UNITED STATES
Securities and Exchange Commission
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-6477
SM&R Investments, Inc.
P.O. Box 58969
Houston, TX 77258-8969
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
(800) 231-4639
Fiscal year end: August 31
Reporting period: February 28, 2006
Item 1 Report to Shareholders
<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
SEMI-ANNUAL REPORT
FEBRUARY 28, 2006
<Page>
The report contained herein is included for the general information of our
shareholders. This report is not authorized for distribution to prospective
investors unless it is preceded or accompanied by a current prospectus. ALL
INVESTORS ARE ADVISED TO CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES OF THE INVESTMENT COMPANIES CAREFULLY BEFORE INVESTING. THE
PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANIES.
YOU SHOULD READ IT CAREFULLY BEFORE INVESTING.
The investment adviser is responsible for exercising the voting rights
associated with the securities purchased and held by the Funds. A description of
the policies and procedures the investment adviser uses in fulfilling this
responsibility is included in the Funds' Statement of Additional Information and
is available without charge, upon request, by calling 1-800-231-4639. The
policies and procedures are also available on the Securities and Exchange
Commission's (SEC) website at http://www.sec.gov. Information on how the Funds
voted proxies relating to portfolio securities during the most recent 12 month
period ended June 30 is available without charge, upon request, by calling
1-800-231-4639 and is also available on the SEC's website at http://www.sec.gov.
The Funds file their complete schedule of holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q is
available on the SEC's website, beginning with the November 30, 2004 report, at
http://www.sec.gov. You may review and make copies at the SEC's Public Reference
Room in Washington, D.C. You may also obtain copies after paying a duplicating
fee by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102
or by electronic request to publicinfo@sec.gov. A copy of the quarterly holdings
report is available, without charge, upon request, by calling 1-800-231-4639.
<Page>
AN EXAMPLE OF ONGOING EXPENSES
Each shareholder of the Company may incur two types of expenses: (1)
transactional (e.g., sales charges, contingent deferred sales charges on
redemptions and redemption fees) and (2) ongoing (e.g., asset-based charges such
as investment advisory fees and distribution and/or 12b-1 fees). The example,
included below, is intended to help a shareholder better understand the ongoing
expenses of investing in this Company and to compare these expenses with other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period, September 1, 2005, and held for six months ending
February 28, 2006.
ACTUAL EXPENSES
The example below provides information about actual account values and actual
expenses. A shareholder may use the information in this example, together with
the amount they have invested, to estimate the expenses that they have paid over
the period. Simply divide the account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in actual column under the heading entitled "Expenses Paid During Period" to
estimate the expenses paid on their account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The example also provides information about hypothetical account values and
hypothetical expenses based on the Company's actual expense ratios and an
assumed rate of return of 5% per year before expenses, which is not the
Company's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses a shareholder
paid for the period. This information may be used to compare the ongoing
expenses of investing in the Company and other mutual funds. To do so, compare
this 5% hypothetical example with the 5% hypothetical examples that appear in
the shareholder reports of other mutual funds.
Please note that the expenses shown in this table are meant to help a
shareholder understand the ongoing expenses only and do not reflect any
transactional expenses, such as sales charges, contingent deferred sales charges
on redemptions or redemption fees. Therefore, the table is useful in comparing
ongoing expenses only, and will not help determine the relative total costs of
owning different funds. In addition, if these transactional expenses were
included, the expenses would have been higher.
<Table>
<Caption>
ACTUAL HYPOTHETICAL
-------------------------------------------- ----------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES
ACCOUNT ANNUALIZED ACCOUNT PAID ACCOUNT PAID
VALUE EXPENSE VALUE DURING VALUE DURING
FUNDS (09/01/05) RATIOS (02/28/06) (1) PERIOD (2) (02/28/06) (1) PERIOD (2)
- ----- ---------- ---------- -------------- ---------- -------------- ----------
Alger Technology Fund
Class A $ 1,000.00 2.10% $ 1,140.65 $ 11.87 $ 1,007.19 $ 10.48
Class B 1,000.00 2.75% 1,132.55 15.44 1,005.58 13.71
Alger Aggressive Growth Fund
Class A 1,000.00 1.85% 1,126.65 10.33 1,007.81 9.24
Class B 1,000.00 2.50% 1,123.40 13.92 1,006.18 12.47
Alger Small-Cap Fund
Class A 1,000.00 1.90% 1,152.85 10.85 1,007.69 9.48
Class B 1,000.00 2.55% 1,148.50 14.51 1,006.06 12.71
</Table>
1
<Page>
<Table>
<Caption>
ACTUAL HYPOTHETICAL
-------------------------------------------- ----------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES
ACCOUNT ANNUALIZED ACCOUNT PAID ACCOUNT PAID
VALUE EXPENSE VALUE DURING VALUE DURING
FUNDS (09/01/05) RATIOS (02/28/06) (1) PERIOD (2) (02/28/06) (1) PERIOD (2)
- ----- ---------- ---------- -------------- ---------- -------------- ----------
Alger Growth Fund
Class A $ 1,000.00 1.70% $ 1,045.60 $ 8.81 $ 1,008.18 $ 8.50
Class B 1,000.00 2.35% 1,033.60 12.04 1,006.57 11.73
Growth Fund
Class A 1,000.00 1.36% 1,041.60 7.03 1,009.02 6.81
Class B 1,000.00 1.86% 1,041.05 9.61 1,007.78 9.30
Class T 1,000.00 1.17% 1,043.90 6.05 1,009.50 5.85
Equity Income Fund
Class A 1,000.00 1.26% 1,042.60 6.51 1,009.27 6.31
Class B 1,000.00 1.76% 1,040.00 9.08 1,008.03 8.80
Class T 1,000.00 1.14% 1,043.00 5.91 1,009.56 5.72
Balanced Fund
Class A 1,000.00 1.30% 1,020.60 6.58 1,009.17 6.51
Class B 1,000.00 1.80% 1,017.95 9.09 1,007.93 9.00
Class T 1,000.00 1.25% 1,021.10 6.33 1,009.30 6.26
Government Bond Fund
Class A 1,000.00 0.73% 996.40 3.61 1,010.56 3.66
Class B 1,000.00 1.23% 993.95 6.07 1,009.32 6.16
Class T 1,000.00 0.73% 996.15 3.61 1,010.56 3.66
Tax Free Fund
Class A 1,000.00 0.75% 1,005.05 3.74 1,010.51 3.76
Class B 1,000.00 1.25% 1,001.50 6.21 1,009.27 6.26
Class T 1,000.00 0.75% 1,003.90 3.73 1,010.51 3.76
Primary Fund 1,000.00 0.80% 1,006.45 3.99 1,010.39 4.01
Money Market Fund 1,000.00 0.50% 1,017.90 2.52 1,011.13 2.50
</Table>
(1) The actual ending account value is based on actual total return of each
class of each of the funds for the period September 1, 2005 to February 28,
2006 after actual expenses and will differ from the hypothetical ending
account value which is based on each class of each of the funds' actual
expense ratios and a hypothetical annual return of 5% before expenses.
(2) Expenses are equal to the annualized expense ratios, shown in the table
above, multiplied by the average account value over the period, then
multiplied by 181/365 (to reflect the six month period).
2
<Page>
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
The Board of Directors of SM&R Investments, Inc. has renewed the investment
advisory arrangements with Securities Management and Research, Inc. ("Manager")
for the SM&R Growth Fund, SM&R Equity Income Fund, SM&R Balanced Fund and SM&R
Money Market Fund effective November 17, 2005. Additionally, the Board renewed
the investment advisory arrangements with the Manager effective February 16,
2006 for the SM&R Government Bond Fund and SM&R Primary Fund. The Board
considered a variety of factors in connection with its review of the advisory
contracts ("Contracts"), also taking into account information provided by the
Manager during the course of the year as discussed below:
NATURE, EXTENT, AND QUALITY OF SERVICES
The Board considered the nature, quality and extent of the services provided to
the funds by the Manager based upon information provided by the Manager relating
to its operations and personnel. These services included, but were not limited
to, management of the funds' portfolios and a variety of activities related to
portfolio management. The Board also took into account its familiarity with the
Manager's investment management through Board meetings, discussions and reports
during the preceding year. After careful consideration of these matters, the
Board concluded that it was satisfied with the nature, quality and extent of the
services provided by the Manager.
EXPENSES AND PERFORMANCE
The Board evaluated reports prepared by the Manager detailing the advisory fee
and total expense ratios of each of the funds' share classes as compared to
other open-end investment companies deemed to be comparable based upon the
Morningstar Principia Pro database with similar Morningstar category and
prospectus objective to each class of the funds. The Board took into account the
Manager's current undertakings to maintain the expense limitations for the
funds. Also taken under consideration was the current size of each class of the
funds, and the level and method of computing the management fees.
The Board reviewed the funds' average annual total returns and compared these
returns to previously agreed upon comparable performance measures, including
those supplied by Lipper and Morningstar. On the basis of this evaluation and
the Board's ongoing reviews of investment results, the Board concluded that the
funds' performance was satisfactory.
COST, BENEFITS, PROFITS AND ECONOMIES OF SCALE
The Board reviewed detailed information regarding the revenues received by the
Manager under the Contracts and other benefits that the Manager may have
realized from its relationship with the funds. The Board also received
information on the direct costs incurred by the Manager as well as profits
realized. After careful consideration of this information, the Board concluded
that the Manager's profits were reasonable in light of the services provided to
the funds.
The Board reviewed reports prepared by the Manager comparing the funds' fee
breakpoints to other comparable funds. The Board concluded that the advisory fee
structure for the funds continued to provide for a reasonable sharing of
benefits from any economies of scale with the fund's investors.
3
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
CONSUMER DISCRETIONARY--
MEDIA--2.07%
NeuStar, Inc. (Class A)* 960 $ 27,648
----------
TOTAL CONSUMER DISCRETIONARY--2.07% 27,648
----------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.03%
SI International Inc.* 420 13,675
COMMERCIAL SERVICES & SUPPLIES--2.43%
Traffic.com, Inc.* 125 1,341
West Corp.* 715 31,124
----------
32,465
ELECTRICAL EQUIPMENT--2.31%
International DisplayWorks, Inc. 4,645 30,750
----------
TOTAL INDUSTRIALS--5.77% 76,890
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--9.17%
Cisco Systems, Inc.* 1,025 20,746
Corning Inc.* 1,060 25,875
Juniper Networks, Inc.* 980 18,022
Nokia Oyj ADR 900 16,722
Research in Motion Ltd.* 580 40,907
----------
122,272
COMPUTER RELATED & BUSINESS SERVICES--12.78%
Apple Computer, Inc.* 765 52,433
EMC Corp.* 1,915 26,848
Network Appliance, Inc.* 1,205 39,958
Western Digital Corp.* 2,305 51,286
----------
170,525
COMPUTER SOFTWARE--14.25%
Check Point Software Technologies Ltd.* 2,370 50,386
Hyperion Solutions Corp.* 360 12,078
Symantec Corp.* 3,140 53,035
TIBCO Software Inc.* 3,100 26,877
VeriFone Holdings, Inc.* 1,810 47,784
----------
190,160
COMPUTERS & PERIPHERALS--3.32%
Mobility Electronics, Inc.* 4,700 44,321
ELECTRONIC EQUIPMENT & INSTRUMENTS--6.39%
American Power Conversion Corp. 560 11,441
Multi-Fineline Electronix, Inc.* 1,295 73,737
----------
85,178
INFORMATION TECHNOLOGY SERVICES--1.10%
Cognizant Technology Solutions Corp.* 255 $ 14,691
INTERNET & CATALOG RETAIL--2.55%
eBay Inc.* 850 34,051
INTERNET SOFTWARE & SERVICES--10.22%
DealerTrack Holdings Inc.* 2,490 57,544
Sapient Corp.* 4,656 34,920
Secure Computing Corp.* 1,000 12,100
Yahoo! Inc.* 990 31,739
----------
136,303
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--1.61%
PortalPlayer Inc.* 850 21,471
SEMICONDUCTORS--7.05%
Applied Materials, Inc. 1,550 28,427
Marvell Technology Group Ltd.* 400 24,488
Microsemi Corp.* 930 28,598
Texas Instruments Inc. 420 12,537
----------
94,050
SEMICONDUCTORS CAPITAL EQUIPMENT--3.68%
SiRF Technology Holdings, Inc.* 1,310 49,033
SOFTWARE--14.61%
BEA Systems, Inc.* 2,530 29,019
Electronic Arts Inc.* 345 17,930
Microsoft Corp. 2,610 70,209
Oracle Corp.* 4,795 59,554
Quest Software, Inc.* 1,250 18,213
----------
194,925
----------
TOTAL INFORMATION TECHNOLOGY--86.73% 1,156,980
----------
TOTAL COMMON STOCK--94.57%
(Cost $1,059,380) 1,261,518
----------
</Table>
4
<Page>
<Table>
<Caption>
SHARES VALUE
MONEY MARKET FUND
SM&R Money Market Fund, 3.99% (a) 93,033 $ 93,033
----------
TOTAL MONEY MARKET FUND--6.97%
(Cost $93,033) 93,033
----------
TOTAL INVESTMENTS--101.54%
(Cost $1,152,413) 1,354,551
LIABILITIES IN EXCESS OF
OTHER ASSETS--(1.54)% (20,506)
----------
NET ASSETS--100.00% $1,334,045
==========
</Table>
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Affiliated Money Market 6.87%
Consumer Discretionary 2.04%
Industrials 5.68%
Information Technology 85.41%
</Table>
See notes to financial statements.
5
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $1,059,380) $ 1,261,518
Investment in affiliated money market fund (Cost $93,033) 93,033
---------------
Total investments (Cost $1,152,413) 1,354,551
Prepaid expenses 7,413
Receivable for:
Capital stock sold 185
Dividends 337
Expense reimbursement 2,731
---------------
TOTAL ASSETS 1,365,217
---------------
LIABILITIES
Investment securities purchased 14,612
Payable to investment adviser for fund expenses 10,270
Accrued:
Investment advisory fee 1,360
Service fee 252
Distribution fee 1,666
Other liabilities 3,012
---------------
TOTAL LIABILITIES 31,172
---------------
NET ASSETS (applicable to shares outstanding) $ 1,334,045
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 1,290,802
Accumulated net realized loss on investments (158,895)
Net unrealized appreciation of investments 202,138
---------------
Net Assets $ 1,334,045
===============
NET ASSETS:
Class A $ 973,261
Class B $ 360,784
---------------
TOTAL NET ASSETS $ 1,334,045
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 285,619
Class B:
Authorized 100,000,000
Outstanding 106,000
Class A:
Net asset value and redemption price per share $ 3.41
Offering price per share: (Net Assets value of $3.41 / 95%) $ 3.59
Class B:
Net asset value and offering price per share $ 3.40
</Table>
See notes to financial statements.
6
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
INVESTMENT INCOME
Dividends $ 972
Interest from affiliated money market fund 683
---------------
TOTAL INVESTMENT INCOME 1,655
---------------
EXPENSES
Investment advisory fees 8,083
Service fees 1,497
Professional fees 3,528
Custody and transaction fees 2,156
Directors' fees 2,903
Insurance expenses 192
Compliance expense 86
Qualification fees
Class A 3,400
Class B 2,635
Shareholder reporting expenses
Class A 695
Class B 472
Distribution fees
Class A 1,489
Class B 1,732
---------------
TOTAL EXPENSES 28,868
LESS EXPENSES REIMBURSED (15,158)
---------------
NET EXPENSES 13,710
---------------
INVESTMENT LOSS--NET (12,055)
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 119,739
Change in unrealized appreciation of investments 35,476
---------------
NET GAIN ON INVESTMENTS 155,215
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 143,160
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
-------------------- --------------------
2006 2005
-------------------- --------------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (12,055) $ (15,729)
Net realized gain on investments 119,739 62,603
Change in unrealized appreciation of investments 35,476 161,855
-------------------- --------------------
Net increase in net assets resulting from operations 143,160 208,729
CAPITAL SHARE TRANSACTIONS--NET
Class A 72,603 67,874
Class B (15,635) (4,279)
-------------------- --------------------
Total capital share transactions--net 56,968 63,595
-------------------- --------------------
TOTAL INCREASE 200,128 272,324
NET ASSETS
Beginning of period 1,133,917 861,593
-------------------- --------------------
End of period $ 1,334,045 $ 1,133,917
==================== ====================
</Table>
See notes to financial statements.
7
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------- -------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------- --------- --------- --------- --------- ---------
Net Asset Value, Beginning of Period $ 3.02 $ 2.43 $ 2.59 $ 1.67 $ 3.24 $ 10.00
Income from investment operations
Investment loss--net -- (0.04) (0.06) (0.04) (0.20) (0.37)
Net realized and unrealized gain (loss)
on investments 0.39 0.63 (0.10) 0.96 (1.37) (6.39)
------------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.39 0.59 (0.16) 0.92 (1.57) (6.76)
------------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 3.41 $ 3.02 $ 2.43 $ 2.59 $ 1.67 $ 3.24
============= ========= ========= ========= ========= =========
Total Return (2) 26.06%** 24.28% (6.18)% 55.09% (48.46)% (67.60)%
============= ========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 973,261 $ 798,200 $ 585,844 $ 449,337 $ 150,553 $ 230,327
Ratio of expenses with reimbursement to
average net assets (3) 2.10%* 2.10% 2.10% 2.10% 8.51% 10.97%
Ratio of expenses without reimbursement to
average net assets 4.39%* 6.29% 6.15% 11.46% 12.19% 10.97%
Ratio of net investment loss to average
net assets (1.82)%* (1.36)% (1.97)% (1.84)% (8.30)% (10.32)%
Portfolio turnover rate 65.60% 269.32% 215.21% 291.66% 301.01% 440.50%
<Caption>
CLASS B SHARES
--------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------- ------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------- --------- --------- --------- ---------- ---------
Net Asset Value, Beginning of Period $ 3.03 $ 2.46 $ 2.64 $ 1.68 $ 3.25 $ 10.00
Income from investment operations
Investment loss--net -- (0.06) (0.08) (0.05) (0.19) (0.24)
Net realized and unrealized gain (loss)
on investments 0.37 0.63 (0.10) 1.01 (1.38) (6.51)
------------- --------- --------- --------- --------- ---------
Total from Investment Operations 0.37 0.57 (0.18) 0.96 (1.57) (6.75)
------------- --------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 3.40 $ 3.03 $ 2.46 $ 2.64 $ 1.68 $ 3.25
============= ========= ========= ========= ========= =========
Total Return (2) 24.40%** 23.17% (6.82)% 57.14% (48.31)% (67.50)%
============= ========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 360,784 $ 335,717 $ 275,749 $ 240,382 $ 130,975 $ 82,232
Ratio of expenses with reimbursement to
average net assets (3) 2.75%* 2.75% 2.75% 2.75% 9.42% 14.71%
Ratio of expenses without reimbursement to
average net assets 5.88%* 8.53% 8.02% 14.16% 14.23% 14.71%
Ratio of net investment loss to average
net assets (2.47)%* (2.01)% (2.62)% (2.48)% (9.22)% (14.21)%
Portfolio turnover rate 65.60% 269.32% 215.21% 291.66% 301.01% 440.50%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R has voluntarily agreed to waive or reduce expenses to 2.10% for Class
A and 2.75% for Class B until April 30, 2006. Effective May 1, 2006 until
April 30, 2007, the expenses will be waived or reduced to 1.85% for Class A
and 2.50% for Class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
8
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--6.22%
Carnival Corp. 115 $ 5,940
GTECH Holdings Corp. 3,505 116,997
Orient-Express Hotels Ltd. (Class A) 410 14,301
Station Casinos, Inc. 255 17,454
----------
154,692
INTERNET & CATALOG RETAIL--1.42%
eBay Inc.* 880 35,253
MEDIA--3.56%
CBS Corp. (Class B) 322 7,876
Focus Media Holding Ltd. ADR* 360 18,810
NeuStar, Inc. (Class A)* 505 14,544
Walt Disney Co. (The) 860 24,071
XM Satellite Radio Holdings Inc. (Class A)* 1,055 23,305
----------
88,606
MULTI-LINE RETAIL--1.03%
Federated Department Stores, Inc. 360 25,574
RETAILING--2.86%
CVS Corp. 1,840 52,127
PETsMART, Inc. 735 19,081
----------
71,208
SPECIALTY RETAIL--2.52%
Abercrombie & Fitch Co. (Class A) 600 40,392
Lowe's Companies, Inc. 325 22,159
----------
62,551
TEXTILES, APPAREL & LUXURY GOODS--0.52%
Quiksilver, Inc.* 900 13,050
----------
TOTAL CONSUMER DISCRETIONARY--18.13% 450,934
----------
CONSUMER STAPLES--
FOOD & STAPLES RETAILING--0.70%
Wal-Mart Stores, Inc. 385 17,464
HOUSEHOLD PRODUCTS--2.82%
Procter & Gamble Co. 1,170 70,118
TOBACCO--1.85%
Altria Group, Inc. 640 46,016
----------
TOTAL CONSUMER STAPLES--5.37% 133,598
----------
ENERGY--
ENERGY & ENERGY SERVICES--1.04%
Patterson-UTI Energy, Inc. 790 $ 21,765
Schlumberger Ltd. 35 4,025
----------
25,790
ENERGY EQUIPMENT & SERVICES--2.55%
National-Oilwell, Inc.* 570 34,702
Suntech Power Holdings Co.,
Ltd. ADR* 170 6,385
Transocean Inc.* 300 22,254
----------
63,341
OIL & GAS--5.19%
Exxon Mobil Corp. 1,245 73,916
Talisman Energy Inc. 555 29,148
Valero Energy Corp. 485 26,088
----------
129,152
----------
TOTAL ENERGY--8.78% 218,283
----------
FINANCIALS--
CAPITAL MARKETS--2.14%
Bear Stearns Companies (The), Inc. 395 53,104
DIVERSIFIED FINANCIAL SERVICES--2.35%
Goldman Sachs Group (The), Inc. 225 31,790
International Securities Exchange, Inc. 630 26,592
----------
58,382
INSURANCE--1.95%
American International Group, Inc. 370 24,553
Genworth Financial Inc. (Class A) 755 24,024
----------
48,577
THRIFTS & MORTGAGE FINANCE--1.50%
Golden West Financial Corp. 260 18,468
Hudson City Bancorp, Inc. 1,455 18,784
----------
37,252
----------
TOTAL FINANCIALS--7.94% 197,315
----------
HEALTH CARE--
BIOTECHNOLOGY--4.54%
Amgen Inc.* 185 13,966
Genentech, Inc.* 260 22,279
Gilead Sciences, Inc.* 320 19,926
ImClone Systems Inc.* 475 18,235
Medimmune, Inc.* 220 8,028
Vertex Pharmaceuticals Inc.* 705 30,484
----------
112,918
</Table>
9
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
HEALTH CARE EQUIPMENT & SUPPLIES--2.32%
Hologic, Inc.* 525 $ 25,111
Medtronic, Inc. 335 18,073
St. Jude Medical, Inc.* 315 14,364
----------
57,548
HEALTH CARE PROVIDERS & SERVICES--2.98%
Caremark Rx, Inc.* 380 18,905
UnitedHealth Group Inc. 635 36,976
WellCare Health Plans Inc.* 470 18,307
----------
74,188
MEDICAL TECHNOLOGY--1.81%
Adams Respiratory Therapeutics, Inc.* 1,015 38,073
Allscripts Healthcare Solutions, Inc.* 375 7,031
----------
45,104
PHARMACEUTICALS--2.69%
Johnson & Johnson 85 4,900
Novartis AG ADR 495 26,359
Sepracor Inc.* 175 10,029
Teva Pharmaceuticals Industries Ltd. ADR 610 25,614
----------
66,902
----------
TOTAL HEALTH CARE--14.34% 356,660
----------
INDUSTRIALS--
AEROSPACE & DEFENSE--2.05%
BE Aerospace, Inc.* 910 21,831
United Technologies Corp. 500 29,250
----------
51,081
AIR FREIGHT & LOGISTICS--2.34%
FedEx Corp. 200 21,448
UTI Worldwide, Inc. 350 36,621
----------
58,069
COMMERCIAL SERVICES & SUPPLIES--0.96%
Net 1 UEPS Technologies, Inc.* 540 16,956
Traffic.com, Inc.* 645 6,921
----------
23,877
ELECTRONIC EQUIPMENT--0.32%
Roper Industries, Inc. 175 7,887
INDUSTRIAL CONGLOMERATES--3.46%
Endurance Specialty Holdings Ltd. 835 26,303
General Electric Co. 1,700 55,879
Tyco International Ltd. 150 3,868
----------
86,050
MACHINERY--2.27%
Caterpillar, Inc. 355 $ 25,943
Terex Corp.* 385 30,473
----------
56,416
TRANSPORTATION--0.33%
Burlington Northern Santa Fe Corp. 105 8,257
----------
TOTAL INDUSTRIALS--11.73% 291,637
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--2.02%
Motorola, Inc. 1,190 25,466
QUALCOMM Inc. 525 24,785
----------
50,251
COMPUTERS & PERIPHERALS--2.26%
Mobility Electronics, Inc.* 1,195 11,269
SanDisk Corp.* 100 6,034
Seagate Technology* 1,140 30,290
Synaptics Inc.* 365 8,574
----------
56,167
COMPUTER RELATED & BUSINESS SERVICES--3.22%
Apple Computer, Inc.* 265 18,163
EMC Corp.* 1,850 25,937
Network Appliance, Inc.* 1,085 35,979
----------
80,079
COMPUTER SOFTWARE--2.55%
Check Point Software Technologies Ltd.* 275 5,847
NAVTEQ Corp.* 310 14,356
VeriFone Holdings, Inc.* 1,640 43,296
----------
63,499
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.99%
Multi-Fineline Electronix, Inc.* 430 24,484
INTERNET SOFTWARE & SERVICES--3.52%
DealerTrack Holdings Inc.* 535 12,364
Google Inc. (Class A)* 75 27,196
Netease.com Inc. ADR* 5 438
Openwave Systems Inc.* 1,410 27,989
Wright Express Corp.* 720 17,309
Yahoo! Inc.* 70 2,244
----------
87,540
</Table>
10
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--5.32%
Advanced Micro Devices, Inc.* 255 $ 9,861
Applied Micro Circuits Corp.* 8,160 29,458
Broadcom Corp. (Class A)* 570 25,701
FormFactor Inc.* 405 14,920
Tessera Technologies Inc.* 1,225 38,257
Trident Microsystems, Inc.* 500 13,970
----------
132,167
SEMICONDUCTORS--1.98%
ATMI, Inc.* 410 12,312
Marvell Technology Group Ltd.* 375 22,957
National Semiconductor Corp. 500 14,025
----------
49,294
SOFTWARE--4.49%
Electronic Arts Inc.* 485 25,205
Microsoft Corp. 2,875 77,337
Oracle Corp.* 735 9,129
----------
111,671
----------
TOTAL INFORMATION TECHNOLOGY--26.35% 655,152
----------
MATERIALS--
CHEMICALS--0.82%
Lubrizol Corp. 470 20,332
METALS & MINING--3.07%
Inco Ltd. 665 32,133
Paladin Resources Limited* 9,130 24,377
Peabody Energy Corp. 210 10,137
Phelps Dodge Corp. 70 9,660
----------
76,307
----------
TOTAL MATERIALS--3.89% 96,639
----------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--2.82%
American Movil S.A. de C.V. (Series L) ADR 185 6,425
American Tower Corp.* 1,003 31,926
NII Holdings Inc.* 620 31,756
----------
70,107
----------
TOTAL TELECOMMUNICATION SERVICES--2.82% 70,107
----------
TOTAL COMMON STOCK--99.35%
(Cost $2,211,348) 2,470,325
----------
</Table>
MONEY MARKET FUND
<Table>
<Caption>
SM&R Money Market Fund, 3.99% (a) 26,652 $ 26,652
----------
TOTAL MONEY MARKET FUND--1.07%
(Cost $26,652) 26,652
----------
TOTAL INVESTMENTS--100.42%
(Cost $2,238,000) 2,496,977
LIABILITIES IN EXCESS OF
OTHER ASSETS--(0.42)% (10,420)
----------
NET ASSETS--100.00% $2,486,557
==========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Affiliated Money Market 1.07%
Consumer Discretionary 18.06%
Consumer Staples 5.35%
Energy 8.74%
Financials 7.90%
Health Care 14.28%
Industrials 11.68%
Information Technology 26.24%
Materials 3.87%
Telecommunication Services 2.81%
</Table>
11
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $2,211,348) $ 2,470,325
Investment in affiliated money market fund (Cost $26,652) 26,652
---------------
Total investments (Cost $2,238,000) 2,496,977
Prepaid expenses 8,551
Receivable for:
Investment securities sold 22,202
Capital stock sold 451
Dividends 2,616
Expense reimbursement 4,949
---------------
TOTAL ASSETS 2,535,746
---------------
LIABILITIES
Investment securities purchased 28,410
Payable to investment adviser for fund expenses 11,741
Accrued:
Investment advisory fee 2,015
Service fee 480
Distribution fee 3,343
Other liabilities 3,200
---------------
TOTAL LIABILITIES 49,189
---------------
NET ASSETS (applicable to shares outstanding) $ 2,486,557
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,095,931
Accumulated net realized gain on investments 131,649
Net unrealized appreciation of investments 258,977
---------------
Net Assets $ 2,486,557
===============
NET ASSETS:
Class A $ 1,678,918
Class B $ 807,639
---------------
TOTAL NET ASSETS $ 2,486,557
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 247,478
Class B:
Authorized 100,000,000
Outstanding 123,562
Class A:
Net asset value and redemption price per share $ 6.78
Offering price per share: (Net Assets value of $6.78 / 95%) $ 7.14
Class B:
Net asset value and offering price per share $ 6.54
</Table>
See notes to financial statements.
