<PAGE>
REGISTRATION NO. 33-44021
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
AND/OR
REGISTRATION STATEMENT UNDER
THE INVESTMENT COMPANY ACT OF 1940 /X/
[Check appropriate box or boxes.]
------------------------
POST-EFFECTIVE AMENDMENT NO. 10
SM&R CAPITAL FUNDS, INC.
[Exact Name of Registrant as Specified in Charter]
ONE MOODY PLAZA, GALVESTON, TEXAS 77550
[Address of Principal Executive Offices] [Zip Code]
Registrant's Telephone Number, Including Area Code (409) 763-2767
<TABLE>
<CAPTION>
WITH COPY TO:
<S> <C>
MICHAEL W. MCCROSKEY JERRY L. ADAMS
ONE MOODY PLAZA GREER, HERZ & ADAMS, L.L.P.
GALVESTON, TEXAS 77550 ONE MOODY PLAZA
[Name and Address of Agent for Service] GALVESTON, TEXAS 77550
</TABLE>
------------------------
It is proposed that this filing will become effective (check appropriate box):
<TABLE>
<CAPTION>
<S> <C>
/ / immediately upon filing pursuant to paragraph (b) of Rule 485
/X/ on December 31, 1997 pursuant to paragraph (b) of Rule 485
/ / 60 days after filing pursuant to paragraph (a)(1) of Rule 485
/ / on (date) pursuant to paragraph (a)(1) of Rule 485
/ / 75 days after filing pursuant to paragraph (a)(2) Rule 485
/ / on (date) pursuant to paragraph (a)(2) of Rule 485
</TABLE>
------------------------
If appropriate, check the following box:
<TABLE>
<S> <C>
/ / this Post-Effective Amendment designates a new effective date for a previously filed
Post-Effective Amendment.
</TABLE>
------------------------
DECLARATION REQUIRED BY RULE 24f-2(a)(1): An indefinite number of securities
of the Registrant has been registered under the Securities Act of 1933 pursuant
to Rule 24f-2 under the Investment Company Act of 1940. Notice required by Rule
24f-2(b)(1) was filed in the office of the Securities and Exchange Commission on
11/25/97.
------------------------
EXHIBIT INDEX ON PAGE 94.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SM&R CAPITAL FUNDS, INC.
CROSS-REFERENCE SHEET
[PURSUANT TO RULE 485(b)]
SHOWING LOCATION OF INFORMATION
REQUIRED BY FORM N-1A
<TABLE>
<CAPTION>
PART A ITEM AND
CAPTION PROSPECTUS CAPTION
- --------------------- --------------------------------------------------
<S> <C> <C> <C>
ITEM 1. COVER PAGE
(a) (i) Front Cover
(ii) Front Cover
(iii) Front Cover
(iv) Front Cover
(v) Front Cover
(vi) Not Applicable
(vii) Not Applicable
(viii) Front Cover
(b) Front Cover
ITEM 2. SYNOPSIS
(a) (i) Table of Fees and Expenses
(ii) Not Applicable
(b) The Fund At A Glance
(c) The Fund At A Glance
ITEM 3. CONDENSED FINANCIAL INFORMATION
(a) Financial Highlights--Government Income Fund
Series; Financial Highlights--Primary Series;
Financial Highlights--Tax Free Fund Series
(b) Not Applicable
(c) Performance
(d) Financial Highlights; Performance; Government
Income Fund Series Portfolio Manager Discussion
and Analysis; Primary Fund Series Portfolio
Manager Discussion and Analysis; Tax Free Fund
Series Portfolio Manager Discussion
ITEM 4. GENERAL DESCRIPTION OF REGISTRANT
(a) (i) The Fund At A Glance
(ii) The Fund At A Glance, Investment Objectives and
Policies; Additional Investment Policies and
Techniques
(b) Investment Objectives and Policies; Additional
Investment Policies and Techniques
(c) Additional Investment Policies and Techniques
ITEM 5. MANAGEMENT OF THE FUND
(a) The Fund and Its Management
(b) (i) The Fund and Its Management
(ii) The Fund and Its Management
(iii) The Fund and Its Management and Table of Fees and
Expenses
(c) The Fund and Its Management
(d) The Fund and Its Management and Table of Fees and
Expenses
(e) The Fund and Its Management and Table of Fees and
Expenses
(f) The Fund and Its Management and Table of Fees and
Expenses
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART A ITEM AND
CAPTION PROSPECTUS CAPTION
- --------------------- --------------------------------------------------
<S> <C> <C> <C>
(g) (i) Not Applicable
(ii) Not Applicable
ITEM 5A. MANAGEMENT'S DISCUSSION OF FUND PERFORMANCE
Government Income Series Portfolio Manager
Discussion and Analysis; Primary Series Portfolio
Manager Discussion and Analysis; Tax Free Series
Portfolio Manager Discussion
ITEM 6. CAPITAL STOCK AND OTHER SECURITIES
(a) How To Redeem; Other Information Concerning The
Fund--Voting Rights
(b) The Fund and Its Management; Other Information
Concerning The Fund-- Authorized Stock
(c) Not Applicable
(d) Not Applicable
(e) Other Information Concerning The Fund--Additional
Information
(f) Dividends and Distributions
(g) Retirement Plans; Taxes
(h) Not Applicable
ITEM 7. PURCHASE OF SECURITIES BEING OFFERED
(a) Cover Page; The Fund and Its Management
(b) (i) Determination of Offering Price
(ii) When Are Purchases Effective; Determination of
Offering Price
(iii) Table of Fees and Expenses; Determination of
Offering Price
(iv) Determination of Offering Price
(v) How To Purchase of Shares
(c) Special Purchase Plans
(d) The Fund At A Glance; How To Purchase of Shares
(e) Determination of Offering Price
(f) Not Applicable
(g) Not Applicable
ITEM 8. REDEMPTION OR REPURCHASE
(a) How to Redeem
(b) Not Applicable
(c) How to Redeem
(d) How to Redeem
ITEM 9. PENDING LEGAL PROCEEDINGS
Not Applicable
</TABLE>
<TABLE>
<CAPTION>
PART B ITEM AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ----------------------- --------------------------------------------------
<S> <C> <C> <C>
ITEM 10. COVER PAGE
Statement of Additional Information Caption
(a) (i) Cover Page
(ii) Cover Page
(iii) Cover Page
(iv) Cover Page
(b) Cover Page
ITEM 11. TABLE OF CONTENTS
Table of Contents
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B ITEM AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ----------------------- --------------------------------------------------
<S> <C> <C> <C>
ITEM 12. GENERAL INFORMATION AND HISTORY
The Fund
ITEM 13. INVESTMENT OBJECTIVE AND POLICIES
(a) Investment Objective and Policies
(b) Investment Objective and Policies
(c) Not Applicable
(d) Portfolio Turnover
ITEM 14. MANAGEMENT OF THE FUND
(a) Management of the Fund
(b) Management of the Fund
(c) Management of the Fund
ITEM 15. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
(a) Cover Page; Control Persons and Principal Holders
of Securities
(b) Cover Page; Control Persons and Principal Holders
of Securities
(c) Cover Page; Control Persons and Principal Holders
of Securities
ITEM 16. INVESTMENT ADVISORY AND OTHER SERVICES
(a) (i) Control Persons and Principal Holders of
Securities--Control and Management of SM&R;
Control Persons and Principal Holders of
Securities--Investment Advisory Agreement
(ii) Control Persons and Principal Holders of
Securities--Control and Management of SM&R;
Control Persons and Principal Holders of
Securities--Investment Advisory Agreement
(iii) Control Persons and Principal Holders of
Securities--Investment Advisory Agreement
(b) Control Persons and Principal Holders of
Securities--Investment Advisory Agreement
(c) Not Applicable
(d) Control Persons and Principal Holders of
Securities--Administrative Service Agreement
(e) Not Applicable
(f) (i) The Underwriter
(ii) The Underwriter
(iii) The Underwriter
(g) Custodian
(h) Custodian; Auditors and Financial Statements
(i) Custodian, Transfer Agent and Dividend Paying
Agent; Investment Advisory Agreement;
Administrative Service Agreement
ITEM 17. BROKERAGE ALLOCATION
(a) Portfolio Transactions and Brokerage Allocation
(b) (i) Not Applicable
(ii) Not Applicable
(iii) Not Applicable
(c) Portfolio Transactions and Brokerage Allocation
(d) Not Applicable
(e) Not Applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PART B ITEM AND CAPTION STATEMENT OF ADDITIONAL INFORMATION CAPTION
- ----------------------- --------------------------------------------------
<S> <C> <C> <C>
ITEM 18. CAPITAL STOCK AND OTHER SECURITIES
(a) (i) Capital Stock
(ii) Capital Stock
(b) Not Applicable
ITEM 19. PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED
(a) Purchase, Redemption and Pricing of Securities
Being Offered; Special Purchase Plans
(b) Purchase, Redemption and Pricing of
Shares--Determination of Net Asset Value;
Purchase, Redemption and Pricing of
Shares--Offering Price
(c) Not Applicable
ITEM 20. TAX STATUS
Not Applicable
ITEM 21. UNDERWRITERS
(a) (i) Underwriter
(ii) Underwriter
(iii) Underwriter
(b) Not Applicable
(c) Not Applicable
ITEM 22. CALCULATIONS OF PERFORMANCE DATA
Other Performance Quotations; Comparisons
ITEM 23. FINANCIAL STATEMENTS
Attached hereto as Exhibit "1" to Part B,
Statement of Additional Information
PART C OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C to this Registration Statement.
</TABLE>
<PAGE>
[AMERICAN NATIONAL LOGO] GOVERNMENT INCOME FUND SERIES
PRIMARY FUND SERIES
TAX FREE FUND SERIES
PROSPECTUS
[SM&R CAPITAL FUNDS LOGO] SM&R CAPITAL FUNDS, INC. -
One Moody Plaza -
Galveston, Texas 77550
Telephone Number: (409) 763-8272 -
Toll Free: 1 (800) 231-4639
December 31, 1997
OFFICERS
Michael W. McCroskey, President and CEO
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
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 31, 1997 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.
Form 9201 (12/97)
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.
As of December 1, 1997, SM&R and its parent, American National Insurance
Company, owned 3.60% and 64.67%, respectively, of the outstanding shares of the
Fund; 20.01% and 27.44%, respectively of the outstanding shares of the
Government Income Fund Series; 2.23% and 67.40%, respectively of the outstanding
shares of the Primary Fund Series; 11.71% and 58.53%, respectively of the
outstanding shares of the Tax Free Fund Series. Any person who owns directly or
indirectly more than 35% of the outstanding voting securities of the Fund or a
Series is presumed by the Investment Company Act of 1940 to "control" the Fund
or the Series, and may be able to significantly influence the outcome of any
shareholder vote. For purposes of voting on matters submitted to shareholders,
any person who owns more than 50% of the outstanding shares of the Fund or a
Series generally would be able to cast the deciding vote.
Form 9201 (12/97)
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<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
HOW TO PURCHASE SHARES.................................................... 16
WHEN ARE PURCHASES EFFECTIVE?............................................. 17
DETERMINATION OF OFFERING PRICE........................................... 18
SPECIAL PURCHASE PLANS AND SERVICES....................................... 20
RETIREMENT PLANS.......................................................... 23
DIVIDENDS AND DISTRIBUTIONS............................................... 23
TAXES..................................................................... 24
HOW TO REDEEM............................................................. 25
OTHER INFORMATION CONCERNING THE FUND..................................... 27
APPENDIX.................................................................. 31
</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 as high a level of current income, liquidity and safety
of principal as is 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 investors
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 its 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 fixed income
investors who desire minimal investment risk yet may be 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 does 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 SERVICES" and "HOW TO PURCHASE 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, 1997. Total operating expenses have
been adjusted to reflect current expense reimbursement levels. Without fee
waivers or expense reimbursements, management fees, service fees and other
expenses, respectively, would have been .50%, .25%, and .32% with respect to the
Government Income Series, .50%, .25%, and .26% with respect to the Primary
Series, and .50%, .25%, and .52% with respect to the Tax Free Series for the
years ended August 31, 1997.
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 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 0.43%** 0.29%** 0.00%**
Service Fee 0.25% 0.25% 0.25%**
Other Expenses After Expense
Reimbursement 0.32% 0.26% 0.29%**
Total Fund Operating Expense After
Expense Reimbursement 1.00%** 0.80%** 0.54%**
</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 26 44 99
Tax Free Series 50 62 74 110
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
GOVERNMENT INCOME FUND SERIES
The table that follows is derived from the financial statements of the
Government Income Fund Series, which has been audited by KPMG Peat Marwick LLP,
independent auditors, whose 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)
Year Ended August 31 thru August 31
------------------------------------------------------- ----------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value,
Beginning of Period $ 10.14 $ 10.51 $ 10.07 $ 10.87 $ 10.56 $ 10.00
Investment income--net 0.67 0.65 0.70 0.54 0.50 0.25
Net realized and unrealized gain (loss) on
investments during the period 0.26 (0.37) 0.44 (0.79) 0.49 0.55
------- ------- ------- ------- ------- --------
TOTAL FROM INVESTMENT OPERATIONS 0.93 0.28 1.14 (0.25) 0.99 0.80
------- ------- ------- ------- ------- --------
Less Distributions
Distributions from investment income--net (0.65) (0.65) (0.70) (0.55) (0.50) (0.24)
Distributions from capital gains 0.00 0.00 0.00 0.00 (0.18) 0.00
------- ------- ------- ------- ------- --------
TOTAL DISTRIBUTIONS (0.65) (0.65) (0.70) (0.55) (0.68) (0.24)
------- ------- ------- ------- ------- --------
Net Asset Value End of period $ 10.42 $ 10.14 $ 10.51 $ 10.07 $ 10.87 $ 10.56
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
TOTAL RETURN 9.37% 2.63% 11.85% (2.41)% 10.23% 7.96%**
------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- --------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $23,683 $21,127 $20,466 $19,790 $19,783 $12,529
Ratio of Expenses to average net assets 1.00%(1) 1.00%(1) 0.70%(1) 1.12% 1.07% 1.00%*
Ratio of Net investment income to average net
assets 6.46% 6.17% 6.90% 5.11% 5.07% 4.82%*
Portfolio turnover rate 9.06% 30.17% 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 and Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.07%, 1.20% and 1.06%
for the years ended August 31, 1997, 1996 and 1995, respectively.
5
<PAGE>
FINANCIAL HIGHLIGHTS
(for a share outstanding throughout each period)
PRIMARY FUND SERIES
The table that follows is derived from the financial statements of the Primary
Fund Series, which has been audited by KPMG Peat Marwick LLP, independent
auditors, whose 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>
Year Ended August 31
---------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.05 0.05 0.05 0.03 0.02
TOTAL FROM INVESTMENT OPERATIONS 0.05 0.05 0.05 0.03 0.02
------- ------- ------- ------- -------
Less Distributions
Dividends from investment income--net (0.05) (0.05) (0.05) (0.03) (0.02)
------- ------- ------- ------- -------
Net Asset Value End of period $ 1.00 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
------- ------- ------- ------- -------
TOTAL RETURN 4.98% 5.07% 5.01% 2.91% 2.59%
------- ------- ------- ------- -------
------- ------- ------- ------- -------
</TABLE>
RATIOS/SUPPLEMENTAL DATA
<TABLE>
<S> <C> <C> <C> <C> <C>
Net Assets, End of Period (000's omitted) $33,045 $37,465 $20,984 $15,208 $15,539
Ratio of Expenses to average net assets(1) 0.80% 0.81% 0.84% 0.79% 0.85%
Ratio of Net investment income to average net
assets 4.86% 4.93% 4.91% 2.88% 2.47%
Portfolio turnover rate(2) 0.00% 0.00% 0.00% 0.00% 0.00%
</TABLE>
* Ratios annualized
** Returns 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 1.01%, 1.15%, 1.21%,
1.20% and 1.23% for the years ended August 31, 1997, 1996, 1995, 1994
and 1993, 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 FUND SERIES
The table that follows is derived from the financial statements of the Tax
Free Fund Series, which has been audited by KPMG Peat Marwick LLP, independent
auditors, whose 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
----------------------------- -----------------
1997 1996 1995 1994
------- ------ ------ -----------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.93 $ 9.95 $ 9.62 $10.00
Investment income--net 0.51 0.53 0.51 0.24
Net realized and unrealized gain (loss) on
investments during the period 0.33 (0.02) 0.33 (0.38)
------- ------ ------ -------
TOTAL FROM INVESTMENT OPERATIONS 0.84 0.51 0.84 (0.14)
------- ------ ------ -------
Less Distributions
Dividends from investment income--net (0.50) (0.53) (0.51) (0.24)
------- ------ ------ -------
Net Asset Value End of Period $ 10.27 $ 9.93 $ 9.95 $ 9.62
------- ------ ------ -------
------- ------ ------ -------
TOTAL RETURN 8.61% 5.18% 9.15% (1.49)%**
------- ------ ------ -------
------- ------ ------ -------
RATIOS/SUPPLEMENTAL DATA
Net Assets, End of Period (000's omitted) $10,700 $9,148 $8,399 $7,259
Ratio of Expenses to average net assets 0.54%(1) --(1) --(1) 1.11%*
Ratio of Net investment income to average net
assets 4.97% 5.27% 5.43% 2.50%*
Portfolio turnover rate 22.15% 18.44% 12.63% 16.49%
</TABLE>
* Ratios annualized
** Returns 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 1.27%, 1.18% and 1.25%
for the years ended August 31, 1997, 1996 and 1995, respectively.
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. Performance information regarding each Series is found on pages 28,
29, and 30. 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 its 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.
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% or more 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. With 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
9
<PAGE>
"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 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
10
<PAGE>
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 which the Primary Series is
authorized to invest even though the underlying instrument may mature in more
than two (2) years. (See "Repurchase Agreements" on page 13.) 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
comparably 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
11
<PAGE>
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 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-
12
<PAGE>
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.
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
13
<PAGE>
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 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.
14
<PAGE>
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 since 1993 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 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 is paid an investment
advisory fee, which is calculated separately for each Series, as compensation
for its services. The agreement contains the following fee schedule:
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.
SM&R received total advisory fees from the Government Income Series, Primary
Series and Tax Free Series for the fiscal year ended August 31, 1997 which
represented 0.43%, 0.29% 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.
15
<PAGE>
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 Service
On the Portion of the Series's 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 0.25% for the Tax
Free Series for the fiscal year ended August 31, 1997 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. SM&R has agreed to continue to waive
the advisory fee for the Tax Free Series and reimburse expenses incurred by the
Fund's Series to the extent that total expenses exceed average daily net assets
as follows: Primary Series--.80% and Government Income Series--1.00%.
For additional information about the expenses of the Fund, see the Statement
of Additional Information.
HOW TO PURCHASE SHARES
Shares of each Series of the Fund may be purchased from registered
representatives of SM&R, from authorized broker-dealers or directly from SM&R.
Such purchases will be at the offering price (the "Offering Price") for such
shares determined as and when provided below. (See "DETERMINATION OF OFFERING
PRICE" page 18). A monthly confirmation will be sent on each account that has
activity during the month. Carefully review the monthly confirmation and
promptly report any discrepancies to SM&R. 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 American National Family of Funds Application (the "Account
Application") which includes the Purchaser Suitability Form & Arbitration
Agreement (the "Suitability Form"). If you would like to take advantage of the
electronic services available, please complete the American National Family of
Funds Application Supplement - Electronic Transfer Options (the "Application
Supplement") and return it with your new Account Application. Special forms are
required when establishing an IRA/SEP or 403(b) plan. Please call Investor
Services at (800) 231-4639 and request the special forms when establishing
retirement plans. Keep in mind when opening an account that transactions by
telephone will only be permitted if all of your account(s) are registered in the
identical name.
16
<PAGE>
PURCHASE AMOUNTS: The initial purchase amounts for the Government Income Series
and the Tax Free Series is $100 while the initial purchase amount for the
Primary Series is $1,000. Subsequent purchase amounts for the Government Income
Series and the Tax Free Series is $20 and the subsequent purchase amount for the
Primary Series is $100. These initial investment minimums are waived when
purchases are part of certain systematic investment programs see "SPECIAL
PURCHASE PLANS AND SERVICES" for additional information on reduction of the
minimums). The Fund reserves the right to reject any purchase.
PURCHASES BY MAIL: Investors are to make their check(s) payable to SM&R and
send the check(s) to the address indicated above. Please note that third party
checks will not be accepted to open a new account, except for IRA Rollover
checks that are properly endorsed. Investors making subsequent investments by
mail must indicate their name, the account number and the name of the Series
being purchased. The investor can use the remittance slip attached to the
confirmation statement.
PURCHASES BY WIRE: To ensure proper crediting of a wire investment, an investor
must have an executed Account Application, Suitability Form and Application
Supplement on file with the transfer agent. The investor may then wire his
investment by providing the following instructions to his bank:
The Moody National Bank of Galveston
ABA #133100091
Securities Management and Research, Inc.
#035 868 9
Name of Fund (eg. Government Income
Series)
Fund Account Number (number appears on
your confirmation statement)
Investor's Name (eg. Mary Smith, IRA)
If wires are received after 3:00 p.m. Central Time or during a bank holiday or
SM&R business holiday, purchases will be made at the price determined on the
next business day. A wire fee in the amount $8.00 will be charged the investor
for wires under $5,000.
PURCHASES BY EXCHANGE: Call Investor Services if you have established telephone
exchange privileges on your account. See SPECIAL PURCHASE PLANS and SERVICES
"Exchange Privilege" for procedures and additional information relating to
telephone exchanges. For limitations on exchanges refer to "Excessive Trading"
also under SPECIAL PURCHASE PLANS and SERVICES.
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 that such Exchange is open for trading.
If payments for purchases are transmitted by bank wire to the Bank and
reported to SM&R prior to the close of the Exchange on any SM&R business day,
the investor will purchase at the Offering Price determined and become a
shareholder as of the close of the Exchange on that same day. Purchases by wire
payments reported by the Bank to SM&R after the close of the Exchange, 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.
SM&R's business holidays are Good Friday, Memorial Day, Independence Day,
Labor Day,
17
<PAGE>
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 Government Income Series and the Tax Free Series offering price is
determined once each day and is comprised of that Series' net asset value plus
the sales charge computed at the rates set forth in the applicable tables below.
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.
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.
18
<PAGE>
GOVERNMENT INCOME SERIES AND TAX FREE SERIES
<TABLE>
<CAPTION>
(3)
Discount to
(1) (2) Selected
Sales Charge as a Sales Charge as a Dealers as a
Percentage of Percentage of Net Percentage of
Amount of Investment Offering Price Amount Invested Offering Price
<S> <C> <C> <C>
Less than $100,000 4.5% 4.7% 4.0%
$100,000 but less than $250,000 3.5% 3.6% 3.0%
$250,000 but less than $500,000 2.5% 2.6% 2.0%
$500,000 and over* None None None
</TABLE>
*In connection with purchases of $500,000 or more, SM&R may pay its
representatives and broker-dealers 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 accounts 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 or Tax Free 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.
19
<PAGE>
SPECIAL PURCHASE PLANS AND SERVICES
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. Shareholders will be notified should the Fund find it necessary
to impose fees for such services in the future. However, shareholders electing
the ACH plan should check with their financial institution for any additional
charges imposed for this service. For additional information contact your
registered representative or SM&R.
ELECTRONIC TRANSFERS (ACH)--The electronic transfer option allows you to move
money between your Fund account(s) and your bank, savings and loan, or credit
union account using the Automated Clearing House (ACH) network. To arrange for
electronic transfers, complete this section on the Application, at the time you
open your account and specify the type of service or services desired. Attach a
voided, preprinted check or deposit slip from your checking, savings and loan or
credit union account. PASSBOOK SAVINGS ACCOUNTS ARE NOT ELIGIBLE FOR THE
ELECTRONIC TRANSFER OPTION. ADDITIONALLY, YOUR BANK MUST BE A MEMBER OF THE
AUTOMATED CLEARING HOUSE (ACH) NETWORK FOR YOU TO TAKE ADVANTAGE OF THIS
SERVICE. You will receive a confirmation verifying initialization of the
electronic transfer option and may begin conducting transactions in your
account(s) under this option three (3) weeks after receipt of the verification
notice from SM&R. If this option is elected after your account is established,
it may be necessary for you to obtain a signature guarantee for all individuals
named on the account(s).
TELEPHONE SERVICES--You can take advantage of this service by completing the
appropriate sections of the Application when opening your account. Through this
service, you will be able to purchase by ACH, redeem and exchange shares on
those accounts for which you have an executed Application on file and have
received written verification from SM&R that the service has been initialized as
explained under Electronic Transfers above. If this option is elected after your
account is established, it may be necessary for you to obtain a signature
guarantee for all individuals named on the account(s). PLEASE NOTE THAT THE
TELEPHONE REDEMPTION OPTION IS NOT AVAILABLE TO RETIREMENT PLANS.
The Funds have implemented the following security procedures intended to
protect your account from losses resulting from unauthorized or fraudulent
telephone instructions: The caller will be required to know (i) the name of the
Fund or Funds; (ii) all digits of the account number; (iii) the exact name and
address used in the registration(s); and (iv) the Social Security or Employer
Identification Number listed on the account(s). Additionally, all telephone
transactions will be recorded for your protection.
Neither the Funds nor SM&R will be responsible for the authenticity of
transaction instructions received by telephone which comply with the current
security procedures and other requirements. SM&R believes that such security
procedures and other requirements are reasonable and, if followed, you should
bear the risk of any losses resulting from unauthorized or fraudulent telephone
transactions on your account(s).
AUTOMATIC INVESTMENT PLAN--Through this plan, a specified amount is
electronically transferred (via ACH) from your bank account and invested
monthly, bi-monthly, quarterly or annually into the designated fund(s) at the
applicable offering price determined on the date of the electronic transfer.
DISCOUNTS THROUGH A RIGHT OF ACCUMULATION--If you already own shares of the
Government Income Series , Tax Free Series and/or any of the funds in the
American National Funds Group (collectively these Series and funds shall
hereinafter be referred to as the "Group"), you may be able to receive a
discount when you buy additional shares. The offering value of the shares you
already own may be "accumulated" - i.e. combined together with the offering
value of the new shares you plan to buy - to achieve quantities eligible for
discount. See "SPECIAL PURCHASE PLANS" in the Statement of Additional
Information for further information about certain rules that apply when taking
advantage of the right of accumulation.
LETTER OF INTENT--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
20
<PAGE>
(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--SM&R can establish a Group Systematic
Investment Plan with an employer having 5 or more participants under a single
payroll deduction arrangement. The Minimum Initial Investment amount requirement
per account is waived for such plans. However, all other investment amount
minimums apply. Contact SM&R for further information regarding such plans.
PURCHASES AT NET ASSET VALUE--After receipt of written request by SM&R, shares
of the Government Income Series and the Tax Free Series may be purchased at net
asset value per share without a sales charge by: (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); (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 American National Property and Casualty's (ANPAC) "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 trustee
and which are held in a fiduciary, agency, advisory, custodial or similar
capacity; (k) accounts managed by SM&R; (l) stockholders of American National
Insurance Company; (m) policyholders 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 non-profit business,
trade, professional charitable, civic or similar associations and clubs with an
active membership of at least 100 persons who have entered into an NAV agreement
with SM&R. However, shares of the Tax Free Series should not be purchased by
those individuals mentioned in (f) and (g) 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.
WEALTH ACCUMULATION ACCOUNT--Shareholders having account balances of at least
$2,500 in the 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 Group may be made by exchanges
from the shareholder's Primary Series Wealth Accumulation Account. Purchases of
the other funds must be at least $50 and, unless terminated by the shareholder,
will continue as long as the balance of the 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 ten (10) days prior to the 20th of the month, such investments will
not be available for use under the Wealth Accumulation Account until
21
<PAGE>
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, to exchange shares and to
redeem shares in the Primary Series and any of the funds in the Group are not
affected by a shareholder's participation in a Wealth Accumulation Account.
However, check writing privileges and expedited redemption by telephone are not
available for the Primary Series accounts designated as a part of the Wealth
Accumulation Account.
EXCHANGE PRIVILEGE--SM&R desires to make it convenient for all shareholders to
make exchanges 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. 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 FUND AND THE AMERICAN NATIONAL
FUNDS GROUP ARE REGISTERED AND THE EXCHANGE MAY BE LEGALLY MADE. Such net asset
value exchanges do not apply to shares purchased by an exchange of Primary
Series shares, except through re-exchange of certain Primary Series shares as
described below.
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.
A telephone exchange request or a written request for exchange of shares of
the Fund or the American National Funds Group is permitted only in the following
circumstances: (a) the exchange must be made between accounts having identical
registrations and addresses; (b) the shares of the fund acquired through
exchange must be qualified for sale in the state in which the shareholder
resides; (c) the dollar amount of the exchange must be at least equal to the
minimum investment applicable to the shares of the fund acquired through such
exchange; (d) full payment for the shares being exchanged must have been
received by SM&R; (e) the account from which shares have been exchanged must be
coded as having a certified taxpayer identification number on file or, in the
alternative, an appropriate Internal Revenue Service Form W-8 (certificate of
foreign status) or Form W-9 (certifying exempt status); (f) newly acquired
shares (through either an initial or subsequent investment) are held in an
account for at least ten (10) business days, and all other shares are held in an
account for at least one business day, prior to the exchange; (g) certificates
representing shares must be returned before such shares can be exchanged; and
(h) a prospectus for the shares being received in the exchange must have been
obtained.
The exchange privilege is not an option or right to purchase shares but is
permitted under the respective policies of the participating funds, and may be
modified or discontinued by the participating funds or by SM&R at any time. ANY
GAIN OR LOSS REALIZED ON AN EXCHANGE OR RE-EXCHANGE MAY BE RECOGNIZED FOR
FEDERAL AND STATE INCOME TAX PURPOSES. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR
THE TAX TREATMENT AND EFFECT OF EXCHANGES.
EXCESSIVE TRADING--Frequent trades, involving either substantial fund assets or
a substantial portion of your account or accounts controlled by you, can
22
<PAGE>
disrupt management of the Fund and raise the Fund's expenses. We define
"excessive trading" as exceeding one purchase and sale involving the same fund
within any 120-day period.
For example, you are in Fund A. You can move substantial assets from Fund A to
Fund B and, within the next 120 days, sell your shares in Fund B to return to
Fund A or move to Fund C. If you exceed the number of trades described above,
you may be barred indefinitely from further transactions between the
participating funds.
There are two types of transactions exempted from the excessive trading
guidelines. They are, redemptions that are not part of exchanges and systematic
purchases or redemptions.
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.
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.
Dividends and capital gains will be automatically reinvested at net asset
value in additional shares of the Series making such distribution unless SM&R is
instructed otherwise in writing. Distributions not reinvested are paid by check
or transmitted to your bank account through an ACH transaction, if elected. If
the Postal Service cannot deliver your check, or if your check remains uncashed
for six months, the Fund reserves the right to reinvest your distribution check
in your account at the net asset value on the business day of the reinvestment
and to reinvest all future distributions in shares of the Fund. 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.
23
<PAGE>
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 Internal Revenue 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 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
24
<PAGE>
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 Investor
Services or write SM&R. Payment will be made as soon as practicable and normally
within seven days after receipt of a redemption request in Proper Form.
If the shares being redeemed were purchased by wire, certified check, money
order, or other immediately available funds, redemption proceeds will be mailed
no later than the seventh calendar day following receipt. For shares purchased
by a personal check or ACH transfer, SM&R will process your redemption but will
generally delay sending you the proceeds for up to ten (10) business days to
allow the check or transfer to clear.
