.
8
<PAGE>
Lawsuits challenging the validity under state constitutions of
present systems of financing public education have been initiated or
adjusted in a number of states, and legislation has been introduced to
effect changes in public school financing in some states. In other
instances there have been lawsuits challenging the issuance of
pollution control revenue bonds or the validity of their issuance
under state or federal law which could ultimately affect the validity
of those municipal securities or the tax-free nature of the interest
thereon.
TAXABLE SECURITIES - The Government Income Series and Primary Series
are expected to invest primarily in securities the income from which
(either in the form of dividends or interest) is taxable as ordinary
income. While the Tax Free Series may also invest a portion of its
net assets (up to 20% under normal market conditions and more as a
defensive measure under extraordinary circumstances, as described in
the Prospectus) in taxable securities.
Interest earned on investments in taxable securities may be
taxable to shareholders as ordinary income. Investors should be aware
that investments in taxable securities by the Tax Free Series are
restricted to:
U.S. Government Securities which consist of obligations issued or
guaranteed by the U.S. Government, its agencies, authorities or
instrumentalities. Some of these securities are supported by the full
faith and credit of the U.S. Government; others are supported by the
right of the issuer to borrow from the U.S. Treasury; and the
remainder are supported only by the credit of the instrumentality.
Corporate Debt Securities which at the date of the investment are
rated A or higher by Moody's and Standard & Poor's.
Commercial Paper which at the date of the investment is rated P-1
by Moody's or A-1 by S&P or, if not rated, is issued by a company
which at the date of the investment has an outstanding debt issue
rated A or higher by Moody's and Standard & Poor's.
Bank Obligations which include certificates of deposit, bankers'
acceptances, and other short-term obligations of U.S. banks which at
the date of the investment have a capital, surplus and undivided
profits of $1 billion as of the date of their most recently published
financial statements (See Certificate of Deposits below).
REPURCHASE AGREEMENTS - Any Series may enter into "repurchase
agreements" with banks or with government securities dealers,
recognized by the Federal Reserve Board and which have been approved
by the Board of Directors, who agree to repurchase the securities at a
predetermined price within a specified time (normally one day to one
week). In these transactions, the securities purchased shall have an
initial total value in excess of the value of the repurchase
agreement.
The custodian for the Series purchasing such repurchase agreement
will hold the securities underlying such repurchase agreement or such
securities may be part of the Federal Reserve Book Entry system. If
the seller defaults or becomes insolvent, a Series could realize
delays, costs or a loss in asserting its rights to, or in liquidating,
the collateral in satisfaction of the seller's repurchase agreement.
The Series 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
Fund's Board of Directors which set forth credit worthiness standards
for the banks and registered government security dealers with whom the
series may enter into such repurchase agreements. Such arrangements
permit a Series to keep all of its assets at work while retaining
flexibility in pursuit of investments of a longer-term nature. No
Series will purchase repurchase agreements maturing more than seven
(7) days after such purchase.
RATINGS - If the rating of a security purchased by a Series is
subsequently reduced below the minimum rating required for purchase or
a security purchased by the Series ceases to be rated, neither event
will require the sale of the security. However, the adviser will
consider any such event in determining whether the Series should
continue to hold the security.
When-Issued and Delayed Delivery Transactions - The Government Income
Series and Tax Free Series may also purchase and sell portfolio
securities on a "when issued" and "delayed delivery" basis. No income
accrues to the either Series on securities in
9
<PAGE>
connection with such transactions prior to the date it actually
takes delivery of such securities. These transactions are subject
to market fluctuations; the value of the securities at delivery may be
more or less than their purchase price, and yields generally
available on comparable securities when delivery occurs may be
higher than yields on the securities obtained pursuant to such
transactions. Because the Government Income Series and Tax Free
Series rely on the buyer or seller, as the case may be, to
consummate the transactions, failure by the other party to complete
the transaction may result in it missing the opportunity of obtaining
a price or yield considered to be advantageous. When the Government
Income Series or Tax Free Series is the buyer in such transactions,
however, it will maintain, in a segregated account with its
custodian, cash, short-term money market instruments, high quality
debt securities or portfolio securities having an aggregate value
equal to the amount of such purchase commitments until payment is
made. The Government Income Series or Tax Free Series will make
commitments to purchase securities on such basis only with the
intention of actually acquiring these securities, but it may sell such
securities prior to the settlement date if such sale is considered to
be advisable. No specific limitation exists as to the percentage of
the Government Income Series' or Tax Free Series' assets which may be
used to acquire securities on a "when issued" or "delayed delivery"
basis. To the extent either Series engages in "when issued" and
"delayed delivery" transactions, it will do so for the purpose of
acquiring securities for it's portfolio consistent with the it's
investment objective and policies and not for the purpose of
investment leverage.
CERTIFICATE OF DEPOSIT - A certificate of deposit is generally a
short-term, interest-bearing negotiable certificate issued by a
commercial bank or savings and loan association against funds
deposited in the issuing institution. The interest rate may be
fixed for the stated term or may be periodically adjusted prior to
the instrument's stated maturity, based upon a specified market rate.
A bankers' acceptance is a time draft drawn on a commercial bank by a
borrower, usually in connection with an international commercial
transaction to finance the import, export, transfer or storage of
goods. The borrower is liable for payment, as is the bank, which
unconditionally guarantees to pay the draft at its face amount on
the maturity date. Most bankers' acceptances have maturities of
six months or less and are traded in secondary markets prior to
maturity.
Savings and loan associations whose certificates of deposit may
be purchased by the Primary Series are subject to regulation and
examination by the Office of Thrift Supervision. Such certificates of
deposit held by the Primary Series do not benefit materially from
insurance from the Federal Deposit Insurance Corporation.
The Primary Series 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.
RISK FACTORS - Obligations of foreign branches of United States banks
are subject to somewhat different risks than those of domestic banks.
These risks include foreign economic and political developments,
foreign governmental restrictions which may adversely affect payment
of principal and interest on the obligations, foreign withholding and
other taxes on interest income, and difficulties in obtaining and
enforcing a judgment against a foreign branch of a domestic bank. In
addition, different risks may result from the fact that foreign
branches of United States banks and United States branches of foreign
banks are not necessarily subject to the same or similar regulatory
requirements that apply to domestic banks. For instance, such
branches may not be subject to the types of requirements imposed on
domestic banks with respect to mandatory reserves, loan limitations,
examinations, accounting, auditing, record keeping and the public
availability of information. Such obligations are not traded on any
national securities exchange. While the Primary Series does not
presently invest in obligations of foreign branches of United States
banks, it may do so in the future. Investments in such obligations
will not be made in excess of 10% of the Primary Series' total assets
and will be made only when SM&R believes the risks described above are
minimal.
OTHER POLICIES - There are no restrictions or limitations on
investments in U. S. Government Obligations. In the case of all
Series, the underlying assets may be retained in cash, including cash
equivalents which are Treasury bills, commercial paper and short-term
bank obligations such as certificates of deposit and bankers'
10
<PAGE>
acceptances. However, it is intended that only as much of the
underlying assets of each Series be retained in cash as is deemed
desirable or expedient under then-existing market conditions.
PORTFOLIO TURNOVER
Portfolio turnover is calculated by dividing the lesser of
annual purchases or sales of portfolio securities by the monthly
average of the value of each Series' portfolio securities,
excluding securities whose maturities at the time of purchase are
one (1) year or less. It is intended that portfolio changes in the
Government Income Series and Tax Free Series 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. (See "ADDITIONAL INVESTMENT POLICIES
AND TECHNIQUES" in the Prospectus.)
MANAGEMENT OF THE FUND
The Board of Directors has the responsibility for the overall
management of the Fund, including general supervision and review of
its investment activities. The directors, in turn, elect the officers
of the Fund who are responsible for administering day-to-day
operations of the Fund. The affiliations of the officers and
directors and their principal occupations for the past five years are
listed below. Directors who are deemed to be "interested persons" of
the Fund, as defined in the Investment Company Act of 1940 ("1940
Act"), are indicated by an asterisk(*).
SAMUEL K. FINEGAN - DIRECTOR(2)
(5228 AVE. U, GALVESTON, TEXAS 77551) Assistant District Attorney,
Galveston County, Galveston, Texas; Accounting Manager, Browning
Ferris Industries (Waste Disposal), Houston, Texas, May, 1988 to May,
1989; Internal Auditor, Stewart Title Guaranty Company (Title
Insurance), Houston, Texas, July, 1985 to May, 1988.
BRENT ELLIS MASEL, M.D. - DIRECTOR(1)(2)
(1528 POSTOFFICE, GALVESTON, TEXAS 77553) Doctor of Neurology;
Clinical Assistant Professor in Neurology, University of Texas Medical
Branch, 1978 to present; Staff Physician, St. Mary's Hospital,
Galveston, Texas, 1979 to present; Staff Physician, Mainland Center
Hospital, 1978 to present; Clinical Assistant Professor in Family
Medicine, Galveston, Texas, 1979 to present; Director, American
National Investment Accounts, Inc. (an affiliated mutual fund), One
Moody Plaza, Galveston, Texas, 1990 to present; President and
Executive Administrator, Transitional Learning Center, Galveston,
Texas, July 1992 to Present.
ALLAN W. MATTHEWS - DIRECTOR*(1)
(7114 YOUPON, GALVESTON, TEXAS 77551) Program Officer, The Moody
Foundation (a charitable foundation), April, 1991 to present;
Management Trainee, National Western Life Insurance Company, Austin,
Texas, October, 1988 to April, 1991; Program Coordinator, South Shore
Fitness Center, Gal-Tex Hotel Corporation (Hotel Management Company),
March, 1988 to October, 1988.
LEA McLEOD MATTHEWS - DIRECTOR*
(850 E. ANDERSON LANE, AUSTIN, TEXAS 78752-1602) Publications Editor,
National Western Life Insurance Co., 1990 to present; Director of
American National Investment Accounts, Inc., (an affiliated mutual
fund) 1994 to present; Public Relations, Moody Gardens, Galveston,
Texas, 1988 to 1990; Director of Garden State Life Insurance Company,
1993 to present.
MICHAEL W. McCROSKEY - DIRECTOR AND PRESIDENT*(1)
(ONE MOODY PLAZA, GALVESTON, TEXAS 77550) President, Chief Executive
Officer and member of the Executive Committee of SM&R, June 1994 to
present; President and Director of the Fund, June 1994 to present;
President and Director of the American National Growth Fund, Inc.,
American National Income Fund, Inc., and Triflex Fund, Inc.
(hereinafter referred to as the "American National Funds Group"), June
1994 to present; President and Director of the American National
Investment Accounts, Inc., June 1994 to present; Executive Vice
President, American National, 1971 to present; Vice President of
Standard Life and Accident Insurance Company, 1988 to present;
Assistant
11
<PAGE>
Secretary of American National Life Insurance Company of Texas,
1986 to present, life, health and accident insurance companies in
the American National Family of Companies; Vice President, Garden
State Life Insurance Company, 1994 to present; Director, ANREM
Corporation, 1977 to present; President and Director of ANTAC
Corporation, 1994 to present.
SHANNON L. MOODY - DIRECTOR*
(1501 WOOLRIDGE, AUSTIN, TEXAS 78703) Assistant Special Events
Director, Galveston Historical Foundation, March, 1989 to April, 1991.
ANDREW J. MYTELKA - DIRECTOR*
(7746 BEAUDELAIRE, GALVESTON, TEXAS 77551) Attorney, Greer, Herz &
Adams, L.L.P, Galveston, Texas, 1986 to present.
EDWIN K. NOLAN - DIRECTOR(2)
(#7 MT. LOOKOUT DRIVE, CANYON LAKE, TEXAS 78133) Attorney, Law
Offices, EDWIN K. NOLAN, P. C., Canyon Lake, Texas, 1977 to present;
Director, Deer Meadows, Inc. (Real Estate Development), Canyon Lake,
Texas, 1982 to 1990; Director, Summit Resort Development, Inc. (Real
Estate Development), Canyon Lake, Texas, 1982 to 1990; Director, Rocky
Creek Ranch, Inc. (Real Estate Development), Canyon Lake, Texas, 1989
to 1990; Director/Owner, Canyon Lake Aviation, Inc. (Aviation
Service), Canyon Lake, Texas, 1986 to present; Director/Owner, Canyon
Lake Airport, Inc. (Airport), Canyon Lake, Texas, 1985 to present.
LOUIS E. PAULS, JR. - DIRECTOR
(1413 TREMONT, SUITE 200, GALVESTON, TEXAS 77550) Owner of Louis
Pauls & Co., a sole proprietorship, 1959 to present; Director,
National Western Life Insurance Co., Austin, Texas, 1971 to present;
Director Seal Fleet, Galveston, Texas, 1970 to present; Director
American National Investment Accounts, Inc. (an affiliated mutual
fund), 1994 to present.
EMERSON V. UNGER, C.L.U. - VICE PRESIDENT
ONE MOODY PLAZA, GALVESTON, TEXAS Vice President SM&R, American
National Growth Fund, Inc., American National Income Fund, Inc.,
American National Investment Accounts, Inc. and Triflex Fund, Inc.,
mutual funds.
