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, 2005
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, 2005
<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 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 SM&R Investments, Inc. (the "Company"), will 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, 2004, and held for six
months ending February 28, 2005.
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 (09/01/04) RATIOS (02/28/05) (1) PERIOD (2) (02/28/05) PERIOD (2)
- ----- -------------- -------------- -------------- -------------- -------------- --------------
Alger Technology Fund
Class A $ 1,000.00 2.10% $ 1,027.75 $ 10.70 $ 1,007.17 $ 10.49
Class B 1,000.00 2.75% 1,019.50 13.91 1,005.56 13.72
Alger Aggressive Growth Fund
Class A 1,000.00 1.85% 1,107.05 10.15 1,007.79 9.24
Class B 1,000.00 2.50% 1,101.00 13.65 1,006.18 12.47
Alger Small-Cap Fund
Class A 1,000.00 1.90% 1,148.15 10.81 1,007.67 9.49
Class B 1,000.00 2.55% 1,145.30 14.48 1,006.06 12.72
</Table>
3
<Page>
<Table>
<Caption>
ACTUAL HYPOTHETICAL
------------------------------------------------- -------------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES
ACCOUNT *ANNUALIZED ACCOUNT PAID ACCOUNT PAID
VALUE EXPENSE VALUE DURING VALUE DURING
FUNDS (09/01/04) RATIOS (02/28/05) (1) PERIOD (2) (02/28/05) PERIOD (2)
- ----- -------------- -------------- -------------- -------------- -------------- --------------
Alger Growth Fund
Class A $ 1,000.00 1.70% $ 1,093.85 $ 9.22 $ 1,008.16 $ 8.50
Class B 1,000.00 2.35% 1,090.35 12.70 1,006.55 11.73
Growth Fund
Class A 1,000.00 1.36% 1,084.25 7.31 1,009.00 6.81
Class B 1,000.00 1.86% 1,081.40 9.97 1,007.76 9.29
Class T 1,000.00 1.12% 1,089.15 6.04 1,009.60 5.59
Equity Income Fund
Class A 1,000.00 1.26% 1,108.40 6.92 1,009.25 6.31
Class B 1,000.00 1.76% 1,104.75 9.64 1,008.01 8.80
Class T 1,000.00 1.10% 1,109.60 6.03 1,009.65 5.49
Balanced Fund
Class A 1,000.00 1.30% 1,064.00 6.86 1,009.15 6.50
Class B 1,000.00 1.80% 1,060.45 9.46 1,007.91 9.00
Class T 1,000.00 1.20% 1,064.30 6.34 1,009.39 6.01
Government Bond Fund
Class A 1,000.00 0.73% 1,010.65 3.66 1,010.56 3.66
Class B 1,000.00 1.23% 1,007.75 6.15 1,009.32 6.16
Class T 1,000.00 0.73% 1,010.70 3.66 1,010.56 3.66
Tax Free Fund
Class A 1,000.00 0.75% 1,025.40 3.81 1,010.51 3.76
Class B 1,000.00 1.25% 1,022.25 6.34 1,009.27 6.26
Class T 1,000.00 0.75% 1,025.35 3.81 1,010.51 3.76
Primary Fund 1,000.00 0.80% 1,018.90 4.04 1,010.39 4.01
Money Market Fund 1,000.00 0.50% 1,008.40 2.50 1,011.13 2.51
</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, 2004 to February 28,
2005 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).
4
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
COMMUNICATIONS--5.47%
Avaya Inc.* 900 $ 12,600
Nextel Partners, Inc. (Class A)* 1,350 26,879
Research In Motion Ltd.* 200 13,222
-------------
52,701
COMMUNICATIONS EQUIPMENT--10.76%
Arris Group Inc.* 4,500 28,575
Brocade Communications Systems, Inc.* 2,450 15,190
Cisco Systems, Inc.* 525 9,145
Corning Inc.* 1,700 19,499
Motorola, Inc. 550 8,613
Nokia Oyj ADR 1,400 22,596
-------------
103,618
COMPUTER RELATED & BUSINESS SERVICES--8.70%
Apple Computer, Inc.* 600 26,916
Creative Technology Ltd. 1,550 17,562
PalmOne, Inc.* 1,650 39,303
-------------
83,781
COMPUTER SERVICES--1.14%
Akami Technologies, Inc.* 1,000 11,010
COMPUTER SOFTWARE--6.50%
Check Point Software Technologies Ltd.* 650 14,384
Gravity Co. Ltd. ADR* 650 7,209
Hyperion Solutions Corp.* 200 10,096
Symantec Corp.* 850 18,709
TIBCO Software Inc.* 1,250 12,200
-------------
62,598
COMPUTERS & PERIPHERALS--3.54%
Dell Inc.* 850 34,076
ELECTRONIC EQUIPMENT & INSTRUMENTS--1.66%
Symbol Technologies, Inc. 900 15,957
HOUSEHOLD DURABLES--1.33%
Garmin Ltd. 250 12,812
INFORMATION TECHNOLOGY SERVICES--2.67%
Cognizant Technology Solutions Corp.
(Class A)* 250 11,808
Global Payments Inc. 250 13,880
-------------
25,688
INTERNET & CATALOG RETAIL--4.04%
eBay Inc.* 220 9,425
Netflix Inc.* 2,750 29,425
-------------
38,850
INTERNET SOFTWARE & SERVICES--6.65%
aQuantive, Inc.* 1,650 17,441
Netease.com Inc. ADR* 650 27,488
Yahoo! Inc.* 590 19,039
-------------
63,968
LEISURE EQUIPMENT & SERVICES--2.04%
Shanda Interactive Entertainment Ltd.* 650 $ 19,650
MEDIA--3.37%
Harris Interactive Inc.* 1,550 7,750
XM Satellite Radio Holdings Inc.
(Class A)* 750 24,720
-------------
32,470
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--2.51%
PortalPlayer Inc.* 1,050 24,171
SEMICONDUCTORS--11.49%
ASML Holdings N.V.* 650 11,908
Intel Corp. 1,550 37,169
International Rectifier Corp.* 400 17,600
Microsemi Corp.* 1,400 22,764
Xilinx, Inc. 700 21,140
-------------
110,581
SEMICONDUCTORS CAPITAL EQUIPMENT--2.60%
Sigmatel Inc.* 600 25,014
SOFTWARE--17.10%
BEA Systems, Inc.* 1,450 12,035
Citrix Systems, Inc.* 600 13,500
Cognos, Inc.* 500 21,455
Electronic Arts Inc.* 250 16,122
Microsoft Corp. 2,570 64,713
Oracle Corp.* 2,850 36,793
-------------
164,618
TOTAL COMMON STOCK--91.57%
(Cost $875,598) 881,563
-------------
</Table>
5
<Page>
MONEY MARKET FUNDS
<Table>
<Caption>
SHARES VALUE
SM&R Money Market Fund,
1.98% (a) 96,152 $ 96,152
-------------
TOTAL MONEY MARKET FUNDS--9.99%
(Cost $96,152) 96,152
-------------
TOTAL INVESTMENTS--101.56%
(Cost $971,750) 977,715
LIABILITIES IN EXCESS OF
OTHER ASSETS--(1.56)% (15,034)
-------------
NET ASSETS--100.00% $ 962,681
=============
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. A complete listing of the fund's holdings are included in these
financial statements. This fund and SM&R Alger Technology Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 6.68%
Information Technology 84.02%
Affiliated Money Market Fund 9.30%
</Table>
6
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $875,598) $ 881,563
Investments in affiliated money market funds (Cost $96,152) 96,152
-----------------
Total investments (Cost $971,750) 977,715
Prepaid expenses 244
Receivable for:
Capital stock sold 911
Dividends 372
Expense reimbursement 3,788
-----------------
TOTAL ASSETS 983,030
-----------------
LIABILITIES
Investment securities purchased 6,111
Accrued:
Investment advisory fee 995
Service fee 184
Distribution fee 1,407
Other liabilities 11,652
-----------------
TOTAL LIABILITIES 20,349
-----------------
NET ASSETS (applicable to shares outstanding) $ 962,681
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 1,222,825
Accumulated net realized loss on investments (266,109)
Net unrealized appreciation on investments 5,965
-----------------
Net Assets $ 962,681
=================
NET ASSETS:
Class A $ 680,307
Class B $ 282,374
-----------------
TOTAL NET ASSETS $ 962,681
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 257,144
Class B:
Authorized 100,000,000
Outstanding 106,031
Class A:
Net asset value and redemption price per share $ 2.65
Offering price per share: (Net Assets value of $2.65 / 95%) $ 2.79
Class B:
Net asset value and offering price per share $ 2.66
</Table>
See notes to financial statements.
7
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
INVESTMENT INCOME
Dividends $ 5,082
Interest from affiliated money market funds 299
-----------------
TOTAL INVESTMENT INCOME 5,381
-----------------
EXPENSES
Investment advisory fees 6,706
Service fees 1,242
Professional fees 2,348
Custody and transaction fees 7,836
Directors' fees 2,516
Qualification fees
Class A 5,765
Class B 4,641
Shareholder reporting expenses
Class A 147
Class B 65
Distribution fees
Class A 1,192
Class B 1,560
Insurance expenses 99
-----------------
TOTAL EXPENSES 34,117
LESS EXPENSES REIMBURSED (22,654)
-----------------
NET EXPENSES 11,463
-----------------
INVESTMENT LOSS--NET (6,082)
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 75,129
Change in unrealized appreciation of investments for the period 1,157
-----------------
NET GAIN ON INVESTMENTS 76,286
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 70,204
=================
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (6,082) $ (19,510)
Net realized gain on investments 75,129 38,898
Change in unrealized appreciation (depreciation) 1,157 (109,466)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations 70,204 (90,078)
CAPITAL SHARE TRANSACTIONS--NET
Class A 47,775 200,651
Class B (16,891) 61,301
----------------- -----------------
Total net capital share transactions 30,884 261,952
----------------- -----------------
TOTAL INCREASE 101,088 171,874
NET ASSETS
Beginning of period 861,593 689,719
----------------- -----------------
End of period $ 962,681 $ 861,593
================= =================
</Table>
See notes to financial statements.
8
<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,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 2.43 $ 2.59 $ 1.67 $ 3.24 $ 10.00
Investment loss--net (0.01) (0.06) (0.04) (0.20) (0.37)
Net realized and unrealized gain (loss)
on investments 0.23 (0.10) 0.96 (1.37) (6.39)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.22 (0.16) 0.92 (1.57) (6.76)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 2.65 $ 2.43 $ 2.59 $ 1.67 $ 3.24
========== ========== ========== ========== ==========
Total Return (2) 5.50%** (6.18)% 55.09% (48.46)% (67.60)%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 680,307 $ 585,844 $ 449,337 $ 150,553 $ 230,327
Ratio of expenses with reimbursement
to average net assets (3) 2.10%* 2.10% 2.10% 8.51% 10.97%
Ratio of expenses without reimbursement
to average net assets 6.27%* 6.15% 11.46% 12.19% 10.97%
Ratio of net investment loss to average
net assets (1.03)%* (1.97)% (1.84)% (8.30)% (10.32)%
Portfolio turnover rate 174.46% 215.21% 291.66% 301.01% 440.50%
<Caption>
CLASS B SHARES
-------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 2.46 $ 2.64 $ 1.68 $ 3.25 $ 10.00
Investment loss--net (0.02) (0.08) (0.05) (0.19) (0.24)
Net realized and unrealized gain (loss)
on investments 0.22 (0.10) 1.01 (1.38) (6.51)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.20 (0.18) 0.96 (1.57) (6.75)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 2.66 $ 2.46 $ 2.64 $ 1.68 $ 3.25
========== ========== ========== ========== ==========
Total Return (2) 3.87%** (6.82)% 57.14% (48.31)% (67.50)%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 282,374 $ 275,749 $ 240,382 $ 130,975 $ 82,232
Ratio of expenses with reimbursement
to average net assets (3) 2.75%* 2.75% 2.75% 9.42% 14.71%
Ratio of expenses without reimbursement
to average net assets 8.21%* 8.03% 14.16% 14.23% 14.71%
Ratio of net investment loss to average
net assets (1.65)%* (2.62)% (2.48)% (9.22)% (14.21)%
Portfolio turnover rate 174.46% 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) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 2.10% for class A and 2.75% for class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
9
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--2.86%
General Dynamics Corp. 200 $ 21,070
Lockheed Martin Corp. 150 8,883
United Technologies Corp. 250 24,970
-------------
54,923
AIR FREIGHT & LOGISTICS--2.75%
FedEx Corp. 200 19,556
UTI Worldwide, Inc. 450 33,372
-------------
52,928
BEVERAGES--0.70%
PepsiCo, Inc. 250 13,465
BIOTECHNOLOGY--4.87%
Genentech, Inc.* 450 21,240
Genzyme Corp.* 250 14,022
Gilead Sciences, Inc.* 950 32,823
Onyx Pharmaceuticals, Inc.* 100 2,894
OSI Pharmaceuticals, Inc.* 150 8,195
Serologicals Corp.* 600 14,502
-------------
93,676
CHEMICALS--1.74%
Huntsman Corp.* 350 9,996
Lubrizol Corp. 550 23,446
-------------
33,442
COMMERCIAL BANKS--1.63%
East West Bancorp, Inc. 400 14,384
Investors Financial Services Corp. 100 5,012
Wells Fargo & Co. 200 11,876
-------------
31,272
COMMUNICATIONS--0.42%
Cox Radio, Inc. (Class A)* 300 4,818
Research In Motion Ltd.* 50 3,306
-------------
8,124
COMMUNICATIONS EQUIPMENT--3.17%
Arris Group Inc.* 600 3,810
Brocade Communications Systems, Inc.* 2,300 14,260
Nokia Oyj ADR 2,100 33,894
QUALCOMM Inc. 250 9,027
-------------
60,991
COMPUTER RELATED & BUSINESS SERVICES--2.95%
Apple Computer, Inc.* 800 35,888
MEMC Electronic Materials, Inc.* 1,600 20,768
-------------
56,656
COMPUTER SOFTWARE--3.42%
Check Point Software Technologies Ltd.* 800 17,704
MicroStrategy Inc. (Class A)* 250 17,680
NAVTEQ Corp.* 300 13,110
Novell, Inc.* 3,300 17,292
-------------
65,786
CONSUMER FINANCE--1.56%
CapitalSource Inc.* 400 $ 9,200
First Marblehead Corp. (The)* 300 20,865
-------------
30,065
CONSUMER PRODUCTS--1.31%
Gillette Co. 500 25,125
DIVERSIFIED FINANCIAL SERVICES--3.85%
Citigroup Inc. 400 19,088
Lehman Brothers Holdings Inc. 250 22,795
Merrill Lynch & Co., Inc. 550 32,219
-------------
74,102
ENERGY & ENERGY SERVICES--1.30%
Patterson-UTI Energy, Inc. 400 10,000
Schlumberger Ltd. 200 15,090
-------------
25,090
ENERGY EQUIPMENT & SERVICES--2.36%
National-Oilwell, Inc.* 1,000 45,340
FOOD & STAPLES RETAILING--0.56%
Performance Food Group Co.* 400 10,856
HEALTH CARE ADMINISTRATIVE SERVICES--0.68%
McKesson Corp. 350 13,069
HEALTH CARE EQUIPMENT & SUPPLIES--1.65%
Beckman Coulter, Inc. 300 21,135
Biomet, Inc. 250 10,555
-------------
31,690
HEALTH CARE PROVIDERS & SERVICES--5.72%
AMERIGROUP Corp.* 500 19,930
Caremark Rx, Inc.* 600 22,968
Community Health Systems Inc.* 400 12,948
PacifiCare Health Systems, Inc.* 350 22,218
UnitedHealth Group Inc. 150 13,674
WellPoint Inc.* 150 18,309
-------------
110,047
HOTELS, RESTAURANTS & LEISURE--0.67%
Empire Resorts, Inc.* 100 1,129
Royal Caribbean Cruises Ltd. 250 11,812
-------------
12,941
HOUSEHOLD DURABLES--0.67%
Garmin Ltd. 250 12,813
HOUSEHOLD PRODUCTS--1.10%
Proctor & Gamble Co. 400 21,236
INDUSTRIAL CONGLOMERATES--3.03%
General Electric Co. 750 26,400
Tyco International Ltd. 950 31,806
-------------
58,206
</Table>
10
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
INSURANCE--3.38%
ACE Ltd. 450 $ 20,007
American International Group, Inc. 250 16,700
CIGNA Corp. 100 9,080
St. Paul Travelers Companies, Inc. (The) 500 19,160
-------------
64,947
INTERNET SOFTWARE & SERVICES--4.31%
Automatic Data Processing, Inc. 400 17,184
Google Inc. (Class A)* 50 9,399
Netease.com Inc. ADR* 250 10,573
VeriSign, Inc.* 550 15,081
Yahoo! Inc.* 950 30,656
-------------
82,893
LEISURE EQUIPMENT & SERVICES--1.57%
Shanda Interactive Entertainment Ltd* 1,000 30,230
MEDIA--4.25%
Entercom Communications Corp.* 300 10,326
News Corp. (Class A) 1,800 29,952
Time Warner Inc.* 1,600 27,568
Viacom Inc. (Class B) 400 13,960
-------------
81,806
METALS & MINING--1.91%
Alpha Natural Resources, Inc.* 200 5,200
Peabody Energy Corp. 325 31,558
-------------
36,758
OIL & GAS--1.64%
BP PLC ADR 300 19,476
Talisman Energy Inc. 350 12,054
-------------
31,530
PHARMACEUTICALS--8.36%
Abbot Laboratories 200 9,198
Eli Lilly Co. 200 11,200
IVAX Corp.* 1,350 21,587
Johnson & Johnson 600 39,360
Novartis AG ADR 300 14,991
Pfizer, Inc. 1,310 34,440
Sanofi-Aventis ADR 350 13,968
Sepracor Inc.* 250 16,117
-------------
160,861
RESTAURANTS & LODGING--1.86%
Hilton Hotels Corp. 1,700 35,802
RETAILING--2.59%
CVS Corp. 1,000 49,830
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--2.56%
ATI Technologies Inc.* 1,450 25,433
Broadcom Corp. (Class A)* 300 9,675
Skyworks Solutions, Inc.* 1,950 14,157
-------------
49,265
SEMICONDUCTORS--1.22%
Intel Corp. 600 $ 14,388
Marvell Technology Group Ltd.* 250 9,148
-------------
23,536
SOFTWARE--4.75%
Cognos, Inc.* 400 17,164
Mercury Interactive Corp.* 300 13,764
Microsoft Corp. 1,500 37,770
Oracle Corp.* 1,750 22,592
-------------
91,290
SPECIALTY RETAIL--2.03%
Abercrombie & Fitch Co. (Class A) 50 2,685
Bed Bath & Beyond Inc.* 500 18,760
Lowe's Companies, Inc. 300 17,634
-------------
39,079
TEXTILES, APPAREL & LUXURY GOODS--0.87%
Coach, Inc.* 300 16,659
TRANSPORTATION--1.18%
Burlington Northern Santa Fe Corp. 450 22,622
WIRELESS TELECOMMUNICATION SERVICES--0.64%
SpectraSite, Inc.* 200 12,360
-------------
TOTAL COMMON STOCK--92.09%
(Cost $1,628,095) 1,771,311
-------------
MONEY MARKET FUNDS
SM&R Money Market Fund,
1.98% (a) 144,387 144,387
-------------
TOTAL MONEY MARKET FUNDS--7.51%
(Cost $144,387) 144,387
-------------
TOTAL INVESTMENTS--99.60%
(Cost $1,772,482) 1,915,698
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.40% 7,629
-------------
NET ASSETS--100.00% $ 1,923,327
=============
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. 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.