TELEPHONE REDEMPTIONS--You may request redemptions by telephone if you have
completed the Application Supplement and requested this option. This redemption
feature can only be used if: (a) the redemption proceeds are to be mailed to the
address of record or wired to the pre-authorized bank account indicated on the
Application Supplement; (b) there has been no change of address of record or
pre-authorized bank account within the preceding 30 business days; (c) the
shares to be redeemed are not in certificate form; (d) the security procedures
discussed under the EXCHANGE PRIVILEGE have been met; and (e) the proceeds of
the redemption do not exceed $25,000.
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 on or about the 20th of the applicable month. Shareholders
maintaining a Withdrawal Account may elect to have the withdrawal proceeds
automatically deposited in their pre-authorized bank account via an ACH
transaction. This is accomplished by completing an Application Supplement and
returning it to SM&R. Refer to SPECIAL PURCHASE PLANS and SERVICES--Electronic
Transfers for additional information. The Fund and SM&R discourage shareholders
from 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 the Primary Series and any of the funds in the Group 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 one-time 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
25
<PAGE>
specifying the Fund, account number, and number of shares or dollar amount to be
redeemed. Both share certificates and stock powers, if any, must be endorsed and
executed exactly as the Fund shares are registered. It is suggested that
certificates be returned by certified mail for your protection; (3) any required
signature guarantees (see "Signature Guarantees" below); and (4) other
supporting legal documents, if required in the case of estates, trusts,
guardianships, divorce, custodianships, corporations, partnerships, pension or
profit sharing plans, retirement plans and other organizations.
Please keep in mind that as a shareholder, it is your responsibility to ensure
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 relied upon by the transfer agent. This guarantee is designed to
protect the investor, the Fund, SM&R and its representatives through the
signature verification of each investor wishing to redeem or exchange shares.
Signature guarantees are required when: (1) the proceeds of the redemption
exceed $25,000; (2) the proceeds (in any amount) are to be paid to someone OTHER
THAN the registered owner(s) of the account; (3) the proceeds (in any amount)
are to be sent to any address OTHER THAN the shareholder's address of record,
pre-authorized bank account or exchanged to one of the other funds managed by
SM&R; (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 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--Primary Series and Government Income Series 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.
CHECK WRITING OPTION PRIMARY SERIES ONLY-- Check writing is available in the
Primary Series to investors having an account value of $1,000 or more. $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 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.
26
<PAGE>
REDEMPTION OF SMALL ACCOUNTS.--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.
RIGHTS RESERVED BY THE FUND--The Fund, acting through its transfer agent,
reserves the right to waive or lower investment minimums; to accept initial
purchases by telephone from a registered representative; to refuse any purchase
order; to cancel or rescind any purchase or exchange at any time prior to
receipt by the shareholder of written confirmation or, if later, within five (5)
business days of the transaction; to freeze an account and suspend account
services when notice has been received of a dispute involving the account owners
or other parties or there is reason to believe a fraudulent transaction may
occur; to restrict or refuse the use of faxed redemptions where there is a
question as to the validity of the request or proper documents have not been
received; to otherwise modify the conditions of purchase and any services at any
time; or to act on instructions not believed to be genuine.
OTHER INFORMATION CONCERNING THE 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 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.
As of December 1, 1997, SM&R and its parent, American National Insurance
Company, owned 3.60% and 64.67%, respectively, of the outstanding shares of the
Fund; 20.01% and 27.44%, respectively of the outstanding shares of the
Government Income Fund Series; 2.23% and 67.40%, respectively of the outstanding
shares of the Primary Fund Series; 11.71% and 58.53%, respectively of the
outstanding shares of the Tax Free Fund Series. Any person who owns directly or
indirectly more than 25% of the outstanding voting securities of the Fund or a
Series is presumed by the Investment Company Act of 1940 to "control" the Fund
or the Series, and may be able to significantly influence the outcome of any
shareholder vote. For purposes of voting on matters submitted to shareholders,
any person who owns more than 50% of the outstanding shares of the Fund or a
Series generally would be able to cast the deciding vote. By virtue of their
stock ownership, SM&R and American National control the Fund's operations,
including the ability to make changes in the fundamental investment objectives
and restrictions of each Series of the Fund, as well as the ability to increase
investment advisory fees, notwithstanding other shareholders' votes to the
contrary. 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.
27
<PAGE>
PORTFOLIO MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL GOVERNMENT INCOME FUND SERIES
Over the last twelve months ended August 31, 1997, the economy continues to
expand at a steady pace while inflation remains benign. In this economic
environment, the Federal Reserve only changed the Fed Funds rate once, nudging
it up 25 basis points (or .25 percent) on March 25, 1997. The good economic news
has provided a favorable environment for most markets, notably the equity and
corporate bond markets. Government securities, however, have enjoyed only
limited participation in this rally. This is because government securities are
the favored investment vehicle during heightened volatility or economic slowdown
and, thus far, most investors have felt no need to retreat to these safer
instruments. Mortgage-backed securities have fared the same over the past twelve
months, but, as rates have trended down, mortgages have been left vulnerable to
refinancing.
Investments in intermediate (ten-year maturity) and long-term (thirty-year
maturity) Treasuries provided investors with low, double-digit returns over the
past twelve months as yields declined approximately 55 basis points. However,
twice over the past twelve months, investor's fears of returning inflation
caused yields to back up before rallying (or declining). Mortgage-backed
securities provided investors with low, double-digit returns as well with only
slightly less volatility.
We continue to "stay the course" with your fund and not make any significant
portfolio changes. The collateralized mortgage obligations (or CMOs), which
comprise over 30% of the portfolio, provide stability during the recent periods
of interest rate volatility. Earlier in the fiscal year, we continued our
program of swapping out of the agencies in the portfolio with less than one year
of call protection into agencies with two to three years of call protection.
This enabled us to maintain the current coupon yield as well as the opportunity
to take advantage of the rally in interest rates.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN GOVERNMENT INCOME FUND
SERIES
AND LEHMAN BROTHERS GOVERNMENT/MORTGAGE-BACKED SECURITIES INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
GOVERNMENT INCOME FUND SERIES
<S> <C> <C>
16-Mar-92 $10,000
31-Aug-92 $10,310
31-Aug-93 $11,365
31-Aug-94 $11,091
31-Aug-95 $12,405
31-Aug-96 $12,731
31-Aug-97 $13,924
Past performance is not predictive of future performance.
<CAPTION>
LEHMAN BROTHERS GOVERNMENT/MORTGAGE-BACKED SECURITIES INDEX
<S> <C>
16-Mar-92 $10,000
31-Aug-92 $10,711
31-Aug-93 $11,832
31-Aug-94 $11,670
31-Aug-95 $12,944
31-Aug-96 $13,483
31-Aug-97 $14,798
Past performance is not predictive of future performance.
</TABLE>
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 annual total return was 4.43% for the twelve months ended August
31, 1997, 5.20% for the five years ended August 31, 1997 and 6.25% from
inception to August 31, 1997.
28
<PAGE>
PORTFOLIO MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL PRIMARY FUND SERIES
Over the past twelve months, short-term interest rates have remained fairly
constant, with the yield on the three-month Treasury Bill ranging from a low of
4.90% to a high of 5.20%. A stable, but growing, U.S. economy with relatively
low inflation has produced this steady interest rate environment for the
short-term maturity range of the fixed income yield curve.
The American National Primary Fund Series continued the conservative strategy
of utilizing short-term commercial paper maturing in one to forty days.
Currently, the weighted average maturity of the American National Primary Series
is 18 days.
We monitor domestic and international economic and political developments to
determine our investment strategy. When interest rates trend down, as they have
over the course of the last two years, we lengthen the average maturity of the
fund in order to "lock in" the higher short-term interest rates to the greatest
extent possible. However, we maintain 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
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PRIMARY SERIES-COMPRISED OF LEHMAN GOVERNMENT/CORPORATE
COMMERCIAL PAPER WITH INDEX-COMPRISED OF CORPORATE
MATURITIES UNDER 60 NOTES AND BONDS AND AGENCIES
DAYS AND AGENCIES WITH WITH ONE TO THREE YEAR
MATURITIES OF LESS THAN MATURITIES.
ONE YEAR TO THREE YEARS.
<S> <C> <C>
16-Mar-92 $10,000 $10,000
31-Aug-92 $10,150 $10,495
31-Aug-93 $10,413 $11,094
31-Aug-94 $10,716 $11,292
31-Aug-95 $11,252 $12,140
31-Aug-96 $11,822 $12,781
31-Aug-97 $12,410 $13,688
Past performance is not predictive of future performance.
</TABLE>
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 annual total return, which reflects reinvestment of all
dividends and capital gain distributions, as well as changes in net asset value,
was 4.98% for the 12 months ended August 31, 1997, 4.10% for the five years
ended August 31, 1997 and 4.03% from inception to August 31, 1997.
29
<PAGE>
PORTFOLIO MANAGERS' DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
AMERICAN NATIONAL TAX FREE FUND SERIES
With the campaign rhetoric recommending a flat tax becoming a distant memory,
the tax-free fixed income market generally tracked the taxable fixed income
market. As interest rates backed up early in 1997, yields on tax-free securities
also rose. Conversely, as the taxable fixed income markets rallied (i.e. bond
prices rose as yields declined), the tax-free also participated.
Investors have been rewarded with high single digit returns for holdings in
municipal bonds. However, tax-free securities remain attractive to many
investors because income from such portfolios continues to be exempt from
federal taxes.
Over the course of the past year, we remained fully invested in the Tax Free
Series portfolio in order to provide our investors with tax-free income. When
investors reduced fixed income holdings during periods of rising interest rates,
we took advantage of the opportunity to extend the maturity of the portfolio and
consolidate holdings. We are also continuing to seek out investments in sectors
outside of essential service and general obligation while maintaining the high
overall credit quality of the portfolio.
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
TAX FREE FUND SERIES AND LEHMAN BROTHERS MUNICIPAL INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
TAX FREE FUND SERIES LEHMAN BROTHERS MUNICIPAL INDEX
<S> <C> <C>
9-Sep-93 $10,000 $10,000
31-Aug-94 $9,411 $9,957
31-Aug-95 $10,272 $10,840
31-Aug-96 $10,805 $11,408
31-Aug-97 $11,735 $12,464
Past performance is not predictive of future performance.
</TABLE>
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
annual total return was 3.70% for the twelve months ended August 31, 1997 and
4.33% from inception to August 31, 1997.
30
<PAGE>
- --------------------------------------------------------------------------------
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 cir-
cumstances 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 great length of time. Such bonds lack
31
<PAGE>
<TABLE>
<S> <C>
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.
32
<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
33
<PAGE>
financial information and the issuer's most recent 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.
34
<PAGE>
TO BE COMPLETED FOR
AMERICAN NATIONAL PRIMARY SERIES ACCOUNTS ONLY (4/96)
<TABLE>
<S> <C>
REDEMPTION BY Primary Series Account No.
TELEPHONE OR ------------------------------------
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.
ABA/Routing No.
--------------------------------------------------------------
Name of Bank (including name of branch and bank's routing
code)
--------------------------------------------------------------
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
EXCHANGE Series (the "Series") and SM&R (the "Transfer Agent") to honor
BETWEEN any telephonic or telegraphic instructions for redemption,
FUNDS without signature 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
OPTION against my (our) American National Primary Series Account
Not Available (minimum check $250). NOTE: WHEN ELECTING CHECK
for WITHDRAWAL, SIGN THE SIGNATURE CARD ON THE APPROPRIATE
IRA, SEP, TSA SIGNATURE LINES ON THE SPECIAL CHECK WRITING OPTION
SIGNATURE CARD BELOW.
I (we) understand there is a fifteen (15) business day hold
on all monies invested and no check will be 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 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
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
- ------------------------------------------------- -------------------------------------------------
/ / Check here if both signatures are required on checks.
/ / Check here if only one signature is required on checks.
</TABLE>
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>
PROSPECTUS
[American National Logo]
GOVERNMENT
INCOME FUND
SERIES
PRIMARY
FUND SERIES
TAX FREE
FUND SERIES
DECEMBER 31, 1997
[SM&R CAPITAL FUNDS LOGO]
<PAGE>
Securities Management & Research, Inc.
One Moody Plaza
Galveston, TX 77550
BULK RATE
U.S. POSTAGE
PAID
PERMIT NO. 89
GALVESTON, TEXAS
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
December 31, 1997
- --------------------------------------------------------------------------------
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
31, 1997. 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
INVESTMENT OBJECTIVES AND POLICIES . . . . . . . . . . . . . . . . . . . . . 33
PORTFOLIO TURNOVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
MANAGEMENT OF THE FUND . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
POLICY ON PERSONAL INVESTING . . . . . . . . . . . . . . . . . . . . . . . . 43
CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES. . . . . . . . . . . . . 43
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATION. . . . . . . . . . . . . . . 46
CAPITAL STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED . . . . . . . . 47
SPECIAL PURCHASE PLANS . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
THE UNDERWRITER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
CUSTODIAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
COUNSEL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
AUDITORS AND FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . 54
TRANSFER AGENT AND DIVIDEND PAYING AGENT . . . . . . . . . . . . . . . . . . 54
OTHER PERFORMANCE QUOTATIONS . . . . . . . . . . . . . . . . . . . . . . . . 54
COMPARISONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
FINANCIAL STATEMENTS OF THE FUND
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.
32
<PAGE>
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.
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.
33
<PAGE>
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
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.
34
<PAGE>
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.
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
35
<PAGE>
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 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,
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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 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
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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 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.
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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
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accrues to the either Series on securities in 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
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bankers' 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(*).
ERNEST S. BARRATT, Ph.D.(1) - DIRECTOR (DEPARTMENT OF PSYCHIATRY AND BEHAVIORAL
SCIENCES, UNIVERSITY OF TEXAS MEDICAL BRANCH, GALVESTON, TEXAS 77550-2777)
72, Professor and Chief of Psychophysiology Laboratory, Department of
Psychiatry and Behavioral Sciences, University of Texas Medical Branch, a
medical school and hospital system, 1981 to present; Director of American
National Investment Accounts, Inc., another investment company advised by
SM&R, 1990 to present.
MICHAEL W. MCCROSKEY - DIRECTOR AND PRESIDENT* (ONE MOODY PLAZA, GALVESTON,
TEXAS 77550) 54, President, Chief Executive Officer, Director 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 Secretary of
American National Life Insurance Company of Texas, 1986 to present, Vice
President, Investments of American National Property and Casualty Company,
1994 to present; Vice President, Pacific Property and Casualty, 1996 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, 1995 to present.
ALLAN W. MATTHEWS - DIRECTOR*(1) (7114 YOUPON, GALVESTON, TEXAS 77551) 32,
Program Officer, The Moody Foundation (a charitable foundation), April, 1991
to present.
LEA MCLEOD MATTHEWS - DIRECTOR* (850 E. ANDERSON LANE, AUSTIN, TEXAS
78752-1602) 35, Publications Editor, National Western Life Insurance Co.,
1990 to present; Associate in Customer Service Designation; Director of
American National Investment Accounts, Inc., (an affiliated mutual fund) 1994
to present; Director of Garden State Life Insurance Company, 1993 to present;
Director of Kids Exchange of Austin, a non-profit corporation, 1996 to
present; Consultant to Austin Writers League.
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ANN McLEOD MOODY - DIRECTOR*(2) (5 COLONY PARK DRIVE, GALVESTON, TEXAS 77551)
60, Director of Moody Gardens, Inc., 1994 to present; Director of Bank of
Galveston, National Association, 1989 to present; Director of The Westcap
Corporation, 1990 to present; Director of Seal Fleet, Inc., 1972 to 1996.
EDWIN K. NOLAN - DIRECTOR(1) (#7 MT. LOOKOUT DRIVE, CANYON LAKE, TEXAS
78133) 54, Investor and Attorney, Law Offices, EDWIN K. NOLAN, P. C., Canyon
Lake, Texas, 1977 to present; Director, 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 1995;
Director Hancock Mini Mart, Inc., 1995 to present.
ROBERT V. SHATTUCK, JR. (1013 23RD STREET, GALVESTON, TEXAS 77550) 56,
Attorney, Law Offices of Robert V. Shattuck, Jr., Galveston, Texas.
JAMIE G. WILLIAMS (3328 STANFORD, DALLAS, TEXAS 75225) 51, Academic Language
Therapist and Educational Consultant, 1974 to present; Director of The
Learning Therapist Graduate Certificate Program, 1986 to 1995; Adult
Assessment Clinic and Adolescent Academic Development Programs, Division of
Evening, Summer and Continuing Studies, Southern Methodist University, 1994
to 1995; Adjunct Instructor in Department of Psychology, Dedman College,
Southern Methodist University, 1988 to 1995.
FRANK P. WILLIAMSON (200 UNIVERSITY BOULEVARD, GALVESTON, TEXAS 77550) 65,
Owner of Professional Pharmacy, 1964 to present.
EMERSON V. UNGER, C.L.U. - VICE PRESIDENT (ONE MOODY PLAZA, GALVESTON, TEXAS)
51, 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) 42, 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 LLP, July 1980 to April, 1992.
TERESA E. AXELSON - VICE PRESIDENT AND SECRETARY (ONE MOODY PLAZA, GALVESTON,
TEXAS) 50, 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) 70, 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) 43, 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 audit committee.
(2) Mr. Matthews and Ms. Matthews are children of Mrs. Ann Moody.
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, 1997, the Fund paid or accrued
approximately $29,499 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, 1997 for each director of the Fund.
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AGGREGATE TOTAL COMPENSATION
DIRECTOR COMPENSATION FROM ALL AMERICAN
FROM FUND NATIONAL FUNDS
- --------------------------------------------------------------------------------
Brent E. Masel, M.D. $4,000 $8,000
Allan W. Matthews $4,000 $4,000
Lea McLeod Matthews $4,000 $8,000
Michael W. McCroskey $0 $0
Shannon L. Moody $3,000 $3,000
Edwin K. Nolan $4,000 $4,000
Louis E. Pauls, Jr. $4,000 $8,000
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 employmentmay be held or traded at any time other than within 24
hours of a trade inthe Funds for the same or related security. Dividends inthat
security may be re-invested in accordance with a formal paln 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; and (4) Any
beneficial interest in a security for which a written approval is first obtained
from the President & CEO may be traded or held.
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 December 1, 1997, the officers and directors of the Fund as a group
owned 0.001% of the outstanding shares of the Fund. As of December 1, 1997
American National and SM&R owned 64.67% and 3.60% of the outstanding shares
of the Fund, respectively. See the "Control and Management of SM&R" below.
American National, and American National and SM&R acting together, are
deemed to be "control persons" (as that term is defined in the 1940 Act) of
the Fund and may be able to significantly influence the outcome of any
shareholder vote.
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
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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 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:
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ON THE PORTION OF EACH SERIES' INVESTMENT ADVISORY FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
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%
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, 1997, 1996, and 1995, SM&R received
investment advisory fees from the Fund of $339,622, $278,378, and $216,492,
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:
ON THE PORTION OF EACH SERIES' ADMINISTRATIVE SERVICE FEE
AVERAGE DAILY NET ASSETS ANNUAL RATE
Not exceeding $100,000,000 .25 of 1%
Exceeding $100,000,000 but not exceeding $200,000,000 .25 of 1%
Exceeding $200,000,000 but not exceeding $300,000,000 .15 of 1%
Exceeding $300,000,000 .10 of 1%
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
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Administrative Service Agreement, may be rescinded by SM&R at any time without
notice to investors. SM&R has voluntarily agreed to waive the advisory fee for
the Tax Free Series and 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% and the Government Income Series -1.00%.
During the years ended August 31, 1997, 1996, and 1995, SM&R reimbursed the
Fund $162,949, $237,833 and $226,597, 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, 1997, 1996, and 1995, SM&R
received administrative service fees from the Fund of $169,811, $139,189, and
$108,246, 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 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, 1997, 1996, and 1995, 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 9.06%, 30.17%, and 2.20%, respectively. The Tax Free turnover rate was
22.15%, 18.44%, and 12.63% for the years ended August 31, 1997, 1996, and 1995.
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
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<PAGE>
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 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
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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. 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.
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 CHARGE AS SALES CHARGE AS DISCOUNT TO
A PERCENTAGE OF A PERCENTAGE OF SELECTED DEALERS AS
AMOUNT OF INVESTMENT OFFERING PRICE NET AMOUNT A PERCENTAGE OF
INVESTED OFFERING PRICE
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<PAGE>
<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 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 following illustrates the calculation of the net asset value and
offering price per share at August 31, 1997 for the Government Income Series and
the Tax Free Series.
GOVERNMENT INCOME SERIES
Net Assets ($23,683,301)
------------------------ = Net Asset Value Per Share ($10.42)
Shares outstanding (2,272,181)
$ 10.42
------------- = Public Offering Price Per Share ($10.91)
.955
TAX FREE SERIES
Net Assets ($10,700,169)
------------------------ = Net Asset Value Per Share ($10.27)
Shares outstanding (1,041,640)
$10.27
------------- = Public Offering Price Per Share ($10.75)
.955
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 accounts 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
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<PAGE>
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
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 PLAN AND ELECTRONIC TRANSFER SERVICE - All Series
provide a convenient, voluntary method of purchasing their shares through
"Systematic Investment Plan and Electronic Transfer Service" (a "Plan" or
"Plans"). The principal purposes of such Plans are to encourage thrift by
enabling investors to make regular purchases in amounts less than normally
required, and, in the case of the 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.
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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 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 Plan and Electronic Transfer
Service" shall apply. The plan may be terminated by SM&R or the shareholder
at any time upon sixty (60) days' prior written notice.
EXCHANGE PRIVILEGE - 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. Redemptions may also be
requested by telephone, see "HOW TO REDEEM" in the Prospectus. 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.
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<PAGE>
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 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.
52
<PAGE>
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.
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 August 21, 1997. The Underwriting Agreement may be terminated without
penalty by vote of the Board of Directors or by vote of the holders of a
majority of the outstanding voting securities of 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
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, 1997, 1996, and 1995 was $29,337,
$92,706, and $46,578, and $3,000, $13,795, and $8,654, respectively. SM&R
reallowed to dealers less than $500 for the years ended August 31, 1997,
1996, and 1995.
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.
53
<PAGE>
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.
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, 1997 have been included herein as Exhibit "1" in reliance upon the
report of KPMG Peat Marwick LLP and upon the authority of said firm as experts
in accounting and auditing.
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.
54
<PAGE>
MUTUAL FUND SOURCE BOOK, PUBLISHED BY MORNINGSTAR, INC. - analyzes price, yield,
risk and total return for equity funds.
FINANCIAL PUBLICATIONS: THE WALL STREET JOURNAL AND BUSINESS WEEK, CHANGING
TIMES, FINANCIAL WORLD, FORBES, FORTUNE, AND MONEY MAGAZINES - provide
performance statistics over specified time periods.
CONSUMER PRICE INDEX (OR COST OF LIVING INDEX), PUBLISHED BY THE U.S. BUREAU OF
LABOR STATISTICS - a statistical measure of change, over time, in the price of
goods and services in major expenditure groups.
SALOMON BROTHERS BROAD BOND INDEX OR ITS COMPONENT INDICES - The Aggregate Bond
Index measures yield, price and total return for Treasury, Agency, Corporate,
Mortgage, and Yankee bonds.
STANDARD & POOR'S BOND INDICES - measures yield and price of Corporate,
Municipal, and Government bonds.
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.
55
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
DIVERSIFIED--0.81%
Growmark, Incorporated 09/02/97 5.70 $ 193,000 $ 192,969
UTILITY-ELECTRIC--1.41%
PacifiCorp Holdings Incorporated 09/08/97 5.77 180,000 179,798
Public Service Company of Colorado 09/03/97 5.85 155,000 154,950
-------------
334,748
TOTAL COMMERCIAL PAPER--2.23%
(Cost $527,717) 527,717
-------------
U.S. GOVERNMENT AGENCY AND
U.S. GOVERNMENT SECURITIES
U.S. GOVERNMENT AGENCY SECURITIES--95.21%
Federal Home Loan Bank 08/05/04 7.38 1,000,000 1,047,800
Federal Home Loan Bank 08/19/04 7.57 1,000,000 1,058,560
Federal Home Loan Bank 10/24/05 6.23 150,000 146,576
Federal Home Loan Bank 10/25/05 6.23 150,000 146,620
Federal Home Loan Mortgage Corporation 07/27/04 7.81 1,000,000 1,023,350
Federal Home Loan Mortgage Corporation 08/01/05 6.75 165,000 166,594
Federal Home Loan Mortgage Corporation 08/03/05 7.46 250,000 251,307
Federal Home Loan Mortgage Corporation 05/17/06 7.70 1,000,000 1,016,910
Federal Home Loan Mortgage Corporation 06/21/06 8.00 1,500,000 1,537,725
Federal Home Loan Mortgage Corporation 09/11/06 8.00 1,000,000 1,010,770
Federal Home Loan Mortgage Corporation 09/15/06 7.00 419,194 422,816
Federal Home Loan Mortgage Corporation 11/15/06 7.00 1,500,000 1,507,965
Federal Home Loan Mortgage Corporation 03/15/07 7.00 1,000,000 1,006,000
Federal Home Loan Mortgage Corporation 09/15/07 7.00 1,000,000 1,007,790
Federal Home Loan Mortgage Corporation 08/15/08 7.00 1,600,000 1,583,264
Federal National Mortgage Association 02/11/02 7.50 1,585,000 1,654,486
Federal National Mortgage Association 04/22/02 7.55 200,000 209,490
Federal National Mortgage Association 09/12/05 6.55 100,000 99,750
Federal National Mortgage Association 06/07/06 7.85 1,000,000 1,011,380
Federal National Mortgage Association 07/14/06 8.03 2,000,000 2,051,860
Federal National Mortgage Association 08/11/06 7.50 500,000 505,140
Federal National Mortgage Association 09/08/06 8.00 1,000,000 1,010,690
Federal National Mortgage Association 02/02/07 7.50 1,500,000 1,513,935
Federal National Mortgage Association 02/07/07 7.49 250,000 252,330
Federal National Mortgage Association 04/10/07 7.70 300,000 305,661
Federal National Mortgage Association 07/25/07 7.00 1,000,000 999,450
-------------
22,548,219
U.S. GOVERNMENT SECURITIES--1.93%
U.S. Treasury Bonds 02/15/26 6.00 500,000 457,515
-------------
TOTAL U.S. GOVERNMENT AGENCY and U.S. GOVERNMENT SECURITIES--97.14%
(Cost $22,505,736) 23,005,734
-------------
TOTAL INVESTMENTS--99.37%
(Cost $23,033,453) 23,533,451
CASH AND OTHER ASSETS, LESS LIABILITIES--0.63% 149,850
-------------
TOTAL NET ASSETS--100.00% $ 23,683,301
-------------
-------------
</TABLE>
See notes to financial statements.
2
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
AEROSPACE--3.62%
Lockheed Martin Corporation 09/25/97 5.65 $ 1,200,000 $ 1,195,480
CHEMICALS--3.62%
Praxair Incorporated 09/16/97 5.65 1,200,000 1,197,175
COMPUTER RELATED--3.65%
Comdisco, Incorporated 09/02/97 5.68 336,000 335,947
Comdisco, Incorporated 09/02/97 5.70 354,000 353,944
Comdisco, Incorporated 10/03/97 5.71 520,000 517,361
-------------
1,207,252
CONTAINERS--3.22%
Crown Cork & Seal Company, Incorporated 09/02/97 5.70 1,063,000 1,062,832
DIVERSIFIED--12.45%
Cox Enterprises, Incorporated 09/08/97 5.70 1,500,000 1,498,337
Growmark, Incorporated 09/22/97 5.71 1,200,000 1,196,003
Textron, Incorporated 09/18/97 5.68 1,425,000 1,421,178
-------------
4,115,518
ELECTRONIC/INSTRUMENTS--2.00%
Hughes Electronics Corporation 09/12/97 5.68 385,000 384,332
Hughes Electronics Corporation 09/24/97 5.72 279,000 277,980
-------------
662,312
FINANCIAL SERVICES--15.41%
Aristar, Incorporated 10/01/97 5.57 1,421,000 1,414,404
Case (J.I.) Credit Corporation 09/10/97 5.70 1,380,000 1,378,034
Safeco Credit Company, Incorporated 09/05/97 5.57 678,000 677,580
Textron Financial Corporation 09/17/97 5.68 1,627,000 1,622,893
-------------
5,092,911
FOODS--8.50%
ConAgra, Incorporated 09/12/97 5.63 476,000 475,181
ConAgra, Incorporated 09/24/97 5.59 1,056,000 1,052,229
Tyson Foods, Incorporated 10/02/97 5.60 1,286,000 1,279,798
-------------
2,807,208
FURNITURE/APPLIANCES--4.79%
Whirlpool Corporaton 09/10/97 5.68 1,584,000 1,581,751
NATURAL GAS--7.97%
Enron Corporation 09/03/97 5.66 1,272,000 1,271,600
Sonat Incorporated 09/11/97 5.70 1,365,000 1,362,839
-------------
2,634,439
PAPER/FOREST PRODUCTS--4.16%
Rayonier Incorporated 09/04/97 5.70 1,376,000 1,375,346
RETAIL-SPECIALTY--3.93%
The Limited, Incorporated 09/15/97 5.60 1,300,000 1,297,169
TRANSPORTATION MISCELLANEOUS--3.95%
Union Pacific Corporation 10/07/97 5.70 1,313,000 1,305,516
</TABLE>
3
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
PRIMARY FUND SERIES, CONTINUED
<TABLE>
<CAPTION>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE (%) AMOUNT VALUE
<S> <C> <C> <C> <C>
UTILITY-ELECTRIC/GAS--23.19%
Dominion Resources Incorporated 10/09/97 5.64 $ 1,288,000 $ 1,280,332
Minnesota Power & Light Company 09/05/97 5.70 245,000 244,845
Minnesota Power & Light Company 09/19/97 5.70 1,050,000 1,047,007
PacifiCorp Holdings Incorporated 10/10/97 5.77 1,411,000 1,402,180
Pennsylvania Power & Light Company 09/05/97 5.65 594,000 593,627
Penn Fuel Corporation 09/09/97 5.70 1,488,000 1,486,348
Public Service Electric & Gas Company 09/12/97 5.68 368,000 367,361
Public Service Electric & Gas Company 09/23/97 5.69 1,246,000 1,241,668
-------------
7,663,368
-------------
TOTAL INVESTMENTS--100.46%
(Cost $33,198,277) 33,198,277
CASH AND OTHER ASSETS, LESS LIABILITIES--(0.46%) (153,402)
-------------
TOTAL NET ASSETS--100.00% $ 33,044,875
-------------
-------------
</TABLE>
See notes to financial statements.