12
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $5) $ 10,525
Interest from affiliated money market fund 984
---------------
TOTAL INVESTMENT INCOME 11,509
---------------
EXPENSES
Investment advisory fees 11,772
Service fees 2,803
Professional fees 3,528
Custody and transaction fees 11,647
Directors' fees 2,903
Insurance expenses 367
Compliance expense 146
Qualification fees
Class A 3,969
Class B 2,985
Shareholder reporting expenses
Class A 1,137
Class B 668
Distribution fees
Class A 2,611
Class B 3,753
---------------
TOTAL EXPENSES 48,289
LESS EXPENSES REIMBURSED (25,083)
---------------
NET EXPENSES 23,206
---------------
INVESTMENT LOSS--NET (11,697)
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 242,437
Change in unrealized appreciation of investments 12,887
---------------
NET GAIN ON INVESTMENTS 255,324
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 243,627
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------------
2006 2005
---------------- ----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (11,697) $ (16,878)
Net realized gain on investments 242,437 224,516
Change in unrealized appreciation of investments 12,887 207,698
---------------- ----------------
Net increase in net assets resulting from operations 243,627 415,336
CAPITAL SHARE TRANSACTIONS--NET
Class A 113,717 86,880
Class B 31,225 47,518
---------------- ----------------
Total capital share transactions--net 144,942 134,398
---------------- ----------------
TOTAL INCREASE 388,569 549,734
NET ASSETS
Beginning of period 2,097,988 1,548,254
---------------- ----------------
End of period $ 2,486,557 $ 2,097,988
================ ================
</Table>
See notes to financial statements.
13
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of Period $ 6.07 $ 4.81 $ 4.96 $ 4.24 $ 5.91 $ 10.00
Income from investment operations
Investment loss--net (0.02) (0.04) (0.08) (0.06) (0.17) (0.25)
Net realized and unrealized gain (loss)
on investments 0.73 1.30 (0.07) 0.78 (1.50) (3.84)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.71 1.26 (0.15) 0.72 (1.67) (4.09)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 6.78 $ 6.07 $ 4.81 $ 4.96 $ 4.24 $ 5.91
=========== =========== =========== =========== =========== ===========
Total Return (2) 29.88%** 26.20% (3.02)% 16.98% (28.26)% (40.90)%
=========== =========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 1,678,918 $ 1,402,928 $ 1,034,437 $ 994,871 $ 666,982 $ 487,497
Ratio of expenses with reimbursement to
average net assets (3) 1.85%* 1.85% 1.85% 1.85% 4.48% 6.85%
Ratio of expenses without reimbursement to
average net assets 3.99%* 4.43% 4.17% 5.52% 6.01% 6.85%
Ratio of net investment loss to average
net assets (0.81)%* (0.68)% (1.43)% (1.27)% (3.99)% (5.59)%
Portfolio turnover rate 82.13% 167.62% 159.89% 179.56% 177.62% 70.58%
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------ -------------------------------------------------------------------
Net Asset Value, Beginning of Period $ 5.87 $ 4.69 $ 4.87 $ 4.19 $ 5.89 $ 10.00
Income from investment operations
Investment loss--net (0.04) (0.07) (0.11) (0.08) (0.21) (0.18)
Net realized and unrealized gain (loss)
on investments 0.71 1.25 (0.07) 0.76 (1.49) (3.93)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.67 1.18 (0.18) 0.68 (1.70) (4.11)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 6.54 $ 5.87 $ 4.69 $ 4.87 $ 4.19 $ 5.89
=========== =========== =========== =========== =========== ===========
Total Return (2) 28.52%** 25.16% (3.70)% 16.23% (28.86)% (41.10)%
=========== =========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 807,639 $ 695,060 $ 513,817 $ 442,489 $ 328,254 $ 230,547
Ratio of expenses with reimbursement to
average net assets (3) 2.50%* 2.50% 2.50% 2.50% 5.56% 7.25%
Ratio of expenses without reimbursement to
average net assets 4.92%* 5.75% 5.52% 7.36% 7.78% 7.25%
Ratio of net investment loss to average
net assets (1.48)%* (1.33)% (2.09)% (1.91)% (5.08)% (6.12)%
Portfolio turnover rate 82.13% 167.62% 159.89% 179.56% 177.62% 70.58%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R has voluntarily agreed to waive or reduce expenses to 1.85% for Class
A and 2.50% for Class B until April 30, 2006. Effective May 1, 2006 until
April 30, 2007, the expenses will be waived or reduced to 1.60% for Class A
and 2.25% for Class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
14
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
AUTO COMPONENTS--1.73%
LKQ Corp.* 1,555 $ 34,241
Tenneco Inc.* 610 13,817
----------
48,058
HOTELS, RESTAURANTS & LEISURE--2.90%
Applebee's International, Inc. 840 19,438
McCormick & Schmick's Seafood
Restaurants, Inc.* 1,313 30,763
Orient-Express Hotels Ltd. (Class A) 865 30,171
----------
80,372
INTERNET & CATALOG RETAIL--0.95%
Priceline.com Inc.* 1,075 26,391
LEISURE EQUIPMENT & SERVICES--2.00%
LIFE TIME FITNESS, Inc.* 630 26,435
WMS Industries Inc.* 1,005 29,195
----------
55,630
MEDIA--2.34%
Focus Media Holding Ltd. ADR* 295 15,414
NeuStar, Inc. (Class A)* 865 24,912
World Wresting Entertainment, Inc. 1,640 24,518
----------
64,844
RETAILING--0.99%
Phillips-Van Heusen Corp. 770 27,335
SPECIALTY RETAIL--1.73%
Ann Taylor Stores Corp.* 620 22,506
DSW, Inc.* 890 25,436
----------
47,942
TEXTILES, APPAREL & LUXURY GOODS--1.57%
Gymboree Corp.* 1,320 30,175
Quiksilver, Inc.* 920 13,340
----------
43,515
----------
TOTAL CONSUMER DISCRETIONARY--14.21% 394,087
----------
CONSUMER STAPLES--
FOOD PRODUCTS--0.99%
Hain Celestial Group (The), Inc.* 1,175 27,425
----------
TOTAL CONSUMER STAPLES--0.99% 27,425
----------
ENERGY--
ENERGY & ENERGY SERVICES--0.70%
Grey Wolf, Inc.* 2,800 $ 19,432
ENERGY EQUIPMENT & SERVICES--1.84%
Hornbeck Offshore Services, Inc.* 710 22,833
Pioneer Drilling Co.* 185 2,662
Todco (Class A)* 761 25,509
----------
51,004
OIL & GAS--3.23%
Carrizo Oil & Gas, Inc.* 960 22,359
Giant Industries, Inc.* 455 26,481
Holly Corp. 230 13,731
Petrobank Energy & Resources Ltd.* 2,225 27,178
----------
89,749
----------
TOTAL ENERGY--5.77% 160,185
----------
FINANCIALS--
CAPITAL MARKETS--1.77%
Affiliated Managers Group, Inc.* 270 26,576
Greenhill & Co., Inc. 345 22,528
----------
49,104
COMMERCIAL BANKS--1.89%
Boston Private Financial
Holdings, Inc. 690 21,121
Signature Bank* 965 31,266
----------
52,387
DIVERSIFIED FINANCIALS--0.76%
National Financial Partners Corp. 360 21,186
FINANCIAL SERVICES--1.18%
GFI Group Inc.* 545 32,733
INSURANCE--1.07%
Ohio Casualty Corp. 970 29,692
INSURANCE, AGENTS, BROKERS, & SERVICES--0.87%
Platinum Underwriters Holdings, Ltd. 790 24,190
THRIFTS & MORTGAGE FINANCE--1.79%
Brookline Bancorp, Inc. 1,395 20,939
Flagstar Bancorp, Inc. 1,855 28,659
----------
49,598
----------
TOTAL FINANCIALS--9.33% 258,890
----------
</Table>
15
<Page>
<Table>
<Caption>
SHARES VALUE
HEALTH CARE--
BIOTECHNOLOGY--6.15%
Alkermes, Inc.* 1,110 $ 28,205
Cubist Pharmaceuticals, Inc.* 615 13,598
Human Genome Sciences, Inc.* 2,105 26,355
Keryx Biopharmaceuticals, Inc.* 1,005 17,145
Medarex, Inc.* 1,455 21,476
Myogen, Inc.* 325 12,317
Theravance, Inc.* 705 19,782
Vertex Pharmaceuticals Inc.* 735 31,781
----------
170,659
HEALTH CARE EQUIPMENT & SUPPLIES--5.59%
ArthroCare Corp.* 610 27,554
Haemonetics Corp.* 445 23,051
Hologic, Inc.* 650 31,089
Illumina, Inc.* 1,255 31,915
Intuitive Surgical, Inc.* 170 15,334
Sybron Dental Specialties, Inc.* 685 26,208
----------
155,151
HEALTH CARE PROVIDERS & SERVICES--6.21%
Psychiatric Solutions, Inc.* 1,040 34,351
Sierra Health Services, Inc.* 710 29,600
Sunrise Senior Living, Inc.* 820 29,077
Symbion, Inc.* 1,225 28,886
VCA Antech, Inc.* 765 21,382
WellCare Health Plans Inc.* 740 28,823
----------
172,119
MEDICAL SERVICES--0.86%
Ventana Medical Systems, Inc.* 655 23,757
MEDICAL TECHNOLOGY--1.95%
Adams Respiratory Therapeutics, Inc.* 585 21,943
Allscripts Healthcare Solutions, Inc.* 1,710 32,063
----------
54,006
PHARMACEUTICALS--0.90%
Medicines Co. (The)* 1,230 25,080
----------
TOTAL HEALTH CARE--21.66% 600,772
----------
INDUSTRIALS--
AEROSPACE--1.23%
BE Aerospace, Inc.* 1,425 34,186
AEROSPACE & DEFENSE--1.89%
Esterline Technologies Corp.* 655 27,274
SI International Inc.* 770 25,071
----------
52,345
AIRLINES--1.01%
AirTran Holdings, Inc.* 1,570 $ 27,915
COMMERCIAL SERVICES & SUPPLIES--4.76%
CoStar Group Inc.* 460 23,741
FTI Consulting, Inc.* 1,190 33,249
Gevity HR, Inc. 885 22,284
Macrovision Corp.* 740 14,955
Navigant Consulting, Inc.* 715 13,935
Universal Technical Institute Inc.* 775 23,878
----------
132,042
CONSTRUCTION & ENGINEERING--1.19%
URS Corp.* 755 32,910
FREIGHT--1.05%
Landstar System, Inc.* 625 29,119
MACHINERY--3.52%
Actuant Corp. (Class A)* 470 25,897
Bucyrus International, Inc. 570 35,899
Gardner Denver Inc.* 585 35,895
----------
97,691
ROAD & RAIL--0.49%
American Railcar Industries, Inc.* 410 13,776
----------
TOTAL INDUSTRIALS--15.14% 419,984
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--1.82%
F5 Networks, Inc.* 190 12,886
Powerwave Technologies, Inc.* 1,800 26,424
Tekelec* 845 11,331
----------
50,641
COMPUTERS & PHERIPHERALS--0.68%
Mobility Electronics, Inc.* 2,000 18,860
COMPUTER SERVICES--1.09%
Open Solutions Inc.* 1,110 30,137
COMPUTER SOFTWARE--1.86%
Hyperion Solutions Corp.* 602 20,197
VeriFone Holdings, Inc.* 1,190 31,416
----------
51,613
ELECTRONIC EQUIPMENT & SERVICES--1.17%
Multi-Fineline Electronix, Inc.* 570 32,456
INFORMATION TECHNOLOGY SERVICES--0.78%
TNS Inc.* 1,340 21,574
</Table>
16
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
INTERNET SOFTWARE & SERVICES--5.98%
aQuantive, Inc.* 680 $ 18,081
DealerTrack Holdings Inc.* 1,215 28,079
Jupitermedia Corp.* 1,550 23,002
Openwave Systems Inc.* 1,246 24,733
Secure Computing Corp.* 1,455 17,606
WebEx Communications, Inc.* 1,035 28,856
Wright Express Corp.* 1,060 25,482
------------
165,839
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--3.11%
FormFactor Inc.* 740 27,262
Tessera Technologies Inc.* 850 26,545
Trident Microsystems, Inc.* 1,165 32,550
------------
86,357
SEMICONDUCTORS--2.04%
ATMI, Inc.* 965 28,979
Microsemi Corp.* 895 27,521
------------
56,500
SEMICONDUCTORS CAPITAL EQUIPMENT--1.23%
SiRF Technology Holdings, Inc.* 910 34,061
SOFTWARE--0.97%
Quest Software, Inc.* 1,845 26,882
------------
TOTAL INFORMATION TECHNOLOGY--20.73% 574,920
------------
MATERIALS--
CHEMICALS--1.16%
Westlake Chemical Corp. 650 22,308
Zoltek Companies, Inc.* 575 9,925
------------
32,233
METALS & MINING--1.48%
Breakwater Resources, Ltd.* 12,955 11,115
Paladin Resources Ltd.* 11,215 29,944
------------
41,059
------------
TOTAL MATERIALS--2.64% 73,292
------------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--2.13%
SBA Communications Corp. 1,785 40,144
UbiquiTel Inc.* 1,945 19,003
------------
59,147
------------
TOTAL TELECOMMUNICATION
SERVICES--2.13% 59,147
------------
TOTAL COMMON STOCK--92.60%
(Cost $2,030,568) 2,568,702
------------
</Table>
<Table>
<Caption>
SHARES VALUE
MONEY MARKET FUND
SM&R Money Market Fund, 3.99% (a) 217,235 $ 217,235
------------
TOTAL MONEY MARKET FUND--7.83%
(Cost $217,235) 217,235
------------
TOTAL INVESTMENTS--100.43%
(Cost $2,247,803) 2,785,937
LIABILITIES IN EXCESS OF
OTHER ASSETS--(0.43)% (11,932)
------------
NET ASSETS--100.00% $ 2,774,005
============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Affiliated Money Market 7.80%
Consumer Discretionary 14.15%
Consumer Staples 0.98%
Energy 5.75%
Financials 9.29%
Health Care 21.56%
Industrials 15.08%
Information Technology 20.64%
Materials 2.63%
Telecommunication Services 2.12%
</Table>
17
<Page>
SM&R ALGER SMALL-CAP FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $2,030,568) $ 2,568,702
Investment in affiliated money market fund (Cost $217,235) 217,235
---------------
Total investments (Cost $2,247,803) 2,785,937
Prepaid expenses 7,168
Receivable for:
Investment securities sold 48,505
Capital stock sold 1,154
Dividends 256
Expense reimbursement 3,513
---------------
TOTAL ASSETS 2,846,533
---------------
LIABILITIES
Investment securities purchased 52,091
Payable to investment adviser for fund expenses 11,186
Accrued:
Investment advisory fee 2,086
Service fee 521
Distribution fee 3,285
Other liabilities 3,359
---------------
TOTAL LIABILITIES 72,528
---------------
NET ASSETS (applicable to shares outstanding) $ 2,774,005
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,206,234
Accumulated net realized gain on investments 29,637
Net unrealized appreciation of investments 538,134
---------------
Net Assets $ 2,774,005
===============
NET ASSETS:
Class A $ 2,006,592
Class B $ 767,413
---------------
TOTAL NET ASSETS $ 2,774,005
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 266,498
Class B:
Authorized 100,000,000
Outstanding 103,793
Class A:
Net asset value and redemption price per share $ 7.53
Offering price per share: (Net Assets value of $7.53 / 95%) $ 7.93
Class B:
Net asset value and offering price per share $ 7.39
- ----------------------------------------------------------------------------------------
</Table>
See notes to financial statements.
18
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
INVESTMENT INCOME
Dividends $ 5,198
Interest from affiliated money market fund 4
------------
TOTAL INVESTMENT INCOME 5,202
------------
EXPENSES
Investment advisory fees 11,192
Service fees 2,798
Professional fees 3,528
Custody and transaction fees 10,449
Directors' fees 2,903
Insurance expenses 349
Compliance expense 135
Qualification fees
Class A 3,029
Class B 2,753
Shareholder reporting expenses
Class A 876
Class B 581
Distribution fees
Class A 2,742
Class B 3,359
------------
TOTAL EXPENSES 44,694
LESS EXPENSES REIMBURSED (21,214)
------------
NET EXPENSES 23,480
------------
INVESTMENT LOSS--NET (18,278)
------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 95,400
Change in unrealized appreciation of investments 224,271
------------
NET GAIN ON INVESTMENTS 319,671
------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 301,393
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2006 2005
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (18,278) $ (29,779)
Net realized gain on investments 95,400 230,960
Change in unrealized appreciation of investments 224,271 283,112
---------------- ------------
Net increase in net assets resulting from operations 301,393 484,293
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital gains
Class A (175,052) (26,456)
Class B (80,010) (12,091)
---------------- ------------
Total distributions to shareholders (255,062) (38,547)
---------------- ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 580,533 100,319
Class B 148,780 20,517
---------------- ------------
Total capital share transactions--net 729,313 120,836
---------------- ------------
TOTAL INCREASE 775,644 566,582
NET ASSETS
Beginning of period 1,998,361 1,431,779
---------------- ------------
End of period $ 2,774,005 $ 1,998,361
================ ============
</Table>
See notes to financial statements.