11
<Page>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 14.44%
Energy 5.27%
Financials 10.36%
Healthcare 21.17%
Industrials 9.76%
Information Technology 22.68%
Materials 3.63%
Consumer Staples 3.66%
Telecommunication Services 0.64%
Affiliated Money Market Fund 8.39%
</Table>
12
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $1,628,095) $ 1,771,311
Investments in affiliated money market funds (Cost $144,387) 144,387
-----------------
Total investments (Cost $1,772,482) 1,915,698
Prepaid expenses 888
Receivable for:
Investment securities sold 31,539
Capital stock sold 1,652
Dividends 1,633
Expense reimbursement 3,791
-----------------
TOTAL ASSETS 1,955,201
-----------------
LIABILITIES
Investment securities purchased 15,364
Accrued:
Investment advisory fee 1,540
Service fee 367
Distribution fee 2,606
Other liabilities 11,997
-----------------
TOTAL LIABILITIES 31,874
-----------------
NET ASSETS (applicable to shares outstanding) $ 1,923,327
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 1,977,139
Accumulated net realized loss on investments (197,028)
Net unrealized appreciation on investments 143,216
-----------------
Net Assets $ 1,923,327
=================
NET ASSETS:
Class A $ 1,307,072
Class B $ 616,255
-----------------
TOTAL NET ASSETS $ 1,923,327
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 235,327
Class B:
Authorized 100,000,000
Outstanding 114,409
Class A:
Net asset value and redemption price per share $ 5.56
Offering price per share: (Net Assets value of $5.56 / 95%) $ 5.85
Class B:
Net asset value and offering price per share $ 5.39
</Table>
See notes to financial statements.
13
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $15) $ 11,747
Interest from affiliated money market funds 830
-----------------
TOTAL INVESTMENT INCOME 12,577
-----------------
EXPENSES
Investment advisory fees 9,228
Service fees 2,197
Professional fees 2,347
Custody and transaction fees 10,143
Directors' fees 2,516
Qualification fees
Class A 5,429
Class B 4,403
Shareholder reporting expenses
Class A 360
Class B 201
Distribution fees
Class A 2,072
Class B 2,870
Insurance expenses 129
-----------------
TOTAL EXPENSES 41,895
LESS EXPENSES REIMBURSED (23,750)
-----------------
NET EXPENSES 18,145
-----------------
INVESTMENT LOSS--NET (5,568)
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 138,276
Change in unrealized appreciation of investments for the period 104,824
-----------------
NET GAIN ON INVESTMENTS 243,100
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 237,532
=================
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (5,568) $ (26,496)
Net realized gain on investments 138,276 108,477
Change in unrealized appreciation (depreciation) 104,824 (144,351)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations 237,532 (62,370)
CAPITAL SHARE TRANSACTIONS--NET
Class A 112,038 77,874
Class B 25,503 95,390
----------------- -----------------
Total net capital share transactions 137,541 173,264
----------------- -----------------
TOTAL INCREASE 375,073 110,894
NET ASSETS
Beginning of period 1,548,254 1,437,360
----------------- -----------------
End of period $ 1,923,327 $ 1,548,254
================= =================
</Table>
See notes to financial statements.
14
<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,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 4.81 $ 4.96 $ 4.24 $ 5.91 $ 10.00
Investment loss--net (0.01) (0.08) (0.06) (0.17) (0.25)
Net realized and unrealized gain (loss)
on investments 0.76 (0.07) 0.78 (1.50) (3.84)
----------- ----------- ---------- ---------- ----------
Total from Investment Operations 0.75 (0.15) 0.72 (1.67) (4.09)
----------- ----------- ---------- ---------- ----------
Net Asset Value, End of Period $ 5.56 $ 4.81 $ 4.96 $ 4.24 $ 5.91
=========== =========== ========== ========== ==========
Total Return (2) 21.22%** (3.02)% 16.98% (28.26)% (40.90)%
=========== =========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 1,307,072 $ 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% 4.48% 6.85%
Ratio of expenses without reimbursement to
average net assets 4.35%* 4.17% 5.52% 6.01% 6.85%
Ratio of net investment loss to average
net assets (0.43)%* (1.43)% (1.27)% (3.99)% (5.59)%
Portfolio turnover rate 103.72% 159.89% 179.56% 177.62% 70.58%
<Caption>
CLASS B SHARES
-------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
------------ ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 4.69 $ 4.87 $ 4.19 $ 5.89 $ 10.00
Investment loss--net (0.03) (0.11) (0.08) (0.21) (0.18)
Net realized and unrealized gain (loss)
on investments 0.73 (0.07) 0.76 (1.49) (3.93)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.70 (0.18) 0.68 (1.70) (4.11)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 5.39 $ 4.69 $ 4.87 $ 4.19 $ 5.89
========== ========== ========== ========== ==========
Total Return (2) 20.02%** (3.70)% 16.23% (28.86)% (41.10)%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 616,255 $ 513,857 $ 442,489 $ 328,254 $ 230,547
Ratio of expenses with reimbursement to
average net assets (3) 2.50%* 2.50% 2.50% 5.56% 7.25%
Ratio of expenses without reimbursement to
average net assets 5.63%* 5.52% 7.36% 7.78% 7.25%
Ratio of net investment loss to average
net assets (1.06)%* (2.09)% (1.91)% (5.08)% (6.12)%
Portfolio turnover rate 103.72% 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) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.85% for class A and 2.50% for class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
15
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R ALGER SMALL-CAP FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE--0.92%
BE Aerospace, Inc.* 1,400 $ 16,842
AEROSPACE & DEFENSE--2.20%
Esterline Technologies Corp.* 650 21,372
SI International Inc.* 750 19,072
-------------
40,444
AIRLINES--0.70%
AirTran Holdings, Inc.* 1,600 12,768
BIOTECHNOLOGY--4.68%
Encysive Pharmaceuticals Inc.* 1,450 15,979
Incyte Corp.* 1,200 10,476
Rigel Pharmaceuticals, Inc.* 550 10,252
Serologicals Corp.* 650 15,711
Theravance, Inc.* 800 14,408
Vicuron Pharmaceuticals Inc.* 1,100 19,085
-------------
85,911
CAPITAL MARKETS--1.23%
Affiliated Managers Group, Inc.* 350 22,666
CHEMICALS--1.28%
Lubrizol Corp. 550 23,446
COMMERCIAL BANKS--2.42%
Boston Private Financial Holdings, Inc. 850 22,950
East West Bancorp, Inc. 600 21,576
-------------
44,526
COMMERCIAL SERVICES & SUPPLIES--2.82%
CoStar Group Inc.* 400 14,732
FTI Consulting, Inc.* 950 18,050
Gevity HR, Inc. 1,050 19,068
-------------
51,850
COMMUNICATIONS--0.74%
Cox Radio, Inc. (Class A)* 850 13,651
COMMUNICATIONS EQUIPMENT--2.58%
Arris Group Inc.* 2,350 14,923
NETGEAR, Inc.* 1,250 17,125
Powerwave Technologies, Inc.* 2,250 15,412
-------------
47,460
COMPUTER RELATED & BUSINESS SERVICES--0.72%
Silicon Image, Inc.* 1,150 13,248
COMPUTER SERVICES--0.94%
Open Solutions Inc.* 850 17,340
COMPUTER SOFTWARE--2.25%
Hyperion Solutions Corp.* 400 20,192
MicroStrategy Inc. (Class A)* 300 21,216
-------------
41,408
COMPUTERS & PERIPHERALS--2.22%
Avid Technology, Inc.* 350 $ 23,415
Maxtor Corp.* 3,150 17,451
-------------
40,866
DIVERSIFIED FINANCIALS--1.29%
National Financial Partners Corp. 600 23,700
ELECTRICAL EQUIPMENT--1.06%
Roper Industries, Inc. 300 19,380
ENERGY & ENERGY SERVICES--2.50%
Arch Coal, Inc. 550 24,525
Grey Wolf, Inc.* 3,300 21,417
-------------
45,942
ENERGY EQUIPMENT & SERVICES--3.71%
Core Laboratories N.V.* 650 17,478
Lone Star Technologies, Inc.* 550 24,920
Todco (Class A)* 1,021 25,719
-------------
68,117
FINANCIAL SERVICES--2.64%
Advance America Cash Advance
Centers Inc. 600 12,198
Calamos Asset Management,
Inc. (Class A) 650 18,434
GFI Group Inc.* 700 17,871
-------------
48,503
FOOD PRODUCTS--0.76%
Ralcorp Holdings, Inc.* 300 13,965
FOOD & STAPLES RETAILING--0.52%
Performance Food Group Co.* 350 9,499
FREIGHT--1.24%
Landstar System, Inc.* 650 22,802
HEALTH CARE EQUIPMENT & SUPPLIES--4.04%
ABIOMED, Inc.* 150 1,605
Given Imaging Ltd.* 250 7,870
Immucor, Inc.* 812 24,120
INAMED Corp.* 250 17,045
Intuitive Surgical, Inc.* 500 23,575
-------------
74,215
HEALTH CARE PROVIDERS & SERVICES--7.90%
Psychiatric Solutions, Inc.* 650 25,883
Sierra Health Services, Inc.* 450 27,702
Sunrise Senior Living, Inc.* 550 26,070
Symbion, Inc.* 1,050 22,512
VCA Antech, Inc.* 1,050 21,084
WellCare Health Plans Inc.* 700 21,973
-------------
145,224
</Table>
16
<Page>
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
HOTELS, RESTAURANT & LEISURE--2.12%
Applebee's International, Inc. 810 $ 23,093
Red Robin Gourmet Burgers Inc.* 350 15,866
-------------
38,959
HOUSEHOLD DURABLES--0.47%
Jarden Corp.* 200 8,702
INFORMATION TECHNOLOGY SERVICES--2.05%
Global Payments Inc. 350 19,432
Kanbay International Inc.* 800 18,248
-------------
37,680
INSURANCE, AGENTS, BROKERS, & SERVICES--1.27%
Platinum Underwriters Holdings, Ltd. 750 23,250
INTERNET & CATALOG RETAIL--1.02%
J. Jill Group Inc.* 1,300 18,785
INTERNET SOFTWARE & SERVICES--4.33%
aQuantive, Inc.* 2,400 25,368
Arbinet Holdings, Inc.* 600 14,640
Netease.com Inc.* 300 12,687
Openwave Systems Inc.* 916 11,688
ValueClick, Inc.* 1,200 15,180
-------------
79,563
LEISURE EQUIPMENT & SERVICES--1.16%
LIFE TIME FITNESS, Inc.* 850 21,326
MACHINERY--3.08%
Actuant Corp. (Class A)* 450 24,323
Joy Global Inc. 650 23,887
Watts Water Technologies, Inc. (Class A) 250 8,313
-------------
56,523
MEDIA--4.30%
Harris Interactive Inc.* 3,100 15,500
Media General, Inc. (Class A) 375 23,996
Spanish Broadcasting System,
Inc. (Class A)* 2,100 21,105
World Wresting Entertainment, Inc. 1,450 18,357
-------------
78,958
METALS & MINING--2.16%
Alpha Natural Resources, Inc.* 600 15,600
Cleveland-Cliffs Inc. 300 24,105
-------------
39,705
OIL & GAS--2.30%
Range Resources Corp. 1,000 25,240
Whiting Petroleum Corp.* 400 16,920
-------------
42,160
PHARMACEUTICALS--1.25%
Impax Laboratories, Inc.* 1,350 23,031
PUBLISHING--0.64%
Pharmion Corp.* 350 11,830
RETAILING--1.15%
Guitar Center, Inc.* 350 $ 21,203
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--0.69%
FormFactor Inc.* 550 12,634
SEMICONDUCTORS--1.85%
Brooks Automation, Inc.* 800 14,488
Semtech Corp.* 1,000 19,560
-------------
34,048
SEMICONDUCTORS CAPITAL EQUIPMENT--2.19%
Sigmatel Inc.* 500 20,845
SiRF Technology Holdings, Inc.* 1,720 19,333
-------------
40,178
SOFTWARE--2.82%
Cerner Corp.* 450 23,445
Fair Issac Corp. 435 14,703
Quest Software, Inc.* 1,000 13,570
-------------
51,718
SPECIALTY RETAIL--2.72%
Ann Taylor Stores Corp.* 400 8,864
Pacific Sunwear of California, Inc.* 700 18,032
PETCO Animal Supplies, Inc.* 650 23,036
-------------
49,932
THRIFTS & MORTGAGE FINANCE--1.26%
Bank Mutual Corp. 1,917 23,177
TRADING COMPANIES & DISTRIBUTORS--0.48%
MSC Industrial Direct Co., Inc. (Class A) 275 8,896
WIRELESS TELECOMMUNICATION SERVICES--1.79%
Inphonic, Inc.* 500 11,530
UbiquiTel Inc.* 2,850 21,318
-------------
32,848
-------------
TOTAL COMMON STOCK--92.46%
(Cost $1,480,713) 1,698,879
-------------
</Table>
17
<Page>
MONEY MARKET FUNDS
<Table>
<Caption>
SHARES VALUE
SM&R Money Market Fund,
1.98% (a) 139,245 $ 139,245
-------------
TOTAL MONEY MARKET FUNDS--7.58%
(Cost $139,245) 139,245
-------------
TOTAL INVESTMENTS--100.04%
(Cost $1,619,958) 1,838,124
LIABILITIES IN EXCESS
OF OTHER ASSETS--(0.04)% (802)
-------------
NET ASSETS--100.00% $ 1,837,322
=============
</Table>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 11.91%
Energy 8.49%
Financials 10.11%
Healthcare 18.50%
Materials 3.43%
Industrials 12.48%
Information Technology 24.39%
Consumer Staples 1.28%
Telecommunication Services 1.79%
Affiliated Money Market Fund 7.62%
</Table>
ABBREVIATIONS
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. 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.
18
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $1,480,713) $ 1,698,879
Investments in affiliated money market funds (Cost $139,245) 139,245
-----------------
Total investments (Cost $1,619,958) 1,838,124
Prepaid expenses 1,583
Receivable for:
Investment securities sold 20,526
Capital stock sold 8,952
Dividends 513
Expense reimbursement 3,551
-----------------
TOTAL ASSETS 1,873,249
-----------------
LIABILITIES
Investment securities purchased 20,102
Accrued:
Investment advisory fee 1,386
Service fee 346
Distribution fee 2,427
Other liabilities 11,666
-----------------
TOTAL LIABILITIES 35,927
-----------------
NET ASSETS (applicable to shares outstanding) $ 1,837,322
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 1,555,302
Accumulated net realized gain on investments 63,854
Net unrealized appreciation on investments 218,166
-----------------
Net Assets $ 1,837,322
=================
NET ASSETS:
Class A $ 1,251,909
Class B $ 585,413
-----------------
TOTAL NET ASSETS $ 1,837,322
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 187,383
Class B:
Authorized 100,000,000
Outstanding 88,494
Class A:
Net asset value and redemption price per share $ 6.68
Offering price per share: (Net Assets value of $6.68 / 95%) $ 7.03
Class B:
Net asset value and offering price per share $ 6.62
</Table>
See notes to financial statements.
19
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
INVESTMENT INCOME
Dividends $ 1,785
Interest from affiliated money market funds 716
-----------------
TOTAL INVESTMENT INCOME 2,501
-----------------
EXPENSES
Investment advisory fees 8,270
Service fees 2,067
Professional fees 2,348
Custody and transaction fees 11,083
Directors' fees 2,516
Qualification fees
Class A 5,484
Class B 4,366
Shareholder reporting expenses
Class A 132
Class B 81
Distribution fees
Class A 1,982
Class B 2,608
Insurance expenses 127
-----------------
TOTAL EXPENSES 41,064
LESS EXPENSES REIMBURSED (23,637)
-----------------
NET EXPENSES 17,427
-----------------
INVESTMENT LOSS--NET (14,926)
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 105,511
Change in unrealized appreciation of investments for the period 187,416
-----------------
NET GAIN ON INVESTMENTS 292,927
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 278,001
=================
</Table>
See notes to financial statements.
20
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (14,926) $ (26,759)
Net realized gain on investments 105,511 280,322
Change in unrealized appreciation (depreciation) 187,416 (215,929)
----------------- -----------------
Net increase in net assets resulting from operations 278,001 37,634
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital Gains
Class A (26,456) --
Class B (12,091) --
----------------- -----------------
Total distributions to shareholders (38,547) --
CAPITAL SHARE TRANSACTIONS--NET
Class A 108,912 161,175
Class B 57,177 71,015
----------------- -----------------
Total net capital share transactions 166,089 232,190
----------------- -----------------
TOTAL INCREASE 405,543 269,824
NET ASSETS
Beginning of period 1,431,779 1,161,955
----------------- -----------------
End of period $ 1,837,322 $ 1,431,779
================= =================
</Table>
See notes to financial statements.