4
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES
<TABLE>
<S> <C> <C> <C>
FACE
MUNICIPAL BONDS RATING(a) AMOUNT VALUE
ARKANSAS--2.79%
Jefferson County, Arkansas Pollution Control Revenue
Refunding Bonds (Refunding -Arkansas Electric Coop
Corporation PJ-D), 4.750%, 09/01/05 Aa3/AA- $ 300,000 $ 298,224
----------
ARIZONA--3.73%
Central Arizona Water Conservation District (Central Arizona
Project)-Contract Revenue Refunding Bonds, Series B 1994,
4.750%, 11/01/07 Aaa/AAA 200,000 200,128
Central Arizona Water Conservation District (Central Arizona
Project)-Contract Revenue Refunding Bonds, Series B 1994,
4.750%, 11/01/08 Aaa/AAA 100,000 99,224
Pima County, Arizona- Sewer Revenue Refunding Bonds, Series
1994A, 4.400%, 07/01/03 Aaa/AAA 100,000 99,649
----------
399,001
----------
CALIFORNIA--5.17%
California State General Obligation Bonds Unlimited, 5.250%,
06/01/11 A1/A+ 100,000 101,057
Sacramento, California Municipal Utility District Electric
Revenue Bonds, Series I, 5.750%, 01/01/15 Aaa/AAA 200,000 205,986
San Francisco, California City and County Sewer Revenue
Refunding Bonds, 5.375%, 10/01/16 Aaa/AAA 250,000 246,032
----------
553,075
----------
FLORIDA--9.61%
Dade County, Florida Water & Sewer System Revenue Bonds,
5.375%, 10/01/16 Aaa/AAA 400,000 399,744
Orlando, Florida Utilities Commonwealth Water & Electric
Revenue Bonds, 5.125%, 10/01/19 Aa1/AA 400,000 380,444
State of Florida- State Board of Education, Public Education
Capital Outlay Bonds, 1992 Series E, 4.600%, 06/01/03 Aa2/AA 100,000 100,697
State of Florida- State Board of Education, Public Education
Capital Outlay Bonds, 1992 Series E, 5.750%, 06/01/19 Aa2/AA 145,000 147,524
----------
1,028,409
----------
GEORGIA--1.67%
Municipal Electric Authority of Georgia-Power Revenue Bonds,
Series AA, 5.400%, 01/01/07 A3/A 175,000 178,383
----------
ILLINOIS--8.47%
Illinois Health Facilities Authority-Revenue Bonds, Series
A, (Northwestern Memorial Hospital), 6.000%, 08/15/24 Aa2/AA 100,000 102,785
Illinois Health Facilities Authority-Revenue Bonds, Series
1994A, (Northwestern Memorial Hospital), 6.100%, 08/15/14 Aa2/AA 200,000 210,272
Illinois State Toll Highway Authority-Highway Priority
Revenue Bonds, Series A-FGIC, 5.750%, 01/01/17 Aaa/AAA 175,000 177,387
Regional Transportation Authority of Illinois Revenue Bonds,
Refunding MBIA, 5.500%, 06/01/18 Aaa/AAA 200,000 199,490
State of Illinois- Build Illinois Bonds, Sales Tax Revenue
Bonds, Series V, 6.375%, 06/15/17 Aa3/AAA 200,000 216,490
----------
906,424
----------
</TABLE>
5
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<S> <C> <C> <C>
FACE
MUNICIPAL BONDS RATING(a) AMOUNT VALUE
MARYLAND--0.93%
Anne Arundel County, Maryland- General Obligation Bonds,
Consolidated Water and Sewer Series, 1994, 4.700%, 02/01/07 Aa/AA+ $ 100,000 $ 99,891
----------
MASSACHUSETTS--4.19%
Massachusetts State Water Revnues Authority, General Purpose
- Series A, 5.500%, 11/01/21 Aaa/AAA 450,000 448,173
----------
NEW MEXICO--0.95%
Central Consolidated School District No. 22 San Juan County,
New Mexico General Obligation School Building Bonds,
5.300%, 08/15/09 Aaa/AAA 100,000 101,685
----------
NEW YORK--4.07%
New York City, New York- General Obligation Bonds Unlimited,
Series J, 5.000%, 02/15/07 Aaa/AAA 100,000 100,823
Triborough Bridge & Tunnel Authority, New York, Revenue
Bonds, General Purpose -Series B, 5.200%, 01/01/27 Aa/A+ 350,000 335,258
----------
436,081
----------
NORTH CAROLINA--1.97%
City of Charlotte, North Carolina-General Obligation Public
Improvement Bonds, Series 1994, 5.700%, 02/01/08 Aaa/AAA 100,000 106,853
North Carolina Eastern Municipal Power Agency- Power System
Revenue Bonds, Refunding Series 1993 B, 6.250%, 01/01/12 Baa1/BBB 100,000 104,225
----------
211,078
----------
OHIO--3.82%
Franklin County, Ohio- General Obligation Bonds Limited,
5.100%, 12/01/08 Aaa/AAA 300,000 306,957
Franklin County, Ohio- General Obligation Bonds Limited,
5.300%, 12/01/11 Aaa/AAA 100,000 101,974
----------
408,931
----------
OKLAHOMA--1.24%
Oklahoma Housing Finance Agency-Single Family Mortgage
Revenue Bonds (Homeownership Loan Program), 1994 Series
A-1, 6.250%, 09/01/07 (b) Aaa/NR 130,000 133,143
----------
OREGON--2.06%
City of Portland, Oregon- Sewer System Revenue Bonds, 1994
Series A, 6.250%, 06/01/15 A1/A+ 200,000 220,062
----------
PENNSYLVANIA--0.95%
Pennsylvania State General Obligation Bonds Unlimited,
Refunding & Projects-First Series, 5.000%, 04/15/06 A1/AA- 100,000 101,394
----------
PUERTO RICO--2.22%
Commonwealth of Puerto Rico- Public Improvement Refunding
Bonds, Series 1992A, General Obligation Bonds, 6.000%,
07/01/14 Baa1/A 100,000 104,852
Puerto Rico Electric Power Authority-Power Revenue Bonds,
Series R, 6.250%, 07/01/17 Baa1/BBB+ 125,000 132,114
----------
236,966
----------
</TABLE>
6
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<S> <C> <C> <C>
FACE
MUNICIPAL BONDS RATING(a) AMOUNT VALUE
RHODE ISLAND--0.97%
Rhode Island Housing & Mortgage Financial Corporation,
Homeownership Opportunity, Series 20-A, 6.150%, 04/01/17 Aa2/AA+ $ 100,000 $ 103,897
----------
TENNESSEE--1.90%
Tennessee Housing Development Agency-Mortgage Finance
Program Bonds, 1994 Series B, 6.200%, 01/01/09 (b) A1/A+ 200,000 202,748
----------
TEXAS--23.13%
Baytown, Texas- Water and Sewer Revenue Bonds, 5.950%,
02/01/14 Aaa/AAA 100,000 103,879
Board of Regents of The University of Texas System- Permanent
University Fund, Refunding Bonds Series 1992A, 6.250%,
07/01/13 Aaa/AAA 200,000 209,910
City of Austin, Texas-Combined Utility Systems Revenue
Refunding Bonds, Series 1994, 6.250%, 05/15/16 Aaa/AAA 100,000 107,996
City of Dallas, Texas-Waterworks and Sewer System Revenue
Bonds, Series 1994, 5.600%, 04/01/07 Aa2/AA 100,000 103,836
Collin County, Texas- Community College District,
Consolidated Fund, Revenue Bonds, 5.250%, 02/01/15 Aaa/AAA 400,000 395,932
Dallas-Fort Worth International Airport-Dallas-Fort Worth
Regional Airport, Joint Revenue Refunding Bonds, Series
1994A, 6.000%, 11/01/10 Aaa/AAA 100,000 105,538
Denton, Texas- General Obligation Bonds Limited, 5.500%,
02/15/08 Aaa/AAA 130,000 135,347
Denton, Texas- General Obligation Bonds Limited, 5.600%,
02/15/09 Aaa/AAA 120,000 125,050
Flower Mound, Texas- Refunding and Improvement, General
Obligation Bonds Unlimited, 5.500%, 03/01/17 Aaa/NR 200,000 200,146
Galveston Independent School District-Unlimited Tax
Schoolhouse Bonds, Series 1994, 5.200%, 02/01/07 Aaa/AAA 100,000 102,184
Harris County, Texas- Tax and Revenue Certificates of
Obligation, Series 1994, 6.100%, 10/01/12 Aa2/AA 135,000 142,611
Harris County, Texas- Tax and Revenue Certificates of
Obligation, Series 1994, 6.100%, 10/01/13 Aa2/AA 125,000 133,500
Laredo, Texas- General Obligation Bonds Unlimited, 5.250%,
02/15/11 Aaa/AAA 100,000 100,540
Tarrant County Health Facilities Development Corporation-
Health System Revenue Bonds, (Harris Methodist Health
System), Series 1994, 6.000%, 09/01/14 A2/NR 200,000 203,758
Texas Turnpike Authority- Dallas North Tollway System
Revenue Bonds, Series 1995 (President George Bush
Turnpike), 5.400%, 01/01/15 Aaa/AAA 100,000 100,102
West University Place, Texas- General Obligation Bonds
Limited, Permanent Improvement, 5.650%, 02/01/14 Aaa/AAA 100,000 102,376
Weslaco, Texas Independent School District General
Obligation Bonds, 5.650%, 02/15/13 Aaa/NR 100,000 102,730
----------
2,475,435
----------
UTAH--1.61%
Utah Housing Finance Agency- Single Family Mortgage Bonds,
1995 Issue A, (Federally Insured or Guaranteed Mortgage
Loans), 7.150%, 07/01/12 (b) Aa2/AA 75,000 79,985
Utah State Housing Financial Agency-Single Family Mortgage
Bonds, Series F1, 6.000%, 07/01/13 Aa2/NR 90,000 92,485
----------
172,470
----------
</TABLE>
7
<PAGE>
SCHEDULE OF INVESTMENTS August 31, 1997
- --------------------------------------------------------------------------------
TAX FREE FUND SERIES, CONTINUED
<TABLE>
<S> <C> <C> <C>
FACE
MUNICIPAL BONDS RATING(a) AMOUNT VALUE
VIRGINIA--0.99%
Virginia State Housing Development Authority Commonwealth
Mortgage Bonds, Series A, Subseries A-4, 6.300%, 07/01/15
(b) Aaa/AAA $ 100,000 $ 105,429
----------
WASHINGTON--9.69%
City of Richland, Washington- Water and Sewer Improvement
Revenue Bonds, 1993, 5.550%, 04/01/07 Aaa/AAA 300,000 311,709
King County, Washington- Department of Metropolitan
Services, Limited Tax General Obligation Bonds, 1994 Series
A, 5.800%, 01/01/08 Aa1/AA+ 200,000 211,988
King County, Washington- Limited Tax General Obligation and
Refunding Bonds, 1993 Series A, 6.000%, 12/01/10 Aa1/AA+ 100,000 104,923
Municipality of Metropolitan Seattle Sewer Refunding Revenue
Bonds, Series X, 5.400%, 01/01/15 Aaa/AAA 100,000 99,591
Port of Seattle, Washington-General Obligation Bonds,
5.750%, 05/01/14 (b) Aa1/AA+ 100,000 101,216
State of Washington- General Obligation Bonds, Series 1994B,
5.750%, 05/01/09 Aa1/AA+ 100,000 104,376
State of Washington- General Obligation Bonds, Series 1994B,
6.000%, 09/01/16 Aa1/AA+ 100,000 103,343
----------
1,037,146
----------
WISCONSIN--2.91%
City of Green Bay- General Obligation Refunding Bonds,
Series 1994B, 5.900%, 04/01/09 Aa2/AA 200,000 208,672
State of Wisconsin- General Obligation Bonds Unlimited,
Series C, 5.400%, 05/01/09 Aa2/AA 100,000 103,046
----------
311,718
----------
TOTAL MUNICIPAL BONDS--95.04%
(Cost $9,830,630) 10,169,763
----------
GOVERNMENT AGENCIES
Federal Farm Credit Bank, 5.400%, 09/02/97 115,000 114,983
Federal Home Loan Mortgage Corporation, 5.440%, 09/04/97 100,000 99,955
Federal National Mortgage Association, 5.470%, 09/10/97 135,000 134,815
----------
TOTAL GOVERNMENT AGENCIES--3.27%
(Cost $349,753) 349,753
----------
TOTAL INVESTMENTS--98.31%
(Cost $10,180,383) 10,519,516
----------
CASH AND OTHER ASSETS, LESS LIABILITIES--1.69% 180,653
----------
TOTAL NET ASSETS--100.00% $10,700,169
----------
----------
</TABLE>
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.
See notes to financial statements.
8
<PAGE>
STATEMENTS OF ASSETS AND LIABILITIES August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT PRIMARY TAX FREE
INCOME FUND FUND FUND
SERIES SERIES SERIES
<S> <C> <C> <C>
ASSETS
Investment in securities, at value $ 23,533,451 $ 33,198,277 $ 10,519,516
Cash 40,531 690 84,491
Prepaid expenses 4,114 9,727 3,931
Receivable for:
Interest 263,066 -- 148,118
Expense reimbursement 1,010 6,965 5,214
Other assets 2,782 2,782 3,212
------------- ------------- -------------
TOTAL ASSETS 23,844,954 33,218,441 10,764,482
LIABILITIES
Distribution payable 136,342 141,608 46,874
Accrued:
Investment advisory fee 10,092 14,015 4,557
Service fee 5,046 7,008 2,278
Other liabilities 10,173 10,935 10,604
------------- ------------- -------------
TOTAL LIABILITIES 161,653 173,566 64,313
------------- ------------- -------------
NET ASSETS $ 23,683,301 $ 33,044,875 $ 10,700,169
------------- ------------- -------------
------------- ------------- -------------
Shares of capital stock outstanding, (200,000,000 shares
authorized, $.01 par value per share) 2,272,181 33,050,648 1,041,640
------------- ------------- -------------
------------- ------------- -------------
Net asset value $ 10.42 $ 1.00 $ 10.27
------------- ------------- -------------
------------- ------------- -------------
Offering price per share:
(Net asset value DIVIDED BY 95.5%) $ 10.91 $ 10.75
------------- -------------
------------- -------------
Offering price per share $ 1.00
-------------
-------------
</TABLE>
STATEMENTS OF OPERATIONS Year Ended August 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
GOVERNMENT PRIMARY TAX FREE
INCOME FUND FUND FUND
SERIES SERIES SERIES
<S> <C> <C> <C>
INVESTMENT INCOME
Interest $ 1,689,115 $ 1,994,367 $ 553,479
EXPENSES
Investment advisory fees 113,231 176,167 50,224
Service fees 56,616 88,083 25,112
Professional fees 7,977 7,978 7,849
Custody and transaction fees 13,622 26,767 10,939
Directors' fees 9,833 9,833 9,833
Organization expenses 6,269 6,269 --
Qualification fees 12,442 25,883 17,553
Shareholder reporting expenses 12,344 10,455 3,802
Insurance expenses 1,281 2,036 576
Other 8,453 2,888 1,680
------------- ------------- -------------
TOTAL EXPENSES 242,068 356,359 127,568
LESS EXPENSES REIMBURSED (15,547) (74,200) (73,202)
------------- ------------- -------------
NET EXPENSES 226,521 282,159 54,366
------------- ------------- -------------
INVESTMENT INCOME--NET 1,462,594 1,712,208 499,113
------------- ------------- -------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on sales of investments (2,446) -- 12,803
Change in unrealized appreciation of investments for the year 562,324 -- 314,617
------------- ------------- -------------
NET GAIN ON INVESTMENTS 559,878 -- 327,420
------------- ------------- -------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 2,022,472 $ 1,712,208 $ 826,533
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See notes to financial statements.
9
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,462,594 $ 1,309,567
Net realized loss on sales of investments (2,446) (17,444)
Change in unrealized appreciation (depreciation) 562,324 (741,026)
------------- -------------
Net increase in net assets resulting from operations 2,022,472 551,097
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (1,419,091) (1,309,536)
CAPITAL SHARE TRANSACTIONS--NET 1,952,455 1,420,095
------------- -------------
TOTAL INCREASE 2,555,836 661,656
NET ASSETS
Beginning of year 21,127,465 20,465,809
------------- -------------
End of year $ 23,683,301 $ 21,127,465
------------- -------------
------------- -------------
</TABLE>
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,712,208 $ 1,248,492
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (1,712,208) (1,248,506)
CAPITAL SHARE TRANSACTIONS--NET (4,420,149) 16,480,762
------------- -------------
TOTAL INCREASE (4,420,149) 16,480,748
NET ASSETS
Beginning of year 37,465,024 20,984,276
------------- -------------
End of year $ 33,044,875 $ 37,465,024
------------- -------------
------------- -------------
</TABLE>
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
-----------------------------
1997 1996
------------- -------------
<S> <C> <C>
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 499,113 $ 483,699
Net realized gain (loss) on sales of investments 12,803 (11,015)
Change in unrealized appreciation (depreciation) 314,617 (30,116)
------------- -------------
Net increase in net assets resulting from operations 826,533 442,568
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (492,984) (483,700)
CAPITAL SHARE TRANSACTIONS--NET 1,218,423 790,213
------------- -------------
TOTAL INCREASE 1,551,972 749,081
NET ASSETS
Beginning of year 9,148,197 8,399,116
------------- -------------
End of year $ 10,700,169 $ 9,148,197
------------- -------------
------------- -------------
</TABLE>
See notes to financial statements.
10
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 10.14 $ 10.51 $ 10.07 $ 10.87 $ 10.56
Investment income--net 0.67 0.65 0.70 0.54 0.50
Net realized and unrealized gain (loss) on
investments 0.26 (0.37) 0.44 (0.79) 0.49
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.93 0.28 1.14 (0.25) 0.99
Less distributions from
Investment income--net (0.65) (0.65) (0.70) (0.55) (0.50)
Capital gains 0.00 0.00 0.00 0.00 (0.18)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.65) (0.65) (0.70) (0.55) (0.68)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year $ 10.42 $ 10.14 $ 10.51 $ 10.07 $ 10.87
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total Return 9.37% 2.63% 11.85% (2.41)% 10.23%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 23,683 $ 21,127 $ 20,466 $ 19,790 $ 19,783
Ratio of expenses to average net assets 1.00%(1) 1.00%(1) 0.70%(1) 1.12% 1.07%
Ratio of net investment income to average
net assets 6.46% 6.17% 6.90% 5.11% 5.07%
Portfolio turnover rate 9.06% 30.17% 2.20% 45.48% 18.14%
</TABLE>
(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 1.07%, 1.20% and 1.06% for
the years ended August 31, 1997, 1996 and 1995, respectively.
See notes to financial statements.
11
<PAGE>
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share of capital stock outstanding throughout the period.
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.05 0.05 0.05 0.03 0.02
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.05 0.05 0.05 0.03 0.02
Less distributions from Investment
income--net (0.05) (0.05) (0.05) (0.03) (0.02)
---------- ---------- ---------- ---------- ----------
Total Distributions (0.05) (0.05) (0.05) (0.03) (0.02)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total Return 4.98% 5.07% 5.01% 2.91% 2.59%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of year (000's omitted) $ 33,045 $ 37,465 $ 20,984 $ 15,208 $ 15,539
Ratio of expenses to average net assets(1) 0.80% 0.81% 0.84% 0.79% 0.85%
Ratio of net investment income to average
net assets 4.86% 4.93% 4.91% 2.88% 2.47%
</TABLE>
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
PERIOD
ENDED
YEAR ENDED AUGUST 31, AUGUST 31,
------------------------------------------ ----------
1997 1996 1995 1994
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 9.93 $ 9.95 $ 9.62 $ 10.00
Investment income--net 0.51 0.53 0.51 0.24
Net realized and unrealized gain (loss) on
investments 0.33 (0.02) 0.33 (0.38)
---------- ---------- ---------- ----------
Total from Investment Operations 0.84 0.51 0.84 (0.14)
Less distributions from Investment
income--net (0.50) (0.53) (0.51) (0.24)
---------- ---------- ---------- ----------
Total Distributions (0.50) (0.53) (0.51) (0.24)
---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.27 $ 9.93 $ 9.95 $ 9.62
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Total Return 8.61% 5.18% 9.15% (1.49)%**
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 10,700 $ 9,148 $ 8,399 $ 7,295
Ratio of expenses to average net assets 0.54%(2) --(2) --(2) 1.11%*
Ratio of net investment income to average
net assets 4.97% 5.27% 5.43% 2.50%*
Portfolio turnover rate 22.15% 18.44% 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 1.01%, 1.15%, 1.21%, 1.20%
and 1.23% for the years ended August 31, 1997, 1996, 1995, 1994 and 1993,
repectively.
(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 1.27%, 1.18% and 1.25% for
the years ended August 31, 1997, 1996 and 1995, respectively.
See notes to financial statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS August 31, 1997
- --------------------------------------------------------------------------------
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. The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
SECURITY VALUATION:
Investments in securities 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. Securities for which market
quotations are not readily available are valued as determined by the Board of
Directors. Commercial paper is stated at amortized cost, which is equivalent to
fair value.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
Investment transactions are accounted for on the trade date (date order to buy
or sell is executed). Dividend income is recognized on the ex-dividend date, and
interest income is recognized on an accrual basis. Realized gains and losses
from security transactions are reported on the basis of identified cost for
financial reporting and federal income tax purposes.
FEDERAL INCOME TAXES:
For federal income tax purposes, each 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, 1996, the Government Income Fund Series, Primary
Fund Series and the Tax Free Fund Series had capital loss carryforwards that
will expire in 2006 of approximately $374,000, $6,000 and $66,000, 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 GOVERNMENT INCOME FUND SERIES
The Government Income Fund Series invests primarily in the agencies or
instrumentalities of the U.S. Government. Dividends to shareholders from net
investment income are declared and paid monthly.
AMERICAN NATIONAL PRIMARY FUND SERIES
The Primary Fund Series' objective is to seek maximum current income
consistent with capital preservation and liquidity through investment
primarily in commercial paper. All capital stock transactions are made at
net asset value. Distributions are computed daily and distributed monthly.
AMERICAN NATIONAL TAX FREE FUND SERIES
The Tax Free Fund Series' objective is 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. Dividends
to shareholders from net investment income are declared and paid monthly.
13
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
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 advisor 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
ADVISORY
NET ASSETS 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>
PRIMARY FUND SERIES
<TABLE>
<S> <C>
All average daily net assets 0.50%
</TABLE>
Administrative fees paid to SM&R by the Funds are computed as a percentage of
average daily net assets as follows:
<TABLE>
<CAPTION>
SERVICE
NET ASSETS 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 and the Government Income
Fund Series for expenses in excess of 1.00% per annum of average daily net
assets for the year ended August 31, 1997.
The Tax Free Fund Series was voluntarily reimbursed for all expenses through
December 15, 1996. Effective December 16, 1996, SM&R agreed to waive investment
advisory fees leaving the Tax Free Fund responsible for all other expenses.
For the year ended August 31, 1997, 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 $ 7,498
Tax Free $ 21,839
</TABLE>
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of August 31, 1997, 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 452,489 20% 620,608 27%
Primary 744,326 2% 15,368,724 47%
Tax Free 119,660 11% 598,298 57%
</TABLE>
14
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
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 investments in securities, other than
commercial paper, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
Government Income $ 4,049,703 $ 1,995,938
Tax Free $ 3,126,809 $ 2,100,098
</TABLE>
Gross unrealized appreciation and depreciation as of August 31, 1997, were as
follows:
<TABLE>
<CAPTION>
APPRECIATION DEPRECIATION
------------ ------------
<S> <C> <C>
Government Income $506,930 $ 6,932
Tax Free $351,301 $12,168
</TABLE>
NOTE 4--CAPITAL STOCK
GOVERNMENT INCOME FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Sale of capital shares 291,016 $3,010,920 254,620 $2,666,115
Investment income dividends reinvested 127,868 1,322,811 102,499 1,068,933
--------- ---------- --------- ----------
Subtotals 418,884 4,333,731 357,119 3,735,048
Redemptions of capital shares (229,580) (2,381,276) (220,983) (2,314,953)
--------- ---------- --------- ----------
Net increase in capital shares outstanding 189,304 $1,952,455 136,136 $1,420,095
---------- ----------
---------- ----------
Shares outstanding at beginning of year 2,082,877 1,946,741
--------- ---------
Shares outstanding at end of year 2,272,181 2,082,877
--------- ---------
--------- ---------
Net assets as of August 31, 1997 are comprised of the following:
Capital (par value and additional paid-in) $23,512,859
Undistributed net investment income 43,534
Accumulated net realized loss on sales of investments (373,090)
Net unrealized appreciation of investments 499,998
----------
Net Assets $23,683,301
----------
----------
</TABLE>
15
<PAGE>
NOTES TO FINANCIAL STATEMENTS CONTINUED
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS, INC.
PRIMARY FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 37,131,503 $37,131,503 38,678,248 $38,678,248
Investment income dividends reinvested 1,614,059 1,614,059 1,065,346 1,065,346
---------- ----------- ---------- -----------
Subtotals 38,745,562 38,745,562 39,743,594 39,743,594
Redemptions of capital shares (43,165,711) (43,165,711) (23,262,832) (23,262,832)
---------- ----------- ---------- -----------
Net increase in capital shares outstanding (4,420,149) $(4,420,149) 16,480,762 $16,480,762
----------- -----------
----------- -----------
Shares outstanding at beginning of year 37,470,797 20,990,035
---------- ----------
Shares outstanding at end of year 33,050,648 37,470,797
---------- ----------
---------- ----------
Net assets as of August 31, 1997 are comprised of the
following:
Capital (par value and additional paid-in) $33,050,630
Accumulated net realized loss on sales of investments (5,755)
-----------
Net Assets $33,044,875
-----------
-----------
</TABLE>
TAX FREE FUND SERIES
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
----------------------- -----------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Sale of capital shares 95,379 $ 964,391 119,074 $ 1,201,877
Investment income dividends reinvested 47,765 482,300 43,655 438,208
---------- ----------- ---------- -----------
Subtotals 143,144 1,446,691 162,729 1,640,085
Redemptions of capital shares (22,454) (228,268) (86,193) (849,872)
---------- ----------- ---------- -----------
Net increase in capital shares outstanding 120,690 $ 1,218,423 76,536 $ 790,213
----------- -----------
----------- -----------
Shares outstanding at beginning of year 920,950 844,414
---------- ----------
Shares outstanding at end of year 1,041,640 920,950
---------- ----------
---------- ----------
Net assets as of August 31, 1997 are comprised of the
following:
Capital (par value and additional paid-in) $10,402,728
Undistributed net investment income 8,346
Accumulated net realized loss on sales of investments (50,038)
Net unrealized appreciation of investments 339,133
-----------
Net Assets $10,700,169
-----------
-----------
</TABLE>
16
<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 the Government Income Fund Series, Primary
Fund Series and the Tax Free Fund Series) including the schedule of investments
as of August 31, 1997, 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, and the financial highlights for each of the years
in the five-year period then ended for the Government Fund and Primary Fund and
for each of the years in the three-year period ended August 31, 1997 and 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 Funds' 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 audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
August 31, 1997, 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, 1997, the results of its operations for the
year then ended and the changes in its net assets for each of the years in the
two-year period then ended and the financial highlights for each of the years in
the five-year period then ended for the Government Fund and Primary Fund and for
each of the years in the three-year period ended August 31, 1997 and 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 10, 1997
17
<PAGE>
SM&R CAPITAL FUNDS, INC. One Moody Plaza, Galveston, Texas 77550
- --------------------------------------------------------------------------------
DIRECTORS
Brent E. Masel, M.D.
Allan W. Matthews
Lea McLeod Matthews
Michael W. McCroskey
Shannon L. Moody
Edwin K. Nolan
Louis E. Pauls, Jr.
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Emerson V. Unger, Vice President
Teresa E. Axelson, Vice President and Secretary
Vera M. Young, Vice President and Portfolio Manager--
Primary Fund Series
Terry E. Frank, Vice President and Portfolio Manager--
Government Income Fund Series and Tax Free Fund Series
INVESTMENT ADVISOR AND MANAGER
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
CUSTODIAN
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
700 Louisiana
Houston, Texas 77002
<PAGE>
[LOGO]
GOVERNMENT
INCOME
FUND
PRIMARY
FUND
TAX FREE
FUND
August 31, 1997
<PAGE>
[LOGO]
FORM 9202
<PAGE>
<TABLE>
<S> <C>
Securities Management & Research BULK RATE
One Moody Plaza U.S. POSTAGE
Galveston, TX 77550 PAID
PERMIT NO. 89
GALVESTON,
TEXAS
</TABLE>
<PAGE>
PART C OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS:
The Financial Statements required in the instructions to this Form
N-1A are attached as an Exhibit 1 to the Statement of Additional
Information.
(b) EXHIBITS:
1. See EXHIBITS 99.B1a AND 99.B1b to Post-Effective Amendment No. 7
for a copy of the Registrant's Articles of Incorporation and
Supplementary Articles of Incorporation.
2. See EXHIBIT 99.B2 to Post-Effective Amendment No. 7 for a copy of
Registrant's By-Laws.
3. None.
4. See EXHIBIT 99.B4 to Post-Effective Amendment No. 7 for a
specimen of Registrant's stock certificate.
5. See EXHIBIT 99.B5 to Post-Effective Amendment No. 7 for a copy of
Registrant's Investment Advisory Agreement.
6. See EXHIBIT 99.B6 to Post-Effective Amendment No. 7 for copies of
Registrant's Underwriting Agreement.
7. None.
8. See EXHIBITS 99.B8a AND 99.B8b to Post-Effective Amendment No. 7
for a copy of Registrant's Custodian Agreement and Sub-Custodian
Agreement.
9. None.
10. See EXHIBIT 99.B10 to this Post-Effective Amendment No. 10 for
consent and opinion of Registrant's counsel, Greer, Herz & Adams,
L.L.P.
11. See EXHIBIT 99.B11 to this Post-Effective Amendment No. 10 for
consent of KPMG Peat Marwick LLP independent accountants of
Registrant.
12. Not Applicable.
13. See EXHIBIT 99.B13 to Post-Effective Amendment No. 7 for copies
of the Stock Purchase Letters from Securities Management and
Research, Inc. and American National Insurance Company.
14. See EXHIBIT 99.B14a to this Post Effective Amendment No. 10 for
copies of documents used to establish Tax Sheltered Custodial
Accounts and Texas Optional Retirement Programs and EXHIBIT
99.B14B for copies of documents used to establish Individual
Retirement Plans in conjunction with which Registrant offers
securities.
15. None.
16. None.
<PAGE>
17. See EXHIBIT 99.B17 to this Post-Effective Amendment No. 10 for a
copy of the Power of Attorney authorizing Michael W. McCroskey to
execute on the Directors' behalf any and all amendments and
supplements on Registrant's Form N-1A.
18. Not Applicable.
19. See Exhibit 99.B19 to this Post-Effective Amendment No. 10 for a
revised Control List.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
All persons under common control with the Registrant are reflected in Exhibit
99.B19 to this Post-Effective Amendment No. 10.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
As of December 1, 1997, the number of record holders of Registrant's common
stock were as follows:
TITLE OF CLASS NUMBER OF RECORD HOLDERS
American National Government Income Fund Series 471
-------
American National Primary Fund Series 803
-------
American National Tax Free Fund Series 125
-------
ITEM 27. INDEMNIFICATION.
The Registrant has agreed to indemnify its directors to the maximum extent
permitted by applicable law against all costs and expenses (including, but not
limited to, counsel fees, amounts of judgments paid, and amounts paid in
settlement) reasonably incurred in connection with the defense of any actual or
threatened claim, action, suit or proceeding, whether civil, criminal,
administrative, or other, in which he or she may be involved by virtue of such
person being or having been such director. Such indemnification is pursuant to
Section 3.15 of the Registrant's By-Laws, EX-99.B2 to Post-Effective Amendment
No. 7 to Form N-1A.
Insofar as indemnification for liability arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Securities Management and Research, Inc. ("SM&R") serves as investment adviser
to Registrant and American National Growth Fund, Inc.; American National Income
Fund, Inc., and Triflex Fund, Inc. (herein referred to as "American National
Funds Group") and the American National Investment Accounts, Inc. See "THE FUND
AND ITS MANAGEMENT" in Part A and "MANAGEMENT OF THE FUND" in Part B.
ROBERT A. FRUEND, C.L.U. Director of SM&R; Director of American National
Investment Accounts, Inc., One Moody Plaza, Galveston, Texas; Executive
Vice President and Director of Ordinary Agencies of American National
Insurance Company, all located at One Moody Plaza, Galveston, Texas;
Director of American National Property and Casualty Company, 1949 East
Sunshine, Springfield, Missouri; Director of American National General
Insurance Company, 1949 East Sunshine, Springfield, Missouri; and Director
of American National Insurance Service Company, 1722 South Glenstone,
Springfield, Missouri.