BRENDA T. KOELEMAY - VICE PRESIDENT AND TREASURER
ONE MOODY PLAZA, GALVESTON, TEXAS Vice President and Treasurer SM&R,
American National Growth Fund, Inc., American National Income Fund,
Inc., American National Investment Accounts, Inc. and Triflex Fund,
Inc., mutual funds; Senior Manager, KPMG Peat Marwick, July 1980 to
April, 1992.
TERESA E. AXELSON - VICE PRESIDENT AND SECRETARY
ONE MOODY PLAZA, GALVESTON, TEXAS Vice President and Secretary of
SM&R, American National Investment Accounts, Inc., American National
Growth Fund, Inc., American National Income Fund, Inc., and Triflex
Fund, Inc., mutual funds.
VERA M. YOUNG - VICE PRESIDENT AND PORTFOLIO MANAGER
One Moody Plaza, Galveston, Texas Vice President and Portfolio
Manager of the Primary Series and member of the Fixed Income
Investment Committee of SM&R; Portfolio Manager of Money Market
Portfolio of the American National Investment Accounts, Inc., mutual
funds; Assistant Vice President, Securities, American National.
TERRY E. FRANK - VICE PRESIDENT AND PORTFOLIO MANAGER
ONE MOODY PLAZA, GALVESTON, TEXAS Vice President and Portfolio
Manager of the Government Income Series and the Tax Free Series and a
member of the Fixed Income Investment Committee of SM&R; Former
research analyst, Equitable Investment Services, Des Moines, Iowa;
Former securities analyst, Gibraltar Savings Association, Houston,
Texas; Former Senior Money Market Trader, American Capital Asset
Management, Houston, Texas.
* "Interested persons" as defined by the Investment Company Act of
1940.
(1) Member of the Fund's nominating committee.
(2) Member of the Fund's audit committee.
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<PAGE>
Officers and directors of the Fund affiliated with SM&R may
receive indirect compensation from the Fund to the extent of
underwriting commissions and investment advisory and service fees paid
to SM&R.
During the year ended August 31, 1995, the Fund paid or accrued
approximately $34,000 to such directors for fees and expenses in
attending meetings of the Board 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 meeting
attended. Each director receives a fee, allocated among the Series,
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 August 31, 1995 for each director
of the Fund.
<TABLE>
<CAPTION>
AGGREGATE TOTAL COMPENSATION
DIRECTOR COMPENSATION FROM ALL AMERICAN
FROM FUND NATIONAL FUNDS
- -------------------------------------------------------------
<S> <C> <C>
Samuel K. Finegan $3,500 $3,500
Brent E. Masel, M.D. $3,500 $7,000
Allan W. Matthews $3,500 $3,500
Lea McLeod Matthews $3,500 $6,500
Michael W. McCroskey $0 $0
Shannon L. Moody $3,500 $3,500
Andrew J. Mytelka $3,000 $3,500
Edwin K. Nolan $3,500 $3,500
Louis E. Pauls, Jr. $3,000 $6,500
</TABLE>
POLICY REGARDING PERSONAL INVESTING
The following policies have been made a part of the Fund's Code
of Ethics.
A portfolio manager must use extreme care to avoid even the
appearance of a conflict of interest in trading in any personal
account (or an account in which he has a beneficial interest).
Accordingly, a portfolio manager may not trade in (or otherwise
acquire) any security for his personal account if that same security
is held in, or is being considered as a potential acquisition by, any
of the Funds. Any beneficial interest in a security held by a
portfolio manager must be sold at least 24 hours prior to any
investment by the Funds. The following exceptions apply:
1. Any beneficial interest in a security owned at the time of
employment may be held or traded at any time other than within 24
hours of a trade in the Funds for the same or related security.
Dividends in that security may be re-invested in accordance with
a formal plan offered by the issuer.
2. Any beneficial interest in a security acquired by devise or
bequeath may be held or traded at any time other than within 24
hours of a trade in the Funds for the same or related security.
3. Any beneficial interest in a security issued by the Government or
any Agency of the United States, a State, or any political
subdivision thereof may be traded or held.
4. Any beneficial interest in a security for which a written
approval is first obtained from the President & CEO may be traded
or held.
13
<PAGE>
PERSONAL INVESTING BY OTHER SM&R OFFICERS AND EMPLOYEES:
Officers and employees of the Company other than portfolio
managers may trade in (or otherwise acquire) or hold any security for
his own account (or an account in which he has beneficial interest).
However, the trade must not occur within 24 hours of a trade in the
Funds for the same or related security.
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
As of November 30, 1995, the officers and directors of the Fund
as a group owned 0.1% of the outstanding shares of the Fund. As of
November 30, 1995, American National and SM&R owned 50.6% and 12.63%
of the outstanding shares of the Fund, respectively. See the "Control
and Management of SM&R" below.
CONTROL AND MANAGEMENT OF SM&R
SM&R has been the investment adviser, manager and underwriter of
the Fund since the Fund began business in 1992. SM&R acts pursuant to
a written agreement periodically approved by the directors or
shareholders of the Fund. SM&R is also the investment adviser and
underwriter of the American National Funds Group and the American
National Investment Accounts, Inc. SM&R's address is that of the
Fund.
SM&R is a wholly-owned subsidiary of American National Insurance
Company ("American National"), a Texas life insurance company with its
principal offices in Galveston, Texas. The Moody Foundation (the
"Foundation"), a charitable foundation established for charitable and
educational purposes, owns approximately 23.7% of American National's
common stock and the Libbie S. Moody Trust, a private trust, owns
approximately 37.6% of such shares. The trustees of the Moody
Foundation are Robert L. Moody ("RLM"), Chairman of the Board of
Directors of American National, Frances Moody Newman and Ross R.
Moody.
The Moody National Bank of Galveston (the "Bank") is trustee of
the Libbie S. Moody Trust. RLM is Chairman of the Board and
President, Chief Executive Officer of the Bank, President and Director
of Moody Bancshares, Inc. ("Bancshares"), the sole shareholder of
Moody Bank Holding Company, Inc. ("MBHC"), and President and Director
of MBHC, the Bank's controlling stockholder. The Three R Trusts,
trusts established by RLM for the benefit of his children, owns 100%
of Bancshares' Class B stock (which elects a majority of Bancshares'
and MBHC's directors) and 47.5% of its Class A Stock. The trustee of
the Three R Trusts is Irwin M. Herz, Jr., who is also a director of
American National and a partner in Greer, Herz & Adams, L.L.P., 18th
Floor, One Moody Plaza, Galveston, Texas, General Counsel to American
National, the Bank, Bancshares, MBHC, the Fund, the other American
National Funds, the American National Investment Accounts, Inc. and
SM&R.
Michael W. McCroskey, President and Director of the Fund, is also
President, Chief Executive Officer, Director and a member of the
Executive Committee of SM&R, and President and Director of the
American National Funds Group and the American National Investment
Accounts, Inc.; Emerson V. Unger, Vice President of the Fund, is also
Vice President of SM&R and Vice President of the American National
Funds Group and the American National Investment Accounts, Inc.;
Teresa E. Axelson, Vice President, Secretary of the Fund, is also Vice
President and Secretary of SM&R, the American National Investment
Accounts, Inc., and the American National Funds Group; Brenda T.
Koelemay, Vice President and Treasurer of the Fund, is also Vice
President and Treasurer of SM&R, the American National Investment
Accounts, Inc. and the American National Funds Group; Vera M. Young,
Vice President and Portfolio Manager of the Primary Series is also
Vice President and Portfolio Manager of the Money Market Portfolio of
the American National Investment Accounts, Inc., and a member of the
Fixed Income Investment Committee of SM&R and is affiliated with
American National as Assistant Vice President, Securities Investment;
and Terry E. Frank is Vice President and Portfolio Manager of the
Government Income Series and Tax Free Series and a member of the Fixed
Income Investment Committee.
INVESTMENT ADVISORY AGREEMENT
Under Investment Advisory Agreements (the "Advisory Agreement")
between the Fund and SM&R dated February 19, 1992, and July 1, 1993
for the Tax Free Series SM&R acts as investment adviser for and
provides certain investment-related administrative
14
<PAGE>
services to the Fund.
As investment adviser, SM&R manages the investment and
reinvestment of the Fund's assets, including the placing of orders for
the purchase and sale of portfolio securities. SM&R provides and
evaluates economic, statistical and financial information to formulate
and implement Fund investment programs. All investments are reviewed
quarterly by the Fund's Board of Directors to determine whether or not
such investments are within the policies, objectives and restrictions
of the Fund.
INVESTMENT ADVISORY FEE
Under its Advisory Agreements with the Fund, SM&R receives the
following investment advisory fees:
GOVERNMENT INCOME SERIES AND TAX FREE SERIES - A monthly investment
advisory fee computed by applying to the average daily net asset value
of the Government Income Series each month one-twelfth (1/12th) of the
annual rate as follows:
<TABLE>
<CAPTION>
ON THE PORTION OF EACH SERIES' INVESTMENT
AVERAGE DAILY NET ASSETS ADVISORY FEE
ANNUAL RATE
<S> <C>
Not exceeding $100,000,000 .50 of 1%
Exceeding $100,000,000 but not exceeding .45 of 1%
$300,000,000
Exceeding $300,000,000 .40 of 1%
</TABLE>
PRIMARY SERIES - An investment advisory fee, computed and paid
monthly, at the annual rate of 0.50 of 1% of the Primary Series'
average daily net asset value.
For the years ended August 31, 1995, 1994, 1993 and the period
ended August 31, 1992, SM&R received investment advisory fees from the
Fund of $216,492, $211,039, $92,863 and $28,392, respectively.
ADMINISTRATIVE SERVICE AGREEMENT
Under an Administrative Service Agreement between the Fund and
SM&R dated July 1, 1993, SM&R acts as transfer agent and provides all
management, operational and executive services to the Fund. SM&R pays
the salaries of all officers and employees administering the Fund's
affairs and maintains office facilities, furnishes statistical and
research data, clerical help, accounting, data processing,
bookkeeping, transfer agency services, dividend disbursements and
certain other services required by the Fund. The Fund has agreed to
pay other expenses incurred in the operation of the Fund, such as
interest, taxes, commissions and other expenses incidental to
portfolio transactions, Securities and Exchange Commission fees, fees
of the Custodian (See "The Custodian" herein), auditing and legal
expenses, fees and expenses of qualifying Fund shares for sale and
maintaining such qualifications under the various state securities
laws where Fund shares are offered for sale, fees and expenses of
directors not affiliated with SM&R, costs of maintaining corporate
existence, costs of printing and mailing prospectuses and shareholder
reports to existing shareholders and expenses of shareholders'
meetings.
ADMINISTRATIVE SERVICE FEE
Under an Administrative Service Agreement with the Fund, SM&R
receives a management and administrative service fee from each Series
which is computed by applying to the aggregate average daily net asset
value of each Series of the Fund each month one-twelfth (1/12th) of
the annual rate as follows:
<TABLE>
<CAPTION>
ADMINISTRATIVE
ON THE PORTION OF EACH SERIES' SERVICE FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
<S> <C>
Not exceeding $100,000,000 .25 of 1%
Exceeding $100,000,000 but not exceeding $200,000,000 .25 of 15
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Exceeding $200,000,000 but not exceeding $300,000,000 .15 of 1%
Exceeding $300,000,000 .10 of 1%
</TABLE>
Under its Administrative Service Agreement with the Fund, SM&R
has agreed to pay (or to reimburse each Series for) each Series'
expenses (including the advisory fee and administrative service fee,
if any, paid to SM&R, but exclusive of interest, taxes, commissions
and other expenses incidental to portfolio transactions) in excess of
1.25% per year of such Series' average daily net assets.
FEE WAIVERS
In order to improve the yield and total return of any Series of
the Fund, SM&R may, from time to time, voluntarily waive or reduce all
or any portion of its advisory fee, administrative fee and/or assume
certain or all expenses of any Series of the Fund while retaining its
ability to be reimbursed for such fees prior to the end of the fiscal
year. 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. Effective February 6, 1996, SM&R has
voluntarily agreed to waive advisory and administrative service fees
and/or reimburse expenses incurred by the Fund's Series to the extent
that total expenses exceed average daily net assets as follows:
Primary Series - 0.80%, the Government Income Series -1.00% and the
Tax Free Series - 100%.
During the years ended August 31, 1995, 1994, 1993 and the period
ended August 31, 1992, SM&R reimbursed the Fund $226,597, $62,394,
$50,579 and $18,065, respectively for expenses in excess of the
expense limitation and/or any undertaking then in existence.
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 years ended August
31, 1995, 1994, 1993 and the period ended August 31, 1992, SM&R
received administrative service fees from the Fund of $108,246,
$105,530, $71,464 and $23,139, respectively.
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION
SM&R, which supervises the Fund's investments, is responsible for
effecting portfolio transactions through eligible securities brokers
and dealers, subject to the general supervision of the Fund's Board of
Directors. Investment decisions are made by an Investment Committee
of SM&R, and orders are placed by persons supervised by that
committee.