21
<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,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
------------ ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 5.73 $ 5.46 $ 4.33 $ 5.54 $ 10.00
Investment loss--net (0.05) (0.10) (0.07) (0.32) (0.55)
Net realized and unrealized gain (loss)
on investments 1.15 0.37 1.20 (0.89) (3.91)
----------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.10 0.27 1.13 (1.21) (4.46)
Less distributions from Capital gains (0.15) -- -- -- --
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 6.68 $ 5.73 $ 5.46 $ 4.33 $ 5.54
=========== ========== ========== ========== ==========
Total Return (2) 29.35%** 4.94% 26.10% (21.84)% (44.60)%
=========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 1,251,909 $ 978,028 $ 789,625 $ 436,796 $ 295,132
Ratio of expenses with reimbursement to
average net assets (3) 1.90%* 1.90% 1.90% 6.60% 11.53%
Ratio of expenses without reimbursement to
average net assets 4.54%* 4.65% 6.89% 9.68% 11.53%
Ratio of net investment loss to average
net assets (1.60)%* (1.70)% (1.64)% (6.33)% (10.61)%
Portfolio turnover rate 77.42% 143.21% 131.48% 176.50% 138.73%
<Caption>
CLASS B SHARES
-------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002(4) 2001
----------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 5.69 $ 5.47 $ 4.32 $ 5.65 $ 10.00
Investment loss--net (0.07) (0.14) (0.10) (0.41) (0.37)
Net realized and unrealized gain (loss)
on investments 1.15 0.36 1.25 (0.92) (3.98)
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 1.08 0.22 1.15 (1.33) (4.35)
Less distributions from Capital gains (0.15)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 6.62 $ 5.69 $ 5.47 $ 4.32 $ 5.65
========== ========== ========== ========== ==========
Total Return (2) 28.80%** 4.02% 26.62% (23.54)% (43.50)%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 585,413 $ 451,751 $ 372,330 $ 206,871 $ 171,656
Ratio of expenses with reimbursement to
average net assets (3) 2.55%* 2.55% 2.55% 8.05% 11.97%
Ratio of expenses without reimbursement to
average net assets 5.90%* 6.11% 9.05% 11.65% 11.97%
Ratio of net investment loss to average
net assets (2.25)%* (2.35)% (2.29)% (7.77)% (11.25)%
Portfolio turnover rate 77.42% 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) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.90% for class A and 2.55% for class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
22
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R ALGER GROWTH FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AIR FREIGHT & LOGISTICS--1.22%
FedEx Corp. 350 $ 34,223
BEVERAGES--0.96%
PepsiCo, Inc. 500 26,930
BIOTECHNOLOGY--2.24%
Genzyme Corp.* 350 19,631
Gilead Sciences, Inc.* 450 15,547
OSI Pharmaceuticals, Inc.* 500 27,315
-------------
62,493
BUILDING & CONSTRUCTION--1.54%
Pulte Homes, Inc. 550 42,911
CAPITAL MARKETS--0.66%
T. Rowe Price Group Inc. 300 18,417
CHEMICALS--2.67%
Dow Chemical Co. 1,350 74,452
COMMUNICATIONS--3.11%
Avay Inc.* 2,550 35,700
Research in Motion Ltd.* 400 26,444
Sprint Corp. 1,050 24,864
-------------
87,008
COMMUNICATIONS EQUIPMENT--0.95%
Nokia Oyj ADR 1,650 26,631
COMPUTER RELATED & BUSINESS SERVICES--2.25%
Apple Computer, Inc.* 1,400 62,804
CONSUMER PRODUCTS--3.34%
Eastman Kodak Co. 600 20,394
Gillette Co. 1,450 72,863
-------------
93,257
DIVERSIFIED FINANCIALS--3.36%
Citigroup, Inc. 300 14,316
Lehman Brothers Holdings Inc. 550 50,149
Merrill Lynch & Co., Inc. 500 29,290
-------------
93,755
ELECTRIC UTILITIES--0.99%
Entergy Corp. 400 27,648
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.89%
Symbol Technologies, Inc. 1,400 24,822
ENERGY & ENERGY SERVICES--1.76%
Schlumberger Ltd. 650 49,042
ENERGY EQUIPMENT & SERVICES--4.19%
National-Oilwell, Inc.* 1,300 $ 58,942
Transocean Inc.* 1,200 58,176
-------------
117,118
FINANCIAL SERVICES--0.73%
MBNA Corp. 800 20,296
FOOD & STAPLES RETAILING--1.94%
Wal-Mart Stores, Inc. 1,050 54,191
FOODS & BEVERAGES--1.00%
Coca-Cola Co. (The) 650 27,820
HEALTH CARE--0.54%
Humana Inc.* 450 14,971
HEALTH CARE ADMINISTRATIVE SERVICES--0.73%
McKesson Corp. 550 20,537
HEALTH CARE EQUIPMENT & SUPPLIES--0.75%
Medtronic, Inc. 400 20,848
HEALTH CARE PROVIDERS & SERVICES--4.19%
Caremark Rx, Inc.* 650 24,882
HCA, Inc. 450 21,245
PacifiCare Health Systems, Inc,* 250 15,870
WellPoint Inc.* 450 54,927
-------------
116,924
HOTELS, RESTAURANTS & LEISURE--4.17%
Carnival Corp. 250 13,595
Harrah's Entertainment, Inc. 650 42,633
MGM Mirage* 350 25,960
Starwood Hotels & Resorts
Worldwide, Inc. 600 34,344
-------------
116,532
INDUSTRIAL CONGLOMERATES--4.97%
3M Co. 600 50,364
General Electric Co. 850 29,920
Tyco International Ltd. 1,750 58,590
-------------
138,874
INSURANCE--3.78%
ACE Ltd. 550 24,453
American International Group, Inc. 400 26,720
CIGNA Corp. 450 40,860
St. Paul Travelers Companies, Inc. (The) 350 13,412
-------------
105,445
</Table>
23
<Page>
<Table>
<Caption>
SHARES VALUE
INTERNET & CATALOG RETAIL--2.56%
eBay Inc.* 680 $ 29,131
Netflix Inc.* 3,950 42,265
-------------
71,396
INTERNET SOFTWARE & SERVICES--3.26%
Automatic Data Processing, Inc. 600 25,776
Google Inc. (Class A)* 150 28,199
Yahoo! Inc.* 1,150 37,110
-------------
91,085
MACHINERY--1.53%
Caterpillar Inc. 450 42,773
MEDIA--6.28%
News Corp. (Class A) 2,350 39,104
Viacom Inc. (Class B) 1,050 36,645
Walt Disney Co. (The) 1,500 41,910
XM Satellite Radio
Holdings Inc. (Class A)* 1,750 57,680
-------------
175,339
METALS & MINING--1.74%
Peabody Energy Corp. 500 48,550
MULTI-LINE RETAIL--2.80%
Kohl's Corp.* 1,050 50,264
Target Corp. 550 27,951
-------------
78,215
OIL & GAS--5.59%
BP PLC ADR 800 51,936
EOG Resources, Inc. 200 18,224
Exxon Mobil Corp. 750 47,482
Sasol Ltd. 700 17,773
Williams Companies, Inc. 1,100 20,713
-------------
156,128
PHARMACEUTICALS--6.45%
Abbott Laboratories 300 13,797
Johnson & Johnson 750 49,200
Pfizer, Inc. 1,100 28,919
Sanofi-Aventis ADR 1,400 55,874
Sepracor Inc.* 500 32,235
-------------
180,025
RESTAURANTS & LODGING--1.43%
Hilton Hotels Corp. 1,900 40,014
RETAILING--1.34%
CVS Corp. 750 37,373
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--0.64%
Freescale Semiconductor Inc. (Class A)* 950 $ 17,955
SEMICONDUCTORS--3.08%
Analog Devices, Inc. 550 20,196
Intel Corp. 1,850 44,363
Linear Technology Corp. 550 21,483
-------------
86,042
SOFTWARE--4.88%
Intuit Inc.* 750 32,100
Microsoft Corp. 3,060 77,051
Oracle Corp.* 2,100 27,111
-------------
136,262
SPECIALTY RETAIL--2.54%
Bed Bath & Beyond Inc.* 400 15,008
Lowes Companies, Inc. 950 55,841
-------------
70,849
TOTAL COMMON STOCK--97.05%
(Cost $2,527,152) 2,709,955
-------------
MONEY MARKET FUNDS
SM&R Money Market Fund,
1.98% (a) 82,745 82,745
-------------
TOTAL MONEY MARKET FUNDS--2.96%
(Cost $82,745) 82,745
-------------
TOTAL INVESTMENTS--100.01%
(Cost $2,609,897) 2,792,700
LIABILITIES IN EXCESS OF
OTHER ASSETS--(0.01)% (334)
-------------
NET ASSETS--100.00% $ 2,792,366
=============
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. 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.
24
<Page>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Consumer Discretionary 12.21%
Energy 11.48%
Financials 8.48%
Health Care 14.81%
Industrials 16.34%
Consumer Staples 7.20%
Utilities 0.98%
Materials 4.38%
Information Technology 20.63%
Affiliated Money Market Fund 3.49%
</Table>
25
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $2,527,152) $ 2,709,955
Investments in affiliated money market funds (Cost $82,745) 82,745
-----------------
Total investments (Cost $2,609,897) 2,792,700
Prepaid expenses 2,024
Receivable for:
Investment securities sold 61,688
Capital stock sold 1,762
Dividends 2,463
Expense reimbursement 4,306
-----------------
TOTAL ASSETS 2,864,943
-----------------
LIABILITIES
Investment securities purchased 49,000
Capital stock reacquired 4,549
Accrued:
Investment advisory fee 1,805
Service fee 531
Distribution fee 4,179
Other liabilities 12,513
-----------------
TOTAL LIABILITIES 72,577
-----------------
NET ASSETS (applicable to shares outstanding) $ 2,792,366
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,913,335
Undistributed net investment income 210
Accumulated net realized loss on investments (303,982)
Net unrealized appreciation on investments 182,803
-----------------
Net Assets $ 2,792,366
=================
NET ASSETS:
Class A $ 1,656,279
Class B $ 1,136,087
-----------------
TOTAL NET ASSETS $ 2,792,366
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 282,056
Class B:
Authorized 100,000,000
Outstanding 199,816
Class A:
Net asset value and redemption price per share $ 5.87
Offering price per share: (Net Assets value of $5.87 / 95%) $ 6.18
Class B:
Net asset value and offering price per share $ 5.69
See notes to financial statements.
</Table>
26
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $7) $ 22,337
Interest from affiliated money market funds 584
-----------------
TOTAL INVESTMENT INCOME 22,921
-----------------
EXPENSES
Investment advisory fees 11,323
Service fees 3,330
Professional fees 2,348
Custody and transaction fees 10,699
Directors' fees 2,516
Qualification fees
Class A 5,228
Class B 4,689
Shareholder reporting expenses
Class A 657
Class B 407
Distribution fees:
Class A 2,795
Class B 5,336
Insurance expenses 262
-----------------
TOTAL EXPENSES 49,590
LESS EXPENSES REIMBURSED (23,457)
-----------------
NET EXPENSES 26,133
-----------------
INVESTMENT LOSS--NET (3,212)
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 99,156
Change in unrealized appreciation of investments for the period 201,974
-----------------
NET GAIN ON INVESTMENTS 301,130
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 297,918
=================
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment loss--net $ (3,212) $ (31,598)
Net realized gain on investments 99,156 273,071
Change in unrealized appreciation (depreciation) 201,974 (266,532)
----------------- -----------------
Net increase (decrease) in net assets resulting from operations 297,918 (25,059)
CAPITAL SHARE TRANSACTIONS--NET
Class A 63,939 392,749
Class B 25,879 129,705
----------------- -----------------
Total net capital share transactions 89,818 522,454
----------------- -----------------
TOTAL INCREASE 387,736 497,395
NET ASSETS
Beginning of period 2,404,630 1,907,235
----------------- -----------------
End of period $ 2,792,366 $ 2,404,630
================= =================
Undistributed Net Investment Income $ 210 $ --
================= =================
</Table>
See notes to financial statements.
27
<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,
------------ --------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
------------ ----------- ----------- ---------- ----------
Net Asset Value, Beginning of Period $ 5.24 $ 5.20 $ 4.58 $ 6.38 $ 10.00
Investment loss--net 0.00 (0.06) (0.04) (0.12) (0.21)
Net realized and unrealized gain (loss)
on investments 0.63 0.10 0.66 (1.68) (3.41)
----------- ----------- ----------- ---------- ----------
Total from Investment Operations 0.63 0.04 0.62 (1.80) (3.62)
----------- ----------- ----------- ---------- ----------
Net Asset Value, End of Period $ 5.87 $ 5.24 $ 5.20 $ 4.58 $ 6.38
=========== =========== =========== ========== ==========
Total Return (2) 18.60%** 0.77% 13.54% (28.21)% (36.20)%
=========== =========== =========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 1,656,279 $ 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% 3.54% 5.52%
Ratio of expenses without reimbursement
to average net assets 3.38%* 3.32% 4.76% 4.65% 5.52%
Ratio of net investment income (loss) to
average net assets 0.03%* (1.06)% (0.86)% (2.64)% (4.49)%
Portfolio turnover rate 131.79% 162.19% 222.55% 180.20% 65.24%
<Caption>
CLASS B SHARES
-------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------
2005 (1) 2004 (1) 2003 (1) 2002 (4) 2001
----------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 5.09 $ 5.08 $ 4.51 $ 6.31 $ 10.00
Investment loss--net (0.02) (0.09) (0.07) (0.15) (0.13)
Net realized and unrealized gain (loss)
on investments 0.62 0.10 0.64 (1.65) (3.56)
----------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.60 0.01 0.57 (1.80) (3.69)
----------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 5.69 $ 5.09 $ 5.08 $ 4.51 $ 6.31
=========== ========== ========== ========== ==========
Total Return (2) 17.91%** 0.20% 12.64% (28.53)% (36.90)%
=========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 1,136,087 $ 956,245 $ 836,200 $ 653,702 $ 456,784
Ratio of expenses with reimbursement to
average net assets (3) 2.35%* 2.35% 2.35% 4.13% 5.84%
Ratio of expenses without reimbursement
to average net assets 4.25%* 4.20% 5.53% 5.30% 5.84%
Ratio of net investment loss to average
net assets (0.64)%* (1.71)% (1.51)% (3.24)% (4.91)%
Portfolio turnover rate 131.79% 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) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.70% for class A and 2.35% for class B.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
28
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R GROWTH FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--2.90%
Boeing Co. 28,000 $ 1,539,160
Honeywell International Inc. 47,700 1,811,169
-------------
3,350,329
AUTOMOBILES--0.93%
Ford Motor Co. 43,354 548,428
General Motors Corp. 14,700 524,349
-------------
1,072,777
BANKS--8.21%
Bank of America Corp. 60,000 2,799,000
PNC Financial Services Group, Inc. 30,000 1,579,200
U.S. Bancorp 91,285 2,715,729
Wells Fargo & Co. 40,000 2,375,200
-------------
9,469,129
BEVERAGES--2.99%
Anheuser-Busch Companies, Inc. 19,000 901,550
Coca-Cola Co. (The) 34,300 1,468,040
PepsiCo, Inc. 20,000 1,077,200
-------------
3,446,790
BIOTECHNOLOGY--1.53%
Amgen Inc.* 17,900 1,102,819
Genentech, Inc.* 14,000 660,800
-------------
1,763,619
BUILDING PRODUCTS--0.93%
American Standard Companies Inc. 23,400 1,071,720
CHEMICALS--1.63%
Dow Chemical Co. 15,500 854,825
E.I. du Pont de Nemours and Co. 11,200 596,960
PPG Industries, Inc. 6,000 431,700
-------------
1,883,485
COMMUNICATIONS EQUIPMENT--2.11%
Cisco Systems, Inc.* 84,500 1,471,990
Motorola, Inc. 61,700 966,222
-------------
2,438,212
COMPUTERS & PERIPHERALS--4.26%
Computer Associates International, Inc. 7,000 189,630
Dell Inc.* 31,700 1,270,853
EMC Corp.* 61,500 778,590
Hewlett-Packard Co. 37,000 769,600
International Business Machines Corp. 18,400 1,703,472
Sun Microsystems, Inc.* 48,100 202,982
-------------
4,915,127
CONTAINERS & PACKAGING--0.57%
Sealed Air Corp.* 12,500 653,375
DIVERSIFIED FINANCIALS--7.32%
Citigroup Inc. 74,100 3,536,052
JPMorgan Chase & Co. 55,500 2,028,525
Morgan Stanley 51,000 2,879,970
-------------
8,444,547
DIVERSIFIED TELECOMMUNICATION SERVICES--3.20%
ALLTEL Corp. 14,400 $ 823,680
BellSouth Corp. 32,500 838,500
Sprint Corp. 32,000 757,760
Verizon Communications Inc. 16,400 589,908
Vodafone Group PLC ADR 26,000 683,540
-------------
3,693,388
ELECTRIC UTILITIES--2.04%
Dominion Resources, Inc. 3,800 273,714
Exelon Corp. 18,200 825,552
Southern Co. (The) 19,200 616,704
Wisconsin Energy Corp. 18,400 638,848
-------------
2,354,818
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.24%
Agilent Technologies, Inc.* 4,800 115,200
Jabil Circuit, Inc.* 4,000 102,840
Molex Inc. 2,300 57,799
-------------
275,839
ENERGY EQUIPMENT & SERVICES--0.86%
Schlumberger Ltd. 13,100 988,395
FOOD PRODUCTS--2.16%
ConAgra Foods, Inc. 43,800 1,196,616
McCormick & Co., Inc. 19,700 748,403
Sensient Technologies Corp. 25,000 546,000
-------------
2,491,019
FOOD & DRUG RETAILING--3.45%
SUPERVALU Inc. 27,800 883,206
Wal-Mart Stores, Inc. 60,000 3,096,600
-------------
3,979,806
GAS UTILITIES--0.98%
El Paso Corp. 30,400 374,832
Kinder Morgan, Inc. 4,800 384,816
Sempra Energy 9,200 368,000
-------------
1,127,648
GOVERNMENT AGENCY--1.09%
Federal Home Loan Mortgage Corp. 20,200 1,252,400
HEALTH CARE EQUIPMENT & SUPPLIES--2.62%
Beckman Coulter, Inc. 22,500 1,585,125
Medtronic, Inc. 21,400 1,115,368
Zimmer Holdings, Inc.* 3,740 321,266
-------------
3,021,759
HEALTH CARE PROVIDERS & SERVICES--0.82%
McKesson Corp. 25,300 944,702
HOTELS, RESTAURANTS & LEISURE--1.33%
Fairmont Hotels & Resorts Inc. 8,950 287,653
Starwood Hotels & Resorts
Worldwide, Inc. 21,700 1,242,108
-------------
1,529,761
</Table>
29
<Page>
<Table>
<Caption>
SHARES VALUE
HOUSEHOLD DURABLES--0.78%
Stanley Works (The) 19,600 $ 906,500
HOUSEHOLD PRODUCTS--3.06%
Kimberly-Clark Corp. 14,800 976,504
Newell Rubbermaid Inc. 19,100 425,739
Procter & Gamble Co. 40,000 2,123,600
-------------
3,525,843
INDUSTRIAL CONGLOMERATES--5.91%
3M Co. 10,400 872,976
Danaher Corp. 24,400 1,321,748
General Electric Co. 110,200 3,879,040
Illinois Tool Works Inc. 8,300 744,925
-------------
6,818,689
INSURANCE--5.25%
American International Group, Inc. 29,260 1,954,568
Brown & Brown, Inc. 24,400 1,132,160
Prudential Financial, Inc. 49,200 2,804,400
St. Paul Travelers Companies, Inc. (The) 4,237 162,362
-------------
6,053,490
IT CONSULTING & SERVICES--0.36%
Electronic Data Systems Corp. 10,900 232,170
SunGard Data Systems Inc.* 7,100 185,381
-------------
417,551
MACHINERY--0.66%
Ingersoll-Rand Co. (Class A) 9,100 766,675
MEDIA--3.94%
Comcast Corp. (Special Class A)* 26,900 875,595
Omnicom Group Inc. 3,200 291,424
Time Warner Inc.* 48,600 837,378
Viacom Inc. (Class B) 19,200 670,080
Walt Disney Co. (The) 67,000 1,871,980
-------------
4,546,457
MULTI-LINE RETAIL--0.55%
Target Corp. 12,600 640,332
OFFICE ELECTRONICS--0.14%
Xerox Corp.* 10,100 157,560
OIL & GAS--7.11%
Anadarko Petroleum Corp. 10,600 814,716
BP PLC ADR 27,400 1,778,808
ChevronTexaco Corp. 28,600 1,775,488
Royal Dutch Petroleum Co., ADR 32,500 2,050,425
Unocal Corp. 33,000 1,785,300
-------------
8,204,737
PAPER & FOREST PRODUCTS--0.22%
International Paper Co. 6,900 $ 257,715
PHARMACEUTICALS--6.06%
Bristol-Myers Squibb Co. 17,400 435,522
Johnson & Johnson 38,500 2,525,600
Merck & Co., Inc. 26,700 846,390
Pfizer Inc. 88,040 2,314,571
Watson Pharmaceuticals, Inc.* 14,000 444,360
Wyeth 10,400 424,528
-------------
6,990,971
SEMICONDUCTOR EQUIPMENT & PRODUCTS--3.27%
Analog Devices, Inc. 3,900 143,208
Intel Corp. 91,800 2,201,364
KLA-Tencor Corp. 2,900 143,289
Linear Technology Corp. 3,800 148,428
Maxim Integrated Products, Inc. 3,400 146,268
Micron Technology, Inc.* 6,300 72,450
Texas Instruments Inc. 31,100 823,217
Xilinx, Inc. 3,100 93,620
-------------
3,771,844
SOFTWARE--3.81%
Electronic Arts Inc.* 4,800 309,552
Intuit Inc.* 3,100 132,680
Microsoft Corp. 118,000 2,971,240
Oracle Corp.* 65,700 848,187
VERITAS Software Corp.* 5,650 136,843
-------------
4,398,502
SPECIALTY RETAIL--2.16%
Bed Bath & Beyond Inc.* 13,900 521,528
Home Depot, Inc. (The) 25,900 1,036,518
Limited Brands, Inc. 39,300 934,554
-------------
2,492,600
WIRELESS TELECOMMUNICATION SERVICES--0.23%
Nextel Communications, Inc. (Class A)* 9,000 264,870
-------------
TOTAL COMMON STOCK--95.68%
(Cost $76,411,381) 110,382,981
-------------
MONEY MARKET FUNDS
SM&R Money Market Fund,
1.98% (a) 564 564
-------------
TOTAL MONEY MARKET FUNDS--0.00%
(Cost $564) 564
-------------
</Table>
30
<Page>
COMMERCIAL PAPER
<Table>
<Caption>
FACE
AMOUNT VALUE
ELECTRIC UTILITIES--0.64%
DTE Energy Co.,
2.6%, 03/04/05 $ 733,000 $ 732,841
FOOD PRODUCTS--1.18%
Campbell Soup Co.,
2.53%, 03/07/05 1,363,000 1,362,425
METALS & MINING--0.51%
Alcoa Inc.,
2.53%, 03/01/05 585,000 585,000
SPECIALTY RETAIL--1.84%
Autozone Inc.,
2.58%, 03/02/05 2,125,000 2,124,848
-------------
TOTAL COMMERCIAL PAPER--4.17%
(Cost $4,805,114) 4,805,114
-------------
TOTAL INVESTMENTS--99.85%
(Cost $81,217,059) 115,188,659
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.15% 174,903
-------------
NET ASSETS--100.00% $ 115,363,562
=============
</Table>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Energy 8.33%
Materials 2.53%
Industrials 10.88%
Consumer Discretionary 10.14%
Consumer Staples 12.18%
Health Care 11.52%
Financials 21.71%
Information Technology 14.84%
US Government 1.13%
Telecommunication Services 3.59%
Utilities 3.15%
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. 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.