<PAGE>
R. EUGENE LUCAS Director of SM&R; Director of American National Insurance
Company, both located at One Moody Plaza, Galveston, Texas; President and
Director of Gal-Tex Hotel Corporation, 504 Moody National Bank Tower,
Galveston, Texas, Gal- Tenn Hotel Corporation 504 Moody National Bank
Tower, Galveston, Texas; Director of ANREM Corporation, One Moody Plaza,
Galveston, Texas.
MICHAEL W. MCCROSKEY President, Chief Executive Officer and member of the
Executive Committee of SM&R; President and Director of the Fund; 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"); President and Director of the American
National Investment Accounts, Inc.; Executive Vice President, American
National; Assistant Secretary of American National Life Insurance Company
of Texas; President and Director, ANREM Corporation; President and
Director, ANTAC, Inc., all located at One Moody Plaza, Galveston, Texas;
Vice President of Standard Life and Accident Insurance Company, 421 N.W.
13th Street, Oklahoma City, Oklahoma; Vice President, Garden State Life
Insurance Company, 2450 South Shore Boulevard, League City, Texas.
RONALD J. WELCH Director of SM&R; Executive Vice President and Chief Actuary
of American National Insurance Company; Senior Vice President of American
National Life Insurance Company of Texas, all located at One Moody Plaza,
Galveston, Texas; Director and Chairman of the Board of Garden State Life
Insurance Company, 2450 South Shore Boulevard, League City, Texas; Director
of Standard Life and Accident Insurance Company, 421 N. W. 13th Street,
Oklahoma City, Oklahoma; Director of American National Property and
Casualty Company, 1949 East Sunshine, Springfield, Missouri; Director of
American National General Insurance Company, 1949 East Sunshine,
Springfield, Missouri; Director of American National Insurance Service
Company, 1722 South Glenstone, Springfield, Missouri; Director of Pacific
Property and Casualty Company, 1949 East Sunshine Street, Springfield,
Missouri.
G. RICHARD FERDINANDSTEN Director of SM&R; Director, Senior Executive Vice
President and Chief Operating Officer, American National Insurance
Company; Director, Chairman of the Board, President and Chief Executive
Officer, American National Life Insurance Company of Texas; Director,
Vice Chairman of the Board, American National General Insurance Company;
Director and Chairman of the Board, Standard Life and Accident Insurance
Company; Director, Garden State Life Insurance Company; Director and Vice
Chairman of the Board, Pacific Property & Casualty Company; Underwriter,
American National Lloyds Insurance Company; Director, McMarr Properties;
Director, McCreless Foundation; Director, United Land.
GORDON D. DIXON Director, Senior Vice President, and Chief Investment Officer
of SM&R; Vice President, Stock, American National Insurance Company; Vice
President, Portfolio Manager of the American National Growth Fund, Inc. and
the American National Investment Accounts, Inc. - Growth Portfolio, all
located at One Moody Plaza, Galveston, Texas.
K. DAVID WHEELER Senior Vice President, Institutional Sales and Private
Client Services of SM&R, One Moody Plaza, Galveston, Texas; Senior
Institutional Consultant, Bank South, Atlanta, Georgia.
VERA M. YOUNG Vice President, Portfolio Manager of SM&R; Vice President and
Portfolio Manager Money Market Portfolio, American National Investment
Accounts, Inc. and SM&R Capital Funds - Primary Series; Assistant Vice
President, Securities of American National Insurance Company, all located
at One Moody Plaza, Galveston, Texas.
EMERSON V. UNGER Vice President of SM&R; Vice President of SM&R Capital
Funds, Inc., One Moody Plaza, Galveston, Texas; Vice President of the
American National Funds Group, One Moody Plaza, Galveston, Texas; Vice
President of American National Investment Accounts, Inc., One Moody Plaza,
Galveston, Texas.
BRENDA T. KOELEMAY Vice President and Treasurer of SM&R; Vice President and
Treasurer of SM&R Capital Funds, One Moody Plaza, Galveston, Texas; Vice
President and Treasurer of the American National Funds Group, One Moody
Plaza, Galveston, Texas; Vice President and Treasurer American National
Investment Accounts, Inc., One Moody Plaza, Galveston, Texas.
TERESA E. AXELSON Vice President and Secretary of SM&R; Vice President and
Secretary SM&R Capital Funds, Inc., One Moody Plaza, Galveston, Texas; Vice
President and Secretary of the American National Funds Group, One Moody
Plaza, Galveston, Texas; Vice President and Secretary of American National
Investment Accounts, Inc., One Moody Plaza, Galveston, Texas.
ITEM 29. PRINCIPAL UNDERWRITERS.
<PAGE>
(a) SM&R also serves as the principal underwriter for the Registrant, the
American National Funds Group and the American National Investment Accounts,
Inc. See "THE FUND AND ITS MANAGEMENT" in Part A.
(b)
Positions and Positions and
Name and Principal Offices With Offices With
Business Address Underwriter Registrant
- ------------------ ------------- -------------
Robert A. Fruend, C.L.U. Director None
One Moody Plaza
Galveston, Texas
R. Eugene Lucas Director None
Moody National Bank Tower
Galveston, Texas
Michael W. McCroskey Director and President and
One Moody Plaza President Director
Galveston, Texas
Ronald J. Welch Director None
One Moody Plaza
Galveston, Texas
G. Richard Ferdinandsten Director None
One Moody Plaza
Galveston, Texas
Gordon D. Dixon Director, Senior None
One Moody Plaza Vice President,
Galveston, Texas Chief Investment Officer
K. David Wheeler Senior Vice President None
One Moody Plaza
Galveston, Texas
Vera M. Young Vice President, Vice President and
One Moody Plaza Portfolio Manager Portfolio Manager
Galveston, Texas
Emerson V. Unger, C.L.U. Vice President Vice President
One Moody Plaza
Galveston, Texas
Brenda T. Koelemay Vice President Vice President
One Moody Plaza and Treasurer and Treasurer
Galveston, Texas
Teresa E. Axelson Vice President Vice President
One Moody Plaza and Secretary and Secretary
Galveston, Texas
(c) Not Applicable.
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS.
All accounts, books and other documents required to be maintained by Section
31(a) of the Investment Company Act of 1940 and the Rules promulgated thereunder
will be maintained at the office of SM&R at One Moody Plaza, Galveston, Texas
77550.
ITEM 31. MANAGEMENT SERVICES.
There are no management-related service contracts to which the Registrant is a
party not discussed under Part A or Part B of this Registration Statement.
ITEM 32. UNDERTAKINGS.
<PAGE>
Registrant hereby undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Fund's latest report to shareholders, upon request
and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant, SM&R CAPITAL FUNDS, INC.,
certifies that it meets all of the requirements for effectiveness of this
POST-EFFECTIVE AMENDMENT NO. 10 to this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this POST-EFFECTIVE
AMENDMENT NO. 10 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Galveston and State of
Texas, on the 23rd day of December, 1997.
SM&R CAPITAL FUNDS, INC.
By: Michael W. McCroskey
-------------------------------
Michael W. McCroskey, President
Pursuant to the requirements of the Securities Act of 1933, this
POST-EFFECTIVE AMENDMENT NO. 10 has been signed below by the following persons
in the capacities and on the dates indicated:
PRINCIPAL EXECUTIVE AND
FINANCIAL OFFICER: PRINCIPAL ACCOUNTING OFFICER:
Michael W. McCroskey Brenda T. Koelemay
- ------------------------------- ------------------------------
Michael W. McCroskey, President Brenda T. Koelemay, Treasurer
Date: December 23, 1997 Date: December 23, 1997
-------------------------- -------------------------
DIRECTORS
Ernest S. Barratt, Ph.D. Date: December 23, 1997
- ------------------------------- -------------------------
Ernest S. Barratt, Ph.D.
By: Michael W. McCroskey
Allan W. Matthews Date: December 23, 1997
- ------------------------------- -------------------------
Allan W. Matthews
By: Michael W. McCroskey
Lea McLeod Matthews Date: December 23, 1997
- ------------------------------- -------------------------
Lea McLeod Matthews
By: Michael W. McCroskey
Michael W. McCroskey Date: December 23, 1997
- ------------------------------- -------------------------
Michael W. McCroskey
Ann McLeod Moody Date: December 23, 1997
- ------------------------------- -------------------------
Ann McLeod Moody
By: Michael W. McCroskey
Edwin K. Nolan Date: December 23, 1997
- ------------------------------- -------------------------
Edwin K. Nolan
By: Michael W. McCroskey
Robert V. Shattuck, Jr. Date: December 23, 1997
- ------------------------------- -------------------------
Robert V. Shattuck, Jr.
By: Michael W. McCroskey
Jamie G. Williams Date: December 23, 1997
- ------------------------------- -------------------------
Jamie G. Williams
By: Michael W. McCroskey
Frank P. Williamson Date: December 23, 1997
- ------------------------------- -------------------------
Frank P. Williamson
By: Michael W. McCroskey
<PAGE>
EXHIBIT INDEX
TO
POST-EFFECTIVE AMENDMENT NO. 10
UNDER THE SECURITIES ACT OF 1933
AND
UNDER INVESTMENT COMPANY ACT OF 1940
FOR
SM&R CAPITAL FUNDS, INC.
("REGISTRANT")
- --------------------------------------------------------------------------------
Exhibit 99.B10 Opinion of Greer, Herz & Adams, L.L.P.
Counsel for Registrant
Exhibit 99.B11 Consent of KPMG Peat Marwick LLP Accountants
for Registrant
Exhibit 99B.14a Tax Sheltered Annuity Forms Kit
Exhibit 99B.14b IRA Forms Kit
Exhibit 99B.17 Power of Attorney
Exhibit 99.B19 Control List
Exhibit 27.1 Government Income Fund Series
Exhibit 27.2 Primary Fund Series
Exhibit 27.3 Tax Free Fund Series
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000881166
<NAME> SM&R CAPITAL FUNDS, INC.
<SERIES>
<NUMBER> 01
<NAME> GOVERNMENT INCOME FUND SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 23033453
<INVESTMENTS-AT-VALUE> 23533451
<RECEIVABLES> 264076
<ASSETS-OTHER> 2782
<OTHER-ITEMS-ASSETS> 44645
<TOTAL-ASSETS> 23844954
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 161653
<TOTAL-LIABILITIES> 161653
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 23512859
<SHARES-COMMON-STOCK> 2272181
<SHARES-COMMON-PRIOR> 2082877
<ACCUMULATED-NII-CURRENT> 43534
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (373090)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 499998
<NET-ASSETS> 23683301
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1689115
<OTHER-INCOME> 0
<EXPENSES-NET> 226521
<NET-INVESTMENT-INCOME> 1462594
<REALIZED-GAINS-CURRENT> (2446)
<APPREC-INCREASE-CURRENT> 562324
<NET-CHANGE-FROM-OPS> 2022472
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1419091
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 291016
<NUMBER-OF-SHARES-REDEEMED> 229580
<SHARES-REINVESTED> 127868
<NET-CHANGE-IN-ASSETS> 1952455
<ACCUMULATED-NII-PRIOR> 31
<ACCUMULATED-GAINS-PRIOR> (370644)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 113231
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 242068
<AVERAGE-NET-ASSETS> 22657411
<PER-SHARE-NAV-BEGIN> 10.14
<PER-SHARE-NII> 0.67
<PER-SHARE-GAIN-APPREC> 0.26
<PER-SHARE-DIVIDEND> 0.65
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.42
<EXPENSE-RATIO> 1.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net of reimbursement from Securities
Management & Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.07% for the year ended
August 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000881166
<NAME> SM&R CAPITAL FUNDS, INC.
<SERIES>
<NUMBER> 02
<NAME> PRIMARY FUND SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 33198277
<INVESTMENTS-AT-VALUE> 33198277
<RECEIVABLES> 6965
<ASSETS-OTHER> 2782
<OTHER-ITEMS-ASSETS> 10417
<TOTAL-ASSETS> 33218441
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 173566
<TOTAL-LIABILITIES> 173566
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 33050630
<SHARES-COMMON-STOCK> 33050648
<SHARES-COMMON-PRIOR> 37470797
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (5755)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 33044875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1994367
<OTHER-INCOME> 0
<EXPENSES-NET> 282159
<NET-INVESTMENT-INCOME> 1712208
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1712208
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1712208
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 37131503
<NUMBER-OF-SHARES-REDEEMED> 43165711
<SHARES-REINVESTED> 1614059
<NET-CHANGE-IN-ASSETS> 4420149
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> (5755)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 176167
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 356359
<AVERAGE-NET-ASSETS> 35225938
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.80
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>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 1.01% for the year ended August 31, 1997.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 6
<CIK> 0000881166
<NAME> SM&R CAPITAL FUNDS, INC.
<SERIES>
<NUMBER> 03
<NAME> TAX FREE FUND SERIES
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-END> AUG-31-1997
<INVESTMENTS-AT-COST> 10180383
<INVESTMENTS-AT-VALUE> 10519516
<RECEIVABLES> 153332
<ASSETS-OTHER> 3212
<OTHER-ITEMS-ASSETS> 88422
<TOTAL-ASSETS> 10764482
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 64313
<TOTAL-LIABILITIES> 64313
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10402728
<SHARES-COMMON-STOCK> 1041640
<SHARES-COMMON-PRIOR> 920950
<ACCUMULATED-NII-CURRENT> 8346
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (50038)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 339133
<NET-ASSETS> 10700169
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 553479
<OTHER-INCOME> 0
<EXPENSES-NET> 54366
<NET-INVESTMENT-INCOME> 499113
<REALIZED-GAINS-CURRENT> 12803
<APPREC-INCREASE-CURRENT> 314617
<NET-CHANGE-FROM-OPS> 826533
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 492984
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 95379
<NUMBER-OF-SHARES-REDEEMED> 22454
<SHARES-REINVESTED> 47765
<NET-CHANGE-IN-ASSETS> 1218423
<ACCUMULATED-NII-PRIOR> 2217
<ACCUMULATED-GAINS-PRIOR> (62841)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 50224
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127568
<AVERAGE-NET-ASSETS> 10050280
<PER-SHARE-NAV-BEGIN> 9.93
<PER-SHARE-NII> 0.51
<PER-SHARE-GAIN-APPREC> 0.33
<PER-SHARE-DIVIDEND> 0.50
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 10.27
<EXPENSE-RATIO> 0.54
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0<F1>
<FN>
<F1>Expenses for the calculation are net of reimbursement from Securities
Management Research, Inc. Without this reimbursement, the ratio of
expenses to average net assets would have been 1.27% for the year ended
August 31, 1997.
</FN>
</TABLE>
<PAGE>
Exhibit 99.B10
December 23, 1997
SM&R Capital Funds, Inc.
One Moody Plaza
Galveston, Texas 77550
RE: SM&R Capital Funds, Inc. (the "Fund") Post-Effective Amendment
No. 10 under the Securities Act of 1933 (the "33 Act") and to the
Investment Company Act of 1940 (the "40 Act") to Form N-1A
Registration Statement No. 33-44021
Gentlemen:
We have assisted you in preparing the above referenced post-effective
amendments to your '33 Act and '40 Act Registration Statements referenced above.
In connection therewith, we have examined the Company's Articles of
Incorporation and such other corporate records, prospectuses and other material
we deemed appropriate. On the basis of such examination, we are of the opinion
that the Company's shares, when sold, will be legally issued, fully paid and
non-assessable. We, of course, assume that the Company will not sell more than
the 200,000,000 shares authorized by its Articles of Incorporation, and that all
sales will be for full value received at the time of sale.
We consent to the attachment of this opinion to and its used in connection
with the above referenced post-effective amendments.
Yours very truly,
Jerry L. Adams
--------------
Jerry L. Adams
<PAGE>
EX-99.B11
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
SM&R Capital Funds, Inc.
We consent to the use of our report on the SM&R Capital Funds, Inc. dated
October 10, 1997 included herein and to the references to our firm under the
headings "Financial Highlights" in the Prospectus and "Auditors and Financial
Statements" in the Statement of Additional Information.
KPMG Peat Marwick LLP
Houston, Texas
December 23, 1997
<PAGE>
TSA
403(b)(7)
FORMS
KIT
----------------------------------
EVERYTHING YOU NEED TO:
- OPEN A NEW SM&R TSA
403(b) ACCOUNT
- TRANSFER YOUR PRESENT TSA
403(b) ACCOUNT TO SM&R
- DIRECTLY ROLL OVER ASSETS
FROM ANOTHER INSTITUTION
- ESTABLISH AN ORP (STATE OF
TEXAS ONLY)
----------------------------------
SECURITIES MANAGEMENT & RESEARCH, INC.
One Moody Plaza // Galveston, Texas 77550
(409) 763-2767
[LOGO]
Member NASD SIPC
<PAGE>
NEW TAX LAW IMPACTS 403(b) DISTRIBUTIONS
- -------------------------------------------------------------------------------
New IRS rules have liberalized which distributions can be rolled over, but
now require plan custodians to automatically withhold 20% from all
distributions eligible for rollover received from 403(b) annuities or mutual
funds.
Under the new law effective January 1, 1993, 403(b) annuity and mutual fund
distributions that are eligible for rollover are subject to 20% mandatory
withholding unless they are directly rolled into an IRA or other eligible
plan. The 20% withholding tax is not a penalty and is paid to the IRS as a
credit toward the employee's income tax liability for that year.
The new law specifies that any 403(b) plan distribution--except those
listed below--is an "eligible rollover distribution." Distributions not
eligible for rollover that allow the participant to elect out of withholding
are:
- Required Minimum Distributions--Employees who reach age 70 1/2 are
required to take distributions. Required minimums have never been
eligible for rollover, and employees may still elect out of withholding
in these cases.
- Substantially equal periodic payments over a single or joint life
expectancy or over a period of at least 10 years--To receive a
substantially equal periodic payment, a participant must have
separated from service (for example, terminated employment).
Participants taking this type of distribution may elect out of
withholding.
- Certain excess, after-tax and "deemed" distributions--While these types
of distributions are not common, custodians should be aware that this
type of distribution cannot be rolled, therefore, is not subject to
the withholding rule, either.
Since all other distributions are eligible for rollover, the 20%
withholding tax can be avoided simply by directly rolling the distribution
into an IRA or another eligible plan.
A direct rollover is actually an easier transaction for an employee than a
"regular" rollover because the custodians do most of the work. The
custodians move the distribution directly between the two plans. The
employee avoids taking physical possession of the distribution and concern
about the 60-day rollover rule is lessened. If employees do choose a
"regular" rollover and take physical possession of the distribution before
rolling it into an IRA or other eligible plan within the allowable 60-day
period, the 20% withholding tax will be imposed.
Generally, employees will take a distribution when they change jobs or
terminate employment for other reasons, thus "triggering" the distribution.
Distributions made for other reasons, or because an employer discontinues a
plan, will generally be eligible for rollover and thus participants may not
elect out of withholding unless they chose the direct rollover option.
The following situations may assist you in understanding the new rules more
clearly.
How to Avoid 20% Withholding
IF you are changing jobs, have been laid off, have terminated
employment...
THEN you can directly roll over your distribution and avoid the mandatory
20% withholding requirement.
IF you are required to take distributions from your 403(b) plan because
you are age 70 1/2 or older...
THEN you may elect out of withholding, but you can't roll over your
distribution.
IF you are receiving "substantially equal" periodic payments because
you've separated from service...
THEN you may elect out of withholding, but you can't roll over your
distribution.
When The 20% Withholding Will Apply
IF you do not directly roll over your distribution and you decide to keep
it...
THEN you'll receive 20% less than you requested, and the entire
distribution will be subject to regular income and possible penalty
taxes as well.
IF you do not directly roll over your distribution but roll everything
you receive within the 60-day allowable time limit...
THEN this is a regular rollover (not a direct rollover), and you will
receive 20% less than you requested; you may make up the difference
from your own pocket and roll 100% of your distribution within the 60-day
limit.
IF you do not directly roll over your distribution and decide to keep
only part of what you receive and roll the rest...
THEN 20% federal income tax will be withheld on the entire distribution.
The portion of the entire distribution that is not rolled over is subject
to regular income and possible penalty taxes. You may also roll the 20%
withheld by making it up out of your own pocket.
The new withholding requirements make it important for you to receive
professional financial or tax advice before a distribution is taken, so that
20% withholding can be avoided.
2
<PAGE>
TIMELY ANSWERS TO SOME FREQUENTLY ASKED QUESTIONS ABOUT
TSA 403(b) CUSTODIAL ACCOUNTS
- -------------------------------------------------------------------------------
This kit is designed to provide you with general information about the
American National Family of Funds TSA Plan. It is not intended as a complete
or definitive explanation of the plan, the provisions of the Employee
Retirement Income Security Act of 1973 or the Tax Code. Neither the Investment
Adviser nor the Custodian is in a position to render legal or tax advice.
Please consult your legal or tax professional if you have any questions in
this regard.
WHAT IS A TAX-SHELTERED 403(b) CUSTODIAL ACCOUNT?
A 403(b) is a voluntary tax-sheltered account (TSA) that allows you to set
aside pre-tax money for retirement through a salary reduction with your
Employer.
WHO IS ELIGIBLE TO PARTICIPATE IN THE PROGRAM?
Employees of a public school or a tax-exempt, non-profit organization which
qualifies under Section 501(c)(3) of the Internal Revenue Code. This includes
hospitals, research foundations, churches, symphony orchestras, scientific
foundations, private non-profit colleges and universities, museums and zoos.
WHY SHOULD I ESTABLISH A TSA?
Contributions to a TSA are deferred from current federal income tax. The
earnings on your TSA also accumulate on a tax-deferred basis allowing your
money to work its hardest for you until you withdraw it. Participation is
voluntary so you control when and how much is contributed.
HOW MUCH CAN I CONTRIBUTE TO MY TSA?
The maximum contribution amount is based on your gross compensation, the
length of time with your current employer, the amounts already contributed to
a TSA, and the type of your employer. A Salary Reduction Maximum Allowable
Deferral Worksheet is provided in the kit to assist you in determining the
maximum amount allowable.
WILL I EVER PAY TAXES ON THIS MONEY?
Yes, your TSA contributions and earnings are tax-deferred. However, you must
pay federal income tax on these amounts once you begin to take distributions.
Usually, due to retirement age and status, your tax bracket will be lower
when your distributions begin. State tax laws vary and you will want to
consult your tax adviser regarding your particular tax situation.
WHEN CAN I WITHDRAW FROM MY 403(b) ACCOUNT?
You may only withdraw from your account upon the occurrence of one of the
following events. Additional restrictions apply if you are a participant in
the State of Texas ORP Program, please refer to the Custodial Agreement for
such restrictions.
- You have separated from service with your employer
- You have become disabled
- You have attained the age 59 1/2
- You have encountered financial hardship within the meaning of code
section 403(b)(7)(ii)
- Your beneficiary may withdraw from your account if you have died
Refer to page 2 of this kit for an explanation of the 20% mandatory
withholding requirements on distributions from your TSA.
CAN I BORROW FROM MY TSA?
No, the American National Family of Funds 403(b) plan does not permit
borrowing.
CAN I TRANSFER AN EXISTING 403(b) ACCOUNT TO THE AMERICAN NATIONAL FAMILY
OF FUNDS?
Yes, you can easily transfer the assets of your existing plan to a Fund in
the American National Family by completing the 403(b)(7) Account Application
and Transfer of Assets Request in this kit.
HOW MAY MY ACCOUNT BE DISTRIBUTED?
Distributions may be taken in lump sum or systematic payments. These
systematic payments should be scheduled over the life expectancy of the
participant, the joint life expectancy of the participant and his or her
spouse, or a specified period not exceeding the combined life expectancy of
the participant and the participant's spouse.
WHEN CAN I ROLL OVER MY TSA INTO AN IRA?
A rollover of your TSA assets into an IRA can take place if you have
separated from service with your employer, attained age 59 1/2 or become
disabled. Such a rollover is permitted subject to certain restrictions which
should be discussed with your tax adviser for further details.
HOW CAN I WITHDRAW MONEY WITHOUT A PREMATURE DISTRIBUTION PENALTY PRIOR TO
AGE 59 1/2, IF NECESSARY?
Withdrawals without a penalty can be taken if you become permanently
disabled, receive substantially equal periodic payments beginning after
termination of employment, or when you reach age 55 and have terminated
employment. If you are a participant in the State of Texas ORP Program, see
the Custodial Agreement for additional restrictions. Consult your tax adviser
for answers to specific questions you may have.
3
<PAGE>
INSTRUCTIONS FOR ESTABLISHING A 403(b)(7) ACCOUNT IN THE AMERICAN NATIONAL
FAMILY OF FUNDS
- -------------------------------------------------------------------------------
TO ESTABLISH A NEW ACCOUNT
1. Complete 403(b)(7) Account Application (Numbers 1-3, 5-7, and 9)
2. Complete Beneficiary Information, page 4
3. Submit a check for $7.50 custodian fee
TO TRANSFER FROM ANOTHER INSTITUTION
1. Complete 403(b)(7) Account Application (Numbers 1-7, and 9)
2. Complete Transfer of Assets Request Form, page 9
3. Complete Beneficiary Information, page 4
4. Submit a check for $7.50 custodian fee
TO ROLLOVER ASSETS FROM ANOTHER INSTITUTION
1. Complete 403(b)(7) Account Application (Numbers 1-7, and 9)
2. Complete Beneficiary Information, page 4
3. Attach check for amount of rollover received from the institution
4. Submit a check for $7.50 custodian fee
TO ESTABLISH AN ORP (STATE OF TEXAS ONLY)
1. Complete 403(b)(7) Account Application (Numbers 1-9)
2. Complete Beneficiary Information, page 4
3. Complete ORP Participant Acknowledgement and Disclosure Statement below
4. If both the employee and state contributions will be invested in the
Primary Series, complete two separate applications, indicate "state" on
the application for the state contribution
5. Submit a check for $7.50 custodian fee
TWO APPLICATIONS HAVE BEEN INCLUDED IN THIS KIT TO ALLOW FOR THE
ESTABLISHMENT OF BOTH ORP (STATE OF TEXAS APPROVED INSTITUTIONS ONLY) AND TSA
ACCOUNTS FOR AN INDIVIDUAL.
Mail all completed documents to:
Securities Management & Research, Inc.
One Moody Plaza, 14th Floor
Galveston, TX 77550
- -------------------------------------------------------------------------------
ORP ONLY
ORP PARTICIPANT ACKNOWLEDGEMENT AND
DISCLOSURE STATEMENT
- -------------------------------------------------------------------------------
THIS ACKNOWLEDGEMENT MUST ACCOMPANY ALL APPLICATIONS COMPLETED FOR
PARTICIPATION IN THE TEXAS OPTIONAL RETIREMENT PROGRAM.
I acknowledge that I have been informed of the restrictions imposed on
redemptions under ORP. I understand that no distribution from the custodial
account established under ORP shall be made unless satisfactory evidence of
one of the following conditions is provided to Securities Management &
Research, Inc., the Custodian, by my Employer.
1. Death of Participant
2. Termination of Service with Employer
3. Retirement of Participant
Furthermore, I understand that ORP does not allow the withdrawal of proceeds
from the Program for:
1. Financial hardship
2. Treatment as a premature distribution
3. Reaching age 59 1/2
_______________________________________
Participant's Signature
_______________________________________
Date
_______________________________________
Representative's Signature
_______________________________________
Date
4
<PAGE>
SECURITIES MANAGEMENT & RESEARCH, INC.
[Logo] One Moody Plaza, Galveston, TX 77550
Member NASD, SIPC
Distributor for the American National Family of Funds
403(b)(7) ACCOUNT APPLICATION-PART 1
|------------------------------------------|
| HOME OFFICE USE |
|------------------------------------------|
| Account Number |
|---------------------|--------------------|
| Account Type | Social Code |
|---------------------|--------------------|
| FI Number | LOI Amount |
|---------------------|--------------------|
- -------------------------------------------------------------------------------
______________________________________________________________________________
1. EMPLOYEE INFORMATION
Name _________________________________________________________________________
SSN _______________________________________________ Birthdate ________________
Address ______________________________________________________________________
City ______________________________________ State _______________ Zip ________
Phone Day _______________________________________________ Evening ____________
______________________________________________________________________________
2. EMPLOYER INFORMATION
Name _________________________________________________________________________
Address ______________________________________________________________________
City ______________________________________ State _______________ Zip ________
______________________________________________________________________________
3. ACCOUNT TYPE
/ / 403(b)(7) Account
/ / Texas Optional Retirement Program (ORP). An ORP is a 403(b) plan
available to institutions of higher education in the State of Texas. The
term 403(b) also applies to ORP accounts whenever mentioned in any 403(b)
documents in this Kit.
______________________________________________________________________________
4. TRANSFER OR ROLLOVER ACCOUNTS
Please complete this section ONLY if you are transferring your 403(b) account
to one of the Funds in the American National Family of Funds FROM ANOTHER
INSTITUTION.
/ / A transfer of funds from ANOTHER 403(b) account is pending. A transfer
request is attached and a check for the $7.50 custodian fee is enclosed.
/ / I am rolling over my 403(b) account to one of the Funds in the American
National Family of Funds from another institution. I have liquidated the
former account and attached a check for the proceeds, which are to be
invested in an American National 403(b) account. I have enclosed a check
for the $7.50 custodian fee.
______________________________________________________________________________
5. FUND SELECTION AND CONTRIBUTION INFORMATION (If more than one fund
selected, indicate amount or percentage to be invested in each fund or
series.)
Total Amount of Salary Reduction $____________________________________________
/ / 21 Growth Fund $_______________________ or ____________________%
/ / 22 Income Fund $_______________________ or ____________________%
/ / 23 Triflex Fund $_______________________ or ____________________%
/ / 26 Government
Income Series $_______________________ or ____________________%
/ / 27 Primary Series $_______________________ or ____________________%
SUBSEQUENT CONTRIBUTIONS $_____________________________________________
/ / monthly / / quarterly / / annually / / other _______________________
Billing Franchise # _________________________
______________________________________________________________________________
6. LETTER OF INTENT (Not applicable to Primary Series)
I agree to the terms of the Letter of Intent as set forth in the respective
Prospectus. Although I am not obligated to do so it is my intention to
invest over a 13 month period in shares of one or more funds an aggregate
amount at least equal to that which is checked below. If existing accounts
are to be included, list under #7 below.
/ / $50,000 / / $100,000* / / $250,000
/ / $500,000 / / $1,000,000 / / $1,500,000
(*Government Income Series begins at $100,000)
______________________________________________________________________________
7. SALES CHARGE REDUCTION (Not applicable to Primary Series)
List all Existing Accounts. There will be no retroactive reduction of the
sales charge for shares previously purchased if this section is not completed.
Fund and Account Nos. ________________________________________________________
______________________________________________________________________________
PLEASE MAKE CHECK PAYABLE TO
SECURITIES MANAGEMENT & RESEARCH, INC.
Continued on back.
5
<PAGE>
[Logo] SECURITIES MANAGEMENT & RESEARCH, INC.
ACCOUNT APPLICATION - PART 1
______________________________________________________________________________
8. ORP VESTING INFORMATION (complete only if you will be a State of Texas ORP
participant)
Please check the statement below that applies to your vesting status in the
Optional Retirement Plan (ORP).
/ / YES, I have participated in the ORP for one year and one day and am
vested in the Program.
/ / NO, I have not participated in the ORP Program long enough to have met
the vesting requirements (one year and one day).
I understand that:
1. The contributions made by my employer on my behalf will be invested in
the Primary Series until the vesting requirements have been met;
2. Once I am vested, the State's matching contributions may be exchanged
into another fund upon authorization; AND
3. I have received and read a current prospectus of the fund selected.
9. SIGNATURE
The Employee hereby: (a) appoints Securities Management and Research, Inc.