There is no arrangement or intention to place orders with any
specific broker or group of brokers. The paramount factors considered
by SM&R in placing orders are efficiency in the execution of orders
and obtaining the most favorable prices for the Fund in both purchases
and sales of portfolio securities. In seeking the best prices and
executions, purchases and sales of securities which are not listed or
traded on a securities exchange are generally executed with a
principal market maker acting as principal. SM&R continuously
evaluates the brokerage fees paid by each Series to any affiliated
person by comparing such fees to those paid by other investment
companies for similar transactions as reported in various industry
surveys.
Whenever the primary consideration of best price and best
execution is met to the satisfaction of SM&R, the brokers and dealers
selected will include those who provide supplementary statistical and
research services. Such research services include advice as to the
advisability of investing in, purchasing or selling securities, as
well as analyses and reports concerning securities, economic factors
and trends. While SM&R is able to fulfill its obligation to the Fund
without such information, its expenses might be materially increased
if it had to obtain and assemble such information through its staff.
However, the value of such information is not determinable. SM&R also
uses such information when rendering investment advisory services to
the American National Funds Group, the American National Investment
Accounts, Inc. and to American National and its other accounts. SM&R
will authorize each Series of the Fund to pay an amount of commission
for effecting a securities transaction in excess of the amount of
commission another broker-dealer would have charged only if it
determines in good faith
16
<PAGE>
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 Series pay higher than the lowest
commission rates available. During the years ended August 31, 1995,
1994, 1993 and the period ended August 31, 1992, the Fund paid no
brokerage fees for transactions in Portfolio securities. The Portfolio
turnover rate for this same period for the Government Income Series
was 2.20%, 45.48%, 18.14% and 49.70%, respectively. The Tax Free
turnover rate was 12.63% and 16.49% for the year ended August 31, 1995
and the period ended August 31, 1994. The Primary Series
experienced no portfolio turnover as the majority of securities owned
during the period had maturities of one year or less at the time of
acquisition. No brokerage commissions have been paid during the
period to any broker which is an affiliated person of the Fund, which
is an affiliated person of a broker which is an affiliated person of
the Fund or an affiliated person of which is an affiliated person of
the Fund or SM&R.
Consistent with the Rules of Fair Practice of the National
Association of Securities Dealers, and subject to seeking the best
price and execution, the Fund may give consideration to sales of
shares of the Fund as a factor in the selection of brokers and dealers
to execute Fund portfolio transactions.
If purchases or sales of securities of the Series and one or more
other investment companies or clients managed by the Adviser are
considered at or about the same time, transactions in such securities
will be allocated among the several investment companies and clients
in a manner deemed equitable to all by the Adviser, taking into
account the respective sizes of the Series and such other investment
companies and clients and the amount of securities to be purchased or
sold.
The Fund's Board of Directors has determined that such ability to
effect simultaneous transactions may be in the best interests of each
Series. 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 each Series, while in other cases these
practices could produce better executions.
CAPITAL STOCK
The Fund's authorized capital stock consists of Two Hundred
Million (200,000,000) shares of common stock with a par value of $0.01
per share, issuable in separate series. Currently three such series
have been established - the Government Income Series, the Primary
Series and the Tax Free Series. All shares are equal with respect to
distributions from income and capital gains. There are no conversion,
pre-emptive or other subscription rights. In the event of
liquidation, each share is entitled to an equal portion of all the
Fund's assets after all debts and expenses have been paid.
Each share is entitled to one vote, and the Fund's shares have
non-cumulative voting rights with respect to election of directors.
This means that the holders of more than 50% of the shares voting for
the election of directors can elect 100% of the directors if they so
choose, and in such event, holders of the remaining shares will not be
able to elect any directors.
Prior to the Fund's offering of any shares to investors, SM&R
provided the Fund with initial capital by purchasing 100,000 shares of
the Primary Series at a purchase price of $1.00 per share and 10,000
shares of the Government Income Series at a purchase price of $10.00
per share. In addition, SM&R purchased an additional 190,000 shares
of the Government Income Series at a purchase price of $10.00 per
share, and American National purchased 400,000 shares of the
Government Income Series at a price of $10.00 per share. Such
additional shares of the Government Income Series were acquired by
SM&R and American National in connection with the formation of the
Fund, were acquired for investment and can be disposed of only by
redemption.
The Tax Free Series initial capital was provided by SM&R through
the purchase of 10,000 shares at a price of $10.00 per share. In
addition, SM&R purchased an additional 90,000 shares and American
National purchased 500,000 shares at a price of $10.00 per share.
These additional shares were acquired by SM&R and American National in
connection with the formation of the Series for investment and can
only be disposed of by redemption.
Both SM&R's and American National's shares will be redeemed only
when permitted by the Investment Company Act of 1940 and when the
other assets of the Series are large enough that such redemption will
not have a material adverse effect upon investment
17
<PAGE>
performance.
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
Certificates representing shares purchased are not ordinarily
issued in an effort to minimize the risk of loss or theft. Most
investors do not choose to receive certificates for their shares as
this eliminates the problem of safekeeping and facilitates redemptions
and transfers. However, a confirmation will be sent to the investor
promptly after each share purchase. The investor will have the same
ownership rights with respect to shares purchased as if certificates
had been issued. Investors may receive a certificate representing
shares by making written request to SM&R. If a certificate is
requested, it will normally be forwarded to the investor within 14
days after receipt of the request. SM&R reserves the right to charge
a small administrative fee for issuance of any certificates.
Certificates will not be issued for fractional shares (although
fractional shares remain in your account on the books of each Series
of the Fund).
All purchases must be in (or payable in) United States dollars.
All checks must be drawn in United States dollars on a United States
bank. Investors will be subject to a service charge on dishonored
checks. The Fund reserves the right to reject any order for the
purchase of its shares when in the judgment of management such
rejection is in the best interests of the Fund.
DETERMINATION OF NET ASSET VALUE
GOVERNMENT INCOME SERIES AND TAX FREE SERIES
The net asset value per share of the Government Income and Tax
Free Series' shares is determined by adding the market value of its
portfolio securities and other assets, subtracting liabilities, and
dividing the result by the number of the Fund shares outstanding.
Expenses and fees of such Series, 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 Fund are valued as of the close of trading on each day when the
New York Stock Exchange is open for trading other than customary
national business holidays and SM&R's business holidays described
below. 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. 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 in corporate short-
term notes are valued at cost plus amortized discount, which
approximates market value. If no quotations are available for a
security or other property, it is valued at fair value as determined
in good faith by the Board of Directors of the Fund on a consistent
basis.
PRIMARY SERIES
The net asset value per share of the Primary Series is determined
by adding the market value of its portfolio securities and other
assets, subtracting liabilities, and dividing the result by the number
of such Series' shares outstanding. Expenses of the Primary Series,
if any, are accrued daily and taken into account in determining the
net asset value. The portfolio securities of the Primary Series are
valued as of 3:00 p.m. Central Time on each business day and on any
other day in which there is a sufficient degree of trading in such
Series' investment securities that the current net asset value of such
Series shares might be materially affected by changes in the value of
its portfolio of investment securities, other than customary national
business holidays and SM&R's business holidays described below.
Securities listed on national 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. Securities in corporate short-term notes are
valued at cost plus amortized discount, which approximates market
value. If no quotations are available for a security or other
property, it is valued at fair value as determined in good faith by
the Board of Directors of the Fund on a consistent basis.
18
<PAGE>
Securities subject to floating or variable interest rates with demand
features in compliance with applicable Rules of the Securities and
Exchange Commission may have stated maturities in excess of one year.
OFFERING PRICE
GOVERNMENT INCOME SERIES AND TAX FREE SERIES
Full and fractional shares of the Government Income Series and
Tax Free Series are purchased at the offering price, which is the net
asset value next determined after receipt of a purchase plus the sales
charge. The sales charge is a percentage of the net asset value per
share and will vary as shown below. Purchases received by SM&R at its
office in Galveston, Texas prior to 3:00 p.m., Central Time, will be
executed at the applicable offering price determined on that day.
Purchases received thereafter will be executed at the offering price
determined on the next business day.
The offering price of the Government Income Series and Tax Free
Series is the net asset value per share plus a sales charge computed
at the rates set forth in the following table:
<TABLE>
<CAPTION>
(1) (2) (3)
SALES SALES DISCOUNT TO
CHARGE AS CHARGE AS SELECTED
AMOUNT OF A A DEALERS AS A
INVESTMENT PERCENTAGE PERCENTAGE PERCENTAGE OF
OF OF NET OFFERING
OFFERING AMOUNT PRICE
PRICE INVESTED
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less 3.5% 3.6% 3.0%
than $250,000
$250,000 but less 2.5% 2.6% 2.0%
than $500,000
$500,000 and over None None None
</TABLE>
* In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers in quarterly installments, from its
own profits and resources, a per annum percent of the amount invested
as follows: Year 1 - Government Income and Tax Free Series 0.35% and
Year 2 - 0.25%, respectively. The Primary Series 0.10% for Years 1 and
2. In the third and subsequent years, SM&R may pay 0.075% per annum,
in quarterly installments, to those representatives and broker-dealers
with accounts totaling accumulative assets of $1 million or more.
The following illustrates the calculation of the net asset value
and offering price per share at August 31, 1995 for the Government
Income Series and the Tax Free Series.
GOVERNMENT INCOME SERIES
Net Assets ($20,465,741)
------------------------ = Net Asset Value Per Share ($10.51)
Shares outstanding (1,946,741)
$ 10.51
------------- = Public Offering Price Per Share ($11.01)
.955
TAX FREE SERIES
Net Assets ($8,399,116)
------------------------ = Net Asset Value Per Share ($9.95)
Shares outstanding (844,414)
$ 9.95
------------- = Public Offering Price Per Share ($10.42)
.955
19
<PAGE>
REDUCED SALES CHARGE
The reduced sales charge rates set forth in the table above apply
to purchases of shares of the Government Income Series and the Tax
Free Series, either singly or in combination with purchases of shares
of the American National Funds Group at the respective sales charges
applicable to each, made at one time by:
(1) Any individual;
(2) Any individual, his or her spouse, and trusts or
custodial agreements for their minor children;
(3) A trustee or fiduciary of a single trust estate or
single fiduciary account.
Purchases in the Government Income Series will also receive a
reduction in sales charge pursuant to the rates set forth in the table
above for purchases either singly or in combination with purchases of
shares of the American National Funds Group at the respective sales
charges applicable to each, made at one time by:
(1) Tax-exempt organizations specified in Sections
501(c)(3) or (13) of the Internal Revenue Code,
or employees' trusts, pension, profit-sharing, or
other employee benefit plans qualified under Section
401 of the Internal Revenue Code; and
(2) Employees or employers on behalf of employees under
any employee benefit plan not qualified under Section
401 of the Internal Revenue Code.
Furthermore, purchases by any "company" or employee benefit plans
not qualified under Section 401 of the Internal Revenue Code will
qualify for the above quantity discounts only if the Fund will realize
economies of scale in sales effort and sales related expenses as a
result of the employer's or the plan's bearing the expense of any
payroll deduction plan, making the Fund's prospectus available to
individual investors or employees, forwarding investments by such
employees to the Fund, and the like.
The rates set forth above are applicable to single, lump sum
purchases made under the provisions of the preceding paragraphs 1, 2
and 3 and to qualified investments under a "Letter of Intent" or under
the "Accumulation Privilege" as described below.
SPECIAL PURCHASE PLANS
LETTER OF INTENT - Shareholders may qualify for a reduced sales
charge on the Government Income Series and the Tax Free Series by
completing a Letter of Intent (See "Letter of Intent" in the
Prospectus). A minimum initial investment
20
<PAGE>
equal to 10% of the amount necessary for the applicable reduced sales
charge is required when a Letter of Intent is executed. Investments
made under a Letter of Intent will purchase shares at the total sales
charge rate applicable to the specified total investment. SM&R will
hold in escrow from the initial investment shares equal to 5% of the
amount of the total intended investment. Such escrow shares may
not be exchanged for or reinvested in shares of another Series or
fund and, subject to the right of early cancellation described below,
will not be released until the amount purchased equals the commitment
set forth in the Letter of Intent. If the intended investment is not
completed during the 13-month period, the difference between the sales
charge actually paid and the sales charge applicable to the total of
such purchases made will be deducted from the escrow shares if not
paid by the investor within twenty days after the date notice thereof
has been mailed to such investor.
A Letter of Intent agreement can be canceled prior to the end of
the 13-month period and escrow shares released to the investor if the
investor pays the difference between the sales charge paid and the
sales charge applicable to the amount actually invested and agrees
that such Letter of Intent agreement is canceled and no longer in
effect.