31
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $81,216,495) $ 115,188,095
Investments in affiliated money market funds (Cost $564) 564
-----------------
Total investments (Cost $81,217,059) 115,188,659
Prepaid expenses 17,023
Receivable for:
Capital stock sold 37,543
Dividends 276,009
Expense reimbursement 1,320
Other assets 93,341
-----------------
TOTAL ASSETS 115,613,895
-----------------
LIABILITIES
Capital stock reacquired 87,749
Accrued:
Investment advisory fee 65,206
Service fee 21,633
Distribution fee 10,579
Other liabilities 65,166
-----------------
TOTAL LIABILITIES 250,333
-----------------
NET ASSETS (applicable to shares outstanding) $ 115,363,562
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 107,385,751
Undistributed net investment income 329,477
Accumulated net realized loss on investments (26,323,266)
Net unrealized appreciation on investments 33,971,600
-----------------
Net Assets $ 115,363,562
=================
NET ASSETS:
Class A $ 6,228,912
Class B $ 3,633,861
Class T $ 105,500,789
-----------------
TOTAL NET ASSETS: $ 115,363,562
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 1,529,997
Class B:
Authorized 25,000,000
Outstanding 910,787
Class T:
Authorized 95,000,000
Outstanding 25,373,274
Class A:
Net asset value and redemption price per share $ 4.07
Offering price per share: (Net Assets value of $4.07 / 95%) $ 4.28
Class B:
Net asset value and offering price per share $ 3.99
Class T:
Net asset value and redemption price per share $ 4.16
Offering price per share: (Net Assets value of $4.16 / 94.25%) $ 4.41
</Table>
See notes to financial statements.
32
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $4,472) $ 1,579,550
Interest 26,082
Interest from affiliated money market funds 163
-----------------
TOTAL INVESTMENT INCOME 1,605,795
-----------------
EXPENSES
Investment advisory fees 421,700
Service fees 139,903
Professional fees 9,043
Custody and transaction fees 11,118
Directors' fees 2,516
Qualification fees
Class A 3,402
Class B 2,359
Class T 6,820
Shareholder reporting expenses
Class A 3,761
Class B 2,062
Class T 30,826
Insurance expenses 17,783
Distribution fees
Class A 7,695
Class B 13,133
-----------------
TOTAL EXPENSES 672,121
LESS EXPENSES REIMBURSED (8,480)
-----------------
NET EXPENSES 663,641
-----------------
INVESTMENT INCOME--NET 942,154
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,580,840
Change in unrealized appreciation of investments for the period 5,450,104
-----------------
NET GAIN ON INVESTMENTS 8,030,944
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,973,098
=================
</Table>
See notes to financial statements.
33
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 942,154 $ 754,091
Net realized gain on investments 2,580,840 2,900,180
Change in unrealized appreciation 5,450,104 8,055,054
----------------- -----------------
Net increase in net assets resulting from operations 8,973,098 11,709,325
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (37,830) (30,045)
Class B (17,160) (5,732)
Class T (705,168) (720,998)
----------------- -----------------
Total distributions to shareholders (760,158) (756,775)
CAPITAL SHARE TRANSACTIONS--NET
Class A (220,827) 462,971
Class B 28,511 385,591
Class T (6,794,756) (5,785,078)
----------------- -----------------
Total net capital share transactions (6,987,072) (4,936,516)
----------------- -----------------
TOTAL INCREASE 1,225,868 6,016,034
NET ASSETS
Beginning of period 114,137,694 108,121,660
----------------- -----------------
End of period $ 115,363,562 $ 114,137,694
================= =================
Undistributed Net Investment Income $ 329,477 $ 147,481
================= =================
</Table>
See notes to financial statements.
34
<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)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2005 2004 2003 2002
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 3.79 $ 3.45 $ 3.15 $ 4.18
Investment income (loss)--net 0.02 0.02 0.01 (0.01)
Net realized and unrealized gain (loss) on
investments 0.28 0.34 0.30 (1.02)
------------ ------------ ------------ ------------
Total from Investment Operations 0.30 0.36 0.31 (1.03)
Less distributions from
Investment income--net (0.02) (0.02) (0.01) --
Capital gains -- -- -- --
------------ ------------ ------------ ------------
Total Distributions (0.02) (0.02) (0.01) 0.00
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 4.07 $ 3.79 $ 3.45 $ 3.15
============ ============ ============ ============
Total Return (1) 16.71%** 10.41% 10.00% (24.61)%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 6,229 $ 6,017 $ 5,039 $ 5,287
Ratio of expenses with reimbursement
to average net assets (2) 1.36%* 1.36% 1.36% 1.47%
Ratio of expenses without reimbursement
to average net assets 1.53%* 1.54% 1.60% 1.55%
Ratio of net investment income (loss) to
average net assets 1.43%* 0.44% 0.42% (0.03)%
Portfolio turnover rate 1.87% 4.93% 22.97% 41.74%
<Caption>
CLASS A SHARES
------------------------------------------------
EIGHT PERIOD FROM
MONTHS YEAR JANUARY 1,
ENDED ENDED TO
AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
2001 2000 1999
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 5.55 $ 6.73 $ 5.69
Investment income (loss)--net -- 0.01 0.01
Net realized and unrealized gain (loss) on
investments (1.37) (0.66) 1.30
------------ ------------ ------------
Total from Investment Operations (1.37) (0.65) 1.31
Less distributions from
Investment income--net -- (0.01) --
Capital gains -- (0.52) (0.27)
------------ ------------ ------------
Total Distributions 0.00 (0.53) (0.27)
------------ ------------ ------------
Net Asset Value, End of Period $ 4.18 $ 5.55 $ 6.73
============ ============ ============
Total Return (1) (24.68)%** (8.76)% 23.45%
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 5,971 $ 6,856 $ 3,776
Ratio of expenses with reimbursement
to average net assets (2) 1.50%* 1.30% 1.51%
Ratio of expenses without reimbursement
to average net assets 1.50%* 1.30% 1.51%
Ratio of net investment income (loss) to
average net assets (0.13)%* (0.02)% (0.19)%
Portfolio turnover rate 18.28% 19.68% 16.13%
<Caption>
CLASS B SHARES
---------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------
2005 2004 2003 2002
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 3.72 $ 3.39 $ 3.11 $ 4.13
Investment income (loss)--net 0.02 0.01 (0.01) (0.02)
Net realized and unrealized gain (loss) on
investments 0.27 0.33 0.29 (1.00)
------------ ------------ ------------ ------------
Total from Investment Operations 0.29 0.34 0.28 (1.02)
Less distributions from
Investment income--net (0.02) (0.01) (0.00)*** --
Capital gains -- -- -- --
------------ ------------ ------------ ------------
Total Distributions (0.02) (0.01) 0.00 0.00
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 3.99 $ 3.72 $ 3.39 $ 3.11
============ ============ ============ ============
Total Return (1) 16.14%** 9.93% 9.12% (24.70)%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 3,634 $ 3,365 $ 2,700 $ 2,587
Ratio of expenses with reimbursement
to average net assets (2) 1.86%* 1.86% 1.86% 1.97%
Ratio of expenses without reimbursement
to average net assets 2.05%* 2.09% 2.24% 2.19%
Ratio of net investment income (loss) to
average net assets 0.93%* (0.06)% (0.08)% (0.53)%
Portfolio turnover rate 1.87% 4.93% 22.97% 41.74%
<Caption>
CLASS B SHARES
------------------------------------------------
EIGHT PERIOD FROM
MONTHS YEAR JANUARY 1,
ENDED ENDED TO
AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
2001 2000 1999
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 5.47 $ 6.66 $ 5.69
Investment income (loss)--net (0.02) (0.02) --
Net realized and unrealized gain (loss) on
investments (1.32) (0.65) 1.24
------------ ------------ ------------
Total from Investment Operations (1.34) (0.67) 1.24
Less distributions from
Investment income--net -- -- --
Capital gains -- (0.52) (0.27)
------------ ------------ ------------
Total Distributions 0.00 (0.52) (0.27)
------------ ------------ ------------
Net Asset Value, End of Period $ 4.13 $ 5.47 $ 6.66
============ ============ ============
Total Return (1) (24.50)%** (9.17)% 22.04%
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 2,826 $ 3,382 $ 1,547
Ratio of expenses with reimbursement
to average net assets (2) 2.00%* 1.89% 2.01%
Ratio of expenses without reimbursement
to average net assets 2.00%* 1.89% 2.01%
Ratio of net investment income (loss) to
average net assets (0.78)%* (0.66)% (0.69)%
Portfolio turnover rate 18.28% 19.68% 16.13%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.36% for class A and 1.86% for class B.
See notes to financial statements.
35
<Page>
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2005 2004 2003 2002
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 3.87 $ 3.52 $ 3.21 $ 4.25
Investment income--net 0.04 0.03 0.03 0.01
Net realized and unrealized gain (loss) on
investments 0.28 0.35 0.30 (1.04)
------------ ------------ ------------ ------------
Total from Investment Operations 0.32 0.38 0.33 (1.03)
Less distributions from
Investment income--net (0.03) (0.03) (0.02) (0.01)
Capital gains -- -- -- --
------------ ------------ ------------ ------------
Total Distributions (0.03) (0.03) (0.02) (0.01)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 4.16 $ 3.87 $ 3.52 $ 3.21
============ ============ ============ ============
Total Return (1) 17.67%** 10.67% 10.30% (24.24)%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 105,501 $ 104,756 $ 100,383 $ 98,912
Ratio of expenses to average net assets 1.12%* 1.12% 1.15% 1.10%
Ratio of net investment income to average
net assets 1.68%* 0.68% 0.63% 0.34%
Portfolio turnover rate 1.87% 4.93% 22.97% 41.74%
<Caption>
CLASS T SHARES
------------------------------------------------
EIGHT
MONTHS YEAR
ENDED ENDED
AUGUST 31, DECEMBER 31,
------------ ------------------------------
2001 2000 1999
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 5.60 $ 6.77 $ 5.69
Investment income--net 0.01 0.03 0.03
Net realized and unrealized gain (loss) on
investments (1.35) (0.65) 1.35
------------ ------------ ------------
Total from Investment Operations (1.34) (0.62) 1.38
Less distributions from
Investment income--net (0.01) (0.03) (0.03)
Capital gains -- (0.52) (0.27)
------------ ------------ ------------
Total Distributions (0.01) (0.55) (0.30)
------------ ------------ ------------
Net Asset Value, End of Period $ 4.25 $ 5.60 $ 6.77
============ ============ ============
Total Return (1) (23.99)%** (8.25)% 24.49%
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 140,530 $ 194,150 $ 230,203
Ratio of expenses to average net assets 1.08%* 0.81% 0.87%
Ratio of net investment income to average
net assets 0.31%* 0.47% 0.44%
Portfolio turnover rate 18.28% 19.68% 16.13%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
36
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R EQUITY INCOME FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--2.21%
Lockheed Martin Corp. 22,600 $ 1,338,372
Northrop Grumman Corp. 24,000 1,269,600
-------------
2,607,972
AUTOMOBILES--0.90%
Ford Motor Co. 44,074 557,536
General Motors Corp. 14,000 499,380
-------------
1,056,916
BANKS--7.92%
Bank of America Corp. 80,000 3,732,000
PNC Financial Services Group, Inc. 33,400 1,758,176
U.S. Bancorp 67,500 2,008,125
Wells Fargo & Co. 30,900 1,834,842
-------------
9,333,143
BEVERAGES--2.92%
Anheuser-Busch Companies, Inc. 18,500 877,825
Coca-Cola Co. (The) 25,700 1,099,960
PepsiCo, Inc. 27,200 1,464,992
-------------
3,442,777
BIOTECHNOLOGY--0.75%
Amgen Inc.* 14,400 887,184
BUILDING PRODUCTS--0.96%
American Standard Companies Inc. 24,600 1,126,680
CHEMICALS--1.88%
Dow Chemical Co. 20,100 1,108,515
E.I. du Pont de Nemours and Co. 11,100 591,630
PPG Industries, Inc. 7,200 518,040
-------------
2,218,185
COMMERCIAL SERVICES & SUPPLIES--0.47%
Banta Corp. 12,500 549,500
COMMUNICATIONS EQUIPMENT--0.99%
Cisco Systems, Inc.* 67,100 1,168,882
COMPUTERS & PERIPHERALS--0.87%
International Business Machines Corp. 11,100 1,027,638
CONTAINERS & PACKAGING--0.49%
Sealed Air Corp.* 11,100 580,197
DIVERSIFIED FINANCIALS--4.61%
Citigroup Inc. 68,400 3,264,048
JPMorgan Chase & Co. 41,050 1,500,378
Morgan Stanley 11,500 649,405
Piper Jaffray Companies, Inc.* 675 26,696
-------------
5,440,527
DIVERSIFIED TELECOMMUNICATION SERVICES--0.93%
ALLTEL Corp. 9,650 551,980
Verizon Communications Inc. 15,200 546,744
-------------
1,098,724
ELECTRIC UTILITIES--3.00%
Ameren Corp. 15,200 $ 782,344
CenterPoint Energy, Inc. 25,600 306,688
Constellation Energy Group 26,300 1,353,661
Exelon Corp. 9,400 426,384
Southern Co. (The) 10,000 321,200
Wisconsin Energy Corp. 9,800 340,256
-------------
3,530,533
ENERGY EQUIPMENT & SERVICES--1.21%
Schlumberger Ltd. 18,900 1,426,005
FOOD PRODUCTS--3.46%
ConAgra Foods, Inc. 40,000 1,092,800
H.J. Heinz Co. 19,000 715,160
McCormick & Co., Inc. 19,500 740,805
Sara Lee Corp. 47,300 1,059,520
Sensient Technologies Corp. 21,500 469,560
-------------
4,077,845
FOOD & DRUG RETAILING--2.46%
Wal-Mart Stores, Inc. 56,300 2,905,643
GOVERNMENT AGENCY--1.05%
Federal Home Loan Mortgage Corp. 20,000 1,240,000
HEALTH CARE EQUIPMENT & SUPPLIES--1.64%
Beckman Coulter, Inc. 22,800 1,606,260
Zimmer Holdings, Inc.* 3,760 322,984
-------------
1,929,244
HEALTH CARE PROVIDERS & SERVICES--0.44%
Health Management Associates, Inc.
(Class A) 22,700 521,419
HOTELS, RESTAURANTS & LEISURE--2.11%
Starwood Hotels & Resorts
Worldwide, Inc. 43,500 2,489,940
HOUSEHOLD DURABLES--1.24%
Stanley Works (The) 17,900 827,875
Whirlpool Corp. 10,000 637,500
-------------
1,465,375
HOUSEHOLD PRODUCTS--2.85%
Kimberly-Clark Corp. 13,600 897,328
Newell Rubbermaid Inc. 17,800 396,762
Procter & Gamble Co. 39,000 2,070,510
-------------
3,364,600
INDUSTRIAL CONGLOMERATES--6.49%
3M Co. 10,200 856,188
Danaher Corp. 25,000 1,354,250
General Electric Co. 116,250 4,092,000
Illinois Tool Works Inc. 8,600 771,850
Waste Management, Inc. 19,900 581,876
-------------
7,656,164
</Table>
37
<Page>
<Table>
<Caption>
SHARES VALUE
INSURANCE--4.81%
American International Group, Inc. 33,100 $ 2,211,080
Principal Financial Group, Inc. 16,700 651,634
Prudential Financial, Inc. 34,400 1,960,800
St. Paul Travelers Companies,
Inc. (The) 21,956 841,354
-------------
5,664,868
MACHINERY--0.67%
Ingersoll-Rand Co. (Class A) 9,400 791,950
MEDIA--3.72%
Comcast Corp. (Special Class A)* 20,000 637,200
Time Warner Inc.* 62,100 1,069,983
Viacom Inc. (Class B) 23,300 813,170
Walt Disney Co. (The) 66,900 1,869,186
-------------
4,389,539
MULTI-LINE RETAIL--0.53%
Staples, Inc. 19,700 620,944
OIL & GAS--10.71%
Anadarko Petroleum Corp. 13,600 1,045,296
BP PLC ADR 23,610 1,532,761
ChevronTexaco Corp. 33,520 2,080,922
Exxon Mobil Corp. 80,000 5,064,800
Royal Dutch Petroleum Co. 34,500 2,176,605
Weatherford International Ltd.* 12,200 727,242
-------------
12,627,626
PAPER & FOREST PRODUCTS--1.56%
International Paper Co. 7,000 261,450
Neenah Paper, Inc. 412 14,486
Plum Creek Timber Co., Inc. 41,500 1,558,325
-------------
1,834,261
PHARMACEUTICALS--8.24%
Allergan, Inc. 9,500 714,210
Bristol-Myers Squibb Co. 37,600 941,128
Johnson & Johnson 39,200 2,571,520
Merck & Co., Inc. 25,300 802,010
Pfizer Inc. 85,580 2,249,898
Watson Pharmaceuticals, Inc.* 27,000 856,980
Wyeth 38,600 1,575,652
-------------
9,711,398
REAL ESTATE--6.04%
CenterPoint Properties Trust 44,500 1,947,320
Health Care Property Investors, Inc. 71,400 1,799,280
Public Storage, Inc. 30,500 1,664,080
Weingarten Realty Investors 46,350 1,707,070
-------------
7,117,750
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.80%
Intel Corp. 67,300 1,613,854
Texas Instruments Incorporated 19,200 508,224
-------------
2,122,078
SOFTWARE--2.84%
Microsoft Corp. 133,000 3,348,940
SPECIALTY RETAIL--1.59%
Limited Brands, Inc. 46,900 $ 1,115,282
Lowe's Companies, Inc. 13,000 764,140
-------------
1,879,422
TOBACCO--1.72%
Altria Group, Inc. 14,700 965,055
Reynolds American Inc. 12,949 1,061,171
-------------
2,026,226
TOTAL COMMON STOCK--96.08%
(Cost $90,027,876) 113,280,095
-------------
MONEY MARKET FUNDS
SM&R Money Market Fund, 1.98% (a) 959 959
-------------
TOTAL MONEY MARKET FUNDS--0.00%
(Cost $959) 959
-------------
<Caption>
COMMERCIAL PAPER FACE
AMOUNT
ELECTRIC UTILITIES--0.41%
DTE Energy Co., 2.6%, 03/04/05 $ 481,000 480,896
FOOD PRODUCTS--1.09%
Campbell Soup Co.,
2.53%, 03/07/05 1,282,000 1,281,459
METALS & MINING--0.70%
Alcoa Inc., 2.53%, 03/01/05 828,000 828,000
PHARMACEUTICALS--0.92%
Schering-Plough Corp.,
2.62% 03/03/05 1,083,000 1,082,842
SPECIALTY RETAIL--0.72%
Autozone Inc., 2.58%, 03/02/05 852,000 851,939
-------------
TOTAL COMMERCIAL PAPER--3.84%
(Cost $4,525,136) 4,525,136
-------------
TOTAL INVESTMENTS--99.92%
(Cost $94,553,971) 117,806,190
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.08% 97,445
-------------
NET ASSETS--100.00% $ 117,903,635
=============
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. 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.
38
<Page>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Energy 12.41%
Materials 4.09%
Industrials 11.24%
Consumer Discretionary 10.51%
Consumer Staples 13.96%
Health Care 11.52%
Financials 24.32%
Information Technology 6.77%
Telecommunication Services 0.97%
Utilities 3.12%
US Government 1.09%
</Table>
39
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $94,553,012) $ 117,805,231
Investments in affiliated money market funds (Cost $959) 959
-----------------
Total investments (Cost $94,553,971) 117,806,190
Prepaid expenses 17,053
Receivable for:
Capital stock sold 5,108
Dividends 312,570
Expense reimbursement 2,166
Other assets 62,725
-----------------
TOTAL ASSETS 118,205,812
-----------------
LIABILITIES
Capital stock reacquired 142,321
Accrued:
Investment advisory fee 66,091
Service fee 21,916
Distribution fee 19,788
Other liabilities 52,061
-----------------
TOTAL LIABILITIES 302,177
-----------------
NET ASSETS (applicable to shares outstanding) $ 117,903,635
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 91,391,997
Undistributed net investment income 387,442
Accumulated net realized gain on investments 2,871,977
Net unrealized appreciation on investments 23,252,219
-----------------
Net Assets $ 117,903,635
=================
NET ASSETS:
Class A $ 8,799,806
Class B $ 7,922,526
Class T $ 101,181,303
-----------------
TOTAL NET ASSETS: $ 117,903,635
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 376,460
Class B:
Authorized 25,000,000
Outstanding 349,949
Class T:
Authorized 75,000,000
Outstanding 4,198,621
Class A:
Net asset value and redemption price per share $ 23.38
Offering price per share: (Net Assets value of $23.38 / 95%) $ 24.61
Class B:
Net asset value and offering price per share $ 22.64
Class T:
Net asset value and redemption price per share $ 24.10
Offering price per share: (Net Assets value of $24.10 / 94.25%) $ 25.57
</Table>
See notes to financial statements.