("SM&R") as Custodian of the account; (b) acknowledges that he/she has
received a current prospectus(es) of the American National Funds Group and/or
SM&R Capital Funds, Inc. and has selected and agreed to the terms as stated
in the prospectus; (c) consents to the $7.50 (per account) initial
installation fee, the $7.50 (per account) annual maintenance fee and the
$5.00 excess contribution adjustment fee. Such fees are subject to change on
30 days written notice to the Employee; (d) acknowledges that he/she has
received a copy of the Custodial Agreement; (e) has obtained Employer's
consent to participate in the Agreement and is an Employee of an Employer
defined in the Agreement; (f) acknowledges responsibility for computing the
maximum annual contribution and for notifying custodian of the amount of
excess contributions, if any; and (g) agrees to the conditions governing the
designation of beneficiary, and (h) certifies under penalty of perjury that
the information contained in this application and supporting documents, are
true, correct and complete.
______________________________________________________________________________
Employee's Signature
______________________________________________________________________________
Date
CUSTODIAN: SECURITIES MANAGEMENT AND RESEARCH, INC.
This account becomes effective on the date the Custodian, or its agent,
accepts the application by issuing an investment confirmation to the
Employee, provided the Employee is not notified to the contrary within 30
days.
REPRESENTATIVE INFORMATION
______________________________________________________________________________
Representative Name (Please Print)
______________________________________________________________________________
Representative Signature
______________________________________________________________________________
SM&R Rep. Social Security Number
DEALER INFORMATION
______________________________________________________________________________
Dealer/Representative Name & Number
______________________________________________________________________________
Dealer/Representative Signature
______________________________________________________________________________
SM&R Dealer # (Internal Use Only)
Note: For Texas ORP Plans, make a copy of Part 1 of Application,
which must be signed by the institution.
6
<PAGE>
SECURITIES MANAGEMENT & RESEARCH, INC.
[Logo] One Moody Plaza, Galveston, TX 77550
Member NASD, SIPC
Distributor for the American National Family of Funds
403(b)(7) ACCOUNT APPLICATION - PART 2
- --------------------------------------------------------------------------------
Purchaser Suitability Form & Arbitration Agreement (This form must accompany all
mutual fund applications submitted to SM&R. All information requested is
required.)
NEW INVESTOR INFORMATION
Date
---------------------------------------------------------------------------
1. Account Registration
--------------------------------------------------------
If account registered as a corporation, partnership or other legal entity,
names of any persons authorized to transact business on behalf of entity:
-----------------------------------------------------------------------------
Social Security (or Tax I.D.) No.
-------------------------------------------
2. Fund(s) being purchased
------------------------------------------------------
3. Investor's Occupation
--------------------------------------------------------
Name of Employer
-------------------------------------------------------------
Address of Employer
----------------------------------------------------------
Business Phone ( )
---------------------------------------------------------
4. Is the Investor employed by or associated with a member of the NASD or NYSE?
/ / No
/ / Yes. If yes, provide the name, address or phone no. of the firm:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. Tax Status
/ / Single / / Head of Household
/ / Married filing separate returns
/ / Married filing joint return or qualifying widow(er) with dependent child
/ / Corporation / / Other
6. Marital Status
/ / Married / / Single / / Widowed
7. Dependents
/ / Spouse / / Children: Ages
-----------
/ / Other
INVESTOR SUITABILITY INFORMATION
(TO BE COMPLETED BY INVESTOR OR REGISTERED REPRESENTATIVE)
NASD rules require Registered Representatives to have reasonable grounds for
believing the recommended investment is suitable for the customer. Therefore,
representatives are required to make inquiries concerning the financial
condition of a proposed investor. You are urged to supply such information so
that the representative can make an informed judgment as to the suitability of
your investment selection(s). However, you are not required to divulge such
information. If you choose not to do so, you must sign at the section provided
on the reverse side indicating refusal and acknowledging that the representative
did request the suitability information.
1. SOURCES OF FUNDS FOR INVESTMENT
/ / Current Earnings / / Gift or Inheritance / / Insurance Benefit
/ / Savings / / Sale of Assets / / Maturity Proceeds
/ / Other
----------------
2. PRIMARY PURPOSE OF INVESTMENT
/ / Education / / Savings / / Retirement
/ / Current Income / / Tax Shelter / / Business Purposes
/ / Other
----------------
3. INVESTMENT PROFILE
(a) What is your current investment preference?
/ / Aggressive Growth / / Growth / / Growth & Current
Income
/ / Current Income / / Maximum safety, even if modest return
(b) What is your risk comfort level?
/ / High / / High/Moderate / / Moderate
/ / Moderate/Limited / / Low
(c) What is your financial goal time horizon?
/ / 1-5 years / / 5-10 years
/ / 10 years and beyond
(d) What is your age range?
/ / 21-40 / / 41-59 / / 60+
(e) What is your tax bracket?
/ / 15% / / 28% / / 28+
(f) What is your estimated annual family income?
/ / Under $15,000 / / $15,000-$30,000 / / $30,000-$50,000
/ / $50,000-$100,000 / / Over $100,000
(g) What is your estimated net worth (exclude home, furnishings and
automobiles)?
/ / Under $25,000 / / $25,000-$50,000
/ / $50,000-$100,000 / / Over $100,000
(h) Are you responsible for the financial welfare of anyone other than your
immediate family (i.e. alimony, child or parental support, etc.)?
/ / Yes / / No
(i) Do you own other securities?
/ / Yes / / No
Types: / / Stocks / / Bonds / / Mutual Funds
/ / Variable Products / / Other
--------------------
I (we) furnished the above suitability information and it has been accurately
recorded.
Investor Signature
--------------------------------------------------------------
Joint Owner Signature
-----------------------------------------------------------
Continued on back.
7
<PAGE>
[Logo] SECURITIES MANAGEMENT & RESEARCH, INC.
403(b)(7) ACCOUNT APPLICATION - PART 2
- --------------------------------------------------------------------------------
STATEMENT OF REFUSAL TO PROVIDE FINANCIAL INFORMATION
I (we) fully understand that the Registered Representative, acting on behalf of
Securities Management & Research, Inc. (SM&R), has requested the preceding
suitability information to determine whether my (our) purchase of securities is
an appropriate investment considering my (our) financial situation. I (we)
refuse to provide the requested information and by my (our) signature(s) below
agree not to seek rescission of the investment or damages based on its
unsuitability.
- --------------------------------------------------------------------------------
Investor Signature
- --------------------------------------------------------------------------------
Joint Owner Signature
REGISTERED REPRESENTATIVE NOTICE - Should the Investor sign the above Statement
of Refusal to Provide Financial Information, it is still an NASD requirement
that you have reasonable grounds to recommend the purchase of this investment as
suitable. Therefore, YOU must complete the suitability information to the best
of your knowledge and certify that you have done so when signing the Registered
Representative's Statement below.
REGISTERED REPRESENTATIVE STATEMENT & SIGNATURE
Check appropriate boxes.
/ / Application-Part 1 attached.
/ / Custodial Agreement and Disclosure Statement detached and given to Investor.
(For IRA, TSA, SEP, or SIMPLE accounts only)
/ / Signed Arbitration Agreement
/ / Suitability information was provided by the Investor and the Investor signed
acknowledgment that information was accurately recorded.
- or -
/ / Refusal to Provide Financial Information Statement Signed by Investor.
I provided the suitability information to the best of my knowledge and have
reasonable grounds to recommend the purchase of this investment as suitable
for the investor.
- --------------------------------------------------------------------------------
Registered Representative Signature
- --------------------------------------------------------------------------------
Registered Representative Name (print)
PURCHASER 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 a jury trial.
3. Pre-arbitration discovery is generally more limited 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 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 may be entered in any appropriate court.
I (we) further understand that we may not bring a punitive or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against anyone who has initiated in court a punitive class action; or who is a
member of a punitive class action until (1) the class action certification is
denied; or (2) the class is decertified, or (3) I (we) are excluded from the
class action by the court. Such forbearance to enforce an agreement to
arbitrate shall not constitute a waiver of any right under this agreement except
to the extent stated herein.
- --------------------------------------------------------------------------------
Investor Signature
- --------------------------------------------------------------------------------
Joint Owner Signature
Accepted; Securities Management & Research, Inc.
By
------------------------------------------------------------------------------
Date
----------------------------------------------------------------------------
8
Form 9402
06/97
<PAGE>
BENEFICIARY INFORMATION (TO BE COMPLETED AND SUBMITTED WITH APPLICATION(S))
_______________________________________________________________________________
The following designations(s) is (are) subject to the provisions of the Plan.
This designation of beneficiary(ies) remains in effect unless and until a new
designation of beneficiary form is sent, in writing, to the Custodian. This
designation may be revoked and a different beneficiary named by providing the
Custodian with a newly executed Designation of Beneficiary form. Indicate a
percentage amount for each named beneficiary to avoid the possibility of
court intervention. Special beneficiary arrangements should be outlined in
your will. If you are not survived by any designated beneficiary, your estate
will be your beneficiary.
PRIMARY BENEFICIARY
1. Name _______________________________
Date of Birth ______________________
Relationship________________________
Share %______________SSN____________
Address_____________________________
City________________________________
State___________________Zip_________
2. Name _______________________________
Date of Birth ______________________
Relationship________________________
Share %______________SSN____________
Address_____________________________
City________________________________
State___________________Zip_________
SECONDARY BENEFICIARY: (If the person(s) named above should fail to survive
me)
1. Name _______________________________
Date of Birth ______________________
Relationship________________________
Share %______________SSN____________
Address_____________________________
City________________________________
State___________________Zip_________
2. Name _______________________________
Date of Birth ______________________
Relationship________________________
Share %______________SSN____________
Address_____________________________
City________________________________
State___________________Zip_________
Payment will be made in equal shares to the primary beneficiary who survives
me, or if none, to the secondary beneficiary who survives me. If no
beneficiary survives me, payment will be made to my estate.
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TRANSFER OF ASSETS REQUEST
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- -------------------------------------------------------------------------------
Contact your current custodian or insurance company for their requirements
before completing.
Complete this form to transfer your present 403(b) account held at another
institution to one of the Funds in the American National Family of Funds and
return to Securities Management and Research, Inc. Securities Management and
Research, Inc. will forward these instructions to your present custodian or
insurance company. Your current custodian may require a separate letter of
instruction, a signature guarantee or an annuity contract, if issued.
EMPLOYEE INFORMATION
Name:__________________________________________________________________________
Soc. Sec. #:___________________________________________________________________
Date of Birth: ________________________________________________________________
Address: ______________________________________________________________________
City, State, Zip ______________________________________________________________
TRANSFER FROM YOUR PRESENT 403(b) ACCOUNT
Name of Insurance Company or Present Custodian:
_______________________________________________________________________________
Address: ______________________________________________________________________
City, State, Zip: _____________________________________________________________
Account Number(s): ____________________________________________________________
EMPLOYEE'S AUTHORIZATION FOR TRANSFER
To Resigning Custodian or Trustee:
I request a / / FULL / / PARTIAL: $___________________________________
liquidation and transfer of my tax sheltered annuity or custodial account(s)
established pursuant to Internal Revenue Code Section 403(b) / / IMMEDIATELY
or / / AT MATURITY. I have established a 403(b) plan with the American
National Family of Funds and have appointed Securities Management and
Research, Inc. as the successor custodian to accept this tax-free transfer of
my present Account
_______________________________________________________________________________
Signature
_______________________________________________________________________________
Date
_______________________________________________________________________________
Signature guarantee, if required by Resigning Custodian
If you have any questions regarding the transfer request, please contact
/ / Securities Management and Research, Inc.
at 1-800-231-4639
/ / Shareholder (Daytime Phone) ( )_______________________-
INVESTMENT OF TRANSFERRED PROCEEDS
/ / I am opening a new account and have attached a completed application
/ / Please deposit the transferred proceeds in my existing 403(b) custodial
account number:
_______________________________________________________________________________
ACCEPTANCE BY NEW CUSTODIAN
Securities Management and Research, Inc. has agreed to serve as custodian for
the above individual's 403(b) custodial account. As custodian, Securities
Management and Research, Inc. will accept the transfer described above.
Please liquidate, and transfer on a custodian-to-custodian basis the amount
designated above and make check payable to Securities Management and
Research, Inc., for benefit of the above named individual account number
_________________________ and mail the check to Securities Management and
Research, Inc., One Moody Plaza, 14th Floor, Galveston, Texas 77550.
_______________________________________________________________________________
Authorized Signature Securities Management and Research, Inc.
_______________________________________________________________________________
Date
REQUIRED MINIMUM DISTRIBUTION INFORMATION
NOTE TO PRESENT CUSTODIAN: If the Employee has reached age 70 1/2, please
complete the following Election made by the Employee as of the required
beginning date. Remaining Period over which required distributions are to be
made: ______________________________ (Number of Years)
Payment method: (Select one)
/ / Declining (elapsed) years
/ / Recalculation of life expectancy
Did Employee choose Joint Life Expectancy with a Designated Beneficiary?
/ / Yes / / No
If "YES" complete following
Beneficiary Name:______________________________________________________________
Date of Birth: ________________________________________________________________
Is Beneficiary Spouse? / / Yes / / No
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SAMPLE SALARY REDUCTION AGREEMENT
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- -------------------------------------------------------------------------------
This form is provided as an example of a typical salary deferral agreement
available from your employer and may be used if acceptable to your employer.
Once completed the form will be retained by your employer as authorization to
begin salary deferrals. No representations as to the validity or accuracy of
the content of this form is being made by Securities Management & Research,
Inc. or its representatives. Be sure to confirm that the American National
Family of Funds (American National Funds Group and the SM&R Capital Funds,
Inc.) have been approved by your employer for 403(b) investments.
/ / New Reduction
/ / Increasing Existing Amount
/ / Decreasing Existing Amount
It is agreed by __________________________________________________________
hereinafter referred to as "Employer", and
____________________________________________________, hereinafter referred to
as "Employee", that the employment contract between them for the 19___
through 19___ tax year be amended in the following manner:
1. The salary to be paid to the Employee by the Employer shall be reduced by
the sum of $__________ per month,(______ payments) beginning with the check
payable on _______________________________________, 19___.
2. The salary to be paid to the Employee by the Employer shall be reduced by
the sum of $__________ per month, (______ payments) beginning with the check
payable on _______________________________________, 19___ and beginning
with the check payable on _______________________________________, 19___,
my salary shall be reduced by the sum of $__________ (______ payments).
3. The sum of $__________ per month resulting from such salary reduction
shall be transmitted by the Employer for the purchase of shares of the
American National Funds to be held in a Custodial account. Such Custodial
account shall be established for the Employee in accordance with the
provision of IRC 403(b)(7) and related sections.
4. The reduction amount will be forwarded on the ____________ of the month
following the payroll deduction to:
Securities Management & Research, Inc.
One Moody Plaza
Galveston, Texas 77550
5. The Employee releases any and all rights, present and future, to
receive payment of the sums from the Employer resulting from such salary
reduction in any form except: (1) the right of the Employee to designate
beneficiary of sums to be paid from the Employee's custodial account,
together with sums withheld by the Employer but not yet forwarded to the
designated regulated investment company, upon the Employee's death; (2)
the right of the Employee, upon termination of employment by reason other
than death, personally to receive all or any part of the amount specified
for which service has been rendered but which has not been transmitted
for the purchase of shares of a regulated investment company, together
with such amount as shall be in the Employee's custodial account; or (3)
the right of the Employee as to receipts of sums so paid upon his death.
6. The Employee acknowledges that the Employer has made no representation
to the Employee regarding the advisability, appropriateness or tax
consequences of the purchase of the shares described herein. The Employee
agrees that the Employer shall have no liability whatsoever for any and
all losses suffered by the Employee with regard to his selection of the
fund; the selection of the regulated investment company; the solvency of,
operation of, or benefits provided by said regulated investment company;
or his selection and purchase of shares of regulated investment companies.
7. This amendment shall automatically apply to the employment contract
entered into between the Employer and the Employee for each succeeding
tax year unless amended or terminated by written notice to the Employer
prior to the expiration of the then current tax year.
Date: ___________________________________________________________, 19 ___
_______________________________________________________________________________
Authorized Signature (Employer)
_______________________________________________________________________________
Employee Signature
_______________________________________________________________________________
Employee Social Security Number
RETAINED BY EMPLOYER
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SALARY REDUCTION MAXIMUM ALLOWABLE DEFERRAL WORKSHEET
- ------------------------------------------------------------------------------
The following deferral worksheet will help you determine the amount of your
maximum allowable salary reduction. However, you may be required to reduce
this amount further if your employer is making plan contributions in addition
to your deferrals or you are currently making salary deferral contributions
to other retirement plans. You may keep this worksheet for your own records.
Information Required for Deferral Computation:
CURRENT SALARY =$__________
Current Annual Salary (before Salary Reductions)
YEARS OF SERVICE =___________
Years of service with Current Employer (enter whole and fractional years;
however, if less than 1 year, use "1" year)
PRIOR CONTRIBUTIONS =$__________
All contributions (excluding salary deferrals) made by your present
employer to qualified plans, including 403(b) and SEP-IRA Plans, in
prior years for your benefit.
PRIOR DEFERRALS =$__________
All salary deferrals made to 403(b) Plans (including tax-sheltered
annuities) 457 Plans (relating to State deferred compensation plans),
SAR-SEP, and 401(k) Plans on your behalf by your present employer in
prior years.
_______________________________________________________________________________
BASIC EXCLUSION ALLOWANCE FOR DEFERRALS:
1. $___________________=$___________________times________________times .20
Current Salary Years of Service
2. $___________________=$___________________plus $________________
Prior Contributions Prior Deferrals
3. $___________________= #1 minus #2
4. ____________________=(___________________times .20) plus the numeral 1
Years of Service
5. $___________________= #3 divided by #4
Basic Exclusion Allowance
6. $___________________= Enter amount in #5 or $9,500, whichever is less
Maximum Allowable Deferral
_______________________________________________________________________________
It is important that you do not exceed your maximum annual contribution with
respect to any tax year. Any such excesses may be subject to penalty taxes
and/or interest charges on unpaid taxes. Alternative calculation methods are
available to certain plan participants which may result in a larger allowance
if you are an employee of a "qualified organization".
The use of this calculation method may not be appropriate for you if you are
a church employee or if you participate in any other salary reduction plan.
PLEASE NOTE: Neither Securities Management and Research, Inc. nor its
Registered Representatives give legal or tax advice or are authorized to do
so. This Salary Reduction Maximum Allowable Deferral Worksheet is not
intended as legal advice and is a brief summary of applicable law, which is
complex and subject to change. For complete details, you should consult with
your legal and tax advisors.
RETAINED BY EMPLOYEE
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AMERICAN NATIONAL FAMILY OF FUNDS 403(b)(7)
CUSTODIAL AGREEMENT
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The American National Family of Funds (herein referred to as "Funds",
"American National Funds" or "American National Family of Funds") 403(b)(7)
Custodial Agreement (the "Agreement") is intended for use by Employers and by
eligible employees who may wish to have their Employer's contributions held
for their benefit in an account invested in shares of eligible American
National Funds, all of which are regulated investment companies, upon the
terms and conditions set forth in this Agreement and in accordance with the
applicable provisions of the Internal Revenue Code of 1986, as amended.
This Agreement is authorized for distribution only if accompanied or
preceded by a current prospectus of one of the American National Funds, in
which a participant invests, in accordance with Section 4. Such prospectuses
contain information concerning the applicable sales charge and other
important facts.
The Employer is an organization described in Section 403(b)(1)(A) of the
Internal Revenue Code of 1986 (the "Code") and desires to provide benefits
for certain of its employees by establishing with the Custodian a custodial
account which satisfies the requirements of Section 401(f)(2) of the Code.
The Custodian is willing to accept its appointment as Custodian of such
custodial account.
Accordingly, the Employer and the Custodian agree as follows:
SECTION 1. DEFINITIONS:
As used in this Agreement, the following terms have the meaning set forth
below, unless a different meaning is clearly required by the context:
1.1 "Account" or "Accounts" means the separate account(s) established and
maintained under this Agreement in accordance with Section 403(b)(7) of
the Code to hold and manage the contributions made hereunder for the
benefit of an Employee.
1.2 "Agreement" means this American National Family of Funds 403(b)(7)
Custodial Agreement, which may constitute an amendment and restatement
of the Agreement in effect immediately prior to this custodial
agreement (the "Former Agreement"), including the information and
provisions set forth in the account application executed to establish the
Employees Account(s). The Agreement, including the account application
and any designation of beneficiary filed with the Custodian, may be
proved either by an original copy or a reproduced copy thereof.
1.3 "Application" means the Application for American National Family of
Funds 403(b)(7) Custodial Account Application executed by the Employee
providing for the establishment of the Account(s) in accordance with
the terms and conditions of the Agreement and if applicable, such other
or additional documents as may be required. The Application is attached
to, and made a part of, this Agreement.
1.4 "Beneficiary" or "Beneficiaries" means the individual or individuals
currently designated by the Employee or, where applicable, by his
surviving spouse, as the beneficiary or beneficiaries on the form
provided for this purpose and then currently on file with the
Custodian, or if no such beneficiary is alive or no designation is in
effect at the time of the Employee's death, the Employee's estate.
1.5 "Code" means the Internal Revenue Code of 1986, as amended and Treasury
Department regulations issued thereunder and applicable Internal
Revenue Service rulings.
1.6 "Contribution" means any salary reduction contribution amount transmitted
by the Employer to the Custodian, and any rollover or transfer
contribution, to be credited to the Employee's Account in accordance
with Section 3.
1.7 "Custodian" means Securities Management and Research, Inc. or any
successor Custodian, as provided in Section 8.
1.8 "Disabled" means, an individual who is unable to engage in any
substantial gainful activity by reason of any medically determinable
physical or mental impairment which can be expected to result in death
or to be of long-continued and indefinite duration. An individual shall
not be considered disabled unless he furnishes proof of the disability,
as required.
1.9 "Employee" means an individual employed by the Employer who has
obtained the Employer's consent to participate under this Agreement and
who has properly executed the Application.
1.10 "Employer" means the employer named in the Application and as described
in Section 501(c)(3) of the Code and exempt from tax under Section
501(a) of the Code; or a State, a political subdivision of a State, or
any agency or instrumentality thereof, but only with respect to
employees who perform or have performed services for an educational
organization described in Section 170(b)(1)(A)(ii) of the Code.
1.11 "Financial Hardship" The determination by the Employer of the existence
of financial hardship and the amount required to be distributed to meet
the need created by the financial hardship shall be made in accordance
with the following standards: a financial need of the Employee because of
(i) a personal accident or illness of the Employee or a person in the
Employee's immediate family, (ii) the death of a person in the Employee's
immediate family, (iii) the need for funds to acquire, construct or
reconstruct or substantially rehabilitate any dwelling unit which
within a reasonable time is to be used (determined at the time the
distribution is made) as a principal residence of the Employee or a person
in the Employee's immediate family or educational expenses of the Employee
or a person in the Employee's immediate family. Distributions made for
financial hardship purposes are subject to mandatory 20% withholding. A
distribution based upon financial hardship cannot exceed the amount
required to meet the immediate financial need created by the financial
hardship and not reasonably available from other resources of the
Employee. Distributions on account of financial hardship after December
31, 1988, shall only be made in the case of contributions made pursuant to
a Salary Reduction Agreement. The Custodian shall have no responsibility
for obtaining the determination from the Employer or evaluating the
financial hardship or the independence of the individual making the
determination. The determination of the Employer shall be final.
1.12 "Funds", "American National Funds" or "American National Family of
Funds" means the regulated investment companies, as defined in Section
851(a) of the Code, whose investment adviser and shareholder servicing
agent is Securities Management and Research, Inc., and whose shares are
authorized for purchase under this Agreement.
1.13 "Salary Reduction Agreement" means a legal binding agreement between
the Employer and the Employee whereby the Employee irrevocably agrees to
take a reduction in salary or forego an increase in salary with respect to
amounts earned after the Agreement's effective date, and whereby the
Employer agrees to contribute the amount of salary reduced or foregone by
the Employee to the Account(s). The Salary Reduction Agreement may be
terminated at any time by either the Employer or the Employee with respect
to amounts not yet earned by the Employee.
SECTION 2. ESTABLISHMENT OF ACCOUNT(S).
2.1 The Custodian shall, in accordance with the terms of this Agreement,
open and maintain an Account for the exclusive benefit of each Employee
who has properly become a party to this Agreement and the Employee's
designated beneficiaries. The Custodian shall hold and administer, in
accordance with the terms hereof, contributions to the Account(s) and any
gain or income from the investment thereof.
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2.2 The Application and the Salary Reduction Agreement are incorporated
herein by reference as part of the Agreement. The Employer shall be
deemed to have established this Account for the Employee upon the
Employer's payment to the Custodian of the initial contribution specified
in Section 3. The Account will become effective upon acceptance of the
Application by or on behalf of the Custodian at its offices, as evidenced
by a written notice to the Employee. Notice may be given by confirmation
statement confirming the establishment of the Account.
2.3 Requirements for Establishment of Texas Optional Retirement
Program Accounts. The Custodian shall open and maintain two separate
accounts for each Employee electing to invest in the State of Texas
Optional Retirement Program (ORP). The Custodian shall hold the State's
matching contribution in an SM&R Capital Funds, Inc.--American National
Primary Fund Series account for the Employee for a period of one year
and one day; and contributions made by salary reduction for the employee
will be invested in the Fund of his choice pursuant to the conditions of
ORP. The State of Texas shall maintain sole discretion over all separate
accounts containing State ORP contributions until such time as the
Custodian is directed otherwise by the State.
SECTION 3. CONTRIBUTIONS
3.1 The Custodian shall accept cash contributions from the Employer on
behalf of Employee. Each such contribution shall be accompanied by
specific written instructions from the Employer specifying the
Employees' separate accounts to which it is to be credited. Employer
contributions shall be made only pursuant to a written salary reduction
agreement between the Employer and Employee.
The Employee shall have sole responsibility for determining the
amount an Employer may contribute on his behalf. The Custodian shall not
be responsible to recommend or compel Employer contributions to the
Account. If during any taxable year the Employer contributes an amount
which is an "excess contribution," such excess contribution and any
income attributable thereto shall, upon the written request of the
Employee to the Custodian specifying the specific amount of such excess
contribution and income, be paid to the Employee by the Custodian.
3.2 The Employer or the Employee may transfer cash from another
custodial account qualified under Section 403(b)(7) of the Code and/or
from an annuity contract qualified under Section 403(b) of the Code to
the Account if the Employee certifies that the transaction meets the
requirements for a tax-free transfer of annuity contract under
Section 1035 of the Code and other applicable laws or rulings of the
Internal Revenue Service, or is a rollover contribution described in
Sections 403(b)(8), 408(d)(3)(A)(iii) or any other appropriate section
of the Code. Once transferred, such assets shall be treated as a
contribution on behalf of such Employee for purposes of this Agreement
and shall be invested, distributed and otherwise dealt with as such. The
Custodian shall not have any responsibility to the Employee for the tax
treatment of any such transfer or rollover.
3.3 The Employer or the Employee may cause the transfer, in cash, of
the balance credited to the Employee's separate account from this
Account directly to the Custodian of another custodial account qualified
under Section 403(b)(7)of the Code or to an insurance company designated
by the Employee for the purchase, for the benefit of the Employee of an
annuity contract qualified under Section 403(b) of the Code if the
Employee certifies that the transaction meets the requirements for a
tax-free transfer of annuity contracts under Section 1035 of the Code
and other applicable laws or rulings of the Internal Revenue Service.
Once transferred, such assets shall be treated as a contribution on
behalf of the Employee for purposes of the successor custodial account
and/or annuity contract and shall be invested, distributed and otherwise
dealt with as such.
3.4 Neither the Custodian nor the Distributor or its agents shall be
liable for losses arising from the acts, omissions, or delays or other
inaction of any party transferring assets to the Account or receiving
assets transferred from the Account pursuant to this Section 3 nor shall
they have responsibility for the tax treatment to the Employee of any
rollover or transfer of assets.
SECTION 4. INVESTMENT OF ACCOUNT ASSETS.
4.1 Contributions credited to the Employee's Account(s) shall be
applied by the Custodian solely to the purchase of shares, including
fractional shares carried to the third decimal place in one or more of
the Funds.
4.2 The Employer (upon request of the Employee) and/or the Employee
may direct the Custodian at any time and from time to time to exchange
any shares held in the Account for other shares of Funds in the American
National Family of Funds in accordance with the then current
prospectuses relating to such shares.
4.3 All dividends and capital gains or other distributions shall be
reinvested in additional fund shares which shall be credited to the
Employee's account.
4.4 All shares credited to the Employee's Account shall be registered
in the name of the Custodian or its registered nominee.
4.5 The Employee may not borrow funds from his account, nor may he use
the funds as security for any loan or extension of credit.
4.6 The Custodian shall not have any duty to question the directions
of the Employee or the Employee's Beneficiary, executor or administrator
regarding the investment of the assets in the Account or to advise such
persons regarding the purchase, retention or sale of such investments,
nor shall the Custodian be liable for any loss that results from the
exercise of control over the Account by the Employee or the Employee's
Beneficiary, executor or administrator. By giving investment
instructions the Employee or the Employee's Beneficiary, executor or
administrator will be deemed to have acknowledged receipt of the then
current prospectus in which the Employee or the Employee's Beneficiary,
executor or administrator instructs the Custodian to invest
contributions or assets under the terms of this Agreement.
SECTION 5. DISTRIBUTIONS
5.1 Distribution from the Account shall be made by the Custodian only
to an Employee, his surviving spouse or Beneficiary (as defined in
Section 1), and no purported sale, transfer, pledge or assignment by the
Employee, his spouse or Beneficiary of all or any part of an interest in
the Account shall be recognized by the Custodian except as provided in
Section 3.2. The interest of a Employee, his spouse or Beneficiary in
the Account shall not be subject to the debts, contracts, liabilities,
engagements or torts of such person or to attachment or legal process
against such person. This Section 5.1 shall be subject to such exceptions
as may be required by law, including without limitation, any requirements
as to the withholding of any amounts from such distributions for federal
and, if applicable, state income taxes.
5.2 "Events of Distributions" The Custodian shall distribute, or
commence distribution of, the balance credited to an Employee's
account only upon request of the Employee after receipt of written
certification and evidence satisfactory to the Custodian from the
Employee that one or more of the following events have occurred:
(a) the Employee has reached his Normal Retirement Date or
has actually reached age 70 1/2;
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(b) the Employee has attained age 59-1/2;
(c) the Employee has become disabled (refer to Section 1 for
definition of disabled);
(d) the Employee has separated from service with the Employer;
(e) the Employee has died.
5.3 Restrictions on ORP Distributions. Notwithstanding any
limitations contained in this paragraph 5.2, and in accordance with
the rules and regulations promulgated by the State of Texas in
connection with optional retirement programs, no distribution from
the custodial account shall be made unless written authorization of
one of the following three conditions is provided by the Employer
to the Custodian:
1. Death of Employee;
2. Termination of service with Employer;
3. Retirement of Employee.
Furthermore, whereby state matching contributions has been invested
in a separate account on behalf of an Employee and such Employee
terminates his employment prior to one year and one day of employment,
the distribution will be made payable and forwarded to the State.
5.4 Whether or not the distribution have commenced pursuant to
Section 5.2, all or a portion of an Employee's interest in the
Account shall be distributed to him by the Custodian upon receipt
of written notice from the Employer (following application by the
Employee) that such distribution has been authorized by the
Employer for reason of Financial hardship (as defined in Section 1).
Any such distribution shall be paid to the Employee in cash
after receipt of certification by the Employee that the
distribution amount is only of salary reduction contributions and
not earnings. Such distribution will be subject to the 20%
mandatory withholding pursuant to the Unemployment Compensation Act
of 1992.