The offering value of the shares of the Government Income Series,
the Tax Free Series and the funds in the Group currently owned may
also be included in the aggregate amount of an investment covered by a
Letter of Intent. For example, if an investor owns shares of the
Government Income Series, the Tax Free Series or shares of the Growth
Fund, the Income Fund or the Triflex Fund, or some combination of
these funds, currently valued at $80,000 and intends to invest $25,000
over the next thirteen months in the Government Income Series and/or
the Tax Free Series, such investor may execute a Letter of Intent and
the entire $25,000 will purchase shares of either or all of such funds
at the reduced sales charge rate applicable to an investment of
$100,000 or more. A Letter of Intent does not represent a binding
obligation on the part of the investor to purchase or the Government
Income Series or the Tax Free Series to sell the full amount of shares
specified.
SYSTEMATIC INVESTMENT AND PRE-AUTHORIZED CHECK PLANS - All Series
provide a convenient, voluntary method of purchasing their shares
through "Systematic Investment and Pre-Authorized Check Plans" (a
"Plan" or "Plans"). The principal purposes of such Plans are to
encourage thrift by enabling investors to make regular purchases in
amounts less than normally required, and, in the case of the
Government Income Series and the Tax Free Series, to employ the
principle of dollar cost averaging described below.
By acquiring shares of the Government Income Series and the Tax
Free Series on a regular basis pursuant to a Plan, or investing
regularly on any other systematic plan, the investor takes advantage
of the principle of Dollar Cost Averaging. Under Dollar Cost
Averaging, if a constant amount is invested at regular intervals at
varying price levels, the average cost of all the shares will be lower
than the average of the price levels. This is because the same fixed
number of dollars buys more shares when price levels are low and fewer
shares when price levels are high. It is essential that the investor
consider his or her financial ability to continue this investment
program during times of market decline as well as market rise. The
principle of Dollar Cost averaging will not protect against loss in a
declining market, as a loss will result if the Plan is discontinued
when the market value is less than cost.
A Plan may be opened by indicating an intention to invest $20 or
more (per individual) in the Government Income Series or the Tax Free
Series or $100 or more in the Primary Series monthly for at least one
year. The investor will receive a confirmation showing the number of
shares purchased, purchase price, and subsequent new balance of shares
accumulated.
An investor has no obligation to invest regularly or to continue
participating in a Plan, which may be terminated by the investor at
any time without penalty. Under a Plan, any distributions of income
and realized capital gains will be reinvested in additional shares at
net asset value unless a shareholder instructs SM&R in writing to pay
them in cash. SM&R reserves the right to increase or decrease the
amount required to open and continue the Plan, and to terminate any
shareholder's right to participate in the Plan if after one year the
value of the amount invested is less than $100 in the Government
Income Series or the Tax Free Series or $1,000 in the Primary Series.
GROUP SYSTEMATIC INVESTMENT PLAN - A Group Systematic Investment Plan
provides employers and employees with a convenient means for
purchasing shares of the Fund under
21
<PAGE>
various types of employee benefit and thrift plans, including payroll
deduction and bonus incentive plans. The plan may be started with
an initial cash investment of $100 ($20 per individual) in the
Government Income Series or the Tax Free Series or $1,000 in the
Primary Series for a group consisting of five or more participants.
The shares purchased by each participant under the Plan will be
credited to a separate account in the name of each investor in which
all dividends and capital gains will be reinvested in additional
shares of the applicable Series at net asset value (plus a sales
charge, if applicable). Such reinvestments will be made at the start
of business on the day following the record date for such dividends
and capital gains distributions. To keep his or her account open,
subsequent payments in the amount of $20 must be made into each
participant's account. If the group is reduced to less than five
participants, the minimums set forth under "Systematic Investment and
Pre-Authorized Check Plans" shall apply. The plan may be
terminated by SM&R or the shareholder at any time upon sixty (60)
days' prior written notice.
EXCHANGE PRIVILEGE - Investors owning shares of the Government
Income Series or the Tax Free Series can exchange such shares for
shares of funds in the American National Funds Group. There is no
administrative charge for this privilege at this time, however, the
Fund reserves the right to charge a fee in the future. (See "Exchange
Privilege" in the Prospectus)
Such exchange privileges are not options or rights to purchase
such securities, but are revocable privileges permitted under the
present policies of each of the Government Income Series, the Tax Free
Series and such funds, and are not available in any state or other
jurisdiction where the shares of the Government Income Series, the Tax
Free Series or fund into which transfer is to be made are not
registered for sale. SM&R reserves the right to restrict the
frequency of or otherwise modify, condition, terminate or impose
additional charges upon the exchange privilege.
The minimum number of shares of the Government Income Series, the
Tax Free Series or fund that may be exchanged is the number of shares
of the such Series or fund whose shares are being exchanged which have
a net asset value on the date of such exchange equal to the minimum
initial or subsequent investment, as the case may be, of the fund into
which the exchange is being made.
REDEMPTION
Any shareholder may redeem all or any part of his shares by
submitting a written request to SM&R as the Fund's agent for such
purpose. Such requests must be duly executed by each registered owner
and must be accompanied by certificates endorsed for transfer, if
certificates have been issued, with signatures guaranteed by an
"eligible guarantor institution" as discussed in the Prospectus. No
signature guarantees are required on the written request for
redemption by a shareholder of record when payment is to be made to
such shareholder of record at such shareholder's address of record and
the value of the shares redeemed is $25,000 or less. In all other
cases the signatures on the request for redemption, as well as on
certificates being tendered, must be guaranteed. On all redemption
requests for joint accounts, the signatures of all joint owners are
required. Corporations, executors, divorced persons, administrators,
trustees or guardians will be required to submit further
documentation.
Shares are redeemed at the net asset value per share next
computed after the request and certificates, if any, are received in
"Proper Form" as set forth above. (See "HOW TO REDEEM" in the
Prospectus). A shareholder may receive more or less than he paid for
his shares, depending on the prevailing market value of the portfolio
value of the Series being redeemed.
Redemption checks are delivered as soon as practicable and
normally will be sent to the investor within seven days following the
date on which redemption is made.
At various times the Fund may be requested to redeem shares for
which it has not yet received good payment for prior purchases of Fund
shares. Accordingly, proceeds of the Fund will not be paid until good
payment has been received which could be as much as fifteen business
days after the purchase, or until SM&R can verify that good
22
<PAGE>
payment (for example, cash or certified check on a United States bank)
has been, or will be, collected for the purchase of such shares.
The right of redemption is subject to suspension and payment
therefor 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 the Fund
of its securities is not reasonably practicable or it is not
reasonably practicable for the Fund to fairly determine the value of
its net assets; or for such other periods as the Commission has by
order permitted such suspension for the protection of the Fund's
security holders.
The Fund has made an election under the Investment Company Act of
1940, as amended, to pay in cash all requests for redemption by any
shareholder of record, limited in amount with respect to each
shareholder during any ninety-day period to the lesser of (i) $250,000
or (ii) 1% of the net asset value of the Fund at the beginning of such
period. The Fund may pay the redemption price, if any, in excess of
the amounts described above in whole or in part in portfolio
securities, at the market value thereof determined as of the close of
business next following receipt of the request in proper form, if
deemed advisable by the Board of Directors. In such case a
shareholder would incur brokerage costs if he sold the securities
received.
There is presently no charge for redeeming Fund shares. However,
the Fund reserves the right to charge for any redemption an amount, to
be determined by the Board of Directors, not to exceed 1% of the net
asset value of the shares being redeemed, but it is not the present
intent of the Board of Directors to make such a charge.
SYSTEMATIC WITHDRAWAL PLAN
As described in the Prospectus under "Systematic Withdrawal
Plan", the Series have a Systematic Withdrawal Plan pursuant to which
shareholders having an account value of $5,000 or more to
automatically withdraw a minimum of $50 monthly or quarterly.
A Systematic Withdrawal Plan provides for regular monthly or
quarterly payments to the account investor or his designee through
redemption of a portion of the shares held in the account. Some
portion of each withdrawal may be taxable gain or loss to the account
investor at the time of the withdrawal, the amount of the gain or loss
being determined by the investment in the Series' shares. The
minimum, though not necessarily recommended, withdrawal amount is $50.
Shares sufficient to provide the designated withdrawal payment are
redeemed each month or quarterly on the 20th, or the next succeeding
business day, and checks are mailed to reach the investor on or about
the lst of the following month. All income dividends and capital
gains distributions are automatically reinvested at net asset value,
without sales charge. Since each withdrawal check represents proceeds
from the sale of sufficient shares equal to the withdrawal, there can
be a reduction of invested capital, particularly in a declining
market. If redemptions are consistently in excess of shares added
through reinvestment of distributions, the withdrawals will ultimately
exhaust the capital.
The shareholder may designate withdrawal payments for a fixed
dollar amount, as stated in the preceding paragraph, or a variable
dollar amount based on (1) redemption of a fixed number of shares at
monthly or quarterly intervals, or (2) redemption of a specified and
increasing fraction of shares held at monthly or quarterly intervals.
To illustrate the latter option, if an investor wanted quarterly
payments for a ten-year period, the first withdrawal payment would be
the proceeds from redemption of 1/40th of the shares held in the
account. The second payment would be 1/39th of the remaining shares;
the third payment would be 1/38th of the remaining shares, etc. Under
this option, all shares would be redeemed over the ten-year period,
and the payment amount would vary each quarter, depending upon the
number of shares redeemed and the redemption price.
No charge is made for a non-qualified Systematic Withdrawal Plan,
and the account investor may change the option or payment amount at
any time upon written request received by SM&R no later than the month
prior to the month of a scheduled redemption for a withdrawal payment.
A Systematic Withdrawal Plan may also be terminated at any time by the
account investor or the Series without penalty.
23
<PAGE>
Occasionally certain limited types of qualified retirement plans
are involved in making investments and withdrawals during the same
year. Under such an arrangement, it is possible for the plan to be,
in effect, charged duplicate sales charges. In order to eliminate
this possibility, each Series of the Fund will permit additional
investments, without sales charge, equal to all sums withdrawn,
providing the additional investments are made during the next twelve
months following the withdrawal or redemption, and providing that all
funds withdrawn were for the specific purpose of satisfying plan
benefits of participants who have retired, become disabled or left the
plan. Furthermore, for a qualified plan to qualify under this
provision, the plan must include at least one participant who is a non-
owner employee. The Fund and SM&R discourage shareholders from
maintaining a withdrawal account while concurrently and regularly
purchasing shares of the Fund although such practice is not
prohibited.
THE UNDERWRITER
SM&R serves as principal underwriter of the shares of all Series
of the Fund pursuant to an Underwriting Agreement dated July 1, 1993
(the "Underwriting Agreement"). Such Underwriting Agreement provides
that it shall continue in effect only so long as such continuance is
specifically approved at least annually by the Board of Directors of
the Fund or by vote of a majority of the outstanding voting securities
of a Series and, in either case, by the specific approval of a
majority of directors who are not parties to such agreement or not
"interested" persons (as defined in the Investment Company Act of
1940, as amended) of any such parties, cast in person at a meeting
called for the purpose of voting on such approval. The Underwriting
Agreement was approved by the Board of Directors of the Fund in
accordance with such procedures at a meeting held on July 20, 1995.
The Underwriting Agreement may be terminated without penalty by vote
of the Board of Directors or by vote of the holders of a majority of
the outstanding voting securities of the Fund, or by SM&R, upon sixty
(60) days' written notice and will automatically terminate if assigned
(as provided in the Investment Company Act of 1940, as amended).
As principal underwriter, SM&R continuously offers and sells
shares of each Series of the Fund through its own sales
representatives and broker-dealers. As compensation for such services,
SM&R receives the sales charge, which is the difference between the
offering price at which shares are issued and the net asset value
thereof. Prior to April 1, 1996, SM&R allowed varying portions of the
sales charge to broker-dealers, ranging from a maximum of 4.7% to a
minimum of .50% of the net amount invested and from a maximum of 4.0%
to a minimum of .30% of the public offering price. Effective April 1,
1996, the sales charge allowance to broker-dealers, ranges from a
maximum of 4.7% to a minimum of 2.6% of the net amount invested, and
from a maximum of 4.0% to a minimum of 2.0% of the public offering
price. In connection with purchases of $500,000 or more, SM&R may pay
broker-dealers, in quarterly installments, from its own profits and
resources, a per annum percent of the amount invested as follows: Year
1 - 0.35% and Year 2 - 0.25%. In the third and subsequent years,
SM&R may pay 0.075% per annum, in quarterly installments, to those
broker-dealers with accounts totaling assets of $1 million or more.
The amount of sales charge received and retained by SM&R from the
sale of Fund shares for the years ended August 31, 1995, 1994, 1993
and the period ended August 31, 1992 was $46,578, $145,244, $166,682
and $96,439, and $8,654, $44,496, $56,787 and $88,041, respectively.
SM&R reallowed to dealers less than $500 for the years ended August
31, 1995 and 1994 and $3,957 and $5,914 for the year ended August 31,
1993 and the period ended August 31, 1992.
CUSTODIAN
The cash and securities of the Fund are held by SM&R, One Moody
Plaza, Galveston, Texas, 77550, pursuant to a Custodian Agreement
dated July 1, 1993. The Custodian holds and administers the Fund's
cash and securities as provided for in such Custodian Agreement. The
compensation paid to the Custodian is paid by the Fund and is based
upon and varies with the number, type and amount of transactions
conducted by the Custodian.
