<Page>
SEMI-ANNUAL REPORT
[SM&R LOGO]
SM&R INVESTMENTS, INC.
SM&R EQUITY FUNDS
SM&R FIXED INCOME FUNDS
SM&R EQUITY FUNDS:
SM&R ALGER TECHNOLOGY FUND
SM&R ALGER AGGRESSIVE GROWTH FUND
SM&R ALGER SMALL-CAP FUND
SM&R ALGER GROWTH FUND
SM&R GROWTH FUND
SM&R EQUITY INCOME FUND
SM&R BALANCED FUND
SM&R FIXED INCOME FUNDS:
SM&R GOVERNMENT BOND FUND
SM&R TAX FREE FUND
SM&R PRIMARY FUND
SM&R MONEY MARKET FUND
"THE FINANCIAL STATEMENTS CONTAINED HEREIN ARE INCLUDED FOR THE GENERAL
INFORMATION OF OUR SHAREHOLDERS. THIS REPORT IS NOT AUTHORIZED FOR DISTRIBUTION
TO PROSPECTIVE INVESTORS UNLESS PRECEDED OR ACCOMPANIED BY AN EFFECTIVE
PROSPECTUS."
SEMI-ANNUAL REPORT
FEBRUARY 28, 2003
<Page>
(This page has been left blank intentionally.)
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
COMMERCIAL SERVICES & SUPPLIES8.02%
Amdocs Limited* 650 $ 8,534
BISYS Group, Incorporated (The)* 930 14,545
First Data Corporation 270 9,356
----------
32,435
COMMUNICATION EQUIPMENT--9.93%
Cisco Systems, Incorporated* 1,125 15,728
Comverse Technology, Incorporated* 1,125 11,475
Nokia Corporation ADR 980 12,965
----------
40,168
COMMUNICATIONS--0.90%
TMP Worldwide Incorporated* 400 3,660
COMPUTER RELATED & BUSINESS SERVICES--1.83%
EMC Corporation* 1,000 7,390
COMPUTER SOFTWARE--0.88%
Legato Systems, Incorporated* 600 3,558
COMPUTERS & PERIPHERALS--5.27%
Dell Computer Corporation* 430 11,593
Sun Microsystems, Incorporated* 2,825 9,718
----------
21,311
ELECTRONIC EQUIPMENT & INSTRUMENTS--5.38%
Flextronics International Limited* 1,385 12,022
STMicroelectronics N.V. NYS 525 9,770
----------
21,792
HEALTH CARE PROVIDER & SERVICES--0.95%
WebMD Corporation* 400 3,836
HOTELS, RESTAURANTS & LEISURE--0.07%
Brinker International, Incorporated* 10 277
INFORMATION TECHNOLOGY CONSULTING & SERVICES--1.27%
Accenture LTD (Class A)* 335 5,139
INTERNET & CATALOG RETAIL--12.21%
Alloy, Incorporated* 1,500 7,515
Amazon.com, Incorporated* 325 7,153
eBay Incorporated* 170 13,331
NetFlix Incorporated* 1,250 21,388
----------
49,387
INTERNET SOFTWARE & SERVICES--8.28%
Digital Insight Corporation* 100 1,000
Expedia, Incorporated (Class A)* 100 6,979
VeriSign, Incorporated* 500 3,855
WebEx Communication, Incorporated* 600 6,654
Yahoo! Incorporated* 720 15,012
----------
33,500
MEDIA--1.58%
Walt Disney Company (The) 375 6,398
SEMICONDUCTOR EQUIPMENT & PRODUCT--2.81%
Rambus Incorporated* 750 11,385
SEMICONDUCTORS--20.74%
Altera Corporation* 325 $ 4,072
Analog Devices, Incorporated* 250 7,290
Applied Materials, Incorporated* 450 5,841
Fairchild Semiconductor Corporation
(Class A)* 690 8,390
Intel Corporation 940 16,215
Intersil Corporation (Class A)* 635 9,938
LSI Logic Corporation* 665 2,953
Marvell Technology Group LTD* 285 5,871
Microchip Technology Incorporated 335 8,526
Taiwan Semiconductor Manufacturing
Company LTD* 470 3,332
Teradyne, Incorporated* 990 11,474
----------
83,902
SOFTWARE--13.17%
Microsoft Corporation 670 15,879
Oracle Corporation* 805 9,628
Take-Two Interactive Software,
Incorporated* 800 16,728
VERITAS Software Corporation* 650 11,069
----------
53,304
TOTAL COMMON STOCK--93.29%
(Cost $372,366) 377,442
----------
CASH EQUIVALENTS
SM&R Money Market Fund,
0.75% (a) 31,719 31,719
----------
TOTAL CASH EQUIVALENTS--7.84%
(Cost $31,719) 31,719
----------
TOTAL INVESTMENTS--101.13%
(Cost $404,085) 409,161
LIABILITIES IN EXCESS OF
OTHER ASSETS--(1.13%) (4,559)
----------
NET ASSETS--100.00% $ 404,602
==========
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
NYS--New York Shares
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Alger Technology Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
1
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
ASSETS
Investment in securities, at value (Cost $404,085) $ 409,161
Prepaid expenses 6,356
Receivable for:
Investment security sold 488
Capital stock sold 73
Dividends 72
Expense reimbursement 3,374
-------------
TOTAL ASSETS 419,524
-------------
LIABILITIES
Investment securitites purchased 4,323
Accrued:
Investment advisory fee 396
Service fee 73
Distribution fee 572
Other liabilities 9,558
-------------
TOTAL LIABILITIES 14,922
-------------
NET ASSETS (applicable to shares outstanding) $ 404,602
=============
NET ASSETS:
Class A $ 259,838
- ----------------------------------------------------------------------------------------------------------------------
Class B $ 144,764
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 404,602
=============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 148,539
- ----------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 80,736
- ----------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 1.75
Offering price per share: (Net Assets value of $1.75/95%) $ 1.84
- ----------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 1.79
- ----------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
2
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
INVESTMENT INCOME
Dividends $ 535
Interest 170
-------------
TOTAL INVESTMENT INCOME 705
-------------
EXPENSES
Investment advisory fees 2,347
Service fees 435
Professional fees 2,416
Custody and transaction fees 8,081
Directors' fees 4,491
Qualification fees 7,959
Shareholder reporting expenses 566
Distribution fees 1,042
Insurance expense 246
Other expenses 8
-------------
TOTAL EXPENSES 27,591
LESS EXPENSES REIMBURSED (23,503)
-------------
NET EXPENSES 4,088
-------------
INVESTMENT LOSS--NET (3,383)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (36,306)
Change in unrealized appreciation of investments for the period 61,425
-------------
NET GAIN ON INVESTMENTS 25,119
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 21,736
=============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2003 2002
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (3,383) $ (32,896)
Net realized loss on investments (36,306) (214,084)
Change in unrealized appreciation 61,425 862
----------------- -----------------
Net increase (decrease) in net assets resulting from operations 21,736 (246,118)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A -- --
Class B -- --
----------------- -----------------
Total distributions to shareholders -- --
----------------- -----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 96,535 53,340
Class B 4,803 161,747
----------------- -----------------
Total net capital share transactions 101,338 215,087
----------------- -----------------
TOTAL INCREASE (DECREASE) 123,074 (31,031)
NET ASSETS
Beginning of Period 281,528 312,559
----------------- -----------------
End of Period $ 404,602 $ 281,528
================= =================
</Table>
See notes to financial statements.
3
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
CLASS A SHARES
-------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
-------------- -------------------------
2003 2002 2001
-------------- ----------- ----------
Net Asset Value, Beginning of Period $ 1.67 $ 3.24 $ 10.00
Investment income (loss)--net 0.12 (0.12) (0.37)
Net realized and unrealized gain (loss) on investment (0.04) (1.45) (6.39)
-------------- ----------- ----------
Total from Investment Operation 0.08 (1.57) (6.76)
Less distributions from Investment income--net -- -- --
-------------- ----------- ----------
Total Distribution 0.00 0.00 0.00
-------------- ----------- ----------
Net Asset Value, End of Period $ 1.75 $ 1.67 $ 3.24
============== =========== ==========
Total Return (1) 0.57%** (48.46)% (67.60)%
============== =========== ==========
RATIOS (IN PERCENTAGES)/ SUPPLEMENTAL DATA
Net Assets, end of period $ 259,838 $ 150,553 $ 230,327
Ratio of expenses with reimbursement to
average net assets (2) 2.10*% 8.51% 10.97%
Ratio of expenses without reimbursement
to average net assets 14.66*% 12.19% 10.97%
Ratio of net investment loss to average net assets (1.70)%* (8.30)% (10.32)%
Portfolio turnover rate 159.64% 301.01% 440.50%
<Caption>
CLASS B SHARES
-------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
-------------- -------------------------
2003 2002 2001
-------------- ----------- ----------
Net Asset Value, Beginning of Period $ 1.68 $ 3.25 $ 10.00
Investment income (loss)-- net (0.02) (0.03) (0.24)
Net realized and unrealized gain (loss) on 0.13 (1.54) (6.51)
-------------- ----------- ----------
Total from Investment Operation 0.11 (1.57) (6.75)
Less distributions from Investment income--net -- -- --
-------------- ----------- ----------
Total Distribution 0.00 0.00 0.00
-------------- ----------- ----------
Net Asset Value, End of Period $ 1.79 $ 1.68 $ 3.25
============== =========== ==========
Total Return (1) 2.29**% (48.31)% (67.50%)
============== =========== ==========
RATIOS (IN PERCENTAGES)/ SUPPLEMENTAL
DATA
Net Assets, end of period $ 144,764 $ 130,975 $ 82,232
Ratio of expenses with reimbursement to
average net assets (2) 2.75*% 9.42% 14.71%
Ratio of expenses without reimbursement
to average net assets 17.74*% 14.23% 14.71%
Ratio of net investment loss to average net (2.34)%* (9.22)% (14.21%)
Portfolio turnover rate 159.64% 301.01% 440.50%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge.
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 2.10% for class A and 2.75% for class B.
See notes to financial statements.
4
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
Amgen Incorporated* 850 $ 46,444
Biogen, Incorporated* 750 26,655
-----------
73,099
COMMERCIAL SERVICES & SUPPLIES0.85%
Apollo Group, Incorporated (Class A)* 200 9,268
COMMUNICATION EQUIPMENT--4.03%
CIENA Corporation* 2,000 10,840
Cisco Systems, Incorporated* 1,450 20,271
Juniper Networks, Incorporated* 1,400 12,586
-----------
43,697
COMMUNICATIONS--1.33%
Vodafone Group PLC ADR 800 14,480
COMPUTER RELATED & BUSINESS SERVICES--1.43%
EMC Corporation* 2,100 15,519
CONSUMER PRODUCTS--1.11%
Gillette Company (The) 400 12,076
DIVERSIFIED FINANCIALS--5.43%
Citigroup, Incorporated 1,000 33,340
Merrill Lynch & Company, Incorporated 350 11,928
SLM Corporation 125 13,619
-----------
58,887
ELECTRONICS--1.98%
KLA-Tencor Corporation* 600 21,450
ENERGY EQUIPMENT & SERVICES--2.60%
Cooper Cameron Corporation* 250 13,000
Halliburton Company 750 15,195
-----------
28,195
FOOD & BEVERAGES--0.93%
Coca-Cola Company 250 10,055
HEALTH CARE EQUIPMENT & SUPPLIES--7.96%
Alcon, Incorporated* 400 15,660
Varian Medical Systems, Incorporated* 200 10,110
Wyeth 900 31,725
Zimmer Holdings, Incorporated* 650 28,854
-----------
86,349
HEALTH CARE FACILITIES--3.21%
Boston Scientific Corporation* 790 34,894
HOTELS, RESTAURANTS & LEISURE--0.65%
Starbucks Corporation* 300 7,035
INDUSTRIAL CONGLOMERATES--2.44%
General Electric Company 1,100 26,455
INFORMATION TECHNOLOGY CONSULTING & SERVICES--0.62%
Affiliated Computer Services, Incorporated
(Class A)* 150 6,724
INSURANCE--2.74%
AFLAC Incorporated 400 $ 12,500
American International Group,
Incorporated 350 17,251
-----------
29,751
INTERNET & CATALOG RETAIL--3.07%
eBay Incorporated* 425 33,329
INTERNET SOFTWARE & SERVICES--2.02%
Yahoo! Incorporated* 1,050 21,892
LEISURE & ENTERTAINMENT--1.27%
International Game Technology* 175 13,752
MACHINERY--0.60%
Danaher Corporation 100 6,502
MEDIA--4.43%
AOL Time Warner Incorporated* 1,100 12,452
Liberty Media Corporation (Class A)* 1,000 9,190
Tribune Company 300 13,455
Viacom Incorporated (Class B)* 350 12,995
-----------
48,092
MEDICAL SERVICES--1.25%
Gilead Sciences, Incorporated* 400 13,600
MULTILINE RETAIL--1.04%
Wal-Mart Stores, Incorporated 235 11,294
PHARMACEUTICALS--13.34%
Allergan, Incorporated 200 12,840
Barr Laboratories, Incorporated* 100 7,791
Forest Laboratories, Incorporated* 700 34,860
Johnson & Johnson 350 18,357
Merck & Company, Incorporated 550 29,013
Pharmacia Corporation 650 26,858
Teva Pharmaceutical Industries LTD ADR 400 15,112
-----------
144,831
RETAILING--2.52%
Gap, Incorporated (The) 2,100 27,384
SEMICONDUCTORS--7.57%
Intersil Corporation (Class A)* 1,400 21,910
Maxim Intergrated Products, Incorporated 1,000 34,540
National Semiconductor Corporation* 1,500 25,695
-----------
82,145
SOFTWARE--7.27%
Microsoft Corporation 1,460 34,602
Oracle Corporation* 3,700 44,252
-----------
78,854
</Table>
5
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
SPECIALTY RETAIL--4.96%
Abercrombie & Fitch Company (Class A)* 1,195 $ 32,863
Bed Bath & Beyond Incorporated* 150 4,956
Best Buy Company, Incorporated* 550 15,988
-----------
53,807
-----------
TOTAL COMMON STOCK--93.38%
(Cost $1,019,405) 1,013,416
-----------
CASH EQUIVALENTS
SM&R Money Market Fund,0.75% (a) 74,722 74,722
-----------
TOTAL CASH EQUIVALENTS--6.89%
(Cost $74,722) 74,722
-----------
TOTAL INVESTMENTS--100.27%
(Cost $1,094,127) 1,088,138
LIABILITIES IN EXCESS OF
OTHER ASSETS--(0.27%) (2,956)
-----------
NET ASSETS--100.00% $ 1,085,182
===========
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Alger Aggressive Growth Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
6
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
ASSETS
Investment in securities, at value (Cost $1,094,127) $ 1,088,138
Cash 1,586
Prepaid expenses 6,554
Receivable for:
Capital stock sold 165
Dividends 800
Expense reimbursement 3,291
--------------
TOTAL ASSETS 1,100,534
--------------
LIABILITIES
Investment securities purchased 3,959
Accrued:
Investment advisory fee 857
Service fee 204
Distribution fee 1,472
Other liabilities 8,860
--------------
TOTAL LIABILITIES 15,352
--------------
NET ASSETS (applicable to shares outstanding) $ 1,085,182
==============
NET ASSETS:
Class A $ 759,735
- ----------------------------------------------------------------------------------------------------------------------
Class B $ 325,447
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 1,085,182
==============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 191,146
- ----------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 83,197
- ----------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 3.97
Offering price per share: (Net Assets value of $3.97/95%) $ 4.18
- ----------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 3.91
- ----------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
7
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends $ 2,282
Interest 598
--------------
TOTAL INVESTMENT INCOME 2,880
--------------
EXPENSES
Investment advisory fees 5,423
Service fees 1,291
Professional fees 2,186
Custody and transaction fees 7,041
Directors' fees 4,491
Qualification fees 7,643
Shareholder reporting expenses 1,034
Distribution fees 2,833
Insurance expenses 536
Other expenses 8
--------------
TOTAL EXPENSES 32,486
LESS EXPENSES REIMBURSED (21,908)
--------------
NET EXPENSES 10,578
--------------
INVESTMENT LOSS--NET (7,698)
--------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (148,769)
Change in unrealized appreciation of investments for the period 87,194
--------------
NET LOSS ON INVESTMENTS (61,575)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (69,273)
==============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------------
2003 2002
---------------- ----------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (7,698) $ (42,549)
Net realized loss on investments (148,769) (274,138)
Change in unrealized appreciation (depreciation) 87,194 (39,028)
---------------- ----------------
Net decrease in net assets resulting from operations (69,273) (355,715)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A -- --
Class B -- --
---------------- ----------------
Total distributions to shareholders -- --
---------------- ----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 140,548 408,251
Class B 18,671 224,656
---------------- ----------------
Total net capital share transactions 159,219 632,907
---------------- ----------------
TOTAL INCREASE 89,946 277,192
NET ASSETS
Beginning of Period 995,236 718,044
---------------- ----------------
End of Period $ 1,085,182 $ 995,236
================ ================
</Table>
See notes to financial statements.
8
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
-------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- --------------------------------------
2003 2002 2001
----------------- ----------------- -----------------
Net Asset Value, Beginning of Period $ 4.24 $ 5.91 $ 10.00
Investment income (loss)--net 0.01 (0.05) (0.25)
Net realized and unrealized loss on investments (0.28) (1.62) (3.84)
----------------- ----------------- -----------------
Total from Investment Operations (0.27) (1.67) (4.09)
Less distributions from
Investment income--net -- -- --
----------------- ----------------- -----------------
Total Distributions 0.00 0.00 0.00
----------------- ----------------- -----------------
Net Asset Value, End of Period $ 3.97 $ 4.24 $ 5.91
================= ================= =================
Total Return (1) (8.10)%** (28.26)% (40.90)%
================= ================= =================
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 759,735 $ 666,982 $ 487,497
Ratio of expenses with reimbursement to
average net assets (2) 1.85%* 4.48% 6.85%
Ratio of expenses without reimbursement to
average net assets 5.70%* 6.01% 6.85%
Ratio of net investment loss to average net assets (1.30)%* (3.99)% (5.59)%
Portfolio turnover rate 92.33% 177.62% 70.58%
<Caption>
CLASS B SHARES
-------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- --------------------------------------
2003 2002 2001
----------------- ----------------- -----------------
Net Asset Value, Beginning of Period $ 4.19 $ 5.89 $ 10.00
Investment income (loss) net (0.04) (0.12) (0.18)
Net realized and unrealized loss on investments (0.24) (1.58) (3.93)
----------------- ----------------- -----------------
Total from Investment Operations (0.28) (1.70) (4.11)
Less distributions from
Investment income--net -- -- --
----------------- ----------------- -----------------
Total Distributions 0.00 0.00 0.00
----------------- ----------------- -----------------
Net Asset Value, End of Period $ 3.91 $ 4.19 $ 5.89
================= ================= =================
Total Return (1) (8.43)%** (28.86)% (41.10)%
================= ================= =================
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 325,477 $ 328,254 $ 230,547
Ratio of expenses with reimbursement to
average net assets (2) 2.50%* 5.56% 7.25%
Ratio of expenses without reimbursement to
average net assets 7.66%* 7.78% 7.25%
Ratio of net investment loss to average net assets (1.94)%* (5.08)% (6.12)%
Portfolio turnover rate 92.33% 177.62% 70.58%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge.
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.85% for class A and 2.50% for class B.
See notes to financial statements.