40
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $4,662) $ 1,847,549
Interest 37,039
Interest from affiliated money market funds 188
-----------------
TOTAL INVESTMENT INCOME 1,884,776
-----------------
EXPENSES
Investment advisory fees 422,539
Service fees 140,172
Professional fees 9,043
Custody and transaction fees 10,855
Directors' fees 2,516
Qualification fees
Class A 2,849
Class B 3,685
Class T 7,012
Shareholder reporting expenses
Class A 2,258
Class B 2,191
Class T 18,286
Insurance expenses 17,867
Distribution fees
Class A 10,496
Class B 28,543
-----------------
TOTAL EXPENSES 678,312
LESS EXPENSES REIMBURSED (13,785)
-----------------
NET EXPENSES 664,527
-----------------
INVESTMENT INCOME--NET 1,220,249
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 2,686,160
Change in unrealized appreciation of investments for the period 5,973,539
-----------------
NET GAIN ON INVESTMENTS 8,659,699
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 9,879,948
=================
</Table>
See notes to financial statements.
41
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 1,220,249 $ 1,365,264
Net realized gain on investments 2,686,160 2,785,635
Change in unrealized appreciation 5,973,539 8,676,173
----------------- -----------------
Net increase in net assets resulting from operations 9,879,948 12,827,072
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (75,734) (92,552)
Class B (59,057) (60,397)
Class T (911,352) (1,247,477)
Capital Gains
Class A (174,614) --
Class B (161,478) --
Class T (1,998,839) --
----------------- -----------------
Total distributions to shareholders (3,381,074) (1,400,426)
CAPITAL SHARE TRANSACTIONS--NET
Class A 271,956 1,438,879
Class B 136,899 535,908
Class T (2,244,580) (7,226,052)
----------------- -----------------
Total net capital share transactions (1,835,725) (5,251,265)
----------------- -----------------
TOTAL INCREASE 4,663,149 6,175,381
NET ASSETS
Beginning of period 113,240,486 107,065,105
----------------- -----------------
End of period $ 117,903,635 $ 113,240,486
================= =================
Undistributed Net Investment Income $ 387,442 $ 213,336
================= =================
</Table>
See notes to financial statements.
42
<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)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2005 2004 2003 2002
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 22.11 $ 20.03 $ 19.04 $ 22.72
Investment income--net 0.23 0.26 0.22 0.18
Net realized and unrealized gain (loss) on
investments 1.72 2.10 1.01 (3.63)
------------ ------------ ------------ ------------
Total from Investment Operations 1.95 2.36 1.23 (3.45)
Less distributions from
Investment income--net (0.21) (0.28) (0.24) (0.23)
Capital gains (0.47) -- -- --
------------ ------------ ------------ ------------
Total Distributions (0.68) (0.28) (0.24) (0.23)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 23.38 $ 22.11 $ 20.03 $ 19.04
============ ============ ============ ============
Total Return (1) 21.49%** 11.79% 6.61% (15.27)%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 8,800 $ 8,063 $ 5,940 $ 5,517
Ratio of expenses with reimbursement to
average net assets (2) 1.26%* 1.26% 1.26% 1.44%
Ratio of expenses without reimbursement to
average net assets 1.42%* 1.43% 1.50% 1.45%
Ratio of net investment income to average
net assets 2.01%* 1.08% 1.21% 0.88%
Portfolio turnover rate 0.91% 6.74% 7.57% 30.99%
<Caption>
CLASS A SHARES
------------------------------------------------
EIGHT PERIOD FROM
MONTHS YEAR JANUARY 1,
ENDED ENDED TO
AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
2001 2000 1999
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 25.19 $ 24.79 $ 28.02
Investment income--net 0.16 0.36 0.58
Net realized and unrealized gain (loss) on
investments (2.49) 1.50 (1.47)
------------ ------------ ------------
Total from Investment Operations (2.33) 1.86 (0.89)
Less distributions from
Investment income--net (0.14) (0.38) (0.58)
Capital gains -- (1.08) (1.76)
------------ ------------ ------------
Total Distributions (0.14) (1.46) (2.34)
------------ ------------ ------------
Net Asset Value, End of Period $ 22.72 $ 25.19 $ 24.79
============ ============ ============
Total Return (1) (9.25)%** 8.61% (3.01)%
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 6,330 $ 5,671 $ 4,802
Ratio of expenses with reimbursement to
average net assets (2) 1.45%* 1.49% 1.51%
Ratio of expenses without reimbursement to
average net assets 1.45%* 1.49% 1.51%
Ratio of net investment income to average
net assets 1.03%* 1.32% 1.53%
Portfolio turnover rate 18.15% 22.05% 9.81%
<Caption>
CLASS B SHARES
---------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2005 2004 2003 2002
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 21.46 $ 19.44 $ 18.56 $ 22.22
Investment income--net 0.17 0.13 0.13 0.09
Net realized and unrealized gain (loss) on
investments 1.65 2.07 0.94 (3.57)
------------ ------------ ------------ ------------
Total from Investment Operations 1.82 2.20 1.07 (3.48)
Less distributions from
Investment income--net (0.17) (0.18) (0.19) (0.18)
Capital gains (0.47) -- -- --
------------ ------------ ------------ ------------
Total Distributions (0.64) (0.18) (0.19) (0.18)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 22.64 $ 21.46 $ 19.44 $ 18.56
============ ============ ============ ============
Total Return (1) 20.76%** 11.36% 5.85% (15.72)%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 7,923 $ 7,375 $ 6,182 $ 5,806
Ratio of expenses with reimbursement to
average net assets (2) 1.76%* 1.76% 1.76% 1.94%
Ratio of expenses without reimbursement to
average net assets 1.95%* 1.95% 1.99% 1.95%
Ratio of net investment income to average
net assets 1.51%* 0.58% 0.71% 0.37%
Portfolio turnover rate 0.91% 6.74% 7.57% 30.99%
<Caption>
CLASS B SHARES
------------------------------------------------
EIGHT PERIOD FROM
MONTHS YEAR JANUARY 1,
ENDED ENDED TO
AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ ------------ ------------
2001 2000 1999
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 24.69 $ 24.38 $ 28.02
Investment income--net 0.08 0.23 0.47
Net realized and unrealized gain (loss) on
investments (2.47) 1.45 (1.88)
------------ ------------ ------------
Total from Investment Operations (2.39) 1.68 (1.41)
Less distributions from
Investment income--net (0.08) (0.29) (0.47)
Capital gains -- (1.08) (1.76)
------------ ------------ ------------
Total Distributions (0.08) (1.37) (2.23)
------------ ------------ ------------
Net Asset Value, End of Period $ 22.22 $ 24.69 $ 24.38
============ ============ ============
Total Return (1) (9.68)%** 7.95% (4.86)%
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 5,688 $ 5,324 $ 4,343
Ratio of expenses with reimbursement to
average net assets (2) 1.98%* 1.99% 2.01%
Ratio of expenses without reimbursement to
average net assets 1.98%* 1.99% 2.01%
Ratio of net investment income to average
net assets 0.50%* 0.74% 1.03%
Portfolio turnover rate 18.15% 22.05% 9.81%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.26% for class A and 1.76% for class B.
See notes to financial statements.
43
<Page>
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------
2005 2004 2003 2002
------------ ------------ ------------ ------------
Net Asset Value, Beginning of Period $ 22.77 $ 20.56 $ 19.51 $ 23.26
Investment income--net 0.26 0.28 0.27 0.27
Net realized and unrealized gain (loss) on
investments 1.76 2.21 1.04 (3.74)
------------ ------------ ------------ ------------
Total from Investment Operations 2.02 2.49 1.31 (3.47)
Less distributions from
Investment income--net (0.22) (0.28) (0.26) (0.28)
Capital gains (0.47) -- -- --
------------ ------------ ------------ ------------
Total Distributions (0.69) (0.28) (0.26) (0.28)
------------ ------------ ------------ ------------
Net Asset Value, End of Period $ 24.10 $ 22.77 $ 20.56 $ 19.51
============ ============ ============ ============
Total Return (1) 21.72%** 12.14% 6.83% (15.03)%
============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 101,181 $ 97,802 $ 94,943 $ 103,396
Ratio of expenses to average net assets 1.10%* 1.10% 1.12% 1.07%
Ratio of net investment income to average
net assets 2.18%* 1.24% 1.36% 1.26%
Portfolio turnover rate 0.91% 6.74% 7.57% 30.99%
<Caption>
CLASS T SHARES
------------------------------------------------
EIGHT MONTHS
ENDED YEAR ENDED
AUGUST 31, DECEMBER 31,
------------ ------------------------------
2001 2000 1999
------------ ------------ ------------
Net Asset Value, Beginning of Period $ 25.76 $ 25.30 $ 28.02
Investment incomenet 0.24 0.46 0.54
Net realized and unrealized gain (loss) on
investments (2.57) 1.54 (0.96)
------------ ------------ ------------
Total from Investment Operations (2.33) 2.00 (0.42)
Less distributions from
Investment income--net (0.17) (0.46) (0.54)
Capital gains -- (1.08) (1.76)
------------ ------------ ------------
Total Distributions (0.17) (1.54) (2.30)
------------ ------------ ------------
Net Asset Value, End of Period $ 23.26 $ 25.76 $ 25.30
============ ============ ============
Total Return (1) (9.07)%** 8.99% (1.39)%
============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 138,566 $ 160,319 $ 187,988
Ratio of expenses to average net assets 1.06%* 1.05% 1.05%
Ratio of net investment income to average
net assets 1.43%* 1.73% 1.94%
Portfolio turnover rate 18.15% 22.05% 9.81%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
44
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R BALANCED FUND
COMMON STOCK
<Table>
<Caption>
SHARES VALUE
AEROSPACE & DEFENSE--0.72%
Honeywell International Inc. 5,900 $ 224,023
AIR FREIGHT & COURIERS--0.40%
United Parcel Service, Inc. (Class B) 1,600 123,984
AUTOMOBILES--0.78%
Ford Motor Co. 11,168 141,275
General Motors Corp. 2,900 103,443
-------------
244,718
BANKS--7.29%
Bank of America Corp. 18,800 877,020
PNC Financial Services Group, Inc. 6,100 321,104
U.S. Bancorp 14,500 431,375
Wachovia Corp. 3,600 190,836
Wells Fargo & Co. 7,800 463,164
-------------
2,283,499
BEVERAGES--1.81%
Anheuser-Busch Companies, Inc. 3,100 147,095
Coca-Cola Co. (The) 6,000 256,800
PepsiCo, Inc. 3,000 161,580
-------------
565,475
BIOTECHNOLOGY--0.49%
Amgen Inc.* 2,500 154,025
BUILDING PRODUCTS--0.66%
American Standard Companies Inc. 4,500 206,100
CHEMICALS--1.17%
Dow Chemical Co. 3,100 170,965
E.I. du Pont de Nemours and Co. 1,900 101,270
PPG Industries, Inc. 1,300 93,535
-------------
365,770
COMMERCIAL SERVICES & SUPPLIES--1.19%
Banta Corp. 5,200 228,592
H & R Block, Inc. 2,700 143,910
-------------
372,502
COMMUNICATIONS EQUIPMENT--1.44%
Cisco Systems, Inc.* 23,100 402,402
Motorola, Inc. 3,100 48,546
-------------
450,948
COMPUTERS & PERIPHERALS--3.16%
Dell Inc.* 6,900 276,621
EMC Corp.* 20,100 254,466
Hewlett-Packard Co. 1,800 37,440
International Business Machines Corp. 3,800 351,804
Sun Microsystems, Inc.* 16,700 70,474
-------------
990,805
CONTAINERS & PACKAGING--0.40%
Sealed Air Corp.* 2,400 $ 125,448
DIVERSIFIED FINANCIALS--4.43%
American Express Co. 3,600 194,940
Citigroup Inc. 14,500 691,940
JPMorgan Chase & Co. 4,092 149,562
Morgan Stanley 6,100 344,467
Piper Jaffray Companies, Inc.* 145 5,735
-------------
1,386,644
DIVERSIFIED TELECOMMUNICATION SERVICES--1.63%
ALLTEL Corp. 2,400 137,280
Sprint Corp. 5,700 134,976
Verizon Communications Inc. 2,580 92,803
Vodafone Group PLC ADR 5,500 144,595
-------------
509,654
ELECTRIC UTILITIES--2.07%
Ameren Corp. 3,000 154,410
CenterPoint Energy, Inc. 5,500 65,890
Constellation Energy Group 5,000 257,350
Exelon Corp. 1,400 63,504
Southern Co. (The) 1,600 51,392
Wisconsin Energy Corp. 1,600 55,552
-------------
648,098
ENERGY EQUIPMENT & SERVICES--0.96%
Schlumberger Ltd. 4,000 301,800
FOOD PRODUCTS--2.57%
ConAgra Foods, Inc. 6,100 166,652
H.J. Heinz Co. 2,600 97,864
McCormick & Co., Inc. 5,700 216,543
Sara Lee Corp. 7,200 161,280
Sensient Technologies Corp. 7,400 161,616
-------------
803,955
FOOD & DRUG RETAILING--1.53%
Wal-Mart Stores, Inc. 9,300 479,973
GOVERNMENT AGENCY--0.77%
Federal Home Loan Mortgage Corp. 3,900 241,800
HEALTH CARE EQUIPMENT & SUPPLIES--1.23%
Abbott Laboratories 4,200 193,158
Beckman Coulter, Inc. 2,400 169,080
Zimmer Holdings, Inc.* 260 22,334
-------------
384,572
HEALTH CARE PROVIDERS & SERVICES--0.28%
Health Management Associates, Inc.
(Class A) 3,800 87,286
</Table>
45
<Page>
<Table>
<Caption>
SHARES VALUE
HOTELS, RESTAURANTS & LEISURE--1.33%
Starwood Hotels & Resorts
Worldwide, Inc. 7,300 $ 417,852
HOUSEHOLD DURABLES--0.50%
Stanley Works (The) 3,400 157,250
HOUSEHOLD PRODUCTS--1.95%
Kimberly-Clark Corp. 2,200 145,156
Newell Rubbermaid Inc. 3,800 84,702
Procter & Gamble Co. 7,200 382,248
-------------
612,106
INDUSTRIAL CONGLOMERATES--4.01%
3M Co. 1,900 159,486
Danaher Corp. 4,000 216,680
General Electric Co. 21,400 753,280
Illinois Tool Works Inc. 1,400 125,650
-------------
1,255,096
INSURANCE--2.38%
American International Group, Inc. 5,731 382,831
Prudential Financial, Inc. 5,800 330,600
St. Paul Travelers Companies, Inc. (The) 854 32,725
-------------
746,156
IT CONSULTING & SERVICES--0.07%
Electronic Data Systems Corp. 600 12,780
SunGard Data Systems Inc.* 400 10,444
-------------
23,224
LEISURE EQUIPMENT & PRODUCTS--0.70%
Brunswick Corp. 4,700 219,208
MACHINERY--0.35%
Ingersoll-Rand Co. (Class A) 1,300 109,525
MEDIA--1.58%
Comcast Corp. (Special Class A)* 2,000 63,720
Viacom Inc. (Class B) 4,000 139,600
Walt Disney Co. (The) 10,400 290,576
-------------
493,896
METALS & MINING--0.32%
Alcoa Inc. 3,100 99,572
OIL & GAS--5.39%
Anadarko Petroleum Corp. 1,800 $ 138,348
BP PLC ADR 5,092 330,573
ChevronTexaco Corp. 5,200 322,816
Exxon Mobil Corp. 6,500 411,515
Royal Dutch Petroleum Co. 4,200 264,978
Unocal Corp. 4,100 221,810
-------------
1,690,040
PAPER & FOREST PRODUCTS--0.15%
International Paper Co. 1,200 44,820
Neenah Paper, Inc. 66 2,320
-------------
47,140
PERSONAL PRODUCTS--0.38%
Gillette Co. 2,400 120,600
PHARMACEUTICALS--6.03%
Allergan, Inc. 1,700 127,806
Bristol-Myers Squibb Co. 5,800 145,174
Hospira, Inc.* 420 12,432
Johnson & Johnson 9,200 603,520
Merck & Co., Inc. 5,300 168,010
Pfizer Inc. 21,555 566,681
Watson Pharmaceuticals, Inc.* 4,400 139,656
Wyeth 3,100 126,542
-------------
1,889,821
SEMICONDUCTOR EQUIPMENT & PRODUCTS--2.04%
Intel Corp. 21,600 517,968
Texas Instruments Inc. 4,600 121,762
-------------
639,730
SOFTWARE--2.20%
Microsoft Corp. 23,300 586,694
Oracle Corp.* 3,700 47,767
VERITAS Software Corp.* 2,200 53,284
-------------
687,745
SPECIALTY RETAIL--1.91%
Home Depot, Inc. (The) 6,200 248,124
Limited Brands, Inc. 7,600 180,728
Lowe's Companies, Inc. 2,900 170,462
-------------
599,314
TOTAL COMMON STOCK--66.27%
(Cost $16,028,856) 20,759,354
-------------
</Table>
46
<Page>
BONDS AND NOTES
<Table>
<Caption>
FACE
AMOUNT VALUE
AUTO COMPONENTS--1.59%
Cooper Tire & Rubber Co.,
7.75%, 12/15/09 $ 450,000 $ 496,991
BANKS--2.49%
Royal Bk. of Scotland GRP PLC,
yankee bond,
6.40%, 04/01/09 500,000 534,661
Washington Mutual Inc.,
4.2%, 01/15/10 250,000 245,913
-------------
780,574
DIVERSIFIED FINANCIALS--3.77%
General Electric Capital Corp.,
3.75%, 12/15/09 350,000 340,063
Morgan JP & Co., Inc.,
6.00%, 01/15/09 500,000 528,876
SBC Commun. Capital Corp.,
7.11%, 08/14/06 300,000 312,836
-------------
1,181,775
ELECTRONIC EQUIPMENT & INSTRUMENTS--2.04%
Koninklijke Philips Elec.,
yankee bond,
8.375%, 09/15/06 600,000 637,730
INSURANCE--1.84%
Mony Group Inc., (The)
8.35%, 03/15/10 500,000 577,257
REAL ESTATE--1.78%
Weingarten Realty Investors,
7.35%, 07/20/09 500,000 558,517
TRANSPORTATION INFRASTRUCTURE--1.53%
Hertz Corp.,
7.40%, 03/01/11 455,000 477,816
U S GOVERNMENT AGENCY SECURITIES--8.30%
Federal Farm Credit Bank
4.15%, 11/30/09 350,000 346,263
Federal Home Loan Bank,
2.45%, 03/23/07 1,500,000 1,461,037
Federal Home Loan Bank,
4.4%, 12/28/09 750,000 748,144
Federal Home Loan Mortgage Corp.,
Pool #284839, 8.50%, 01/01/17 9,940 10,808
Federal Home Loan Mortgage Corp.,
Pool #298759, 8.00%, 08/01/17 420 456
Federal National Mortgage Association,
Pool #048974, 8.00%, 06/01/17 31,807 34,562
-------------
2,601,270
TOTAL BONDS AND NOTES--23.34%
(Cost $7,010,972) 7,311,930
-------------
MONEY MARKET FUNDS
<Caption>
SHARES VALUE
SM&R Money Market Fund, 1.98% (a) 514 $ 514
-------------
TOTAL MONEY MARKET FUNDS--0.00%
(Cost $514) 514
-------------
COMMERCIAL PAPER
<Caption>
FACE
AMOUNT
ELECTRIC UTILITIES--1.28%
DTE Energy Co.
2.6%, 03/04/05 $ 401,000 400,913
FOOD PRODUCTS--3.26%
Campbell Soup Co.
2.53%, 03/07/05 1,020,000 1,019,570
METALS & MINING--2.15%
Alcoa Inc.,
2.53%, 03/01/05 675,000 675,000
PHARMACEUTICALS--3.25%
Schering-Plough Corp.,
2.62% 03/03/05 1,018,000 1,017,852
-------------
TOTAL COMMERCIAL PAPER--9.94%
(Cost $3,113,335) 3,113,335
-------------
TOTAL INVESTMENTS--99.55%
(Cost $26,153,677) 31,185,133
-------------
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.45% 140,305
-------------
NET ASSETS--100.00% $ 31,325,438
=============
</Table>
ABBREVIATIONS
ADR--American Depository Receipt
*--Non-income producing securities
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2005. 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.