5.5 If the distribution occurs before the Employee is age 59-1/2
(and is not directly rolled over to another qualifying plan), the
distribution is subject to a 10% federal excise tax plus a 20%
mandatory withholding, in addition to ordinary income tax, unless
the distribution is: (a) made on account of separation of service
occurring after attainment of age 55; (b) attributable to
disability; (c) made to a beneficiary or to the Employee's estate
following the death of the Employee; (d) made to an alternate payee
pursuant to a qualified domestic relations order, or (e) part of a
series of substantially equal periodic payments (commencing after
separation of service) over the Employee's single or joint life
expectancy. Such payment schedule must remain uninterrupted through
the later of attainment of age 59-1/2 or five (5) years from the
date of the first payment.
5.6 "Required Distributions" The Employee must begin receiving
distribution from his Account not later than April 1 following the
calendar year in which the Employee attains age 70-1/2, hereinafter
termed the "required beginning date". At least 30 days prior to
that date, the Employee must elect to have the balance in the
Account distributed in: (i) a single sum payment; (ii) equal, or
substantially equal, monthly, quarterly, or annual payments
commencing not later than the required beginning date and not
extending beyond the life expectancy of the Employee; or (iii)
equal, or substantially equal, monthly, quarterly, or annual
payments commencing not later than the required beginning date and
not extending beyond the joint and survivor expectancy of the lives
of the Employee and the designated Beneficiary, provided. However,
if the Employee's spouse is not the designated Beneficiary, the
method of distribution selected must assure that at least 50% of
the present value (determined at the time the distribution
commences) of the account available for distribution is paid within
the life expectancy of the Employee.
The minimum amount that must be distributed each year,
beginning with the date payments commence, is the balance in the
Account immediately prior to the distribution (to include payments
withdrawn during that year) divided by the life expectancy of the
Employee or joint life expectancy of the Employee and his/her
designated Beneficiary computed at the end of each year.
Notwithstanding that distributions may have commenced pursuant to
(i) or (ii) above, the Employee may receive a larger distribution
from the Account upon written request to the Custodian.
It shall be the duty of the Employee or, when applicable, the
Employee's Beneficiary to determine the amount of distributions
hereunder, and the Custodian shall not be liable to the Employee or
any other person for taxes or other penalties incurred as a result
of failing to distribute any minimum amount required by the Code.
5.7 "Death Benefits" If the Employee dies before receiving full
distribution of the Account, the balance in the Account must be
distributed in the following manner:
(a) If the Employee died after his/her required beginning date
for distributions, the Beneficiary will continue to receive
distributions at least as rapidly as under the method of
distribution in use prior to the Employee's death and may request
larger distributions, including a single sum payment of the balance.
(b) If the Employee died prior to his/her required beginning date, and
the designated Beneficiary is the surviving spouse, the spouse may
receive the balance in the Account:
(i) over a period (or in a single sum payment) not extending
beyond December 31 of the fifth year following the Employee's
death, or
(ii) over a period or in a single sum payment commencing not later
than December 31 of the year in which the Employee would have
attained age 70-1/2 and not extending beyond the life expectancy
of the surviving spouse.
Distributions will be treated as having been paid to the surviving
spouse even if paid to a child if the balance will be paid to the
spouse when the child reaches the age of majority.
(c) If the Employee died prior to his/her required beginning date,
and the designated Beneficiary is not the surviving spouse, the
Beneficiary must receive the balance of the Account
(i) over a period or in a single sum payment not extending beyond
December 31 or the fifth year following the
Employee's death, or
(ii) over a period commencing not later than December 31 of the
year following the year of the Employee's death and not
extending beyond the life expectancy of the Beneficiary.
5.8 "Computation of life expectancy" Life expectancies of the Employee
and Beneficiary shall be determined pursuant to tables contained in
Section 1.72-9 of the Treasury Regulations.
Unless an election to recalculate life expectancy is made by the Employee
(or surviving spouse in the case of distributions described in Section
4.4(b)(ii) above) not later than the required beginning date, payments for
any 12-consecutive-month period will be based on life expectancy, computed
prior to the first payment, minus the number of whole years passed since the
payments first commenced.
5.9 "Miscellaneous" Any distribution payment made by the Custodian
shall be subject to withholding of any income or other taxes required by
law.
SECTION 6. NONFORFEITABILITY.
A Participant's interest in the balance of his account shall at all
times be nonforfeitable.
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SECTION 7. BENEFICIARY DESIGNATION.
The Employee may designate the Beneficiary of his Account by completing
a beneficiary designation form acceptable to and filed with the Custodian.
If the Employee designates more than one Beneficiary, he shall
designate the percentage interest that each such Beneficiary shall
receive from his Account upon distribution. In the event no such
percentage interest is designated, the interest of each Beneficiary
shall be equal.
If the Employee predeceases his/her spouse before his/her entire
Account is distributed in accordance with Article 4(c) of the Plan and
the spouse is entitled to distributions and the Employee has designated
no Beneficiary for the remaining interest and if the spouse should die
before the Account is fully distributed or all such Beneficiaries shall
have predeceased the Employee's spouse, then the interest of the
Employee's spouse in the Account shall be fully vested and subject to
the terms and conditions of this Article and the Employee's spouse shall
be entitled to designate the Beneficiary of Account in accordance with
this Article.
The Employee may, at any time, change or revoke any designation made
under this Section by completing a beneficiary designation form
acceptable to and filed with the Custodian. Upon the death of the
Employee, the designation or designations made hereunder shall be
irrevocable. A change of beneficiary designation shall be effective only
if received by the Custodian prior to the death of the Employee.
If the Employee fails to designate any Beneficiary or if the Employee
revokes the designation of Beneficiary or if all Beneficiaries
designated predeceases the Employee, then the entire interest of the
Employee in his/her Account shall pass to the Employee's estate.
SECTION 8. RESPONSIBILITY AND DUTIES OF CUSTODIAN.
8.1 "Agency" The Custodian shall be an agent for the Employer and the
Employee to receive and invest contributions as directed by the
Employee, hold and distribute investments, and keep adequate records and
report thereon, all in accordance with the Agreement. The parties do not
intend to confer any fiduciary duties on the Custodian and none shall be
implied.
8.2 "Delegation of Authority" The Custodian may perform any of its
administrative duties through other persons designated by it from time
to time, except that shares must be registered as stated in Section 5.4;
but no such delegation or future change therein shall be considered as an
amendment of the Agreement.
8.3 "Written Communications" All notices, requests and other
communications to the Custodian by the Employer or any Employee (or his
spouse or Beneficiary) shall be in writing and in such form as the
Custodian may from time to time prescribe. The Custodian shall be
entitled to rely on any such instrument believed by it to be genuine.
8.4 Except as provided in Section 9.2, the Custodian shall have the
power and authority in the administration of the Account to do all acts,
to execute and deliver all instruments and to exercise for the benefit
of the Employee's and their Beneficiaries any and all powers which would
be lawful, were it in its own right the actual owner of the property
held.
8.5 "Custodian Fees" The Custodian shall receive such compensation for
its services hereunder as may be agreed upon from time to time by the
Custodian and the Employee. At least thirty (30) days notice shall be
given of any increase in the Custodian's compensation and the Employee
shall have made no objection thereto within such 30-day period. Such
compensation and any expenses incurred by the Custodian in the
administration of the Account shall be paid from the Account and shall,
unless allocable to the accounts of specific Employee's be charged
proportionately to the accounts of all Employee's.
8.6 "Resignation or Removal" The Custodian may resign at any time upon
thirty (30) days' notice in writing to the Employee and may be removed by
the Employer at any time upon thirty (30) days' notice in writing to the
Custodian and the other party. Upon such resignation or removal, the
Employer shall appoint a successor custodian, which successor shall be a
"bank" as defined in Section 501(d)(1) of the Code or such other person
who is eligible to be a custodian under Section 401(f)(2) of the Code.
If within thirty (30) days after the Custodian's resignation or removal,
the Employer has not appointed a qualified successor custodian which has
accepted such appointment, the Custodian may appoint, or may apply to a
court of competent jurisdiction for appointment of a successor custodian
which shall be a "bank" as defined in Section 401(d)(1) of the Code or
such other person eligible to be a custodian under Section 401(f)(2) of
the Code. Upon receipt by the Custodian of written acceptance of
appointment by the successor custodian, the Custodian shall transfer and
pay over to such successor the assets of the Account and all records
pertaining thereto, reserving such sum as it may deem advisable for
payment of all its fees, compensation, costs and expenses and any other
liabilities constituting a charge on or against the assets of the
Account or on or against the Custodian. The successor custodian shall
thereafter be the Custodian under this Agreement. Upon its resignation or
removal, the Custodian shall not be liable for the acts or omissions of
any successor Custodian. Upon the transfer of the assets of the Account
to a successor Custodian, the resigning or removed Custodian shall be
relieved of all further liability with respect to this Agreement, the
Account and the assets thereof.
8.7 "Liability of Custodian" The Custodian shall not be liable in any
way for the determination or collection of contributions provided for
under this Agreement, the selection of the investments for the Account,
the purpose or propriety of any distribution made pursuant to Section 5
hereof, or any other action taken at the direction of the Employer, the
Employee (or Beneficiary, where applicable) or other authorized
representative. The Custodian shall not be obliged to take any action
whatsoever with respect to the Account except upon the receipt of written
directions from the Employee (or Beneficiary, where applicable) or other
authorized representative. The Custodian shall be under no obligation to
determine the accuracy or propriety of any such directions and shall be
fully protected in acting in accordance therewith. Subject to applicable
law, the Custodian shall not be liable for taking or omitting to take any
action under this Agreement. The Custodian shall not be obligated or
expected to commence or defend any legal action or proceeding in
connection with this Agreement.
SECTION 9. REPORTS AND RETURNS.
9.1 The Custodian shall:
(a) maintain separate records of the interest of each Employee (or his
surviving spouse or Beneficiary) in the Account indicating (i) the
amounts and dates of all contributions, (ii) the investment of such
contributions, (iii) the earnings on such investments, (iv) the
amounts and dates of all distributions, and (v) such other data as
the Custodian deems useful in carrying out its duties hereunder; and
(b) mail at least once during each calendar year a statement of all
transactions in the Account during the preceding year and a
statement showing the value of the assets held in the Account as of
the end of such year. Unless the Employee sends the Custodian
written objection to a report within sixty (60) days after its
receipt, the Employee shall be deemed to have approved such report;
and, in such case, the Custodian shall be forever
20
<PAGE>
released and discharged from all liability and accountability to
anyone with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any
such proceeding the only necessary party thereto in addition to the
Custodian shall be the Employee.
9.2 Shares in the Account shall be voted by, or in accordance with
the instructions of, the Employee of whose benefit they are held, or
by, or in accordance with the instructions, of his surviving spouse or
Beneficiary; and the Custodian shall deliver, or cause to be delivered
to the Employee or his surviving spouse or Beneficiary all notices,
financial statements, proxies and proxy materials relating to such
Shares.
9.3 The Custodian shall file such returns or reports with respect to
the Account as are required to be filed by it under the Code and the
regulations thereunder, or by the Department of Labor, and the
Employer and each Employee shall provide the Custodian with such
information available to them as the Custodian may require to file
such reports.
SECTION 10. AMENDMENT AND TERMINATION.
10.1 This Custodial Agreement may be amended by written instrument to
any extent upon thirty (30) days written notice to the Employee.
Notwithholding the foregoing, such amendment shall be effective upon
adoption if designated by the Custodian as necessary to qualify under
Section 403(b) of the Code.
10.2 This Agreement shall terminate upon the complete distribution of
the Account or in the event that a determination is made by the
Internal Revenue Service that the Account does not satisfy the
requirements of Section 401(f)(2), Paragraph 11,700 of the Code or
that contributions thereto are not treated under Section 403(b)(7)(A)
of the Code as contributed for annuity contracts. In the event of
termination as aforesaid, the balance in the Account shall be
distributed to the Employee's (or their respective surviving spouses
or Beneficiaries, as the case may be) in accordance with their
interests in the Account.
10.3 "Salary Reduction Agreement" The Employee and the Employer may
agree to amend the Salary Reduction Agreement at any time. The
Employee and Employer shall not enter into more than one Salary
Reduction Agreement in any one taxable year.
SECTION 11. MISCELLANEOUS.
11.1 "Applicable Law" The Account is established with the intention
that it qualify as a custodial account under Section 401(f)(2) of the
Code and that contributions thereto be treated under Section
403(b)(7)(A) of the Code as amounts contributed for annuity contracts,
and the provisions of this Agreement shall be construed in accordance
with such intention. This Agreement shall be governed by the laws of
the State of Texas insofar as election of such laws is permitted.
11.2 "Pronouns" Whenever used in this Agreement, the masculine
pronoun is to be deemed to include the feminine. The singular form,
whenever used herein, shall mean or include the plural form where
applicable, and vice versa.
11.3 "Notices" Any notice, accounting, or other communication which
the Custodian may give the Employer or the Employee shall be deemed
given when mailed to the Employer or Employee at the latest address
which has been furnished to the Custodian. Any notice or other
communication which the Employer or Employee may give to the Custodian
shall not become effective until actual receipt of said notice by the
Custodian.
11.4 "No Employment Contract" This Agreement shall not be deemed to
constitute a contract of employment between the Employer and Employee,
nor shall any provision hereof restrict the right of the Employer to
discharge the Employee or of the Employee to terminate his employment.
11.5 "Disqualification" This Agreement is established and created
with the intent that it shall meet the terms of Section 403(b)(7) of
the Code. Notwithstanding any other provision contained herein, if
it is determined by the Internal Revenue Service that the Agreement is
not qualified initially and is not amended to retroactively qualify
under such Section of the Code, all assets acquired with contributions
hereunder together with income earned thereon less reasonable expense
and agreed Custodian fees, shall be distributed to the Employees and
the Agreement shall be considered to be rescinded and of no force and
effect. If the Agreement, after qualifying initially or
retroactively, shall fail to remain qualified under Section 403(b)(7)
of the Code, the assets held hereunder shall be segregated by the
Custodian, or otherwise disposed of for the exclusive benefit of
Employees within 30 days following the custodian's receipt of notice
of determination of such disqualifications.
11.6 "Tax Treatment" The tax treatment of any contributions to the
Custodial Account and of any earnings of the Custodial Account
depends, among other things, upon the tax status of the Employer and
the amount of contributions made in any year to the Account (and to
other plans, accounts, or contracts with the benefit of special tax
treatment) for the benefit of the Employee. The Custodian, and the
American National Funds and SM&R Capital Funds assume no
responsibility with respect to such matters, nor shall any term or
provision of this Agreement be construed so as to place any such
responsibility upon any of them.
11.7 The American National Family of Funds 403(b)(7) Custodial
Agreement and related documents are intended to comply with current
provisions of the Internal Revenue Code. However, the Funds
comprising the American National Family of Funds assume no
responsibility as to the effect or legal sufficiency under federal,
state or other applicable law of this Agreement in any particular
case. This Agreement is not a prototype, master plan or other similar
document approved as to form by the Internal Revenue Service.
Further information regarding 403(b) plans may be obtained from any
district office of the Internal Revenue Service.
21
<PAGE>
22
<PAGE>
23
<PAGE>
Form 9343-94
Rev. 9/97 1500
24
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IRA
FORMS KIT
EVERYTHING YOU NEED TO:
- - - OPEN A NEW SM&R IRA ACCOUNT
- - - TRANSFER YOUR PRESENT IRA ACCOUNT(S) TO AN SM&R IRA
- - - DIRECTLY ROLL OVER YOUR RETIREMENT PLAN DISTRIBUTION
- - - OPEN OR TRANSFER AN SEP ACCOUNT
SECURITIES MANAGEMENT & RESEARCH, INC.
One Moody Plaza * Galveston, Texas 77550
(409) 763-2767
[LOGO]
Member NASD, SIPC
<PAGE>
IT'S AS EASY AS "ABC" TO ESTABLISH AN IRA
===============================================================================
After reviewing a current prospectus for the American National Funds Group
and/or SM&R Capital Funds, Inc., carefully complete the IRA APPLICATION found
in this kit.
To make it as easy as "ABC" to establish an IRA in our family of funds,
Securities Management & Research, Inc. ("SM&R") has placed all forms required
to establish an IRA in this kit. The forms included are:
1. IRA DIRECT TRANSFER REQUEST--Complete this form, included in this kit, if
you wish to have a Trustee-to-Trustee transfer of your current IRA to SM&R
from another institution.
2. * DIRECT ROLLOVER REQUEST FORM--If you wish to roll funds directly from a
qualified retirement plan or 403(b) plan (TSA) to an IRA in the American
National Family of Funds, complete and return this form, included in
this kit.
3. * IRA ROLLOVER STATEMENT--Complete this form, included in this kit, if you
have already received a distribution from an IRA, qualified retirement
plan or 403(b) (TSA) and are rolling the proceeds into an IRA in the
American National Family of Funds within the 60th day of receiving the
funds.
IRA CONTRIBUTION DEADLINE
Contributions may be made all year long but must be completed by your tax
filing deadline (not including extensions) in order to deduct them for the
prior year. The IRS has stated that a contribution postmarked April 15 may be
considered a prior year contribution. This position is subject to change at
any time.
Furthermore, all contributions made by pre-authorized check, payroll
allotments, etc., are deemed to be current year contributions ONLY.
If you have any questions please contact your representative or call SM&R,
toll free, at 1-800-231-4839.
* IMPORTANT NOTE: EFFECTIVE JANUARY 1, 1993, ELIGIBLE ROLLOVER DISTRIBUTIONS
FROM QUALIFIED PLANS AND 403(b) PLANS ARE SUBJECT TO A 20% MANDATORY
WITHHOLDING TAX UNLESS ROLLED OVER DIRECTLY TO AN IRA OR TO ANOTHER QUALIFIED
RETIREMENT PLAN. PLEASE REVIEW PAGES 11 FOR A FURTHER EXPLANATION.
IS IT A TRANSFER OR A ROLLOVER?
===============================================================================
These two terms have been used interchangeably to apply to any movement of
funds between retirement plans for years. However, there exists a major
difference--A Rollover is a reportable transaction. Below is a more thorough
explanation of the difference between the two.
TRANSFER
A transfer is essentially the movement of all or part of the assets in a
retirement plan from its current trustee or custodian to a successor trustee
or custodian. Because the assets remain in the same type of plan and are not
received by the participant, they are not reportable to the government.
To transfer IRA assets from another institution to Securities Management &
Research, Inc. ("SM&R"), you will need to complete the Transfer Request Form,
included in this kit. If you have an existing IRA you may choose to invest
the proceeds from your transfer to that account, in which case you would not
need to complete the IRA Application. However, if the proceeds are to be
invested in a new IRA, complete the Application in its entirety, and give
both the Application and Transfer Request to your representative or mail them
directly to Securities Management & Research, Inc. at the address indicated
on the Application. SM&R will handle the transfer for you and send a
confirmation statement when the transfer is completed.
ROLLOVER
A rollover occurs when plan assets become payable to a participant in a
reportable transaction and these funds are redeposited into another retirement
plan. A participant in a qualified plan or 403(b) plan can choose either to
have the distribution rolled over directly by the current plan's trustee or
custodian (a "Direct Rollover") or to receive the distribution, less a
mandatory 20% federal withholding tax, and complete the rollover within (60)
sixty days. Beginning in 1993 distributions received from qualified
retirement plans, including 403(b) plans, that are eligible for rollover
treatment are subject to a mandatory 20% federal withholding tax, unless the
distribution is rolled over directly to an IRA or another qualified plan from
the plan's trustee or custodian.
Although the amount rolled over is not subject to current taxes, the trustee
or custodian of the distribution retirement plan is required to issue IRS
Form 1099R showing the full amount of the distribution. When you roll over
the amount to an IRA, SM&R will issue a confirming Form 5498 to both you and
the IRS. Additionally, you will have to reflect the information regarding the
rollover on your tax return for the year in which the distribution occurred.
To "roll over" to an IRA, complete the IRA Rollover Statement, included in
this kit, unless you are requesting a "Direct Rollover" in which case you
should complete the Direct Rollover Request Form. Attach the appropriate form
to a completed IRA Application and give both to your representative or mail
directly to Securities Management & Research, Inc. If you have an existing
IRA, you may choose to roll over the proceeds to that IRA account; however,
by doing so, you waive the right to later "roll" the funds back into a new
employer's qualified plan and retain certain beneficial tax treatment on the
ultimate distribution of this account.
Because of the possible tax implications of transfers and rollovers, you
are encouraged to consult with your tax adviser.
PLEASE BE REMINDED--YOU ARE ALLOWED ONLY ONE IRA TO IRA ROLLOVER IN A
12-MONTH PERIOD.
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
[LOGO] AMERICAN NATIONAL FAMILY OF FUNDS |--------------------------|
Forward to: Securities Management & Research, Inc.| HOME OFFICE USE |
One Moody Plaza, Galveston, TX 77550 |--------------------------|
(800) 231-4639 |Account Number |
|--------------|-----------|
|Account Type |Social Code|
|--------------|-----------|
IRA APPLICATION--PART 1 |FI Number |LOI Amount |
(INCLUDES SEP) |--------------|-----------|
</TABLE>
_______________________________________________________________________________
ACCOUNT REGISTRATION FORM (must be accompanied by Account Application--Part 2
Suitability Form)
This application form is for use in establishing IRA and SEP accounts in the
American National Funds Group and the SM&R Capital Funds.
ACCOUNT REGISTRATION
SM&R, Inc., Custodian for
Name __________________________________________________________________________
Date of Birth (mm/dd/yy) ______________________________________________________
Address _______________________________________________________________________
City, State, Zip ______________________________________________________________
Social Security No. ___________________________________________________________
Daytime Phone Number __________________________________________________________
Evening Phone Number __________________________________________________________
ACCOUNT TYPE
/ / Contributory IRA ($2,000 limit/$4,000 combined for Spousal IRAs)
/ / Deductible IRA / / Non-Deductible IRA / / Spousal IRA
(separate application for each spouse)
/ / Transfer IRA (no dollar limit) (IRA to IRA)
Transfer Request attached
/ / Rollover IRA (no dollar limit) (Qualified Plan to IRA)
/ / SEP-IRA (5305-SEP, attached)
INVESTMENT INFORMATION
METHOD OF INVESTMENT
/ / I have enclosed a check for a minimum of $100 per Fund ($1,000 for
American National Primary Series)
/ / I have enclosed a check for a minimum of $20 per Fund ($100 for
American National Primary Series) and completed the Pre-Authorized Check
Plan form #8006 located at the back of the appropriate Fund's prospectus
/ / Billing Franchise No. ___________________________________________________
/ / Military Allotment (complete form 8341.)
/ / I have NOT enclosed a check because:
/ / A Transfer Request is attached
/ / A Direct Rollover Request is attached
FUND SELECTION
INVESTMENT TAX YEAR OF
FUND SELECTION AMOUNT CONTRIBUTION
/ / A. N. Growth Fund (21) __________ ____________
/ / A. N. Income Fund (22) __________ ____________
/ / Triflex Fund (23) __________ ____________
/ / A. N. Government Income Fund (26) __________ ____________
/ / A. N. Primary Fund (27) __________ ____________
All dividends and capital gains distributions will be automatically
reinvested into the account.
PLEASE MAKE YOUR CHECK PAYABLE TO SM&R, INC.
REDUCED SALES CHARGE (NOT APPLICABLE TO PRIMARY SERIES)
PLEASE CHECK THE APPLICABLE CATEGORY(IES) FEE AND WRITE THE ACCOUNT NUMBER(S)
TO BE INCLUDED IN DETERMINING THE REDUCED SALES CHARGE UNDER ACCOUNT NUMBERS
BELOW. REFER TO THE PROSPECTUS REGARDING SALES CHARGES.
/ / Right of Accumulation. I apply for this privilege, as described in the
Prospectus, based on the accounts listed in the spaces provided below
/ / Letter of Intent. By completing this section, I agree to the provisions
of the Letter of Intent as described in the Prospectus. I have listed my
other accounts that may qualify to be included under this LOI
/ / Establish a new LOI for the amount indicated below
/ / Increase my current LOI to the amount indicated below
I plan to invest during a 13-month period a dollar amount at least:
/ / $50,000* / / $100,000 / / $250,000 / / $500,000
*(Growth, Income, and Triflex Funds only)
________________________________ ________________________________
Account Number Account Number
________________________________ ________________________________
Account Number Account Number
BENEFICIARY INFORMATION
PRIMARY BENEFICIARY
Name __________________________________________________________________________
Relationship __________________________________________________________________
Social Security No. _____________________________ Date of Birth _______________
Secondary Beneficiary
Name Relationship SS# Date of Birth
_______________________________________________________________________________
_______________________________________________________________________________
If you are married, live in a community property state, and your spouse is NOT
designated as the only Primary Beneficiary, your spouse must sign below.
I hereby consent to the designation of beneficiary as stated above.
Signature of Spouse ___________________________________________________________
Date __________________________________________________________________________
SIGNATURES REQUIRED ON REVERSE SIDE.
2
<PAGE>
AUTHORIZATION AND SIGNATURE
I hereby establish an American National Funds Group and/or SM&R Capital Funds
IRA (or SEP) Account, appoint Securities Management & Research, Inc. (SM&R)
as Custodian, and
1) Acknowledge that I have received, read, and understand the reproduction
of IRS Form 6306 Custodial Agreement and IRA Disclosure Statement;
2) Consent to the $7.50 (per account) setup fee, the $7.50 (per account)
annual maintenance fee, and $5.00 excess contribution adjustment fee.
Such fees are subject to change on 30 days written notice to the
Participant; and
3) Agree to the conditions governing the designation of beneficiary.
4) Further, I certify the following Backup Withholding Status and
Citizenship (Substitute W-9);
Under penalties of perjury, I certify by my signature as
"Participant" that the social security/taxpayer identification
number furnished in this application is correct and that (check the
appropriate box and fill in citizenship status below):
/ / I am not subject to backup withholding
/ / I have been notified by the IRS that I am subject to backup
withholding for failure to report all interest and/or dividends
/ / I do not have a social security/taxpayer identification number, but
I have applied for one. I understand that if I do not provide this
number within 60 days, the required Federal tax will be withheld.
/ / I am an exempt recipient
CITIZENSHIP / / U.S. / / OTHER _________________________
SIGNATURE PROVISIONS
I certify that the information which I have provided and the information
which is included within the application and attached material, is accurate
and complete. I have received and read the current prospectus of the fund(s)
selected, and I agree to its terms. The Prospectus has an effective date of
(indicate date from front cover). ___________________________________________
Participant's signature _____________________________________________________
Date ________________________________________________________________________
REGISTERED REPRESENTATIVE INFORMATION (SM&R REG REPS ONLY)
/ / YES, I HAVE COMPLETED AND ATTACHED ACCOUNT APPLICATION--PART 2 SUITABILITY
FORM (#9402)
Representative Signature ____________________________________________________
Representative Name (print) _________________________________________________
Representative Social Security Number _______________________________________
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 & 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 RIGHT OF ACCUMULATION OR OTHERWISE ELIGIBLE FOR REDUCED
OR ELIMINATED SALES CHARGES. IF THIS APPLICATION INCLUDES A SYSTEMATIC
WITHDRAWAL PLAN REQUEST, WE GUARANTEE THE SIGNATURE(S) IN THIS APPLICATION.
Dealer Name __________________________________ Dealer # _____________________
Main Office Address _________________________________________________________
Branch # _____________________________ Rep # ________________________________
Representative Name (print) _________________________________________________
Branch Address ______________________________________________________________
Phone Number ________________________________________________________________
Authorized Signature of Dealer ___________________________ Title ____________
_____________________________________________________________________________
CUSTODIAN: SECURITIES MANAGEMENT & RESEARCH, INC.
Accepted By: ________________________________________________________________
Date ________________________________________________________________________
3
<PAGE>
[LOGO] SECURITIES MANAGEMENT & RESEARCH, INC.
One Moody Plaza, Galveston, TX 77550
Member NASD, SIPC
Distributor for the American National Family of Funds
ACCOUNT APPLICATION--PART 2
- --------------------------------------------------------------------------------
PURCHASER SUITABILITY FORM & ARBITRATION AGREEMENT (This form must accompany all
mutual fund applications submitted to SM&R. All information requested is
required.)
NEW INVESTOR INFORMATION
Date ___________________________________________________________________________
1. Account Registration ________________________________________________________
If account registered as a corporation, partnership or other legal entity,
names of any persons authorized to transact business on behalf of entity:
_____________________________________________________________________________
Social Security (or Tax I.D.) No. ___________________________________________
2. Fund(s) being purchased _____________________________________________________
3. Investor's Occupation _______________________________________________________
Name of Employer ____________________________________________________________
Address of Employer _________________________________________________________
Business Phone ( ) ________________________________________________________
4. Is the Investor employed by or associated with a member of the NASD or NYSE?
/ / No
/ / Yes. If yes, provide the name, address and phone no. of the firm:
________________________________________________________________________________
________________________________________________________________________________
5. Tax Status
/ / Single / / Head of Household
/ / Married filing separate returns
/ / Married filing joint return or qualifying widow(er) with dependent child
/ / Corporation / / Other
6. Marital Status
/ / Married / / Single / / Widowed
7. Dependents
/ / Spouse / / Children: Ages __________
/ / Other
INVESTOR SUITABILITY INFORMATION
(TO BE COMPLETED BY INVESTOR OR REGISTERED REPRESENTATIVE.)
NASD rules require Registered Representatives to have reasonable grounds for
believing the recommended investment is suitable for the customer. Therefore,
representatives are required to make inquiries concerning the financial
condition of a proposed investor. You are urged to supply such information so
that the representative can make an informed judgment as to the suitability of
your investment selection(s). However, you are not required to divulge such
information. If you choose not to do so, you must sign at the section provided
on the reverse side indicating refusal and acknowledging that the representative
did request the suitability information.
1. SOURCES OF FUNDS FOR INVESTMENT
/ / Current Earnings / / Gift or Inheritance / / Insurance Benefit
/ / Savings / / Sale of Assets / / Maturity Proceeds
/ / Other _______________
2. PRIMARY PURPOSE OF INVESTMENT
/ / Education / / Savings / / Retirement
/ / Current Income / / Tax Shelter / / Business Purposes
/ / Other _______________
3. INVESTMENT PROFILE
(a) What is your current investment preference?
/ / Aggressive Growth / / Growth / / Growth & Current
Income
/ / Current Income / / Maximum safety, even if modest return
(b) What is your risk comfort level?
/ / High / / High/Moderate / / Moderate
/ / Moderate/Limited / / Low
(c) What is your financial goal time horizon?
/ / 1-5 years / / 5-10 years
/ / 10 years and beyond
(d) What is your age range?
/ / 21-40 / / 41-59 / / 60+
(e) What is your tax bracket?
/ / 15% / / 28% / / 28+
(f) What is your estimated annual family income?
/ / Under $15,000 / / $15,000-$30,000 / / $30,000-$50,000
/ / $50,000-$100,000 / / Over $100,000
(g) What is your estimated net worth (exclude home, furnishings and
automobiles)?
/ / Under $25,000 / / $25,000-$50,000
/ / $50,000-$100,000 / / Over $100,000
(h) Are you responsible for the financial welfare of anyone other than your
immediate family (i.e. alimony, child or parental support, etc.)?
/ / Yes / / No
(i) Do you own other securities?
/ / Yes / / No
Types: / / Stocks / / Bonds / / Mutual Funds
/ / Variable products / / Other ___________________
I (we) furnished the above suitability information and it has been accurately
recorded.
Investor Signature _____________________________________________________________
Joint Owner Signature __________________________________________________________
CONTINUED ON REVERSE SIDE.
4
<PAGE>
[LOGO] SECURITIES MANAGEMENT & RESEARCH, INC.
ACCOUNT APPLICATION--PART 2
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STATEMENT OF REFUSAL TO PROVIDE FINANCIAL INFORMATION
I (we) fully understand that the Registered Representative, acting on behalf of
Securities Management & Research, Inc. (SM&R), has requested the preceding
suitability information to determine whether my (our) purchase of securities is
an appropriate investment considering my (our) financial situation. I (we)
refuse to provide the requested information and by my (our) signature(s) below
agree not to seek rescission of the investment or damages based on its
unsuitability.