19
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of
Period $ 7.44 $ 5.73 $ 5.46 $ 4.33 $ 5.54 $ 10.00
Income from investment operations
Investment loss--net (0.04) (0.10) (0.10) (0.07) (0.32) (0.55)
Net realized and unrealized gain
(loss) on investments 0.13 1.96 0.37 1.20 (0.89) (3.91)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.09 1.86 0.27 1.13 (1.21) (4.46)
Less distributions from Capital
gains -- (0.15) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 7.53 $ 7.44 $ 5.73 $ 5.46 $ 4.33 $ 5.54
=========== =========== =========== =========== =========== ===========
Total Return (2) 25.84%** 32.64% 4.94% 26.10% (21.84)% (44.60)%
=========== =========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 2,006,592 $ 1,388,538 $ 978,028 $ 789,625 $ 436,796 $ 295,132
Ratio of expenses with
reimbursement to average net
assets (3) 1.90%* 1.90% 1.90% 1.90% 6.60% 11.53%
Ratio of expenses without reimbursement
to average net assets 3.64%* 4.55% 4.65% 6.89% 9.68% 11.53%
Ratio of net investment loss
to average net assets (1.44)%* (1.49)% (1.70)% (1.64)% (6.33)% (10.61)%
Portfolio turnover rate 45.63% 126.84% 143.21% 131.48% 176.50% 138.73%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of Period $ 7.34 $ 5.69 $ 5.47 $ 4.32 $ 5.65 $ 10.00
Income from investment operations
Investment loss--net (0.07) (0.14) (0.14) (0.10) (0.41) (0.37)
Net realized and unrealized gain
(loss) on investments 0.12 1.94 0.36 1.25 (0.92) (3.98)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.05 1.80 0.22 1.15 (1.33) (4.35)
Less distributions from Capital gains -- (0.15) -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 7.39 $ 7.34 $ 5.69 $ 5.47 $ 4.32 $ 5.65
=========== =========== =========== =========== =========== ===========
Total Return (2) 24.93%** 31.80% 4.02% 26.62% (23.54)% (43.50)%
=========== =========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 767,413 $ 609,823 $ 453,751 $ 372,330 $ 206,871 $ 171,656
Ratio of expenses with
reimbursement to average net
assets (3) 2.55%* 2.55% 2.55% 2.55% 8.05% 11.97%
Ratio of expenses without
reimbursement to average
net assets 4.80%* 6.06% 6.11% 9.05% 11.65% 11.97%
Ratio of net investment loss
to average net assets (2.08)%* (2.14)% (2.35)% (2.29)% (7.77)% (11.25)%
Portfolio turnover rate 45.63% 126.84% 143.21% 131.48% 176.50% 138.73%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R has voluntarily agreed to waive or reduce expenses to 1.90% for Class
A and 2.55% for Class B until April 30, 2006. Effective May 1, 2006 until
April 30, 2007, the expenses will be waived or reduced to 1.65% for Class A
and 2.30% for Class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
20
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCK
CONSUMER DISCRETIONARY--
CONSUMER ELECTRONICS--1.26%
Nintendo Co., Ltd. ADR 2,165 $ 40,327
HOTELS, RESTAURANTS & LEISURE--1.34%
Carnival Corp. 515 26,600
Starbucks Corp.* 445 16,162
------------
42,762
INTERNET & CATALOG RETAIL--4.90%
eBay Inc.* 2,570 102,954
Netflix Inc.* 1,995 53,486
------------
156,440
MEDIA--5.45%
News Corp. (Class A) 2,595 42,247
Walt Disney Co. (The) 1,270 35,547
XM Satellite Radio Holdings Inc.
(Class A)* 4,350 96,092
------------
173,886
MULTI-LINE RETAIL--0.76%
Costco Wholesale Corp. 475 24,358
SPECIALTY RETAIL--1.60%
Bed Bath & Beyond, Inc.* 735 26,489
Home Depot (The), Inc. 585 24,658
------------
51,147
------------
TOTAL CONSUMER DISCRETIONARY--15.31% 488,920
------------
CONSUMER STAPLES--
FOOD PRODUCTS--1.34%
Archer-Daniels-Midland Co. 1,350 42,822
HOUSEHOLD PRODUCTS--2.51%
Procter & Gamble Co. 1,335 80,007
TOBACCO--2.22%
Altria Group, Inc. 985 70,821
------------
TOTAL CONSUMER STAPLES--6.07% 193,650
------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--4.63%
BJ Services Co. 935 29,275
National-Oilwell, Inc.* 680 41,398
Transocean Inc.* 1,040 77,147
------------
147,820
------------
OIL & GAS--3.35%
Talisman Energy Inc. 1,045 $ 54,884
Valero Energy Corp. 970 52,176
------------
107,060
------------
TOTAL ENERGY--7.98% 254,880
------------
FINANCIALS--
CAPITAL MARKETS--2.40%
Bear Stearns Companies (The), Inc. 265 35,627
Janus Capital Group Inc. 745 16,338
Legg Mason, Inc. 190 24,812
------------
76,777
DIVERSIFIED FINANCIALS--2.28%
Goldman Sachs Group (The), Inc. 115 16,248
Merrill Lynch & Co., Inc. 325 25,093
Prudential Financial, Inc. 410 31,587
------------
72,928
FINANCIAL SERVICES--2.23%
Charles Schwab Corp. (The) 3,000 48,630
Principal Financial Group, Inc. 460 22,411
------------
71,041
INSURANCE--2.43%
American International Group, Inc. 730 48,443
Genworth Financial Inc. (Class A) 915 29,115
------------
77,558
THRIFTS & MORTGAGE FINANCE--1.05%
Golden West Financial Corp. 470 33,384
------------
TOTAL FINANCIALS--10.39% 331,688
------------
HEALTH CARE--
BIOTECHNOLOGY--4.56%
Amgen Inc.* 910 68,696
Gilead Sciences, Inc.* 410 25,531
ImClone Systems Inc.* 225 8,638
MedImmune, Inc.* 905 33,023
Vertex Pharmaceuticals Inc.* 225 9,729
------------
145,617
HEALTH CARE EQUIPMENT &
SUPPLIES--1.52%
Medtronic, Inc. 445 24,008
St. Jude Medical, Inc. 535 24,396
------------
48,404
</Table>
21
<Page>
<Table>
<Caption>
SHARES VALUE
------ ------------
COMMON STOCK
HEALTH CARE PROVIDERS &
SERVICES--0.99%
Medco Health Solutions, Inc.* 570 $ 31,760
PHARMACEUTICALS--3.75%
Novartis AG ADR 440 23,430
Schering-Plough Corp. 1,665 30,802
Sepracor Inc.* 335 19,199
Teva Pharmaceutical Industries
Ltd. ADR 1,101 46,231
------------
119,662
------------
TOTAL HEALTH CARE--10.82% 345,443
------------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.00%
Boeing Co. 440 31,983
AIR FREIGHT & COURIERS--1.02%
FedEx Corp. 305 32,708
INDUSTRIAL CONGLOMERATES--2.03%
General Electric Co. 1,970 64,754
MACHINERY--2.34%
Caterpillar Inc. 1,020 74,542
------------
TOTAL INDUSTRIALS--6.39% 203,987
------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--5.66%
Cisco Systems Inc.* 2,980 60,315
Corning Inc.* 1,685 41,131
Motorola, Inc. 1,380 29,532
Nokia Oyj ADR 865 16,072
QUALCOMM Inc. 715 33,755
------------
180,805
COMPUTERS & PERIPHERALS--1.59%
Seagate Technology* 1,905 50,616
COMPUTER RELATED & BUSINESS
SERVICES--5.75%
Apple Computer, Inc.* 1,510 103,496
Network Appliance, Inc.* 2,420 80,247
------------
183,743
COMPUTER SOFTWARE--1.47%
Check Point Software
Technologies Ltd.* 1,135 24,130
Symantec Corp.* 1,345 22,717
------------
46,847
ELECTRONIC EQUIPMENT &
INSTRUMENTS--2.02%
Emerson Electric Co. 790 64,630
INTERNET SOFTWARE & SERVICES--1.70%
Google Inc. (Class A)* 150 $ 54,393
SEMICONDUCTOR & SEMICONDUCTOR
EQUIPMENT--2.01%
Broadcom Corp.* 1,073 48,359
Freescale Semiconductor Inc.
(Class A)* 585 15,731
------------
64,090
SEMICONDUCTORS--3.43%
Marvell Technology Group Ltd.* 525 32,140
Texas Instruments Inc. 1,030 30,746
Xilinx, Inc. 1,705 46,512
------------
109,398
SOFTWARE--1.80%
Microsoft Corp. 2,135 57,432
------------
TOTAL INFORMATION TECHNOLOGY--25.43% 811,954
------------
MATERIALS--
METALS & MINING--11.67%
Cameco Corp. 1,440 53,453
Companhia Vale do Rio Doce ADR 1,305 60,591
Freeport-McMoRan Copper & Gold, Inc.
(Class B) 1,160 58,731
Inco Ltd. 1,305 63,058
Newmont Mining Corp. 440 23,285
Peabody Energy Corp. 1,580 76,266
Phelps Dodge Corp. 270 37,260
------------
372,644
------------
TOTAL MATERIALS--11.67% 372,644
------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION
SERVICES--1.56%
ALLTEL Corp. 790 49,888
------------
TOTAL TELECOMMUNICATION
SERVICES--1.56% 49,888
------------
UTILITIES--
ELECTRIC UTILITIES--2.05%
Exelon Corp. 1,145 65,391
------------
TOTAL UTILITIES--2.05% 65,391
------------
TOTAL COMMON STOCK--97.67%
(Cost $3,004,604) 3,118,445
------------
</Table>
22
<Page>
MONEY MARKET FUND
<Table>
<Caption>
SHARES VALUE
SM&R Money Market Fund, 3.99% (a) 66,161 $ 66,161
------------
TOTAL MONEY MARKET FUND--2.07%
(Cost $66,161) 66,161
------------
TOTAL INVESTMENTS--99.74%
(Cost $3,070,765) 3,184,606
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.26% 8,392
------------
NET ASSETS--100.00% $ 3,192,998
============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Affiliated Money Market 2.08%
Consumer Discretionary 15.35%
Consumer Staples 6.07%
Energy 8.00%
Financials 10.42%
Health Care 10.85%
Industrials 6.41%
Information Technology 25.50%
Materials 11.70%
Telecommunication Services 1.57%
Utilities 2.05%
</Table>
23
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $3,004,604) $ 3,118,445
Investment in affiliated money market fund (Cost $66,161) 66,161
-------------
Total investments (Cost $3,070,765) 3,184,606
Prepaid expenses 8,929
Receivable for:
Investment securities sold 137,263
Capital stock sold 944
Dividends 4,081
Expense reimbursement 3,579
-------------
TOTAL ASSETS 3,339,402
-------------
LIABILITIES
Investment securities purchased 122,306
Payable to investment adviser for fund expenses 12,711
Accrued:
Investment advisory fee 2,116
Service fee 622
Distribution fee 4,730
Other liabilities 3,919
-------------
TOTAL LIABILITIES 146,404
-------------
NET ASSETS (applicable to shares outstanding) $ 3,192,998
-------------
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,940,284
Accumulated net realized gain on investments 138,873
Net unrealized appreciation of investments 113,841
-------------
Net Assets $ 3,192,998
=============
NET ASSETS:
Class A $ 1,991,333
Class B $ 1,201,665
-------------
TOTAL NET ASSETS $ 3,192,998
=============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 300,514
Class B:
Authorized 100,000,000
Outstanding 188,465
Class A:
Net asset value and redemption price per share $ 6.63
Offering price per share: (Net assets value of $6.63 / 95%) $ 6.98
Class B:
Net asset value and offering price per share $ 6.38
</Table>
See notes to financial statements.
24
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $23) $ 12,553
Interest from affiliated money market fund 1,453
-------------
TOTAL INVESTMENT INCOME 14,006
-------------
EXPENSES
Investment advisory fees 12,892
Service fees 3,792
Professional fees 3,528
Custody and transaction fees 12,012
Directors' fees 2,903
Insurance expenses 525
Compliance expense 214
Qualification fees
Class A 4,058
Class B 3,180
Shareholder reporting expenses
Class A 1,441
Class B 921
Distribution fees
Class A 3,236
Class B 5,921
-------------
TOTAL EXPENSES 54,623
LESS EXPENSES REIMBURSED (24,975)
-------------
NET EXPENSES 29,648
-------------
INVESTMENT LOSS--NET (15,642)
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 236,215
Change in unrealized depreciation of investments (125,805)
-------------
NET GAIN ON INVESTMENTS 110,410
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 94,768
=============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2006 2005
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (15,642) $ (16,159)
Net realized gain on investments 236,215 305,796
Change in unrealized appreciation (depreciation) of investments (125,805) 258,817
---------------- ------------
Net increase in net assets resulting from operations 94,768 548,454
CAPITAL SHARE TRANSACTIONS--NET
Class A 116,944 32,629
Class B 21,879 (26,306)
---------------- ------------
Total capital share transactions--net 138,823 6,323
---------------- ------------
TOTAL INCREASE 233,591 554,777
NET ASSETS
Beginning of period 2,959,407 2,404,630
---------------- ------------
End of period $ 3,192,998 $ 2,959,407
================ ============
</Table>
See notes to financial statements.
25
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of
Period $ 6.40 $ 5.24 $ 5.20 $ 4.58 $ 6.38 $ 10.00
Income from investment operations
Investment loss--net (0.02) (0.02) (0.06) (0.04) (0.12) (0.21)
Net realized and unrealized gain
(loss) on investments 0.25 1.18 0.10 0.66 (1.68) (3.41)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.23 1.16 0.04 0.62 (1.80) (3.62)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 6.63 $ 6.40 $ 5.24 $ 5.20 $ 4.58 $ 6.38
=========== =========== =========== =========== =========== ===========
Total Return (2) 12.41%** 22.14% 0.77% 13.54% (28.21)% (36.20)%
=========== =========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 1,991,333 $ 1,815,584 $ 1,448,385 $ 1,071,035 $ 698,670 $ 608,836
Ratio of expenses with
reimbursement to average net
assets (3) 1.70%* 1.70% 1.70% 1.70% 3.54% 5.52%
Ratio of expenses without
reimbursement to average net
assets 3.31%* 3.63% 3.32% 4.76% 4.65% 5.52%
Ratio of net investment loss to
average net assets (0.78)%* (0.33)% (1.06)% (0.86)% (2.64)% (4.49)%
Portfolio turnover rate 129.77% 256.52% 162.19% 222.55% 180.20% 65.24%
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------------
2006 2005 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of Period $ 6.18 $ 5.09 $ 5.08 $ 4.51 $ 6.31 $ 10.00
Income from investment operations
Investment loss--net (0.05) (0.06) (0.09) (0.07) (0.15) (0.13)
Net realized and unrealized gain
(loss) on investments 0.25 1.15 0.10 0.64 (1.65) (3.56)
----------- ----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.20 1.09 0.01 0.57 (1.80) (3.69)
----------- ----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Period $ 6.38 $ 6.18 $ 5.09 $ 5.08 $ 4.51 $ 6.31
=========== =========== =========== =========== =========== ===========
Total Return (2) 11.46%** 21.41% 0.20% 12.64% (28.53)% (36.90)%
=========== =========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period $ 1,201,665 $ 1,143,823 $ 956,245 $ 836,200 $ 653,702 $ 456,784
Ratio of expenses with
reimbursement to average net
assets (3) 2.35%* 2.35% 2.35% 2.35% 4.13% 5.84%
Ratio of expenses without
reimbursement to average net
assets 4.06%* 4.51% 4.20% 5.53% 5.30% 5.84%
Ratio of net investment loss to
average net assets (1.43)%* (0.98)% (1.71)% (1.51)% (3.24)% (4.91)%
Portfolio turnover rate 129.77% 256.52% 162.19% 222.55% 180.20% 65.24%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R has voluntarily agreed to waive or reduce expenses to 1.70% for Class
A and 2.35% for Class B until April 30, 2006. Effective May 1, 2006 until
April 30, 2007, the expenses will be waived or reduced to 1.45% for Class A
and 2.10% for Class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
26
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R GROWTH FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--1.35%
Newell Rubbermaid Inc. 19,100 $ 475,017
Stanley Works (The) 19,600 982,744
---------------
1,457,761
MEDIA--2.21%
News Corp. (Class A) 32,100 522,588
Walt Disney Co. (The) 67,000 1,875,330
---------------
2,397,918
MULTI-LINE RETAIL--1.26%
J.C. Penney Co., Inc. (Holding Co.) 11,600 680,224
Target Corp. 12,600 685,440
---------------
1,365,664
SPECIALTY RETAIL--3.21%
Bed Bath & Beyond Inc.* 13,900 500,956
Best Buy Co., Inc. 15,600 840,216
Home Depot, Inc. (The) 13,000 547,950
Limited Brands, Inc. 39,300 930,231
Lowe's Companies, Inc. 9,700 661,346
---------------
3,480,699
---------------
TOTAL CONSUMER DISCRETIONARY--8.03% 8,702,042
---------------
CONSUMER STAPLES--
BEVERAGES--2.42%
Coca-Cola Co. (The) 34,300 1,439,571
PepsiCo, Inc. 20,000 1,182,200
---------------
2,621,771
HOUSEHOLD PRODUCTS--2.21%
Procter & Gamble Co. 40,000 2,397,200
---------------
TOTAL CONSUMER STAPLES--4.63% 5,018,971
---------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.15%
Schlumberger Ltd. 6,600 759,000
Weatherford International Ltd.* 11,200 482,944
---------------
1,241,944
OIL & GAS--7.62%
Anadarko Petroleum Corp. 5,300 525,548
BP PLC ADR 3,800 252,396
ChevronTexaco Corp. 35,922 2,028,875
Exxon Mobil Corp. 72,800 4,322,136
Kerr-McGee Corp. 2,323 226,957
Royal Dutch Petroleum Co., ADR (Class A) 14,900 901,152
---------------
8,257,064
---------------
TOTAL ENERGY--8.77% 9,499,008
---------------
FINANCIALS--
BANKS--5.12%
PNC Financial Services Group, Inc. 30,000 $ 2,110,500
U.S. Bancorp 54,085 1,671,767
Wachovia Corp. 21,300 1,194,291
Washington Mutual, Inc. 13,400 572,180
---------------
5,548,738
DIVERSIFIED FINANCIALS--2.26%
Goldman Sachs Group, Inc. (The) 5,000 706,450
JPMorgan Chase & Co. 13,800 567,732
Morgan Stanley 19,700 1,175,302
---------------
2,449,484
INSURANCE--4.55%
Allstate Corp. (The) 12,300 673,794
American International Group, Inc. 29,260 1,941,694
Brown & Brown, Inc. 24,400 762,988
Prudential Financial, Inc. 20,100 1,548,504
---------------
4,926,980
---------------
TOTAL FINANCIALS--11.93% 12,925,202
---------------
HEALTH CARE--
BIOTECHNOLOGY--1.46%
Amgen Inc.* 15,100 1,139,899
Genzyme Corp.* 2,400 166,416
Gilead Sciences, Inc.* 4,400 273,988
---------------
1,580,303
HEALTH CARE EQUIPMENT & SUPPLIES--0.80%
Medtronic, Inc. 16,100 868,595
PHARMACEUTICALS--1.71%
Abbott Laboratories 13,900 614,102
Eli Lilly & Co. 10,300 572,886
Merck & Co., Inc. 19,000 662,340
---------------
1,849,328
---------------
TOTAL HEALTH CARE--3.97% 4,298,226
---------------
INDUSTRIALS--
AEROSPACE & DEFENSE--3.72%
Boeing Co. 16,400 1,192,116
Goodrich Corp. 17,300 723,832
Honeywell International Inc. 14,500 593,775
Rockwell Collins, Inc. 16,100 855,715
United Technologies Corp. 11,300 661,050
---------------
4,026,488
</Table>
27
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
BUILDING PRODUCTS--0.43%
American Standard Companies Inc. 11,700 $ 463,086
CONSTRUCTION & ENGINEERING--0.60%
Cemex S.A. de C.V. ADR 10,600 654,656
MACHINERY--0.68%
Danaher Corp. 12,200 739,076
---------------
TOTAL INDUSTRIALS--5.43% 5,883,306
---------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--2.77%
Cisco Systems, Inc.* 84,500 1,710,280
Motorola, Inc. 30,900 661,260
Nokia Oyj ADR 34,100 633,578
---------------
3,005,118
COMPUTERS & PERIPHERALS--0.98%
EMC Corp.* 30,800 431,816
Hewlett-Packard Co. 19,000 623,390
---------------
1,055,206
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.16%
Agilent Technologies, Inc.* 4,800 172,800
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.00%
Analog Devices, Inc. 3,900 148,746
KLA-Tencor Corp. 2,900 151,467
Linear Technology Corp. 15,200 560,272
Maxim Integrated Products, Inc. 3,400 132,906
Xilinx, Inc. 3,100 84,568
---------------
1,077,959
SOFTWARE--0.89%
Intuit Inc.* 3,100 150,598
Oracle Corp.* 65,700 815,994
---------------
966,592
---------------
TOTAL INFORMATION TECHNOLOGY--5.80% 6,277,675
---------------
MATERIALS--
CHEMICALS--0.34%
PPG Industries, Inc. 6,000 363,780
CONTAINERS & PACKAGING--0.66%
Sealed Air Corp.* 12,500 711,000
PAPER & FOREST PRODUCTS--0.96%
Deltic Timber Corp. 20,000 1,045,200
---------------
TOTAL MATERIALS--1.96% 2,119,980
---------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--1.27%
Sprint Nextel Corp. 34,007 $ 817,188
Verizon Communications Inc. 16,400 552,680
---------------
1,369,868
---------------
TOTAL TELECOMMUNICATION SERVICES--1.27% 1,369,868
UTILITIES--
ELECTRIC UTILITIES--1.46%
Ameren Corp. 11,100 562,437
Exelon Corp. 9,100 519,701
Wisconsin Energy Corp. 12,100 494,527
---------------
1,576,665
GAS UTILITIES--1.18%
El Paso Corp. 30,400 397,632
Kinder Morgan, Inc. 4,800 445,344
Sempra Energy 9,200 440,128
---------------
1,283,104
---------------
TOTAL UTILITIES--2.64% 2,859,769
---------------
TOTAL COMMON STOCK--54.43%
(Cost $43,777,958) 58,954,047
---------------
MONEY MARKET FUND
SM&R Money Market Fund, 3.99%(a) 276 276
---------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $276) 276
---------------
<Caption>
FACE
AMOUNT
COMMERCIAL PAPER
FOOD PRODUCTS--0.11%
Kraft Foods Inc., 4.51%, 3/02/06 $ 119,000 118,985
INSURANCE--1.32%
Alfa Corporation, 4.50%, 3/01/06 1,434,000 1,434,000
TEXTILES & APPAREL--1.31%
VF Corp., 4.57%, 3/03/06 1,415,000 1,414,641
---------------
TOTAL COMMERCIAL PAPER--2.74%
(Cost $2,967,626) 2,967,626
---------------
TOTAL INVESTMENTS--57.17%
(Cost $46,745,860) 61,921,949
CASH AND OTHER ASSETS, LESS LIABILITIES--42.83% 46,396,237
---------------
NET ASSETS--100.00% $ 108,318,186
===============
</Table>
28
<Page>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 14.05%
Consumer Staples 8.11%
Energy 15.34%
Financials 20.87%
Health Care 6.94%
Industrials 9.50%
Information Technology 10.14%
Materials 3.43%
Miscellaneous 4.79%
Telecommunication Services 2.21%
Utilities 4.62%
</Table>
29
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $46,745,584) $ 61,921,673
Investment in affiliated money market fund (Cost $276) 276
---------------
Total investments (Cost $46,745,860) 61,921,949
Prepaid expenses 38,569
Receivable for:
Investment securities sold 46,811,997
Capital stock sold 18,921
Dividends 225,265
Expense reimbursement 2,190
Other assets 93,341
---------------
TOTAL ASSETS 109,112,232
---------------
LIABILITIES
Investment securities purchased 440,398
Capital stock reacquired 124,002
Payable to investment adviser for fund expenses 94,819
Accrued:
Investment advisory fee 61,495
Service fee 20,445
Distribution fee 10,179
Other liabilities 42,708
---------------
TOTAL LIABILITIES 794,046
---------------
NET ASSETS (applicable to shares outstanding) $ 108,318,186
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 96,009,354
Undistributed net investment income 188,155
Accumulated net realized loss on investments (3,055,412)
Net unrealized appreciation of investments 15,176,089
---------------
Net Assets $ 108,318,186
===============
NET ASSETS:
Class A $ 6,068,914
Class B $ 3,250,316
Class T $ 98,998,956
---------------
TOTAL NET ASSETS: $ 108,318,186
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 1,432,949
Class B:
Authorized 25,000,000
Outstanding 784,027
Class T:
Authorized 95,000,000
Outstanding 22,881,612
Class A:
Net asset value and redemption price per share $ 4.24
Offering price per share: (Net Assets value of $4.24 / 95%) $ 4.46
Class B:
Net asset value and offering price per share $ 4.15
Class T:
Net asset value and redemption price per share $ 4.33
Offering price per share: (Net Assets value of $4.33 / 94.25%) $ 4.59
</Table>
See notes to financial statements.