9
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R ALGER SMALL-CAP FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--1.35%
Alliant Techsystems Incorporated* 230 $ 11,109
AGRICULTURE--0.61%
AGCO Corporation* 310 5,034
AUTOMOTIVE--0.61%
Winnebago Industries, Incorporated 170 4,990
AUTO COMPONENTS--0.95%
BorgWarner, Incorporated 150 7,833
BANKS--5.89%
Brookline Bancorp, Incorporated 500 6,250
City National Corporation 190 8,846
First Niagra Financial Group, Incorporated 550 6,138
Independence Commuinty Bank Corporation 280 7,274
Investors Financial Services Corporation 290 7,250
UCBH Holdings, Incorporated 300 12,630
-----------
48,388
BEVERAGES--1.29%
Constellation Brands,
Incorporated (Class A)* 430 10,591
BIO TECHNOLOGY--2.69%
Affymetrix, Incorporated* 360 9,504
Alkermes, Incorporated* 550 4,367
Neurocrine Biosciences, Incorporated* 100 4,213
Trimeris, Incorporated* 100 4,002
-----------
22,086
BROADCASTING--0.75%
Radio One, Incorporated (Class A)* 440 6,186
BUSINESS SERVICES--0.79%
Rent-A-Center, Incorporated* 130 6,494
COMMERCIAL SERVICES & SUPPLIES--7.35%
Amdocs Limited* 870 11,423
BISYS Group, Incorporated (The)* 810 12,668
Career Education Corporation* 140 6,510
ChoicePoint Incorporated* 213 7,189
Corinthian Colleges, Incorporated* 340 12,743
Education Management Corporation* 260 9,849
-----------
60,382
COMMUNICATIONS--0.59%
TMP Worldwide Incorporated* 500 4,575
COMMUNICATION EQUIPMENT--2.06%
Emulex Corporation* 300 5,391
NetScreen Technologies, Incorporated* 250 4,882
Power Intergrations, Incorporated* 320 6,666
-----------
16,939
COMPUTER SOFTWARE--2.07%
Borland Software Corporation* 775 $ 7,820
Manhattan Associates, Incorporated* 450 9,180
-----------
17,000
COMPUTER RELATED & BUSINESS SERVICES--0.88%
Western Digital Corporation* 890 7,236
DIVERSIFIED FINANCIALS--4.18%
Affiliated Managers Group, Incorporated* 225 9,542
Doral Financial Corporation 425 13,774
Federal Agricultural Mortgage
Corporation (Class C)* 205 4,930
LaBranche & Company Incorporated 300 6,096
-----------
34,342
DIVERSIFIED TELECOMMUNICATIONS SERVICES--0.92%
Commonwealth Telephone
Enterprises, Incorporated* 200 7,552
ELECTRICAL EQUIPMENT--1.28%
AMETEK, Incorporated 320 10,554
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.51%
Benchmark Electronics, Incorporated* 230 8,013
FLIR Systems, Incorporated* 100 4,421
-----------
12,434
ENERGY EQUIPMENT & SERVICES--2.86%
Cooper Cameron Corporation* 210 10,920
Smith International, Incorporated* 360 12,550
-----------
23,470
FOODS & BEVERAGES--1.21%
American Italian Pasta Company (Class A)* 240 9,962
HEALTH CARE ADMINISTRATIVE SERVICES--0.74%
Hewitt Associates, Incorporated (Class A)* 220 6,048
HEALTH CARE EQUIPMENT & SUPPLIES--3.49%
Bio-Rad Laboratories,
Incorporated (Class A)* 85 3,056
Edwards Lifesciences Corporation* 230 6,120
Respironics, Incorporated* 280 8,694
STERIS Corporation* 430 10,857
-----------
28,727
HEALTH CARE PROVIDER & SERVICES--5.17%
Accredo Health, Incorporated* 260 6,175
Covance Incorporated* 425 10,009
LifePoint Hospitals, Incorporated* 330 6,996
Mid Atlantic Medical Services, Incorporated* 340 12,155
VCA Antech, Incorporated* 450 7,151
-----------
42,486
</Table>
10
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
HOTELS, RESTAURANTS & LEISURE--5.29%
Alliance Gaming Corporation* 820 $ 11,972
Applebee's International, Incorporated 407 10,435
California Pizza Kitchen, Incorporated* 420 10,391
Station Casinos, Incorporated* 590 10,708
-----------
43,506
INFORMATION TECHNOLOGY CONSULTING & SERVICES--3.62%
Acxion Corporation* 450 6,867
CACI International Incorporated (Class A)* 220 7,451
Cognizant Technology Solutions
Corporation* 70 4,914
Veridian Corporation* 530 10,563
-----------
29,795
INSURANCE--4.36%
Arch Capital Group LTD* 370 11,566
Hilb, Rogal and Hamilton Company 220 6,541
RenaissanceRE Holdings LTD 260 9,641
W.R. Berkley Corporation 200 8,120
-----------
35,868
INTERNET SOFTWARE & SERVICES--0.76%
Digital Insight Corporation* 200 2,000
Websense, Incorporated* 300 4,248
-----------
6,248
MACHINERY--2.46%
Actuant Corporation (Class A)* 300 11,100
Pentair, Incorporated 250 9,088
-----------
20,188
MEDIA--1.77%
Entercom Communications Corporation* 125 5,780
Media General, Incorporated (Class A) 175 8,767
-----------
14,547
MEDICAL DEVICES--1.63%
CTI Molecular Imaging, Incorporated* 420 8,177
Wright Medical Group, Incorporated* 320 5,219
-----------
13,396
OIL & GAS--2.84%
Noble Energy, Incorporated 290 10,237
Pogo Producing Company 330 13,118
-----------
23,355
PHARMACEUTICALS--5.21%
Charles River Laboratories
International, Incorporated* 345 $ 10,319
IVAX Corporation* 450 5,081
Millennium Pharmaceuticals, Incorporated* 800 5,728
NPS Pharmaceuticals, Incorporated* 330 5,729
Pharmaceuticals Resources,
Incorporated* 240 8,988
Scios Incorporated* 160 6,982
-----------
42,827
RAILROADS--1.07%
Hunt (J.B.) Transport Services,
Incorporated* 360 8,834
SEMICONDUCTORS--8.16%
Cymer, Incorporated* 240 7,248
Fair, Isaac & Company, Incorporated 260 12,698
Fairchild Semiconductor
Corporation (Class A)* 700 8,512
Integrated Circuit Systems, Incorporated* 390 9,305
International Rectifier Corporation* 390 8,717
Marvell Technology Group LTD* 320 6,592
Semtech Corporation* 460 6,753
Varian Semiconductor Equipment
Associates, Incorporated* 280 7,210
-----------
67,035
SOFTWARE--4.17%
Business Objects S.A. ADR* 680 11,696
Cerner Corporation* 225 7,475
J.D. Edwards & Company* 750 8,993
Synopsys, Incorporated* 150 6,117
-----------
34,281
SPECIALTY RETAIL--3.22%
AnnTaylor Stores Corporation* 335 6,499
Chico's FAS, Incorporated* 440 7,951
Hollywood Entertainment Corporation* 450 6,327
Urban Outfitters, Incorporated* 300 5,679
-----------
26,456
TEXTILES, APPAREL & LUXURY GOODS--1.09%
Coach, Incorporated* 250 8,933
TRANSPORTATION--1.32%
Pacer International, Incorporated* 790 10,823
-----------
TOTAL COMMON STOCK--96.21%
(Cost $810,846) 790,510
-----------
</Table>
11
<Page>
CASH EQUIVALENTS
<Table>
<Caption>
SHARES VALUE
SM&R Money Market Fund,
0.75% (a) 40,294 $ 40,294
-----------
TOTAL CASH EQUIVALENTS--4.90%
(Cost $40,294) 40,294
-----------
TOTAL INVESTMENTS--101.11%
(Cost $851,140) 830,804
LIABILITIES IN EXCESS OF
OTHER ASSETS--(1.11%) (9,095)
-----------
NET ASSETS--100.00% $ 821,709
===========
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Alger Small-Cap Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
12
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
ASSETS
Investment in securities, at value (Cost $851,140) $ 830,804
Prepaid expenses 6,462
Receivable for:
Investment security sold 18,624
Capital stock sold 75
Dividends 137
Expense reimbursement 3,845
------------
TOTAL ASSETS 859,947
------------
LIABILITIES
Investment securities purchased 10,474
Accrued:
Investment advisory fee 634
Service fee 158
Distribution fee 1,128
Other liabilities 25,844
------------
TOTAL LIABILITIES 38,238
------------
NET ASSETS (applicable to shares outstanding) $ 821,709
============
NET ASSETS:
Class A $ 576,231
- ---------------------------------------------------------------------------------------------------------------------
Class B $ 245,478
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 821,709
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 140,584
- ---------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 59,719
- ---------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 4.10
Offering price per share: (Net Assets value of $4.10/95%) $ 4.32
- ---------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 4.11
- ---------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
13
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
INVESTMENT INCOME
Dividends $ 817
Interest 283
------------
TOTAL INVESTMENT INCOME 1,100
------------
EXPENSES
Investment advisory fees 3,642
Service fees 911
Professional fees 2,596
Custody and transaction fees 9,067
Directors' fees 4,491
Qualification fees 8,038
Shareholder reporting expenses 676
Distribution fees 1,972
Insurance expenses 382
Other expenses 8
------------
TOTAL EXPENSES 31,783
LESS EXPENSES REIMBURSED (24,184)
------------
NET EXPENSES 7,599
------------
INVESTMENT LOSS--NET (6,499)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (74,399)
Change in unrealized appreciation of investments for the period 30,237
------------
NET LOSS ON INVESTMENTS (44,162)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (50,661)
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2003 2002
----------------- -----------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (6,499) $ (38,217)
Net realized loss on investments (74,399) (99,481)
Change in unrealized appreciation (depreciation) 30,237 (20,128)
----------------- -----------------
Net decrease in net assets resulting from operations (50,661) (157,826)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A -- --
Class B -- --
----------------- -----------------
Total distributions to shareholders -- --
----------------- -----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 176,347 239,983
Class B 52,356 94,722
----------------- -----------------
Total net capital share transactions 228,703 334,705
----------------- -----------------
TOTAL INCREASE 178,042 176,879
NET ASSETS
Beginning of Period 643,667 466,788
----------------- -----------------
End of Period $ 821,709 $ 643,667
================= =================
</Table>
See notes to financial statements.
14
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
--------------- -----------------------------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 4.33 $ 5.54 $ 10.00
Investment income (loss)--net 0.06 (0.20) (0.55)
Net realized and unrealized loss on investments (0.29) (1.01) (3.91)
--------------- --------------- ---------------
Total from Investment Operations (0.23) (1.21) (4.46)
Less distributions from
Investment income--net -- -- --
--------------- --------------- ---------------
Total Distributions 0.00 0.00 0.00
--------------- --------------- ---------------
Net Asset Value, End of Period $ 4.10 $ 4.33 $ 5.54
=============== =============== ===============
Total Return (1) (5.53)%** (21.84)% (44.60)%
=============== =============== ===============
RATIOS (IN PERCENTAGES) / SUPPLEMENTAL DATA
Net Assets, end of period $ 576,231 $ 436,796 $ 295,132
Ratio of expenses with reimbursement to average
net assets (2) 1.90%* 6.60% 11.53%
Ratio of expenses without reimbursement to average
net assets 7.94%* 9.68% 11.53%
Ratio of net investment loss to average net assets(1.60)%* (6.33)% (10.61)% (2.24)%*
Portfolio turnover rate 58.42% 176.50% 138.73%
<Caption>
CLASS B SHARES
---------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
--------------- -----------------------------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 4.32 $ 5.65 $ 10.00
Investment income (loss)--net (0.01) (0.32) (0.37)
Net realized and unrealized loss on investments (0.20) (1.01) (3.98)
--------------- --------------- ---------------
Total from Investment Operations (0.21) (1.33) (4.35)
Less distributions from
Investment income--net -- -- --
--------------- --------------- ---------------
Total Distributions 0.00 0.00 0.00
--------------- --------------- ---------------
Net Asset Value, End of Period $ 4.11 $ 4.32 $ 5.65
=============== =============== ===============
Total Return (1) (5.30)%** (23.54)% (43.50)%
=============== =============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 245,478 $ 206,871 $ 171,656
Ratio of expenses with reimbursement to average
net assets (2) 2.55%* 8.05% 11.97%
Ratio of expenses without reimbursement to average
net assets 10.65%* 11.65% 11.97%
Ratio of net investment loss to average net assets(1.60)%* (7.77)% (11.25)%
Portfolio turnover rate 58.42% 176.50% 138.73%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge.
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.90% for class A and 2.55% for class B.
See notes to financial statements.
15
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R ALGER GROWTH FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--2.52%
General Dynamics Corporation 607 $ 35,971
AIR FREIGHT & LOGISTICS--1.80%
FedEx Corporation 500 25,700
AUTOMOTIVE--1.73%
Harley-Davidison, Incorporated 625 24,744
BANKS--1.70%
Mellon Financial Corporation 1,075 24,198
BIO TECHNOLOGY--4.64%
Amgen Incorporated* 745 40,707
Biogen, Incorporated* 325 11,551
Genzyme Corporation* 450 14,031
-----------------
66,289
COMMERCIAL SERVICES & SUPPLIES--1.58%
First Data Corporation 650 22,522
COMMUNICATIONS--2.76%
Vodafone Group PLC ADR 2,175 39,368
COMMUNICATION EQUIPMENT--4.72%
Cisco Systems, Incorporated* 2,900 40,542
Nokia Corporation ADR 2,025 26,791
-----------------
67,333
COMPUTERS & PERIPHERALS--4.09%
Dell Computer Corporation* 1,155 31,139
Sun Microsystems, Incorporated* 7,905 27,193
-----------------
58,332
COMPUTER RELATED & BUSINESS SERVICES--0.62%
EMC Corporation* 1,200 8,868
CONSUMER PRODUCTS--0.59%
Newell Rubbermaid Incorporated 300 8,460
DIVERSIFIED FINANCIALS--2.60%
Citigroup, Incorporated 1,115 37,174
ENERGY & ENERGY SERVICES--2.55%
Devon Energy Corporation 755 36,391
ENERGY EQUIPMENT & SERVICES--1.91%
B J Services Company* 500 17,185
Halliburton Company 500 10,130
-----------------
27,315
FOOD & BEVERAGE--0.70%
Coca-Cola Company 250 10,055
HEALTH CARE--1.06%
Bristol-Myers Squibb Company 650 15,145
HEALTH CARE EQUIPMENT & SUPPLIES--5.22%
Alcon, Incorporated* 400 $ 15,660
Wyeth 975 34,369
Zimmer Holdings, Incorporated* 550 24,414
-----------------
74,443
HEALTH CARE FACILITIES--2.40%
Boston Scientific Corporation* 775 34,232
HEALTH MAINTENANCE ORGANIZATION--2.61%
UnitedHealth Group Incorporated 450 37,305
HOUSEHOLD PRODUCTS--1.98%
Procter & Gamble Company 345 28,242
INDUSTRIAL CONGLOMERATES--2.61%
Tyco International LTD 2,515 37,222
INFORMATION TECHNOLOGY CONSULTING & SERVICES--1.77%
Accenture LTD (Class A)* 1,650 25,311
INSURANCE--4.96%
AFLAC Incorporated 525 16,406
American International Group,
Incorporated 675 33,271
Chubb Corporation (The) 138 6,599
Travelers Property Casualty
Corporation (Class A) 925 14,476
-----------------
70,752
INTERNET & CATALOG RETAIL--2.58%
eBay Incorporated* 470 36,857
INTERNET SOFTWARE & SERVICES--1.31%
Yahoo! Incorporated* 900 18,765
MEDIA--4.68%
AOL Time Warner Incorporated* 1,500 16,980
Viacom Incorpoarted (Class B)* 585 21,721
Walt Disney Company (The) 1,650 28,149
-----------------
66,850
MEDICAL DEVICES--1.03%
Stryker Corporation 225 14,670
MULTILINE RETAIL--2.27%
Wal-Mart Stores, Incorporated 675 32,441
PERSONAL PRODUCTS--2.09%
Avon Products, Incorporated 575 29,900
</Table>
16
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
PHARMACEUTICALS--12.70%
Abbott Laboratories 575 $ 20,481
Forest Laboratories, Incorporated* 600 29,880
Johnson & Johnson 850 44,583
Merck & Company, Incorporated 750 39,562
Pharmacia Corporation 950 39,254
Teva Pharmaceutical Industries LTD ADR 200 7,556
-----------------
181,316
RETAILING--0.46%
Gap, Incorporated (The) 500 6,520
SEMICONDUCTORS--5.60%
Applied Materials, Incorporated* 1,000 12,980
Intel Corporation 1,300 22,425
Linear Technology Corporation 800 24,536
Taiwan Semiconductor Manufacturing
Company LTD* 2,825 20,029
-----------------
79,970
SOFTWARE--5.49%
Microsoft Corporation 1,760 41,712
Oracle Corporation* 900 10,764
Synopsys Incorporated 300 12,234
VERITAS Software Corporation* 800 13,624
-----------------
78,334
SPECIALTY RETAIL--1.68%
Lowe's Companies, Incorporated 600 23,580
TJX Companies, Incorporated (The) 25 402
-----------------
23,982
-----------------
TOTAL COMMON STOCK--97.01%
(Cost $1,435,275) 1,384,977
-----------------
SM&R Money Market Fund,
0.75% (a) 27,174 $ 27,174
-----------------
TOTAL CASH EQUIVALENTS--1.91%
(Cost $27,174) 27,174
-----------------
TOTAL INVESTMENTS--98.92%
(Cost $1,462,449) 1,412,151
CASH AND OTHER ASSETS,
LESS LIABILITIES--1.08% 15,478
-----------------
NET ASSETS--100.00% $ 1,427,629
=================
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Alger Growth Fund are affiliated
by having the same investment adviser.
See notes to financial statements.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
ASSETS
Investment in securities, at value (Cost $1,462,449) $ 1,412,151
Cash 278
Prepaid expenses 7,273
Receivable for:
Investment security sold 28,402
Capital stock sold 484
Dividends 810
Expense reimbursement 3,175
------------
TOTAL ASSETS 1,452,573
------------
LIABILITIES
Investment securities purchased 11,968
Accrued:
Investment advisory fee 920
Service fee 270
Distribution fee 2,303
Other liabilities 9,483
------------
TOTAL LIABILITIES 24,944
------------
NET ASSETS (applicable to shares outstanding) $ 1,427,629
============
NET ASSETS:
Class A $ 791,441
- ---------------------------------------------------------------------------------------------------------------------
Class B $ 636,188
- ---------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 1,427,629
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 190,039
- ---------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 155,720
- ---------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 4.16
Offering price per share: (Net Assets value of $4.16 / 95%) $ 4.38
- ---------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 4.09
- ---------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
18
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends $ 6,116
Interest 315
------------
TOTAL INVESTMENT INCOME 6,431
------------
EXPENSES
Investment advisory fees 5,893
Service fees 1,733
Professional fees 2,416
Custody and transaction fees 9,664
Directors' fees 4,491
Qualification fees 7,377
Shareholder reporting expenses 1,495
Distribution fees 4,493
Insurance expenses 577
Other expenses 8
------------
TOTAL EXPENSES 38,147
LESS EXPENSES REIMBURSED (24,360)
------------
NET EXPENSES 13,787
------------
INVESTMENT LOSS--NET (7,356)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized loss on investments (287,217)
Change in unrealized appreciation of investments for the period 160,479
------------
NET LOSS ON INVESTMENTS (126,738)
------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (134,094)
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2003 2002
----------------- -----------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (7,356) $ (41,129)
Net realized loss on investments (287,217) (370,274)
Change in unrealized appreciation (depreciation) 160,479 (85,833)
----------------- -----------------
Net decrease in net assets resulting from operations (134,094) (497,236)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A -- --
Class B -- --
----------------- -----------------
Total distributions to shareholders -- --
----------------- -----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 164,160 338,635
Class B 45,191 445,353
----------------- -----------------
Total net capital share transactions 209,351 783,988
----------------- -----------------
TOTAL INCREASE 75,257 286,752
NET ASSETS
Beginning of Period 1,352,372 1,065,620
----------------- -----------------
End of Period $ 1,427,629 $ 1,352,372
================= =================
</Table>
See notes to financial statements.
19
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R ALGER GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
-------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
--------------- -----------------------------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 4.58 $ 6.38 $ 10.00
Investment income (loss)--net 0.02 (0.05) (0.21)
Net realized and unrealized loss on
investments (0.44) (1.75) (3.41)
--------------- --------------- ---------------
Total from Investment Operations (0.42) (1.80) (3.62)
Less distributions from Investment
income--net -- -- --
--------------- --------------- ---------------
Total Distributions 0.00 0.00 0.00
--------------- --------------- ---------------
Net Asset Value, End of Period $ 4.16 $ 4.58 $ 6.38
=============== =============== ===============
Total Return (1) (9.96)%** (28.21)% (36.20)%
=============== =============== ===============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 791,441 $ 698,670 $ 608,836
Ratio of expenses with reimbursement
to average net assets (2) 1.70%* 3.54% 5.52%
Ratio of expenses without
reimbursement to average net assets 5.17%* 4.65% 5.52%
Ratio of net investment loss to average
net assets (0.76)%* (2.64)% (4.49)%
Portfolio turnover rate 134.46% 180.20% 65.24%
<Caption>
CLASS B SHARES
-------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
--------------- -----------------------------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 4.51 $ 6.31 $ 10.00
Investment income (loss)--net (0.02) (0.09) (0.13)
Net realized and unrealized loss on
investments (0.40) (1.71) (3.56)
--------------- --------------- ---------------
Total from Investment Operations (0.42) (1.80) (3.69)
Less distributions from Investment
income--net -- -- --
--------------- --------------- ---------------
Total Distributions 0.00 0.00 0.00
--------------- --------------- ---------------
Net Asset Value, End of Period $ 4.09 $ 4.51 $ 6.31
=============== =============== ===============
Total Return (1) (9.91)%** (28.53)% (36.90)%
=============== =============== ===============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 636,188 $ 653,702 $ 456,784
Ratio of expenses with reimbursement
to average net assets (2) 2.35%* 4.13% 5.84%
Ratio of expenses without
reimbursement to average net assets 5.94%* 5.30% 5.84%
Ratio of net investment loss to average
net assets (1.42)%* (3.24)% (4.91)%
Portfolio turnover rate 134.46% 180.20% 65.24%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge.
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.70% for class A and 2.35% for class B.
See notes to financial statements.