47
<Page>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
US Government 10.13%
Energy 7.09%
Materials 2.27%
Industrials 9.86%
Consumer Discretionary 9.37%
Consumer Staples 9.20%
Health Care 8.96%
Financials 26.77%
Information Technology 12.22%
Telecommunication Services 1.82%
Utilities 2.31%
</Table>
48
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R BALANCED FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $26,153,163) $ 31,184,619
Investments in affiliated money market funds (Cost $514) 514
-----------------
Total investments (Cost $26,153,677) 31,185,133
Prepaid expenses 1,073
Receivable for:
Investments securities sold 482
Capital stock sold 17,378
Dividends 52,507
Interest 143,675
Expense reimbursement 1,874
Other assets 15,067
-----------------
TOTAL ASSETS 31,417,189
-----------------
LIABILITIES
Capital stock reacquired 29,789
Accrued:
Investment advisory fee 18,074
Service fee 6,025
Distribution fee 8,882
Other liabilities 28,981
-----------------
TOTAL LIABILITIES 91,751
-----------------
NET ASSETS (applicable to shares outstanding) $ 31,325,438
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 25,790,343
Undistributed net investment income 117,715
Accumulated net realized gain on investments 385,924
Net unrealized appreciation on investments 5,031,456
-----------------
Net Assets $ 31,325,438
=================
NET ASSETS:
Class A $ 4,920,430
Class B $ 3,201,027
Class T $ 23,203,981
-----------------
TOTAL NET ASSETS: $ 31,325,438
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 268,221
Class B:
Authorized 25,000,000
Outstanding 172,928
Class T:
Authorized 25,000,000
Outstanding 1,221,702
Class A:
Net asset value and redemption price per share $ 18.34
Offering price per share: (Net Assets value of $18.34 / 95%) $ 19.31
Class B:
Net asset value and offering price per share $ 18.51
Class T:
Net asset value and redemption price per share $ 18.99
Offering price per share: (Net Assets value of $18.99 / 94.25%) $ 20.15
</Table>
See notes to financial statements.
49
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R BALANCED FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $568) $ 305,133
Interest 219,546
Interest from affiliated money market funds 46
-----------------
TOTAL INVESTMENT INCOME 524,725
-----------------
EXPENSES
Investment advisory fees 115,886
Service fees 38,629
Professional fees 7,010
Custody and transaction fees 7,595
Directors' fees 2,516
Qualification fees
Class A 3,940
Class B 2,300
Class T 4,558
Shareholder reporting expenses
Class A 1,289
Class B 847
Class T 2,501
Insurance expenses 4,472
Distribution fees
Class A 5,927
Class B 11,560
-----------------
TOTAL EXPENSES 209,030
LESS EXPENSES REIMBURSED (11,862)
-----------------
NET EXPENSES 197,168
-----------------
INVESTMENT INCOME--NET 327,557
-----------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments 399,818
Change in unrealized appreciation of investments for the period 960,099
-----------------
NET GAIN ON INVESTMENTS 1,359,917
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 1,687,474
=================
</Table>
See notes to financial statements.
50
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 327,557 $ 454,329
Net realized gain on investments 399,818 356,971
Change in unrealized appreciation 960,099 1,617,148
----------------- -----------------
Net increase in net assets resulting from operations 1,687,474 2,428,448
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (44,626) (68,108)
Class B (24,350) (35,072)
Class T (214,878) (365,311)
Capital Gains
Class A (17,004) (45,377)
Class B (10,979) (30,287)
Class T (79,523) (264,673)
----------------- -----------------
Total distributions to shareholders (391,360) (808,828)
CAPITAL SHARE TRANSACTIONS--NET
Class A 314,961 793,615
Class B 123,588 486,952
Class T (556,062) (76,867)
----------------- -----------------
Total net capital share transactions (117,513) 1,203,700
----------------- -----------------
TOTAL INCREASE 1,178,601 2,823,320
NET ASSETS
Beginning of period 30,146,837 27,323,517
----------------- -----------------
End of period $ 31,325,438 $ 30,146,837
================= =================
Undistributed Net Investment Income $ 117,715 $ 74,012
================= =================
</Table>
See notes to financial statements.
51
<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 PERIOD FROM
SIX MONTHS MONTHS YEAR JANUARY 1,
ENDED ENDED ENDED TO
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ --------------------------- ----------- ------------ ------------
2005 2004 2003 2002 2001 2000 1999
------------ -------- -------- ------- ----------- ------------ ------------
Net Asset Value, Beginning of Period $ 17.60 $ 16.65 $ 15.93 $ 17.44 $ 18.93 $ 20.30 $ 19.63
Investment income--net 0.20 0.28 0.32 0.39 0.23 0.37 0.47
Net realized and unrealized gain (loss)
on investments 0.77 1.18 0.77 (1.47) (1.53) (0.06) 1.47
-------- -------- -------- ------- -------- -------- -------
Total from Investment Operations 0.97 1.46 1.09 (1.08) (1.30) 0.31 1.94
Less distributions from
Investment income--net (0.17) (0.30) (0.37) (0.43) (0.19) (0.39) (0.47)
Capital gains (0.06) (0.21) -- -- -- (1.29) (0.80)
-------- -------- -------- ------- -------- -------- -------
Total Distributions (0.23) (0.51) (0.37) (0.43) (0.19) (1.68) (1.27)
-------- -------- -------- ------- -------- -------- -------
Net Asset Value, End of Period $ 18.34 $ 17.60 $ 16.65 $ 15.93 $ 17.44 $ 18.93 $ 20.30
======== ======== ======== ======= ======== ======== =======
Total Return (1) 12.69%** 8.83% 7.02% (6.29)% (6.87)%** 3.35% 10.13%
======== ======== ======== ======= ======== ======== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 4,920 $ 4,409 $ 3,419 $ 3,183 $ 2,713 $ 2,512 $ 1,777
Ratio of expenses with reimbursement
to average net assets (2) 1.30%* 1.30% 1.30% 1.45% 1.50%* 1.50% 1.51%
Ratio of expenses without reimbursement
to average net assets 1.61%* 1.64% 1.69% 1.73% 1.50%* 1.92% 1.51%
Ratio of net investment income to average
net assets 2.11%* 1.51% 2.02% 2.27% 1.98%* 2.40% 1.87%
Portfolio turnover rate 7.47% 11.15% 23.83% 25.80% 14.77% 13.17% 18.01%
<Caption>
CLASS B SHARES
-------------------------------------------------------------------------------------
(UNAUDITED) EIGHT PERIOD FROM
SIX MONTHS MONTHS YEAR JANUARY 1,
ENDED ENDED ENDED TO
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31, DECEMBER 31,
------------ --------------------------- ----------- ------------ ------------
2005 2004 2003 2002 2001 2000 1999
------------ -------- -------- ------- ----------- ------------ ------------
Net Asset Value, Beginning of Period $ 17.78 $ 16.83 $ 16.18 $ 17.72 $ 19.26 $ 20.64 $ 19.63
Investment income--net 0.15 0.20 0.24 0.30 0.20 0.35 0.40
Net realized and unrealized gain (loss)
on investments 0.78 1.19 0.72 (1.47) (1.59) (0.08) 1.81
-------- -------- -------- ------- -------- -------- -------
Total from Investment Operations 0.93 1.39 0.96 (1.17) (1.39) 0.27 2.21
Less distributions from
Investment income--net (0.14) (0.23) (0.31) (0.37) (0.15) (0.36) (0.40)
Capital gains (0.06) (0.21) -- -- -- (1.29) (0.80)
-------- -------- -------- ------- -------- -------- -------
Total Distributions (0.20) (0.44) (0.31) (0.37) (0.15) (1.65) (1.20)
-------- -------- -------- ------- -------- -------- -------
Net Asset Value, End of Period $ 18.51 $ 17.78 $ 16.83 $ 16.18 $ 17.72 $ 19.26 $ 20.64
======== ======== ======== ======= ======== ======== =======
Total Return (1) 11.98%** 8.33% 6.10% (6.69)% (7.23)%** 2.79% 11.52%
======== ======== ======== ======= ======== ======== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 3,201 $ 2,952 $ 2,336 $ 2,105 $ 1,917 $ 2,081 $ 1,119
Ratio of expenses with reimbursement to
average net assets (2) 1.80%* 1.80% 1.80% 1.95% 2.00%* 2.00% 2.01%
Ratio of expenses without reimbursement
to average net assets 2.10%* 2.13% 2.18% 2.22% 2.00%* 2.23% 2.01%
Ratio of net investment income to average
net assets 1.60%* 1.00% 1.51% 1.77% 1.55%* 1.89% 1.36%
Portfolio turnover rate 7.47% 11.15% 23.83% 25.80% 14.77% 13.17% 18.01%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 1.30% for class A and 1.80% for class B.
See notes to financial statements.
52
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
<Table>
<Caption>
CLASS T SHARES
--------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS EIGHT MONTHS
ENDED ENDED YEAR ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31, AUGUST 31, DECEMBER 31,
------------ ---------------------------- ------------ -------------------
2005 2004 2003 2002 2001 2000 1999
------------ -------- -------- -------- ------------ -------- ---------
Net Asset Value, Beginning of Period $ 18.21 $ 17.18 $ 16.42 $ 17.91 $ 19.40 $ 20.67 $ 19.63
Investment income--net 0.20 0.29 0.34 0.43 0.31 0.56 0.42
Net realized and unrealized gain (loss)
on investments 0.81 1.24 0.77 (1.50) (1.58) 0.01 1.84
-------- -------- -------- -------- -------- -------- --------
Total from Investment Operations 1.01 1.53 1.11 (1.07) (1.27) 0.57 2.26
Less distributions from
Investment income--net (0.17) (0.29) (0.35) (0.42) (0.22) (0.55) (0.42)
Capital gains (0.06) (0.21) -- -- -- (1.29) (0.80)
-------- -------- -------- -------- -------- -------- --------
Total Distributions (0.23) (0.50) (0.35) (0.42) (0.22) (1.84) (1.22)
-------- -------- -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 18.99 $ 18.21 $ 17.18 $ 16.42 $ 17.91 $ 19.40 $ 20.67
======== ======== ======== ======== ======== ======== ========
Total Return (1) 12.75%** 8.95% 6.95% (6.07)% (6.54)%** 3.64% 11.87%
======== ======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 23,204 $ 22,785 $ 21,569 $ 21,631 $ 24,798 $ 28,223 $ 30,146
Ratio of expenses with reimbursement
to average net assets 1.20%* 1.23% 1.25% 1.25% 1.25%* 1.25% 1.25%
Ratio of expenses without reimbursement
to average net assets 1.20%* 1.23% 1.26% 1.27% 1.25%* 1.34% 1.41%
Ratio of net investment income to average
net assets 2.20%* 1.58% 2.08% 2.47% 2.52%* 2.63% 2.15%
Portfolio turnover rate 7.47% 11.15% 23.83% 25.80% 14.77% 13.17% 18.01%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
53
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
CORPORATE BONDS
DIVERSIFIED FINANCIALS--1.89%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 554,021
METALS & MINING--3.69%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 1,082,949
------------
TOTAL CORPORATE BONDS--5.58%
(Cost $1,514,579) 1,636,970
------------
FOREIGN BONDS
U S DOLLAR DENOMINATED
FOREIGN GOVERNMENT BONDS--1.80%
Province of Quebec, Canada 02/15/09 5.750 500,000 527,646
------------
TOTAL FOREIGN BONDS--1.80%
(Cost $474,248) 527,646
------------
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--31.11%
Federal Home Loan Bank (a) 10/25/05 6.230 150,000 152,970
Federal Home Loan Mortgage Corp. (a) 08/01/05 6.750 165,000 167,718
Federal Home Loan Mortgage Corp. (a) 09/15/05 2.875 500,000 499,367
Federal Home Loan Mortgage Corp. (a) 11/15/05 2.125 1,990,000 1,974,707
Federal Home Loan Mortgage Corp. 03/15/07 4.875 1,600,000 1,634,741
Federal Home Loan Mortgage Corp. 03/16/07 2.700 1,585,000 1,552,404
Federal Home Loan Mortgage Corp. 08/03/07 3.750 500,000 498,121
Federal Home Loan Mortgage Corp. 09/15/07 3.500 581,000 576,541
Federal National Mortgage Assoc. 02/01/11 6.250 1,850,000 1,999,186
FHLMC, Series 1205-G 03/15/07 7.000 58,663 58,630
Private Export Funding 01/15/10 7.200 15,000 16,879
------------
9,131,264
------------
</Table>
54
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT SECURITIES--52.68%
U S Treasury Bond 02/28/06 1.625 $ 2,000,000 $ 1,968,046
U S Treasury Note 05/15/06 6.875 1,120,000 1,166,156
U S Treasury Note 11/15/06 2.625 2,800,000 2,758,437
U S Treasury Note 02/15/08 3.000 2,000,000 1,958,124
U S Treasury Note 05/15/08 2.625 3,350,000 3,233,142
U S Treasury Note 05/15/08 5.625 500,000 527,520
U S Treasury Note 11/15/08 4.750 500,000 515,488
U S Treasury Note 05/15/14 4.750 1,319,000 1,357,900
U S Treasury Note 08/15/14 4.250 2,000,000 1,981,640
------------
15,466,453
------------
TOTAL U S GOVERNMENT AGENCY and U S GOVERNMENT SECURITIES--83.79%
(Cost $25,118,162) 24,597,717
------------
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--7.95%
Federal National Mortgage Assoc. 03/01/05 2.430 1,060,000 1,060,000
Federal National Mortgage Assoc. 03/09/05 2.420 400,000 399,785
Federal National Mortgage Assoc. 03/16/05 2.445 875,000 874,108
------------
TOTAL U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS--7.95%
(Cost $2,333,893) 2,333,893
------------
MONEY MARKET FUNDS--0.18%
<Caption>
SHARES
SM&R Money Market Fund, 1.98% (b) 52,984 52,984
------------
TOTAL MONEY MARKET FUNDS--0.18%
(Cost $52,984) 52,984
------------
TOTAL INVESTMENTS--99.30%
(Cost $29,493,866) 29,149,210
CASH AND OTHER ASSETS, LESS LIABILITIES--0.70% 205,063
------------
TOTAL NET ASSETS--100.00% $ 29,354,273
============
</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, 2005. 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.
55
<Page>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
US Government 91.73%
Canadian Government 1.97%
Financials 2.06%
Materials 4.04%
Affiliated Money Market Fund 0.20%
</Table>
56
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $29,440,882) $ 29,096,226
Investments in affiliated money market funds (Cost $52,984) 52,984
-----------------
Total investments (Cost $29,493,866) 29,149,210
Prepaid expenses 9,408
Receivable for:
Capital stock sold 12,379
Interest 231,201
Expense reimbursement 5,767
Other assets 2,782
-----------------
TOTAL ASSETS 29,410,747
-----------------
LIABILITIES
Capital stock reacquired 14,467
Distribution payable 743
Accrued:
Investment advisory fee 11,318
Service fee 5,659
Distribution fee 2,649
Other liabilities 21,638
-----------------
TOTAL LIABILITIES 56,474
-----------------
NET ASSETS (applicable to shares outstanding) $ 29,354,273
=================
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 29,692,316
Undistributed net investment income 134
Accumulated net realized gain on investments 6,479
Net unrealized depreciation of investments (344,656)
-----------------
Net Assets $ 29,354,273
=================
NET ASSETS:
Class A $ 1,042,405
Class B $ 1,091,610
Class T $ 27,220,258
-----------------
TOTAL NET ASSETS $ 29,354,273
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,001,150
Outstanding 100,047
Class B:
Authorized 100,000,000
Outstanding 104,853
Class T:
Authorized 23,000,000
Outstanding 2,646,164
Class A:
Net asset value and redemption price per share $ 10.42
Offering price per share: (Net Assets value of $10.42 / 95.25%) $ 10.94
Class B:
Net asset value and offering price per share $ 10.41
Class T:
Net asset value and redemption price per share $ 10.29
Offering price per share: (Net Assets value of $10.29 / 95.5%) $ 10.77
</Table>
See notes to financial statements.
57
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $ 437,558
Interest from affiliated money market funds 195
-----------------
TOTAL INVESTMENT INCOME 437,753
-----------------
EXPENSES
Investment advisory fees 73,548
Service fees 36,774
Professional fees 4,332
Custody and transaction fees 4,479
Directors' fees 1,790
Qualification fees
Class A 4,412
Class B 2,656
Class T 8,916
Shareholder reporting expenses
Class A 623
Class B 403
Class T 1,365
Insurance expenses 3,861
Distribution fees
Class A 1,241
Class B 4,130
-----------------
TOTAL EXPENSES 148,530
LESS EXPENSES REIMBURSED (38,399)
-----------------
NET EXPENSES 110,131
-----------------
INVESTMENT INCOME--NET 327,622
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 6,363
Change in unrealized depreciation of investments for the period (395,596)
-----------------
NET LOSS ON INVESTMENTS (389,233)
-----------------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (61,611)
=================
</Table>
See notes to financial statements.
58
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED) FOR YEAR
FOR SIX MONTHS ENDED
ENDED FEBRUARY 28, AUGUST 31,
----------------- -----------------
2005 2004
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income--net $ 327,622 $ 633,117
Net realized gain on investments 6,363 16,973
Change in unrealized appreciation (depreciation) (395,596) 287,515
----------------- -----------------
Net increase (decrease) in net assets resulting from operations (61,611) 937,605
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (11,164) (22,707)
Class B (9,613) (21,638)
Class T (306,730) (588,821)
Capital gains
Class A (579) (29,006)
Class B (620) (39,495)
Class T (15,913) (770,369)
----------------- -----------------
Total distributions to shareholders (344,619) (1,472,036)
CAPITAL SHARE TRANSACTIONS--NET
Class A 73,993 (240,334)
Class B (25,235) (488,459)
Class T (152,623) 298,110
----------------- -----------------
Total net capital share transactions (103,865) (430,683)
----------------- -----------------
TOTAL DECREASE (510,095) (965,114)
NET ASSETS
Beginning of Period 29,864,368 30,829,482
----------------- -----------------
End of Period $ 29,354,273 $ 29,864,368
================= =================
Undistributed Net Investment Income $ 134 $ 19
================= =================
</Table>
See notes to financial statements.
59
<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,
------------ ------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ --------- -------- ---------- ---------- ---------
Net Asset Value, Beginning of Period $ 10.56 $ 10.75 $ 10.88 $ 10.75 $ 10.14 $ 10.20
Investment income--net 0.12 0.23 0.40 0.48 0.53 0.57
Net realized and unrealized gain (loss)
on investments (0.14) 0.11 (0.13) 0.13 0.61 (0.06)
------- --------- ------- --------- --------- ---------
Total from Investment Operations (0.02) 0.34 0.27 0.61 1.14 0.51
Less distributions from
Investment income--net (0.12) (0.23) (0.40) (0.48) (0.53) (0.57)
Capital gains (0.00)*** (0.30) -- -- -- --
------- --------- ------- --------- --------- ---------
Total Distributions (0.12) (0.53) (0.40) (0.48) (0.53) (0.57)
------- --------- ------- --------- --------- ---------
Net Asset Value, End of Period $ 10.42 $ 10.56 $ 10.75 $ 10.88 $ 10.75 $ 10.14
======= ========= ======= ========= ========= =========
Total Return (1) 2.11%** 3.14% 2.51% 5.82% 11.46% 5.15%
======= ========= ======= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 1,042 $ 983 $ 1,240 $ 1,137 $ 626 $ 127
Ratio of expenses with reimbursement to
average net assets (2) 0.73%* 0.73% 0.73% 1.12% 1.25% 1.25%
Ratio of expenses without reimbursement to
average net assets 2.12%* 2.04% 1.75% 1.80% 1.27% 1.29%
Ratio of net investment income to average
net assets 2.25%* 2.13% 3.62% 4.73% 5.25% 5.68%
Portfolio turnover rate 14.40% 50.62% 99.26% 25.87% 14.01% 30.87%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.73% for classes T and A; and 1.23% for class B.
See notes to financial statements.