30
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $2,560) $ 994,453
Interest 67,220
Interest from affiliated money market fund 251
---------------
TOTAL INVESTMENT INCOME 1,061,924
---------------
EXPENSES
Investment advisory fees 401,987
Service fees 133,595
Professional fees 9,950
Custody and transaction fees 11,966
Directors' fees 2,903
Insurance expenses 20,871
Compliance expense 8,981
Qualification fees
Class A 3,830
Class B 3,591
Class T 11,504
Shareholder reporting expenses
Class A 4,798
Class B 2,677
Class T 30,236
Distribution fees
Class A 7,583
Class B 12,867
---------------
TOTAL EXPENSES 667,339
LESS EXPENSES REIMBURSED (13,700)
---------------
NET EXPENSES 653,639
---------------
INVESTMENT INCOME--NET 408,285
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 14,634,459
Change in unrealized depreciation of investments (10,694,352)
---------------
NET GAIN ON INVESTMENTS 3,940,107
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,348,392
===============
</Table>
See notes to financial statements.
31
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ---------------
2006 2005
---------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net $ 408,285 $ 1,342,227
Net realized gain on investments 14,634,459 11,214,235
Change in unrealized depreciation of investments (10,694,352) (2,651,055)
---------------- ---------------
Net increase in net assets resulting from operations 4,348,392 9,905,407
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (19,469) (65,264)
Class B (6,567) (24,873)
Class T (365,517) (1,228,147)
---------------- ---------------
Total distributions to shareholders (391,553) (1,318,284)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (303,384) (318,767)
Class B (323,754) (161,881)
Class T (6,264,396) (10,991,288)
---------------- ---------------
Total capital share transactions--net (6,891,534) (11,471,936)
---------------- ---------------
TOTAL DECREASE (2,934,695) (2,884,813)
NET ASSETS
Beginning of period 111,252,881 114,137,694
---------------- ---------------
End of period $ 108,318,186 $ 111,252,881
================ ===============
Undistributed Net Investment Income $ 188,155 $ 171,424
================ ===============
</Table>
See notes to financial statements.
32
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ ------------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, Beginning
of Period $ 4.09 $ 3.79 $ 3.45 $ 3.15 $ 4.18 $ 5.55 $ 6.73
Income from investment
operations
Investment income
(loss)--net 0.01 0.04 0.02 0.01 (0.01) -- 0.01
Net realized and
unrealized gain (loss)
on investments 0.15 0.30 0.34 0.30 (1.02) (1.37) (0.66)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total from Investment
Operations 0.16 0.34 0.36 0.31 (1.03) (1.37) (0.65)
Less distributions
Investment income--net (0.01) (0.04) (0.02) (0.01) -- -- (0.01)
Capital gains -- -- -- -- -- -- (0.52)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Distributions (0.01) (0.04) (0.02) (0.01) -- -- (0.53)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, End of
Period $ 4.24 $ 4.09 $ 3.79 $ 3.45 $ 3.15 $ 4.18 $ 5.55
============ ========== ========== ========== ========== ========== ============
Total Return (1) 9.10%** 9.05% 10.41% 10.00% (24.61)% (24.68)%** (8.76)%
============ ========== ========== ========== ========== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 6,069 $ 6,154 $ 6,017 $ 5,039 $ 5,287 $ 5,971 $ 6,856
Ratio of expenses with
reimbursement to average
net assets (2) 1.36%* 1.36% 1.36% 1.36% 1.47% 1.50%* 1.30%
Ratio of expenses without
reimbursement to average
net assets 1.62%* 1.69% 1.54% 1.60% 1.55% 1.50%* 1.30%
Ratio of net investment
income (loss) to average
net assets 0.59%* 1.03% 0.44% 0.42% (0.03)% (0.13)%* (0.02)%
Portfolio turnover rate 9.50% 24.18% 4.93% 22.97% 41.74% 18.28% 19.68%
<Caption>
CLASS B SHARES
--------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ --------------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, Beginning
of Period $ 4.00 $ 3.72 $ 3.39 $ 3.11 $ 4.13 $ 5.47 $ 6.66
Income from investment
operations
Investment income
(loss)--net -- 0.02 0.01 (0.01) (0.02) (0.02) (0.02)
Net realized and
unrealized gain (loss)
on investments 0.16 0.29 0.33 0.29 (1.00) (1.32) (0.65)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total from Investment
Operations 0.16 0.31 0.34 0.28 (1.02) (1.34) (0.67)
Less distributions
Investment income--net (0.01) (0.03) (0.01) (0.00)*** -- -- --
Capital gains -- -- -- -- -- -- (0.52)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Distributions (0.01) (0.03) (0.01) -- -- -- (0.52)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, End of
Period $ 4.15 $ 4.00 $ 3.72 $ 3.39 $ 3.11 $ 4.13 $ 5.47
============ ========== ========== ========== ========== ========== ============
Total Return (1) 9.31%** 8.27% 9.93% 9.12% (24.70)% (24.50)%** (9.17)%
============ ========== ========== ========== ========== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 3,250 $ 3,456 $ 3,365 $ 2,700 $ 2,587 $ 2,826 $ 3,382
Ratio of expenses with
reimbursement to average
net assets (2) 1.86%* 1.86% 1.86% 1.86% 1.97% 2.00%* 1.89%
Ratio of expenses without
reimbursement to average
net assets 2.20%* 2.20% 2.09% 2.24% 2.19% 2.00%* 1.89%
Ratio of net investment
income (loss) to average
net assets 0.09%* 0.52% (0.06)% (0.08)% (0.53)% (0.78)%* (0.66)%
Portfolio turnover rate 9.50% 24.18% 4.93% 22.97% 41.74% 18.28% 19.68%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.36% for Class
A and 1.86% for Class B until December 31, 2006.
See notes to financial statements.
33
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ ------------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, Beginning
of Period $ 4.17 $ 3.87 $ 3.52 $ 3.21 $ 4.25 $ 5.60 $ 6.77
Income from investment
operations
Investment income--net 0.02 0.05 0.03 0.03 0.01 0.01 0.03
Net realized and
unrealized gain (loss)
on investments 0.16 0.30 0.35 0.30 (1.04) (1.35) (0.65)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total from Investment
Operations 0.18 0.35 0.38 0.33 (1.03) (1.34) (0.62)
Less distributions
Investment income--net (0.02) (0.05) (0.03) (0.02) (0.01) (0.01) (0.03)
Capital gains -- -- -- -- -- -- (0.52)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Distributions (0.02) (0.05) (0.03) (0.02) (0.01) (0.01) (0.55)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, End of
Period $ 4.33 $ 4.17 $ 3.87 $ 3.52 $ 3.21 $ 4.25 $ 5.60
============ ========== ========== ========== ========== ========== ============
Total Return (1) 9.94%** 9.01% 10.67% 10.30% (24.24)% (23.99)%** (8.25)%
============ ========== ========== ========== ========== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $ 98,999 $ 101,643 $ 104,756 $ 100,383 $ 98,912 $ 140,530 $ 194,150
Ratio of expenses to
average net assets 1.17%* 1.19% 1.12% 1.15% 1.10% 1.08%* 0.81%
Ratio of net investment
income to average
net assets 0.78%* 1.20% 0.68% 0.63% 0.34% 0.31%* 0.47%
Portfolio turnover rate 9.50% 24.18% 4.93% 22.97% 41.74% 18.28% 19.68%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
34
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
CONSUMER DISCRETIONARY--
AUTOMOBILES--1.82%
Ford Motor Co. 123,000 $ 980,310
General Motors Corp. 48,900 993,159
---------------
1,973,469
HOUSEHOLD DURABLES--1.77%
Newell Rubbermaid Inc. 17,800 442,686
Stanley Works (The) 17,900 897,506
Tupperware Corp. 27,600 584,844
---------------
1,925,036
MEDIA--3.49%
Time Warner Inc. 110,700 1,916,217
Walt Disney Co. (The) 66,900 1,872,531
---------------
3,788,748
MULTI-LINE RETAIL--0.54%
Target Corp. 10,900 592,960
SPECIALTY RETAIL--3.30%
Best Buy Co., Inc. 16,050 864,453
Limited Brands, Inc. 46,900 1,110,123
Lowe's Companies, Inc. 13,000 886,340
Staples, Inc. 29,550 725,157
---------------
3,586,073
---------------
TOTAL CONSUMER DISCRETIONARY--10.92% 11,866,286
---------------
CONSUMER STAPLES--
BEVERAGES--2.47%
Coca-Cola Co. (The) 25,700 1,078,629
PepsiCo, Inc. 27,200 1,607,792
---------------
2,686,421
FOOD PRODUCTS--3.57%
ConAgra Foods, Inc. 53,100 1,116,693
H.J. Heinz Co. 19,000 719,530
McCormick & Co., Inc. 19,500 640,185
Sara Lee Corp. 57,700 1,019,559
Sensient Technologies Corp. 21,500 385,280
---------------
3,881,247
FOOD & DRUG RETAILING--2.35%
Wal-Mart Stores, Inc. 56,300 2,553,768
HOUSEHOLD PRODUCTS--1.82%
Kimberly-Clark Corp. 13,600 804,848
Procter & Gamble Co. 19,500 1,168,635
---------------
1,973,483
TOBACCO--3.18%
Altria Group, Inc. 14,700 $ 1,056,930
Reynolds American Inc. 12,949 1,374,536
UST Inc. 26,200 1,018,656
---------------
3,450,122
---------------
TOTAL CONSUMER STAPLES--13.39% 14,545,041
---------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--2.17%
Schlumberger Ltd. 11,400 1,311,000
Weatherford International Ltd.* 24,400 1,052,128
---------------
2,363,128
OIL & GAS--8.94%
Anadarko Petroleum Corp. 13,600 1,348,576
BP PLC ADR 17,510 1,163,014
ChevronTexaco Corp. 39,026 2,204,188
Enterprise Products Partner L.P. 10,700 259,796
Exxon Mobil Corp. 62,100 3,686,877
Royal Dutch Shell PLC ADR (Class A) 17,300 1,046,304
---------------
9,708,755
---------------
TOTAL ENERGY--11.11% 12,071,883
---------------
FINANCIALS--
BANKS--10.68%
AmSouth Bancorporation 22,300 618,825
Bank of America Corp. 48,700 2,232,895
Fifth Third Bancorp 27,700 1,070,605
KeyCorp 17,100 637,317
National City Corp. 31,100 1,082,280
PNC Financial Services Group, Inc. 33,400 2,349,690
U.S. Bancorp 33,700 1,041,667
Washington Mutual, Inc. 13,700 584,990
Wells Fargo & Co. 30,900 1,983,780
---------------
11,602,049
DIVERSIFIED FINANCIALS--6.54%
Allied Capital Corp. 20,500 601,470
Citigroup Inc. 68,400 3,171,708
Morgan Stanley 11,500 686,090
Principal Financial Group, Inc. 16,700 813,624
Weingarten Realty Investors 46,350 1,825,263
---------------
7,098,155
INSURANCE--4.41%
Allstate Corp. (The) 12,600 690,228
American International Group, Inc. 16,600 1,101,576
Genworth Financial Inc. (Class A) 16,800 534,576
Prudential Financial, Inc. 19,700 1,517,688
St. Paul Travelers Companies, Inc. (The) 21,956 943,669
---------------
4,787,737
</Table>
35
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
REAL ESTATE--2.56%
Health Care Property Investors, Inc. 45,200 $ 1,241,644
Plum Creek Timber Co., Inc. 41,500 1,541,725
---------------
2,783,369
---------------
TOTAL FINANCIALS--24.19% 26,271,310
---------------
HEALTH CARE--
HEALTH CARE EQUIPMENT & SUPPLIES--1.55%
Beckman Coulter, Inc. 11,400 615,030
Biomet, Inc. 14,600 531,440
Zimmer Holdings, Inc.* 7,760 536,837
---------------
1,683,307
HEALTH CARE PROVIDERS & SERVICES--0.98%
Health Management Associates, Inc. (Class A) 22,700 483,283
Patterson Companies Inc.* 16,200 583,848
---------------
1,067,131
PHARMACEUTICALS--6.64%
Bristol-Myers Squibb Co. 37,600 868,560
Johnson & Johnson 39,200 2,259,880
Merck & Co., Inc. 25,300 881,958
Pfizer Inc. 85,580 2,241,340
Wyeth 19,300 961,140
---------------
7,212,878
---------------
TOTAL HEALTH CARE--9.17% 9,963,316
---------------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.55%
United Technologies Corp. 28,800 1,684,800
BUILDING PRODUCTS--0.45%
American Standard Companies Inc. 12,300 486,834
COMMERCIAL SERVICES & SUPPLIES--0.59%
ServiceMaster Co. (The) 51,500 644,780
INDUSTRIAL CONGLOMERATES--6.07%
3M Co. 10,200 750,618
General Electric Co. 116,250 3,821,138
Textron Inc. 17,600 1,550,736
Tyco International Ltd. 18,300 471,957
---------------
6,594,449
MACHINERY--0.68%
Illinois Tool Works Inc. 8,600 738,224
---------------
TOTAL INDUSTRIALS--9.34% 10,149,087
---------------
MATERIALS--
CHEMICALS--1.84%
Dow Chemical Co. 20,100 $ 864,903
Ecolab Inc. 7,100 256,949
E.I. du Pont de Nemours and Co. 11,100 446,664
PPG Industries, Inc. 7,200 436,536
---------------
2,005,052
METALS & MINING--0.50%
Alcoa Inc. 18,400 539,488
---------------
TOTAL MATERIALS--2.34% 2,544,540
---------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--3.75%
ALLTEL Corp. 9,650 609,398
AT&T Inc. 23,500 648,365
Citizens Communication Co. 86,000 1,148,100
Verizon Communications Inc. 49,400 1,664,780
---------------
4,070,643
---------------
TOTAL TELECOMMUNICATION SERVICES--3.75% 4,070,643
---------------
UTILITIES--
ELECTRIC UTILITIES--6.63%
Ameren Corp. 15,200 770,184
Consolidated Edison, Inc. 23,100 1,059,597
DTE Energy Co. 24,800 1,073,840
Duke Energy Corp. 38,600 1,096,240
Entergy Corp. 4,600 333,546
Pinnacle West Capital Corp. 25,500 1,046,775
Progress Energy, Inc. 25,000 1,109,500
Southern Co. (The) 10,000 340,300
Xcel Energy, Inc. 20,000 371,200
---------------
7,201,182
GAS UTILITIES--3.00%
Nicor Inc. 26,100 1,120,473
NiSource Inc. 51,600 1,059,348
Peoples Energy Corp. 29,400 1,079,274
---------------
3,259,095
---------------
TOTAL UTILITIES--9.63% 10,460,277
---------------
TOTAL COMMON STOCK--93.84%
(Cost $83,050,771) 101,942,383
---------------
MONEY MARKET FUND
SM&R Money Market Fund, 3.99%(a) 120 120
---------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $120) 120
---------------
</Table>
36
<Page>
<Table>
<Caption>
FACE
AMOUNT VALUE
COMMERCIAL PAPER
FOOD PRODUCTS--0.94%
Kraft Foods Inc., 4.51%, 03/02/06 $ 1,017,000 $ 1,016,873
GAS UTILITIES--3.90%
Laclede Gas Co., 4.52%, 03/01/06 4,235,000 4,235,000
TEXTILES & APPAREL--1.33%
VF Corp., 4.57%, 03/03/06 1,448,000 1,447,632
---------------
TOTAL COMMERCIAL PAPER--6.17%
(Cost $6,699,505) 6,699,505
---------------
TOTAL INVESTMENTS--100.01%
(Cost $89,750,396) 108,642,008
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.01)% (11,255)
---------------
NET ASSETS--100.00% $ 108,630,753
===============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 10.92%
Consumer Staples 13.39%
Energy 11.11%
Financials 24.18%
Health Care 9.17%
Industrials 9.34%
Materials 2.34%
Miscellaneous 6.17%
Telecommunication Services 3.75%
Utilities 9.63%
</Table>
37
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $89,750,276) $ 108,641,888
Investment in affiliated money market fund (Cost $120) 120
---------------
Total investments (Cost $89,750,396) 108,642,008
Prepaid expenses 41,636
Receivable for:
Capital stock sold 6,538
Dividends 315,164
Expense reimbursement 3,284
Other assets 62,725
---------------
TOTAL ASSETS 109,071,355
---------------
LIABILITIES
Capital stock reacquired 236,533
Payable to investment adviser for fund expenses 74,478
Accrued:
Investment advisory fee 61,902
Service fee 20,576
Distribution fee 19,415
Other liabilities 27,698
---------------
TOTAL LIABILITIES 440,602
---------------
NET ASSETS (applicable to shares outstanding) $ 108,630,753
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 87,453,104
Undistributed net investment income 323,553
Accumulated net realized gain on investments 1,962,484
Net unrealized appreciation of investments 18,891,612
---------------
Net Assets $ 108,630,753
===============
NET ASSETS:
Class A $ 8,979,422
Class B $ 7,026,126
Class T $ 92,625,205
---------------
TOTAL NET ASSETS: $ 108,630,753
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 405,007
Class B:
Authorized 25,000,000
Outstanding 328,451
Class T:
Authorized 75,000,000
Outstanding 4,035,137
Class A:
Net asset value and redemption price per share $ 22.17
Offering price per share: (Net Assets value of $22.17 / 95%) $ 23.34
Class B:
Net asset value and offering price per share $ 21.39
Class T:
Net asset value and redemption price per share $ 22.95
Offering price per share: (Net Assets value of $22.95 / 94.25%) $ 24.35
</Table>
See notes to financial statements.
38
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $2,879) $ 1,326,929
Interest 61,796
Interest from affiliated money market fund 153
---------------
TOTAL INVESTMENT INCOME 1,388,878
---------------
EXPENSES
Investment advisory fees 403,630
Service fees 134,120
Professional fees 9,950
Custody and transaction fees 11,747
Directors' fees 2,903
Insurance expenses 21,018
Compliance expense 9,050
Qualification fees
Class A 4,202
Class B 4,119
Class T 10,461
Shareholder reporting expenses
Class A 3,265
Class B 2,927
Class T 16,971
Distribution fees
Class A 11,007
Class B 28,166
---------------
TOTAL EXPENSES 673,536
LESS EXPENSES REIMBURSED (20,562)
---------------
NET EXPENSES 652,974
---------------
INVESTMENT INCOME--NET 735,904
---------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,211,534
Change in unrealized appreciation of investments 1,464,261
---------------
NET GAIN ON INVESTMENTS 3,675,795
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 4,411,699
===============
</Table>
See notes to financial statements.
39
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ---------------
2006 2005
---------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 735,904 $ 1,854,500
Net realized gain on investments 2,211,534 8,257,550
Change in unrealized appreciation of investments 1,464,261 148,670
---------------- ---------------
Net increase in net assets resulting from operations 4,411,699 10,260,720
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (49,644) (147,054)
Class B (33,381) (97,366)
Class T (540,939) (1,611,802)
Capital gains
Class A (694,010) (194,102)
Class B (618,906) (179,300)
Class T (7,130,605) (2,210,425)
---------------- ---------------
Total distributions to shareholders (9,067,485) (4,440,049)
CAPITAL SHARE TRANSACTIONS--NET
Class A 291,024 615,300
Class B (349,615) 2,101
Class T 768,556 (7,101,984)
---------------- ---------------
Total capital share transactions--net 709,965 (6,484,583)
---------------- ---------------
TOTAL DECREASE (3,945,821) (663,912)
NET ASSETS
Beginning of Period 112,576,574 113,240,486
---------------- ---------------
End of Period $ 108,630,753 $ 112,576,574
================ ===============
Undistributed Net Investment Income $ 323,553 $ 211,614
================ ===============
</Table>
See notes to financial statements.
40
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ ------------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, Beginning
of Period $ 23.22 $ 22.11 $ 20.03 $ 19.04 $ 22.72 $ 25.19 $ 24.79
Income from investment
operations
Investment income--net 0.15 0.35 0.26 0.22 0.18 0.16 0.36
Net realized and
unrealized gain (loss)
on investments 0.78 1.68 2.10 1.01 (3.63) (2.49) 1.50
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total from Investment
Operations 0.93 2.03 2.36 1.23 (3.45) (2.33) 1.86
Less distributions
Investment income--net (0.13) (0.39) (0.28) (0.24) (0.23) (0.14) (0.38)
Capital gains (1.85) (0.53) -- -- -- -- (1.08)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Distributions (1.98) (0.92) (0.28) (0.24) (0.23) (0.14) (1.46)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, End of
Period $ 22.17 $ 23.22 $ 22.11 $ 20.03 $ 19.04 $ 22.72 $ 25.19
============ ========== ========== ========== ========== ========== ============
Total Return (1) 7.53%** 9.25% 11.79% 6.61% (15.27)% (9.25)%** 8.61%
============ ========== ========== ========== ========== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 8,979 $ 9,088 $ 8,063 $ 5,940 $ 5,517 $ 6,330 $ 5,671
Ratio of expenses with
reimbursement to average
net assets (2) 1.26%* 1.26% 1.26% 1.26% 1.44% 1.45%* 1.49%
Ratio of expenses without
reimbursement to average
net assets 1.50%* 1.50% 1.43% 1.50% 1.45% 1.45%* 1.49%
Ratio of net investment
income to average net
assets 1.28%* 1.53% 1.08% 1.21% 0.88% 1.03%* 1.32%
Portfolio turnover rate 19.49% 18.45% 6.74% 7.57% 30.99% 18.15% 22.05%
<Caption>
CLASS B SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ ------------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, Beginning
of Period $ 22.49 $ 21.46 $ 19.44 $ 18.56 $ 22.22 $ 24.69 $ 24.38
Income from investment
operations
Investment income--net 0.08 0.23 0.13 0.13 0.09 0.08 0.23
Net realized and
unrealized gain (loss)
on investments 0.77 1.61 2.07 0.94 (3.57) (2.47) 1.45
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total from Investment
Operations 0.85 1.84 2.20 1.07 (3.48) (2.39) 1.68
Less distributions
Investment income--net (0.10) (0.28) (0.18) (0.19) (0.18) (0.08) (0.29)
Capital gains (1.85) (0.53) -- -- -- -- (1.08)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Distributions (1.95) (0.81) (0.18) (0.19) (0.18) (0.08) (1.37)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, End of
Period $ 21.39 $ 22.49 $ 21.46 $ 19.44 $ 18.56 $ 22.22 $ 24.69
============ ========== ========== ========== ========== ========== ============
Total Return (1) 7.24%** 8.64% 11.36% 5.85% (15.72)% (9.68)%** 7.95%
============ ========== ========== ========== ========== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 7,026 $ 7,744 $ 7,375 $ 6,182 $ 5,806 $ 5,688 $ 5,324
Ratio of expenses with
reimbursement to average
net assets (2) 1.76%* 1.76% 1.76% 1.76% 1.94% 1.98%* 1.99%
Ratio of expenses without
reimbursement to average
net assets 2.03%* 2.05% 1.95% 1.99% 1.95% 1.98%* 1.99%
Ratio of net investment
income to average net
assets 0.78%* 1.04% 0.58% 0.71% 0.37% 0.50%* 0.74%
Portfolio turnover rate 19.49% 18.45% 6.74% 7.57% 30.99% 18.15% 22.05%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.26% for Class
A and 1.76% for Class B until December 31, 2006.