SM&R, as custodian, will hold and administer the Fund's cash and
securities and maintain certain financial and accounting books and
records as provided for in such Custodian Agreement.
COUNSEL
The Fund's General Counsel is Greer, Herz & Adams, L.L.P. 18th
Floor, One Moody Plaza, Galveston, Texas 77550.
AUDITORS AND FINANCIAL STATEMENTS
KPMG Peat Marwick LLP, 700 Louisiana, Houston, Texas 77002, are
the Fund's independent auditors and perform annual audits of the
Fund's financial statements. The audited financial statements of SM&R
Capital Funds, Inc., as of August 31, 1995 have been included herein
as Exhibit "1" in reliance upon the report of KPMG Peat Marwick
24
<PAGE>
and upon the authority of said firm as experts in accounting and
auditing. KPMG Peat Marwick's business address is 700 Louisiana,
Houston, Texas 77002.
TRANSFER AGENT AND DIVIDEND PAYING AGENT
SM&R, One Moody Plaza, Galveston, Texas 77550, is the transfer
agent and dividend paying agent for the Fund, the American National
Funds Group and the American National Investments Accounts, Inc.
OTHER PERFORMANCE QUOTATIONS
With respect to those categories of investors who are permitted
to purchase shares of a Series of the Fund at net asset value, sales
literature pertaining to the Series may quote a current distribution
rate, yield, total return, average annual total return and other
measures of performance as described elsewhere in this Statement with
the substitution of net asset value for the public offering price.
Sales literature referring to the use of the Fund or any of its
Series as a potential investment for Individual Retirement Accounts
(IRAs), and other tax-advantaged retirement plans may quote a total
return based upon compounding of dividends on which it is presumed no
federal income tax applies.
COMPARISONS
To help investors better evaluate how an investment in a Series
of the Fund might satisfy their investment objective, advertisements
and other materials regarding the Fund or any of its Series may
discuss various measures of the Series' performance as reported by
various financial publications. Materials may also compare
performance (as calculated above) to performance as reported by other
investments, indices, and averages. The following publications,
indices, and averages may be used:
DOW JONES COMPOSITE AVERAGE OR ITS COMPONENT AVERAGES - an unmanaged
index composed of 30 blue-chip industrial corporation stocks (Dow
Jones Industrial Average), 15 utilities company stocks (Dow Jones
Utilities Average), and 20 transportation company stocks. Comparisons
of performance assume reinvestment of dividends.
STANDARD & POOR'S 500 STOCK INDEX OR ITS COMPONENT INDICES - an
unmanaged index composed of 400 industrial stocks, 40 financial
stocks, 40 utilities stocks, and 20 transportation stocks.
Comparisons of performance assume reinvestment of dividends.
THE NEW YORK STOCK EXCHANGE COMPOSITE OR COMPONENT INDICES - unmanaged
indices of all industrial, utilities, transportation, and finance
stocks listed on the New York Stock Exchange.
LIPPER - MUTUAL FUND PERFORMANCE ANALYSIS AND LIPPER - FIXED INCOME
FUND PERFORMANCE ANALYSIS - measure total return and average current
yield for the mutual fund industry. Rank individual mutual fund
performance over specified time periods, assuming reinvestment of all
distributions, exclusive of any applicable sales charges.
CDA MUTUAL FUND REPORT, PUBLISHED BY CDA INVESTMENT TECHNOLOGIES, INC.
- -analyzes price, current yield, risk, total return, and average rate
of return (average annual compounded growth rate) over specified time
periods for the mutual fund industry.
MUTUAL FUND SOURCE BOOK, PUBLISHED BY MORNINGSTAR, INC. - analyzes
price, yield, risk and total return for equity funds.
FINANCIAL PUBLICATIONS: THE WALL STREET JOURNAL AND BUSINESS WEEK,
CHANGING TIMES, FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY MAGAZINES
- - provide performance statistics over specified time periods.
CONSUMER PRICE INDEX (OR COST OF LIVING INDEX), PUBLISHED BY THE U.S.
BUREAU OF LABOR STATISTICS - a statistical measure of change, over
time, in the price of goods and services in major expenditure groups.
SALOMON BROTHERS BROAD BOND INDEX OR ITS COMPONENT INDICES - The
Aggregate Bond Index measures yield, price and total return for
Treasury, Agency, Corporate, Mortgage, and Yankee bonds.
25
<PAGE>
STANDARD & POOR'S BOND INDICES - measures yield and price of
Corporate, Municipal, and Government bonds.
SHEARSON LEHMAN BROTHERS AGGREGATE BOND INDEX OR ITS COMPONENT INDICES
- - The Aggregate Bond Index measures yield, price and total return for
Treasury, Agency, Corporate, Mortgage and Yankee bonds.
SHEARSON LEHMAN BROTHERS MUNICIPAL BOND INDEX (SLMBI) OR ITS COMPONENT
INDICES - SLMBI measures yield, price and total return for the
municipal bond market.
BOND BUYER'S 20-BOND INDEX - an index of municipal bond yields based
upon yields of 20 general obligation bonds maturing in 20 years.
BOND BUYER'S 30-BOND INDEX - an index of municipal bond yields based
upon yields of 20 revenue bonds maturing in 30 years.
HISTORICAL DATA supplied by the research departments of First Boston
Corporation, the J.P. Morgan companies, Salomon Brothers, Merrill,
Lynch, Pierce, Fenner & Smith, Shearson Lehman Hutton and Bloomberg,
L.P.
In assessing such comparisons of performance, an investor should
keep in mind that the composition of the investments in the reported
indices and averages is not identical to the portfolio of any Series
of the Fund, that the averages are generally unmanaged, and that the
items included in the calculations of such averages may not be
identical to the formula used by any Series to calculate its figures.
In addition there can be no assurance that any series of the Fund will
continue this performance as compared to such other averages.
26
<PAGE>
EXHIBIT "1" TO STATEMENT OF
ADDITIONAL INFORMATION
SM&R CAPITAL FUNDS ANNUAL REPORT
- --------------------------------------------------------------------------------
PRESIDENT'S LETTER
Dear Investor:
Nineteen ninety-six will mark SM&R's 30th year of mutual fund investment
management. Back in 1966, with one fund and a few hundred shareholders, we
began with a basic idea to guide us: make investing easy and affordable for
everyone. Today, with 10 funds and tens of thousands of shareholders, and an
investment world vastly more complex, we believe in our mission more than
ever.
We all want to take charge of our money and make it work for us. Most of us
have financial dreams - a new house, a college education for our children or
grandchildren, a secure retirement - that we're hoping to reach by investing.
Unfortunately, to most people investing in securities seems complicated and
confusing. So, they never really get started. Instead, they rely on the
modest returns offered by fixed-rate savings instruments and hope for the
best.
The perceptions that keep people from participating in the opportunities
available by investing fall into three categories:
"I'M NOT BRAVE ENOUGH." --
"THERE'S RISK INVOLVED IN INVESTING. WHAT IF THERE IS A MARKET 'CRASH?' I
MIGHT LOSE MONEY."
"I'M NOT SMART ENOUGH." --
"I DON'T KNOW HOW TO STUDY THE FINANCIAL MARKETS. I'D HAVE TO BE A
WALL STREET WIZARD TO BE SUCCESSFUL AT INVESTING."
"I'M NOT RICH ENOUGH." --
"YOU'VE GOT TO HAVE A LOT OF MONEY IN ORDER TO INVEST."
Mutual funds can help people reach their financial dreams. And, SM&R's family
of mutual funds provide conservatively minded individuals, regardless of
their means, comfortable choices. With SM&R's funds:
YOU DON'T HAVE TO BE BRAVE --
SM&R's funds are well diversified. Each fund portfolio spreads its risk
by investing in many different securities.
YOU DON'T HAVE TO BE SMART --
SM&R's funds offer professional management. Full-time investment
experts make the investment decisions on your behalf.
YOU DON'T HAVE TO BE RICH --
SM&R's funds are affordable. You can open an account with as little as
$100 and add to it anytime with only $20 or more.
We believe that our thoughtful, disciplined and conservative approach to
investment management will help provide, over time, the strong performance
you expect. We thank you for your confidence in the SM&R Capital Funds.
Sincerely,
/s/ MICHAEL W. MCCROSKEY
Michael W. McCroskey
President
This annual report must be preceded or accompanied by a prospectus
of the SM&R Capital Funds, Inc.
27
<PAGE>
PORTFOLIO MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES
During the past two years, yields on the U.S. Government 30-year Treasury
Bond have gone from a low of 5.77% (October, 1993) to 8.16% (November, 1994)
and have recently settled into a trading range of 6.50% to 7.00%. The
increase in interest rates was the result of short-term interest rate
increases initiated by the Federal Reserve in response to strong economic
numbers and the threat of increasing inflation. More recent data suggests
that the economy is beginning to slow and the Federal Reserve is now
attempting to engineer a "soft landing" by reducing short-term interest rates
in July, 1995.
Last year, we repositioned the Fund in order to increase the fund's coupon
interest as well as to bring the average maturity and the average duration
more in line with the Fund's respective index. This has resulted in a total
return of 11.85% over the twelve month period ended August, 1995 and 14.23%
total return for the year-to-date through August, 1995. Total return is the
change in value of an investment in the fund over a given period assuming
reinvestment of any dividends and capital gains.
The direction for interest rates, as always, remains uncertain. Should
economic data continue to point toward a possible recession or should
Congress finally address the budget deficit by reducing spending, the Federal
Reserve Board would likely continue to reduce short-term interest rates in
order to achieve a "soft landing". Until confirmation of a slowing economy or
development of a deficit reduction package from Congress, we will be in a
trading range in interest rates. The Fund's performance will likely be the
same as the market as we will continue to attempt to keep the Fund structured
similar to its respective index.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN GOVERNMENT INCOME FUND
SERIES AND LEHMAN BROTHERS GOVERNMENT/MORTGAGE-BACKED SECURITIES INDEX
Lehman Brothers Government/Mortgage
Government Income Fund Series Backed Securities Index
3/31/92 "10,000" "10,000"
8/31/92 "10,321" "10,711"
8/31/93 "10,853" "11,832"
8/31/94 "10,117" "11,670"
8/31/95 "11,315" "12,943"
Past performance is not predictive of future performance.
The Government Income Fund Series' performance figures are historical and
reflect reinvestment of all dividends and capital gains distributions,
changes in net asset value and consider the effect of the Fund's 4.50%
maximum sales charge. The Fund's operations began March 16, 1992. The
Government Income Fund Series average return, which reflects reinvestment of
all dividends and capital gains distributions, changes in net asset value and
consider the effect of the Funds 4.50% maximum sales charge, was 6.86% for
the twelve months ended August 31, 1995 and 6.32% from inception to June 30,
1995.
28
<PAGE>
PORTFOLIO MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL PRIMARY FUND SERIES
The American National Primary Fund Series (the "Primary Series") continued
the conservative strategy of utilizing short-term commercial paper maturing
in one to forty days (90% of the portfolio) and Agency Notes of the Federal
Government with approximately a one year maturity (9% of the portfolio). We
have anticipated an increase in short term rates for some time. Over the past
twelve months we have witnessed a dramatic flattening of the yield curve.
While the 30-year U.S. Government Treasury Bond has declined in yield from a
7.45% to 6.64%, the yield on the 90-day U.S. Government Treasury Bill has
increased from 4.66% to 5.44%. Our strategy of increasing the maturity of the
fund was to enhance shareholder returns as much as possible while continuing
with our policy of managing a conservative fund with respect to the Fund's
overall maturity.
The Federal Reserve has reversed its course of increasing interest rates with
a rate cut after its July, 1995 meeting. Should data continue to point toward
a slowing economy and inflation remain benign, the Federal Reserve may
consider another ease in order to steer the economy towards a "soft landing".
If that occurs, we may see declines in short-term rates. We will continue our
strategy of seeking to lengthen maturities and "lock in" the higher
short-term interest rates to the greatest extent possible while maintaining
our policy of managing a conservative fund with respect to the Fund's overall
maturity.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
PRIMARY FUND SERIES AND LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
Primary Series - Comprised of
Commercial paper with maturities Lehman Government/Corporate
under 60 days and agencies with Index - Comprised of Corporate
maturities of less than one year notes and bonds and agencies
to three years. with one to three year maturities.
3/31/92 "10,000" "10,000"
8/31/92 "10,150" "10,495"
8/31/93 "10,413" "11,094"
8/31/94 "10,716" "11,292"
8/31/95 "11,252" "12,140"
Past performance is not predictive of future performance.
The Primary Fund Series' performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions and changes in
net asset value. The Fund's operations began March 16, 1992. The Primary
Fund Series' average return which reflects reinvestment of all dividends and
capital gain distributions, and changes in net asset value was 5.01% for the
twelve months ended August 31, 1995 and 3.39% from inception to June 30, 1995.