60
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS B SHARES
--------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ --------- -------- ---------- ---------- ---------
Net Asset Value, Beginning of Period $ 10.55 $ 10.74 $ 10.86 $ 10.74 $ 10.14 $ 10.16
Investment income--net 0.09 0.17 0.33 0.43 0.48 0.49
Net realized and unrealized gain (loss)
on investments (0.14) 0.11 (0.12) 0.12 0.60 (0.02)
------- --------- -------- ---------- ---------- ----------
Total from Investment Operations (0.05) 0.28 0.21 0.55 1.08 0.47
Less distributions from
Investment income--net (0.09) (0.17) (0.33) (0.43) (0.48) (0.49)
Capital gains (0.00)*** (0.30) -- -- -- --
------- --------- -------- ---------- ---------- ---------
Total Distributions (0.09) (0.47) (0.33) (0.43) (0.48) (0.49)
------- --------- -------- ---------- ---------- ---------
Net Asset Value, End of Period $ 10.41 $ 10.55 $ 10.74 $ 10.86 $ 10.74 $ 10.14
======= ========= ======== ========== ========== =========
Total Return (1) 1.54%** 2.65% 1.96% 5.27% 10.88% 4.74%
======= ========= ======== ========== ========== =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 1,092 $ 1,131 $ 1,643 $ 758 $ 211 $ 78
Ratio of expenses with reimbursement to
average net assets (2) 1.23%* 1.23% 1.23% 1.57% 1.75% 1.75%
Ratio of expenses without reimbursement to
average net assets 2.16%* 2.06% 1.95% 2.61% 1.79% 1.84%
Ratio of net investment income to average
net assets 1.75%* 1.65% 2.99% 4.20% 4.69% 5.12%
Portfolio turnover rate 14.40% 50.62% 99.26% 25.87% 14.01% 30.87%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.73% for classes T and A; and 1.23% for class B.
See notes to financial statements.
61
<Page>
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS T
--------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ --------- -------- ---------- ---------- ---------
Net Asset Value, Beginning of Period $ 10.43 $ 10.62 $ 10.75 $ 10.64 $ 10.05 $ 10.10
Investment income--net 0.12 0.22 0.40 0.52 0.58 0.59
Net realized and unrealized gain (loss) on
investments (0.14) 0.11 (0.13) 0.11 0.59 (0.05)
-------- --------- -------- ---------- ---------- ---------
Total from Investment Operations (0.02) 0.33 0.27 0.63 1.17 0.54
Less distributions from
Investment income--net (0.12) (0.22) (0.40) (0.52) (0.58) (0.59)
Capital gains (0.00)*** (0.30) -- -- -- --
-------- --------- -------- ---------- ---------- ---------
Total Distributions (0.12) (0.52) (0.40) (0.52) (0.58) (0.59)
-------- --------- -------- ---------- ---------- ---------
Net Asset Value, End of Period $ 10.29 $ 10.43 $ 10.62 $ 10.75 $ 10.64 $ 10.05
======== ========= ======== ========== ========== =========
Total Return (1) 2.12%** 3.15% 2.46% 6.08% 11.90% 5.58%
======== ========= ======== ========== ========== =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 27,220 $ 27,750 $ 27,946 $ 26,807 $ 25,278 $ 22,928
Ratio of expenses with reimbursement to
average net assets (2) 0.73%* 0.73% 0.73% 0.93% 0.97% 0.98%
Ratio of expenses without reimbursement to
average net assets 0.93%* 0.95% 0.91% 0.95% 0.97% 0.98%
Ratio of net investment income to average
net assets 2.25%* 2.12% 3.60% 4.92% 5.55% 5.91%
Portfolio turnover rate 14.40% 50.62% 99.26% 25.87% 14.01% 30.87%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.73% for classes T and A; and 1.23% for class B.
See notes to financial statements.
62
<Page>
SCHEDULE OF INVESTMENTS FEBRUARY 28, 2005 (UNAUDITED)
SM&R TAX FREE FUND
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
ALABAMA--1.25%
Aaa/AAA Alabama Drinking Water Financing Authority
Revolving Fund Loan, Series A - Revenue Bond 08/15/16 4.000 $ 180,000 $ 179,505
CALIFORNIA--0.18%
A3/A California State-general Obligation Bonds Unlimited 06/01/11 5.250 25,000 26,034
FLORIDA--9.18%
Aaa/AAA Dade County, Florida Water & Sewer System
Revenue Bonds 10/01/16 5.375 400,000 432,168
Aaa/AAA Miami-Dade County, Florida Solid Waste System
Revenue Bonds 10/01/18 4.750 400,000 412,452
Aaa/AAA Miami-Dade County, Florida Expressway Authority Toll
System Revenue Bonds 07/01/29 6.375 400,000 464,616
------------
1,309,236
ILLINOIS--8.08%
Aaa/AAA Chicago, Illinois-General Obligation Bonds Unlimited 01/01/25 5.125 100,000 103,529
Aaa/AAA Chicago, Illinois-Park District General Obligation
Bonds Unlimited, Series C 01/01/16 4.850 230,000 241,146
Aaa/AAA Regional Transportation Authority of Illinois Revenue
Bonds, Refunding MBIA 06/01/18 5.500 200,000 205,346
Aaa/NR Rockford, Illinois-General Obligation Bonds Unlimited 12/15/18 4.500 180,000 182,939
Aaa/NR State of Illinois-Build Illinois Bonds, Sales Tax Revenue
Bonds, Series V 06/15/17 6.375 200,000 206,466
Aaa/AAA State of Illinois-general Obligation Bonds Unlimited 03/01/19 5.000 200,000 212,664
------------
1,152,090
INDIANA--4.12%
Aaa/AAA Aurora, Indiana-Building Corp. Revenue Bonds 07/15/13 4.500 405,000 428,360
Aaa/AAA South Bend, Indiana-Building Corp. Revenue Bonds 02/01/13 4.500 150,000 158,417
------------
586,777
LOUISIANA--8.35%
Aaa/AAA Louisiana Public Facilities Authority Hospital
Revenue Bonds, Series C 07/01/19 5.000 400,000 419,648
Aaa/AAA Monroe, Louisiana Sales and Use Tax Revenue Bonds 07/01/16 4.000 200,000 200,834
Aaa/AAA New Orleans, Louisiana Sewer Service Revenue Bonds 06/01/18 5.000 300,000 318,783
Ba2/NR Plaquemines, Louisiana-port, Harbor & Terminal District,
Marine Terminal Facilities Revenue Bonds 09/01/07 5.000 250,000 250,928
------------
1,190,193
MASSACHUSETTS--3.34%
Aaa/AAA Massachusetts State Water Revenues Authority,
General Purpose-Series A 11/01/21 5.500 450,000 476,213
MISSISSIPPI--3.75%
NR/AAA Greenville Mississippi Public School District
General Obligation Unlimited 12/15/11 3.250 205,000 204,176
Aaa/AAA Mississippi Development Bank Special Obligation
Clinton Recreational Facilities & Municipal Building -
Revenue Bond 11/01/10 4.500 310,000 330,634
------------
534,810
</Table>
63
<Page>
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
NEW MEXICO--0.71%
Aaa/AAA Central Consolidated School District No.22 San Juan County
New Mexico General Obligation School Building Bonds 08/15/09 5.300 $ 100,000 $ 101,366
NEW YORK--8.29%
Aaa/AAA New York City, New York-General Obligation
Bonds Unlimited, Series J 02/15/07 5.000 100,000 103,708
A2/A New York City, New York-General Obligation
Bonds Unlimited, Series J 08/01/18 5.000 200,000 209,370
Aa2/AA+ New York City, New York-Transitional Financial
Authority Revenue Bonds, Series C 05/01/19 5.000 250,000 265,953
Aaa/AAA New York-state Tollway Authority
Highway & Bridge Revenue Bonds, Series B 04/01/10 3.850 200,000 206,868
Aa3/AA- Triborough Bridge & Tunnel Authority, New York,
Revenue Bonds, General Purpose-Series B 01/01/27 5.200 350,000 396,477
------------
1,182,376
OHIO--2.95%
Aaa/AAA Franklin County, Ohio-General Obligation Bonds Limited 12/01/08 5.100 300,000 315,705
Aaa/AAA Franklin County, Ohio-General Obligation Bonds Limited 12/01/11 5.300 100,000 105,588
------------
421,293
OKLAHOMA--0.11%
Aaa/NR Oklahoma Housing Finance Agency-Single Family
Mortgage Revenue Bonds (Homeownership Loan
Program), 1994 Series A-1 (b) 09/01/07 6.250 15,000 15,079
TEXAS--36.62%
Aaa/AAA Aransas County, Texas-correctional Facility Improvements
General Obligation Bonds Limited 02/15/13 3.875 250,000 253,855
Aaa/AAA Austin, Texas-community College District
Revenue Bonds 02/01/10 4.000 100,000 103,760
Aaa/AAA Austin, Texas-independent School District General
Obligation Bonds Unlimited Series A 08/01/12 3.750 150,000 152,460
Aaa/AAA College Station, Texas Utility Systems
Revenue Bonds 02/01/13 4.125 200,000 205,800
Aaa/AAA College Station, Texas Utility Systems
Revenue Bonds 02/01/14 4.250 65,000 66,912
Aaa/AAA Collin County, Texas-Community College District,
Consolidated Fund, Revenue Bonds 02/01/15 5.250 400,000 416,780
Aaa/AAA Dallas-fort Worth International Airport-dallas-fort
Worth Regional Airport, Joint Revenue Refunding
Bonds, Series 1994A 11/01/10 6.000 100,000 100,313
Aaa/AAA Dallas, Texas-Independent School District,
General Obligation Bonds Unlimited 02/15/09 4.200 100,000 104,605
Aaa/AAA EI Paso, Texas-Public Improvement, General Obligation
Bonds Limited 08/15/17 4.000 270,000 267,381
Aaa/A+ Flower Mound, Texas-Refunding and Improvement,
General Obligation Bonds Unlimited 03/01/17 5.500 200,000 209,702
Aaa/NR Galveston County, Texas-Public Improvements,
General Obligation Bonds Unlimited 02/01/10 4.300 25,000 26,279
Aaa/NR Galveston County, Texas-Public Improvements,
General Obligation Bonds Limited 02/01/11 4.375 125,000 131,831
</Table>
64
<Page>
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
Aaa/AAA Jefferson County, Texas-Public Improvement
Certificates of Obligation, Series B 08/01/16 4.125 $ 255,000 $ 256,709
Aaa/AAA League City, Texas-Public Improvements,
General Obligation Bonds Limited 02/15/13 4.750 100,000 106,709
Aaa/AAA Lubbock County, Texas-General
Obligation Bonds Limited 02/15/17 5.500 250,000 278,240
Aaa/AAA Lubbock, Texas-Municipal Drainage Utility General
Obligation Bonds Limited 02/15/14 4.000 250,000 253,567
Aaa/AAA Mission Texas Consolidated Independent School District-
General Obligation Bonds Unlimited 02/15/18 4.500 200,000 201,874
Aaa/AAA Montgomery County, Texas-Public Improvement
General Obligation Bonds Limited 03/01/12 4.000 250,000 257,237
Aaa/AAA Rockwell, Texas-waterworks & Sewer
General Obligation Bonds Limited 08/01/11 3.700 115,000 116,987
Aaa/AAA Round Rock, Texas-independent School District Refunding
and Improvement General Obligation Bonds Unlimited 08/01/11 4.400 250,000 259,788
Aaa/AAA San Antonio, Texas-River Authority Sewer Refunding
and Improvement-Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 101,214
Aaa/NR Tarrant County Health Facilities Development
Corp.-Health System Revenue Bonds,
(Harris Methodist Health System), Series 1994 (c) 09/01/14 6.000 200,000 233,862
Aa1/AA+ Texas A&M University Revenue and Financing System
Revenue Refunding Bonds, Series A 05/15/17 5.000 250,000 268,790
Aaa/AAA Texas Turnpike Authority-dallas North Tollway System
Revenue Bonds, Series 1995 (President George
Bush Turnpike) 01/01/15 5.400 100,000 104,468
Aaa/AAA University of Texas Permanent University Fund
Revenue Bonds, Prerefunded-Series A to 07/01/2011 07/01/13 6.250 45,000 52,482
Aaa/AAA University of Texas Permanent University Fund
Revenue Bonds, Prerefunded-Series a to 01/01/2012 07/01/13 6.250 55,000 64,493
Aaa/AAA University of Texas Permanent University Fund
Revenue Bonds, Prerefunded-Series A TO 01/01/2013 07/01/13 6.250 55,000 65,208
Aaa/AAA Waco, Texas-general Obligation Bonds Limited 02/01/16 4.000 250,000 249,335
Aaa/NR Weslaco, Texas Independent School District
General Obligation Bonds 02/15/13 5.650 100,000 102,989
Aaa/AAA West University Place, Texas-general Obligation
Bonds Limited, Permanent Improvement 02/01/14 5.650 100,000 102,962
NR/AAA Wylie, Texas Independent School District General
Obligation Bonds Unlimited 08/15/12 4.375 100,000 104,550
----------
5,221,142
UTAH--0.18%
Aaa/AA Utah Housing Finance Agency-Single Family
Mortgage Bonds, 1995 Issue A, (Federally
Insured or Guaranteed Mortgage Loans) (b) 07/01/12 7.150 5,000 5,108
Aaa/NR Utah State Housing Financial Agency-
Single Family Mortgage Bonds, Series F1 07/01/13 6.000 5,000 5,057
Aa2/AA Utah State Housing Financial Agency-single Family
Revenue Bonds (b) 07/01/21 6.000 15,000 15,103
----------
25,268
</Table>
65
<Page>
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
WASHINGTON--5.12%
Aaa/AAA Seattle, Washington-Municipal Light & Power
Revenue Bonds, Series B 06/01/24 5.000 $ 100,000 $ 104,674
Aa1/AA State of Washington-General Obligation
Bonds Unlimited, Series B 05/01/18 5.500 300,000 336,042
Aa2/NR Tumwater, Washington-Office Building Revenue Bonds 07/01/15 5.250 240,000 262,985
Aaa/AAA Washington State Public Power Supply System Nuclear
Project Number 1 Refunding Revenue Bonds, Series C 07/01/10 5.500 25,000 26,463
------------
730,164
------------
TOTAL MUNICIPAL BONDS--92.23%
(COST $12,540,141) 13,151,546
------------
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--6.52%
Federal National Mortgage Assoc. 03/01/05 2.400 500,000 500,000
Federal National Mortgage Assoc. 03/09/05 2.430 430,000 429,768
------------
TOTAL U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS--6.52%
(COST $929,768) 929,768
------------
MONEY MARKET FUNDS SHARES
SM&R MONEY MARKET FUND, 1.98% (d) 52,383 52,383
------------
TOTAL MONEY MARKET FUNDS--0.37%
(COST $52,383) 52,383
------------
TOTAL INVESTMENTS--99.12%
(COST $13,522,292) 14,133,697
CASH AND OTHER ASSETS, LESS LIABILITIES--0.88% 125,246
------------
TOTAL NET ASSETS--100.00% $ 14,258,943
============
</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, 2005. 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.
66
<Page>
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
Miscellaneous 4.82%
Transportation 12.31%
Development 5.36%
Education 18.69%
Medical 4.64%
Pollution 2.90%
Utility 13.60%
Housing 0.29%
General Obligation 30.86%
Affiliated Money Market Fund 6.53%
</Table>
67
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $13,469,909) $ 14,081,314
Investments in affiliated money market funds (Cost $52,383) 52,383
-----------------
Total investments (Cost $13,522,292) 14,133,697
Prepaid expenses 13,462
Receivable for:
Capital stock sold 200
Interest 132,225
Expense reimbursement 4,108
Other assets 3,211
-----------------
TOTAL ASSETS 14,286,903
-----------------
LIABILITIES
Distribution payable 2,563
Accrued:
Investment advisory fee 5,503
Service fee 2,752
Distribution fee 1,328
Other liabilities 15,814
-----------------
TOTAL LIABILITIES 27,960
-----------------
NET ASSETS (applicable to shares outstanding) $ 14,258,943
-----------------
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 13,646,474
Undistributed net investment income 43
Accumulated net realized gain on investments 1,021
Net unrealized appreciation of investments 611,405
-----------------
Net assets $ 14,258,943
=================
NET ASSETS:
Class A $ 539,888
Class B $ 536,610
Class T $ 13,182,445
-----------------
TOTAL NET ASSETS $ 14,258,943
=================
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,101
Outstanding 50,327
Class B:
Authorized 100,000,000
Outstanding 50,052
Class T:
Authorized 21,000,000
Outstanding 1,239,875
Class A:
Net asset value and redemption price per share $ 10.73
Offering price per share: (Net Assets value of $10.73 / 95.25%) $ 11.27
Class B:
Net asset value and offering price per share $ 10.72
Class T:
Net asset value and redemption price per share $ 10.63
Offering price per share: (Net Assets value of $10.63 / 95.5%) $ 11.13
</Table>
See notes to financial statements.
68
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $ 303,790
Interest from affiliated money market funds 338
-----------------
TOTAL INVESTMENT INCOME 304,128
-----------------
EXPENSES
Investment advisory fees 35,365
Service fees 17,682
Professional fees 4,331
Custody and transaction fees 3,809
Directors' fees 2,516
Qualification fees
Class A 3,617
Class B 2,673
Class T 6,698
Shareholder reporting expenses
Class A 98
Class B 81
Class T 373
Insurance expenses 1,357
Distribution fees
Class A 670
Class B 1,989
-----------------
TOTAL EXPENSES 81,259
LESS EXPENSES REIMBURSED (26,884)
-----------------
NET EXPENSES 54,375
-----------------
INVESTMENT INCOME--NET 249,753
-----------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on investments 988
Change in unrealized depreciation of investments for the period (111,381)
-----------------
NET LOSS ON INVESTMENTS (110,393)
-----------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 139,360
=================
</Table>
See notes to financial statements.
69
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
FOR SIX MONTHS FOR YEAR ENDED
ENDED FEBRUARY 28, AUGUST 31,
------------------ -----------------
2005 2004
------------------ -----------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 249,753 $ 552,561
Net realized gain on investments 988 2,466
Change in unrealized appreciation (depreciation) (111,381) 162,363
----------------- -----------------
Net increase in net assets resulting from operations 139,360 717,390
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment Income--Net
Class A (9,509) (22,086)
Class B (8,092) (19,572)
Class T (232,109) (510,895)
Capital gains
Class A (95) (1,149)
Class B (94) (1,146)
Class T (2,336) (26,744)
----------------- -----------------
Total distributions from shareholders (252,235) (581,592)
CAPITAL SHARE TRANSACTIONS--NET
Class A 1,660 (107,327)
Class B 4,733 33,526
Class T 133,078 (299,995)
----------------- -----------------
Total net capital share transactions 139,471 (373,796)
----------------- -----------------
TOTAL INCREASE (DECREASE) 26,596 (237,998)
NET ASSETS
Beginning of Period 14,232,347 14,470,345
----------------- -----------------
End of Period $ 14,258,943 $ 14,232,347
================= =================
Undistributed Net Investment Income $ 43 $ --
================= =================
</Table>
See notes to financial statements.
70
<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,
------------ --------------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.81 $ 10.71 $ 10.89 $ 10.80 $ 10.33 $ 10.22
Investment income--net 0.19 0.42 0.44 0.43 0.46 0.46
Net realized and unrealized gain (loss) on
investments (0.08) 0.12 (0.18) 0.09 0.49 0.12
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.11 0.54 0.26 0.52 0.95 0.58
Less distributions from
Investment income--net (0.19) (0.42) (0.44) (0.43) (0.46) (0.46)
Capital gains (0.00)*** (0.02) -- -- (0.02) (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions (0.19) (0.44) (0.44) (0.43) (0.48) (0.47)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.73 $ 10.81 $ 10.71 $ 10.89 $ 10.80 $ 10.33
========== ========== ========== ========== ========== ==========
Total Return (1) 5.03%** 5.12% 2.40% 4.99% 9.34% 5.86%
========== ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 539,888 $ 542,502 $ 643,287 $ 384,438 $ 245,697 $ 211,755
Ratio of expenses with reimbursement to
average net assets (2) 0.75%* 0.75% 0.75% 0.93% 1.00% 1.00%
Ratio of expenses without reimbursement to
average net assets 1.25%* 1.26% 1.24% 1.26% 1.33% 1.35%
Ratio of net investment income to average
net assets 3.56%* 3.84% 4.09% 4.14% 4.34% 4.59%
Portfolio turnover rate 3.42% 1.15% 18.23% 8.80% 0.18% 7.61%
<Caption>
CLASS B SHARES
------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ ---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.81 $ 10.71 $ 10.90 $ 10.79 $ 10.32 $ 10.20
Investment income--net 0.16 0.36 0.40 0.37 0.40 0.41
Net realized and unrealized gain (loss) on
investments (0.09) 0.12 (0.19) 0.11 0.49 0.13
---------- ---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.07 0.48 0.21 0.48 0.89 0.54
Less distributions from
Investment income--net (0.16) (0.36) (0.40) (0.37) (0.40) (0.41)
Capital gains (0.00)*** (0.02) -- -- (0.02) (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Total Distributions (0.16) (0.38) (0.40) (0.37) (0.42) (0.42)
---------- ---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.72 $ 10.81 $ 10.71 $ 10.90 $ 10.79 $ 10.32
========== ========== ========== ========== ========== ==========
Total Return (1) 4.42%** 4.59% 1.91% 4.57% 8.74% 5.47%
========== ========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period $ 536,610 $ 536,101 $ 496,912 $ 513,273 $ 178,880 $ 115,025
Ratio of expenses with reimbursement to
average net assets (2) 1.25%* 1.25% 1.25% 1.42% 1.50% 1.50%
Ratio of expenses without reimbursement to
average net assets 1.75%* 1.78% 1.74% 1.75% 1.84% 1.87%
Ratio of net investment income to average
net assets 3.06%* 3.34% 3.59% 3.65% 3.82% 4.12%
Portfolio turnover rate 3.42% 1.15% 18.23% 8.80% 0.18% 7.61%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.75% for classes T and A; and 1.25% for class B.