See notes to financial statements.
41
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ ------------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, Beginning
of Period $ 23.97 $ 22.77 $ 20.56 $ 19.51 $ 23.26 $ 25.76 $ 25.30
Income from investment
operations
Investment income--net 0.17 0.40 0.28 0.27 0.27 0.24 0.46
Net realized and
unrealized gain (loss)
on investments 0.80 1.72 2.21 1.04 (3.74) (2.57) 1.54
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total from Investment
Operations 0.97 2.12 2.49 1.31 (3.47) (2.33) 2.00
Less distributions
Investment income--net (0.14) (0.39) (0.28) (0.26) (0.28) (0.17) (0.46)
Capital gains (1.85) (0.53) -- -- -- -- (1.08)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total Distributions (1.99) (0.92) (0.28) (0.26) (0.28) (0.17) (1.54)
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net Asset Value, End of
Period $ 22.95 $ 23.97 $ 22.77 $ 20.56 $ 19.51 $ 23.26 $ 25.76
============ ========== ========== ========== ========== ========== ============
Total Return (1) 7.70%** 9.35% 12.14% 6.83% (15.03)% (9.07)%** 8.99%
============ ========== ========== ========== ========== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 92,625 $ 95,744 $ 97,802 $ 94,943 $ 103,396 $ 138,566 $ 160,319
Ratio of expenses to
average net assets 1.14%* 1.14% 1.10% 1.12% 1.07% 1.06%* 1.05%
Ratio of net investment
income to average net
assets 1.40%* 1.66% 1.24% 1.36% 1.26% 1.43%* 1.73%
Portfolio turnover rate 19.49% 18.45% 6.74% 7.57% 30.99% 18.15% 22.05%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
42
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R BALANCED FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
AUTOMOBILES--0.52%
Navistar International Corp.* 2,800 $ 82,180
PACCAR Inc. 1,100 76,857
---------------
159,037
HOTELS, RESTAURANTS & LEISURE--0.77%
Starwood Hotels & Resorts Worldwide, Inc. 3,700 234,950
HOUSEHOLD DURABLES--0.87%
Newell Rubbermaid Inc. 3,800 94,506
Stanley Works (The) 3,400 170,476
---------------
264,982
LEISURE EQUIPMENT & PRODUCTS--0.60%
Brunswick Corp. 4,700 184,381
MEDIA--2.68%
CBS Corp. - Class B 2,000 48,920
Comcast Corp. (Special Class A)* 2,000 53,500
Comcast Corp. (Class A )* 3,500 93,905
News Corp. (Class A) 6,100 99,308
Time Warner Inc. 9,000 155,790
Viacom Inc. (Class B) 2,000 79,920
Walt Disney Co. (The) 10,400 291,096
---------------
822,439
MULTI-LINE RETAIL--0.93%
J.C. Penney Co., Inc. (Holding Co.) 2,200 129,008
Kohl's Corp.* 1,000 48,110
Target Corp. 2,000 108,800
---------------
285,918
SPECIALTY RETAIL--1.76%
Best Buy Co., Inc. 3,000 161,580
Limited Brands, Inc. 7,600 179,892
Lowe's Companies, Inc. 2,900 197,722
---------------
539,194
---------------
TOTAL CONSUMER DISCRETIONARY--8.13% 2,490,901
---------------
CONSUMER STAPLES--
BEVERAGES--1.50%
Coca-Cola Co. (The) 6,000 251,820
International Flavors & Fragrances Inc. 900 31,167
PepsiCo, Inc. 3,000 177,330
---------------
460,317
FOOD PRODUCTS--1.36%
H.J. Heinz Co. 2,600 98,462
McCormick & Co., Inc. 5,700 187,131
Sensient Technologies Corp. 7,400 132,608
---------------
418,201
FOOD & DRUG RETAILING--1.38%
Wal-Mart Stores, Inc. 9,300 $ 421,848
HOUSEHOLD PRODUCTS--2.29%
Kimberly-Clark Corp. 2,200 130,196
Procter & Gamble Co. 9,540 571,732
---------------
701,928
---------------
TOTAL CONSUMER STAPLES--6.53% 2,002,294
---------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--0.96%
Schlumberger Ltd. 1,200 138,000
Weatherford International Ltd.* 3,600 155,232
---------------
293,232
OIL & GAS--5.60%
Anadarko Petroleum Corp. 1,800 178,488
BP PLC ADR 5,092 338,211
ChevronTexaco Corp. 7,601 429,305
Exxon Mobil Corp. 13,000 771,810
---------------
1,717,814
---------------
TOTAL ENERGY--6.56% 2,011,046
---------------
FINANCIALS--
BANKS--5.59%
Bank of America Corp. 13,300 609,805
PNC Financial Services Group,
Inc. 6,100 429,135
U.S. Bancorp 7,200 222,552
Wachovia Corp. 3,600 201,852
Wells Fargo & Co. 3,900 250,380
---------------
1,713,724
DIVERSIFIED FINANCIALS--4.57%
Citigroup Inc. 14,500 672,365
Goldman Sachs Group, Inc. (The) 1,000 141,290
JPMorgan Chase & Co. 2,092 86,065
Morgan Stanley 8,400 501,144
---------------
1,400,864
INSURANCE--4.01%
Allstate Corp. (The) 2,300 125,994
American International Group, Inc. 5,731 380,309
Genworth Financial Inc. (Class A) 6,200 197,284
Prudential Financial, Inc. 3,900 300,456
St. Paul Travelers Companies, Inc. (The) 5,254 225,817
---------------
1,229,860
---------------
TOTAL FINANCIALS--14.17% 4,344,448
---------------
</Table>
43
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
HEALTH CARE--
BIOTECHNOLOGY--0.62%
Amgen Inc.* 2,500 $ 188,725
HEALTH CARE EQUIPMENT & SUPPLIES--1.07%
Beckman Coulter, Inc. 2,400 129,480
Biomet, Inc. 2,700 98,280
Zimmer Holdings, Inc.* 1,460 101,003
---------------
328,763
HEALTH CARE PROVIDERS & SERVICES--0.62%
Health Management Associates, Inc. (Class A) 3,800 80,902
Patterson Companies Inc.* 3,000 108,120
---------------
189,022
PHARMACEUTICALS--6.37%
Abbott Laboratories 4,200 185,556
Allergan, Inc. 1,700 184,042
Bristol-Myers Squibb Co. 5,800 133,980
Hospira, Inc.* 420 16,674
Johnson & Johnson 9,200 530,380
Merck & Co., Inc. 5,300 184,758
Pfizer Inc. 21,555 564,525
Wyeth 3,100 154,380
---------------
1,954,295
---------------
TOTAL HEALTH CARE--8.68% 2,660,805
---------------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.06%
General Dynamics Corp. 700 86,289
Goodrich Corp. 1,900 79,496
L-3 Communications Holdings, Inc. 1,000 83,110
Northrop Grumman Corp. 1,200 76,920
---------------
325,815
COMMERCIAL SERVICES & SUPPLIES--1.05%
Cendant Corp. 5,100 84,762
Cintas Corp. 2,000 82,180
R.R. Donnelley & Sons Co. 2,300 77,418
Equifax Inc. 2,100 76,944
---------------
321,304
CONSTRUCTION & ENGINEERING--0.26%
ITT Industries, Inc. 1,500 78,750
ELECTRICAL EQUIPMENT--0.26%
American Power Conversion Corp. 3,900 79,677
INDUSTRIAL CONGLOMERATES--0.27%
Tyco International Ltd. 3,200 82,528
MACHINERY--2.31%
Caterpillar Inc. 1,100 $ 80,388
Cummins Inc. 700 75,796
Danaher Corp. 1,400 84,812
Deere & Co. 1,000 76,270
Dover Corp. 1,700 81,498
Eaton Corp. 1,100 76,637
Illinois Tool Works Inc. 900 77,256
Ingersoll-Rand Co. (Class A) 1,900 77,957
Parker Hannifin Corp. 1,000 78,170
---------------
708,784
ROAD & RAIL--0.27%
Norfolk Southern Corp. 1,600 81,888
TRADING COMPANIES & DISTRIBUTORS--0.26%
W.W. Grainger, Inc. 1,100 81,444
TRANSPORTATION INFRASTRUCTURE--0.26%
Ryder System, Inc. 1,800 79,812
---------------
TOTAL INDUSTRIALS--6.00% 1,840,002
---------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--1.60%
Cisco Systems, Inc.* 11,700 236,808
Motorola, Inc. 6,200 132,680
Nokia Oyj ADR 6,500 120,770
---------------
490,258
COMPUTERS & PERIPHERALS--2.30%
Dell Inc.* 6,800 197,200
EMC Corp.* 20,100 281,802
Hewlett-Packard Co. 6,900 226,389
---------------
705,391
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.52%
Intel Corp. 13,000 267,800
Linear Technology Corp. 1,500 55,290
Texas Instruments Inc. 2,300 68,655
Xilinx, Inc. 2,700 73,656
---------------
465,401
SOFTWARE--2.75%
Electronic Arts Inc.* 1,500 77,955
Microsoft Corp. 23,300 626,770
Oracle Corp.* 11,100 137,862
---------------
842,587
---------------
TOTAL INFORMATION TECHNOLOGY--8.17% 2,503,637
---------------
</Table>
44
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
MATERIALS--
CHEMICALS--0.58%
Dow Chemical Co. 1,600 $ 68,848
Eastman Chemical Co. 600 29,598
PPG Industries, Inc. 900 54,567
Sigma-Aldrich Corp. 400 25,764
---------------
178,777
CONTAINERS & PACKAGING--0.10%
Ball Corp. 700 29,820
METALS & MINING--0.35%
Nucor Corp. 600 51,630
Phelps Dodge Corp. 200 27,600
United States Steel Corp. 500 27,250
---------------
106,480
PAPER & FOREST PRODUCTS--0.87%
Deltic Timber Corp. 4,000 209,040
Louisiana-Pacific Corp. 1,000 28,430
MeadWestvaco Corp. 1,000 27,820
---------------
265,290
---------------
TOTAL MATERIALS--1.90% 580,367
---------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--1.58%
ALLTEL Corp. 2,400 151,560
Sprint Nextel Corp. 10,263 246,620
Verizon Communications Inc. 2,580 86,946
---------------
485,126
WIRELESS TELECOMMUNICATION SERVICES--0.35%
Vodafone Group PLC ADR 5,500 106,260
---------------
TOTAL TELECOMMUNICATION SERVICES--1.93% 591,386
---------------
UTILITIES--
ELECTRIC UTILITIES--2.34%
Ameren Corp. 3,000 152,010
CenterPoint Energy, Inc. 5,500 71,335
Constellation Energy Group 5,000 293,700
Exelon Corp. 1,400 79,954
Southern Co. (The) 1,600 54,448
Wisconsin Energy Corp. 1,600 65,392
---------------
716,839
---------------
TOTAL UTILITIES--2.34% 716,839
---------------
TOTAL COMMON STOCK--64.41%
(Cost $16,079,336) 19,741,725
---------------
<Caption>
FACE
AMOUNT VALUE
BONDS AND NOTES
CONSUMER STAPLES--
PERSONAL PRODUCTS--1.74%
Avon Products Inc., 7.15%, 11/15/09 $ 500,000 $ 533,169
---------------
TOTAL CONSUMER STAPLES--1.74% 533,169
---------------
FINANCIALS--
BANKS--2.48%
Royal Bank of Scotland GRP PLC, yankee bond, 6.40%, 04/01/09 500,000 519,383
Washington Mutual Inc., 4.20%, 01/15/10 250,000 240,651
---------------
760,034
DIVERSIFIED FINANCIALS--4.50%
General Electric Capital Corp., 3.75%, 12/15/09 350,000 333,446
JPMorgan Chase & Co., Inc., 6.00%, 01/15/09 500,000 508,563
Weingarten Realty Investors, 7.35%, 07/20/09 500,000 538,917
---------------
1,380,926
INSURANCE--1.80%
Money Group Inc. (The), 8.35%, 03/15/10 500,000 551,491
---------------
TOTAL FINANCIALS--8.78% 2,692,451
---------------
INDUSTRIALS--
TRANSPORTATION INFRASTRUCTURE--1.45%
Hertz Corp., 7.40%, 03/01/11 455,000 445,900
---------------
TOTAL INDUSTRIALS--1.45% 445,900
---------------
INFORMATION TECHNOLOGY--
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.99%
Koninklijke Philips Elec., yankee bond, 8.375%, 09/15/06 (a) 600,000 609,744
---------------
TOTAL INFORMATION TECHNOLOGY--1.99% 609,744
---------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--0.99%
SBC Communications Capital Corp., 7.11%, 08/14/06 (a) 300,000 302,656
---------------
TOTAL TELECOMMUNICATION SERVICES--0.99% 302,656
---------------
</Table>
45
<Page>
<Table>
<Caption>
FACE
AMOUNT VALUE
BONDS AND NOTES
U S GOVERNMENT AGENCY SECURITIES
U S GOVERNMENT AGENCY SECURITIES--15.18%
Federal Farm Credit Bank 4.70%, 10/06/08 $ 400,000 $ 396,366
Federal Farm Credit Bank 4.15%, 11/30/09 350,000 339,648
Federal Home Loan Bank, 2.45%, 03/23/07 1,500,000 1,461,878
Federal Home Loan Bank, 4.40%, 12/28/09 750,000 732,740
Federal Home Loan Mortgage Corp., 5.27%, 10/12/10 1,000,000 990,697
Federal Home Loan Mortgage Corp., Pool #284839, 8.50%, 01/01/17 5,411 5,801
Federal National Mortgage Association, 4.75%, 08/25/08 700,000 695,663
Federal National Mortgage Association, Pool #048974, 8.00%, 06/01/17 27,907 29,681
---------------
TOTAL US GOVERNMENT AGENCY SECURITIES--15.18% 4,652,474
---------------
TOTAL BONDS AND NOTES--30.13%
(Cost $9,183,969) 9,236,394
---------------
<Caption>
SHARES
MONEY MARKET FUND
SM&R Money Market Fund, 3.99% (b) 896 896
---------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $896) 896
---------------
<Caption>
FACE
AMOUNT
COMMERCIAL PAPER
FOOD PRODUCTS--1.97%
Kraft Foods Inc., 4.51%, 03/02/06 $ 604,000 603,924
INSURANCE--1.53% Alfa Corporation, 4.50%, 03/01/06 110,000 110,000
Torchmark Corp., 4.53%, 03/03/06 360,000 359,910
---------------
469,910
---------------
TOTAL COMMERCIAL PAPER--3.50%
(Cost $1,073,834) 1,073,834
---------------
TOTAL INVESTMENTS--98.04%
(Cost $26,338,035) 30,052,849
CASH AND OTHER ASSETS, LESS LIABILITIES--1.96% 599,932
---------------
NET ASSETS--100.00% $ 30,652,782
===============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) Long term obligations that will mature in less than one year.
(b) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 8.29%
Consumer Staples 8.44%
Energy 6.69%
Financials 23.42%
Health Care 8.85%
Industrials 7.61%
Information Technology 10.36%
Materials 1.93%
Miscellaneous 3.57%
Telecommunication Services 2.97%
U S Government 15.48%
Utilities 2.39%
</Table>
46
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R BALANCED FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $26,337,139) $ 30,051,953
Investment in affiliated money market fund (Cost $896) 896
---------------
Total investments (Cost $26,338,035) 30,052,849
Prepaid expenses 20,947
Receivable for:
Investments securities sold 2,385,035
Capital stock sold 9,626
Dividends 45,653
Interest 172,846
Expense reimbursement 2,844
Other assets 15,067
---------------
TOTAL ASSETS 32,704,867
---------------
LIABILITIES
Investment securities purchased 1,966,125
Capital stock reacquired 10,286
Payable to investment adviser for fund expenses 32,926
Accrued:
Investment advisory fee 17,591
Service fee 5,864
Distribution fee 8,428
Other liabilities 10,865
---------------
TOTAL LIABILITIES 2,052,085
---------------
NET ASSETS (applicable to shares outstanding) $ 30,652,782
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 26,284,394
Undistributed net investment income 111,082
Accumulated net realized gain on investments 542,492
Net unrealized appreciation of investments 3,714,814
---------------
Net Assets $ 30,652,782
===============
NET ASSETS:
Class A $ 5,133,845
Class B $ 2,860,072
Class T $ 22,658,865
---------------
TOTAL NET ASSETS: $ 30,652,782
===============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 291,602
Class B:
Authorized 25,000,000
Outstanding 160,849
Class T:
Authorized 25,000,000
Outstanding 1,239,074
Class A:
Net asset value and redemption price per share $ 17.61
Offering price per share: (Net assets value of $17.61 / 95%) $ 18.54
Class B:
Net asset value and offering price per share $ 17.78
Class T:
Net asset value and redemption price per share $ 18.29
Offering price per share: (Net assets value of $18.29 / 94.25%) $ 19.41
</Table>
See notes to financial statements.
47
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R BALANCED FUND
<Table>
INVESTMENT INCOME
Dividends $ 206,868
Interest 259,006
Interest from affiliated money market fund 78
---------------
TOTAL INVESTMENT INCOME 465,952
---------------
EXPENSES
Investment advisory fees 113,570
Service fees 37,857
Professional fees 7,917
Custody and transaction fees 7,780
Directors' fees 2,903
Insurance expenses 5,761
Compliance expense 2,419
Qualification fees
Class A 3,819
Class B 2,525
Class T 8,164
Shareholder reporting expenses
Class A 2,056
Class B 1,394
Class T 2,650
Distribution fees
Class A 6,268
Class B 10,736
---------------
TOTAL EXPENSES 215,819
LESS EXPENSES REIMBURSED (17,402)
---------------
NET EXPENSES 198,417
---------------
INVESTMENT INCOME--NET 267,535
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 593,390
Change in unrealized depreciation of investments (262,172)
---------------
NET GAIN ON INVESTMENTS 331,218
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 598,753
===============
</Table>
See notes to financial statements.
48
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- --------------
2006 2005
---------------- --------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net $ 267,535 $ 576,586
Net realized gain on investments 593,390 1,243,042
Change in unrealized depreciation of investments (262,172) (94,371)
---------------- --------------
Net increase in net assets resulting from operations 598,753 1,725,257
---------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (42,569) (93,764)
Class B (19,301) (44,074)
Class T (186,854) (420,489)
Capital gains
Class A (217,989) (17,004)
Class B (120,455) (10,979)
Class T (941,602) (79,523)
---------------- --------------
Total distributions to shareholders (1,528,770) (665,833)
---------------- --------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 263,971 466,400
Class B (141,118) 40,698
Class T 537,089 (790,502)
---------------- --------------
Total capital share transactions--net 659,942 (283,404)
---------------- --------------
TOTAL INCREASE (DECREASE) (270,075) 776,020
---------------- --------------
NET ASSETS
Beginning of period 30,922,857 30,146,837
---------------- --------------
End of period $ 30,652,782 $ 30,922,857
================ ==============
Undistributed Net Investment Income $ 111,082 $ 92,271
================ ==============
</Table>
See notes to financial statements.
49
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------- -------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------- -------- -------- -------- -------- ---------- ------------
Net Asset Value, Beginning
of Period $ 18.19 $ 17.60 $ 16.65 $ 15.93 $ 17.44 $ 18.93 $ 20.30
Income from investment
operations
Investment income--net 0.16 0.35 0.28 0.32 0.39 0.23 0.37
Net realized and
unrealized gain (loss) on
investments 0.20 0.65 1.18 0.77 (1.47) (1.53) (0.06)
------------- -------- -------- -------- -------- ---------- ------------
Total from Investment
Operations 0.36 1.00 1.46 1.09 (1.08) (1.30) 0.31
Less distributions
Investment income--net (0.15) (0.35) (0.30) (0.37) (0.43) (0.19) (0.39)
Capital gains (0.79) (0.06) (0.21) -- -- -- (1.29)
------------- -------- -------- -------- -------- ---------- ------------
Total Distributions (0.94) (0.41) (0.51) (0.37) (0.43) (0.19) (1.68)
------------- -------- -------- -------- -------- ---------- ------------
Net Asset Value, End of
Period $ 17.61 $ 18.19 $ 17.60 $ 16.65 $ 15.93 $ 17.44 $ 18.93
============= ======== ======== ======== ======== ========== ============
Total Return (1) 2.38%** 5.73% 8.83% 7.02% (6.29)% (6.87)%** 3.35%
============= ======== ======== ======== ======== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, End of Period
(000's omitted) $ 5,134 $ 5,030 $ 4,409 $ 3,419 $ 3,183 $ 2,713 $ 2,512
Ratio of expenses with
reimbursement to average
net assets (2) 1.30%* 1.30% 1.30% 1.30% 1.45% 1.50%* 1.50%
Ratio of expenses without
reimbursement to average
net assets 1.66%* 1.73% 1.64% 1.69% 1.73% 1.50%* 1.92%
Ratio of net investment
income to average net
assets 1.78%* 1.85% 1.51% 2.02% 2.27% 1.98%* 2.40%
Portfolio turnover rate 14.18% 23.18% 11.15% 23.83% 25.80% 14.77% 13.17%
<Caption>
CLASS B SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS YEAR
ENDED ENDED ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------- -------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------- -------- -------- -------- -------- ---------- ------------
Net Asset Value, Beginning
of Period $ 18.37 $ 17.78 $ 16.83 $ 16.18 $ 17.72 $ 19.26 $ 20.64
Income from investment
operations
Investment income--net 0.11 0.25 0.20 0.24 0.30 0.20 0.35
Net realized and
unrealized gain (loss) on
investments 0.21 0.66 1.19 0.72 (1.47) (1.59) (0.08)
------------- -------- -------- -------- -------- ---------- ------------
Total from Investment
Operations 0.32 0.91 1.39 0.96 (1.17) (1.39) 0.27
Less distributions
Investment income--net (0.12) (0.26) (0.23) (0.31) (0.37) (0.15) (0.36)
Capital gains (0.79) (0.06) (0.21) -- -- -- (1.29)
------------- -------- -------- -------- -------- ---------- ------------
Total Distributions (0.91) (0.32) (0.44) (0.31) (0.37) (0.15) (1.65)
------------- -------- -------- -------- -------- ---------- ------------
Net Asset Value, End of
Period $ 17.78 $ 18.37 $ 17.78 $ 16.83 $ 16.18 $ 17.72 $ 19.26
============= ======== ======== ======== ======== ========== ============
Total Return (1) 1.97%** 5.15% 8.33% 6.10% (6.69)% (7.23)%** 2.79%
============= ======== ======== ======== ======== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 2,860 $ 3,095 $ 2,952 $ 2,336 $ 2,105 $ 1,917 $ 2,081
Ratio of expenses with
reimbursement to average
net assets (2) 1.80%* 1.80% 1.80% 1.80% 1.95% 2.00%* 2.00%
Ratio of expenses without
reimbursement to
average net assets 2.20%* 2.23% 2.13% 2.18% 2.22% 2.00%* 2.23%
Ratio of net investment
income to average net
assets 1.27%* 1.36% 1.00% 1.51% 1.77% 1.55%* 1.89%
Portfolio turnover rate 14.18% 23.18% 11.15% 23.83% 25.80% 14.77% 13.17%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.30% for Class
A and 1.80% for Class B until December 31, 2006.