20
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R GROWTH FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--1.98%
Boeing Company 28,000 $ 771,680
Honeywell International Incorporated 47,700 1,091,853
-----------------
1,863,533
AUTO COMPONENTS--0.52%
Superior Industries International,
Incorporated 12,700 491,998
AUTOMOBILES--1.54%
Ford Motor Company 43,354 360,705
General Motors Corporation 14,700 496,419
Harley-Davidson, Incorporated 15,000 593,850
-----------------
1,450,974
BANKS--8.35%
Bank of America Corporation 40,000 2,769,600
PNC Financial Services Group 30,000 1,347,900
U.S. Bancorp 91,285 1,909,682
Wells Fargo Company 40,000 1,814,000
-----------------
7,841,182
BEVERAGES--3.23%
Anheuser-Busch Companies,
Incorporated 19,000 883,500
Coca-Cola Company 34,300 1,379,546
PepsiCo, Incorporated 20,000 766,400
-----------------
3,029,446
BIO/SPECIALTY PHARMACEUTICALS--1.95%
Amgen Incorporated* 17,900 978,056
Enzon Pharmaceuticals, Incorporated*28,400 356,420
Genentech, Incorporated* 14,000 495,040
-----------------
1,829,516
BUILDING PRODUCTS--0.57%
American Standard Companies
Incorporated* 7,800 534,378
COMMERCIAL SERVICES & SUPPLIES--1.15%
Automatic Data Processing,
Incorporated 12,700 412,750
H & R Block, Incorporated 16,400 665,348
-----------------
1,078,098
COMMUNICATION EQUIPMENT--2.30%
Cisco Systems, Incorporated* 84,500 1,181,310
Motorola, Incorporated 41,600 350,272
QUALCOMM Incorporated* 18,200 629,356
-----------------
2,160,938
COMPUTERS & PERIPHERALS--3.82%
Computer Associates International,
Incorporated 7,000 $ 93,450
Dell Computer Corporation* 31,700 854,632
EMC Corporation* 61,500 454,485
Hewlett-Packard Company 37,000 586,450
International Business Machines
Corporation 18,400 1,434,280
Sun Microsystems, Incorporated* 48,100 165,464
-----------------
3,588,761
CONTAINERS & PACKAGING--0.97%
Sealed Air Corporation* 25,000 906,750
DIVERSIFIED FINANCIALS--7.22%
Citigroup, Incorporated 74,100 2,470,494
Countrywide Financial Corporation 22,000 1,174,580
J.P. Morgan Chase & Company 55,500 1,258,740
Morgan Stanley 51,000 1,879,350
-----------------
6,783,164
DIVERSIFIED TELECOMMUNICATION SERVICES--3.20%
Alltel Corporation 8,300 360,386
BellSouth Corporation 32,500 704,275
SBC Communications Incorporated 43,400 902,720
Verizon Communications 16,400 567,112
Vodafone Group PLC ADR 26,000 470,600
-----------------
3,005,093
ELECTRIC UTILITIES--1.12%
Allegheny Energy, Incorporated 26,500 158,735
Exelon Corporation 18,100 889,615
-----------------
1,048,350
ELECTRICAL EQUIPMENT--0.25%
Agilent Technologies, Incorporated* 4,800 63,360
Jabil Circuit, Incorporated* 4,000 66,440
Molex Incorporated 2,300 51,221
Waters Corporation* 2,500 57,925
-----------------
238,946
ENERGY EQUIPMENT & SERVICES--2.41%
GlobalSantaFe Corporation 21,280 473,480
Oceaneering International, Incorporated*23,900 552,090
Schlumberger Limited 13,100 545,091
Tidewater, Incorporated 17,000 520,540
Transocean Incorporated* 7,500 170,250
-----------------
2,261,451
FOOD PRODUCTS--4.70%
ConAgra Foods, Incorporated 43,800 1,010,466
McCormick & Company, Incorporated 58,000 1,341,540
Sara Lee Corporation 51,800 1,025,640
Sensient Technologies Corporation 50,000 1,035,000
-----------------
4,412,646
</Table>
21
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
FOOD & DRUG RETAILING--1.22%
SUPERVALU Incorporated 27,800 $ 386,976
SYSCO Corporation 28,100 762,072
-----------------
1,149,048
HEALTHCARE EQUIPMENT & SUPPLIES--1.86%
Medtronic, Incorporated 21,400 956,580
Patterson Dental Company* 14,100 620,541
Zimmer Holdings, Incorporated* 3,740 166,019
-----------------
1,743,140
HEALTHCARE PROVIDERS & SERVICES--1.15%
McKesson Corporation 25,300 673,992
Tenet Healthcare Corporation* 22,200 403,374
-----------------
1,077,366
HOTELS, RESTAURANTS & LEISURE--1.20%
Fairmont Hotels & Resorts Incorporated 8,950 184,907
Starwood Hotels & Resorts Worldwide,
Incorporated 41,700 942,837
-----------------
1,127,744
HOUSEHOLD PRODUCTS--2.47%
Kimberly-Clark Corporation 14,800 678,284
Procter & Gamble Company 20,000 1,637,200
-----------------
2,315,484
INDUSTRIAL CONGLOMERATES--4.82%
3M Company 11,900 1,491,903
Danaher Corporation 12,200 793,244
General Electric Company 77,200 1,856,660
RPM, Incorporated 38,700 387,000
-----------------
4,528,807
INFORMATION TECHNOLOGY CONSULTING &
SERVICES--0.33%
Electronic Data Systems Corporation 10,900 169,713
Sungard Data Systems Incorporated* 7,100 139,728
-----------------
309,441
INSURANCE--4.73%
American International Group,
Incorporated 29,260 1,442,225
Brown & Brown, Incorporated 24,400 703,208
CIGNA Corporation 15,500 666,035
Prudential Financial, Incorporated 49,200 1,477,476
Travelers Property Casualty
Corporation (Class A) 3,201 50,096
Travelers Property Casualty
Corporation (Class B) 6,577 104,574
-----------------
4,443,614
MACHINERY--2.28%
Caterpillar Incorporated 30,200 1,419,400
Ingersoll-Rand Company (Class A) 18,200 717,990
-----------------
2,137,390
MEDIA--1.22%
Walt Disney Company (The) 67,000 1,143,020
METALS & MINING--0.14%
Fording Incorporated 5,942 $ 131,318
MULTI-LINE RETAIL--4.06%
Kohl's Corporation* 19,100 933,990
Wal-Mart Stores, Incorporated 60,000 2,883,600
-----------------
3,817,590
OFFICE ELECTRONICS--0.10%
Xerox Corporation* 10,100 90,900
OIL & GAS--4.91%
Anadarko Petroleum Corporation 10,600 488,448
BP p.l.c. ADR 27,400 1,044,214
ChevronTexaco Corporation 14,300 917,631
Royal Dutch Petroleum Company ADR 32,500 1,289,275
Unocal Corporation 33,000 869,550
-----------------
4,609,118
PHARMACEUTICALS--5.51%
Johnson & Johnson 38,500 2,019,325
Merck & Company, Incorporated 26,700 1,408,425
Pfizer, Incorporated 29,900 891,618
Pharmacia Corporation 20,600 851,192
-----------------
5,170,560
SEMICONDUCTOR EQUIPMENT & PRODUCTS--3.03%
Analog Devices, Incorporated* 3,900 113,724
Applied Materials, Incorporated* 16,500 214,170
Intel Corporation 91,800 1,583,550
KLA-Tencor Corporation* 2,900 103,675
Linear Technology Corporation 3,800 116,546
Maxim Integrated Products,
Incorporated* 3,400 117,436
Micron Technology, Incorporated* 6,300 50,337
Texas Instruments Incorporated 25,000 418,750
Thermo Electron Corporation* 3,300 58,080
Xilinx, Incorporated* 3,100 70,990
-----------------
2,847,258
SOFTWARE--4.32%
Electronics Arts Incorporated* 2,400 126,720
Intuit Incorporated* 3,100 147,312
Microsoft Corporation 118,000 2,796,600
Oracle Corporation* 65,700 785,772
PeopleSoft, Incorporated* 5,900 100,890
VERITAS Software Corporation* 5,650 96,220
-----------------
4,053,514
SPECIALTY RETAIL--1.67%
Bed Bath & Beyond Incorporated* 27,700 915,208
Chico's FAS, Incorporated* 36,400 657,748
-----------------
1,572,956
TRADING COMPANIES & DISTRIBUTORS--0.72%
W.W. Grainger, Incorporated 14,700 676,641
</Table>
22
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
WIRELESS TELECOMMUNICATION SERVICES--0.41%
A T & T Wireless Services
Incorporated* 43,977 $ 259,904
Nextel Communications,
Incorporated (Class A)* 9,000 126,720
-----------------
386,624
-----------------
TOTAL COMMON STOCK--91.43%
(Cost $85,768,633) 85,856,757
-----------------
CASH EQUIVALENTS
SM&R Money Market Fund,
0.75% (a) 603 603
-----------------
TOTAL CASH EQUIVALENTS--0.00%
(Cost $603) 603
-----------------
COMMERCIAL PAPER
<Caption>
FACE
AMOUNT VALUE
CHEMICALS--2.47%
Praxair Incorporated,
1.36%, 03/06/03 $ 2,317,000 $ 2,316,562
COMMERCIAL SERVICES & SUPPLIES--3.48%
Viad Corporation,
1.35%, 03/05/03 3,265,000 3,264,510
OFFICE ELECTRONICS--0.21%
Eastman Kodak Company,
1.40%, 03/03/03 200,000 199,975
SPECIALTY RETAIL--2.05%
AutoZone Incorporated,
1.32%, 03/03/03 1,925,000 1,924,859
TRADING COMPANIES & DISTRIBUTORS--0.21%
Tupperware Corporation,
1.37%, 03/07/03 201,000 200,954
-----------------
TOTAL COMMERCIAL PAPER--8.42%
(Cost $7,906,860) 7,906,860
-----------------
TOTAL INVESTMENTS--99.85%
(Cost $93,676,096) 93,764,220
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.15% 145,239
-----------------
NET ASSETS--100.00% $ 93,909,459
=================
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Growth Fund are affiliated by
having the same investment adviser.
See notes to financial statements.
23
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R GROWTH FUND
<Table>
ASSETS
Investments in securities, at value (Cost $93,676,096) $ 93,764,220
Cash 12,636
Prepaid expenses 16,539
Receivable for:
Capital stock sold 38,961
Dividends 159,382
Expense Reimbursement 1,548
Other assets 93,341
-----------------
TOTAL ASSETS 94,086,627
-----------------
LIABILITIES
Capital stock reacquired 42,810
Accrued:
Investment advisory fee 54,214
Service fee 18,071
Distribution fee 7,492
Other liabilities 54,581
-----------------
TOTAL LIABILITIES 177,168
-----------------
NET ASSETS (applicable to shares outstanding) $ 93,909,459
=================
NET ASSETS:
Class A $ 4,343,507
- --------------------------------------------------------------------------------------------------------------------------
Class B $ 2,249,116
- --------------------------------------------------------------------------------------------------------------------------
Class T $ 87,316,836
- --------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS: $ 93,909,459
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 1,494,765
- --------------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 786,405
- --------------------------------------------------------------------------------------------------------------------------
Class T:
Authorized 95,000,000
Outstanding 29,470,397
- --------------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 2.91
Offering price per share: (Net Assets value of $2.91/95.00%) $ 3.06
- --------------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 2.86
- --------------------------------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 2.96
Offering price per share: (Net Assets value of $2.96/94.25%) $ 3.14
- --------------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
24
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R GROWTH FUNDINVESTMENT INCOME
<Table>
INVESTMENT INCOME
Dividends $ 810,486
Interest 87,616
-----------------
TOTAL INVESTMENT INCOME 898,102
-----------------
EXPENSES
Investment advisory fees 373,583
Service fees 124,454
Professional fees 8,366
Custody and transaction fees 11,876
Directors' fees 4,491
Qualification fees 13,355
Shareholder reporting expenses 37,400
Insurance expenses 14,436
Distribution fees 15,157
Other expenses 8
-----------------
TOTAL EXPENSES 603,126
LESS EXPENSES REIMBURSED (11,634)
-----------------
NET EXPENSES 591,492
-----------------
INVESTMENT INCOME--NET 306,610
-----------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (3,898,959)
Change in unrealized depreciation of investments for the period (4,273,145)
-----------------
NET LOSS ON INVESTMENTS (8,172,104)
-----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (7,865,494)
=================
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2003 2002
----------------- -----------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 306,610 $ 401,141
Net realized loss on investments (3,898,959) (30,520,684)
Change in unrealized depreciation (4,273,145) (4,874,004)
----------------- -----------------
Net decrease in net assets resulting from operations (7,865,494) (34,993,547)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (12,473) (2,226)
Class B (2,731) --
Class T (302,393) (379,966)
Capital gains
Class A -- --
Class B -- --
Class T -- --
----------------- -----------------
Total distributions to shareholders (317,597) (382,192)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (524,039) 846,409
Class B (148,051) 570,791
Class T (4,021,521) (8,582,554)
----------------- -----------------
Total net capital share transactions (4,693,611) (7,165,354)
----------------- -----------------
TOTAL DECREASE (12,876,702) (42,541,093)
NET ASSETS
Beginning of period 106,786,161 149,327,254
----------------- -----------------
End of period $ 93,909,459 $ 106,786,161
================= =================
</Table>
See notes to financial statements.
25
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS T SHARES
-------------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
--------------- --------------- ---------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 3.21 $ 4.25 $ 5.60
Investment income--net 0.01 0.01 0.01
Net realized and unrealized gain (loss)
on investments (0.25) (1.04) (1.35)
--------------- --------------- ---------------
Total from Investment Operations (0.24) (1.03) (1.34)
Less distributions from
Investment income--net (0.01) (0.01) (0.01)
Capital gains -- -- --
--------------- --------------- ---------------
Total Distributions (0.01) (0.01) (0.01)
--------------- --------------- ---------------
Net Asset Value, End of Period $ 2.96 $ 3.21 $ 4.25
=============== =============== ===============
Total Return (1) (8.06)%** (24.24)% (23.99)%**
=============== =============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 87,317 $ 98,912 $ 140,530
Ratio of expenses to average net assets 1.16%* 1.10% 1.08%*
Ratio of net investment income to
average net assets 0.64%* 0.34% 0.31%*
Portfolio turnover rate 13.36% 41.74% 18.28%
<Caption>
CLASS T SHARES
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2000 1999 1998 1997
--------------- --------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 6.77 $ 5.69 $ 5.24 $ 4.95
Investment income--net 0.03 0.03 0.04 0.06
Net realized and unrealized gain (loss)
on investments (0.65) 1.35 0.85 1.03
--------------- --------------- --------------- ---------------
Total from Investment Operations (0.62) 1.38 0.89 1.09
Less distributions from
Investment income--net (0.03) (0.03) (0.04) (0.06)
Capital gains (0.52) (0.27) (0.40) (0.74)
--------------- --------------- --------------- ---------------
Total Distributions (0.55) (0.30) (0.44) (0.80)
--------------- --------------- --------------- ---------------
Net Asset Value, End of Period $ 5.60 $ 6.77 $ 5.69 $ 5.24
=============== =============== ============== ===============
Total Return (1) (8.25)% (24.49)% 18.35% 22.24%
=============== =============== ============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 194,150 $ 230,203 $ 203,109 $ 178,344
Ratio of expenses to average net assets 0.81% 0.87% 0.85% 0.96%
Ratio of net investment income to
average net assets 0.47% 0.44% 0.69% 1.03%
Portfolio turnover rate 19.68% 16.13% 27.31% 46.79%
</Table>
<Table>
<Caption>
CLASS A SHARES
-------------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
--------------- --------------- ---------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 3.15 $ 4.18 $ 5.55
Investment income (loss)--net 0.01 (0.01) --
Net realized and unrealized gain (loss)
on investments (0.24) (1.02) (1.37)
--------------- --------------- ---------------
Total from Investment Operations (0.23) (1.03) (1.37)
Less distributions from
Investment income--net (0.01) -- --
Capital gains -- -- --
--------------- --------------- ---------------
Total Distributions (0.01) 0.00 0.00
--------------- --------------- ---------------
Net Asset Value, End of Period $ 2.91 $ 3.15 $ 4.18
=============== =============== ===============
Total Return (1) (7.96)%** (24.61)% (24.68)%**
=============== =============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 4,344 $ 5,287 $ 5,971
Ratio of expenses with reimbursement
to average net assets (2) 1.36%* 1.47% 1.50%*
Ratio of expenses without reimbursement
to average net assets 1.64%* 1.55% 1.50%*
Ratio of net investment gain (loss) to
average net assets 0.44%* (0.03)% (0.13)%*
Portfolio turnover rate 13.36% 41.74% 18.28%
<Caption>
CLASS A SHARES
---------------------------------
PERIOD FROM
YEAR JANUARY 1, 1999
ENDED TO
DECEMBER 31, DECEMBER 31,
--------------- ---------------
2000 1999
--------------- ---------------
Net Asset Value, Beginning of Period $ 6.73 $ 5.69
Investment income (loss)--net 0.01 0.01
Net realized and unrealized gain (loss)
on investments (0.66) 1.30
--------------- ---------------
Total from Investment Operations (0.65) 1.31
Less distributions from
Investment income--net (0.01) --
Capital gains (0.52) (0.27)
--------------- ---------------
Total Distributions (0.53) (0.27)
--------------- ---------------
Net Asset Value, End of Period $ 5.55 $ 6.73
=============== ===============
Total Return (1) (8.76)% 23.45%
=============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 6,856 $ 3,776
Ratio of expenses with reimbursement
to average net assets (2) 1.30% 1.51%
Ratio of expenses without reimbursement
to average net assets 1.30% 1.51%
Ratio of net investment gain (loss) to
average net assets (0.02)% (0.19)%
Portfolio turnover rate 19.68% 16.13%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.36% for class A and 1.86% for class B.
See notes to financial statements.
26
<Page>
<Table>
<Caption>
CLASS B SHARES
-------------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
--------------- --------------- ---------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 3.11 $ 4.13 $ 5.47
Investment income (loss)--net (0.02) (0.02) (0.02)
Net realized and unrealized gain (loss)
on investments (0.25) (1.00) (1.32)
--------------- --------------- ---------------
Total from Investment Operations (0.25) (1.02) (1.34)
Less distributions from
Investment income--net -- -- --
Capital gains -- -- --
--------------- --------------- ---------------
Total Distributions 0.00 0.00 0.00
--------------- --------------- ---------------
Net Asset Value, End of Period $ 2.86 $ 3.11 $ 4.13
=============== =============== ===============
Total Return (1) (8.53)%** (24.70)% (24.50)%**
=============== =============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 2,249 $ 2,587 $ 2,826
Ratio of expenses with reimbursement
to average net assets (2) 1.86%* 1.97% 2.00%*
Ratio of expenses without reimbursement
to average net assets 2.28%* 2.19% 2.00%*
Ratio of net investment loss to
average net assets (0.06)%* (0.53)% (0.78)%*
Portfolio turnover rate 13.36% 41.74% 18.28%
<Caption>
CLASS B SHARES
----------------------------------
PERIOD FROM
YEAR JANUARY 1, 1999
ENDED TO
DECEMBER 31, DECEMBER 31,
--------------- ---------------
2000 1999
--------------- ---------------
Net Asset Value, Beginning of Period $ 6.66 $ 5.69
Investment income (loss)--net (0.02) --
Net realized and unrealized gain (loss)
on investments (0.65) 1.24
--------------- ---------------
Total from Investment Operations (0.67) 1.24
Less distributions from
Investment income--net -- --
Capital gains (0.52) (0.27)
--------------- ---------------
Total Distributions (0.52) (0.27)
--------------- ---------------
Net Asset Value, End of Period $ 5.47 $ 6.66
=============== ===============
Total Return (1) (9.17)% 22.04%
=============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 3,382 $ 1,547
Ratio of expenses with reimbursement
to average net assets (2) 1.89% 2.01%
Ratio of expenses without reimbursement
to average net assets 1.89% 2.01%
Ratio of net investment loss to
average net assets (0.66)% (0.69)%
Portfolio turnover rate 19.68% 16.13%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.36% for class A and 1.86% for class B.
See notes to financial statements.
27
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R EQUITY INCOME FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--2.14%
Lockheed Martin Corporation 22,600 $ 1,033,272
Northrop Grumman Corporation 12,000 1,040,400
-----------------
2,073,672
AUTOMOBILES--1.73%
Ford Motor Company 88,074 732,776
General Motors Corporation 28,000 945,560
-----------------
1,678,336
BANKS--7.75%
Bank of America Corporation 40,000 2,769,600
PNC Financial Services Group 33,400 1,500,662
U.S. Bancorp 67,500 1,412,100
Wells Fargo Company 40,500 1,836,675
-----------------
7,519,037
BEVERAGES--3.09%
Anheuser-Busch Companies,
Incorporated 18,500 860,250
Coca-Cola Company 35,600 1,431,832
PepsiCo, Incorporated 18,600 712,752
-----------------
3,004,834
BIOTECHNOLOGY--0.81%
Amgen Incorporated* 14,400 786,816
BUILDING PRODUCTS--0.58%
American Standard Companies
Incorporated* 8,200 561,782
CHEMICALS--1.21%
Dow Chemical Company (The) 20,100 548,730
E.I. Du Pont de Nemours and Company 17,200 630,724
-----------------
1,179,454
COMMERCIAL SERVICES & SUPPLIES--1.85%
Banta Corporation 63,000 1,794,870
COMMUNICATIONS EQUIPMENT--0.57%
Cisco Systems, Incorporated* 39,600 553,608
COMPUTERS & PERIPHERALS--0.89%
International Business Machines
Corporation 11,100 865,245
CONTAINERS & PACKAGING--0.41%
Sealed Air Corporation* 11,100 402,597
DIVERSIFIED FINANCIALS--5.74%
Citigroup, Incorporated 68,400 2,280,456
J.P. Morgan Chase & Company 70,850 1,606,878
Morgan Stanley 45,800 1,687,730
-----------------
5,575,064
DIVERSIFIED TELECOMMUNICATION SERVICES--2.80%
Alltel Corporation 38,250 1,660,815
Verizon Communications 30,500 1,054,690
-----------------
2,715,505
ELECTRIC UTILITIES--2.57%
Ameren Corporation 15,200 $ 592,648
CenterPoint Energy, Incorporated 25,600 119,040
Constellation Energy Group 26,300 689,586
DTE Energy Company 24,400 1,011,136
Reliant Resources, Incorporated* 20,188 81,761
-----------------
2,494,171
ENERGY EQUIPMENT & SERVICES--0.86%
Schlumberger Limited 20,000 832,200
FOOD PRODUCTS--3.90%
ConAgra Foods, Incorporated 40,000 922,800
H.J. Heinz Company 19,000 583,300
McCormick & Company, Incorporated 38,900 899,757
Sara Lee Corporation 47,300 936,540
Sensient Technologies Corporation 21,500 445,050
-----------------
3,787,447
FOOD & DRUG RETAILING--0.75%
CVS Corporation 15,100 375,990
SUPERVALU Incorporated 25,600 356,352
-----------------
732,342
HEALTHCARE EQUIPMENT & SUPPLIES--1.73%
Beckman Coulter, Incorporated 45,600 1,509,360
Zimmer Holdings, Incorporated* 3,760 166,906
-----------------
1,676,266
HEALTHCARE PROVIDERS & SERVICES--0.63%
Health Management Associates,
Incorporated (Class A) 22,700 406,784
Tenet Healthcare Corporation* 11,550 209,864
-----------------
616,648
HOTELS, RESTAURANTS & LEISURE--1.01%
Starwood Hotels & Resorts
Worldwide, Incorporated 43,500 983,535
HOUSEHOLD DURABLES--2.53%
Black & Decker Corporation 40,000 1,468,000
Whirlpool Corporation 20,000 985,200
-----------------
2,453,200
HOUSEHOLD PRODUCTS--2.77%
Kimberly-Clark Corporation 13,600 623,288
Procter & Gamble Company 25,200 2,062,872
-----------------
2,686,160
INDUSTRIAL CONGLOMERATES--2.82%
3M Company 7,900 990,423
Danaher Corporation 12,500 812,750
General Electric Company 38,750 931,937
-----------------
2,735,110
</Table>
28
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
INSURANCE--3.57%
American International Group,
Incorporated 33,100 $ 1,631,499
CIGNA Corporation 13,600 584,392
Prudential Financial, Incorporated 34,400 1,033,032
Travelers Property Casualty
Corporation (Class A) 4,424 69,236
Travelers Property Casualty
Corporation (Class B) 9,089 144,515
-----------------
3,462,674
MACHINERY--1.51%
Caterpillar Incorporated 15,300 719,100
Ingersoll-Rand Company (Class A) 18,900 745,605
-----------------
1,464,705
MEDIA--3.67%
AOL Time Warner Incorporated* 62,100 702,972
Comcast Corporation (Special Class A)*20,000 561,800
Cox Communications,
Incorporated (Class A)* 9,700 287,605
Viacom Incorporated (Class B)* 23,300 865,129
Walt Disney Company (The) 66,900 1,141,314
-----------------
3,558,820
METALS & MINING--0.43%
Alcoa Incorporated 20,200 414,100
MULTI-LINE RETAIL--3.67%
Federated Department Stores,
Incorporated* 33,700 859,350
Wal-Mart Stores, Incorporated 56,300 2,705,778
-----------------
3,565,128
OIL & GAS--8.00%
Anadarko Petroleum Corporation 13,600 626,688
BP p.l.c. ADR 23,610 899,777
ChevronTexaco Corporation 33,460 2,147,128
Exxon Mobil Corporation 80,000 2,721,600
Royal Dutch Petroleum Company ADR 34,500 1,368,615
-----------------
7,763,808
PAPER & FOREST PRODUCTS--1.58%
International Paper Company 7,300 255,719
Plum Creek Timber Company,
Incorporated 41,500 900,550
Weyerhaeuser Company 7,600 378,860
-----------------
1,535,129
PHARMACEUTICALS--11.72%
Allergan, Incorporated 9,500 $ 609,900
Bristol-Myers Squibb Company 37,600 876,080
Johnson & Johnson 39,200 2,056,040
Merck & Company, Incorporated 33,300 1,756,575
Pfizer, Incorporated 107,100 3,193,722
Pharmacia Corporation 16,700 690,044
Watson Pharmaceuticals, Incorporated* 27,000 835,110
Wyeth 38,600 1,360,650
-----------------
11,378,121
REAL ESTATE--6.16%
CenterPoint Properties Corporation 44,500 2,511,135
Health Care Property Investors,
Incorporated 35,700 1,261,995
Public Storage, Incorporated 30,500 1,006,500
Weingarten Realty Investors 30,900 1,200,465
-----------------
5,980,095
ROAD & RAIL--0.85%
USFreightways Corporation 34,000 826,540
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.45%
Intel Corporation 81,600 1,407,600
SOFTWARE--3.25%
Microsoft Corporation 133,000 3,152,100
SPECIALTY RETAIL--0.53%
Lowe's Companies, Incorporated 13,000 510,900
TOBACCO--1.12%
Altria Group, Incorporated 14,700 568,155
R.J. Reynolds Tobacco Holdings,
Incorporated 12,949 516,795
-----------------
1,084,950
TRADING COMPANIES & DISTRIBUTORS--0.72%
W.W. Grainger, Incorporated 15,300 704,259
-----------------
TOTAL COMMON STOCK--97.37%
(Cost $101,118,264) 94,516,828
-----------------
CASH EQUIVALENTS
SM&R Money Market Fund,
0.75% (a) 934 934
-----------------
TOTAL CASH EQUIVALENTS--0.00%
(Cost $934) 934
-----------------
</Table>
29
<Page>
<Table>
<Caption>
FACE VALUE
AMOUNT
COMMERCIAL PAPER
CHEMICALS--0.36%
Praxair Incorporated,
1.36%, 03/06/03 $ 350,000 $ 349,934
COMMERCIAL SERVICES & SUPPLIES--0.59%
Viad Corporation, 1.35%, 03/05/03 574,000 573,914
OFFICE ELECTRONICS--0.49%
Eastman Kodak Company,
1.40%, 03/03/03 470,000 469,963
TRADING COMPANIES & DISTRIBUTORS--1.03%
Tupperware Corporation,
1.37%, 03/07/03 1,002,000 1,001,771
-----------------
TOTAL COMMERCIAL PAPER--2.47%
(Cost $2,395,582) 2,395,582
-----------------
TOTAL INVESTMENTS--99.84%
(Cost $103,514,780) 96,913,344
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.16% 151,668
-----------------
NET ASSETS--100.00% $ 97,065,012
=================
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Equity Income Fund are affiliated
by having the same investment adviser.