29
<PAGE>
PORTFOLIO MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL TAX FREE FUND SERIES
American National Tax Free Fund Series (Tax Free Series) was initiated in
September, 1993, during the lowest interest rate environment of nearly twenty
years. The 30-year U.S. Government Treasury Bond reached a recent record low
yield of 5.77% in October, 1993. In response to fears of increasing
inflation, the Federal Reserve began the first of several interest rate hikes
which took the long-bond up to a yield of 8.16% by November, 1994. The
increases in interest rates had the desired effect of reining in economic
growth and currently inflation appears to be very much under control.
Therefore, the Federal Reserve Board reversed directions and eased (or
reduced) interest rates slightly in July, 1995.
We have positioned the Fund very well since its inception. We maintained a
defensive posture during the first year while interest rates were at a
twenty-year low. Then, last year we began to aggressively restructure the
Fund by extending the maturities and increasing the fund's average coupon. We
also began to explore investments in sectors outside of essential service and
general obligation while continuing to maintain the rating quality. In
addition, we analyzed the expenses borne by the fund and developed a new
schedule designed to pass along to our shareholders the coupon income earned
on the portfolio, thereby enhancing the income our shareholders are receiving.
The result of our restructuring has enhanced shareholder returns for the past
year. The total return for the fund was 9.15% for the twelve months ended
August 31, 1995 and 12.90% for year-to-date through August, 1995. Total
return is the change in value of an investment in the fund over a given
period assuming reinvestment of any dividends and capital gains. We continue
with our goal to position our fund to enhance shareholder value while still
maximizing the tax-free income and passing it along to our shareholders.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TAX FREE FUND SERIES AND LEHMAN BROTHERS MUNICIPAL INDEX
Lehman Brothers
Tax Free Fund Series Municipal Index
9/9/93 "10,000" "10,000"
8/31/94 "9,398" "9,957"
8/31/95 "10,258" "10,840"
Past performance is not predictive of future performance.
The Tax Free Fund Series' performance figures are historical and reflect
reinvestment of all dividends and capital gains distributions, changes in
net asset value and consider the effect of the Fund's 4.50% maximum sales
charge. The Fund's operations began September 9, 1993. The Tax Free Fund
Series average return, which reflects reinvestment of all dividends and
capital gains distributions, changes in net asset value and consider the
effect of the Funds 4.50% maximum sales charge, was 4.27% for the twelve
months ended August 31, 1995 and .23% from inception to June 30, 1995.
30
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1995
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
DIVERSIFIED--0.97%
Growmark, Incorporated 09/05/95 5.85 $ 100,000 $ 99,935
White Consolidated Industries 09/27/95 5.90 100,000 99,574
------------
199,509
UTILITY-ELECTRIC--0.64%
Kentucky Power Company 09/06/95 5.90 131,000 130,892
------------
TOTAL COMMERCIAL PAPER--1.61%
(Cost $330,401) 330,401
------------
GOVERNMENT AGENCIES--97.34%
Federal Home Loan Bank 08/05/04 7.38 1,000,000 1,053,290
Federal Home Loan Bank 08/19/04 7.57 1,000,000 1,066,220
Federal Home Loan Mortgage Corporation 07/07/04 7.97 1,500,000 1,555,560
Federal Home Loan Mortgage Corporation 07/27/04 7.81 1,000,000 1,040,820
Federal Home Loan Mortgage Corporation 07/28/04 7.95 1,500,000 1,549,020
Federal Home Loan Mortgage Corporation 08/19/04 8.08 1,500,000 1,554,000
Federal Home Loan Mortgage Corporation 08/01/05 6.75 165,000 167,366
Federal Home Loan Mortgage Corporation 08/03/05 7.46 250,000 254,175
Federal Home Loan Mortgage Corporation 09/15/06 7.00 585,000 588,264
Federal Home Loan Mortgage Corporation 11/15/06 7.00 1,500,000 1,509,030
Federal Home Loan Mortgage Corporation 03/15/07 7.00 1,000,000 998,730
Federal Home Loan Mortgage Corporation 09/15/07 7.00 1,000,000 1,003,230
Federal Home Loan Mortgage Corporation 08/15/08 7.00 1,600,000 1,602,448
Federal National Mortgage Association 02/11/02 7.50 1,585,000 1,675,804
Federal National Mortgage Association 04/10/02 7.90 1,500,000 1,563,045
Federal National Mortgage Association 04/22/02 7.55 200,000 212,262
Federal National Mortgage Association 04/14/04 7.60 500,000 507,815
Federal National Mortgage Association 04/29/04 7.65 500,000 509,410
Federal National Mortgage Association 07/14/04 8.05 500,000 516,855
Federal National Mortgage Association 07/25/07 7.00 1,000,000 993,780
------------
TOTAL GOVERNMENT AGENCIES--97.34%
(Cost $19,242,424) 19,921,124
------------
TOTAL INVESTMENTS--98.95%
(Cost $19,572,825) 20,251,525
CASH AND OTHER ASSETS LESS LIABILITIES--1.05% 214,284
------------
TOTAL NET ASSETS--100.00% $ 20,465,809
------------
------------
</TABLE>
See notes to financial statements.
31
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1995
- --------------------------------------------------------------------------------
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
CONTAINERS--4.90%
Crown Cork & Seal Company, Incorporated 09/19/95 5.90 $ 1,032,000 $ 1,028,956
DIVERSIFIED--17.13%
Cox Enterprises, Incorporated 09/20/95 5.84 1,058,000 1,054,739
General Signal Corporation 09/25/95 5.80 904,000 900,504
Textron, Incorporated 09/13/95 5.85 1,014,000 1,012,023
White Consolidated Industries 09/28/95 5.85 630,000 627,236
------------
3,594,502
ELECTRICAL EQUIPMENT--3.10%
Honeywell, Incorporated 09/27/95 5.76 652,000 649,288
FINANCIAL SERVICES--22.44%
Avon Capital Corporation 09/05/95 5.88 970,000 969,366
Dana Credit Corporation 09/11/95 5.85 1,000,000 998,375
GTE Finance Corporation 09/12/95 5.78 282,000 281,502
Progress Capital Holdings 09/21/95 5.75 783,000 780,499
Textron Financial Corporation 09/14/95 5.87 834,000 832,232
U S West Capital Funding 09/22/95 5.73 849,000 846,162
------------
4,708,136
FOODS--7.24%
American Home Food Products, Incorporated 10/04/95 5.77 617,000 613,736
ConAgra, Incorporated 09/15/95 5.82 908,000 905,945
------------
1,519,681
OIL DOMESTIC--9.78%
Pennzoil Company 09/18/95 5.83 1,059,000 1,056,084
Union Oil Company of California 09/29/95 5.80 1,000,000 995,489
------------
2,051,573
PAPER/FOREST PRODUCTS--4.99%
Scott Paper Company 09/26/95 5.77 1,052,000 1,047,785
RETAIL-SPECIALTY--4.24%
Rite Aid Corporation 09/06/95 5.85 322,000 321,738
Tandy Corporation 09/12/95 5.83 569,000 567,986
------------
889,724
TRANSPORTATION MISCELLANEOUS--4.68%
Union Pacific Corporation 10/16/95 5.89 990,000 982,711
UTILITY-ELECTRIC--7.06%
Kentucky Power Company 09/06/95 5.85 679,000 678,448
Public Service Electric & Gas Company 09/07/95 5.78 804,000 803,226
------------
1,481,674
UTILITY-GAS--4.93%
Illinois Power Fuel Company 09/08/95 5.90 1,036,000 1,034,812
------------
TOTAL COMMERCIAL PAPER--90.49%
(Cost $18,988,842) 18,988,842
------------
GOVERNMENT AGENCIES--9.17%
Federal Farm Credit Bank 09/01/95 5.70 1,925,000 1,925,000
------------
TOTAL GOVERNMENT AGENCIES--9.17%
(Cost $1,925,000) 1,925,000
------------
TOTAL INVESTMENTS--99.66%
(Cost $20,913,842) 20,913,842
CASH AND OTHER ASSETS LESS LIABILITIES--0.34% 70,434
------------
TOTAL NET ASSETS--100.00% $ 20,984,276
------------
------------
</TABLE>
See notes to financial statements.
32
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1995
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
ARIZONA--6.90%
Aaa/AAA Central Arizona Water
Conservation District
(Central Arizona
Project)-Contract Revenue
Refunding Bonds, Series B
1994, 4.750%, 11/01/07 $ 200,000 $ 190,902
Aaa/AAA Central Arizona Water
Conservation District
(Central Arizona
Project)-Contract Revenue
Refunding Bonds, Series B
1994, 4.750%, 11/01/08 100,000 93,833
Aaa/AAA Pima County, Arizona-Sewer
Revenue Refunding Bonds,
Series 1994A, 4.400%,
07/01/03 100,000 97,216
Aa/AA Salt River Project
Agricultural Improvement
and Power District,
Arizona-Salt River Project
Electric System Refunding
Revenue Bonds, 1993 Series
C, 4.100%, 01/01/00 200,000 197,722
---------
579,673
FLORIDA--4.00%
Aa/AA State of Florida-State
Board of Education, Public
Education Capital Outlay
Bonds, 1992 Series E,
4.600%, 06/01/03 100,000 98,583
Aa/AA State of Florida-State
Board of Education, Public
Education Capital Outlay
Bonds, 1992 Series E,
5.750%, 06/01/19 145,000 140,782
Aa/AA- Orlando Utilities
Commission-Water and
Electric Subordinated
Revenue Refunding Bonds,
Series 1994A, 4.250%,
10/01/02 100,000 97,018
---------
336,383
GEORGIA--2.02%
A/A Municipal Electric
Authority of Georgia-Power
Revenue Bonds, Series AA,
5.400%, 01/01/07 175,000 169,370
ILLINOIS--6.83%
Aa/AA Illinois Health Facilities
Authority-Revenue Bonds,
Series 1994A,
(Northwestern Memorial
Hospital), 6.100%,
08/15/14 200,000 200,466
Aaa/AAA Illinois State Toll Highway
Authority-Highway Priority
Revenue Bonds, Series
A-FGIC, 5.750%, 01/01/17 $ 175,000 $ 168,534
A1/AAA State of Illinois-Build
Illinois Bonds, Sales Tax
Revenue Bonds, Series V,
6.375%, 06/15/17 200,000 205,058
---------
574,058
KANSAS--2.33%
Aa/AA State of Kansas-Department
of Transportation, Highway
Revenue Bonds, Series
1994A, 4.250%, 09/01/01 100,000 98,646
Aa/AA State of Kansas-Department
of Transportation, Highway
Revenue Bonds, Series
1994A, 4.250%, 09/01/02 100,000 97,283
---------
195,929
MARYLAND--7.97%
Aa/AA+ Anne Arundel County,
Maryland-General
Obligation Bonds,
Consolidated General
Improvements Series, 1994,
4.800%, 02/01/09 200,000 188,276
Aa/AA+ Anne Arundel County,
Maryland-General
Obligation Bonds,
Consolidated Water and
Sewer Series, 1994 4.700%,
02/01/07 100,000 95,647
Aa/AA Department of
Transportation of
Maryland-Consolidated
Transportation Bonds,
Refunding Series 1993
(Second Issue), 4.400%,
12/15/04 200,000 190,868
Aa1/AA Washington Suburban
Sanitary District,
Maryland-Sewage Disposal
Refunding Bonds of 1994,
4.375%, 06/01/03 200,000 194,536
---------
669,327
NEBRASKA--2.34%
A1/A+ Nebraska Public Power
District-Power Supply
System Revenue Bonds, 1993
Series C, 3.700%, 01/01/97 100,000 99,379
Aaa/AAA City of Omaha,
Nebraska-General
Obligation Refunding
Bonds, Series of 1993,
4.200%, 10/15/02 100,000 97,589
---------
196,968
</TABLE>
33
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1995
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
NEW MEXICO--1.16%
Aa/AA City of Albuquerque, New
Mexico-Joint Water and
Sewer System, Refunding
and Improvement Revenue
Bonds, Series 1994A,
4.300%, 07/01/02 $ 100,000 $ 97,110
NORTH CAROLINA--2.42%
Aaa/AAA City of Charlotte, North
Carolina-General
Obligation Public
Improvement Bonds, Series
1994, 5.700%, 02/01/08 100,000 105,368
A/BBB+ North Carolina Eastern
Municipal Power
Agency-Power System
Revenue Bonds, Refunding
Series 1993 B, 6.250%,
01/01/12 100,000 97,789
---------
203,157
OHIO--1.19%
Aa/AA State of Ohio-General
Obligation Infrastructure
Improvement Bonds, Series
1993, 4.000%, 08/01/98 100,000 99,942
OKLAHOMA--2.82%
Aaa/AAA Oklahoma Municipal Power
Authority-Power Supply
System Revenue Bonds,
Series 1994B, 4.450%,
01/01/03 100,000 97,791
Aaa/NR Oklahoma Housing Finance
Agency-Single Family
Mortgage Revenue Bonds
(Homeownership Loan
Program), 1994 Series A-1,
6.250%, 09/01/07 (b) 135,000 138,671
---------
236,462
OREGON--3.99%
Aa/AA+ The Port of Portland,
Oregon-General Obligation
Refunding Bonds, Series
1993A, 3.900%, 03/01/99 130,000 128,658
A1/A+ City of Portland,
Oregon-Sewer System
Revenue Bonds, 1994 Series
A, 6.250%, 06/01/15 200,000 206,454
---------
335,112
PUERTO RICO--2.69%
Baa1/A- Puerto Rico Electric Power
Authority-Power Revenue
Bonds, Series R, 6.250%,
07/01/17 125,000 126,676