________________________________________________________________________________
Investor Signature
________________________________________________________________________________
Joint Owner Signature
REGISTERED REPRESENTATIVE NOTICE--Should the Investor sign the above Statement
of Refusal to Provide Financial Information, it is still an NASD requirement
that you have reasonable grounds to recommend the purchase of this investment as
suitable. Therefore, YOU must complete the suitability information to the best
of your knowledge and certify that you have done so when signing the Registered
Representative's Statement below.
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REGISTERED REPRESENTATIVE STATEMENT & SIGNATURE
Check appropriate boxes.
/ / Application--Part 1 attached.
/ / Custodial Agreement and Disclosure Statement detached and given to Investor.
(For IRA, TSA, SEP, or SIMPLE accounts only)
/ / Signed Arbitration Agreement
/ / Suitability information was provided by the Investor and the Investor signed
acknowledgement that information was accurately recorded.
--or--
/ / Refusal to Provide Financial Information Statement Signed by Investor.
I provided the suitability information to the best of my knowledge and have
reasonable grounds to recommend the purchase of this investment as suitable
for the investor.
________________________________________________________________________________
Registered Representative Signature
________________________________________________________________________________
Registered Representative Name (print)
ACCEPTED; SECURITIES MANAGEMENT & RESEARCH, INC.
BY _____________________________________________________________________________
PURCHASER 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 a jury trial.
3. Pre-arbitration discovery is generally more limited 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 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 signing 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 may be entered in any appropriate court.
I (we) further understand that we may not bring a punitive or certified class
action to arbitration, nor seek to enforce any pre-dispute arbitration agreement
against anyone who has initiated in court a punitive class action; or who is a
member of a punitive class action until (1) the class action certification is
denied; or (2) the class is decertified; or (3) I (we) are excluded from the
class action by the court. Such forbearance to enforce an agreement to
arbitrate shall not constitute a waiver of any right under this agreement except
to the extent stated herein.
________________________________________________________________________________
Investor Signature
________________________________________________________________________________
Joint Owner Signature
5
Form 9402
05/97
<PAGE>
IRA TRANSFER REQUEST
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USE THIS FORM ONLY WHEN TRANSFERRING ASSETS FROM AN EXISTING IRA TO AN IRA WITH
SECURITIES MANAGEMENT AND RESEARCH, INC. ("SM&R"). If you do not have an
existing IRA with SM&R, an IRA Application must be completed prior to the
transfer. If you have any questions, please contact your SM&R representative
or SM&R directly for assistance.
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PARTICIPANT INFORMATION
Name_____________________________________________________________
Address__________________________________________________________
City, State, Zip_________________________________________________
Social Security No.______________________________________________
Daytime Phone Number ( )________________________________
CURRENT TRUSTEE/CUSTODIAN INFORMATION
Name of Resigning Trustee________________________________________
Address__________________________________________________________
City, State, Zip_________________________________________________
Name of mutual fund or deposit institution, if applicable
_________________________________________________________________
LIQUIDATION/TRANSFER INSTRUCTIONS
/ / Liquidate all assets and transfer proceeds
/ / Liquidate $___________ and transfer proceeds
/ / The Transfer should be made immediately.
I realize early withdrawal penalties may apply.
/ / Transfer should be made upon maturity of the current
investment. The maturity date is_____________________________
Account number(s): (attach a copy of recent statement, if
possible)
-------------------------- ---------------------------
Account Number Account Number
-------------------------- ---------------------------
Account Number Account Number
PARTICIPANT'S SIGNATURE AND AUTHORIZATION TO TRANSFER
Please accept this as your authorization and instruction to liquidate the
assets noted above, which your company presently holds for me, and transfer
as indicated. If a Required Minimum Distribution (RMA) is required, forward
this amount to me at my address of record. I have established an IRA with
Securities Management & Research, Inc. as the successor Custodian. I am aware
of and acknowledge early withdrawal penalties that may apply.
Signature_________________________________________________________
Date______________________________________________________________
Signature Guarantee, if necessary
__________________________________________________________________
If applicable, detach and submit to SM&R
REQUIRED MINIMUM DISTRIBUTION (RMD) ELECTION INFORMATION
THIS INFORMATION IS TO BE COMPLETED BY THE CURRENT TRUSTEE OR CUSTODIAN.
If the participant is age 70 1/2 or older this year, this section must be
completed by an authorized representative of the resigning Trustee/Custodian
indicating the Election made by the Participant. NOTE: DO NOT TRANSFER ANY
PORTION OF THE PLAN WHICH REPRESENTS THE RMD AMOUNT.
CALCULATION METHOD / / Recalculation / / Declining Years
LIFE EXPECTANCY / / Single Life / / Joint Life*
REQUIRED MINIMUM DISTRIBUTION (RMD) $______________ has been withheld from this
transfer to satisfy this year's RMD.
The factor used to calculate the RMD payment was_______________________________
_______________________________________________________________________________
Authorized Signature of Current Custodian/Trustee
_______________________________________________________________________________
Printed Name
ACCEPTANCE (to be completed by SM&R)
SECURITIES MANAGEMENT AND RESEARCH, INC. agrees to serve as custodian and
accept the transfer as indicated above.
Participant____________________________________________________________________
Account No.____________________________________________________________________
Authorized Signature
Securities Management & Research, Inc
_______________________________________________________________________________
Date___________________________________________________________________________
INSTRUCTIONS TO RESIGNING TRUSTEE/CUSTODIAN:
Make check payable to Securities Management & Research, Inc., and include the
account number (shown above) and participant's name on the check. Please
attach a copy of this form to the check.
MAIL TO:
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TX 77550
6
05/97
<PAGE>
DIRECT ROLLOVER REQUEST FORM (To directly roll over distributions from your
former employer's qualified plan to an SM&R IRA.)
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Account No.___________________
For SM&R Use Only
Use this form if you wish to have an eligible distribution from your
qualified retirement plan, including a 403(b) plan, directly rolled over to a
Rollover IRA. Please contact your former employer to determine if a
substitute form is available or if additional forms are required.
PARTICIPANT INFORMATION
Name___________________________________________________________________________
Address________________________________________________________________________
City, State, Zip_______________________________________________________________
Social Security No.____________________________________________________________
Daytime Phone Number___________________________________________________________
ROLLOVER INFORMATION (Please check one, and complete)
/ / Rollover of qualified retirement plan funds*
/ / Rollover of 403(b) plan funds*
*You will need to reflect this rollover on your current year tax return in
order to properly offset the amount shown on the Form 1099R you will receive
from your Trustee/Custodian.
Name of Custodian
or Former Employer_____________________________________________________________
Address________________________________________________________________________
City, State, Zip_______________________________________________________________
Account Number(s)______________________________________________________________
I am requesting a / / Full / / Partial $_____________________________________
distribution from the above-referenced account(s).
Is a completed distribution request form (obtained from your employer or plan
administrator) attached? / / Yes / / No Please explain.
PARTICIPANT'S AUTHORIZATION & SIGNATURE
I hereby authorize the above named Trustee/Custodian to roll over my plan
distribution directly to (check one):
/ / My existing American National Funds IRA/Rollover IRA account no.__________
/ / A new American National Funds Rollover IRA. I have attached a completed
American National Family of Funds IRA Application.
By signing this Direct Rollover Request, I agree to the following:
1) I am irrevocably electing to have funds from my former employer's
retirement plan directly rolled over to an American National Funds
Rollover IRA.
2) The amount being rolled over, to the best of my knowledge, qualifies for
rollover treatment and does not include any after-tax employee
contributions;
3) I understand that if I commingle the rollover funds from my former
employer's retirement plan with my Contributory IRA funds held with
American National Funds, these rollover funds no longer qualify for
rollover treatment back into a new employer's retirement plan at a
later date; and
4) I understand that neither the Custodian, its agent, nor the American
National Family of Funds warrants this rollover's eligibility for
tax-deferred status.
______________________________________________________________________________
Signature of Participant
______________________________________________________________________________
Date
ACCEPTANCE (to be completed by SM&R)
SECURITIES MANAGEMENT AND RESEARCH, INC. agrees to serve as custodian and
accept the direct rollover as indicated above.
Participant____________________________________________________________________
Account No.____________________________________________________________________
Authorized Signature
Securities Management & Research, Inc.
_______________________________________________________________________________
Date___________________________________________________________________________
INSTRUCTIONS FOR RESIGNING CUSTODIAN
Please make check payable to SECURITIES MANAGEMENT AND RESEARCH, INC. and
include Account Number (shown above) and NAME OF PARTICIPANT on the check.
Please send the check with a copy of this form to the address shown below.
REQUIRED DISTRIBUTION INFORMATION: If the Participant has reached age 70 1/2,
please complete the following:
Election made by Participant as of his/her required beginning date.
1) Period over which required distributions are to be made:
_____________________ years
2) Payment method (check one):
/ / Declining (elapsed) years
/ / Recalculation of life expectancy
3) Has Participant chosen Joint Life Expectancy with a Designated
Beneficiary?
/ / Yes
/ / No
If "Yes", please complete:
Beneficiary________________________________________________________________
Spouse? / / Yes / / No
MAIL TO:
SECURITIES MANAGEMENT AND RESEARCH, INC.
ONE MOODY PLAZA
GALVESTON, TEXAS 77550
7
05/97
<PAGE>
IRA ROLLOVER STATEMENT (INDIRECT ROLLOVER)
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This form MUST be completed in its entirety when depositing proceeds
you've already received (not a Direct Rollover) from another IRA or a
qualified retirement plan to be deposited into a new or existing IRA or
Rollover IRA account in the American National Family of Funds. AN IRA
APPLICATION IS ALSO REQUIRED WHEN ESTABLISHING A NEW IRA ACCOUNT. This form,
the check, a completed Investor Suitability form and a completed application,
if applicable, is to be mailed to:
Securities Management and Research, Inc.
One Moody Plaza, Galveston, Texas 77550
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THE PROCEEDS BEING DEPOSITED in this IRA represent all or a portion of (check
one of the following):
/ / A distribution from a Contributory IRA or Individual Retirement Annuity
(R4)
/ / An eligible rollover distribution from a qualified retirement plan [IRC
401(a)] (R8)
/ / An eligible rollover distribution from a TSA [403(b)] custodial account
or annuity (R8)
/ / A distribution as a result of a Qualified Domestic Relations Order
[IRC 414(p)] (R8)
/ / A beneficiary distribution from my deceased spouse's IRA, TSA [403(b)],
or qualified plan (R8)
FURTHERMORE:
- - - I understand that the proceeds being invested must be invested within 60
days of my receiving them from a retirement plan. I am investing the
proceeds within this 60 day period.
- - - I understand that my election to invest these proceeds in a Rollover IRA in
the American National Family of Funds is irrevocable.
- - - I understand that no after-tax employee contributions originating from a
qualified plan or TSA are allowed to be rolled over and these proceeds do
not contain any after-tax employee contributions.
- - - I UNDERSTAND THAT I AM PERMITTED ONLY ONE TAX-FREE INDIRECT ROLLOVER FROM
AN IRA I HOLD IN ANOTHER INSTITUTION DURING A TWELVE MONTH PERIOD.
- - - I understand that commingling rollover proceeds from a retirement plan or
TSA with contributory IRA proceeds held in any of the American National
funds prevents me from rolling the proceeds back into a new retirement plan
or TSA at a later date.
- - - I understand the tax consequences of commingling rollover proceeds with a
Contributory IRA.
- - - I understand that neither the Custodian, its agent or the American National
Family of Funds warrant the eligibility for tax-deferred status of rollover
proceeds.
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The attached check is to be deposited as indicated below:
ACCOUNT INFORMATION
/ / Existing IRA No. ____________________________
/ / New IRA Rollover account (completed IRA application and Investor
Suitability form must be attached)
REQUIRED MINIMUM DISTRIBUTION (RMD) INFORMATION
This information is to be completed by the investor. If you are age 70 1/2 or
older this year, this section must be completed indicating the Distribution
Options you made with the previous Trustee or Custodian. NOTE: DO NOT FORWARD
ANY PORTION OF THE PROCEEDS REPRESENTING THE REQUIRED MINIMUM DISTRIBUTION (RMD)
AMOUNT.
CALCULATION METHOD / / Recalculation / / Declining Years
LIFE EXPECTANCY / / Single Life / / Joint Life
Factor used to calculate RMD __________ years
IRA PARTICIPANT INFORMATION
Signature _____________________________________________________________________
Please print name _____________________________________________________________
Social Security Number ________________________________________________________
Daytime Phone Number __________________________________________________________
Should you require assistance in completing this form,
contact an SM&R representative or SM&R directly.
8
05/97
<PAGE>
IRA ROLLOVER STATEMENT TAX IMPLICATIONS
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20% MANDATORY WITHHOLDING
Effective January 1, 1993, distributions received from qualified
retirement plans and 403(b) plans that are eligible for rollover treatment
are subject to a mandatory 20% federal withholding tax, unless the
distribution is rolled over directly from the plan's custodian or trustee to
an IRA or another qualified plan.
For example, if you change jobs and are entitled to $50,000 from your
former company's pension or 401(k) plan and you choose to receive this amount
in full, you would receive a check for only $40,000. The amount would be less
the $10,000 withheld for federal taxes which you, in turn, will apply towards
the income tax you owe when filing your tax return.
However, you intended to roll over the distribution within 60 days to a
qualified retirement plan with your new employer or an IRA. How can you roll
over the full amount ($50,000) when you only received $40,000? You will have
to come up with the missing $10,000 (20%) yourself or owe taxes on the
$10,000 in addition to possible tax penalties if you are under age 59 1/2.
YOU CAN AVOID THIS TRAP
By requesting that the plan's trustee/custodian directly roll the plan
distribution to an IRA or to another qualified plan, you can avoid the
mandatory 20% withholding tax. If your plan allows, and you are over age
59 1/2, you may consider leaving your money in the plan and begin taking a
series of payments over a period of ten or more years. Remember, unless you
need immediate use of the money, you do not want to take a check for any
amount that could be directly rolled over by your plan's trustee/custodian.
DISTRIBUTIONS NOT ELIGIBLE FOR ROLLOVER TREATMENT
The following types of distributions are not eligible for rollover and
therefore exempt from the 20% withholding tax.
- Periodic payments made over the participant's single or joint life
expectancy, or a period not less than 10 years
- Any distribution required under the required minimum distribution (RMD)
rules under Internal Revenue Code (IRC) 401(a)(9)
- The portion of any distribution that is not includible in gross income,
such as a return of the employee's after-tax contributions
- Returns of excess deferrals or excess aggregate contributions made to a
qualified cash-or-deferred arrangement, such as a 401(k) plan, together
with the income allocable to these corrective distributions.
- Loans treated as distributions under IRC 72(p) and not excepted by IRC
72(p)(2)
- Any distribution to a non-spouse beneficiary (upon death of participant) or
to a non-spouse payee under a Qualified Domestic Relations Order
- Loans in default that are deemed distributions
- Dividends paid on employer securities as described in IRC404(k)
- The costs of life insurance coverage (P.S. 58 costs)
- Similar items designated by the Commissioner in revenue rulings, notices and
any other guidance
Source: Treasury Regulations 1.401(a)(31)-1T; O&As 3, 4 & 10
9
<PAGE>
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
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<TABLE>
<S> <C> <C>
FORM 5305-A
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
Rev Oct 1992 (Under Section 408(a) of the Internal Revenue Code) DO NOT File
Department of Treasury with the Internal
Internal Revenue Service Revenue Service
</TABLE>
Custodian's name SECURITIES MANAGEMENT AND RESEARCH, INC. Custodian's
principal place of business GALVESTON, TEXAS
The Custodian named herein has given to the Depositor a Disclosure Statement
required under section 1.408-6 of the Internal Revenue Code (the "Code").
The Depositor whose name appears on the IRA Application hereby establishes an
Individual Retirement Account under section 408(a) of the Code to provide for
his or her retirement and for the support of his or her beneficiaries after
death. The Depositor has given to Securities Management and Research, Inc.
the sum listed on the IRA Application (in cash) to establish an Individual
Retirement Custodial Account for the Depositor under this agreement and the
Depositor and the Custodian agree to the following:
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ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in section 402(c) (but only after December 31, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3) of the Code, or an
employer contribution to a simplified employee pension plan as described in
section 408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance
contracts, nor may the assets of the custodial account be commingled
with other property except in a common trust fund or common investment
fund (within the meaning of section 408(a)(5) of the Code).
2. No part of the custodial funds may be invested in collectibles
(within the meaning of section 408(m) of the Code), except as otherwise
permitted by Section 408(m)(3).
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositor's interest in the custodial account shall
be made in accordance with the following requirements and shall
otherwise comply with section 408(a)(6) and Proposed Regulations section
1.408-8, including the incidental death benefit provisions of Proposed
Regulations section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are required to
begin to the Depositor under paragraph 3, or to the surviving spouse
under paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall apply
to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or
begin to be, distributed by the Depositor's required beginning date,
(April 1 following the calendar year end in which the Depositor reaches
age 70 1/2). By that date, the Depositor may elect, in a manner
acceptable to the Custodian, to have the balance in the custodial
account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the life of the
Depositor.
(c) An annuity contract that provides equal or substantially
equal monthly, quarterly, or annual payments over the joint and
last survivor lives of the Depositor and his or her designated
beneficiary. Payments must begin by April 1 following the calendar
year end in which the Depositor reaches age 70 1/2.
(d) Equal or substantially equal monthly, quarterly, or
annual payments over a specified period that may not be longer
than the Depositor's life expectancy.
(e) Equal or substantially equal monthly, quarterly, or
annual payments over a specified period that may not be longer
then the joint life and last survivor expectancy of the Depositor
and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is
distributed to him or her, the entire remaining interest will be
distributed as follows:
(a) If the Depositor dies on or after distribution of his or
her interest has begun, distribution must continue to be made in
accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her
required beginning date, the entire remaining interest will, at
the election of the Depositor or, if the Depositor has not so
elected, at the election of the beneficiary or beneficiaries,
either:
(i) Be distributed by the December 31 of the year
containing the fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments
over the life or life expectancy of the designated beneficiary or
beneficiaries starting by December 31 of the year following the
year of the Depositor's death. If the Depositor's spouse is the
beneficiary, distributions need not commence until December 31
of the year the Depositor would have attained age 70 1/2, if
later.
(iii) Spouse may rollover entire interest to own IRA.
(c) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving
spouse, no additional cash contributions or rollover contributions
may be accepted in the account.
5. In the case of a distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each
year, divide the Depositor's entire interest in the Custodial account as
of the close of business on December 31 of the preceding year by the life
expectancy of the Depositor (or the joint life and last survivor
expectancy of the Depositor and the Depositor's designated beneficiary, or
the life expectancy of the designated beneficiary, whichever applies). In
the case of distributions under paragraph 3, determine the initial life
expectancy (or joint life and last survivor expectancy) using the attained
ages of the Depositor and designated beneficiary as of their birthdays in
the year the Depositor reaches age 70 1/2. In the case of a distribution
in accordance with paragraph 4(b)(ii), determine life expectancy using the
attained age of the designated beneficiary as of the beneficiary's
birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the
"alternative method" described in Notice 88-38, 1988-1 C.B. 624, to
satisfy the minimum distribution requirements described above. This method
permits an individual to satisfy these requirements by taking from one
individual retirement account the amount required to satisfy the requirement
for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary
for the Custodian to prepare any reports required under section 408(i) of
the Code and related regulations.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling.
Any additional articles that are not consistent with section 408(a) and the
related regulations will be invalid.
10
<PAGE>
ARTICLE VII
This agreement will be amended from time to time to comply with the
provisions of the Code and related regulations. Other amendments may be made
with the consent of the Depositor.
ARTICLE VIII
CUSTODIAL ACCOUNT AGREEMENT
1. The Depositor appoints Securities Management and Research, Inc. as
Custodian of this Account. After deduction of all appropriate fees and
charges, the balance of Depositor's contributions shall be invested as in
hereinafter provided.
2. The Depositor directs the Custodian to invest contributions and reinvest
dividends and capital gains distributions in shares of American National
Funds as directed on the application. The designated fund(s) may be any
one or more of mutual funds sponsored, distributed or underwritten by
Securities Management and Research, Inc.
3. The Custodian shall have no investment responsibility or discretion with
respect to this Individual Retirement Custodial Account and shall not
vote the shares held therein, except as directed by Depositor.
4. This document constitutes the entire contract between Depositor and
Custodian and no representative of Securities Management and Research,
Inc., nor any broker-dealer shall be deemed to be a representative of or
acting on behalf of the Custodian nor shall any representative have any
authority to make representations or to bind the Custodian beyond the
terms of this document.
5. The Depositor shall have the right, by written notice to the Custodian,
to designate or to change a Beneficiary to receive any benefit to which
the Depositor may be entitled in the event of his death prior to the
complete distribution of such benefits. IF NO SUCH DESIGNATION IS IN
EFFECT UPON THE DEPOSITOR'S DEATH, HIS BENEFICIARY SHALL BE HIS ESTATE.
6. The Depositor shall provide information to the Custodian at such times
and in such manner and containing such information as will enable the
Custodian to prepare reports required by the Internal Revenue Service
pursuant to section 408(i) of the Revenue Code of 1954, as amended and
regulations promulgated thereunder.
7. The Custodian shall submit such reports to the Internal Revenue Service
and the Depositor, the Depositor's surviving spouse or beneficiaries as
designated by either in such manner as may be required by the Internal
Revenue Service from time to time.
8. Any income taxes or other taxes of any kind whatsoever that may be levied
or accessed upon or in respect to the Custodial Account, any transfer taxes
incurred in connection with the investment and reinvestment of the assets
of the Custodial Account, other administrative expenses incurred by the
Custodian in the performance of its duties including fees for legal
services rendered to the Custodian, and the compensation to the Custodian
shall be paid from the assets of the Account.
9. Securities Management and Research, Inc., as Custodian and as Sponsor
assumes no responsibility to make any distribution unless and until such
order specifies the occasion for such distribution, the elected manner of
distribution as described in Article IV, Section 3, (a), (d), or (e) or
any declaration required by Article V. Further, the Custodian and the
Sponsor shall not be responsible to make distribution at age 70 1/2
unless written notice is given by the Depositor. This Custodian
Agreement shall terminate upon the complete distribution of the Account
to the Depositor or his beneficiaries or to such successor individual
retirement accounts or annuities.
10. Rollover contributions will be received in cash and the Depositor will
instruct the Custodian as to which investment the proceeds are to be
deposited.
11. The Custodian may resign at any time upon written notice to the Depositor
or any current beneficiary or may be removed by the Depositor or any
current beneficiary at any time upon 30 days notice in writing to the
Custodian. Upon such resignation or removal the Depositor or current
beneficiary shall appoint a successor Custodian. If within 30 days after
the Custodian's resignation or removal, the Depositor or current
beneficiary has not appointed a successor Custodian which has accepted
such appointment, the Custodian will liquidate the assets and forward the
proceeds to the Depositor or current beneficiary.
12. The Custodian's fees shall be as published and amended from time to time.
13. If, because of an erroneous assumption as to earned income or for any
other reason, a contribution which is an excess contribution is made on
behalf of the Depositor for any year, adjustment of such excess
contribution shall be made in accordance with provisions of this
paragraph. The full amount of such excess contribution and any net income
attributable thereto shall be distributed to the Depositor, in cash or in
kind upon written notice to the Custodian from the Depositor which
states the amount of such excess contribution.
14. By execution of this Agreement Depositor consents to the amendment of
this Article VIII by the Custodian to make any changes herein which the
Custodian determines in its discretion as necessary or desirable.
15. Notwithstanding anything to the contrary, this Individual Retirement
Custodial Account Agreement shall be deemed accepted by the Custodian
when either (i) the Individual Retirement Custodial Account Application
is executed by an authorized representative of the Custodian, or (ii) the
Custodian accepts for investment Depositor's initial contribution made
in accordance with the terms of this Agreement and the Individual
Retirement Custodial Account Application.
16. This contract shall be construed under the laws of the State of Texas and
shall become effective upon execution of the Account Application by the
Custodian.
17. The acceptance of this Individual Retirement Custodial Account by the
Depositor is indicated by execution of the signature section on page 3 of
the Application.
18. The acceptance of this account by the Custodian shall be considered
effective upon establishment of the account.
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IRA DISCLOSURE STATEMENT
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
This disclosure statement describes the official government rules
applicable to the operation and tax treatment of individual retirement
accounts. Because legal and tax consequences may vary for each individual,
you should consult your tax adviser on whether your contributions are tax
deductible. PLEASE KEEP THIS DOCUMENT FOR FUTURE REFERENCE.
YOUR RIGHT TO REVOKE: You may revoke your individual retirement account
within seven (7) days after the date the account is established only by
mailing or delivering written notice of your intent to revoke to:
Securities Management and Research, Inc.
One Moody Plaza
Galveston, Texas 77550
(409) 763-8272
(800) 231-4639
The notice shall be deemed mailed on the date of the postmark, if
deposited in the mail in the United States, first class postage prepaid,
properly addressed to the address above. Upon revocation, the entire amount
contributed will be returned. Subsequent payments to existing IRAs cannot be
revoked!
ELIGIBILITY: Any individual who will not attain the age of 70 1/2 years before
the end of his current taxable year and who has compensation which is
includible in gross income (including an individual who is a participant in an
employer's retirement plan or a government pension plan) may contribute to an
IRA. Compensation is defined to include salaries, wages, professional fees,
self-employment income, alimony and separate maintenance payments includible
in gross income and other income for personal services included in gross
income. Income from property, such as dividends, interest or rent, does not
qualify as compensation under an IRA Plan.
LIMITATION ON CONTRIBUTIONS: Contributions must be made in cash and cannot
exceed the lesser of $2,000 or the amount of your compensation (except
rollover, SEP or SIMPLE contributions) for any taxable year. If one spouse
has no compensation, the other spouse may contribute to an IRA for such
spouse; provided two separate IRA accounts exist, the total amount
contributed does not exceed the lesser of $4,000 or 100% of the working
spouse's compensation, a joint income tax return is filed and no more than
$2,000 is contributed to any one account. If a husband and wife each receive
compensation as defined in the preceding paragraph during the year and are
otherwise eligible, each may establish his or her own IRA. The contribution
limitations are applicable to the separate compensation of each individual
without regard to any state community property laws. Your contribution may or
may not be deductible for income tax purposes. Consult your tax adviser for
more information.
If you are not eligible to make a deductible contribution to your IRA, you
may make a non-deductible contribution not to exceed the lesser of $2,000 or
100% of your compensation. Earnings on non-deductible contributions are tax
deferred until distributed.
You must indicate on your tax return the extent to which your IRA
contribution is non-deductible by filing Form 8606 with your return.
If you overstate the amount of your non-deductible contribution, a penalty
of $100 will be assessed unless it is due to reasonable cause.
INVESTMENT OF FUNDS IN LIFE INSURANCE: No part of the custodial funds may be
invested in life insurance contracts.
INVESTMENT AND HOLDING OF CONTRIBUTIONS: Contributions in an IRA are held in
a custodial account for the exclusive benefit of the investor, his surviving
spouse and his beneficiaries who may include his estate, his dependents or
any other persons he may designate in writing delivered to the custodian. Your
interest in the account is fully vested and nonforfeitable. The custodian
maintains a separate account or record for each investor and such account or
record is available for inspection during regular business hours. The
contributions will be invested in the funds described in the Application
completed by the investor.
DISTRIBUTION OF FUNDS: Distributions of benefits without a penalty tax MAY
begin as soon as the investor attains age 59 1/2, but they MUST begin on or
before April 1 of the calendar year following the calendar year in which
the investor attains 70 1/2. An investor may elect to receive benefits if he
becomes disabled, without regard to age. A "minimum distribution" is required
to be made each year beginning on or before April 1 of the calendar year
following the calendar year in which the investor attains age 70 1/2. These
distributions are determined by dividing the entire balance in the IRA at the
beginning of each year by the life expectancy of the investor (or joint life
and last survivor expectancy of investor and beneficiary, if applicable)
determined as of the date the investor attains age 70, reduced by the number
of whole years elapsed since the investor attained age 70 1/2.
DISTRIBUTION OF FUNDS IN THE EVENT OF INVESTOR'S DEATH: If distributions have
begun and the investor dies before his entire interest has been distributed,
the remaining interest in the investor's account shall be distributed to the
investor's beneficiary at least as rapidly as under the method of
distribution being used as of the date of the investor's death. If
distribution has not begun prior to the investor's death, then the investor's
entire interest in the IRA must be distributed to the investor's beneficiary
within five (5) years after the death of the investor, provided that, if a
distribution begins within one (1) year after the investor's death to or for
the benefit of the investor's beneficiary over the longer of the life or life
expectancy of the investor's beneficiary, such distribution will be
considered to be distributed within such five (5) year period. If the
beneficiary is the investor's surviving spouse, the surviving spouse may
elect within the five (5) year period to have distributions begin at any time
before the date on which the investor would have attained the age of 70 1/2
and, if the surviving spouse dies prior to distribution, such surviving
spouse shall be considered as if the spouse were the investor and the
distribution rules that applied to the investor shall be the same rules that
apply to the deceased spouse. A beneficiary or surviving spouse may elect to
accelerate payments.
REQUIRED MINIMUM DISTRIBUTIONS (RMDs): IRA investors who reach age 70 1/2
must begin taking distributions for that year and every year thereafter. The
distribution for the first year may be delayed until April 1 of the year
following the 70 1/2 year. All subsequent year distributions must be taken by
December 31 of each year. This distribution can be based on the single or
joint life expectancies of the investor and/or the designated beneficiary.
A 50% penalty will be applied to amounts not withdrawn.
TAXPAYER REPORTING REQUIREMENTS: If a transaction has occurred for which a
penalty tax is imposed, such as an excess contribution, a premature
distribution or an excess accumulation (insufficient distribution), the
investor is required by the Internal Revenue Service to attach to his annual
income tax return an information return (Form 5329) prescribed for reporting
such transaction and calculating the penalty tax due.
TAX TREATMENT OF WITHDRAWALS AND DISTRIBUTIONS: Funds generally cannot be
withdrawn from the IRA without adverse tax consequences prior to the date on
which the investor attains age 59 1/2 (with the exception of the rollovers
later described, returns of excess contributions and payments on account of
the participant's death, certified disability or divorce). Any distributions
prior to that time (including amounts deemed distributed as a result of
prohibited transactions or use of part or all of the IRA as security for a
loan) are considered to be premature distributions. In addition to being
fully taxable to the investor as ordinary income at the time of distribution,
such premature distributions are subject to a penalty tax of 10% of the
amount distributed. Distributions occurring after the investor reaches
59 1/2, dies or is disabled are taxable to the recipient at ordinary income
tax rates. However, no penalty taxes are applied in the case of such
distributions.
Beginning January 1, 1997, distributions made to pay medical expenses which
exceed 7.5 percent of your adjusted gross income are exempt from the 10%
penalty tax. Distributions made to pay for health insurance premiums for the
participant, the participant's spouse and dependents are also exempt from the
10% penalty tax PROVIDED the participant has separated from employment and
has received unemployment compensation under a federal or state program for
at least 12 weeks.
ROLLOVER CONTRIBUTIONS: Effective January 1, 1993, UCA-92 mandates a 20%
withholding on all eligible rollover distributions from qualified retirement
plans which are not directly rolled to an IRA or a similar qualified
retirement plan. An eligible rollover distribution consists of all or any
portion of the proceeds in a qualified retirement plan other than:
a) a distribution which is part of a series of substantially equal
periodic payments made over the life or life expectancy of the
participant, the joint lives or life expectancies of the participant
and his or her beneficiary, for a period of 5 years or to age 59 1/2,
whichever is later;
b) distributions which are not includible in the recipient's taxable
income; or
c) distributions which represent RMDs made to individuals 70 1/2 years
of age.