See notes to financial statements.
30
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
ASSETS
Investments in securities, at value (Cost $103,514,780) $ 96,913,344
Cash 14,565
Prepaid expenses 20,671
Receivable for:
Capital stock sold 34,362
Dividends 218,801
Expense Reimbursement 1,907
Other assets 62,725
---------------
TOTAL ASSETS 97,266,375
---------------
LIABILITIES
Capital stock reacquired 73,308
Accrued:
Investment advisory fee 56,282
Service fee 18,760
Distribution fee 13,439
Other liabilities 39,574
---------------
TOTAL LIABILITIES 201,363
---------------
NET ASSETS (applicable to shares outstanding) $ 97,065,012
===============
NET ASSETS:
Class A $ 5,174,300
- ------------------------------------------------------------------------------------------------------------------------
Class B $ 5,034,606
- ------------------------------------------------------------------------------------------------------------------------
Class T $ 86,856,106
- ------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 97,065,012
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 301,034
- ------------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 300,805
- ------------------------------------------------------------------------------------------------------------------------
Class T:
Authorized 75,000,000
Outstanding 4,923,919
- ------------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 17.19
Offering price per share: (Net Assets value of $17.19/95.00%) $ 18.09
- ------------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 16.74
- ------------------------------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 17.64
Offering price per share: (Net Assets value of $17.64/94.25%) $ 18.72
- ------------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
31
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
INVESTMENT INCOME
Dividends $ 1,298,496
Interest 34,680
---------------
TOTAL INVESTMENT INCOME 1,333,176
---------------
EXPENSES
Investment advisory fees 390,139
Service fees 129,812
Professional fees 8,366
Custody and transaction fees 10,047
Directors' fees 4,491
Qualification fees 12,819
Shareholder reporting expenses 19,643
Insurance expenses 15,351
Distribution fees 27,101
Other expenses 8
---------------
TOTAL EXPENSES 617,777
LESS EXPENSES REIMBURSED (12,849)
---------------
NET EXPENSES 604,928
---------------
INVESTMENT INCOME--NET 728,248
---------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (3,584,721)
Change in unrealized depreciation of investments for the period (7,300,631)
---------------
NET LOSS ON INVESTMENTS (10,885,352)
---------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (10,157,104)
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2003 2002
----------------- -----------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 728,248 $ 1,621,294
Net realized loss on investments (3,584,721) (2,141,098)
Change in unrealized depreciation (7,300,631) (21,190,040)
----------------- -----------------
Net decrease in net assets resulting from operations (10,157,104) (21,709,844)
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (41,198) (66,630)
Class B (30,288) (50,927)
Class T (704,079) (1,619,324)
Capital gains
Class A -- --
Class B -- --
Class T -- --
----------------- -----------------
Total distributions to shareholders (775,565) (1,736,881)
----------------- -----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 224,260 239,362
Class B (212,557) 1,215,450
Class T (6,733,471) (13,872,674)
----------------- -----------------
Total net capital share transactions (6,721,768) (12,417,862)
----------------- -----------------
TOTAL DECREASE (17,654,437) (35,864,587)
NET ASSETS
Beginning of period 114,719,449 150,584,036
----------------- -----------------
End of period $ 97,065,012 $ 114,719,449
================= =================
</Table>
See notes to financial statements.
32
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS T SHARES
----------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
-------------- -------------- --------------
2003 2002 2001
-------------- -------------- --------------
Net Asset Value, Beginning of Period $ 19.51 $ 23.26 $ 25.76
Investment income--net 0.14 0.27 0.24
Net realized and unrealized gain (loss)
on investments (1.87) (3.74) (2.57)
-------------- -------------- --------------
Total from Investment Operations 1.73 (3.47) (2.33)
Less distributions from
Investment income--net (0.14) (0.28) (0.17)
Capital gains -- -- --
-------------- -------------- --------------
Total Distributions (0.14) (0.28) (0.17)
-------------- -------------- --------------
Net Asset Value, End of Period $ 17.64 $ 19.51 $ 23.26
============== ============== ==============
Total Return (1) (8.02)%** (15.03)% (9.07)%**
============== ============== ==============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 86,856 $ 103,396 $ 138,566
Ratio of expenses to average net assets 1.12%* 1.07% 1.06%*
Ratio of net investment income to average
net assets 1.43%* 1.26% 1.43%*
Portfolio turnover rate 2.93% 30.99% 18.15%
<Caption>
CLASS T SHARES
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
2000 1999 1998 1997
-------------- -------------- -------------- ---------------
Net Asset Value, Beginning of Period $ 25.30 $ 28.02 $ 26.99 $ 25.05
Investment income--net 0.46 0.54 0.62 0.63
Net realized and unrealized gain (loss)
on investments 1.54 (0.96) 2.50 4.96
-------------- -------------- -------------- ---------------
Total from Investment Operations 2.00 (0.42) 3.12 5.59
Less distributions from
Investment income--net (0.46) (0.54) (0.62) (0.64)
Capital gains (1.08) (1.76) (1.47) (3.01)
-------------- -------------- -------------- ---------------
Total Distributions (1.54) (2.30) (2.09) (3.65)
-------------- -------------- -------------- ---------------
Net Asset Value, End of Period $ 25.76 $ 25.30 $ 28.02 $ 26.99
============== ============== ============== ===============
Total Return (1) 8.99% (1.39)% 12.11% 22.72%
============== ============== ============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 160,319 $ 187,988 $ 218,980 $ 198,687
Ratio of expenses to average net assets 1.05% 1.05% 1.01% 1.05%
Ratio of net investment income to average
net assets 1.73% 1.94% 2.22% 2.28%
Portfolio turnover rate 22.05% 9.81% 19.29% 39.14%
</Table>
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
2003 2002 2001
--------------- --------------- -----------------
Net Asset Value, Beginning of Period $ 19.04 $ 22.72 $ 25.19
Investment income--net 0.11 0.18 0.16
Net realized and unrealized gain (loss)
on investments (1.83) (3.63) (2.49)
--------------- --------------- -----------------
Total from Investment Operations (1.72) (3.45) (2.33)
Less distributions from
Investment income--net (0.13) (0.23) (0.14)
Capital gains -- -- --
--------------- --------------- -----------------
Total Distributions (0.13) (0.23) (0.14)
--------------- --------------- -----------------
Net Asset Value, End of Period $ 17.19 $ 19.04 $ 22.72
=============== =============== =================
Total Return (1) (8.18)%** (15.27)% (9.25)%**
=============== =============== =================
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 5,174 $ 5,517 $ 6,330
Ratio of expenses with reimbursement
to average net assets (2) 1.26%* 1.44% 1.45%*
Ratio of expenses without reimbursement
to average net assets 1.50%* 1.45% 1.45%*
Ratio of net investment income to
average net assets 1.29%* 0.88% 1.03%*
Portfolio turnover rate 2.93% 30.99% 18.15%
<Caption>
CLASS A SHARES
-----------------------------------
PERIOD FROM
YEAR JANUARY 1, 1999
ENDED TO
DECEMBER 31, DECEMBER 31,
2000 1999
--------------- ---------------
Net Asset Value, Beginning of Period $ 24.79 $ 28.02
Investment income--net 0.36 0.58
Net realized and unrealized gain (loss)
on investments 1.50 (1.47)
--------------- ---------------
Total from Investment Operations 1.86 (0.89)
Less distributions from
Investment income--net (0.38) (0.58)
Capital gains (1.08) (1.76)
--------------- ---------------
Total Distributions (1.46) (2.34)
--------------- ---------------
Net Asset Value, End of Period $ 25.19 $ 24.79
=============== ===============
Total Return (1) 8.61% (3.01)%
=============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 5,671 $ 4,802
Ratio of expenses with reimbursement
to average net assets (2) 1.49% 1.51%
Ratio of expenses without reimbursement
to average net assets 1.49% 1.51%
Ratio of net investment income to
average net assets 1.32% 1.53%
Portfolio turnover rate 22.05% 9.81%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.26% for class A and 1.76% for class B.
See notes to financial statements.
33
<Page>
<Table>
<Caption>
CLASS B SHARES
---------------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 18.56 $ 22.22 $ 24.69
Investment income--net 0.06 0.09 0.08
Net realized and unrealized gain (loss)
on investments (1.78) (3.57) (2.47)
--------------- --------------- ---------------
Total from Investment Operations (1.72) (3.48) (2.39)
Less distributions from
Investment income--net (0.10) (0.18) (0.08)
Capital gains -- -- --
--------------- --------------- ---------------
Total Distributions (0.10) (0.18) (0.08)
--------------- --------------- ---------------
Net Asset Value, End of Period $ 16.74 $ 18.56 $ 22.22
=============== =============== ===============
Total Return (1) (8.51)%** (15.72)% (9.68)%**
=============== =============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 5,035 $ 5,806 $ 5,688
Ratio of expenses with reimbursement
to average net assets (2) 1.76%* 1.94% 1.98%*
Ratio of expenses without reimbursement
to average net assets 2.00%* 1.95% 1.98%*
Ratio of net investment income to
average net assets 0.78%* 0.37% 0.50%*
Portfolio turnover rate 2.93% 30.99% 18.15%
<Caption>
CLASS B SHARES
-------------------------------------
PERIOD FROM
YEAR JANUARY 1, 1999
ENDED TO
DECEMBER 31, DECEMBER 31,
2000 1999
--------------- ---------------
Net Asset Value, Beginning of Period $ 24.38 $ 28.02
Investment income--net 0.23 0.47
Net realized and unrealized gain (loss)
on investments 1.45 (1.88)
--------------- ---------------
Total from Investment Operations 1.68 (1.41)
Less distributions from
Investment income--net (0.29) (0.47)
Capital gains (1.08) (1.76)
--------------- ---------------
Total Distributions (1.37) (2.23)
--------------- ---------------
Net Asset Value, End of Period $ 24.69 $ 24.38
=============== ===============
Total Return (1) 7.95% (4.86)%
=============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 5,324 $ 4,343
Ratio of expenses with reimbursement
to average net assets (2) 1.99% 2.01%
Ratio of expenses without reimbursement
to average net assets 1.99% 2.01%
Ratio of net investment income to
average net assets 0.74% 1.03%
Portfolio turnover rate 22.05% 9.81%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.26% for class A and 1.76% for class B.
See notes to financial statements.
34
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R BALANCED FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
AEROSPACE & DEFENSE--0.53%
Honeywell International Incorporated 5,600 $ 128,184
AIR FREIGHT & COURIERS--0.36%
United Parcel Service,
Incorporated (Class B) 1,500 86,310
AUTOMOBILES--0.76%
Ford Motor Company 10,668 88,758
General Motors Corporation 2,800 94,556
----------
183,314
BANKS--7.18%
Bank of America Corporation 9,000 623,160
Bank One Corporation 3,000 108,090
PNC Financial Services Group 5,800 260,594
U.S. Bancorp 13,800 288,696
Wachovia Corporation 3,400 120,632
Wells Fargo Company 7,400 335,590
----------
1,736,762
BEVERAGES--1.99%
Anheuser-Busch Companies,
Incorporated 3,000 139,500
Coca-Cola Company 5,700 229,254
PepsiCo, Incorporated 2,900 111,128
----------
479,882
BIOTECHNOLOGY--0.54%
Amgen Incorporated* 2,400 131,136
BUILDING PRODUCTS--0.40%
American Standard Companies
Incorporated* 1,400 95,914
CHEMICALS--0.76%
Dow Chemical Company (The) 3,000 81,900
E.I. Du Pont de Nemours and Company 2,800 102,676
----------
184,576
COMMERCIAL SERVICES & SUPPLIES--1.03%
Banta Corporation 5,000 142,450
H & R Block, Incorporated 2,600 105,482
----------
247,932
COMMUNICATIONS EQUIPMENT--1.47%
Cisco Systems, Incorporated* 22,000 307,560
Motorola, Incorporated 2,000 16,840
QUALCOMM Incorporated* 900 31,122
----------
355,522
COMPUTERS & PERIPHERALS--2.82%
Dell Computer Corporation* 6,600 $ 177,936
EMC Corporation* 19,200 141,888
Hewlett-Packard Company 1,700 26,945
International Business
Machines Corporation 3,600 280,620
Sun Microsystems, Incorporated* 15,900 54,696
----------
682,085
CONTAINERS & PACKAGING--0.35%
Sealed Air Corporation* 2,300 83,421
DIVERSIFIED FINANCIALS--3.83%
American Express Company 3,400 114,172
Citigroup, Incorporated 13,800 460,092
Countrywide Credit Industries,
Incorporated 2,600 138,814
Morgan Stanley 5,800 213,730
----------
926,808
DIVERSIFIED TELECOMMUNICATION SERVICES--2.55%
Alltel Corporation 7,400 321,308
SBC Communications Incorporated 7,600 158,080
Verizon Communications 3,980 137,628
----------
617,016
ELECTRIC UTILITIES--1.81%
Ameren Corporation 2,900 113,071
CenterPoint Energy, Incorporated 5,200 24,180
Constellation Energy Group 4,800 125,856
DTE Energy Company 3,800 157,472
Reliant Resources, Incorporated* 3,975 16,099
----------
436,678
ENERGY EQUIPMENT & SERVICES--0.97%
Schlumberger Limited 3,800 158,118
Tidewater, Incorporated 2,500 76,550
----------
234,668
FOOD PRODUCTS--3.04%
ConAgra Foods, Incorporated 5,800 133,806
H.J. Heinz Company 2,500 76,750
McCormick & Company, Incorporated 10,400 240,552
Sara Lee Corporation 6,900 136,620
Sensient Technologies Corporation 7,100 146,970
----------
734,698
FOOD & DRUG RETAILING--0.24%
SUPERVALU Incorporated 4,100 57,072
</Table>
35
<Page>
<Table>
<Caption>
SHARES VALUE
HEALTHCARE EQUIPMENT & SUPPLIES--1.47%
Abbott Laboratories 4,000 $ 142,480
Beckman Coulter, Incorporated 6,100 201,910
Zimmer Holdings, Incorporated* 260 11,541
----------
355,931
HEALTHCARE PROVIDERS & SERVICES--0.40%
Health Management Associates,
Incorporated (Class A) 3,600 64,512
Tenet Healthcare Corporation* 1,750 31,798
----------
96,310
HOTELS, RESTAURANTS & LEISURE--0.66%
Starwood Hotels & Resorts
Worldwide, Incorporated 7,000 158,270
HOUSEHOLD DURABLES--1.00%
Black & Decker Corporation 6,600 242,220
HOUSEHOLD PRODUCTS1.55%
Kimberly-Clark Corporation 2,100 96,243
Procter & Gamble Company 3,400 278,324
----------
374,567
INDUSTRIAL CONGLOMERATES--3.42%
3M Company 1,700 213,129
Danaher Corporation 1,900 123,538
General Electric Company 20,400 490,620
----------
827,287
INFORMATION TECHNOLOGY CONSULTING & SERVICES--0.07%
Electronic Data Systems Corporation 600 9,342
Sungard Data Systems Incorporated* 400 7,872
----------
17,214
INSURANCE--2.20%
American International Group,
Incorporated 5,431 267,694
CIGNA Corporation 1,600 68,752
Prudential Financial, Incorporated 5,500 165,165
Travelers Property Casualty
Corporation (Class A) 649 10,157
Travelers Property Casualty
Corporation (Class B) 1,223 19,446
----------
531,214
LEISURE EQUIPMENT & PRODUCTS--0.70%
Brunswick Corporation 9,000 170,100
MACHINERY--0.88%
Caterpillar Incorporated 2,200 103,400
Ingersoll-Rand Company (Class A) 2,800 110,460
----------
213,860
MEDIA--1.71%
Comcast Corporation (Special Class A)* 2,000 $ 56,180
Cox Communications,
Incorporated (Class A)* 1,600 47,440
Viacom Incorporated (Class B)* 3,800 141,094
Walt Disney Company (The) 9,900 168,894
----------
413,608
METALS & MINING--0.25%
Alcoa Incorporated 3,000 61,500
MULTI-LINE RETAIL--2.36%
Federated Department Stores,
Incorporated* 5,600 142,800
Wal-Mart Stores, Incorporated 8,900 427,734
----------
570,534
OIL & GAS--3.71%
Anadarko Petroleum Corporation 1,700 78,336
BP p.l.c. ADR 4,892 186,434
ChevronTexaco Corporation 2,500 160,425
Exxon Mobil Corporation 6,200 210,924
Royal Dutch Petroleum Company ADR 4,000 158,680
Unocal Corporation 3,900 102,765
----------
897,564
PAPER & FOREST PRODUCTS--0.40%
International Paper Company 1,200 42,036
Weyerhaeuser Company 1,100 54,835
----------
96,871
PERSONAL PRODUCTS--0.29%
Gillette Company (The) 2,300 69,437
PHARMACEUTICALS--7.48%
Allergan, Incorporated 1,600 102,720
Bristol-Myers Squibb Company 5,500 128,150
Johnson & Johnson 8,800 461,560
Merck & Company, Incorporated 5,100 269,025
Pfizer, Incorporated 16,075 479,356
Pharmacia Corporation 3,200 132,224
Watson Pharmaceuticals, Incorporated* 4,200 129,906
Wyeth 3,000 105,750
----------
1,808,691
ROAD & RAIL--0.50%
USFreightways Corporation 5,000 121,550
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.60%
Applied Materials, Incorporated* 900 11,682
Intel Corporation 20,600 355,350
Texas Instruments Incorporated 1,200 20,100
----------
387,132
</Table>
36
<Page>
<Table>
<Caption>
SHARES VALUE
SOFTWARE--2.50%
Microsoft Corporation 22,200 $ 526,140
Oracle Corporation* 3,500 41,860
VERITAS Software Corporation* 2,100 35,763
----------
603,763
SPECIALTY RETAIL--1.03%
Home Depot, Incorporated (The) 5,900 138,355
Lowe's Companies, Incorporated 2,800 110,040
----------
248,395
TRADING COMPANIES & DISTRIBUTORS--0.44%
W.W. Grainger, Incorporated 2,300 105,869
----------
TOTAL COMMON STOCK--65.25%
(Cost $16,665,970) 15,773,865
----------
<Caption>
FACE
AMOUNT
BONDS AND NOTES
AUTO COMPONENTS--2.14%
Cooper Tire & Rubber Company,
7.75%, 12/15/09 $ 450,000 517,159
BANKS--2.34%
Royal Bank of Scotland, yankee bond,
6.40%, 04/01/09 500,000 565,450
DIVERSIFIED FINANCIALS--2.23%
Morgan (J.P.) & Company, Incorporated,
6.00%, 01/15/09 500,000 538,231
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.85%
Koninklijke Philips Electronics,
yankee bond, 8.375%, 09/15/06 600,000 689,392
INDUSTRIAL CONGLOMERATES--3.26%
Tyco International Group, yankee bond,
5.875%, 11/01/04 800,000 788,000
INSURANCE--2.16%
The Mony Group Incorporated,
8.35%, 03/15/10 500,000 521,498
REAL ESTATE--2.39%
Weingarten Realty Investors,
7.35%, 07/20/09 500,000 577,649
TRANSPORTATION INFRASTRUCTURE--3.31%
Hertz Corporation, 7.40%, 03/01/11 455,000 430,408
Union Tank Car Company,
6.63%, 10/03/04 345,000 369,341
----------
799,749
U S GOVERNMENT AGENCY SECURITIES--4.32%
Federal Home Loan Bank
5.10%, 12/14/07 500,000 522,430
Federal Home Loan Mortgage
Corporation, 7.00%, 09/15/07 $ 443,820 $ 459,086
Federal Home Loan Mortgage
Corporation, Pool #298759,
8.00%, 08/01/17 8,339 9,128
Federal Home Loan Mortgage
Corporation, Pool #284839,
8.50%, 01/01/17 10,820 11,836
Federal National Mortgage Association,
Pool #048974, 8.00%, 06/01/17 38,514 42,227
----------
1,044,707
U S GOVERNMENT SECURITIES--4.32%
U S Treasury Note, 5.875%, 02/15/04 1,000,000 1,044,297
----------
TOTAL BONDS AND NOTES--29.32%
(Cost $6,575,014) 7,086,132
----------
<Caption>
SHARES
CASH EQUIVALENTS
SM&R Money Market Fund,
0.75% (a) 835 835
----------
TOTAL CASH EQUIVALENTS--0.00%
(Cost $835) 835
----------
<Caption>
FACE
AMOUNT
COMMERCIAL PAPER
COMMERCIAL SERVICES & SUPPLIES--3.72%
Viad Corporation, 1.35%, 03/05/03 $ 899,000 898,865
OFFICE ELECTRONICS--1.03%
Eastman Kodak
Company, 1.40%, 03/03/03 250,000 249,981
-------------
TOTAL COMMERCIAL PAPER--4.75%
(Cost $1,148,846) 1,148,846
-------------
TOTAL INVESTMENTS--99.32%
(Cost $24,390,665) 24,009,678
-------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.68% 165,241
-------------
NET ASSETS--100.00% $ 24,174,919
=============
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Balanced Fund are affiliated by
having the same investment adviser.