Baa1/A Commonwealth of Puerto
Rico-Public Improvement
Refunding Bonds, Series
1992A, General Obligation
Bonds, 6.000%, 07/01/14 $ 100,000 $ 99,320
---------
225,996
TENNESSEE--2.40%
A1/A+ Tennessee Housing
Development
Agency-Mortgage Finance
Program Bonds, 1994 Series
B, 6.200%, 01/01/09 (b) 200,000 201,786
TEXAS--28.04%
Aa/AA City of Austin, Texas
(Travis and Williamson
Counties)-Public
Improvement Refunding
Bonds, Series 1993A,
4.000%, 09/01/00 100,000 98,090
Aaa/AAA City of Austin,
Texas-Combined Utility
Systems Revenue Refunding
Bonds, Series 1994 6.250%,
05/15/16 100,000 102,417
Aaa/AAA Bexar Metropolitan Water
District-Waterworks System
Revenue Bonds, Series
1994, 5.100%, 05/01/08 250,000 243,162
Aaa/AAA Clear Lake City Water
Authority-Waterworks and
Sewer System Combination,
Unlimited Tax and Revenue
Refunding Bonds, Series
1994, 4.875%, 03/01/07 250,000 240,313
Aa/AA City of Dallas,
Texas-Waterworks and Sewer
System Revenue Refunding
and Improvement Bonds,
Series 1992, 5.800%,
10/01/08 100,000 101,207
Aa/AA City of Dallas,
Texas-Waterworks and Sewer
System Revenue Bonds,
Series 1994, 5.600%,
04/01/07 100,000 102,597
Aaa/AAA Dallas-Fort Worth
International
Airport-Dallas-Fort Worth
Regional Airport, Joint
Revenue Refunding Bonds,
Series 1994A, 6.000%,
11/01/10 100,000 102,756
Aaa/AAA Galveston Independent
School District-Unlimited
Tax Schoolhouse Bonds,
Series 1994, 5.200%,
02/01/07 100,000 99,570
</TABLE>
34
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1995
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
TEXAS--CONTINUED
Aa/AA Harris County, Texas-Tax
and Revenue Certificates
of Obligation, Series
1994, 6.100%, 10/01/12 $ 135,000 $ 139,455
Aa/AA Harris County, Texas-Tax
and Revenue Certificates
of Obligation, Series
1994, 6.100%, 10/01/13 125,000 128,589
Aaa/AAA North Texas Municipal Water
District-Regional
Wastewater System
Refunding Revenue Bonds,
Series 1993, 4.300%,
06/01/01 100,000 98,394
Aaa/AAA North Texas Municipal Water
District-Regional
Wastewater System
Refunding Revenue Bonds,
Series 1993, 4.400%,
06/01/02 100,000 97,766
Aa/AA State of Texas-General
Obligation Bonds, Veterans
Housing Assistance
Program, Fund II Series
1994A Bonds, 6.700%,
06/01/09 (b) 100,000 105,255
Aa1/AA+ Tarrant County,
Texas-Limited Tax
Refunding Bonds, Series
1994, 4.400%, 07/15/02 200,000 196,156
A1/NR Tarrant County Health
Facilities Development
Corporation-Health System
Revenue Bonds, (Harris
Methodist Health System),
Series 1994, 6.000%,
09/01/14 200,000 196,664
A1/AA Texas Tech University
Health Sciences
Center-Revenue Financing
System Refunding Bonds,
First Series (1993),
4.200%, 02/15/01 100,000 97,851
Aaa/AA+ Board of Regents of The
University of Texas
System-Permanent
University Fund, Refunding
Bonds Series 1992A,
6.250%, 07/01/13 200,000 204,544
---------
2,354,786
UTAH--2.44%
Aa/AA Utah Housing Finance
Agency-Single Family
Mortgage Bonds, 1995 Issue
A, (Federally Insured or
Guaranteed Mortgage Loans),
7.150%, 07/01/12 (b) $ 100,000 $ 105,143
Aa/NR Utah State Housing
Financial Agency-Single
Family Mortgage Bonds,
Series F1, 6.000%,
07/01/13 100,000 99,557
---------
204,700
VIRGINIA--1.21%
Aaa/AAA Virginia State Housing
Development Authority
Commonwealth Mortgage
Bonds, Series A, Subseries
A-4, 6.300%, 07/01/15 (b) 100,000 101,350
WASHINGTON--10.85%
Aa1/AA+ King County, Washington-
Department of Metropolitan
Services, Limited Tax
General Obligation Bonds,
1994 Series A, 5.800%,
01/01/08 200,000 206,796
Aa1/AA+ King County,
Washington-Limited Tax
General Obligation and
Refunding Bonds, 1993
Series A, 6.000%, 12/01/10 100,000 102,670
Aa1/AA+ Port of Seattle,
Washington-General
Obligation Bonds 5.750%,
05/01/14 (b) 100,000 95,798
Aaa/AAA City of Richland,
Washington-Water and Sewer
Improvement Revenue Bonds,
1993, 5.550%, 04/01/07 300,000 304,275
Aa/AA State of Washington-General
Obligation Bonds, Series
1994B, 5.750%, 05/01/09 100,000 101,696
Aa/AA State of Washington-General
Obligation Bonds, Series
1994B, 6.000%, 09/01/16 100,000 100,413
---------
911,648
</TABLE>
35
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1995
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
MUNICIPAL BONDS FACE
RATING(A) AMOUNT VALUE
<S> <C> <C> <C>
WISCONSIN--4.70%
Aa/AA City of Green Bay-General
Obligation Refunding
Bonds, Series 1994B,
5.900%, 04/01/09 $ 200,000 $ 205,018
Aa/AA State of Wisconsin-General
Obligation Bonds of 1994,
Series A, 4.500%, 05/01/05 200,000 189,746
---------
394,764
---------
TOTAL MUNICIPAL BONDS--96.30%
(Cost $8,033,889) 8,088,521
---------
GOVERNMENT AGENCIES--2.08%
Federal National Mortgage Association,
5.670%, 09/05/95 175,000 174,890
---------
TOTAL GOVERNMENT AGENCIES--2.08%
(Cost $174,890) 174,890
---------
TOTAL INVESTMENTS--98.38%
(Cost $8,208,779) 8,263,411
CASH AND OTHER ASSETS
LESS LIABILITIES -- 1.62% 135,705
---------
TOTAL NET ASSETS--100.00% $8,399,116
---------
---------
Notes to Schedule of Investments
(a) Ratings assigned by Moody's Investor's Service, Inc.
("Moody's") and Standard & Poor's Corporation ("S&P").
Ratings are unaudited.
(b) Security subject to the alternative minimum tax.
</TABLE>
See notes to financial statements.
36
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT PRIMARY TAX FREE
INCOME FUND FUND FUND
SERIES SERIES SERIES
<S> <C> <C> <C>
ASSETS
Investments at value $20,251,525 $20,913,842 $8,263,411
Cash 10,627 591 14,700
Prepaid expenses 40,994 45,358 10,740
Receivable for:
Interest 164,652 54,863 118,006
Expense reimbursement -- -- 9,487
Other assets 30,016 21,590 4,891
----------- ----------- ----------
TOTAL ASSETS 20,497,814 21,036,244 8,421,235
----------- ----------- ----------
LIABILITIES
Payable for:
Fund shares redeemed 11,005 19,809 --
Accrued:
Investment advisory fee 8,558 9,043 3,517
Service fee 4,279 4,522 1,758
Other liabilities 8,163 18,594 16,844
----------- ----------- ----------
TOTAL LIABILITIES 32,005 51,968 22,119
----------- ----------- ----------
NET ASSETS $20,465,809 $20,984,276 $8,399,116
----------- ----------- ----------
----------- ----------- ----------
Shares outstanding, (200,000,000 shares authorized, $.01 par
value per share) 1,946,741 20,990,035 844,414
----------- ----------- ----------
----------- ----------- ----------
Net asset value $ 10.51 $ 1.00 $ 9.95
----------- ----------- ----------
----------- ----------- ----------
Offering price per share:
(Net asset value DIVIDED BY 95.5%) $ 11.01 $ 10.42
----------- ----------
----------- ----------
Offering price per share $ 1.00
-----------
-----------
</TABLE>
STATEMENTS OF OPERATIONS Year Ended August 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT PRIMARY TAX FREE
INCOME FUND FUND FUND
SERIES SERIES SERIES
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,462,303 $ 940,824 $ 417,823
EXPENSES
Investment advisory fees 96,210 81,835 38,447
Service fees 48,105 40,918 19,223
Audit fees 6,000 6,625 5,152
Custody and transaction fees 9,546 20,181 7,901
Directors' fees 12,350 12,373 9,524
Organization expenses 11,878 11,878 --
Qualification fees 13,379 19,542 11,261
Other 6,355 5,210 4,579
----------- ----------- ----------
TOTAL EXPENSES 203,823 198,562 96,087
LESS EXPENSES REIMBURSED (69,411) (61,099) (96,087)
----------- ----------- ----------
NET EXPENSES 134,412 137,463 --
----------- ----------- ----------
NET INVESTMENT INCOME 1,327,891 803,361 417,823
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (10,778) (9) (34,685)
Net unrealized appreciation (depreciation) of investments
during the year 823,605 (1,522) 316,014
----------- ----------- ----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS 812,827 (1,531) 281,329
----------- ----------- ----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,140,718 $ 801,830 $ 699,152
----------- ----------- ----------
----------- ----------- ----------
</TABLE>
See notes to financial statements.
37
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income $ 1,327,891 $ 1,033,341
Net realized loss on investments (10,778) (342,422)
Net unrealized appreciation (depreciation) of investments during
the year 823,605 (1,212,031)
------------- -------------
Net increase (decrease) in net assets resulting from operations 2,140,718 (521,112)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (1,327,891) (1,050,268)
CAPITAL SHARE TRANSACTIONS
Increase (decrease) in net assets from capital share transactions (137,113) 1,578,050
------------- -------------
NET INCREASE IN NET ASSETS 675,714 6,670
Beginning of year 19,790,095 19,783,425
------------- -------------
End of year $ 20,465,809 $ 19,790,095
------------- -------------
------------- -------------
</TABLE>
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
OPERATIONS
Net investment income $ 803,361 $ 441,051
Net realized loss on investments (9) (67)
Net unrealized appreciation (depreciation) of investments during
the year (1,522) 1,837
------------- -------------
Net increase in net assets resulting from operations 801,830 442,821
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (803,361) (441,051)
CAPITAL SHARE TRANSACTIONS
Increase (decrease) in net assets from capital share transactions 5,778,066 (332,745)
------------- -------------
NET INCREASE (DECREASE) IN NET ASSETS 5,776,535 (330,975)
Beginning of year 15,207,741 15,538,716
------------- -------------
End of year $ 20,984,276 $ 15,207,741
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
38
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, AUGUST 31,
------------ ------------
1995 1994
------------ ------------
<S> <C> <C>
OPERATIONS
Net investment income $ 417,823 $ 165,751
Net realized loss on investments (34,685) (17,141)
Net unrealized appreciation (depreciation) of investments during the
period 316,014 (261,382)
------------ ------------
Net increase (decrease) in net assets resulting from operations 699,152 (112,772)
DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income (415,605) (165,751)
CAPITAL SHARE TRANSACTIONS
Increase in net assets from capital share transactions 820,183 7,573,909
------------ ------------
NET INCREASE IN NET ASSETS 1,103,730 7,295,386
Beginning of period 7,295,386 --
------------ ------------
End of period $ 8,399,116 $ 7,295,386
------------ ------------
------------ ------------
</TABLE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout the period.
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED AUGUST 31, AUGUST 31,
------------------------------- -------------
1995 1994 1993 1992
--------- --------- --------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 10.07 $ 10.87 $ 10.56 $ 10.00
Net investment income 0.70 0.54 0.50 0.25
Net realized and unrealized gain (loss) on investments
during the period 0.44 (0.79) 0.49 0.55
--------- --------- --------- ---------
1.14 (0.25) 0.99 0.80
Less distributions
Distributions from net investment income (0.70) (0.55) (0.50) (0.24)
Distributions from capital gains 0.00 0.00 (0.18) 0.00
--------- --------- --------- ---------
(0.70) (0.55) (0.68) (0.24)
--------- --------- --------- ---------
Net Asset Value, End of Period $ 10.51 $ 10.07 $ 10.87 $ 10.56
--------- --------- --------- ---------
--------- --------- --------- ---------
Total Return 11.85% (2.41)% 10.23% 7.96%**
--------- --------- --------- ---------
--------- --------- --------- ---------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 20,466 $ 19,790 $ 19,783 $ 12,529
Ratio of expenses to average net assets 0.70%(1) 1.12% 1.07% 1.00%*
Ratio of net investment income to average net assets 6.90% 5.11% 5.07% 4.82%*
Portfolio turnover rate 2.20% 45.48% 18.14% 49.70%
</TABLE>
* Ratios annualized
** Returns are not annualized
(1) Expenses for the calculation are net of a reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.06% for the year ended
August 31, 1995.