See notes to financial statements.
50
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------------------------------------
(UNAUDITED) EIGHT
SIX MONTHS MONTHS
ENDED ENDED YEAR ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------- -------------------------------------------- ---------- ------------
2006 2005 2004 2003 2002 2001 2000
------------- -------- -------- -------- -------- ---------- ------------
Net Asset Value, Beginning
of Period $ 18.85 $ 18.21 $ 17.18 $ 16.42 $ 17.91 $ 19.40 $ 20.67
Income from investment
operations
Investment income--net 0.17 0.36 0.29 0.34 0.43 0.31 0.56
Net realized and
unrealized gain
(loss) on investments 0.22 0.68 1.24 0.77 (1.50) (1.58) 0.01
------------- -------- -------- -------- -------- ---------- ------------
Total from investment
operations 0.39 1.04 1.53 1.11 (1.07) (1.27) 0.57
Less distributions
Investment income--net (0.16) (0.34) (0.29) (0.35) (0.42) (0.22) (0.55)
Capital gains (0.79) (0.06) (0.21) -- -- -- (1.29)
------------- -------- -------- -------- -------- ---------- ------------
Total distributions (0.95) (0.40) (0.50) (0.35) (0.42) (0.22) (1.84)
------------- -------- -------- -------- -------- ---------- ------------
Net Asset Value, End of
Period $ 18.29 $ 18.85 $ 18.21 $ 17.18 $ 16.42 $ 17.91 $ 19.40
============= ======== ======== ======== ======== ========== ============
Total Return (1) 2.52%** 5.77% 8.95% 6.95% (6.07)% (6.54)%** 3.64%
============= ======== ======== ======== ======== ========== ============
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 22,659 $ 22,798 $ 22,785 $ 21,569 $ 21,631 $ 24,798 $ 28,223
Ratio of expenses with
reimbursement to average
net assets 1.25%* 1.24% 1.23% 1.25% 1.25% 1.25%* 1.25%
Ratio of expenses without
reimbursement to average
net assets 1.27%* 1.24% 1.23% 1.26% 1.27% 1.25%* 1.34%
Ratio of net investment
income to average net
assets 1.83%* 1.92% 1.58% 2.08% 2.47% 2.52%* 2.63%
Portfolio turnover rate 14.18% 23.18% 11.15% 23.83% 25.80% 14.77% 13.17%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
51
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
CORPORATE BONDS
FINANCIALS--
DIVERSIFIED FINANCIALS--1.90%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 532,645
--------------
TOTAL FINANCIALS--1.90% 532,645
--------------
MATERIALS--
METALS & MINING--3.72%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 1,039,589
--------------
TOTAL MATERIALS--3.72% 1,039,589
--------------
TOTAL CORPORATE BONDS--5.62%
(Cost $1,512,450) 1,572,234
--------------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--43.18%
Federal Home Loan Bank (a) 03/06/06 5.125 2,000,000 2,000,068
Federal Home Loan Bank (a) 03/15/06 2.500 1,600,000 1,598,562
Federal Home Loan Bank 06/13/08 4.100 1,000,000 982,569
Federal Home Loan Mortgage Corp. 03/15/07 7.000 21,755 21,725
Federal Home Loan Mortgage Corp. 03/16/07 2.700 900,000 879,252
Federal Home Loan Mortgage Corp. 06/12/13 4.000 1,900,000 1,785,540
Federal National Mortgage Assoc. 02/01/08 3.875 500,000 490,689
Federal National Mortgage Assoc. 02/15/09 3.250 1,100,000 1,049,730
Federal National Mortgage Assoc. 02/01/11 6.250 1,850,000 1,933,346
Federal National Mortgage Assoc. 03/15/11 5.500 1,300,000 1,330,326
Private Export Funding 01/15/10 7.200 15,000 16,190
--------------
12,087,997
U S GOVERNMENT SECURITIES--38.95%
U S Treasury Note 05/15/08 2.625 700,000 670,141
U S Treasury Note 05/15/08 5.625 500,000 509,844
U S Treasury Note 08/15/08 3.250 1,100,000 1,064,207
U S Treasury Note 09/15/08 3.125 2,000,000 1,926,640
U S Treasury Note 10/15/08 3.125 2,000,000 1,924,688
U S Treasury Note 02/15/09 3.000 1,000,000 954,453
U S Treasury Note 05/15/14 4.750 1,319,000 1,330,901
U S Treasury Note 08/15/14 4.250 2,000,000 1,949,454
U S Treasury Note 02/15/15 4.000 600,000 573,937
--------------
10,904,265
--------------
TOTAL U S GOVERNMENT AGENCY and
U S GOVERNMENT SECURITIES--82.13%
(Cost $23,466,239) 22,992,262
--------------
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--11.36%
Federal Home Loan Bank 03/01/06 4.390 100,000 100,000
Federal Home Loan Bank 03/03/06 4.390 450,000 449,890
</Table>
52
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
GOVERNMENT AGENCIES--CONTINUED
Federal Farm Credit 03/06/06 4.370 $ 2,633,000 $ 2,631,402
--------------
3,181,292
--------------
TOTAL U S GOVERNMENT AND AGENCY
SHORT-TERM OBLIGATIONS--11.36%
(Cost $3,181,292) 3,181,292
--------------
<Caption>
SHARES
MONEY MARKET FUND 0.00%
SM&R Money Market Fund, 3.99% (b) 904 904
--------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $904) 904
--------------
TOTAL INVESTMENTS--99.11%
(Cost $28,160,885) 27,746,692
CASH AND OTHER ASSETS, LESS LIABILITIES--0.89% 247,848
--------------
NET ASSETS--100.00% $ 27,994,540
==============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Long term obligations that will mature in less than one year.
(b) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Financials 1.92%
Materials 3.75%
Miscellaneous 11.47%
U S Government 82.86%
</Table>
53
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $28,159,981) $ 27,745,788
Investment in affiliated money market fund (Cost $904) 904
--------------
Total investments (Cost $28,160,885) 27,746,692
Prepaid expenses 23,555
Receivable for:
Capital stock sold 5,074
Interest 263,182
Expense reimbursement 7,183
Other assets 2,781
--------------
TOTAL ASSETS 28,048,467
--------------
LIABILITIES
Capital stock reacquired 2,137
Distribution payable 514
Payable to investment adviser for fund expenses 25,031
Accrued:
Investment advisory fee 10,733
Service fee 5,366
Distribution fee 2,278
Other liabilities 7,868
--------------
TOTAL LIABILITIES 53,927
--------------
NET ASSETS (applicable to shares outstanding) $ 27,994,540
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 28,665,402
Undistributed net investment income 252
Accumulated net realized loss on investments (256,921)
Net unrealized depreciation of investments (414,193)
--------------
Net Assets $ 27,994,540
==============
NET ASSETS:
Class A $ 944,305
Class B $ 875,671
Class T $ 26,174,564
--------------
TOTAL NET ASSETS $ 27,994,540
==============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,001,150
Outstanding 91,681
Class B:
Authorized 100,000,000
Outstanding 85,118
Class T:
Authorized 23,000,000
Outstanding 2,574,985
Class A:
Net asset value and redemption price per share $ 10.30
Offering price per share: (Net Assets value of $10.30 / 95.25%) $ 10.81
Class B:
Net asset value and offering price per share $ 10.29
Class T:
Net asset value and redemption price per share $ 10.16
Offering price per share: (Net Assets value of $10.16 / 95.5%) $ 10.64
</Table>
See notes to financial statements.
54
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $ 545,600
Interest from affiliated money market fund 694
--------------
TOTAL INVESTMENT INCOME 546,294
--------------
EXPENSES
Investment advisory fees 70,490
Service fees 35,245
Professional fees 7,272
Custody and transaction fees 3,824
Directors' fees 2,903
Compliance expense 2,228
Insurance expenses 5,305
Qualification fees
Class A 3,722
Class B 3,468
Class T 10,057
Shareholder reporting expenses
Class A 869
Class B 612
Class T 1,120
Distribution fees
Class A 1,234
Class B 3,542
--------------
TOTAL EXPENSES 151,891
LESS EXPENSES REIMBURSED (46,616)
--------------
NET EXPENSES 105,275
--------------
INVESTMENT INCOME--NET 441,019
--------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Net realized loss on investments (79,273)
Change in unrealized depreciation of investments (471,482)
--------------
NET LOSS ON INVESTMENTS (550,755)
--------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (109,736)
==============
</Table>
See notes to financial statements.
55
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED FEBRUARY 28, AUGUST 31,
------------------ -------------
2006 2005
------------------ -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net $ 441,019 $ 706,564
Net realized loss on investments (79,273) (177,508)
Change in unrealized appreciation (depreciation) of investments (471,482) 6,348
------------------ -------------
Net increase (decrease) in net assets resulting from operations (109,736) 535,404
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (15,512) (24,908)
Class B (12,473) (20,641)
Class T (413,303) (660,768)
Capital gains
Class A -- (569)
Class B -- (620)
Class T -- (15,913)
------------------ -------------
Total distributions to shareholders (441,288) (723,429)
CAPITAL SHARE TRANSACTIONS--NET
Class A (72,121) 60,012
Class B (114,326) (116,102)
Class T (154,025) (734,217)
------------------ -------------
Total capital share transactions--net (340,472) (790,307)
------------------ -------------
TOTAL DECREASE (891,496) (978,332)
NET ASSETS
Beginning of period 28,886,036 29,864,368
------------------ -------------
End of period $ 27,994,540 $ 28,886,036
================== =============
Undistributed Net Investment Income $ 252 $ 522
================== =============
</Table>
See notes to financial statements.
56
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 10.50 $ 10.56 $ 10.75 $ 10.88 $ 10.75 $ 10.14
Income from investment operations
Investment income--net 0.16 0.25 0.23 0.40 0.48 0.53
Net realized and unrealized gain (loss) on
investments (0.20) (0.06) 0.11 (0.13) 0.13 0.61
------------ -------- -------- -------- -------- --------
Total from Investment Operations (0.04) 0.19 0.34 0.27 0.61 1.14
Less distributions
Investment income--net (0.16) (0.25) (0.23) (0.40) (0.48) (0.53)
Capital gains -- (0.00)*** (0.30) -- -- --
------------ -------- -------- -------- -------- --------
Total Distributions (0.16) (0.25) (0.53) (0.40) (0.48) (0.53)
------------ -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.30 $ 10.50 $ 10.56 $ 10.75 $ 10.88 $ 10.75
============ ======== ======== ======== ======== ========
Total Return (1) (3.08)%** 1.93% 3.14% 2.51% 5.82% 11.46%
============ ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 944 $ 1,036 $ 983 $ 1,240 $ 1,137 $ 626
Ratio of expenses with reimbursement to
average net assets (2) 0.73%* 0.73% 0.73% 0.73% 1.12% 1.25%
Ratio of expenses without reimbursement to
average net assets 2.08%* 2.32% 2.04% 1.75% 1.80% 1.27%
Ratio of net investment income to average
net assets 3.14%* 2.43% 2.13% 3.62% 4.73% 5.25%
Portfolio turnover rate 29.78% 51.35% 50.62% 99.26% 25.87% 14.01%
<Caption>
CLASS B SHARES
----------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 10.49 $ 10.55 $ 10.74 $ 10.86 $ 10.74 $ 10.14
Income from investment operations
Investment income--net 0.14 0.20 0.17 0.33 0.43 0.48
Net realized and unrealized gain (loss) on
investments (0.20) (0.06) 0.11 (0.12) 0.12 0.60
------------ -------- -------- -------- -------- --------
Total from Investment Operations (0.06) 0.14 0.28 0.21 0.55 1.08
Less distributions
Investment income--net (0.14) (0.20) (0.17) (0.33) (0.43) (0.48)
Capital gains -- (0.00)*** (0.30) -- -- --
------------ -------- -------- -------- -------- --------
Total Distributions (0.14) (0.20) (0.47) (0.33) (0.43) (0.48)
------------ -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.29 $ 10.49 $ 10.55 $ 10.74 $ 10.86 $ 10.74
============ ======== ======== ======== ======== ========
Total Return (1) (3.53)%** 1.44% 2.65% 1.96% 5.27% 10.88%
============ ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 876 $ 1,009 $ 1,131 $ 1,643 $ 758 $ 211
Ratio of expenses with reimbursement to average
net assets (2) 1.23%* 1.23% 1.23% 1.23% 1.57% 1.75%
Ratio of expenses without reimbursement to
average net assets 2.52%* 2.34% 2.06% 1.95% 2.61% 1.79%
Ratio of net investment income to average
net assets 2.64%* 1.92% 1.65% 2.99% 4.20% 4.69%
Portfolio turnover rate 29.78% 51.35% 50.62% 99.26% 25.87% 14.01%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73 for Class A
and 1.23% for Class B until December 31, 2006.
See notes to financial statements.
57
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS T SHARES
----------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 10.36 $ 10.43 $ 10.62 $ 10.75 $ 10.64 $ 10.05
Income from investment operations
Investment income--net 0.16 0.25 0.22 0.40 0.52 0.58
Net realized and unrealized gain (loss) on
investments (0.20) (0.07) 0.11 (0.13) 0.11 0.59
------------ -------- -------- -------- -------- --------
Total from Investment Operations (0.04) 0.18 0.33 0.27 0.63 1.17
Less distributions
Investment income--net (0.16) (0.25) (0.22) (0.40) (0.52) (0.58)
Capital gains -- (0.00)*** (0.30) -- -- --
------------ -------- -------- -------- -------- --------
Total Distributions (0.16) (0.25) (0.52) (0.40) (0.52) (0.58)
------------ -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 10.16 $ 10.36 $ 10.43 $ 10.62 $ 10.75 $ 10.64
============ ======== ======== ======== ======== ========
Total Return (1) (3.14)%** 1.84% 3.15% 2.46% 6.08% 11.90%
============ ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 26,175 $ 26,841 $ 27,750 $ 27,946 $ 26,807 $ 25,278
Ratio of expenses with reimbursement to average
net assets (2) 0.73%* 0.73% 0.73% 0.73% 0.93% 0.97%
Ratio of expenses without reimbursement to
average net assets 0.99%* 0.96% 0.95% 0.91% 0.95% 0.97%
Ratio of net investment income to average
net assets 3.15%* 2.43% 2.12% 3.60% 4.92% 5.55%
Portfolio turnover rate 29.78% 51.35% 50.62% 99.26% 25.87% 14.01%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
T until December 31, 2006.
See notes to financial statements.
58
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R TAX FREE FUND
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
ALABAMA--1.29%
Aaa/AAA Alabama Drinking Water Financing Authority,
Revolving Fund Loan, Series A - Revenue Bond 08/15/16 4.000 $ 180,000 $ 179,708
ARIZONA--1.90%
Aaa/AAA Scottsdale Industrial Development Authority
Hospital - Revenue Bonds, Series A 09/01/12 6.000 250,000 263,633
CALIFORNIA--0.18%
A2/A California State - General Obligation Bonds Unlimited 06/01/11 5.250 25,000 25,355
FLORIDA--9.18%
Aaa/AAA Dade County, Florida Water & Sewer System - Revenue Bonds 10/01/16 5.375 400,000 419,004
Aaa/AAA Miami - Dade County, Florida Solid Waste System - Revenue Bonds 10/01/18 4.750 400,000 410,612
Aaa/AAA Miami - Dade County, Florida Expressway Authority Toll System -
Revenue Bonds 07/01/29 6.375 400,000 446,624
--------------
1,276,240
HAWAII--1.94%
Aaa/AAA Honolulu, Hawaii City & County - General Obligation Bonds 07/01/13 5.000 250,000 269,883
ILLINOIS--4.92%
Aaa/AAA Chicago, Illinois - General Obligation Bonds Unlimited 01/01/25 5.125 55,000 56,159
Aaa/AAA Chicago, Illinois - Park District - General Obligation Bonds
Unlimited, Series C 01/01/16 4.850 230,000 237,061
Aaa/NR Rockford, Illinois - General Obligation Bonds Unlimited 12/15/18 4.500 180,000 182,752
Aaa/AAA State of Illinois - General Obligation Bonds Unlimited 03/01/19 5.000 200,000 208,674
--------------
684,646
INDIANA--4.16%
Aaa/AAA Aurora, Indiana - Building Corp. - Revenue Bonds 07/15/13 4.500 405,000 422,500
Aaa/AAA South Bend, Indiana - Building Corp. - Revenue Bonds 02/01/13 4.500 150,000 156,198
--------------
578,698
LOUISIANA--8.44%
NR/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Series C 07/01/19 5.000 400,000 416,607
Aaa/AAA Monroe, Louisiana Sales and Use Tax - Revenue Bonds 07/01/16 4.000 200,000 198,568
Aaa/AAA New Orleans, Louisiana Sewer Service - Revenue Bonds 06/01/18 5.000 300,000 307,767
Ba2/BB Plaquemines, Louisiana - Port, Harbor & Terminal District,
Marine Terminal Facilities - Revenue Bonds 09/01/07 5.000 250,000 250,918
--------------
1,173,860
MASSACHUSETTS--3.31%
Aaa/AAA Massachusetts State Water Revenues Authority - General Purpose,
Series A 11/01/21 5.500 450,000 460,926
MISSISSIPPI--3.75%
NR/AAA Greenville Mississippi Public School District - General
Obligation Unlimited 12/15/11 3.250 205,000 200,439
Aaa/AAA Mississippi Development Bank Special Obligation Clinton
Recreational Facilities & Municipal Building - Revenue Bond 11/01/10 4.500 310,000 321,718
--------------
522,157
NEW YORK--7.74%
Aaa/AAA New York City, New York - General Obligation Bonds Unlimited,
Series J 02/15/07 5.000 5,000 5,076
</Table>
59
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
NEW YORK--CONTINUED
A1/A+ New York City, New York - General Obligation Bonds Unlimited,
Series J 08/01/18 5.000 $ 200,000 $ 206,718
NR/AAA New York City, New York - Transitional Financial Authority
Revenue Bonds, Series C 05/01/19 5.000 250,000 263,200
Aaa/AAA New York - State Tollway Authority - Highway & Bridge Revenue
Bonds, Series B 04/01/10 3.850 200,000 202,566
Aa2/AAA Triborough Bridge & Tunnel Authority, New York - Revenue Bonds,
General Purpose, Series B 01/01/27 5.200 350,000 398,913
--------------
1,076,47
NORTH CAROLINA--1.47%
Aa1/AAA North Carolina State - General Obligation Bonds Unlimited 03/01/15 4.000 200,000 203,992
OHIO--5.31%
Aaa/AAA Franklin County, Ohio - General Obligation Bonds Limited 12/01/08 5.100 300,000 306,816
Aaa/AAA Franklin County, Ohio - General Obligation Bonds Limited 12/01/11 5.300 100,000 102,420
Aaa/AAA Ohio State Department of Administrative Services - Certificate
Participation 09/01/15 5.250 300,000 329,391
--------------
738,627
TEXAS--34.86%
Aaa/AAA Aransas County, Texas - Correctional Facility Improvements
General Obligation Bonds Limited 02/15/13 3.875 250,000 251,485
Aaa/AAA Austin, Texas - Community College District - Revenue Bonds 02/01/10 4.000 100,000 101,523
Aaa/AAA Austin, Texas - Independent School District - General Obligation
Bonds Unlimited Series A 08/01/12 3.750 150,000 150,379
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/13 4.125 200,000 203,680
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/14 4.250 65,000 66,354
Aaa/AAA Collin County, Texas - Community College District, Consolidated
Fund - Revenue Bonds 02/01/15 5.250 400,000 406,196
Aaa/AAA Dallas - Fort Worth International Airport - Dallas - Fort Worth
Regional Airport - Joint Revenue Refunding Bonds, Series 1994A 11/01/10 6.000 100,000 100,461
Aaa/AAA Dallas, Texas - Independent School District - General Obligation
Bonds Unlimited 02/15/09 4.200 100,000 101,982
Aaa/AAA El Paso, Texas - Public Improvement - General Obligation Bonds
Limited 08/15/17 4.000 270,000 268,329
Aaa/NR Flower Mound, Texas - Refunding and Improvement - General
Obligation Bonds Unlimited 03/01/17 5.500 200,000 204,140
Aaa/NR Galveston County, Texas - Public Improvements - General
Obligation Bonds Unlimited 02/01/10 4.300 25,000 25,653
Aaa/NR Galveston County, Texas - Public Improvements - General
Obligation Bonds Limited 02/01/11 4.375 125,000 128,962
Aaa/AAA Jefferson County, Texas - Public Improvement Certificates of
Obligation, Series B 08/01/16 4.125 255,000 257,055
Aaa/AAA League City, Texas - Public Improvements - General Obligation
Bonds Limited 02/15/13 4.750 100,000 105,151
Aaa/AAA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 273,865
Aaa/AAA Lubbock, Texas - Municipal Drainage Utility - General Obligation
Bonds Limited 02/15/14 4.000 250,000 251,912
Aaa/AAA Mission, Texas Consolidated Independent School District -
General Obligation Bonds Unlimited 02/15/18 4.500 200,000 201,530
</Table>
60
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
TEXAS--CONTINUED
Aaa/AAA Montgomery County, Texas - Public Improvement General Obligation
Bonds Limited 03/01/12 4.000 $ 250,000 $ 253,872
Aaa/AAA Rockwell, Texas - Waterworks & Sewer - General Obligation Bonds
Limited 08/01/11 3.700 115,000 115,317
Aaa/AAA Round Rock, Texas - Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited 08/01/11 4.400 250,000 256,188
Aaa/AAA San Antonio, Texas - River Authority Sewer Refunding and
Improvement - Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 100,108
Aaa/NR Tarrant County Health Facilities Development Corp. - Health
System Revenue Bonds, (Harris Methodist Health System),
Series 1994 (c) 09/01/14 6.000 200,000 227,896
Aa1/AA+ Texas A&M University Revenue and Financing System - Revenue
Refunding Bonds, Series A 05/15/17 5.000 250,000 266,322
Aaa/AAA University of Texas Permanent University Fund - Revenue Bonds,
Prerefunded, Series A To 07/01/2011 07/01/13 6.250 45,000 50,699
Aaa/AAA University of Texas Permanent University Fund - Revenue Bonds,
Prerefunded, Series A To 01/01/2012 07/01/13 6.250 55,000 62,428
Aaa/AAA University of Texas Permanent University Fund - Revenue Bonds,
Prerefunded, Series A To 01/01/2013 07/01/13 6.250 55,000 63,370
Aaa/AAA Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 250,215
AAA/AAA Wylie, Texas Independent School District - General Obligation
Bonds Unlimited 08/15/12 4.375 100,000 103,275
--------------
4,848,34
UTAH--0.07%
Aa2/AA Utah State Housing Financial Agency - Single Family Revenue
Bonds (b) 07/01/21 6.000 10,000 10,046
WASHINGTON--5.18%
Aaa/AAA Seattle, Washington - Municipal Light & Power - Revenue Bonds,
Series B 06/01/24 5.000 100,000 103,817
Aa1/AA State of Washington - General Obligation Bonds Unlimited,
Series B 05/01/18 5.500 300,000 331,365
Aa2/NR Tumwater, Washington - Office Building - Revenue Bonds 07/01/15 5.250 240,000 259,320
Aaa/AAA Washington State Public Power Supply System Nuclear Project
Number 1 - Refunding Revenue Bonds, Series C 07/01/10 5.500 25,000 25,663
--------------
720,165
--------------
TOTAL MUNICIPAL BONDS--93.70%
(Cost $12,658,495) 13,032,756
--------------
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--4.85%
Federal Home Loan Bank 03/01/06 4.390 200,000 200,000
Federal Home Loan Mortgage Corp. 03/07/06 4.390 200,000 199,853
Federal National Mortgage Association 03/13/06 4.400 275,000 274,597
--------------
TOTAL U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS--4.85%
(Cost $674,450) 674,450
--------------
</Table>
61
<Page>
MONEY MARKET FUND
<Table>
<Caption>
SHARES VALUE
SM&R Money Market Fund, 3.99% (d) 52,507 $ 52,507
--------------
TOTAL MONEY MARKET FUND--0.38%
(Cost $52,507) 52,507
--------------
TOTAL INVESTMENTS--98.93%
(Cost $13,385,452) 13,759,713
CASH AND OTHER ASSETS, LESS LIABILITIES--1.07% 149,172
--------------
TOTAL NET ASSETS--100.00% $ 13,908,885
==============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Ratings assigned by Moody's Investor's Service, Inc. ("Moody's") and
Standard & Poor's Corp. ("S&P"). Ratings are unaudited.