See notes to financial statements.
37
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R BALANCED FUND
<Table>
<Caption>
ASSETS
Investments in securities, at value (Cost $24,390,665) $ 24,009,678
Cash 469
Prepaid expenses 11,293
Receivable for:
Capital stock sold 11,732
Dividends 34,553
Interest 138,540
Expense Reimbursement 1,882
Other assets 15,067
-------------
TOTAL ASSETS 24,223,214
-------------
LIABILITIES
Capital stock reacquired 1,042
Accrued:
Investment advisory fee 13,867
Service fee 4,622
Distribution fee 5,516
Other liabilities 23,248
-------------
TOTAL LIABILITIES 48,295
-------------
NET ASSETS (applicable to shares outstanding) $ 24,174,919
=============
NET ASSETS:
Class A $ 2,975,405
- ----------------------------------------------------------------------------------------------------------------------
Class B $ 1,856,322
- ----------------------------------------------------------------------------------------------------------------------
Class T $ 19,343,192
- ----------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS: $ 24,174,919
=============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 199,935
- ----------------------------------------------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 122,974
- ----------------------------------------------------------------------------------------------------------------------
Class T:
Authorized 25,000,000
Outstanding 1,260,793
- ----------------------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 14.88
Offering price per share: (Net Assets value of $14.88/95.00%) $ 15.66
- ----------------------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 15.10
- ----------------------------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 15.34
Offering price per share: (Net Assets value of $15.34/94.25%) $ 16.28
- ----------------------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
38
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R BALANCED FUND
<Table>
<Caption>
INVESTMENT INCOME
Dividends $ 178,305
Interest 276,046
-------------
TOTAL INVESTMENT INCOME 454,351
-------------
EXPENSES
Investment advisory fees 94,930
Service fees 31,643
Professional fees 6,416
Custody and transaction fees 9,010
Directors' fees 4,491
Qualification fees 12,528
Shareholder reporting expenses 4,018
Insurance expenses 4,146
Distribution fees 11,228
Other expenses 8
-------------
TOTAL EXPENSES 178,418
LESS EXPENSES REIMBURSED (14,882)
-------------
NET EXPENSES 163,536
-------------
INVESTMENT INCOME--NET 290,815
-------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (846,275)
Change in unrealized depreciation of investments for the period (854,184)
-------------
NET LOSS ON INVESTMENTS (1,700,459)
-------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,409,644)
=============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------------
2003 2002
---------------- ----------------
DECREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 290,815 $ 689,458
Net realized gain (loss) on investments (846,275) 303,181
Change in unrealized depreciation (854,184) (2,776,835)
---------------- ----------------
Net decrease in net assets resulting from operations (1,409,644) (1,784,196)
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (42,805) (77,849)
Class B (22,578) (45,601)
Class T (274,420) (573,591)
Capital gains
Class A -- --
Class B -- --
Class T -- --
---------------- ----------------
Total distributions to shareholders (339,803) (697,041)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 6,475 742,333
Class B (112,309) 383,569
Class T (889,044) (1,153,675)
---------------- ----------------
Total net capital share transactions (994,878) (27,773)
---------------- ----------------
TOTAL DECREASE (2,744,325) (2,509,010)
NET ASSETS
Beginning of period 26,919,244 29,428,254
---------------- ----------------
End of period $ 24,174,919 $ 26,919,244
================ ================
</Table>
See notes to financial statements.
39
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS T SHARES
----------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
------------ ------------ ------------
2003 2002 2001
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 16.42 $ 17.91 $ 19.40
Investment income--net 0.19 0.43 0.31
Net realized and unrealized gain (loss) on
investments (1.06) (1.50) (1.58)
------------ ------------ ------------
Total from Investment Operations (0.87) (1.07) (1.27)
Less distributions from
Investment income--net (0.21) (0.42) (0.22)
Capital gains -- -- --
------------ ------------ ------------
Total Distributions (0.21) (0.42) (0.22)
------------ ------------ ------------
Net Asset Value, End of Period $ 15.34 $ 16.42 $ 17.91
============ ============ ============
Total Return (1) (4.27)%** (6.07)% (6.54)%**
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 19,343 $ 21,631 $ 24,798
Ratio of expenses with reimbursement to average
net assets 1.25%* 1.25% 1.25%*
Ratio of expenses without reimbursement
to average net assets 1.29%* 1.27% 1.25%*
Ratio of net investment income to
average net assets 2.36%* 2.47% 2.52%*
Portfolio turnover rate 22.27% 25.80% 14.77%
<Caption>
CLASS T SHARES
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------ ------------ ------------ ------------
2000 1999 1998 1997
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 20.67 $ 19.63 $ 18.32 $ 17.90
Investment income--net 0.56 0.42 0.48 0.57
Net realized and unrealized gain (loss) on
investments 0.01 1.84 1.96 2.50
------------ ------------ ------------ ------------
Total from Investment Operations 0.57 2.26 2.44 3.07
Less distributions from
Investment income--net (0.55) (0.42) (0.47) (0.59)
Capital gains (1.29) (0.80) (0.66) (2.06)
------------ ------------ ------------ ------------
Total Distributions (1.84) (1.22) (1.13) (2.65)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 19.40 $ 20.67 $ 19.63 $ 18.32
============ ============ ============ ============
Total Return (1) 3.64% 11.87% 13.83% 17.46%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted)$19,343 $ 28,223 $ 30,146 $ 29,367 $ 25,838
Ratio of expenses with reimbursement to average
net assets 1.25% 1.25% 1.25% 1.26%
Ratio of expenses without reimbursement
to average net assets 1.34% 1.41% 1.37% 1.36%
Ratio of net investment income to
average net assets 2.63% 2.15% 2.55% 3.02%
Portfolio turnover rate 13.17% 18.01% 16.01% 27.52%
</Table>
<Table>
<Caption>
CLASS A
SHARES
--------------------------------------------------------
(UNAUDITED)
SIX MONTHS YEAR EIGHT MONTHS
ENDED ENDED ENDED
FEBRUARY 28, AUGUST 31, AUGUST 31,
--------------- --------------- ---------------
2003 2002 2001
--------------- --------------- ---------------
Net Asset Value, Beginning of Period $ 15.93 $ 17.44 $ 18.93
Investment income--net 0.17 0.39 0.23
Net realized and unrealized gain (loss) on investments (1.01) (1.47) (1.53)
--------------- --------------- ---------------
Total from Investment Operations (0.84) (1.08) (1.30)
Less distributions from
Investment income--net (0.21) (0.43) (0.19)
Capital gains -- -- --
--------------- --------------- ---------------
Total Distributions (0.21) (0.43) (0.19)
--------------- --------------- ---------------
Net Asset Value, End of Period $ 14.88 $ 15.93 $ 17.44
=============== =============== ===============
Total Return (1) (4.23)%** (6.29)% (6.87)%**
=============== =============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 2,975 $ 3,183 $ 2,713
Ratio of expenses with reimbursement to average net assets (2) 1.30%* 1.45% 1.50%*
Ratio of expenses without reimbursement to average net assets 1.73%* 1.73% 1.50%*
Ratio of net investment income to average net assets 2.30%* 2.27% 1.98%*
Portfolio turnover rate 22.27% 25.80% 14.77%
<Caption>
CLASS A
SHARES
------------------------------------
PERIOD FROM
YEAR JANUARY 1, 1999
ENDED TO
DECEMBER 31, DECEMBER 31,
--------------- ---------------
2000 1999
--------------- ---------------
Net Asset Value, Beginning of Period $ 20.30 $ 19.63
Investment income--net 0.37 0.47
Net realized and unrealized gain (loss) on investments (0.06) 1.47
--------------- ---------------
Total from Investment Operations 0.31 1.94
Less distributions from
Investment income--net (0.39) (0.47)
Capital gains (1.29) (0.80)
--------------- ---------------
Total Distributions (1.68) (1.27)
--------------- ---------------
Net Asset Value, End of Period $ 18.93 $ 20.30
=============== ===============
Total Return (1) 3.35% 10.13%
=============== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 2,512 $ 1,777
Ratio of expenses with reimbursement to average net assets (2) 1.50% 1.51%
Ratio of expenses without reimbursement to average net assets 1.92% 1.51%
Ratio of net investment income to average net assets 2.40% 1.87%
Portfolio turnover rate 13.17% 18.01%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.30% for class A and 1.80% for class B.
See notes to financial statements.
40
<Page>
<Table>
<Caption>
CLASS B
SHARES
----------------------------------------------------------------------------------
(UNAUDITED) PERIOD FROM
SIX MONTHS YEAR EIGHT MONTHS YEAR JANUARY 1, 1999
ENDED ENDED ENDED ENDED TO
FEBRUARY 28, AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------ ------------ ---------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ---------------
Net Asset Value, Beginning of Period $ 16.18 $ 17.72 $ 19.26 $ 20.64 $ 19.63
Investment income--net 0.13 0.30 0.20 0.35 0.40
Net realized and unrealized gain (loss)
on investments (1.03) (1.47) (1.59) (0.08) 1.81
------------ ------------ ------------ ------------ ---------------
Total from Investment Operations (0.90) (1.17) (1.39) 0.27 2.21
Less distributions from
Investment income--net (0.18) (0.37) (0.15) (0.36) (0.40)
Capital gains -- -- -- (1.29) (0.80)
------------ ------------ ------------ ------------ ---------------
Total Distributions (0.18) (0.37) (0.15) (1.65) (1.20)
------------ ------------ ------------ ------------ ---------------
Net Asset Value, End of Period $ 15.10 $ 16.18 $ 17.72 $ 19.26 $ 20.64
------------ ------------ ------------ ------------ ---------------
Total Return (1) (4.60)%** (6.69)% (7.23)%** 2.79% 11.52%
============ ============ ============ ============ ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 1,856 $ 2,105 $ 1,917 $ 2,081 $ 1,119
Ratio of expenses with reimbursement to
average net assets (2) 1.80%* 1.95% 2.00%* 2.00% 2.01%
Ratio of expenses without reimbursement to
average net assets 2.24%* 2.22% 2.00%* 2.23% 2.01%
Ratio of net investment income to
average net assets 1.80%* 1.77% 1.55%* 1.89% 1.36%
Portfolio turnover rate 22.27% 25.80% 14.77% 13.17% 18.01%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.30% for class A and 1.80% for class B.
See notes to financial statements.
41
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
INTEREST/
CORPORATE BONDS MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
AUTOMOBILES--3.21%
General Motors Corporation 05/01/08 6.375 $ 1,000,000 $ 1,021,588
DIVERSIFIED FINANCIALS--8.18%
GATX Financial Corporation 06/01/09 8.875 1,000,000 913,576
J.P. Morgan Chase Company 02/15/08 6.375 1,000,000 1,110,840
MBNA Master Credit Card Trust 02/15/12 7.000 500,000 581,164
------------
2,605,580
GAS UTILITIES--5.44%
KeySpan Corporation 11/15/10 7.625 1,000,000 1,205,078
National Fuel Gas Company 02/01/04 7.750 500,000 528,099
------------
1,733,177
------------
TOTAL CORPORATE BONDS--16.83%
(COST $5,112,645) 5,360,345
------------
FOREIGN BONDS
U S DOLLAR DENOMINATED
FOREIGN GOVERNMENT BONDS1.76%
Province of Quebec, Canada 02/15/09 5.750 500,000 560,179
------------
TOTAL FOREIGN BONDS--1.76%
(COST $463,763) 560,179
------------
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--63.68%
Federal Home Loan Bank 08/05/04 7.380 1,000,000 1,080,411
Federal Home Loan Bank 08/15/05 3.250 600,000 619,882
Federal Home Loan Bank 10/25/05 6.230 150,000 166,460
Federal Home Loan Mortgage Corporation 01/15/05 1.875 2,000,000 2,009,694
Federal Home Loan Mortgage Corporation 08/01/05 6.750 165,000 184,545
Federal Home Loan Mortgage Corporation 09/15/05 2.875 500,000 512,472
Federal Home Loan Mortgage Corporation 03/15/07 7.000 230,251 241,830
Federal Home Loan Mortgage Corporation 09/15/07 7.000 443,820 459,086
Federal Home Loan Mortgage Corporation 06/15/27 7.500 249,465 254,541
Federal National Mortgage Association 04/15/04 3.625 2,000,000 2,050,368
Federal National Mortgage Association 09/12/05 6.550 100,000 111,808
Federal National Mortgage Association 06/18/07 4.750 2,000,000 2,074,290
Federal National Mortgage Association 07/25/07 7.000 219,991 226,831
Federal National Mortgage Association 03/16/09 6.320 250,000 263,664
Federal National Mortgage Association 05/18/09 6.500 1,500,000 1,538,254
Federal National Mortgage Association 01/15/10 7.250 500,000 611,009
Federal National Mortgage Association 08/01/12 5.250 700,000 740,562
Federal National Mortgage Association 09/15/12 4.375 1,900,000 1,939,737
Federal National Mortgage Association 08/01/30 8.000 58,662 63,599
Freddie Mac 02/15/09 5.500 1,451,431 1,469,807
Government National Mortgage Association 03/20/27 6.000 2,000,000 2,094,822
Private Export Funding 01/15/10 7.200 1,000,000 1,213,567
Tennessee Valley Authority 12/15/17 6.250 300,000 348,170
------------
20,275,409
</Table>
42
<Page>
<Table>
<Caption>
INTEREST/
CORPORATE BONDS MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
U S GOVERNMENT SECURITIES--7.22%
U S Treasury Notes 05/15/09 5.500 $ 1,000,000 $ 1,139,648
U S Treasury Notes 08/15/10 5.750 1,000,000 1,158,398
------------
2,298,046
------------
TOTAL U S GOVERNMENT AGENCY and
U S GOVERNMENT SECURITIES--70.90%
(Cost $21,682,679) 22,573,455
------------
U S GOVERNMENT AND
AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--9.60%
Federal Home Loan Bank 03/14/03 1.240 228,000 227,898
Federal Home Loan Bank 03/26/03 1.210 113,000 112,905
Federal Home Loan Bank 03/26/03 1.220 198,000 197,832
Federal Home Loan Mortgage Corporation 03/31/03 1.220 913,000 912,071
Federal National Mortgage Association 03/03/03 1.220 1,085,000 1,084,926
Federal National Mortgage Association 03/10/03 1.240 375,000 374,884
Federal National Mortgage Association 03/12/03 1.220 145,000 144,946
------------
TOTAL U S GOVERNMENT AND AGENCY
SHORT-TERM OBLIGATIONS--9.60%
(COST $3,055,462) 3,055,462
------------
CASH EQUIVALENTS
<Caption>
SHARES
SM&R Money Market Fund, 0.75% (a) 29,733 29,733
TOTAL CASH EQUIVALENTS--0.09%
(COST $29,733) 29,733
------------
TOTAL INVESTMENTS--99.18%
(COST $30,344,282) 31,579,174
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.82% 260,868
------------
TOTAL NET ASSETS--100.00% $ 31,840,042
============
</Table>
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Government Bond Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
43
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investment in securities, at value (Cost $30,344,282) $ 31,579,174
Prepaid expenses 19,366
Receivable for:
Capital stock sold 14,139
Interest 262,111
Expense reimbursement 5,582
Other assets 2,782
------------
TOTAL ASSETS 31,883,154
------------
LIABILITIES
Distribution payable 1,740
Capital stock reacquired 1,117
Accrued:
Investment advisory fee 11,924
Service fee 5,962
Distribution fee 3,295
Other liabilities 19,074
------------
TOTAL LIABILITIES 43,112
------------
NET ASSETS (applicable to shares outstanding) $ 31,840,042
============
NET ASSETS:
Class A $ 1,168,975
- --------------------------------------------------------------------------------------------------------
Class B $ 1,520,236
- --------------------------------------------------------------------------------------------------------
Class T $ 29,150,831
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS $ 31,840,042
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,001,150
Outstanding 106,282
- --------------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 138,327
- --------------------------------------------------------------------------------------------------------
Class T:
Authorized 23,000,000
Outstanding 2,682,531
- --------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 11.00
Offering price per share: (Net Assets value of $11.00 / 95.25%) $ 11.55
- --------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.99
- --------------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.87
Offering price per share: (Net Assets value of $10.87 / 95.5%) $ 11.38
- --------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
44
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $ 727,624
------------
EXPENSES
Investment advisory fees 74,340
Service fees 37,170
Professional fees 5,766
Custody and transaction fees 4,735
Directors' fees 4,491
Qualification fees 11,991
Shareholder reporting expenses 1,714
Insurance expenses 3,883
Distribution fees 2,971
Other expenses 8
------------
TOTAL EXPENSES 147,069
LESS EXPENSES REIMBURSED (35,588)
------------
NET EXPENSES 111,481
------------
INVESTMENT INCOME--NET 616,143
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 484,279
Change in unrealized appreciation of investments for the period (154,107)
------------
NET GAIN ON INVESTMENTS 330,172
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 946,315
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2003 2002
---------------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 616,143 $ 1,333,729
Net realized gain (loss) on investments 484,279 (185,626)
Change in unrealized appreciation (depreciation) (154,107) 477,148
---------------- ------------
Net increase in net assets resulting from operations 946,315 1,625,251
---------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (27,044) (52,795)
Class B (20,975) (19,629)
Class T (577,415) (1,251,921)
---------------- ------------
Total distributions to shareholders (625,434) (1,324,345)
---------------- ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 21,379 502,024
Class B 746,315 538,590
Class T 2,048,760 1,246,357
---------------- ------------
Total net capital share transactions 2,816,454 2,286,971
---------------- ------------
TOTAL INCREASE 3,137,335 2,587,877
NET ASSETS
Beginning of Period 28,702,707 26,114,830
---------------- ------------
End of Period $ 31,840,042 $ 28,702,707
================ ============
</Table>
See notes to financial statements.
45
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.75 $ 10.64 $ 10.05 $ 10.10 $ 10.60 $ 10.42
Investment income--net 0.23 0.52 0.58 0.59 0.59 0.64
Net realized and unrealized gain
(loss) on investments 0.12 0.11 0.59 (0.05) (0.50) 0.20
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.35 0.63 1.17 0.54 0.09 0.84
Less distributions from
Investment income--net (0.23) (0.52) (0.58) (0.59) (0.59) (0.66)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.23) (0.52) (0.58) (0.59) (0.59) (0.66)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.87 $ 10.75 $ 10.64 $ 10.05 $ 10.10 $ 10.60
============ ========== ========== ========== ========== ==========
Total Return (1) 4.03%** 6.08% 11.90% 5.58% 0.76% 8.31%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period
(000's omitted) $ 29,151 $ 26,807 $ 25,278 $ 22,928 $ 23,368 $ 23,982
Ratio of expenses with reimbursement
to average net assets (2) 0.73%* 0.93% 0.97% 0.98% 1.00% 1.00%
Ratio of expenses without
reimbursement to average net assets 0.91%* 0.95% 0.97% 0.98% 1.11% 1.00%
Ratio of net investment income to
average net assets 4.16%* 4.92% 5.55% 5.91% 5.58% 6.08%
Portfolio turnover rate 45.03% 25.87% 14.01% 30.87% 22.86% 32.71%
</Table>
<Table>
<Caption>
CLASS A SHARES
-------------------------------------------------------------------------
(UNAUDITED) PERIOD FROM
SIX MONTHS JANUARY 1, 1999
ENDED TO
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31,
------------ -------------------------------------- ---------------
2003 2002 2001 2000 1999
------------ ---------- ---------- ---------- ---------------
Net Asset Value, Beginning of Period $ 10.88 $ 10.75 $ 10.14 $ 10.20 $ 10.62
Investment income--net 0.23 0.48 0.53 0.57 0.30
Net realized and unrealized gain
(loss) on investments 0.12 0.13 0.61 (0.06) (0.42)
------------ ---------- ---------- ---------- ---------------
Total from Investment Operations 0.35 0.61 1.14 0.51 (0.12)
Less distributions from
Investment income--net (0.23) (0.48) (0.53) (0.57) (0.30)
------------ ---------- ---------- ---------- ---------------
Total Distributions (0.23) (0.48) (0.53) (0.57) (0.30)
------------ ---------- ---------- ---------- ---------------
Net Asset Value, End of Period $ 11.00 $ 10.88 $ 10.75 $ 10.14 $ 10.20
============ ========== ========== ========== ===============
Total Return (1) 4.03%** 5.82% 11.46% 5.15% (1.17)%**
============ ========== ========== ========== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period
(000's omitted) $ 1,169 $ 1,137 $ 626 $ 127 $ 69
Ratio of expenses with reimbursement
to average net assets (2) 0.73%* 1.12% 1.25% 1.25% 1.25%*
Ratio of expenses without
reimbursement to average net assets
Ratio of net investment income 1.69%* 1.80% 1.27% 1.29% 1.42%*
to average net assets 4.16%* 4.73% 5.25% 5.68% 5.25%*
Portfolio turnover rate 45.03% 25.87% 14.01% 30.87% 22.86%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.73% for classes T and A; and 1.23% for class B.