See notes to financial statements.
39
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for each share of capital stock outstanding throughout the period.
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED AUGUST 31, AUGUST 31,
---------------------------------- -------------
1995 1994 1993 1992
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
Net investment income 0.05 0.03 0.02 0.015
---------- ---------- ---------- ---------
0.05 0.03 0.02 0.015
Less distributions
Distributions from net investment income (0.05) (0.03) (0.02) (0.015)
---------- ---------- ---------- ---------
(0.05) (0.03) (0.02) (0.015)
---------- ---------- ---------- ---------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
Total Return 5.01% 2.91% 2.59% 1.50%**
---------- ---------- ---------- ---------
---------- ---------- ---------- ---------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 20,984 $ 15,208 $ 15,539 $ 12,432
Ratio of expenses to average net assets (1) 0.84% 0.79% 0.85% 0.70%*
Ratio of net investment income to average net assets 4.91% 2.88% 2.47% 2.99%*
</TABLE>
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
YEAR PERIOD
ENDED ENDED
AUGUST 31, AUGUST 31,
---------- -------------
1995 1994
---------- -------------
<S> <C> <C>
Net Asset Value, Beginning of Period $ 9.62 $ 10.00
Net investment income 0.51 0.24
Net realized and unrealized (loss) on investments during the period 0.33 (0.38)
---------- ---------
0.84 (0.14)
Less distributions
Distributions from net investment income (0.51) (0.24)
---------- ---------
(0.51) (0.24)
---------- ---------
Net Asset Value, End of Period $ 9.95 $ 9.62
---------- ---------
---------- ---------
Total Return 9.15% (1.49)%**
---------- ---------
---------- ---------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 8,399 $ 7,295
Ratio of expenses to average net assets (2) -- 1.11%*
Ratio of net investment income to average net assets 5.43% 2.50%*
Portfolio turnover rate 12.63% 16.49%
</TABLE>
* Ratios annualized
** Returns are not annualized
(1) Expenses for the calculation are net of a reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.21%, 1.20%, 1.23%, and
1.04% (annualized) for the years ended August 31, 1995, 1994 and 1993 and
the period ended August 31, 1992, respectively.
(2) Expenses for the calculation are net of a reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.25% for the year ended
August 31, 1995.
See notes to financial statements.
40
<PAGE>
NOTES TO FINANCIAL STATEMENTS August 31, 1995
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The SM&R Capital Funds, Inc. (the "Funds") is a diversified open-end
management investment company registered as a series fund under the
Investment Company Act of 1940, as amended. The Funds are comprised of the
American National Government Income Fund Series ("Government Income Fund
Series"), American National Primary Fund Series ("Primary Fund Series"), and
American National Tax Free Fund Series ("Tax Free Fund Series"). Operations
commenced March 16, 1992, for the Government Income Fund Series and Primary
Fund Series. The Tax Free Fund Series began operations September 9, 1993.
The following is a summary of significant accounting policies consistently
followed by the Funds in the preparation of its financial statements.
INVESTMENT VALUATIONS:
Investments are valued based on market quotations or at fair value as
determined by a pricing service approved by the Board of Directors. Prices
provided by the pricing service represent valuations at bid prices or on a
basis determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, yield quality, coupon rate, maturity, type of issue, individual
trading characteristics and other market data. Investments for which market
quotations are not readily available are valued as determined by the Board of
Directors. Investments in short-term obligations with maturities of sixty
days or less are valued at amortized cost.
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 recorded on the ex-dividend
date. Interest income is accrued from settlement date. 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 series is treated as a separate entity.
The Funds intend to comply with requirements of the Internal Revenue Code
relating to regulated investment companies and intend to distribute
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is recorded in the accompanying financial
statements. At December 31, 1994, which is the year end for the Funds for tax
purposes, the Government Income Fund Series and the Tax Free Fund Series had
capital loss carryforwards that will expire in 2009 of approximately $349,000
and $51,000, respectively.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering and may be redeemed on
any business day.
AMERICAN NATIONAL GOVERMENT INCOME FUND SERIES; AMERICAN NATIONAL TAX FREE
FUND SERIES
Dividends to shareholders from net investment income are declared and paid
monthly. Capital gain distributions are declared and paid annually.
AMERICAN NATIONAL PRIMARY FUND SERIES
All capital stock transactions are made at net asset value. Distributions
are computed daily and distributed monthly.
EXPENSES:
Operating expenses not directly attributable to a series' shares are prorated
among the series based on the relative amount of each series' net assets or
shareholders. Organization expenses have been deferred and are being
amortized over a five-year period. All organization expenses for the Tax Free
Fund Series were paid by Securities Management & Research, Inc.
NOTE 2-- INVESTMENT ADVISORY AND SERVICE FEES AND OTHER TRANSACTIONS WITH
AFFILIATES
Securities Management & Research, Inc. ("SM&R") is the investment adviser and
principal underwriter for the Funds. Investment advisory fees paid to SM&R are
computed as a percentage of the average daily net assets as follows:
GOVERNMENT INCOME FUND SERIES
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
INVESTMENT
NET ASSETS ADVISORY FEE
<S> <C>
Not exceeding $100,000,000 0.50%
Exceeding $100,000,000 but not exceeding $300,000,000 0.45%
Exceeding $300,000,000 0.40%
</TABLE>
41
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 2--CONTINUED
PRIMARY FUND SERIES
<TABLE>
<S> <C>
All Average daily net assets 0.50%
</TABLE>
Administrative fees paid to SM&R by the Fund are computed as a percentage of
average daily net assets as follows:
<TABLE>
<CAPTION>
NET ASSETS SERVICE FEES
<S> <C>
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</TABLE>
SM&R has agreed to reimburse the Funds for all expenses, other than
taxes, interest and expenses directly related to the purchase and sale of
investment securities, in excess of 1.25% per annum of the average daily
net assets. SM&R has voluntarily agreed to reimburse the Primary Fund
Series for expenses in excess of 0.80% per annum of average daily net
assets for the year ended August 31, 1995.
For the year ended August 31, 1995, SM&R voluntarily reimbursed the
Government Income Fund Series for expenses in excess of 0.75% per annum of
average daily net assets and the Tax Free Fund Series for all expenses.
This percentage for the Government Income Fund Series has been
increased to 1.00% per annum effective September 1, 1995 and all expenses
continue to be reimbursed for the Tax Free Fund Series.
For the year ended August 31, 1995, SM&R, as principal underwriter, received
as sales charges on sales of shares of capital stock of the Funds as follows:
<TABLE>
<CAPTION>
SALES CHARGES
RECEIVED BY SM&R
<S> <C>
Government Income $ 33,012
Tax Free 13,566
</TABLE>
SM&R is a wholly-owned subsidiary of American National Insurance
Company ("American National"). As of August 31, 1995, SM&R and American
National had the following ownership in the Funds:
<TABLE>
<CAPTION>
SM&R AMERICAN NATIONAL
------------------------------ ------------------------------
PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING
<S> <C> <C> <C> <C>
Government Income 198,388 10% 497,505 26%
Primary 2,755,583 13% 12,062,101 57%
Tax Free 108,109 13% 540,547 64%
</TABLE>
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
Investments have the same cost for tax and financial statement purposes.
Aggreggate purchases and sales of investment securities, for the year ended
August 31, 1995 other than commercial paper, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
<S> <C> <C>
Government Income $ 413,873 $ 777,875
Tax Free 1,687,808 936,934
</TABLE>
Gross unrealized appreciation and depreciation as of August 31, 1995, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
<S> <C> <C>
Government Income $ 678,700 $ --
Tax Free 131,630 76,998
</TABLE>
42
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 4--CAPITAL STOCK
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sale of capital shares 170,678 $1,735,005 403,753 $4,290,655
Investment income dividends reinvested 114,860 1,150,393 73,038 767,803
--------- ---------- --------- ----------
Subtotals 285,538 2,885,398 476,791 5,058,458
Redemptions of capital shares (304,466) (3,022,511) (330,740) (3,480,408)
--------- ---------- --------- ----------
Net increase (decrease) in capital shares outstanding (18,928) $ (137,113) 146,051 $1,578,050
---------- ----------
---------- ----------
Shares outstanding at beginning of year 1,965,669 1,819,618
--------- ---------
Shares outstanding at end of year 1,946,741 1,965,669
--------- ---------
--------- ---------
Net assets as of August 31, 1995 are comprised of the following:
Capital (par value and additional paid-in) $20,140,309
Undistributed net investment income --
Accumulated net realized loss on investments (353,200)
Net unrealized appreciation of investments 678,700
----------
Net assets $20,465,809
----------
----------
</TABLE>
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 19,960,125 $19,960,121 17,281,220 $17,281,220
Investment income dividends reinvested 833,350 833,350 411,938 411,938
---------- ----------- ---------- -----------
Subtotals 20,793,475 20,793,471 17,693,158 17,693,158
Redemptions of capital shares (15,015,405) (15,015,405) (18,025,903) (18,025,903)
---------- ----------- ---------- -----------
Net increase (decrease) in capital shares outstanding 5,778,070 $ 5,778,066 (332,745) $ (332,745)
----------- -----------
----------- -----------
Shares outstanding at beginning of year 15,211,965 15,544,710
---------- ----------
Shares outstanding at end of year 20,990,035 15,211,965
---------- ----------
---------- ----------
Net assets as of August 31, 1995 are comprised of the
following:
Capital (par value and additional paid-in) $20,990,031
Accumulated net realized loss on investments (5,755)
-----------
Net assets $20,984,276
-----------
-----------
</TABLE>
43
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
NOTE 4--CONTINUED
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
AUGUST 31, 1995 AUGUST 31, 1994
-------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sale of capital shares 60,669 $ 582,253 750,343 $7,493,016
Investment income dividends reinvested 44,973 428,694 14,631 142,989
--------- --------- --------- ---------
Subtotals 105,642 1,010,947 764,974 7,636,005
Redemptions of capital shares (19,738) (190,764) (6,464) (62,096)
--------- --------- --------- ---------
Net increase in capital shares outstanding 85,904 $ 820,183 758,510 $7,573,909
---------- ----------
---------- ----------
Shares outstanding at beginning of period 758,510 --
--------- ---------
Shares outstanding at end of period 844,414 758,510
--------- ---------
--------- ---------
Net assets as of August 31, 1995 are comprised of the following:
Capital (par value and additional paid-in) $8,394,092
Undistributed net investment income 2,218
Accumulated net realized loss on investments (51,826)
Net unrealized appreciation of investments 54,632
----------
Net assets $8,399,116
---------
---------
</TABLE>
44
<PAGE>
INDEPENDENT AUDITORS' REPORT
- --------------------------------------------------------------------------------
The Board of Directors and Shareholders
SM&R Capital Funds, Inc.
We have audited the accompanying statements of assets and liabilities of SM&R
Capital Funds, Inc. (comprised of American National Government Income Fund
Series ("Government Fund"), American National Primary Fund Series ("Primary
Fund") and American National Tax Free Fund Series ("Tax Free Fund")),
including the schedule of investments as of August 31, 1995, the related
statements of operations for the year then ended, the statements of changes
in net assets for each of the years in the two year period then ended for the
Government Fund and Primary Fund and for the year ended August 31, 1995 and
for the period September 9, 1993 (date operations commenced) through August
31, 1994 for the Tax Free Fund, and the financial highlights for each of the
years in the three year period then ended and the period March 16, 1992 (date
operations commenced) through August 31, 1992 for the Government Fund and
Primary Fund and for the year ended August 31, 1995 and for the period
September 9, 1993 (date operations commenced) through August 31, 1994 for the
Tax Free Fund. 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.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 August 31, 1995, by correspondence with the custodian.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
SM&R Capital Funds, Inc. as of August 31, 1995, the results of its operations
for the year then ended, the changes in its net assets for each of the years
in the two year period then ended for the Government Fund and Primary Fund
and for the year ended August 31, 1995 and for the period September 9, 1993
(date operations commenced) through August 31, 1994 for the Tax Free Fund,
and the financial highlights for each of the years in the three year period
then ended and the period March 16, 1992 (date operations commenced) through
August 31, 1992 for the Government Fund and Primary Fund and for the year
ended August 31, 1995 and for the period September 9, 1993 (date operations
commenced) through August 31, 1994 for the Tax Free Fund, in conformity with
generally accepted accounting principles.
KPMG Peat Marwick LLP
Houston, Texas
October 16, 1995
45