(b) Security subject to the alternative minimum tax.
(c) Issuer has defeased these bonds. Collateral for such defeasance is U.S.
Government obligations.
(d) The rate quoted is the annualized seven-day yield of the fund at February
28, 2006. 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.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Affiliated Money Market 0.37%
Development 5.26%
Education 17.53%
General Obligation 33.51%
Housing 0.07%
Medical 6.39%
Miscellaneous 10.26%
Pollution 2.85%
Transportation 10.57%
Utility 13.19%
</Table>
62
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $13,332,945) $ 13,707,206
Investment in affiliated money market fund (Cost $52,507) 52,507
--------------
Total investments (Cost $13,385,452) 13,759,713
Prepaid expenses 23,656
Receivable for:
Capital stock sold 200
Interest 144,092
Expense reimbursement 6,040
Other assets 3,211
--------------
TOTAL ASSETS 13,936,912
--------------
LIABILITIES
Distribution payable 1,919
Payable to investment adviser for fund expenses 12,997
Accrued:
Investment advisory fee 5,320
Service fee 2,660
Distribution fee 1,293
Other liabilities 3,838
--------------
TOTAL LIABILITIES 28,027
--------------
NET ASSETS (applicable to shares outstanding) $ 13,908,885
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 13,532,344
Undistributed net investment income 60
Accumulated net realized gain on investments 2,220
Net unrealized appreciation of investments 374,261
--------------
Net Assets $ 13,908,885
==============
NET ASSETS:
Class A $ 513,051
Class B $ 530,550
Class T $ 12,865,284
--------------
TOTAL NET ASSETS $ 13,908,885
==============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,101
Outstanding 48,641
Class B:
Authorized 100,000,000
Outstanding 50,328
Class T:
Authorized 21,000,000
Outstanding 1,230,704
Class A:
Net asset value and redemption price per share $ 10.55
Offering price per share: (Net Assets value of $10.55 / 95.25%) $ 11.07
Class B:
Net asset value and offering price per share $ 10.54
Class T:
Net asset value and redemption price per share $ 10.45
Offering price per share: (Net Assets value of $10.45 / 95.5%) $ 10.95
</Table>
See notes to financial statements.
63
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $ 314,241
Interest from affiliated money market fund 811
-----------
TOTAL INVESTMENT INCOME 315,052
-----------
EXPENSES
Investment advisory fees 34,549
Service fees 17,275
Professional fees 4,842
Custody and transaction fees 3,354
Directors' fees 2,903
Compliance expense 1,072
Insurance expenses 2,612
Qualification fees
Class A 4,244
Class B 2,497
Class T 12,739
Shareholder reporting expenses
Class A 232
Class B 212
Class T 407
Distribution fees
Class A 635
Class B 1,975
-----------
TOTAL EXPENSES 89,548
LESS EXPENSES REIMBURSED (36,406)
-----------
NET EXPENSES 53,142
-----------
INVESTMENT INCOME--NET 261,910
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 2,118
Change in unrealized depreciation of investments (201,682)
-----------
NET LOSS ON INVESTMENTS (199,564)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 62,346
===========
</Table>
See notes to financial statements.
64
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED FEBRUARY 28, AUGUST 31,
------------------ -------------
2006 2005
------------------ -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net $ 261,910 $ 520,252
Net realized gain on investments 2,118 989
Change in unrealized depreciation of investments (201,682) (146,843)
------------------ -------------
Net increase in net assets resulting from operations 62,346 374,398
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (9,678) (19,542)
Class B (8,715) (17,062)
Class T (243,536) (483,570)
Capital gains
Class A (34) (95)
Class B (35) (94)
Class T (849) (2,336)
------------------ -------------
Total distributions to shareholders (262,847) (522,699)
CAPITAL SHARE TRANSACTIONS--NET
Class A 584 (16,983)
Class B (328) 8,014
Class T 49,805 (15,752)
------------------ -------------
Total capital share transactions--net 50,061 (24,721)
------------------ -------------
TOTAL DECREASE (150,440) (173,022)
NET ASSETS
Beginning of period 14,059,325 14,232,347
------------------ -------------
End of period $ 13,908,885 $ 14,059,325
================== =============
Undistributed Net Investment Income $ 60 $ 79
================== =============
</Table>
See notes to financial statements.
65
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.70 $ 10.81 $ 10.71 $ 10.89 $ 10.80 $ 10.33
Income from investment operations
Investment income--net 0.20 0.40 0.42 0.44 0.43 0.46
Net realized and unrealized gain
(loss) on investments (0.15) (0.11) 0.12 (0.18) 0.09 0.49
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.05 0.29 0.54 0.26 0.52 0.95
----------
Less distributions
Investment income--net (0.20) (0.40) (0.42) (0.44) (0.43) (0.46)
Capital gains (0.00)*** (0.00)*** (0.02) -- -- (0.02)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.20) (0.40) (0.44) (0.44) (0.43) (0.48)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.55 $ 10.70 $ 10.81 $ 10.71 $ 10.89 $ 10.80
============ ========== ========== ========== ========== ==========
Total Return (1) (3.02)%** 2.72% 5.12% 2.40% 4.99% 9.34%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period $ 513,051 $ 519,889 $ 542,502 $ 643,287 $ 384,438 $ 245,697
Ratio of expenses with reimbursement
to average net assets (2) 0.75%* 0.75% 0.75% 0.75% 0.93% 1.00%
Ratio of expenses without
reimbursement to average net assets 2.98%* 2.73% 1.26% 1.24% 1.26% 1.33%
Ratio of net investment income to
average net assets 3.81%* 3.68% 3.84% 4.09% 4.14% 4.34%
Portfolio turnover rate 2.01% 7.50% 1.15% 18.23% 8.80% 0.18%
<Caption>
CLASS B SHARES
--------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.70 $ 10.81 $ 10.71 $ 10.90 $ 10.79 $ 10.32
Income from investment operations
Investment income--net 0.17 0.34 0.36 0.40 0.37 0.40
Net realized and unrealized gain
(loss) on investments (0.16) (0.11) 0.12 (0.19) 0.11 0.49
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.01 0.23 0.48 0.21 0.48 0.89
Less distributions
Investment income--net (0.17) (0.34) (0.36) (0.40) (0.37) (0.40)
Capital gains (0.00)*** (0.00)*** (0.02) -- -- (0.02)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.17) (0.34) (0.38) (0.40) (0.37) (0.42)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.54 $ 10.70 $ 10.81 $ 10.71 $ 10.90 $ 10.79
============ ========== ========== ========== ========== ==========
Total Return (1) (3.86)%** 2.20% 4.59% 1.91% 4.57% 8.74%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period $ 530,550 $ 538,594 $ 536,101 $ 496,912 $ 513,273 $ 178,880
Ratio of expenses with reimbursement to
average net assets (2) 1.25%* 1.25% 1.25% 1.25% 1.42% 1.50%
Ratio of expenses without reimbursement
to average net assets 2.74%* 2.85% 1.78% 1.74% 1.75% 1.84%
Ratio of net investment income to
average net assets 3.31%* 3.18% 3.34% 3.59% 3.65% 3.82%
Portfolio turnover rate 2.01% 7.50% 1.15% 18.23% 8.80% 0.18%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
A and 1.25% for Class B until December 31, 2006.
See notes to financial statements.
66
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS T SHARES
--------------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.61 $ 10.72 $ 10.61 $ 10.80 $ 10.71 $ 10.25
Income from investment operations
Investment income--net 0.20 0.39 0.41 0.44 0.46 0.48
Net realized and unrealized gain (loss)
on investments (0.16) (0.11) 0.13 (0.18) 0.08 0.48
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.04 0.28 0.54 0.26 0.54 0.96
Less distributions
Investment income--net (0.20) (0.39) (0.41) (0.45) (0.45) (0.48)
Capital gains (0.00)*** (0.00)*** (0.02) -- -- (0.02)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.20) (0.39) (0.43) (0.45) (0.45) (0.50)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.45 $ 10.61 $ 10.72 $ 10.61 $ 10.80 $ 10.71
============ ========== ========== ========== ========== ==========
Total Return (1) (3.46)%** 2.72% 5.20% 2.38% 5.24% 9.59%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period
(000's omitted) $ 12,865 $ 13,001 $ 13,154 $ 13,330 $ 12,472 $ 11,700
Ratio of expenses with reimbursement to
average net assets (2) 0.75%* 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses without reimbursement
to average net assets 1.17%* 1.05% 1.04% 1.03% 1.05% 1.08%
Ratio of net investment income to
average net assets 3.81%* 3.68% 3.83% 4.08% 4.34% 4.59%
Portfolio turnover rate 2.01% 7.50% 1.15% 18.23% 8.80% 0.18%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for
Class T until December 31, 2006.
See notes to financial statements.
67
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R PRIMARY FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--3.75%
Centex Corp. 03/10/06 4.570 $ 1,016,000 $ 1,014,836
--------------
TOTAL CONSUMER DISCRETIONARY--3.75% 1,014,836
--------------
CONSUMER STAPLES--
FOOD PRODUCTS--10.40%
General Mills Inc. 03/08/06 4.510 543,000 542,522
Kellogg Co. 03/17/06 4.550 1,262,000 1,259,443
Sara Lee Corp. 03/27/06 4.550 1,013,000 1,009,666
--------------
2,811,631
HOUSEHOLD PRODUCTS--3.66%
Clorox Company 03/03/06 4.550 989,000 988,749
--------------
TOTAL CONSUMER STAPLES--14.06% 3,800,380
--------------
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--12.26%
Dollar Thrifty Funding 03/14/06 4.520 1,225,000 1,222,995
Textron Financial Corp. 03/16/06 4.570 1,091,000 1,088,919
Vectren Utility Holdings 03/09/06 4.550 1,002,000 1,000,984
--------------
3,312,898
INSURANCE--7.48%
Hartford Financial Services 03/15/06 4.580 1,013,000 1,011,192
Torchmark Corp. 03/23/06 4.520 1,013,000 1,010,199
--------------
2,021,391
--------------
TOTAL FINANCIALS--19.74% 5,334,289
--------------
HEALTH CARE--
HEALTH CARE EQUIPMENT & SUPPLIES--3.99%
Wellpoint, Inc. 03/24/06 4.580 1,083,000 1,079,830
PHARMACEUTICALS--3.58%
Schering-Plough Corp. 03/27/06 4.570 970,000 966,797
--------------
TOTAL HEALTH CARE--7.57% 2,046,627
--------------
INDUSTRIALS--
ELECTRIC--3.76%
Idacorp, Inc. 03/01/06 4.570 1,017,000 1,017,000
INDUSTRIAL CONGLOMERATES--3.55%
Harsco Corp. 03/22/06 4.570 962,000 959,434
ROAD & RAIL--3.81%
Ryder Systems, Inc. 03/21/06 4.570 1,033,000 1,030,373
--------------
TOTAL INDUSTRIALS--11.12% 3,006,807
--------------
INFORMATION TECHNOLOGY--
COMPUTERS & PERIPHERALS--3.62%
Motorola Corp. 03/07/06 4.560 980,000 979,253
--------------
TOTAL INFORMATION TECHNOLOGY--3.62% 979,253
--------------
</Table>
68
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
MATERIALS--
CHEMICALS--8.09%
Engelhard Corp. 03/20/06 4.550 $ 1,189,000 $ 1,186,136
Monsanto Co. 03/28/06 4.600 1,003,000 999,539
--------------
2,185,675
METALS & MINING--2.84%
Aluminum Company of America 03/29/06 4.550 770,000 767,272
--------------
TOTAL MATERIALS--10.93% 2,952,947
--------------
UTILITIES--
GAS UTILITIES--6.64%
Consolidated Natural Gas Co. 03/13/06 4.570 970,000 968,519
Oneok, Inc. 03/02/06 4.550 825,000 824,895
--------------
1,793,414
--------------
TOTAL UTILITIES--6.64% 1,793,414
--------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--4.57%
Verizon Global Funding 03/06/06 4.560 1,237,000 1,236,214
--------------
TOTAL TELECOMMUNICATION SERVICES--4.57% 1,236,214
--------------
TOTAL COMMERCIAL PAPER--82.00%
(Cost $22,164,767) 22,164,767
--------------
CORPORATE BONDS
FINANCIALS--
DIVERSIFIED FINANCIALS--1.86%
JPMorgan Chase & Co. (a) 08/15/06 5.625 500,000 501,408
INDUSTRIALS--
BUILDING PRODUCTS--1.18%
Armstrong Holdings Inc. (b) 08/15/03 6.350 500,000 320,000
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--3.73%
SBC Communications Capital Corp. (a) 08/14/06 7.110 1,000,000 1,008,853
--------------
TOTAL CORPORATE BONDS--6.77%
(Cost $2,024,069) 1,830,261
--------------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--5.50%
Federal Home Loan Bank (a) 12/29/06 4.700 500,000 498,836
Federal Home Loan Bank 06/21/07 3.870 500,000 493,229
Federal Home Loan Mortgage Corporation (a) 06/19/06 4.340 250,000 246,655
Federal National Mortgage Association (a) 07/24/06 4.370 250,000 245,577
--------------
1,484,297
</Table>
69
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT SECURITIES--4.00%
U S Treasury Bond 02/15/29 5.250 $ 1,000,000 $ 1,081,680
-------------
TOTAL U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES--9.50%
(Cost $2,383,469) 2,565,977
-------------
TOTAL INVESTMENTS--98.27%
(Cost $26,572,305) 26,561,005
CASH AND OTHER ASSETS, LESS LIABILITIES--1.73% 467,780
-------------
TOTAL NET ASSETS--100.00% $ 27,028,785
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Long term obligations that will mature in less than one year.
(b) Security is in default of interest. On February 3, 2006, a U.S. District
Court Judge indicated that he would approve a proposed order scheduling a
hearing to commence on or about May 23, 2006, to consider confirmation of a
modified plan of reorganization.
See notes to financial statements.
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 3.82%
Consumer Staples 14.31%
Financials 21.97%
Health Care 7.71%
Industrials 12.52%
Information Technology 3.69%
Materials 11.12%
Telecommunication Services 8.45%
U S Government 9.66%
Utilites 6.75%
</Table>
70
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $26,572,305) $ 26,561,005
Cash 162
Prepaid expenses 4,138
Receivable for:
Capital stock sold 452,378
Interest 46,640
Expense reimbursement 2,217
Other assets 2,782
---------------
TOTAL ASSETS 27,069,322
---------------
LIABILITIES
Capital stock reacquired 7,900
Distribution payable 567
Payable to investment adviser for fund expenses 11,975
Accrued:
Investment advisory fee 10,194
Service fee 5,097
Other liabilities 4,804
---------------
TOTAL LIABILITIES 40,537
---------------
NET ASSETS $ 27,028,785
===============
Shares of capital stock outstanding, (2,176,000,000 shares
authorized, $.01 par value per share) 27,188,771
===============
Net asset value $ 0.99
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 27,181,425
Undistributed net investment loss (141,340)
Net unrealized depreciation of investments (11,300)
---------------
Net Assets $ 27,028,785
===============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 522,282
---------------
EXPENSES
Investment advisory fees 63,785
Service fees 31,893
Professional fees 4,446
Custody and transaction fees 5,732
Directors' fees 2,903
Compliance expense 1,984
Insurance expenses 4,277
Shareholder reporting expenses 1,209
---------------
TOTAL EXPENSES 116,229
LESS EXPENSES REIMBURSED (14,165)
---------------
NET EXPENSES 102,064
---------------
INVESTMENT INCOME--NET 420,218
---------------
REALIZED AND UNREALIZED LOSS ON INVESTMENTS
Change in unrealized depreciation of investments (85,828)
---------------
NET LOSS ON INVESTMENTS (85,828)
---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 334,390
===============
</Table>
See notes to financial statements.
71
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ---------------
2006 2005
---------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net $ 420,218 $ 511,536
Change in unrealized appreciation (depreciation) of
investments (85,828) 163,787
---------------- ---------------
Net increase in net assets resulting from operations 334,390 675,323
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (420,218) (511,536)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET 1,869,520 (1,116,093)
---------------- ---------------
TOTAL INCREASE (DECREASE) 1,783,692 (952,306)
NET ASSETS
Beginning of period 25,245,093 26,197,399
---------------- ---------------
End of period $ 27,028,785 $ 25,245,093
================ ===============
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of
Period $ 1.00 $ 0.99 $ 0.99 $ 0.99 $ 1.00 $ 0.99
Income from investment operations
Investment income--net 0.02 0.02 0.01 0.01 0.02 0.05
Net realized and unrealized gain
(loss) on investments -- 0.01 -- -- (0.01) 0.01
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.02 0.03 0.01 0.01 0.01 0.06
Less distributions
Investment income--net (0.03) (0.02) (0.01) (0.01) (0.02) (0.05)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.03) (0.02) (0.01) (0.01) (0.02) (0.05)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 0.99 $ 1.00 $ 0.99 $ 0.99 $ 0.99 $ 1.00
============ ========== ========== ========== ========== ==========
Total Return (0.97)%** 2.99% 0.83% 1.35% 1.33% 6.20%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 27,029 $ 25,245 $ 26,197 $ 27,409 $ 27,304 $ 31,857
Ratio of expenses with
reimbursement to average net
assets(1) 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses without
reimbursement to average net
assets 0.91%* 0.91% 0.91% 0.89% 0.92% 0.97%
Ratio of net investment income to
average net assets 3.29% 1.94% 0.83% 1.35% 2.29% 5.10%
Portfolio turnover rate -- -- 70.47% -- -- --
</Table>
* Ratios annualized
** Returns are not annualized
(1) SM&R has voluntarily agreed to waive or reduce expenses to 0.80% until
December 31, 2006.
See notes to financial statements.
72
<Page>
SCHEDULE OF INVESTMENTS February 28, 2006 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
DIVERSIFIED FINANCIALS--3.72%
Caterpillar Financial Services 03/06/06 4.470 $ 2,887,000 $ 2,885,205
HEATH CARE EQUIPMENT & SUPPLIES--4.96%
Becton Dickinson & Co. 03/31/06 4.510 3,867,000 3,852,439
-------------
TOTAL COMMERCIAL PAPER--8.68%
(Cost $6,737,644) 6,737,644
-------------
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--90.54%
Federal Farm Credit Bank 03/02/06 4.380 10,000,000 9,998,781
Federal Farm Credit Bank 03/06/06 4.370 2,477,000 2,475,496
Federal Home Loan Bank 03/01/06 4.380 9,880,000 9,880,000
Federal Home Loan Bank 03/03/06 4.380 10,000,000 9,997,562
Federal Home Loan Bank 03/08/06 4.390 8,981,000 8,973,317
Federal Home Loan Bank 03/09/06 4.390 5,130,000 5,125,004
Federal Home Loan Bank 03/10/06 4.390 7,468,000 7,459,797
Federal Home Loan Bank 03/17/06 4.400 6,072,000 6,060,117
Federal Home Loan Mortgage Corp. 03/07/06 4.390 6,283,000 6,278,394
Federal National Mortgage Assoc. 03/13/06 4.390 4,088,000 4,082,010
-------------
TOTAL U S GOVERNMENT AND AGENCY
SHORT-TERM OBLIGATIONS--90.54%
(Cost $70,330,478) 70,330,478
-------------
TOTAL INVESTMENTS--99.22%
(Cost $77,068,122) 77,068,122
CASH AND OTHER ASSETS, LESS LIABILITIES--0.78% 608,442
=============
TOTAL NET ASSETS--100.00% $ 77,676,564
=============
</Table>
See notes to financial statements.
73
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2006 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $ 77,068,122
Cash 504
Prepaid expenses 48,553
Receivable for:
Capital stock sold 618,324
Expense reimbursement 12,700
---------------
TOTAL ASSETS 77,748,203
---------------
LIABILITIES
Capital stock reacquired 9,199
Distribution payable 1,110
Payable to investment adviser for fund expenses 23,830
Accrued:
Investment advisory fee 16,538
Service fee 16,538
Other liabilities 4,424
---------------
TOTAL LIABILITIES 71,639
---------------
NET ASSETS $ 77,676,564
===============
Shares of capital stock outstanding, (2,000,000,000 shares
authorized, $.01 par value per share) 77,676,564
===============
Net asset value $ 1.00
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 77,676,564
---------------
Net Assets $ 77,676,564
===============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2006 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 1,307,210
---------------
EXPENSES
Investment advisory fees 82,414
Service fees 82,414
Professional fees 4,455
Custody and transaction fees 7,545
Directors' fees 2,903
Compliance expense 6,582
Insurance expenses 16,408
Qualification fees 37,954
Shareholder reporting expenses 2,009
---------------
TOTAL EXPENSES 242,684
LESS EXPENSES REIMBURSED (79,235)
---------------
NET EXPENSES 163,449
---------------
INVESTMENT INCOME--NET $ 1,143,761
---------------
</Table>
See notes to financial statements.
74
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ---------------
2006 2005
---------------- ---------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,143,761 $ 1,828,191
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (1,143,761) (1,828,191)
---------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET 786,816 (18,311,786)
---------------- ---------------
TOTAL INCREASE (DECREASE) 786,816 (18,311,786)
---------------- ---------------
NET ASSETS
Beginning of period 76,889,748 95,201,534
---------------- ---------------
End of period $ 77,676,564 $ 76,889,748
================ ===============
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------------------
2006 2005 2004 2003 2002 2001
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income from investment operations
Investment income--net 0.02 0.02 0.01 0.01 0.02 0.05
------------ ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.02 0.02 0.01 0.01 0.02 0.05
Less distributions
Investment income--net (0.02) (0.02) (0.01) (0.01) (0.02) (0.05)
------------ ---------- ---------- ---------- ---------- ----------
Total Distributions (0.02) (0.02) (0.01) (0.01) (0.02) (0.05)
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ========== ========== ========== ========== ==========
Total Return 3.26%** 2.03% 0.58% 0.80% 1.53% 4.92%
============ ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/
SUPPLEMENTAL DATA
Net Assets, end of period
(000's omitted) $ 77,677 $ 76,890 $ 95,202 $ 103,469 $ 154,610 $ 102,092
Ratio of expenses with
reimbursement to average net
assets 0.50%* 0.50% 0.50% 0.50% 0.50% 0.49%
Ratio of expenses without
reimbursement to average net
assets 0.74%* 0.59% 0.60% 0.58% 0.56% 0.49%
Ratio of net investment income
to average net assets 3.50%* 1.98% 0.58% 0.84% 1.48% 4.63%
</Table>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
75
<Page>
NOTES TO FINANCIAL STATEMENTS February 28, 2006 (Unaudited)
SM&R INVESTMENTS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
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, Primary Fund and Money
Market 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 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.