See notes to financial statements.
46
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
<Table>
<Caption>
CLASS B SHARES
-------------------------------------------------------------------------
(UNAUDITED) PERIOD FROM
SIX MONTHS JANUARY 1, 1999
ENDED TO
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31,
------------ -------------------------------------- ---------------
2003 2002 2001 2000 1999
------------ ---------- ---------- ---------- ---------------
Net Asset Value, Beginning of Period $ 10.86 $ 10.74 $ 10.14 $ 10.16 $ 10.62
Investment income--net 0.19 0.43 0.48 0.49 0.33
Net realized and unrealized gain
(loss) on investments 0.13 0.12 0.60 (0.02) (0.46)
------------ ---------- ---------- ---------- ---------------
Total from Investment Operations 0.32 0.55 1.08 0.47 (0.13)
Less distributions from
Investment income--net (0.19) (0.43) (0.48) (0.49) (0.33)
------------ ---------- ---------- ---------- ---------------
Total Distributions (0.19) (0.43) (0.48) (0.49) (0.33)
------------ ---------- ---------- ---------- ---------------
Net Asset Value, End of Period $ 10.99 $ 10.86 $ 10.74 $ 10.14 $ 10.16
============ ========== ========== ========== ===============
Total Return (1) 3.76%** 5.27% 10.88% 4.74% (1.30)%**
============ ========== ========== ========== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period
(000's omitted) $ 1,520 $ 758 $ 211 $ 78 $ 8
Ratio of expenses with reimbursement
to average net assets (2) 1.23%* 1.57% 1.75% 1.75% 1.75%*
Ratio of expenses without
reimbursement to average net assets 2.02%* 2.61% 1.79% 1.84% 1.77%*
Ratio of net investment income to
average net assets 3.61%* 4.20% 4.69% 5.12% 4.86%*
Portfolio turnover rate 45.03% 25.87% 14.01% 30.87% 22.86%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.73% for classes T and A; and 1.23% for class B.
See notes to financial statements.
47
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R TAX FREE FUND
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
CALIFORNIA--3.44%
A2/A California State General Obligation Bonds Unlimited 06/01/11 5.250 $ 25,000 $ 26,305
Aaa/AAA Sacramento, California Municipal Utility District Electric
Revenue Bonds, Series I 01/01/15 5.750 200,000 211,756
Aaa/AAA San Francisco, California City and County Sewer
Revenue Refunding Bonds 10/01/16 5.375 250,000 255,090
------------
493,151
FLORIDA--11.87%
Aaa/AAA Dade County, Florida Water & Sewer System Revenue Bonds 10/01/16 5.375 400,000 446,884
Aaa/NR Jacksonville, Florida Health Facilities Authority Industrial
Development Revenue Bonds (National Benevolent
Association), Series B VRD (b) 03/01/30 1.050 200,000 200,000
Aaa/AAA Miami-Dade County Solid Waste System Revenue Bonds 10/01/18 4.750 400,000 413,108
Aaa/AAA Miami-Dade County, Florida Expressway Authority Toll
System Revenue Bonds 07/01/29 6.375 400,000 489,780
Aaa/AAA State of Florida- State Board of Education, Public
Education Capital Outlay Bonds, 1992 Series E 06/01/19 5.750 145,000 154,888
------------
1,704,660
ILLINOIS--11.45%
Aaa/AAA Chicago, Illinois-General Obligation Bonds Unlimited 01/01/25 5.125 100,000 101,396
Aaa/AAA Chicago, Illinois-Park District General Obligation
Bonds Unlimited, Series C 01/01/16 4.850 230,000 238,747
Aa2/AA+ Illinois Health Facilities Authority-Revenue Bonds, Series A,
(Northwestern Memorial Hospital) 08/15/24 6.000 100,000 103,142
Aa2/AA+ Illinois Health Facilities Authority-Revenue Bonds, Series 1994A,
(Northwestern Memorial Hospital) 08/15/14 6.100 200,000 215,260
Aaa/AAA Illinois Health Facilities Authority-Revenue Bonds, Series B,
(Blessing Hospital) VRD (b) 11/15/29 1.100 150,000 150,000
Aaa/AAA Regional Transportation Authority of Illinois Revenue Bonds,
Refunding MBIA 06/01/18 5.500 200,000 217,008
Aaa/NR Rockford, Illinois-General Obligation Bonds Unlimited 12/15/18 4.500 180,000 182,304
Aa2/AAA State of Illinois-Build Illinois Bonds, Sales Tax Revenue
Bonds, Series V 06/15/17 6.375 200,000 226,998
Aaa/AAA State of Illinois-General Obligation Bonds Unlimited 03/01/19 5.000 200,000 208,568
------------
1,643,423
LOUISIANA--6.74%
Aaa/AAA Louisiana Public Facilities Authority Hospital Revenue Bonds,
Series C 07/01/19 5.000 400,000 409,848
Aaa/AAA New Orleans, Louisiana Sewer Service Revenue Bonds 06/01/18 5.000 300,000 313,611
A3/BBB- Plaquemines, Louisiana-Port, Harbour & Terminal District,
Marine Terminal Facilities Revenue Bonds 09/01/27 5.000 250,000 244,580
------------
968,039
MASSACHUSETTS--3.59%
Aaa/AAA Massachusetts State Water Revenues Authority,
General Purpose - Series A 11/01/21 5.500 450,000 515,633
MISSOURI--0.70%
NR/AAA Springfield, Missouri Industrial Development Authority
Multifamily Housing Revenue Bonds VRD (b) 12/01/19 1.050 100,000 100,000
</Table>
48
<Page>
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
NEW MEXICO--0.76%
Aaa/AAA Central Consolidated School District No.22 San Juan County,
New Mexico General Obligation School Building Bonds 08/15/09 5.300 $ 100,000 $ 108,888
NEW YORK--8.12%
A2/A New York City, New York-General Obligation Bonds Unlimited,
Series J 08/01/18 5.000 200,000 201,968
Aaa/AAA New York City, New York- General Obligation Bonds Unlimited,
Series J 02/15/07 5.000 100,000 109,457
Aa2/AA+ New York City, New York-Transitional Financial Authority
Revenue Bonds, Series C 05/01/19 5.000 250,000 260,480
Aaa/AAA New York - State Tollway Authority Highway & Bridge
Revenue Bonds, Series B 04/01/10 3.850 200,000 208,546
Aa3/AAA Triborough Bridge & Tunnel Authority, New York,
Revenue Bonds, General Purpose - Series B 01/01/27 5.200 350,000 385,588
------------
1,166,039
NORTH CAROLINA--0.74%
Aaa/AAA City of Charlotte, North Carolina-General Obligation Public
Improvement Bonds, Series 1994 02/01/08 5.700 100,000 106,266
OHIO--3.13%
Aaa/AAA Franklin County, Ohio- General Obligation Bonds Limited 12/01/08 5.100 300,000 337,998
Aaa/AAA Franklin County, Ohio- General Obligation Bonds Limited 12/01/11 5.300 100,000 111,891
------------
449,889
OKLAHOMA--0.43%
Aaa/NR Oklahoma Housing Finance Agency-Single Family Mortgage
Revenue Bonds (Homeownership Loan Program),
1994 Series A-1 (c) 09/01/07 6.250 60,000 61,074
OREGON--1.50%
A1/AAA City of Portland, Oregon- Sewer System Revenue Bonds,
1994 Series A 06/01/15 6.250 200,000 214,884
PENNSYLVANIA--0.71%
Aa2/AA Pennsylvania State General Obligation Bonds Unlimited,
Refunding & Projects-First Series 04/15/06 5.000 100,000 101,960
RHODE ISLAND--0.72%
Aa2/AA+ Rhode Island Housing & Mortgage Financial Corporation,
Homeownership Opportunity, Series 20-A 04/01/17 6.150 100,000 103,384
TENNESSEE--1.41%
A1/AA Tennessee Housing Development Agency-Mortgage Finance
Program Bonds, 1994 Series B (c) 01/01/09 6.200 200,000 202,574
TEXAS--24.75%
Aaa/AAA Austin, Texas - Community College District Revenue Bonds 02/01/10 4.000 100,000 104,983
Aaa/AAA Baytown, Texas- Water and Sewer Revenue Bonds 02/01/14 5.950 100,000 108,169
Aaa/AAA Board of Regents of The University of Texas System-
Permanent University Fund, Refunding Bonds, Series 1992A 07/01/13 6.250 155,000 188,390
Aaa/AAA City of Austin, Texas-Combined Utility Systems Revenue
Refunding Bonds, Series 1994 05/15/16 6.250 80,000 87,963
Aaa/AAA College Station, Texas Utility Systems Revenue Bonds 02/01/13 4.125 200,000 205,624
Aaa/AAA College Station, Texas Utility Systems Revenue Bonds 02/01/14 4.250 65,000 66,744
</Table>
49
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
TEXAS--CONTINUED
Aaa/AAA Collin County, Texas- Community College District,
Consolidated Fund, Revenue Bonds 02/01/15 5.250 $ 400,000 $ 431,084
Aaa/AAA Dallas-Fort Worth International Airport- Dallas-Fort Worth
Regional Airport, Joint Revenue Refunding Bonds,
Series 1994A 11/01/10 6.000 100,000 107,708
Aaa/AAA Dallas, Texas - Independent School District, General
Obligation Bonds Unlimited 02/15/09 4.200 100,000 107,412
Aaa/NR Flower Mound, Texas- Refunding and Improvement, General
Obligation Bonds Unlimited 03/01/17 5.500 200,000 219,306
Aaa/NR Galveston County, Texas- Public Improvements, General
Obligation Bonds Unlimited 02/01/10 4.300 25,000 26,708
Aaa/NR Galveston County, Texas- Public Improvements, General
Obligation Bonds Limited 02/01/11 4.375 125,000 133,115
Aa1/AA+ Harris County, Texas- Tax and Revenue Certificates of
Obligation, Series 1994 10/01/13 6.100 125,000 134,750
Aaa/AAA League City, Texas - Public Improvements,
General Obligation Bonds Limited 02/15/13 4.750 100,000 107,860
Aaa/AAA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 280,345
Aaa/AAA Mission Texas Consolidated Independent School District-
General Obligation Bonds Unlimited 02/15/18 4.500 200,000 201,768
Aaa/AAA Rockwell, Texas - Waterworks & Sewer
General Obligation Bonds Limited 08/01/11 3.700 115,000 116,949
AAA/NR Tarrant County Health Facilities Development Corporation-
Health System Revenue Bonds, (Harris Methodist Health
System), Series 1994 (d) 09/01/14 6.000 200,000 239,112
Aaa/AAA Texas Turnpike Authority- Dallas North Tollway System
Revenue Bonds, Series 1995 (President George Bush Turnpike) 01/01/15 5.400 100,000 109,767
Aaa/AAA Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 247,505
Aaa/NR Weslaco, Texas Independent School District
General Obligation Bonds 02/15/13 5.650 100,000 110,067
Aaa/AAA West University Place, Texas- General Obligation Bonds
Limited, Permanent Improvement 02/01/14 5.650 100,000 111,557
NR/AAA Wylie, Texas Independent School District General Obligation
Bonds Unlimited 08/15/12 4.375 100,000 105,670
------------
3,552,556
UTAH--3.00%
Aa2/NR Eagle Mountain, Utah - Gas & Electric Revenue Bonds VRD (b) 12/01/25 1.000 300,000 300,000
Aa1/AAA Utah Housing Finance Agency- Single Family Mortgage Bonds,
1995 Issue A, (Federally Insured or Guaranteed
Mortgage Loans) (c) 07/01/12 7.150 15,000 15,638
Aa1/NR Utah State Housing Financial Agency-Single Family
Mortgage Bonds, Series F1 07/01/13 6.000 40,000 41,256
Aa2/AA Utah State Housing Financial Agency-Single Family
Revenue Bonds (c) 07/01/21 6.000 70,000 74,056
------------
430,950
WASHINGTON--9.78%
Aaa/AAA City of Richland, Washington- Water and Sewer Improvement
Revenue Bonds, 1993 04/01/07 5.550 300,000 304,230
</Table>
50
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
WASHINGTON--CONTINUED
NR/AAA King County, Washington- Department of Metropolitan Services,
Limited Tax General Obligation Bonds, 1994 Series A 01/01/08 5.800 $ 200,000 $ 211,760
Aa1/AA+ King County, Washington- Limited Tax General Obligation
and Refunding Bonds, 1993 Series A 12/01/10 6.000 100,000 103,727
Aa1/AA+ Port of Seattle, Washington-General Obligation Bonds (c) 05/01/14 5.750 100,000 103,845
Aaa/AAA Seattle, Washington-Municipal Light & Power
Revenue Bonds, Series B 06/01/24 5.000 100,000 101,279
Aa1/AA+ State of Washington- General Obligation Bonds, Series 1994B 05/01/09 5.750 100,000 105,448
Aa1/AA+ State of Washington- General Obligation Bonds, Series 1994B 09/01/16 6.000 100,000 107,272
Aa1/AA+ State of Washington- General Obligation Bonds Unlimited, Series B 05/01/18 5.500 300,000 337,833
Aaa/AAA Washington State Public Power Supply System Nuclear
Project Number 1 Refunding Revenue Bonds, Series C 07/01/10 5.500 25,000 28,143
------------
1,403,537
WISCONSIN--1.40%
Aa2/AA City of Green Bay- General Obligation Refunding Bonds,
Series 1994B 04/01/09 5.900 200,000 200,882
------------
TOTAL MUNICIPAL BONDS--94.24%
(Cost $12,597,989) 13,527,789
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES4.41%
Federal Farm Credit Banks 03/03/03 1.210 200,000 199,987
Federal Home Loan Bank 03/12/03 1.220 114,000 113,957
Federal National Mortgage Association 03/10/03 1.240 195,000 194,940
Federal National Mortgage Association 03/12/03 1.230 125,000 124,953
------------
TOTAL U S GOVERNMENT AND AGENCY SHORT-TERM
OBLIGATIONS--4.41%
(Cost $633,837) 633,837
------------
CASH EQUIVALENTS SHARES
SM&R Money Market Fund, 0.75% (e) 26,888 26,888
------------
TOTAL CASH EQUIVALENTS--0.19%
(Cost $26,888) 26,888
------------
TOTAL INVESTMENTS98.84%
(Cost $13,258,714) 14,188,514
CASH AND OTHER ASSETS, LESS LIABILITIES--1.16% 166,792
------------
TOTAL NET ASSETS--100.00% $ 14,355,306
============
</Table>
ABBREVIATIONS
VRD - Variable Rate Demand
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) The coupon rate shown on floating or adjustable rate securities represents
the rate at period end.
(c) Security subject to the alternative minimum tax.
(d) Issuer has defeased these bonds, collateral for such defeasance is U.S.
Government obligations.
(e) The rate quoted is the annualized seven-day yield of the fund at February
28, 2003. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Tax Free Fund are affiliated by
having the same investment adviser.
See notes to financial statements.
51
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R TAX FREE FUND
<Table>
ASSETS
Investment in securities, at value (Cost $13,258,714) $ 14,188,514
Prepaid expenses 25,425
Receivable for:
Investment security sold 30
Capital stock sold 225
Interest 159,907
Expense reimbursement 3,954
Other assets 3,211
------------
TOTAL ASSETS 14,381,266
------------
LIABILITIES
Distribution payable 2,869
Capital stock reacquired 1,031
Accrued:
Investment advisory fee 5,401
Service fee 2,701
Distribution fee 1,274
Other liabilities 12,685
------------
TOTAL LIABILITIES 25,961
------------
NET ASSETS (applicable to shares outstanding) $ 14,355,305
============
NET ASSETS:
Class A $ 631,580
- --------------------------------------------------------------------------------------------------------
Class B $ 521,273
- --------------------------------------------------------------------------------------------------------
Class T $ 13,202,453
- --------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS: $ 14,355,306
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized $100,000,101
Outstanding 57,473
- --------------------------------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 47,452
- --------------------------------------------------------------------------------------------------------
Class T:
Authorized 21,000,000
Outstanding 1,212,708
- --------------------------------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.99
Offering price per share: (Net Assets value of $10.99/95.25%) $ 11.54
- --------------------------------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.99
- --------------------------------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.89
Offering price per share: (Net Assets value of $10.89/95.5%) $ 11.40
- --------------------------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
52
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $ 348,330
------------
EXPENSES
Investment advisory fees 34,049
Service fees 17,025
Professional fees 3,466
Custody and transaction fees 2,654
Directors' fees 4,491
Qualification fees 10,013
Shareholder reporting expenses 364
Insurance expenses 2,159
Distribution fees 2,469
Other expenses 8
------------
TOTAL EXPENSES 76,698
LESS EXPENSES REIMBURSED (24,331)
------------
NET EXPENSES 52,367
------------
INVESTMENT INCOME--NET 295,963
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 16,512
Change in unrealized appreciation of investments for the period 86,105
------------
NET GAIN ON INVESTMENTS 102,617
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 398,580
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2003 2002
---------------- ------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 295,963 $ 543,366
Net realized gain on investments 16,512 --
Change in unrealized appreciation 86,105 109,065
---------------- ------------
Net increase in net assets resulting from operations 398,580 652,431
---------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (9,283) (12,919)
Class B (9,314) (10,159)
Class T (263,720) (514,001)
---------------- ------------
Total distributions from shareholders (282,317) (537,079)
---------------- ------------
CAPITAL SHARE TRANSACTIONS - NET
Class A 242,014 135,841
Class B 3,664 330,031
Class T 623,768 663,554
---------------- ------------
Total net capital share transactions 869,446 1,129,426
---------------- ------------
TOTAL INCREASE 985,709 1,244,778
NET ASSETS
Beginning of Period 13,369,597 12,124,819
---------------- ------------
End of Period $ 14,355,306 $ 13,369,597
================ ============
</Table>
See notes to financial statements.
53
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.80 $ 10.71 $ 10.25 $ 10.14 $ 10.64 $ 10.27
Investment income--net 0.23 0.46 0.48 0.49 0.48 0.49
Net realized and unrealized gain
(loss) on investments 0.08 0.08 0.48 0.12 (0.50) 0.37
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.31 0.54 0.96 0.61 (0.02) 0.86
Less distributions from
Investment income--net (0.22) (0.45) (0.48) (0.49) (0.48) (0.49)
Capital gains -- -- (0.02) (0.01) - -
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.22) (0.45) (0.50) (0.50) (0.48) (0.49)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.89 $ 10.80 $ 10.71 $ 10.25 $ 10.14 $ 10.64
============ ========== ========== ========== ========== ==========
Total Return (1) 3.61%** 5.24% 9.59% 6.16% (0.28)% 8.58%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period
(000's omitted) $ 13,202 $ 12,472 $ 11,700 $ 11,030 $ 11,218 $ 11,058
Ratio of expenses with reimbursement
to average net assets (2) 0.75%* 0.75% 0.75% 0.75% 0.73% 0.75%
Ratio of expenses without
reimbursement to average net assets 1.02%* 1.05% 1.08% 1.11% 1.23% 1.25%
Ratio of net investment income to
average net assets 4.37%* 4.34% 4.59% 4.84% 4.53% 4.60%
Portfolio turnover rate 6.67% 8.80% 0.18% 7.61% 5.09% 12.77%
</Table>
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------------------------
(UNAUDITED) PERIOD FROM
SIX MONTHS JANUARY 1, 1999
ENDED TO
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31,
------------ -------------------------------------- ---------------
2003 2002 2001 2000 1999
------------ ---------- ---------- ---------- ---------------
Net Asset Value, Beginning of Period $ 10.89 $ 10.80 $ 10.33 $ 10.22 $ 10.68
Investment income - net 0.22 0.43 0.46 0.46 0.21
Net realized and unrealized gain (loss) on
investments 0.09 0.09 0.49 0.12 (0.46)
------------ ---------- ---------- ---------- ---------------
Total from Investment Operations 0.31 0.52 0.95 0.58 (0.25)
Less distributions from
Investment income--net (0.21) (0.43) (0.46) (0.46) (0.21)
Capital gains -- -- (0.02) (0.01) --
------------ ---------- ---------- ---------- ---------------
Total Distributions (0.21) (0.43) (0.48) (0.47) (0.21)
------------ ---------- ---------- ---------- ---------------
Net Asset Value, End of Period $ 10.99 $ 10.89 $ 10.80 $ 10.33 $ 10.22
============ ========== ========== ========== ===============
Total Return(1) 3.58%** 4.99% 9.34% 5.86% (2.37)%**
============ ========== ========== ========== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 631,580 $ 384,438 $ 245,697 $ 211,755 $ 194,917
Ratio of expenses with reimbursement to
average net assets(2) 0.75%* 0.93% 1.00% 1.00% 1.51%*
Ratio of expenses without reimbursement to
average net assets 2.74%* 1.26% 1.33% 1.35% 2.02%*
Ratio of net investment income to average
net assets 4.42%* 4.31% 4.34% 4.59% 3.69%*
Portfolio turnover rate 6.67% 8.80% 0.18% 7.61% 5.09%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.75% for classes T and A; and 1.25% for class B.