An eligible retirement plan is an IRA, a qualified plan, or tax sheltered
annuity which accepts rollover contributions.
Prior to effecting a direct rollover the custodian will distribute any
required minimum distribution amount, if applicable, payable to the investor.
Rollover distribution received by the investor must be invested within sixty
(60) days from the date of distribution in certain other IRA approved
retirement plans, including
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IRAs in order to retain its tax deferred status. All contributions and
rollover contributions to an IRA must be made in cash. No tax deduction,
however, is allowed to the investor for the amount of a rollover contribution
contributed to an IRA.
ROLLOVER BY SURVIVING SPOUSE: A rollover of part or all of a lump sum
distribution or part or all of a qualified partial distribution (subject to
certain limitations provided by section 405(a)(5)(D) of the Code) may be made
by a qualified plan investor or by the surviving spouse of a deceased
qualified plan investor. The surviving spouse may roll over only into an IRA
and may not roll over into a qualified plan in which the spouse is an
investor. Beneficiaries other than the surviving spouse may not roll over.
Whether an individual can receive a qualified lump sum, a qualified partial
distribution or plan termination distribution depends upon the provisions of
the employee benefit plan in which the individual or the spouse was a
participant.
QUALIFIED PLAN ROLLOVER: A qualified plan distribution rolled into an IRA
may be rolled back into another qualified plan under certain circumstances.
In the case of rollovers from qualified plans, the amount rolled over must
consist solely of employer and qualified deductible voluntary employee
contributions, interest earned thereon, and interest earned on other employee
contributions. Any part of the distribution retained by the investor except
his own tax-paid contributions is subject to income tax, while amounts rolled
over are not taxed until distributed from the rollover account. An investor
otherwise eligible to do so may make deductible IRA contributions to a
rollover IRA established with a qualified plan or section 403(b) annuity
distribution, but if this occurs, the law may preclude future rollover of the
funds back into a qualified plan or section 403(b) annuity. An investor may
also withdraw all or part of the funds from another IRA or individual
retirement annuity for rollover into an IRA within a one-year period. This
limitation does not, however, apply to rollovers of funds between a qualified
employer plan or annuity and an IRA. An investor may convert non-cash
property distributed from a qualified plan into cash by means of a bona fide
sale and roll over part or all of the proceeds into an IRA or another
qualified plan within the sixty (60) day period after the distribution.
PROHIBITED TRANSACTIONS: An IRA prohibits the investor, his spouse or
beneficiaries from engaging in any prohibited transactions (within the
meaning of the Internal Revenue Code section 4975). Prohibited transactions
include, but are not limited to, the sale or exchange of property, the
lending of money or other extension of credit, the furnishing of goods,
services or facilities and the transfer of income or assets to or from the
IRA to or for the benefit of his own interest or receive any compensation
from any transaction which involves the IRA assets. A disqualified person
includes, but is not limited to, the investor, his family (including other
individuals as defined in section 4975(e)(16) of the Code) and persons or
other entities (corporations, trusts, estates or partnerships) which stand in
a close relationship to the investor. If such transactions occur, the IRA
will cease to be qualified and will lose its tax exemption status. The full
balance will be treated as having been distributed and subject to the income
and penalty taxes discussed above, and the fair market value of the account
must be included in the investor's gross income. In addition, the custodian
and other disqualified parties may not engage in any prohibited transactions
with respect to the custodial account and will be subject to penalties if any
such prohibited transactions are engaged in without a statutory or
administrative exemption.
USE OF IRA ACCOUNT ASSETS AS SECURITY FOR LOANS: If the investor borrows
money and used all or any portion of his interest in the IRA as security,
the portion of the IRA used will be deemed to be distributed to the investor.
If the investor has not attained age 59 1/2 or is not disabled, the
distribution will not only be fully taxable at ordinary income tax rates but
will incur the 10% premature distribution penalty tax discussed above.
Consequently, pledging IRA assets as security for a loan is specifically
prohibited.
PENALTY FOR EXCESS CONTRIBUTIONS: An "excess contribution" is a contribution
to an IRA in a taxable year in excess of the maximum amount deductible or
permitted to be rolled over into an IRA for the taxable year. A penalty tax
equal to 6% of the amount of the excess contribution is imposed on an
investor who has an excess contribution in his IRA as of the close of any
taxable year.
PENALTY FOR CERTAIN ACCUMULATIONS: After the investor reaches age 70 1/2, or
if he dies and payments are to be made to his beneficiary, if the required
"minimum distributions" described in "Distribution of Funds" above, do not
occur within the time required by law, a penalty tax may be incurred equal to
50% of the difference between the amount of the "minimum distribution" and the
amount actually distributed each year. The Secretary of the Treasury may waive
the penalty if the inadequate distribution is due to reasonable error and
reasonable steps are being taken to correct the situation.
PENALTY FOR EXCESS DISTRIBUTIONS: A 15% excise tax is imposed on the sum of
all annual distributions received during the calendar year in excess of
$150,000 (or $112,500, adjusted for cost of living increases in certain
circumstances). This 15% excise tax on excess distributions is reduced by the
10% tax on premature distributions, if any, that apply to excess
distribution. The excess distribution tax will not apply to a distribution
due to the investor's death (although the estate tax may be increased by 15%
of the "excess retirement accumulation"), the portion of the distribution
applying to nondeductible contributions, a distribution that is rolled over
tax free, or a distribution to an alternate payee under qualified domestic
relations order. As a result of the Small Business Job Protection Act of
1996, the excess distribution tax has been suspended for payments received in
1997, 1998, and 1999.
FINANCIAL DISCLOSURE: Earnings on the investor's IRA are the dividends and
capital gains distributions received on mutual fund shares held by the
investor's IRA, and are used to purchase additional mutual fund shares. A
sales charge is deducted on the purchase of shares of the funds being
offered. These sales charges are reduced under various circumstances
described in detail in each Fund's prospectus. You must have received a
prospectus prior to submitting your application to create an IRA. The growth
in value of the mutual fund shares held in the investor's IRA can be neither
guaranteed nor projected.
WITHDRAWALS: Withdrawal requests MUST be presented to Securities Management
and Research, Inc., One Moody Plaza, Galveston, Texas 77550, with the
appropriate withdrawal forms properly executed. You should contact your
representative or Securities Management and Research, Inc. for the required
forms and procedures to avoid any delay in the expediting of withdrawals.
ESTATE AND GIFT TAXES: All amounts held by the investor at the investor's
death are includible in his estate for federal estate tax purposes, and the
beneficiary shall report distributions received as ordinary income, except a
surviving spouse may be able to roll over the distribution. Any transfers of
the benefits during the investor's lifetime are subject to applicable gift
taxes except certain transfers to a former spouse pursuant to a divorce
decree or written instrument incident to such divorce.
ADDITIONAL INFORMATION: Additional information regarding the application and
rules governing the IRA may be obtained from any district office of the
Internal Revenue Service and from IRS Publication 590.
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SIMPLIFIED EMPLOYEE PENSION
INDIVIDUAL RETIREMENT ACCOUNTS CONTRIBUTION AGREEMENT
==============================================================================
Form 5305-SEP Rev. January 1997
(Under section 408(k) of OMB No. 1545-0499 DO NOT File With the
the Internal Revenue Code) Internal Revenue Service
_______________________________________________________________ makes the
(Business name--employer)
following agreement under the terms of section 408(k) of the Internal Revenue
Code and the instructions to this form.
ARTICLE I--ELIGIBILITY REQUIREMENTS
(Check appropriate boxes--see instructions.)
The employer agrees to provide for discretionary contributions in each
calendar year to the Individual Retirement Accounts or Individual Annuity
(IRA) of all employees who are at least _______ years old (not to exceed
21 years old) and have performed services for the employer in at least
_______ years (not to exceed 3 years) of the immediately preceding 5 years.
This simplified employee pension (SEP) / / includes / / does not include
employees covered under a collective bargaining agreement and / / includes
/ / does not include certain nonresident aliens, and / / includes / / does
not include employees whose total compensation during the year is less than
$400*.
ARTICLE II--SEP REQUIREMENTS (SEE INSTRUCTIONS)
The employer agrees that contributions made on behalf of each eligible
employee will be:
- - Based only on the first $150,000* of compensation.
- - Made in an amount that is the same percentage of compensation for every
employee.
- - Limited annually to the smaller of $30,000 or 15% of compensation.
- - Paid to the employee's IRA trustee, custodian, or insurance company (for
an annuity contract).
_______________________________________________________________________________
Signature of employer
_______________________________________________________________________________
By
_______________________________________________________________________________
Date
_______________________________________________________________________________
* This amount reflects the cost-of-living increase effective January 1, 1997.
The amount is adjusted annually. The IRS announces the increase, if any, in
a news release and in the Internal Revenue Bulletin.
If applicable, fill out this form and the form on the next page.
Submit this copy to SM&R.
14
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15
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SIMPLIFIED EMPLOYEE PENSION
INDIVIDUAL RETIREMENT ACCOUNTS CONTRIBUTION AGREEMENT
- --------------------------------------------------------------------------------
Form 5305-SEP Rev. January 1997
(Under section 408(k) of OMB No. 1545-0499 DO NOT File With the
the Internal Revenue Code) Internal Revenue Service
___________________________________________ makes the following agreement
(Business name--employer)
under the terms of section 408(k) of the Internal Revenue Code and the
instructions to this form.
ARTICLE I--ELIGIBILITY REQUIREMENTS
(Check appropriate boxes--see instructions.)
The employer agrees to provide for discretionary contributions in each
calendar year to the Individual Retirement Accounts or Individual Annuity
(IRA) of all employees who are at least__________years old (not to exceed 21
years old) and have performed services for the employer in at
least_________years (not to exceed 3 years) of the immediately preceding 5
years.
This simplified employee pension (SEP) / /includes / /does not include
employees covered under a collective bargaining agreement and / /includes
/ /does not include certain nonresident aliens, and / /includes / /does not
include employees whose total compensation during the year is less than $400*.
ARTICLE II--SEP REQUIREMENTS (See instructions.)
The employer agrees that contributions made on behalf of each eligible
employee will be
- - Based only on the first $160,000* of compensation.
- - Made in an amount that is the same percentage of compensation for every
employee.
- - Limited annually to the smaller of $30,000* or 15% of compensation.
- - Paid to the employee's IRA trustee, custodian, or insurance company (for
an annuity contract).
_______________________________________________________________________________
Signature of employer
_______________________________________________________________________________
By
_______________________________________________________________________________
Date
*This amount reflects the cost-of-living increase effective January 1, 1997.
The amount is adjusted annually. The IRS announces the increase, if any, in a
news release and in the Internal Revenue Bulletin.
THIS FORM REMAINS WITH THE CLIENT, IN THIS KIT.
PAPERWORK REDUCTION ACT NOTICE
You are not required to provide the information requested on a form that is
subject to the Paperwork Reduction Act unless the form displays a valid OMB
control number. Books or records relating to a form or its instructions must
be retained as long as their contents may become material in the
administration of any Internal Revenue law. Generally, tax returns and
return information are confidential, as required by Code section 6103.
The time needed to complete this form will vary depending on individual
circumstances. The estimated average time is:
Recordkeeping. . . . . . . . . . . . . . . . . . . 1 hr., 40 min.
Learning about the law or the form . . . . . . . . 1 hr., 35 min.
Preparing the form . . . . . . . . . . . . . . . . 1 hr., 41 min.
If you have comments concerning the accuracy of these time estimates or
suggestions for making this form simpler, we would be happy to hear from you.
You can write to the Tax Forms Committee, Western Area Distribution Center,
Rancho Cordova, CA 95743-0001. DO NOT send this form to this address.
Instead, keep it for your records.
INSTRUCTIONS (Section references are to the Internal Revenue Code, unless
otherwise noted.)
PURPOSE OF FORM--Form 5305-SEP (Model SEP) is used by an employer to make an
agreement to provide benefits to all eligible employees under a SEP described
in section 408(k). DO NOT file this form with the IRS. See PUB. 560,
Retirement Plans for the Self-Employed, and PUB. 590, Individual Retirement
Arrangements (IRAs).
INSTRUCTIONS TO THE EMPLOYER
SIMPLIFIED EMPLOYEE PENSION.--A SEP is a written arrangement (a plan) which
provides the employer with a simplified way to make contributions toward an
employees' retirement income. Under a SEP, the employer is permitted to
contribute a certain amount (see below) to an employee's Individual
Retirement Account or Individual Retirement Annuity (IRAs). The employer
makes contributions directly to an IRA set up by an employee with a bank,
insurance company, or other qualified financial institution. When using Form
5305-SEP to establish a SEP, the IRA must be a model IRA established on an
IRA form or a master or prototype IRA for which the IRS has issued a
favorable opinion letter. Making the agreement on Form 5305-SEP does not
establish an employer IRA as described in section 408(c).
WHEN NOT TO USE FORM 5305-SEP.--Do not use this form if you:
- - Currently maintain any other qualified retirement plan. This does not
prevent you from maintaining another SEP.
- - Previously maintained a defined benefit plan that is now terminated
- - Have any eligible employees for whom IRAs have not been established.
- - Use the services of leased employees (as described in section 414(n)).
- - Are a member of an affiliated service group (as described in section
414(m)), a controlled group of corporations (as described in section
414(b)), or trades or businesses under common control (as described in
section 414(c) and 414(o)), unless all eligible employees of all the members
of such groups, trades, or businesses, participate in the SEP
- - Will not pay the cost of the SEP contributions. do not use Form 5305-SEP
for a SEP that provides for elective employee contributions even if the
contributions are made under a salary reduction agreement.
Use Form 5305A-SEP, or a nonmodel SEP if you permit elective deferrals to a
SEP.
NOTE: SEPs PERMITTING ELECTIVE DEFERRALS CANNOT BE ESTABLISHED AFTER 1996.
ELIGIBLE EMPLOYEES--All eligible employees must be allowed to participate in
the SEP. An eligible employee is any employee who: (1) is at least 21 years
old, and (2) has performed "service" for you in at least 3 of the immediately
preceding 5 years.
NOTE: YOU CAN ESTABLISH LESS RESTRICTIVE ELIGIBILITY REQUIREMENTS, BUT NOT
MORE RESTRICTIVE ONES.
Service is any work performed for you for any period of time, however short.
if you are a member of an affiliated service group, a controlled group of
corporations, or trades or businesses under common control, service includes
any work performed for any period of time for any other member of such group,
trades, or businesses.
EXCLUDABLE EMPLOYEES--The following employees do not have to be covered by
the SEP: (1) employees covered by a collective bargaining agreement whose
retirement benefits were bargained for in good faith by you and their union,
*This amount reflects the cost-of-living increase effective January 1, 1997.
The amount is adjusted annually. The IRS announces the increase, if any, in
a news release and in the Internal Revenue Bulletin.
16
<PAGE>
(2) nonresident alien employees who did not earn U.S. source income from you,
and (3) employees who received less than $400* in compensation during the
year.
CONTRIBUTION LIMITS--The SEP rules permit you to make an annual contribution
of up to 15% of the employee's compensation or $30,000*, whichever is less.
Compensation, for this purpose, does not include employer contributions to
the SEP or the employee's compensation in excess of $160,000*. If you also
maintain a Model Elective SEP or any other SEP that permits employees to make
elective deferrals, contributions to the two SEPs together may not exceed the
smaller of $30,000* or 15% of compensation for any employee.
Contributions cannot discriminate in favor of highly compensated employees.
You are not required to make contributions every year. But you must
contribute to the SEP-IRAs of all of the eligible employees who actually
performed services during the year of the contribution. This includes
eligible employees who die or quit working before the contribution is made.
You may also not integrate your SEP contributions with, or offset them by,
contributions made under the Federal Insurance Contributions Act (FICA).
If this SEP is intended to meet the top-heavy minimum contribution rules of
section 416, but it does not cover all your employees who participate in your
elective SEP, then you must make minimum contributions to IRAs established on
behalf of those employees.
DEDUCTING CONTRIBUTIONS--You may deduct contributions to a SEP subject to the
limits of section 404(h). This SEP is maintained on a calendar year basis and
contributions to the SEP are deductible for your tax year with or within
which the calendar year ends. Contributions made for a particular tax year
must be made by the due date of your income tax return (including extensions)
for that tax year.
COMPLETING THE AGREEMENT--This agreement is considered adopted when (1) IRAs
have been established for all of your eligible employees, (2) you have
completed all blanks on the agreement form without modification, and (3) you
have given all of your eligible employees the following information:
- - A copy of Form 5305-SEP.
- - A statement that IRAs other than the IRAs into which employer SEP
contributions will be made may provide different rates of return and different
terms concerning, among other things, transfers and withdrawals of funds
from the IRAs.
- - A statement that, in addition to the information provided to an employee at
the time the employee becomes eligible to participate, the administrator of
the SEP must furnish each participant within 30 days of the effective date
of any amendment to the SEP, a copy of the amendment and a written
explanation of the effects.
- - A statement that the administrator will give written notification to each
participant of any employer contributions made under the SEP to that
participant's IRA by the later of January 31 of the year following the year
for which a contribution is made or 30 days after the contribution is made.
Employers who have established a SEP using Form 5305-SEP and have furnished
each eligible employee with a copy of the completed Form 5305-SEP and
provided the other documents and disclosures described in INSTRUCTIONS TO THE
EMPLOYER and INFORMATION FOR THE EMPLOYEE, are not required to file the
annual information returns, Forms 5500, 5500-C/R, or 5500-EZ for the SEP.
However, under Title 1 of ERISA, relief from the annual reporting
requirements may not be available to an employer who selects, recommends, or
influences its employees to choose IRAs into which contributions will be made
under the SEP, if those IRAs are subject to provisions that impose any limits
on a participant's ability to withdraw funds (other than restrictions imposed
by the Code that apply to all IRAs). For additional information on Title I
requirements, see the Department of Labor regulation at 29 CFR 2520. 104-48.
INFORMATION FOR THE EMPLOYEE
The information below explains what a SEP is, how contributions are made,
and how to treat your employer's contributions for tax purposes. For more
information, see PUB. 590.
SIMPLIFIED EMPLOYEE PENSION--A SEP is a written arrangement (a plan) that
allows an employer to make contributions toward your retirement.
Contributions are made to an individual retirement account/annuity (IRA).
Contributions must be made to either a Model IRA executed on an IRS form or a
master or prototype IRA for which the IRS has issued a favorable opinion
letter.
An employer is not required to make SEP contributions. If a contribution is
made, it must be allocated to all the eligible employees according to the SEP
agreement. The Model SEP (Form 5305-SEP) specifies that the contribution for
each eligible employee will be the same percentage of compensation (excluding
compensation higher than $160,000*) for all employees.
Your employer will provide you with a copy of the agreement containing
participation rules and a description of how employer contributions may be
made to your IRA. Your employer must also provide you with a copy of the
completed Form 5305-SEP and a yearly statement showing any contributions to
your IRA.
All amounts contributed to your IRA by your employer belong to you even after
you stop working for that employer.
CONTRIBUTION LIMITS--Your employer will determine the amount to be contributed
to your IRA each year. However, the amount for any year is limited to the
smaller of $30,000* or 15% of your compensation for that year. Compensation
does not include any amount that is contributed by your employer to your IRA
under the SEP. Your employer is not required to make contributions every
year or to maintain a particular level of contributions.
TAX TREATMENT OF CONTRIBUTIONS--Employer contributions to your SEP-IRA are
excluded from your income unless there are contributions in excess of the
applicable limit. Employer contributions within these limits will not be
included on your Form W-2.
EMPLOYEE CONTRIBUTIONS--You may contribute the smaller of $2,000 or 100% of
your compensation to an IRA. However, the amount you can deduct may be
reduced or eliminated because, as a participant in a SEP, you are covered by
an employer retirement plan.
SEP PARTICIPATION--If your employer does not require you to participate in a
SEP as a condition of employment, and you elect not to participate, all other
employees of your employer may be prohibited from participating. If one or
more eligible employees do not participate and the employer tries to
establish a SEP for the remaining employees, it could cause adverse tax
consequences for the participating employees.
An employer may not adopt this IRS Model SEP if the employer maintains
another qualified retirement plan or has ever maintained a qualified defined
benefit plan. This does not prevent your employer from adopting this IRS
Model SEP and also maintaining an IRS Model Elective SEP or other SEP.
However, if you work for several employers, you may be covered by a SEP of
one employer and a different SEP or pension or profit-sharing plan of another
employer.
SEP-IRA AMOUNTS--ROLLOVER OR TRANSFER TO ANOTHER IRA--You can withdraw or
receive funds from your SEP-IRA if within 60 days of receipt, you place those
funds in another IRA or SEP-IRA. This is called a "rollover" and can be done
without penalty only once in any 1-year period. However, there are no
restrictions on the number of times you make "transfers" if you arrange to
have these funds transferred between the trustees or the custodians so that
you never have possession of the funds.
WITHDRAWALS--You may withdraw your employer's contribution at any time, but
any amount withdrawn is includible in your income unless rolled over. Also,
if withdrawals occur before you reach 59 1/2% you may be subject to a tax on
early withdrawal.
EXCESS SEP CONTRIBUTIONS--Contributions exceeding the yearly limitations may
be withdrawn without penalty by the due date (plus extensions) for filing
your tax return (normally April 15), but is includible in your gross income.
Excess contributions left in your SEP-IRA account after that time may have
adverse tax consequences. Withdrawals of those contributions may be taxed as
premature withdrawals.
FINANCIAL INSTITUTION REQUIREMENTS--The financial institution where your IRA
is maintained must provide you with a disclosure statement that contains the
following information in plain, nontechnical language:
1. The law that relates to your IRA.
2. The tax consequences of various options concerning your IRA.
3. Participation eligibility rules, and rules on the deductibility of
retirement savings.
4. Situations and procedures for revoking your IRA, including the name,
address, and telephone number of the person designated to receive notice
of revocation. (This information must be clearly displayed at the
beginning of the disclosure statement.)
5. A discussion of the penalties that may be assessed because of prohibited
activities concerning you IRA.
6. Financial disclosure that provides the following information:
a. Projects value growth rates of your IRA under various contribution an
retirement schedules, or describes the method of determining annual
earnings and charges that may be assessed.
b. Describes whether, and for when, the growth projections are guaranteed,
or a statement of the earnings rate and the terms on which the
projections are based.
c. States the sales commission for each year expressed as a percentage of
$1,000.
In addition, the financial institution must provide you with a financial
statement each year. You may want to keep these statements to evaluate your
IRA's investment performance.
17
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18
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[LOGO]
SECURITIES MANAGEMENT & RESEARCH, INC.
Member NASD, SIPC
- --------------------------------------------------------------------------------
One Moody Plaza Galveston, Texas 77550
Call Toll Free 1-800-231-4639
- --------------------------------------------------------------------------------
AMERICAN NATIONAL FUNDS GROUP
[LOGO] - American National Growth Fund
- American National Income Fund
- Tri-Flex Fund
- --------------------------------------------------------------------------------
SM&R CAPITAL FUNDS
[LOGO] - American National Government
Income Fund
- American National Tax-Free Fund
- American National Primary Fund
SM&R is an investment advisor and mutual fund underwriter with over 30 years
experience and manages all of the portfolios of the American National Funds
Group and the SM&R Capital Funds. It is, also, a subsidiary of American
National Insurance Company, one of the nation's largest insurers.
The professional investment managers of SM&R have the experience of directing
and redirecting almost $4 billion of investments through many years of changing
economic and market conditions. Experience that has helped to make these fund
groups well respected in the investment community.
Form 9379
10/97
1,000
<PAGE>
EXHIBIT 99.B17
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT SM&R CAPITAL FUNDS, INC., a Maryland
corporation, and its undersigned officers and Directors each hereby nominate,
constitute and appoint MICHAEL W. MCCROSKEY its/his/her true and lawful
attorney-in-fact and agent, for it/him/her and on its/his/her name, place and
stead in any and all capacities, to make, execute and sign all amendments to the
Fund's Registration on Form N-1A under the Securities Act of 1933 and the
Investment Company Act of 1940, and to file with the Securities and Exchange
Commission and any other regulatory authority having jurisdiction over the offer
and sale of shares of the Funds, such amendments, and any and all amendments and
supplements thereto, and any and all exhibits and other documents requisite in
connection therewith granting unto said attorney, full power and authority to do
and perform each and every act necessary and/or appropriate as fully to all
intents and purposes as the Fund and the undersigned Officers and Directors
themselves might or could do.
IN WITNESS WHEREOF, the Fund has caused this power of attorney to be
executed in its name by its President and attested by its Secretary, and the
undersigned Officers and Directors have hereunto set their hands this 4th day of
December, 1997.
ATTEST: SM&R CAPITAL FUNDS, INC.
/s/Teresa E. Axelson /s/Michael W. McCroskey
- ---------------------------------------- -----------------------------------
Teresa E. Axelson, Secretary Michael W. McCroskey, President
SM&R Capital Funds, Inc.
/s/Michael W. McCroskey /s/Brenda T. Koelemay
- ---------------------------------------- -----------------------------------
Michael W. McCroskey, President & Brenda T. Koelemay, Treasurer,
Principal Executive Officer Principal Financial & Accounting
Officer
/s/Ernest S. Barratt /s/Edwin K. Nolan
- ---------------------------------------- -----------------------------------
Ernest S. Barratt, Ph.D., Director Edwin K. Nolan, Director
/s/Allan W. Matthews /s/Robert V. Shattuck
- ---------------------------------------- -----------------------------------
Allan W. Matthews, Director Robert V. Shattuck, Jr., Director
/s/Lea McLeod Matthews /s/Jamie G. Williams
- ---------------------------------------- -----------------------------------
Lea McLeod Matthews, Director Jamie G. Williams, Director
/s/Michael W. McCroskey /s/Frank P. Williamson
- ---------------------------------------- -----------------------------------
Michael W. McCroskey, Director Frank P. Williamson, Director
/s/Ann McLeod Moody
- ----------------------------------------
Ann McLeod Moody, Director
<PAGE>
Exhibit 99.B19
CONTROL LIST
The Registrant, SM&R Capital Funds, Inc., is an open-end investment
company, organized under the laws of the State of Maryland. The Registrant has
an investment advisory contract with Securities Management and Research, Inc.
("SM&R"), a Florida corporation and a registered broker-dealer and investment
adviser. SM&R and its parent company, American National Insurance Company, a
Texas insurance company, own approximately 10% and 28%, respectively, of the
outstanding stock of the Government Income Fund Series, 9% and 54%,
respectively, of the Primary Fund Series, and 12% and 53%, respectively, of the
Tax Free Fund Series. The Moody Foundation owns approximately 23.7% and the
Libbie Shearn Moody Trust owns approximately 37.58% of the outstanding stock of
American National Insurance Company.
The Trustees of The Moody Foundation are Mrs. Frances Moody Newman, Robert
L. Moody and Ross Rankin Moody. Robert L. Moody is a beneficiary of the Libbie
Shearn Moody Trust and Chairman of the Board, Director, President and Chief
Executive Officer of American National Insurance Company. Robert L. Moody is
also Chairman of the Board, a Director and controlling shareholder of National
Western Life Insurance Company, a Colorado insurance company.
The Moody National Bank of Galveston is the trustee of the Libbie Shearn
Moody Trust and various other trusts which, in the aggregate, own approximately
46.87% of the outstanding stock of American National Insurance Company. Moody
Bank Holding Company, Inc. owns approximately 97% of the outstanding shares of
The Moody National Bank of Galveston. Moody Bank Holding Company, Inc. is a
wholly owned subsidiary of Moody Bancshares, Inc. The Three R Trusts, trusts
created by Robert L. Moody for the benefit of his children, are controlling
stockholders of Moody Bancshares, Inc.
The Moody Foundation owns 33.0% and the Libbie Shearn Moody Trust owns
51.0% of the outstanding stock of Gal-Tex Hotel Corporation, a Texas
corporation. Gal-Tex Hotel Corporation has the following wholly-owned
subsidiaries, listed in alphabetical order:
Gal-Tenn Corporation
Gal-Tex Management Company
Gal-Tex Woodstock, Inc.
GTG Corporation
New Paxton Hotel Corporation
<PAGE>
American National owns a direct or indirect interest in the following
entities, listed in alphabetical order:
ENTITY: Alamo Quarry Market, Ltd.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: ANTAC, Inc. owns a 17.5% interest.
ENTITY: American Hampden Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
98% interest.
ENTITY: American National of Delaware Corporation
ENTITY FORM: a Delaware corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company
ENTITY: American National Financial Corporation
ENTITY FORM: a Texas corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: American National Financial Corporation (Delaware)
ENTITY FORM: a Delaware corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
2
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ENTITY: American National Financial Corporation (Nevada)
ENTITY FORM: a Nevada corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: American National General Insurance Company
ENTITY FORM: a Missouri insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company.
ENTITY: American National Growth Fund, Inc.
ENTITY FORM: a Maryland corporation - registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with SM&R.
ENTITY: American National Income Fund, Inc.
ENTITY FORM: a Maryland corporation - registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with SM&R.
ENTITY: American National Insurance Service Company
ENTITY FORM: a Missouri corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company.
ENTITY: American National Investment Accounts, Inc.
3
<PAGE>
ENTITY FORM: a Maryland corporation - registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with SM&R.
ENTITY: American National Life Insurance Company of Texas
ENTITY FORM: a Texas insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company
ENTITY: American National Lloyds Insurance Company
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS FOR CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: American National Property and Casualty Company
ENTITY FORM: a Missouri insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: ANPAC General Agency of Texas
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company.
ENTITY: ANPAC Lloyds Insurance Management, Inc.
ENTITY FORM: a Texas corporation
4
<PAGE>
OWNERSHIP OR OTHER BASIS FOR CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: ANREM Corporation
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of SM&R
ENTITY: ANTAC, Inc.
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Garden State Life Insurance Company
ENTITY FORM: a New Jersey insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Gateway Park Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: South Shore Harbour Development, Ltd. has
a 50% interest.
ENTITY: Harbour Title Company
ENTITY FORM: a Texas corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: South Shore Harbour Development, Ltd. owns
50% of the outstanding stock.
5
<PAGE>
ENTITY: Kearns Building Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National owns an 85% interest.
ENTITY: Lincolnshire Equity Fund, L.P.
ENTITY FORM: a Delaware limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
12.6% limited partnership interest.
ENTITY: National Institute of Family Economics, Inc.
ENTITY FORM: a Texas corporation (inactive)
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company
ENTITY: Pacific Property and Casualty Company
ENTITY FORM: a California corporation
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Property and Casualty Company
ENTITY: Panther Creek Limited Partnership
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest
ENTITY: Ridgedale Festival Joint Venture
ENTITY FORM: a Texas joint venture
6
<PAGE>
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
50% interest.
ENTITY: Rutledge Partners, L.P.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
50% limited partnership interest.
ENTITY: South Shore Harbour Development, Ltd.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
95% limited partnership interest. ANREM Corp. owns a 5% general partnership
interest.
ENTITY: Standard Life and Accident Insurance Company
ENTITY FORM: an Oklahoma insurance company
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned subsidiary of American
National Insurance Company.
ENTITY: Terra Venture Bridgeton Project Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: Wholly owned by American National
Insurance Company.
ENTITY: Third and Catalina, Ltd.
ENTITY FORM: a Texas limited partnership
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
49% limited partnership interest.
7
<PAGE>
ENTITY: Timbermill, Ltd.
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest.
ENTITY: Town and Country Joint Venture
ENTITY FORM: a Texas joint venture
OWNERSHIP OR OTHER BASIS OF CONTROL: American National Insurance Company owns a
99% limited partnership interest.
ENTITY: Triflex Fund, Inc.
ENTITY FORM: a Maryland corporation - a registered investment company
OWNERSHIP OR OTHER BASIS OF CONTROL: Investment Advisory Agreement with SM&R.
8