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.
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 and short-term obligations are stated at amortized
cost, which is equivalent to value. Investments in the affiliated money market
fund are valued at the end of the day net asset value per share.
76
<Page>
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
The Company records security transactions based on trade date. Dividend income
is recognized on the ex-dividend date and interest income is recognized on an
accrual basis. Premiums and discounts on securities are amortized over the lives
of the respective securities. Withholding taxes on foreign dividends have been
provided for in accordance with the Company's understanding of the applicable
country's tax rules and rates.
On a daily basis, income, unrealized and realized gains and losses, and expenses
which are not class specific are allocated to each class based on their
respective net assets. Class specific expenses, such as distribution expenses,
are applied to the class to which they are attributed.
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.
<Table>
<Caption>
TAX YEAR ENDING AUGUST 31, 2005 LOSS CARRYFORWARDS EXPIRATION DATES
Alger Technology Fund $ 157,247 2009
$ 113,717 2010
Alger Aggressive Growth Fund $ 110,202 2010
Alger Growth Fund $ 62,633 2010
Growth Fund $ 10,606,101 2010
$ 7,083,770 2011
Government Bond Fund $ 140 2013
Primary Fund $ 36,349 2007
$ 88 2008
$ 242 2009
$ 104,661 2010
</Table>
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 Class B shares of the respective funds and for the
Primary and Money Market Funds. All transactions for the Primary and Money
Market Funds 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.
EXPENSES:
Qualification, distribution fees or other expenses 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 all
of the series based on the relative amount of each series' net assets or
shareholders, and then allocated among the classes of that series.
77
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES:
Securities Management and Research, Inc. ("SM&R") is the investment adviser 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:
<Table>
<Caption>
INVESTMENT
ADVISORY FEE
EQUITY FUNDS:
Alger Technology Fund 1.35%
Alger Aggressive Growth Fund 1.05%
Alger Small-Cap Fund 1.00%
Alger Growth Fund 0.85%
</Table>
Through an investment sub-advisory agreement, SM&R has delegated the day-to-day
investment management of Alger Technology Fund, Alger Aggressive Growth Fund,
Alger Small-Cap Fund and Alger Growth Fund to Fred Alger Management, Inc. Fred
Alger Management, Inc. makes investment decisions for each of these funds and
continuously reviews and administers the investment program. SM&R monitors Fred
Alger Management, Inc.'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, Inc. for
each of these series. The series are not responsible for paying the sub-advisory
fee directly.
<Table>
Growth, Equity Income and Balanced Funds
NET ASSETS
Not exceeding $100,000,000 0.750%
Exceeding $100,000,000 but not exceeding $200,000,000 0.625%
Exceeding $200,000,000 but not exceeding $300,000,000 0.500%
Exceeding $300,000,000 0.400%
FIXED INCOME FUNDS:
Government Bond and Tax Free Funds
NET ASSETS
Not exceeding $100,000,000 0.50%
Exceeding $100,000,000 but not exceeding $300,000,000 0.45%
Exceeding $300,000,000 0.40%
Primary Fund
All average daily net assets 0.50%
Money Market Fund
All average daily net assets 0.25%
</Table>
78
<Page>
ADMINISTRATIVE SERVICE FEES:
Administrative service fees paid to SM&R by the each of the series are computed
as a percentage of average daily net assets as follows:
<Table>
<Caption>
NET ASSETS SERVICE FEES
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</Table>
SM&R has 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 year 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 do not include the
distribution and shareholder servicing fee.
Effective June 1, 2002, and until December 31, 2006, SM&R has voluntarily agreed
to reimburse expenses (after applicable waivers) which exceed the following
percentages of each fund's average daily net assets:
<Table>
<Caption>
CLASS A CLASS B CLASS T UNIVERSAL
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%
Primary Fund 0.80%
</Table>
SM&R has voluntarily agreed to reimburse expenses (after applicable waivers)
which exceed the following percentages of each fund's average daily net assets:
<Table>
<Caption>
EFFECTIVE JUNE 1, 2002 EFFECTIVE MAY 1, 2006
UNTIL APRIL 30, 2006 UNTIL APRIL 30, 2007
CLASS A CLASS B CLASS A CLASS B
Alger Technology Fund 2.10% 2.75% 1.85% 2.50%
Alger Aggressive Growth Fund 1.85% 2.50% 1.60% 2.25%
Alger Small-Cap Fund 1.90% 2.55% 1.65% 2.30%
Alger Growth Fund 1.70% 2.35% 1.45% 2.10%
</Table>
Fee waivers and/or reductions, other than those stated in the Administrative
Service Agreement, may be rescinded by SM&R at any time after December 31, 2006
and April 30, 2007, respectively as shown above, without notice to investors.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Company has adopted a 12b-1 Plan, for each series, except the Primary and
Money Market Funds, 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
79
<Page>
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:
<Table>
<Caption>
DISTRIBUTION SERVICE TOTAL 12b-1
FEE FEE FEE
GROWTH, EQUITY INCOME, BALANCED,
GOVERNMENT BOND AND TAX FREE FUNDS
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, 2006, each series paid or accrued the
following, as compensation under the Plans:
<Table>
Alger Technology Fund $ 3,221
Alger Aggressive Growth Fund $ 6,364
Alger Small-Cap Fund $ 6,101
Alger Growth Fund $ 9,157
Growth Fund $ 20,450
Equity Income Fund $ 39,173
Balanced Fund $ 17,004
Government Bond Fund $ 4,776
Tax Free Fund $ 2,610
</Table>
SALES CHARGES:
During the six months ended February 28, 2006, 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 $ 1,620 $ 28
Alger Aggressive Growth Fund $ 1,999 $ 68
Alger Small-Cap Fund $ 5,277 $ 122
Alger Growth Fund $ 3,890 $ 434
Growth Fund $ 29,232 $ 810
Equity Income Fund $ 39,929 $ 977
Balanced Fund $ 12,308 $ 459
Government Bond Fund $ 2,825 $ 795
Tax Free Fund $ 421 $ --
</Table>
80
<Page>
For the six months ended February 28, 2006, SM&R received $32,935 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, 2006, SM&R and American National had
the following ownership in these series:
<Table>
<Caption>
SM&R AMERICAN NATIONAL AMERICAN NATIONAL SUBSIDIARIES
----------------------------- ------------------------------ ------------------------------
SHARES PERCENT OF SHARES SHARES PERCENT OF SHARES SHARES PERCENT OF SHARES
OUTSTANDING OUTSTANDING OUTSTANDING
Growth Fund 230,340 0.92% 351 0.00% 2,556,795 10.19%
Equity Income Fund 23,084 0.48% -- 0.00% -- 0.00%
Balanced Fund 162,820 9.63% -- 0.00% 381,884 22.58%
Government Bond Fund 680,826 24.74% 5,312 0.19% 1,042,922 37.90%
Tax Free Fund 173,364 13.04% -- 0.00% 870,410 65.46%
Primary Fund 17,207 0.06% 24,454,752 89.94% 6,370 0.02%
Money Market Fund 2,495,225 3.21% 36,005,046 46.35% 22,781,886 29.33%
</Table>
Through the investment sub-advisory agreement, Fred Alger Management, Inc. is
affiliated with SM&R. As of February 28, 2006, Fred Alger Management, Inc. had
the following ownership in these series:
<Table>
<Caption>
SHARES
OUTSTANDING PERCENT OF SHARES
Alger Technology Fund 25,000 6.38%
Alger Aggressive Growth Fund 25,000 6.74%
Alger Small-Cap Fund 25,000 6.75%
Alger Growth Fund 25,000 5.11%
</Table>
The Company pays directors' fees and expenses for all the independent directors.
The Company also pays the salary and other expenses of the Chief Compliance
Officer.
Fred Alger and Company, Incorporated ("Alger Inc.") is an affiliated
broker-dealer of Fred Alger Management, Inc. During the six months ended
February 28, 2006, the Alger Technology Fund, Alger Aggressive Growth Fund,
Alger Small-Cap Fund and Alger Growth Fund paid commissions for portfolio
transactions to Alger Inc., in the amount of $258, $2,050, $1,052 and $4,400,
respectively.
INVESTMENTS INTO AFFILIATED MONEY MARKET FUND:
The Company has received an exemptive order issued by the Securities and
Exchange Commission ("SEC") allowing the Company to sweep uninvested cash into
the SM&R Money Market Fund. The SM&R Money Market Fund is one of the eleven
funds included in the Company and is therefore considered to be affiliated. The
transactions in investments in the affiliated money market fund for the six
months ended February 28, 2006 were:
<Table>
Purchases $ 7,722,601
Sales $ 6,828,451
</Table>
81
<Page>
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 $ 790,352 $ 766,597
Alger Aggressive Growth Fund $ 2,068,327 $ 1,832,410
Alger Small-Cap Fund $ 1,298,514 $ 975,823
Alger Growth Fund $ 3,939,334 $ 3,834,471
Growth Fund $ 9,434,282 $ 59,209,397
Equity Income Fund $ 20,799,078 $ 31,965,700
Balanced Fund $ 5,093,865 $ 4,016,513
Government Bond Fund $ 7,976,728 $ 11,022,664
Tax Free Fund $ 268,448 $ 444,325
Primary Fund $ 500,000 $ --
</Table>
Gross unrealized appreciation and depreciation as of February 28, 2006, based on
the cost for federal income tax purposes is as follows:
<Table>
<Caption>
NET APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
Alger Technology Fund $ 1,152,413 $ 228,618 $ 26,480 $ 202,138
Alger Aggressive Growth Fund $ 2,238,000 $ 301,446 $ 42,469 $ 258,977
Alger Small-Cap Fund $ 2,247,803 $ 566,796 $ 28,662 $ 538,134
Alger Growth Fund $ 3,070,765 $ 206,927 $ 93,086 $ 113,841
Growth Fund $ 47,036,383 $ 16,081,155 $ 905,066 $ 15,176,089
Equity Income Fund $ 89,750,396 $ 24,078,331 $ 5,186,719 $ 18,891,612
Balanced Fund $ 26,338,035 $ 4,481,129 $ 766,315 $ 3,714,814
Government Bond Fund $ 28,160,885 $ 61,069 $ 475,262 $ (414,193)
Tax Free Fund $ 13,385,452 $ 424,853 $ 50,592 $ 374,261
Primary Fund $ 26,572,305 $ 190,443 $ 201,743 $ (11,300)
</Table>
The difference between book basis and tax basis unrealized appreciation
(depreciation) is attributable primarily to the tax deferral of losses on wash
sales.
82
<Page>
NOTE 4--CAPITAL STOCK
ALGER TECHNOLOGY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 30,196 $ 101,282 55,007 $ 153,445
Class B 5,932 19,214 20,774 55,752
------------- ------------- ------------- -------------
Total sale of capital shares 36,128 120,496 75,781 209,197
Redemptions of capital shares outstanding:
Class A (9,111) (28,679) (31,119) (85,571)
Class B (10,849) (34,849) (21,786) (60,031)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (19,960) (63,528) (52,905) (145,602)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 16,168 $ 56,968 22,876 $ 63,595
============= =============
Shares outstanding at beginning of period 375,451 352,575
------------- -------------
Shares outstanding at end of period 391,619 375,451
============= =============
</Table>
ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 38,108 $ 250,408 55,628 $ 306,350
Class B 10,568 65,745 20,571 110,355
------------- ------------- ------------- -------------
Total sale of capital shares 48,676 316,153 76,199 416,705
Redemptions of capital shares outstanding:
Class A (21,651) (136,691) (39,529) (219,470)
Class B (5,417) (34,520) (11,767) (62,837)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (27,068) (171,211) (51,296) (282,307)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 21,608 $ 144,942 24,903 $ 134,398
============= =============
Shares outstanding at beginning of period 349,432 324,529
------------- -------------
Shares outstanding at end of period 371,040 349,432
============= =============
</Table>
83
<Page>
ALGER SMALL-CAP FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 66,994 $ 495,994 43,077 $ 281,607
Class B 11,059 82,875 15,746 101,681
------------- ------------- ------------- -------------
Total sale of capital shares 78,053 578,869 58,823 383,288
Distributions from net realized gains reinvested:
Class A 21,857 152,993 3,363 22,803
Class B 11,629 80,010 1,799 12,091
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested 33,486 233,003 5,162 34,894
Redemptions of capital shares outstanding:
Class A (9,089) (68,454) (30,405) (204,091)
Class B (2,018) (14,105) (14,131) (93,255)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (11,107) (82,559) (44,536) (297,346)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 100,432 $ 729,313 19,449 $ 120,836
============= =============
Shares outstanding at beginning of period 269,859 250,410
------------- -------------
Shares outstanding at end of period 370,291 269,859
============= =============
</Table>
ALGER GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 43,161 $ 290,899 59,792 $ 341,796
Class B 18,015 115,051 44,939 258,227
------------- ------------- ------------- -------------
Total sale of capital shares 61,176 405,950 104,731 600,023
Redemptions of capital shares outstanding:
Class A (26,221) (173,954) (52,731) (309,167)
Class B (14,561) (93,173) (47,829) (284,533)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (40,782) (267,127) (100,560) (593,700)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 20,394 $ 138,823 4,171 $ 6,323
============= =============
Shares outstanding at beginning of period 468,585 464,414
------------- -------------
Shares outstanding at end of period 488,979 468,585
============= =============
</Table>
84
<Page>
GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class A 72,746 $ 300,741 219,222 $ 872,857
Class B 44,345 179,016 147,296 580,982
Class T 297,334 1,257,189 850,091 3,477,691
------------- ------------- ------------- -------------
Total sale of capital shares 414,425 1,736,946 1,216,609 4,931,530
Investment income dividends reinvested:
Class A 4,603 19,469 16,074 65,260
Class B 1,558 6,451 6,205 24,698
Class T 82,569 356,698 289,329 1,197,822
------------- ------------- ------------- -------------
Total investment income dividends reinvested 88,730 382,618 311,608 1,287,780
Redemptions of capital shares outstanding:
Class A (150,533) (623,594) (314,879) (1,256,884)
Class B (125,083) (509,221) (193,769) (767,561)
Class T (1,861,029) (7,878,283) (3,821,542) (15,666,801)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (2,136,645) (9,011,098) (4,330,189) (17,691,246)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (1,633,490) $ (6,891,534) (2,801,972) $ (11,471,936)
============= =============
Shares outstanding at beginning of period 26,732,078 29,534,051
------------- -------------
Shares outstanding at end of period 25,098,588 26,732,079
============= =============
</Table>
85
<Page>
EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class A 17,988 $ 410,229 61,265 $ 1,399,945
Class B 20,540 449,889 33,895 749,754
Class T 37,760 877,590 93,180 2,200,242
------------- ------------- ------------- -------------
Total sale of capital shares 76,288 1,737,708 188,340 4,349,941
Investment income dividends reinvested:
Class A 2,188 49,403 6,445 147,032
Class B 1,509 33,074 4,398 97,146
Class T 22,402 522,496 66,099 1,553,475
------------- ------------- ------------- -------------
Total investment income dividends reinvested 26,098 604,973 76,942 1,797,653
Distributions from net realized gains reinvested:
Class A 31,510 693,209 8,390 194,094
Class B 29,100 618,371 7,989 179,148
Class T 304,202 6,926,676 89,584 2,136,120
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested 364,811 8,238,256 105,963 2,509,362
Redemptions of capital shares outstanding:
Class A (38,161) (861,818) (49,225) (1,125,771)
Class B (66,953) (1,450,948) (45,756) (1,023,947)
Class T (324,103) (7,558,206) (549,489) (12,991,821)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (429,217) (9,870,972) (644,470) (15,141,539)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 37,981 $ 709,965 (273,225) $ (6,484,583)
============= =============
Shares outstanding at beginning of period 4,730,614 5,003,840
------------- -------------
Shares outstanding at end of period 4,768,595 4,730,615
============= =============
</Table>
86
<Page>
BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class A 15,240 $ 269,372 64,985 $ 1,169,814
Class B 7,131 127,695 19,642 358,570
Class T 19,441 359,426 47,933 897,004
------------- ------------- ------------- -------------
Total sale of capital shares 41,812 756,493 132,560 2,425,388
Investment income dividends reinvested:
Class A 2,389 42,559 5,203 93,772
Class B 1,045 18,853 2,390 43,470
Class T 9,746 180,104 21,755 405,823
------------- ------------- ------------- -------------
Total investment income dividends reinvested 13,180 241,516 29,348 543,065
Distributions from net realized gains reinvested:
Class A 12,421 217,982 928 17,004
Class B 6,720 119,231 585 10,849
Class T 50,646 923,271 4,102 77,859
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested 69,787 1,260,484 5,615 105,712
Redemptions of capital shares outstanding:
Class A (15,027) (265,943) (45,083) (814,190)
Class B (22,491) (406,897) (20,251) (372,191)
Class T (50,237) (925,711) (115,678) (2,171,188)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (87,755) (1,598,551) (181,012) (3,357,569)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 37,024 $ 659,942 (13,489) $ (283,404)
============= =============
Shares outstanding at beginning of period 1,654,501 1,667,990
------------- -------------
Shares outstanding at end of period 1,691,525 1,654,501
============= =============
</Table>
87
<Page>
GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 6,963 $ 72,521 18,584 $ 194,747
Class B 2,143 22,196 9,777 102,362
Class T 17,172 175,804 52,700 544,848
------------- ------------- ------------- -------------
Total sale of capital shares 26,278 270,521 81,061 841,957
Investment income dividends reinvested:
Class A 1,500 15,512 2,386 24,982
Class B 1,197 12,362 1,958 20,486
Class T 40,204 410,310 63,169 652,977
------------- ------------- ------------- -------------
Total investment income dividends reinvested 42,901 438,184 67,513 698,445
Distributions from net realized gains reinvested:
Class A -- -- 55 579
Class B -- -- 59 620
Class T -- -- 1,522 15,913
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested -- -- 1,636 17,112
Redemptions of capital shares outstanding:
Class A (15,471) (160,154) (15,341) (160,296)
Class B (14,386) (148,883) (22,880) (239,570)
Class T (72,319) (740,140) (188,305) (1,947,955)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (102,176) (1,049,177) (226,526) (2,347,821)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (32,997) $ (340,472) (76,316) $ (790,307)
============= =============
Shares outstanding at beginning of period 2,784,781 2,861,096
------------- -------------
Shares outstanding at end of period 2,751,784 2,784,780
============= =============
</Table>
88
<Page>
TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 323 $ 3,417 644 $ 6,928
Class B -- -- 417 4,500
Class T 1,576 16,489 18,573 197,512
------------- ------------- ------------- -------------
Total sale of capital shares 1,899 19,906 19,634 208,940
Investment income dividends reinvested:
Class A 918 9,678 1,820 19,542
Class B 714 7,521 1,371 14,711
Class T 22,271 232,724 42,933 456,705
------------- ------------- ------------- -------------
Total investment income dividends reinvested 23,903 249,923 46,124 490,958
Distributions from net realized gains reinvested:
Class A 3 34 9 95
Class B 3 30 8 81
Class T 80 836 207 2,218
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested 86 900 224 2,394
Redemptions of capital shares outstanding:
Class A (1,186) (12,545) (4,061) (43,548)
Class B (746) (7,880) (1,047) (11,278)
Class T (19,062) (200,243) (63,271) (672,187)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (20,994) (220,668) (68,379) (727,013)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 4,894 $ 50,061 (2,397) $ (24,721)
============= =============
Shares outstanding at beginning of period 1,324,779 1,327,176
------------- -------------
Shares outstanding at end of period 1,329,673 1,324,779
============= =============
</Table>
PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares 2,076,705 $ 2,065,300 713,272 $ 710,223
Investment income dividends reinvested 423,368 419,736 486,077 484,509
Redemptions of capital shares outstanding (618,845) (615,516) (2,313,753) (2,310,825)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 1,881,228 $ 1,869,520 (1,114,404) $ (1,116,093)
============= =============
Shares outstanding at beginning of period 25,307,543 26,421,947
------------- -------------
Shares outstanding at end of period 27,188,771 25,307,543
============= =============
</Table>
89
<Page>
MONEY MARKET
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2006 AUGUST 31, 2005
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares 162,323,343 $ 162,323,343 220,001,683 $ 220,001,683
Investment income dividends reinvested 650,377 650,377 1,729,264 1,729,264
Redemptions of capital shares outstanding (162,186,904) (162,186,904) (240,042,733) (240,042,733)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 786,816 $ 786,816 (18,311,786) $ (18,311,786)
============= =============
Shares outstanding at beginning of period 76,889,748 95,201,534
------------- -------------
Shares outstanding at end of period 77,676,564 76,889,748
============= =============
</Table>
RECLASSIFICATION OF CAPITAL ACCOUNTS:
The Company accounts and reports for distributions to shareholders in accordance
with the American Institute of Certified Public Accountants' Statement of
Position 93-2: Determination, Disclosure, and Financial Statement Presentation
of Income, Capital and Return of Capital Distributions by Investment Companies.
For the six months ended February 28, 2006, the following funds decreased
paid-in capital due to net investment losses during the period: Alger Technology
Fund, $12,055, Alger Aggressive Growth Fund, $11,697, Alger Small-Cap Fund,
$18,278, and Alger Growth Fund, $15,642. Accumulated net realized gain on
investments and net assets were not affected by this change.
90
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SM&R INVESTMENTS, INC. 2450 South Shore Boulevard, League City, TX 77573
DIRECTORS
Florentino F. Gonzalez
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
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Teresa E. Axelson, Vice President and Secretary
Debbie L. Hankins, Chief Compliance Officer
INVESTMENT ADVISER AND MANAGER
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, LLP
One Moody Plaza
Galveston, TX 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Form 9429 02/06
Item 2 Code of Ethics.
Not applicable to this semi-annual report.
Item 3 Audit Committee Financial Expert.
Not applicable to this semi-annual report.
Item 4 Principal Accountant Fees and Services.
Not applicable to this semi-annual report.
Item 5 Audit Committee of Listed Registrants.
Not applicable
Item 6 Schedule of Investments.
The Schedule of Investments is filed under Item 1 of this form.
Item 7 Disclosure of Proxy Voting Policies and Procedures for Closed-end
Management Investment Companies.
Not applicable
Item 8 Portfolio Managers of Closed-end Management Investment Companies.
Not applicable
Item 9 Purchases of Equity Securities by Closed-end Management Investment
Company and Affiliated Purchasers.
Not applicable
Item 10 Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which shareholders
may recommend nominees to the registrants board of directors during this
period.
Item 11 Controls and Procedures.
(a) As of May 5, 2006, an evaluation was performed under the
supervision and with the participation of the officers of
Securities Management and Research, Inc. (the Company), including
the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), of the effectiveness of the Companys disclosure controls
and procedures. Based on that evaluation, the officers, including
the CEO and CFO, conclude that, as of May 5, 2006, the companys
disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940, as amended) were
reasonably designed so as to ensure that material information
relating to the Company is made known to the CEO and CFO.
(b) During the second fiscal quarter of the period covered by this
report, there have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation
and until the filing of this report, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Item 12 Exhibits.
(a) (1) Code of Ethics - not applicable to this semi-annual report.
(2) Certifications pursuant to Rule 30a-2(a) under the
Investment Act of 1940 are filed and attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are filed and attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SM&R Investments, Inc.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 5, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registant and in the capacities and on the
dates indicated.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 5, 2006
By: \S\ Brenda T. Koelemay
-------------------------------------
Principal Financial Officer
Date: May 5, 2006