See notes to financial statements.
54
<Page>
<Table>
<Caption>
CLASS B SHARES
---------------------------------------------------------------------------
(UNAUDITED) PERIOD FROM
SIX MONTHS JANUARY 1, 1999
ENDED TO
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31,
------------ -------------------------------------- ---------------
2003 2002 2001 2000 1999
------------ ---------- ---------- ---------- ---------------
Net Asset Value, Beginning of Period $ 10.90 $ 10.79 $ 10.32 $ 10.20 $ 10.68
Investment income--net 0.21 0.37 0.40 0.41 0.18
Net realized and unrealized gain (loss) on
investments 0.08 0.11 0.49 0.13 (0.48)
------------ ---------- ---------- ---------- ---------------
Total from Investment Operations 0.29 0.48 0.89 0.54 (0.30)
Less distributions from
Investment income--net (0.20) (0.37) (0.40) (0.41) (0.18)
Capital gains -- -- (0.02) (0.01) --
------------ ---------- ---------- ---------- ---------------
Total Distributions (0.20) (0.37) (0.42) (0.42) (0.18)
------------ ---------- ---------- ---------- ---------------
Net Asset Value, End of Period $ 10.99 $ 10.90 $ 10.79 $ 10.32 $ 10.20
============ ========== ========== ========== ===============
Total Return(1) 3.34%** 4.57% 8.74% 5.47% (2.85)%**
============ ========== ========== ========== ===============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 521,273 $ 513,273 $ 178,880 $ 115,025 $ 113,143
Ratio of expenses with reimbursement to
average net assets(2) 1.25%* 1.42% 1.50% 1.50% 2.01%*
Ratio of expenses without reimbursement to
average net assets 2.38%* 1.75% 1.84% 1.87% 2.52%*
Ratio of net investment income to average
net assets 3.86%* 3.65% 3.82% 4.12% 3.20%*
Portfolio turnover rate 6.67% 8.80% 0.18% 7.61% 5.09%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.75% for classes T and A; and 1.25% for class B.
See notes to financial statements.
55
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R PRIMARY FUND
<Table>
<Caption>
INTEREST/
COMMERCIAL PAPER MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
BEVERAGES--3.46%
PepsiAmericas Incorporated 03/17/03 1.300 $ 969,000 $ 968,440
CHEMICALS--3.77%
Dow Chemical Company, (The) 03/24/03 1.330 1,056,000 1,055,103
COMMERCIAL SERVICES & SUPPLIES--4.11%
Viad Corporation 04/08/03 1.330 1,151,000 1,149,383
COMMUNICATIONS EQUIPMENT--4.86%
Cox Enterprises Incorporated 03/17/03 1.500 1,359,000 1,358,094
COMPUTERS & PERIPHERALS--3.57%
Motorola Incorporated 03/04/03 1.400 999,000 998,883
DIVERSIFIED FINANCIALS--3.75%
General Motors Acceptance Corporation 03/20/03 1.450 1,049,000 1,048,197
ELECTRIC UTILITIES--15.35%
Cinergy Corporation 03/10/03 1.400 966,000 965,662
Dominion Resources Incorporated 03/26/03 1.450 1,101,000 1,099,890
Exelon Corporation 03/11/03 1.350 1,246,000 1,245,532
Virginia Electric & Power Company 03/12/03 1.400 981,000 980,580
------------
4,291,664
FOOD PRODUCTS--2.67%
General Mills Incorporated 04/11/03 1.360 748,000 746,840
FOOD & DRUG RETAILING--3.91%
Safeway Incorporated 04/07/03 1.380 1,094,000 1,092,446
GAS UTILITIES--7.95%
Consolidated Natural Gas Company 03/03/03 1.500 1,244,000 1,243,896
Laclede Gas Company 03/13/03 1.350 978,000 977,560
------------
2,221,456
HOUSEHOLD DURABLES--3.24%
Centex Corporation 03/31/03 1.350 907,000 905,979
INDUSTRY CONGLOMERATES--4.13%
Federal Signal Corporation 03/05/03 1.370 1,155,000 1,154,824
MACHINERY--3.81%
Ingersoll-Rand Company 03/07/03 1.380 1,064,000 1,063,755
OFFICE ELECTRONICS--3.86%
Eastman Kodak Company 03/21/03 1.400 1,079,000 1,078,161
OIL & GAS--7.88%
Questar Corporation 03/14/03 1.300 1,040,000 1,039,512
UOP 03/17/03 1.400 1,163,000 1,162,276
------------
2,201,788
PERSONAL PRODUCTS--4.09%
Universal Corporation 03/18/03 1.400 1,145,000 1,144,243
TRANSPORTATION INFRASTRUCTURE--4.37%
Hertz Corporation 03/06/03 1.580 1,223,000 1,222,731
------------
TOTAL COMMERCIAL PAPER--84.78%
(COST $23,701,987) 23,701,987
------------
</Table>
56
<Page>
<Table>
<Caption>
INTEREST/
CORPORATE BONDS MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
BUILDING PRODUCTS--0.82%
Armstrong World Industries, Incorporated (a) 08/15/03 6.350 $ 500,000 $ 230,000
COMMUNICATIONS EQUIPMENT--1.80%
TCI Communications, Incorporated 05/01/03 6.375 500,000 503,645
DIVERSIFIED FINANCIAL--S2.85%
Household Finance Corporation 08/15/03 6.250 265,000 270,346
Transamerica Financial Corporation 05/14/04 6.370 500,000 525,536
------------
795,882
ELECTRIC UTILITIES--1.74%
West Penn Power Company 06/01/04 6.375 500,000 485,170
HOTELS, RESTAURANTS & LEISURE--1.47%
Carnival Cruise Lines 10/01/03 6.150 400,000 410,902
------------
TOTAL CORPORATE BONDS8.68%
(COST $2,657,511) 2,425,599
------------
MUNICIPAL BONDS
WATER & SEWER--1.90%
Lower Colorado River Authority, Texas Revenue
Bonds, Refunding and Improvement Series C
(Rating(b) Aaa/AAA) 05/15/04 6.820 500,000 530,165
------------
TOTAL MUNICIPAL BONDS--1.90%
(COST $500,317) 530,165
------------
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--0.74%
Federal Home Loan Bank 11/10/03 5.750 200,000 206,073
U S GOVERNMENT SECURITIES--3.81%
U S Treasury Bonds 02/15/29 5.250 1,000,000 1,066,602
------------
TOTAL U S GOVERNMENT AGENCY and
U S GOVERNMENT SECURITIES--4.55%
(COST $1,084,413) 1,272,675
------------
TOTAL INVESTMENTS--99.91%
(Cost $27,944,228) 27,930,426
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.09% 26,250
------------
TOTAL NET ASSETS--100.00% $ 27,956,676
============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Security is in default of interest.
(b) Ratings assigned by Moody's Investor's Service, Inc. ("Moody's") and
Standard & Poor's Corporation ("S&P"). Ratings are unaudited.
See notes to financial statements.
57
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R PRIMARY FUND
<Table>
ASSETS
Investment in securities, at value (Cost $27,944,228) $ 27,930,426
Cash 90
Prepaid expenses 787
Receivable for:
Capital stock sold 2,939
Interest 65,262
Expense reimbursement 1,849
Other assets 2,782
-------------
TOTAL ASSETS 28,004,135
-------------
LIABILITIES
Distribution payable 1,997
Capital stock reacquired 13,933
Accrued:
Investment advisory fee 10,697
Service fee 5,349
Other liabilities 15,483
-------------
TOTAL LIABILITIES 47,459
-------------
NET ASSETS $ 27,956,676
=============
Shares of capital stock outstanding, (2,176,000,000 shares authorized, $.01 par value per share) 28,124,934
=============
Net asset value $ 0.99
=============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 331,513
-------------
EXPENSES
Investment advisory fees 70,327
Service fees 35,164
Professional fees 3,116
Custody and transaction fees 5,753
Directors' fees 4,491
Qualification fees 207
Shareholder reporting expenses 1,109
Insurance expenses 4,103
Other expenses 44
-------------
TOTAL EXPENSES 124,314
LESS EXPENSES REIMBURSED (12,387)
-------------
NET EXPENSES 111,927
-------------
INVESTMENT INCOME--NET 219,586
-------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Change in unrealized depreciation of investments for the period (8,119)
-------------
NET LOSS ON INVESTMENTS (8,119)
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 211,467
=============
</Table>
See notes to financial statements.
58
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------------
2003 2002
---------------- ----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 219,586 $ 631,293
Net realized loss on investments -- (104,903)
Change in unrealized depreciation (8,119) 27,022
---------------- ----------------
Net increase in net assets resulting from operations 211,467 553,412
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (219,586) (631,293)
---------------- ----------------
CAPITAL SHARE TRANSACTION--NET 660,761 (4,475,120)
---------------- ----------------
TOTAL INCREASE (DECREASE) 652,642 (4,553,001)
NET ASSETS
Beginning of Period 27,304,034 31,857,035
---------------- ----------------
End of Period $ 27,956,676 $ 27,304,034
================ ================
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------------------
2003 2002 2001 2000 1999 1998
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 0.99 $ 1.00 $ 0.99 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.01 0.02 0.05 0.06 0.05 0.05
Net realized and unrealized gain
(loss) on investments -- (0.01) 0.01 (0.01) -- --
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.01 0.01 0.06 0.05 0.05 0.05
Less distributions from
Investment income--net (0.01) (0.02) (0.05) (0.06) (0.05) (0.05)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.01) (0.02) (0.05) (0.06) (0.05) (0.05)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 0.99 $ 0.99 $ 1.00 $ 0.99 $ 1.00 $ 1.00
============ ========== ========== ========== ========== ==========
Total Return 0.78%** 1.33% 6.20% 4.68% 4.75% 5.15%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period
(000's omitted) $ 27,957 $ 27,304 $ 31,857 $ 26,795 $ 30,838 $ 34,577
Ratio of expenses with reimbursement
to average net assets 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses without reimbursement
to average net assets 0.89%* 0.92% 0.97% 1.04% 1.06% 0.98%
Ratio of net investment income to
average net assets 1.57%* 2.29% 5.10% 5.55% 4.66% 5.02%
Portfolio turnover rate -- -- -- 18.46% 30.47% --
</Table>
See notes to financial statements.
59
<Page>
SCHEDULE OF INVESTMENTS February 28, 2003 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
COMMERCIAL PAPER DATE RATE(%) AMOUNT VALUE
AEROSPACE & DEFENSE--4.68%
Honeywell International Incorporated 03/14/03 1.250 $ 5,939,000 $ 5,936,729
COMMERCIAL SERVICES & SUPPLIES--4.89%
Pitney Bowes, Incorporated 03/13/03 1.250 6,200,000 6,197,846
DIVERSIFIED FINANCIALS--9.52%
General Electric Capital Corporation 04/08/03 1.255 5,299,000 5,292,348
General Motors Acceptance Corporation 03/20/03 1.450 1,169,000 1,168,199
International Lease Finance Corporation 03/06/03 1.280 5,611,000 5,610,401
-------------
12,070,948
ELECTRIC UTILITIES--3.94%
Florida Power & Light Company 03/05/03 1.250 5,000,000 4,999,652
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.46%
Sharp Electronics Corporation 03/18/03 1.280 3,120,000 3,118,335
HEALTH CARE EQUIPMENT & SUPPLIES--4.02%
Becton Dickson & Company 04/21/03 1.260 5,100,000 5,091,241
METALS & MINING--4.75%
Alco Incorporated 03/21/03 1.250 6,027,000 6,023,233
PHARMACEUTICALS--3.87%
Schering-Plough Corporation 05/22/03 1.240 4,925,000 4,911,424
TOBACCO--4.30%
Philip Morris Companies Incorporated 03/04/03 1.260 5,456,000 5,455,809
-------------
TOTAL COMMERCIAL PAPER--42.43%
(COST $53,805,217) 53,805,217
-------------
U S GOVERNMENT AND AGENCY
SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--56.74%
Federal Home Loan Bank 03/07/03 1.210 8,075,000 8,073,913
Federal Home Loan Bank 03/28/03 1.230 7,810,000 7,803,328
Federal Home Loan Mortgage Corporation 03/11/03 1.220 9,881,000 9,878,320
Federal Home Loan Mortgage Corporation 03/25/03 1.220 7,557,000 7,551,365
Federal National Mortgage Association 03/03/03 1.210 8,160,000 8,160,000
Federal National Mortgage Association 03/10/03 1.220 9,625,000 9,622,715
Federal National Mortgage Association 03/12/03 1.215 10,479,000 10,475,815
Federal National Mortgage Association 03/17/03 1.230 3,390,000 3,388,378
Federal National Mortgage Association 03/31/03 1.210 6,990,000 6,983,419
-------------
TOTAL U S GOVERNMENT AND AGENCY
SHORT-TERM OBLIGATIONS--56.74%
(COST $71,937,253) 71,937,253
-------------
TOTAL INVESTMENTS--99.17%
(COST $125,742,470) 125,742,470
CASH AND OTHER ASSETS, LESS LIABILITIES--0.83% 1,048,482
-------------
TOTAL NET ASSETS 100.00% $ 126,790,952
=============
</Table>
See notes to financial statements.
60
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2003 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investment in securities, at value $ 125,742,470
Cash 360,486
Prepaid expenses 50,654
Receivable from management company 9,885
Receivable for:
Expense Reimbursement 8,149
Capital stock sold 1,465,747
-------------
TOTAL ASSETS 127,637,391
-------------
LIABILITIES
Capital stock reaquired 786,977
Accrued:
Investment advisory fee 23,905
Service fee 22,959
Other liabilities 12,598
-------------
TOTAL LIABILITIES 846,439
-------------
NET ASSETS $ 126,790,952
=============
Shares of capital stock outstanding, (2,000,000,000 shares authorized, $.01 par value per share) 126,790,952
=============
Net asset value $ 1.00
=============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2003 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 986,859
-------------
EXPENSES
Investment advisory fees 165,009
Service fees 156,802
Professional fees 3,116
Custody and transaction fees 11,179
Directors' fees 4,491
Qualification fees 14,244
Shareholder reporting expenses 1,732
Insurance expenses 16,506
Other expenses 193
-------------
TOTAL EXPENSES 373,272
LESS EXPENSES REIMBURSED (40,496)
-------------
NET EXPENSES 332,776
-------------
INVESTMENT INCOME--NET $ 654,083
=============
</Table>
See notes to financial statements.
61
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------------
2003 2002
---------------- ----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 654,083 $ 1,906,810
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (654,083) (1,906,810)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS--NET (27,819,055) 52,518,470
---------------- ----------------
TOTAL INCREASE (DECREASE) (27,819,055) 52,518,470
NET ASSETS
Beginning of Period 154,610,007 102,091,537
---------------- ----------------
End of Period $ 126,790,952 $ 154,610,007
================ ================
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the period.
<Table>
<Caption>
PERIOD FROM
(UNAUDITED) JANUARY 1,
SIX MONTHS 1999
ENDED YEAR ENDED TO
FEBRUARY 28, AUGUST 31, AUGUST 31,
------------ ------------------------------------------ ------------
2003 2002 2001 2000 1999
------------ ------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.01 0.02 0.05 0.05 0.03
------------ ------------ ------------ ------------ ------------
Total from Investment Operations 0.01 0.02 0.05 0.05 0.03
Less distributions from
Investment income--net (0.01) (0.02) (0.05) (0.05) (0.03)
------------ ------------ ------------ ------------ ------------
Total Distributions (0.01) (0.02) (0.05) (0.05) (0.03)
------------ ------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ============ ============ ============ ============
Total Return 0.48%** 1.53% 4.92% 5.56% 2.89%**
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 126,791 $ 154,610 $ 102,092 $ 54,258 $ 10,681
Ratio of expenses with reimbursement to
average net assets 0.50%* 0.50% 0.49% 0.49% 0.50%*
Ratio of expenses without reimbursement to
average net assets 0.57%* 0.56% 0.49% 0.66% 1.22%*
Ratio of net investment income to average
net assets 0.99%* 1.48% 4.63% 5.58% 4.45%*
</Table>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
62
<Page>
NOTES TO FINANCIAL STATEMENTS February 28, 2003 (Unaudited)
SM&R INVESTMENTS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
The SM&R Investments, Inc. (the "Company"), is a diversified open-end management
investment company registered as a series fund under the Investment Company Act
of 1940, as amended. The Company is comprised of the SM&R Alger Technology Fund
("Alger Technology Fund"), SM&R Alger Aggressive Growth Fund ("Alger Aggressive
Growth Fund"), SM&R Alger Small-Cap Fund ("Alger Small-Cap Fund"), SM&R Alger
Growth Fund ("Alger Growth Fund"), SM&R Growth Fund ("Growth Fund"), SM&R Equity
Income Fund ("Equity Income Fund"), SM&R Balanced Fund ("Balanced Fund"), SM&R
Government Bond Fund ("Government Bond Fund"), SM&R Tax Free Fund ("Tax Free
Fund"), SM&R Primary Fund ("Primary Fund") and SM&R Money Market Fund ("Money
Market Fund"). The Government Bond Fund, Tax Free Fund, Money Market Fund and
Primary Fund are collectively referred to as the "Fixed Income Funds", while the
Alger Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap Fund, Alger
Growth Fund, Growth Fund, Equity Income Fund and Balanced Fund are referred to
as the "Equity Funds".
The Fixed Income Funds have each been a series of the Company since March 16,
1992 for the Government Bond Fund and Primary Fund, since September 9, 1993 for
the Tax Free Fund and January 1, 1999 for the Money Market Fund. The Growth
Fund, Equity Income Fund and Balanced Fund were added as separate series of the
Company as of January 1, 2001. Previously, they existed as separate mutual funds
and were reported to shareholders as the SM&R Equity Funds. As of September 1,
2000, the Alger Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap
Fund and Alger Growth Fund were added as new series of the Company.
The Growth Fund, Equity Income Fund, Balanced Fund, Government Bond Fund and Tax
Free Fund have adopted a Multiple Class Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Each has three single classes of
shares. Class T shares are subject to an initial sales charge. The Class A
shares are subject to an initial sales charge and a distribution and shareholder
servicing plan ("12b-1 Plan"). The Class B shares are subject to a contingent
deferred sales charge and a 12b-1 Plan.
The Alger Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap Fund
and Alger Growth Fund, each offer two classes of shares, they are: the Class A
shares subject to an initial sales charge and a 12b-1 Plan; and the Class B
shares subject to a contingent deferred sales charge and a 12b-1 Plan.
CHANGE IN FISCAL YEAR END:
The Growth Fund, Equity Income Fund and Balanced Fund changed their fiscal year
end from December 31 to August 31, effective January 1, 2001 when they were
added as a separate series of the Company. These funds still maintain a December
31 tax year end.
The following is a summary of significant accounting policies consistently
followed by the Company in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America 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.
63
<Page>
SECURITY VALUATION:
Investments in securities listed on national exchanges are valued at the last
sales price of the day, or if there were no sales, then at the last bid price.
Other 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
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. Bond premiums and discounts
are amortized using the interest method. 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 Company intends to comply with requirements of the Internal Revenue Code
relating to regulated investment companies and intends 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. The Fixed Income Funds have changed their tax year end from December
31 to August 31 and Alger Technology Fund, Alger Aggressive Growth Fund, Alger
Small-Cap Fund and Alger Growth Fund have the same tax year end and fiscal year
end. At August 31, 2002, the Government Bond Fund, Primary Fund, Alger
Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap Fund and Alger
Growth Fund had capital loss carryforwards that will expire in various years of
approximately $222,000 -- 2003, $37,000 -- 2007, $252,000 -- 2009, $184,000 --
2009, $190,000 -- 2009 and $223,000 2009, respectively. At December 31, 2002,
the Growth, Equity Income and Balanced Funds had capital loss carryforwards that
will expire in 2009 of approximately $26,269,000, $1,658,000 and $84,000,
respectively.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering at net asset value plus a
sales charge, except for the Primary and Money Market Funds whose transactions
are made at net asset value. The Company may repurchase shares at net asset
value. Dividends and other distributions are recorded by each fund on the
ex-dividend date and may be reinvested at net asset value. The tax character of
distributions paid during the year and the tax components of distributable
earnings will be updated at the Company's fiscal year end.
EXPENSES:
Distribution, qualification fees or other fees directly attributable to a
series' class of shares are charged to that series' class operations. All other
operating expenses not directly attributable to a series are prorated among the
series based on the relative amount of each series' net assets or shareholders,
and then allocated among the classes of that series.
64
<Page>
Any organizational costs for the new classes or series were paid by Securities
Management and Research, Inc.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES:
Securities Management and Research, Inc. ("SM&R") is the investment advisor and
principal underwriter for the Company. Investment advisory fees paid to SM&R are
computed as a percentage of the average daily net assets as follows:
EQUITY FUNDS:
<Table>
ALGER TECHNOLOGY FUND 1.35%
ALGER AGGRESSIVE GROWTH FUND 1.05%
ALGER SMALL-CAP FUND 1.00%
ALGER GROWTH FUND 0.85%
</Table>
GROWTH, EQUITY INCOME AND BALANCED FUNDS
<Table>
<Caption>
INVESTMENT
NET ASSETS ADVISORY FEE
Less than $100,000,000 0.750%
$100,000,000--$200,000,000 0.625%
$200,000,000--$300,000,000 0.500%
More than $300,000,000 0.400%
</Table>
Through an investment sub-advisory agreement, SM&R has delegated the day-to-day
investment management of Alger Growth Fund, Alger Aggressive Growth Fund, Alger
Small-Cap Fund and Alger Technology Fund to Fred Alger Management, Inc. Fred
Alger Management makes investment decisions for each of these funds and
continuously reviews and administers the investment program. SM&R monitors Fred
Alger Management's buying and selling of securities and administration of these
series' investment program. Pursuant to the sub-advisory agreement, SM&R is
responsible for paying a sub-advisory fee to Fred Alger Management for each of
these series. The series are not responsible for paying the sub-advisory fee
directly.
FIXED INCOME FUNDS:
GOVERNMENT BOND AND TAX FREE FUNDS
<Table>
<Caption>
INVESTMENT
NET ASSETS ADVISORY FEE
Less than $100,000,000 0.50%
$100,000,000--$300,000,000 0.45%
More than $300,000,000 0.40%
PRIMARY FUND
All average daily net assets 0.50%
MONEY MARKET FUND
All average daily net assets 0.25%
</Table>
65
<Page>
ADMINISTRATIVE SERVICE FEES:
Administrative service fees paid to SM&R by the each of the series are computed
as a percentagze of average daily net assets as follows:
<Table>
<Caption>
NET ASSETS SERVICE FEES
Less than $100,000,000 0.25%
$100,000,000--$200,000,000 0.20%
$200,000,000--$300,000,000 0.15%
More than $300,000,000 0.10%
</Table>
SM&R has contractually agreed to reimburse the Growth Fund, Equity Income Fund,
Balanced Fund, Government Bond Fund, Tax Free Fund and Primary Fund for regular
operating expenses in excess of 1.25% per annum of the average daily net assets,
and the Money Market Fund in excess of 0.50%. Regular operating expenses include
the advisory fee and administrative service fee, but does not include the
distribution and shareholder servicing fee.
Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce all or
any portion of any Funds' advisory fee, administration fee, and/or expenses.
Until April 30, 2004, SM&R has agreed to reimburse expenses which exceed the
following percentages of each funds' average daily net assets:
<Table>
<Caption>
CLASS A CLASS B CLASS T
Alger Technology Fund 2.10% 2.75%
Alger Aggressive Growth Fund 1.85% 2.50%
Alger Small-Cap Fund 1.90% 2.55%
Alger Growth Fund 1.70% 2.35%
Growth Fund 1.36% 1.86% --
Equity Income Fund 1.26% 1.76% --
Balanced Fund 1.30% 1.80% --
Government Bond Fund 0.73% 1.23% 0.73%
Tax Free Fund 0.75% 1.25% 0.75%
</Table>
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.
66
<Page>
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Company has adopted a 12b-1 Plan, for each series, except the Primary Fund,
with respect to each series' Class A shares and Class B shares (the "Class A
Plan" and the "Class B Plan", respectively and collectively, the "Plans"). The
Plans permit each class a distribution fee to compensate SM&R, or enable SM&R to
compensate other persons, including Distributors, for distribution costs such as
service fees paid to dealers, printing and distribution of prospectuses to
prospective investors, sales literature and other sales and distribution related
activities. The Plans also permit a shareholder servicing fee to compensate
SM&R, or enable SM&R to compensate Service Providers, for providing ongoing
servicing to shareholders of the Company. These fees are computed as an annual
percentage of the average daily net assets of each class of shares of a series,
as follows:
GROWTH, EQUITY INCOME, BALANCED,
GOVERNMENT BOND AND TAX FREE FUNDS
<Table>
<Caption>
DISTRIBUTION SERVICE TOTAL 12b-1
FEE FEE FEE
Class A Shares 0.25% -- 0.25%
Class B Shares 0.50% 0.25% 0.75%
ALGER TECHNOLOGY, ALGER AGGRESSIVE GROWTH, ALGER SMALL-CAP AND ALGER GROWTH FUNDS
Class A Shares 0.35% -- 0.35%
Class B Shares 1.00% -- 1.00%
</Table>
For the six months ended February 28, 2003, each series paid or accrued the
following, as compensation under the Plans:
<Table>
Alger Technology Fund $ 1,042
Alger Aggressive Growth Fund $ 2,833
Alger Small-Cap Fund $ 1,972
Alger Growth Fund $ 4,493
Growth Fund $ 15,157
Equity Income Fund $ 27,101
Balanced Fund $ 11,228
Government Bond Fund $ 2,971
Tax Free Fund $ 2,469
</Table>
67
<Page>
SALES CHARGES:
During the six months ended February 28, 2003, SM&R, as principal underwriter,
received as sales charges on sales of capital stock of each series and made
reallowances to dealers as follows:
<Table>
<Caption>
SALES SALES
CHARGES CHARGES
RECEIVED BY SM&R REALLOWED TO DEALERS
Alger Technology Fund $ 4,155 $ 113
Alger Aggressive Growth $ 9,666 $ 165
Alger Small-Cap Fund $ 11,189 $ 212
Alger Growth Fund $ 8,689 $ 646
Growth Fund $ 52,768 $ 1,751
Equity Income Fund $ 67,553 $ 1,501
Balanced Fund $ 18,478 $ 588
Government Bond Fund $ -- $ 1,014
Tax Free Fund $ -- $ --
</Table>
For the six months ended February 28, 2003, SM&R received $45,255 for contingent
deferred sales charges imposed on the redemptions of Class B shares of capital
stock of the series.
SM&R is a wholly-owned subsidiary of American National Insurance Company
("American National"). As of February 28, 2003, SM&R and American National had
the following ownership in these series:
<Table>
<Caption>
SM&R AMERICAN NATIONAL
----------------------------- -------------------------------
PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING
Growth Fund 224,799 0.71% 923,807 2.91%
Equity Income Fund 20,052 0.36% -- --
Balanced Fund 146,138 9.23% 69,574 4.39%
Government Bond Fund 612,820 20.94% 108,910 3.72%
Tax Free Fund 154,212 11.70% -- --
Primary Fund 22,435 0.08% 6,019,356 21.04%
Money Market Fund 1,088,410 0.86% 89,990,762 70.98%
</Table>
Through the investment sub-advisory agreement, Fred Alger Management, Inc. is
affiliated with SM&R. As of February 28, 2003, Fred Alger Management, Inc. had
the following ownership in these series:
<Table>
<Caption>
PERCENT OF SHARES
SHARES OUTSTANDING
Alger Technology Fund 25,000 10.90%
Alger Aggressive Growth Fund 25,000 9.11%
Alger Small-Cap Fund 25,000 12.48%
Alger Growth Fund 25,000 7.23%
</Table>
The Company pays directors' fees and expenses for all the disinterested
directors.
68
<Page>
Fred Alger and Company, Incorporated ("Alger Inc.") is an affiliated
broker-dealer of Fred Alger Management. During the six months ended February 28,
2003, the Alger Technology Fund, Alger Aggressive Growth, Alger Small-Cap Fund
and Alger Growth Fund paid commissions for portfolio transactions to Alger Inc.,
in the amount of $1,896, $2,312, $1,140 and $5,200, respectively.
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
Investments have the same cost for tax and financial statement purposes.
Aggregate purchases and sales of investments in securities, other than
commercial paper, were as follows:
<Table>
<Caption>
PURCHASES SALES
Alger Technology Fund $ 617,589 $ 518,356
Alger Aggressive Growth $ 1,100,112 $ 884,655
Alger Small-Cap Fund $ 687,089 $ 390,128
Alger Growth Fund $ 2,000,929 $ 1,794,808
Growth Fund $ 13,731,607 $ 11,957,158
Equity Income Fund $ 2,959,587 $ 5,656,497
Balanced Fund $ 5,259,184 $ 5,399,028
Government Bond Fund $ 14,148,894 $ 12,327,576
Tax Free Fund $ 1,029,091 $ 890,100
Primary $ -- $ --
</Table>
Gross unrealized appreciation and depreciation as of February 28, 2003, were as
follows:
<Table>
<Caption>
APPRECIATION DEPRECIATION
Alger Technology Fund $ 26,834 $ 21,758
Alger Aggressive Growth Fund $ 52,358 $ 58,347
Alger Small-Cap Fund $ 46,516 $ 66,852
Alger Growth Fund $ 44,075 $ 94,373
Growth Fund $ 14,631,916 $ 14,543,792
Equity Income Fund $ 13,068,847 $ 19,670,283
Balanced Fund $ 1,670,161 $ 2,051,148
Government Bond Fund $ 1,241,806 $ 6,914
Tax Free Fund $ 931,616 $ 1,816
Primary Fund $ 269,907 $ 283,709
</Table>
69
<Page>
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 64,001 $ 107,132 23,741 $ 63,132
Class B 6,189 10,763 60,278 175,967
------------- ------------- ------------- -------------
Total sale of capital shares 70,190 117,895 84,019 239,099
Redemptions of capital shares outstanding:
Class A (5,715) (10,597) (4,586) (9,792)
Class B (3,576) (5,960) (7,456) (14,220)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (9,291) (16,557) (12,042) (24,012)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 60,899 $ 101,338 71,977 $ 215,087
============= =============
Shares outstanding at beginning of period 168,376 96,399
------------- -------------
Shares outstanding at end of period 229,275 168,376
============= =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid-in) $ 882,120
Accumulated net realized loss on investments (482,594)
Net unrealized appreciation of investments 5,076
-------------
Net Assets $ 404,602
=============
</Table>
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 58,373 $ 241,067 91,628 $ 491,895
Class B 12,209 48,741 49,446 269,941
------------- ------------- ------------- -------------
Total sale of capital shares 70,582 289,808 141,074 761,836
Redemptions of capital shares outstanding:
Class A (24,667) (100,519) (16,702) (83,644)
Class B (7,348) (30,070) (10,277) (45,285)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (32,015) (130,589) (26,979) (128,929)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 38,567 $ 159,219 114,095 $ 632,907
============= =============
Shares outstanding at beginning of period 235,776 121,681
------------- -------------
Shares outstanding at end of period 274,343 235,776
============= =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid-in) $ 1,631,209
Accumulated net realized loss on investments (540,038)
Net unrealized depreciation of investments (5,989)
-------------
Net Assets $ 1,085,182
=============
</Table>
70
<Page>
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 56,725 $ 247,205 55,486 $ 277,683
Class B 20,127 87,162 24,056 131,363
------------- ------------- ------------- -------------
Total sale of capital shares 76,852 334,367 79,542 409,046
Redemptions of capital shares outstanding:
Class A (16,930) (70,858) (7,925) (37,700)
Class B (8,249) (34,806) (6,598) (36,641)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (25,179) (105,664) (14,523) (74,341)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 51,673 $ 228,703 65,019 $ 334,705
============= =============
Shares outstanding at beginning of period 148,630 83,611
------------- -------------
Shares outstanding at end of period 200,303 148,630
============= =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid-in) $ 1,154,979
Accumulated net realized loss on investments (312,934)
Net unrealized depreciation of investments (20,336)
-------------
Net Assets $ 821,709
=============
</Table>
SM&R ALGER GROWTH FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 50,727 $ 223,160 73,786 $ 432,982
Class B 17,703 76,060 80,789 484,354
------------- ------------- ------------- -------------
Total sale of capital shares 68,430 299,220 154,575 917,336
Redemptions of capital shares outstanding:
Class A (13,253) (59,000) (16,682) (94,347)
Class B (7,072) (30,869) (8,133) (39,001)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (20,325) (89,869) (24,815) (133,348)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 48,105 $ 209,351 129,760 $ 783,988
============= =============
Shares outstanding at beginning of period 297,654 167,894
------------- -------------
Shares outstanding at end of period 345,759 297,654
============= =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid-in) $ 2,227,471
Accumulated net realized loss on investments (749,544)
Net unrealized depreciation of investments (50,298)
-------------
Net Assets $ 1,427,629
=============
</Table>
71
<Page>
SM&R GROWTH FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class T 759,070 $ 2,337,166 1,274,483 $ 4,883,579
Class A 113,267 345,811 768,187 2,814,039
Class B 109,684 327,816 272,508 1,025,923
------------- ------------- ------------- -------------
Total sale of capital shares 982,021 3,010,793 2,315,178 8,723,541
Investment income dividends reinvested:
Class T 94,857 295,008 95,757 370,138
Class A 4,089 12,471 550 2,226
Class B 901 2,711 -- --
------------- ------------- ------------- -------------
Total investment income dividends reinvested 99,847 310,190 96,307 372,364
Distributions from net realized gains reinvested:
Class T -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
------------- ------------- ------------- -------------
Total distributions from net realized gains -- -- -- --
Redemptions of capital shares outstanding:
Class T (2,167,499) (6,653,695) (3,682,628) (13,836,271)
Class A (299,922) (882,321) (518,832) (1,969,856)
Class B (156,274) (478,578) (125,501) (455,132)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (2,623,695) (8,014,594) (4,326,961) (16,261,259)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (1,541,827) $ (4,693,611) (1,915,476) $ (7,165,354)
============= =============
Shares outstanding at beginning of period 33,293,394 35,208,870
------------- -------------
Shares outstanding at end of period 31,751,567 33,293,394
============= =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid-in) $ 122,284,002
Undistributed net investment income 101,051
Accumulated net realized loss on investments (28,563,718)
Net unrealized appreciation of investments 88,124
-------------
Net Assets $ 93,909,459
=============
</Table>
72
<Page>
SM&R EQUITY INCOME FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ------------- ------------- -------------
Sales of capital shares:
Class T 113,136 $ 2,103,060 235,119 $ 4,847,351
Class A 65,715 1,175,387 61,716 1,304,230
Class B 37,080 640,467 90,424 1,887,222
-------------- ------------- ------------- -------------
Total sale of capital shares 215,931 3,918,914 387,259 8,038,803
Investment income dividends reinvested:
Class T 36,828 680,562 72,077 1,564,604
Class A 2,262 40,753 3,109 65,773
Class B 1,703 29,949 2,439 50,237
-------------- ------------- ------------- -------------
Total investment income dividends reinvested 40,793 751,264 77,625 1,680,614
Distributions from net realized gains reinvested:
Class T -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
-------------- ------------- ------------- -------------
Total distributions from net realized gains -- -- -- --
Redemptions of capital shares outstanding:
Class T (525,678) (9,517,093) (964,977) (20,284,629)
Class A (56,758) (991,880) (53,701) (1,130,641)
Class B (50,850) (882,973) (35,987) (722,009)
-------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (633,286) (11,391,946) (1,054,665) (22,137,279)
-------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (376,562) $ (6,721,768) (589,781) $ (12,417,862)
============= =============
Shares outstanding at beginning of period 5,902,320 6,492,101
-------------- -------------
Shares outstanding at end of period 5,525,758 5,902,320
============== =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid-in) $103,977,442
Undistributed net investment income 244,116
Accumulated net realized loss on investments (555,110)
Net unrealized depreciation of investments (6,601,436)
-------------
Net Assets $ 97,065,012
=============
</Table>
73
<Page>
SM&R BALANCED FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ------------- ------------- -------------
Sales of capital shares:
Class T 28,043 $ 439,788 51,387 $ 878,565
Class A 45,621 692,479 65,415 1,090,710
Class B 16,575 256,165 41,977 721,435
-------------- ------------- ------------- -------------
Total sale of capital shares 90,239 1,388,432 158,779 2,690,710
Investment income dividends reinvested:
Class T 16,811 265,398 32,086 553,023
Class A 2,796 42,794 4,640 77,832
Class B 1,428 22,215 2,634 44,850
-------------- ------------- ------------- -------------
Total investment income dividends reinvested 21,035 330,407 39,360 675,705
Distributions from net realized gains reinvested:
Class T -- -- -- --
Class A -- -- -- --
Class B -- -- -- --
-------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested -- -- -- --
Redemptions of capital shares outstanding:
Class T (101,413) (150,750) (2,585,263)
Class A (48,315) (728,798) (25,796) (426,209)
Class B (25,151) (390,689) (22,690) (382,716)
-------------- ------------- ------------- -------------
Total redemptions of captial shares outstanding (174,879) (199,236) (3,394,188)
-------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (63,605) $ (994,878) (1,097) $ (27,773)
============= =============
Shares outstanding at beginning of period 1,647,307 1,648,404
-------------- -------------
Shares outstanding at end of period 1,583,702 1,647,307
============== =============
Net assets as of February 28, 2003, are comprised of the
following:
Capital (par value and additional paid in capital) $ 24,470,018
Undistributed net investment income 82,024
Accumulated net realized gain on investments 3,864
Net unrealized depreciation of investments (380,987)
-------------
Net Assets $ 24,174,919
=============
</Table>
74
<Page>
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
------------------------------- ------------------------------
SHARES AMOUNT SHARES AMOUNT
-------------- ------------- ------------ --------------
Sale of capital shares:
Class T 186,453 $ 2,012,567 114,148 $ 1,215,319
Class A 55,478 605,865 86,597 934,084
Class B 76,800 836,008 51,016 547,721
-------------- ------------- ------------ -------------
Total sale of capital shares 318,731 3,454,440 251,761 2,697,124
Investment income dividends reinvested:
Class T 52,473 566,527 115,312 1,224,009
Class A 2,476 27,045 4,931 52,875
Class B 1,832 20,002 1,617 17,326
-------------- ------------- ------------ -------------
Total investment income dividends reinvested 56,781 613,574 121,860 1,294,210
Redemptions of capital shares outstanding:
Class T (49,158) (530,334) (112,686) (1,192,971)
Class A (56,214) (611,531) (45,265) (484,935)
Class B (10,082) (109,695) (2,469) (26,457)
-------------- ------------- ------------ -------------
Total redemptions of capital shares outstanding (115,454) (1,251,560) (160,420) (1,704,363)
-------------- ------------- ------------ --------------
Net increase in capital shares outstanding 260,058 $ 2,816,454 213,201 $ 2,286,971
============= =============
Shares outstanding at beginning of period 2,667,082 2,453,881
-------------- ------------
Shares outstanding at end of period 2,927,140 2,667,082
============== ============
Net assets as of February 28, 2003 are comprised of the
following:
Capital (par value and additional paid-in) $ 30,528,048
Accumulated net realized gain on investments 77,102
Net unrealized appreciation of investments 1,234,892
-------------
Net Assets $ 31,840,042
=============
</Table>
75
<Page>
SM&R TAX FREE FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
-------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------- ------------ -------------
Sale of capital shares:
Class T 39,207 $ 423,637 39,213 $ 419,181
Class A 30,463 332,537 14,613 158,324
Class B 804 8,758 38,187 412,000
--------------- ------------- ------------ -------------
Total sale of capital shares 70,474 764,932 92,013 989,505
Investment income dividends reinvested:
Class T 23,017 249,281 45,740 485,660
Class A 849 9,283 1,202 12,869
Class B 852 9,313 948 10,159
--------------- ------------- ------------ -------------
Total investment income dividends reinvested 24,718 267,877 47,890 508,688
Redemptions of capital shares outstanding:
Class T (4,548) (49,150) (22,722) (241,287)
Class A (9,137) (99,806) (3,276) (35,352)
Class B (1,308) (14,407) (8,603) (92,128)
--------------- ------------- ------------ -------------
Total redemptions of capital shares outstanding (14,993) (163,363) (34,601) (368,767)
--------------- ------------- ------------ -------------
Net increase in capital shares outstanding 80,199 $ 869,446 105,302 $ 1,129,426
============= =============
Shares outstanding at beginning of period 1,237,434 1,132,132
--------------- ------------
Shares outstanding at end of period 1,317,633 1,237,434
=============== ============
Net assets as of February 28, 2003 are comprised of the
following:
Capital (par value and additional paid-in) $ 13,389,062
Undistributed net investment income 19,903
Accumulated net realized gain on investments 16,541
Net unrealized appreciation of investments 929,800
-------------
Net Assets $ 14,355,306
=============
</Table>
SM&R PRIMARY FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
-------------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
--------------- ------------- ------------ -------------
Sale of capital shares 2,763,711 $ 2,737,576 8,010,726 $ 7,941,021
Investment income dividends reinvested 209,638 207,932 592,000 587,485
Redemptions of capital shares outstanding (2,306,659) (2,284,747) (13,077,161) (13,003,626)
--------------- ------------- ------------ -------------
Net increase (decrease) in capital shares outstanding 666,690 $ 660,761 (4,474,435) $ (4,475,120)
============= =============
Shares outstanding at beginning of period 27,458,244 31,932,679
--------------- ------------
Shares outstanding at end of period 28,124,934 27,458,244
=============== ============
Net assets as of February 28, 2003 are comprised of the
following:
Capital (par value and additional paid-in) $ 28,111,730
Accumulated net realized loss on investments (141,252)
Net unrealized depreciation of investments (13,802)
-------------
Net Assets $ 27,956,676
=============
</Table>
76
<Page>
SM&R MONEY MARKET FUND
<Table>
<Caption>
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2003 AUGUST 31, 2002
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares 113,115,964 $ 113,115,964 265,270,963 $ 265,270,963
Investment income dividends reinvested 625,426 625,426 1,844,623 1,844,623
Redemptions of capital shares outstanding (141,560,445) (141,560,445) (214,597,116) (214,597,116)
------------- ------------- ------------- -------------
Net increase (decrese) in capital shares outstanding (27,819,055) $ (27,819,055) 52,518,470 $ 52,518,470
============= =============
Shares outstanding at beginning of period 154,610,007 102,091,537
------------- -------------
Shares outstanding at end of period 126,790,952 154,610,007
============= =============
Net assets as of February 28, 2003 are comprised of the
following:
Capital (par value and additional paid-in) $ 126,790,952
-------------
Net Assets $ 126,790,952
=============
</Table>
77
<Page>
SM&R INVESTMENTS, INC. 2450 South Shore Blvd, League City, Texas 77573
DIRECTORS
Ernest S. Barratt, Ph.D.
Jack T. Currie
Lea McLeod Matthews
Michael W. McCroskey
Ann McLeod Moody
Edwin K. Nolan
Robert V. Shattuck, Jr.
Donald P. Stevens
Steven H. Stubbs
Jamie G. Williams
Frank P. Williamson
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Teresa E. Axelson, Vice President and Secretary
INVESTMENT ADVISOR AND MANAGER
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
INDEPENDENT AUDITORS
Tait, Weller & Baker
1818 Market Street, Suite 2400
Philadelphia, PA 19103
78
<Page>
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<Page>
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<Page>
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<Page>
HOW TO REACH US:
INVESTOR SERVICES SALES AND MARKETING
(800) 231-4639 (800) 526-8346
FUND QUOTES AND INVESTOR HOTLINE TO REQUEST A PROSPECTUS
(877) 239-2049 (800) 231-4639
VISIT OUR WEBSITE AT: www.smrinvest.com
[SECURITIES MANAGEMENT AND RESEARCH, INC. LOGO]
SECURITIES MANAGEMENT
AND RESEARCH, INC.
MANAGER & DISTRIBUTOR
MEMBER NASD, SIPC
2450 SOUTH SHORE BLVD., SUITE 400O LEAGUE CITY, TX 77573O (281) 334-2469
Form 9202S - 04/03