See notes to financial statements.
71
<Page>
<Table>
<Caption>
CLASS T SHARES
------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ ---------- --------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 10.72 $ 10.61 $ 10.80 $ 10.71 $ 10.25 $ 10.14
Investment Income--net 0.39 0.41 0.44 0.46 0.48 0.49
Net realized and unrealized gain (loss) on
investments (0.09) 0.13 (0.18) 0.08 0.48 0.12
------------ ---------- --------- ---------- ---------- ----------
Total from Investment Operations 0.30 0.54 0.26 0.54 0.96 0.61
Less distributions from
Investment income--net (0.39) (0.41) (0.45) (0.45) (0.48) (0.49)
Capital gains (0.00)*** (0.02) -- -- (0.02) (0.01)
------------ ---------- --------- ---------- ---------- ----------
Total Distributions (0.39) (0.43) (0.45) (0.45) (0.50) (0.50)
------------ ---------- --------- ---------- ---------- ----------
Net Asset Value, End of Period $ 10.63 $ 10.72 $ 10.61 $ 10.80 $ 10.71 $ 10.25
============ ========== ========= ========== ========== ==========
Total Return (1) 5.03%** 5.20% 2.38% 5.24% 9.59% 6.16%
============ ========== ========= ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net Assets, end of period (000's omitted) $ 13,182 $ 13,154 $ 13,330 $ 12,472 $ 11,700 $ 11,030
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 1.03%* 1.04% 1.03% 1.05% 1.08% 1.11%
Ratio of net investment income to average
net assets 3.56%* 3.83% 4.08% 4.34% 4.59% 4.84%
Portfolio turnover rate 3.42% 1.15% 18.23% 8.80% 0.18% 7.61%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) Effective June 1, 2002, SM&R has voluntarily agreed to waive or reduce
expenses to 0.75% for classes T and A; and 1.25% for class B.
See notes to financial statements.
72
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R PRIMARY FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
AEROSPACE & DEFENSE--3.77%
ITT Industries Inc. 03/07/05 2.600 $ 994,000 $ 993,569
AUTOMOBILES--3.77%
Dollar Thrifty Funding 03/11/05 2.530 993,000 992,301
COMPUTERS & PERIPHERALS--3.70%
Hewlett-Packard Co. 04/25/05 2.670 978,000 974,007
DISTRIBUTORS--3.97%
Deluxe Corp. 03/23/05 2.600 1,047,000 1,045,336
DIVERSIFIED FINANCIALS--10.14%
Countrywide Home Loans 03/03/05 2.560 1,020,000 1,019,855
Natural Rural Utilities 03/14/05 2.510 622,000 621,436
Textron Financial Corp. 03/01/05 2.590 1,030,000 1,030,000
-------------
2,671,291
ELECTRIC UTILITIES--4.37%
PacificCorp 03/18/05 2.580 1,152,000 1,150,596
FOOD PRODUCTS--7.76%
Kraft Foods Inc. 03/22/05 2.620 1,249,000 1,247,090
Sara Lee Corp. 03/02/05 2.490 796,000 795,945
-------------
2,043,035
HEALTH CARE EQUIPMENT & SUPPLIES--3.86%
Guidant Corp. 03/21/05 2.580 1,019,000 1,017,539
HEALTH CARE PROVIDERS/SERVICE--4.79%
St. Jude Medical Inc. 03/16/05 2.560 1,264,000 1,262,651
HOUSEHOLD DURABLES--8.17%
Fortune Brands Inc. 03/17/05 2.500 1,159,000 1,157,711
Whirlpool Corp. 03/10/05 2.550 994,000 993,365
-------------
2,151,076
HOUSEHOLD PRODUCTS--4.23%
Clorox Co. 03/09/05 2.570 1,115,000 1,114,362
INDUSTRIAL CONGLOMERATES--4.91%
Illinois Tool Works Inc. 03/29/05 2.570 1,295,000 1,292,411
INSURANCE--4.53%
Alfa Corp. 03/15/05 2.500 1,193,000 1,191,839
MEDIA--14.56%
Dow Jones & Co Inc. 03/31/05 2.570 1,014,000 1,011,826
Knight-Ridder Inc. 03/28/05 2.520 848,000 846,394
Tribune Co. 03/08/05 2.530 1,030,000 1,029,492
Walt Disney Co. (The) 03/04/05 2.530 948,000 947,800
-------------
3,835,512
METALS & MINING--4.26%
Alcoa Inc. 03/30/05 2.560 1,123,000 1,120,681
-------------
TOTAL COMMERCIAL PAPER--86.79%
(Cost $22,856,206) 22,856,206
-------------
</Table>
73
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
CORPORATE BONDS
BUILDING PRODUCTS--1.40%
Armstrong Holdings Inc. (a) 08/15/03 6.350 $ 500,000 $ 370,000
DIVERSIFIED FINANCIALS--5.91%
JPMorgan Chase & Co. 08/15/06 5.625 500,000 512,769
SBC Commun. Capital Corp. 08/14/06 7.110 1,000,000 1,042,788
-------------
1,555,557
-------------
TOTAL CORPORATE BONDS--7.31%
(Cost $2,075,846) 1,925,557
-------------
U S GOVERNMENT AGENCY AND
U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--1.88%
Federal Home Loan Bank 06/21/07 3.870 500,000 494,956
-------------
U S GOVERNMENT SECURITIES--4.05%
U S Treasury Bond 02/15/29 5.250 1,000,000 1,066,172
-------------
TOTAL U S GOVERNMENT AGENCY and U S GOVERNMENT SECURITIES--5.93%
(Cost $1,389,115) 1,561,128
-------------
TOTAL INVESTMENTS--100.03%
(Cost $26,321,167) 26,342,891
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.03)% (8,937)
-------------
TOTAL NET ASSETS--100.00% $ 26,333,954
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS
(a) Security is in default of interest. On February 24, 2005, a U.S. District
Court Judge issued a ruling finding that Armstrong World Industries, Inc.'s
Plan of Reorganization in its Chapter 11 case from the U.S. Bankruptcy
Court in Wilmington, Delaware was not confirmable. A conference hearing is
scheduled for April 25, 2005.
See notes to financial statements.
[CHART]
SECTOR WEIGHTINGS BY TOTAL INVESTMENTS
<Table>
US Government 44.77%
Financials 44.62%
Industrials 10.61%
</Table>
74
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $26,321,167) $ 26,342,891
Cash 83
Prepaid expenses 87
Receivable for:
Capital stock sold 3,884
Interest 42,593
Expense reimbursement 1,962
Other assets 2,782
--------------
TOTAL ASSETS 26,394,282
--------------
LIABILITIES
Capital stock reacquired 26,433
Distribution payable 2,744
Accrued:
Investment advisory fee 10,104
Service fee 5,052
Other liabilities 15,995
--------------
TOTAL LIABILITIES 60,328
--------------
NET ASSETS $ 26,333,954
==============
Shares of capital stock outstanding, (2,176,000,000 shares authorized, $.01 par value per share) 26,448,425
==============
Net asset value $ 1.00
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 26,453,571
Accumulated net realized loss on investments (141,340)
Net unrealized appreciation of investments 21,723
--------------
Net Assets $ 26,333,954
==============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 301,321
--------------
EXPENSES
Investment advisory fees 65,189
Service fees 32,594
Professional fees 4,331
Custody and transaction fees 5,540
Directors' fees 2,516
Qualification fees 2,266
Shareholder reporting expenses 1,488
Insurance expenses 2,878
--------------
TOTAL EXPENSES 116,802
LESS EXPENSES REIMBURSED (12,498)
--------------
NET EXPENSES 104,304
--------------
INVESTMENT INCOME--NET 197,017
--------------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Change in unrealized appreciation of investments for the period 110,983
--------------
NET GAIN ON INVESTMENTS 110,983
==============
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 308,000
==============
</Table>
See notes to financial statements.
75
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
FOR SIX MONTHS ENDED FOR YEAR ENDED
FEBRUARY 28, AUGUST 31,
-------------------- -------------------
2005 2004
-------------------- -------------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 197,017 $ 222,772
Change in unrealized appreciation 110,983 32,505
-------------------- -------------------
Net increase in net assets resulting from operations 308,000 255,277
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (197,017) (222,772)
CAPITAL SHARE TRANSACTION--NET 25,572 (1,243,907)
-------------------- -------------------
TOTAL INCREASE (DECREASE) 136,555 (1,211,402)
NET ASSETS
Beginning of Period 26,197,399 27,408,801
-------------------- -------------------
End of Period $ 26,333,954 $ 26,197,399
==================== ===================
</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,
------------ --------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 0.99 $ 0.99 $ 0.99 $ 1.00 $ 0.99 $ 1.00
Investment income--net 0.01 0.01 0.01 0.02 0.05 0.06
Net realized and unrealized gain (loss) on
investments 0.01 -- -- (0.01) 0.01 (0.01)
------------ -------- -------- -------- -------- --------
Total from Investment Operations 0.02 0.01 0.01 0.01 0.06 0.05
Less distributions from
Investment income--net (0.01) (0.01) (0.01) (0.02) (0.05) (0.06)
------------ -------- -------- -------- -------- --------
Total Distributions (0.01) (0.01) (0.01) (0.02) (0.05) (0.06)
------------ -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 1.00 $ 0.99 $ 0.99 $ 0.99 $ 1.00 $ 0.99
============ ======== ======== ======== ======== ========
Total Return 3.75%** 0.83% 1.35% 1.33% 6.20% 4.68%
============ ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period (000's omitted) $ 26,334 $ 26,197 $ 27,409 $ 27,304 $ 31,857 $ 26,795
Ratio of expenses with reimbursement to
average net assets 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses without reimbursement to
average net assets 0.90%* 0.91% 0.89% 0.92% 0.97% 1.04%
Ratio of net investment income to average
net assets 1.52%* 0.83% 1.35% 2.29% 5.10% 5.55%
Portfolio turnover rate -- 70.47% -- -- -- 18.46%
</Table>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
76
<Page>
SCHEDULE OF INVESTMENTS February 28, 2005 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
AUTOMOBILES--3.38%
Dollar Thrifty Funding 03/02/05 2.550 $ 3,126,000 $ 3,125,778
CHEMICALS--5.17%
E.I. du Pont Nemours and Co. 03/31/05 2.520 4,800,000 4,789,902
CHEMICALS--2.41%
First Data Corp. 03/24/05 2.510 2,232,000 2,228,419
DIVERSIFIED FINANCIALS--12.96%
CIT Group Inc. 03/21/05 2.530 2,872,000 2,867,958
Int'l Lease Finance Corp. 03/16/05 2.510 4,453,000 4,448,335
Paccar Financial Corp. 03/18/05 2.480 4,691,000 4,685,502
-------------
12,001,795
ELECTRIC EQUIPMENT--2.47%
Siemens Capital Co. LLC 03/17/05 2.500 2,294,000 2,291,450
INDUSTRIAL CONGLOMERATES--4.46%
Illinois Tool Works Inc. 03/11/05 2.520 4,128,000 4,125,110
INSURANCE--5.11%
Alfa Corp. 03/07/05 2.500 4,731,000 4,729,026
-------------
TOTAL COMMERCIAL PAPER--35.96%
(Cost $33,291,480) 33,291,480
-------------
U S GOVERNMENT AND AGENCY
SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--60.86%
Federal Home Loan Bank 03/09/05 2.430 7,215,000 7,211,100
Federal Home Loan Bank 03/10/05 2.420 5,341,000 5,337,768
Federal Home Loan Bank 03/28/05 2.500 8,042,000 8,026,917
Federal Home Loan Mortgage Corp. 03/08/05 2.440 2,578,000 2,576,775
Federal National Mortgage Assoc. 03/01/05 2.400 6,554,000 6,554,000
Federal National Mortgage Assoc. 03/03/05 2.440 5,843,000 5,842,207
Federal National Mortgage Assoc. 03/04/05 2.380 4,322,000 4,321,142
Federal National Mortgage Assoc. 03/14/05 2.420 3,193,000 3,190,207
Federal National Mortgage Assoc. 03/30/05 2.460 5,891,000 5,879,316
Federal National Mortgage Assoc. 04/06/05 2.520 7,429,000 7,410,259
-------------
TOTAL U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS--60.86%
(Cost $56,349,691) 56,349,691
-------------
TOTAL INVESTMENTS--96.82%
(Cost $89,641,171) 89,641,171
CASH AND OTHER ASSETS, LESS LIABILITIES--3.18% 2,939,497
-------------
TOTAL NET ASSETS--100.00% $ 92,580,668
=============
</Table>
See notes to financial statements.
77
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2005 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $ 89,641,171
Prepaid expenses 56,732
Cash 768
Receivable for:
Expense reimbursement 5,718
Capital stock sold 3,759,520
--------------
TOTAL ASSETS 93,463,909
--------------
LIABILITIES
Capital stock reacquired 815,797
Distribution payable 7,884
Accrued:
Investment advisory fee 18,897
Service fee 18,889
Other liabilities 21,774
--------------
TOTAL LIABILITIES 883,241
--------------
NET ASSETS $ 92,580,668
==============
Shares of capital stock outstanding, (2,000,000,000 shares authorized, $.01 par value per share) 92,580,668
==============
Net asset value $ 1.00
==============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 92,580,668
--------------
Net Assets $ 92,580,668
==============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2005 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 975,736
--------------
EXPENSES
Investment advisory fees 120,957
Service fees 120,806
Professional fees 4,331
Custody and transaction fees 9,064
Directors' fees 2,516
Qualification fees 4,416
Shareholder reporting expenses 2,366
Insurance expenses 14,245
--------------
TOTAL EXPENSES 278,701
LESS EXPENSES REIMBURSED (36,753)
--------------
NET EXPENSES 241,948
--------------
INVESTMENT INCOME--NET $ 733,788
==============
</Table>
See notes to financial statements.
78
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
FOR SIX MONTHS ENDED FOR YEAR ENDED
FEBRUARY 28, AUGUST 31,
------------------- -------------------
2005 2004
------------------- -------------------
INCREASE IN NET ASSETS FROM OPERATIONS
Investment income--net $ 733,788 $ 483,068
------------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (733,788) (483,068)
------------------- -------------------
CAPITAL SHARE TRANSACTIONS--NET (2,620,866) (8,267,569)
------------------- -------------------
TOTAL DECREASE (2,620,866) (8,267,569)
NET ASSETS
Beginning of Period 95,201,534 103,469,103
------------------- -------------------
End of Period $ 92,580,668 $ 95,201,534
=================== ===================
</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,
------------ --------------------------------------------------------
2005 2004 2003 2002 2001 2000
------------ -------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Investment income--net 0.01 0.01 0.01 0.02 0.05 0.05
------------ -------- -------- -------- -------- --------
Total from Investment Operations 0.01 0.01 0.01 0.02 0.05 0.05
Less distributions from
Investment income--net (0.01) (0.01) (0.01) (0.02) (0.05) (0.05)
------------ -------- -------- -------- -------- --------
Total Distributions (0.01) (0.01) (0.01) (0.02) (0.05) (0.05)
------------ -------- -------- -------- -------- --------
Net Asset Value, End of Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
============ ======== ======== ======== ======== ========
Total Return 1.67%** 0.58% 0.80% 1.53% 4.92% 5.56%
============ ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL
DATA
Net Assets, end of period (000's omitted) $ 92,581 $ 95,202 $103,469 $154,610 $102,092 $ 54,258
Ratio of expenses with reimbursement to
average net assets 0.50%* 0.50% 0.50% 0.50% 0.49% 0.49%
Ratio of expenses without reimbursement to
average net assets 0.58%* 0.60% 0.58% 0.56% 0.49% 0.66%
Ratio of net investment income to average
net assets 1.52%* 0.58% 0.84% 1.48% 4.63% 5.58%
</Table>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
79
<Page>
NOTES TO FINANCIAL STATEMENTS February 28, 2005 (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, Money Market Fund and
Primary Fund are collectively referred to as the "Fixed Income Funds", while the
Alger Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap Fund, Alger
Growth Fund, Growth Fund, Equity Income Fund and Balanced Fund are referred to
as the "Equity Funds".
The 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 is stated at amortized cost, which is equivalent to
value. Investments in affiliated money market funds are valued at the end of the
day net asset value per share.
80
<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, 2004 LOSS CARRYFORWARDS EXPIRATION DATES
Alger Technology Fund $ 188,304 2009
$ 113,717 2010
Alger Aggressive Growth Fund $ 77,565 2009
$ 255,670 2010
Alger Small-Cap Fund $ 1,991 2010
Alger Growth Fund $ 105,461 2009
$ 283,240 2010
Growth Fund $ 2,201,708 2009
$ 19,618,628 2010
$ 7,083,770 2011
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 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:
Distribution, qualification fees or other fees directly attributable to a
series' class of shares are charged to that series' class operations. All other
operating expenses not directly attributable to a series are prorated among 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.
81
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES:
Securities Management and Research, Inc. ("SM&R") is the investment advisor and
principal underwriter for the Company. Investment advisory fees paid to SM&R are
computed as a percentage of the average daily net assets as follows:
<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 makes investment decisions for each of these funds and
continuously reviews and administers the investment program. SM&R monitors Fred
Alger Management's buying and selling of securities and administration of these
series' investment program. Pursuant to the sub-advisory agreement, SM&R is
responsible for paying a sub-advisory fee to Fred Alger Management for each of
these series. The series are not responsible for paying the sub-advisory fee
directly.
<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>
82
<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, 2005, 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
Alger Technology Fund 2.10% 2.75%
Alger Aggressive Growth Fund 1.85% 2.50%
Alger Small-Cap Fund 1.90% 2.55%
Alger Growth Fund 1.70% 2.35%
Growth Fund 1.36% 1.86% --
Equity Income Fund 1.26% 1.76% --
Balanced Fund 1.30% 1.80% --
Government Bond Fund 0.73% 1.23% 0.73%
Tax Free Fund 0.75% 1.25% 0.75%
Primary Fund 0.80%
</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, 2005
without notice to investors.
83
<Page>
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 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, 2005, each series paid or accrued the
following, as compensation under the Plans:
<Table>
Alger Technology Fund $ 2,752
Alger Aggressive Growth Fund $ 4,942
Alger Small-Cap Fund $ 4,590
Alger Growth Fund $ 8,131
Growth Fund $ 20,828
Equity Income Fund $ 39,039
Balanced Fund $ 17,487
Government Bond Fund $ 5,371
Tax Free Fund $ 2,659
</Table>
84
<Page>
SALES CHARGES:
During the six months ended February 28, 2005, 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 $ 670 $ 44
Alger Aggressive Growth Fund $ 4,038 $ 179
Alger Small-Cap Fund $ 3,289 $ 85
Alger Growth Fund $ 6,078 $ 499
Growth Fund $ 36,609 $ 781
Equity Income Fund $ 41,742 $ 1,171
Balanced Fund $ 24,312 $ 461
Government Bond Fund $ 2,765 $ 124
Tax Free Fund $ 889 $ --
</Table>
For the six months ended February 28, 2005, SM&R received $18,621 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, 2005, SM&R and American National had
the following ownership in these series:
<Table>
<Caption>
SM&R AMERICAN NATIONAL AMERICAN NATIONAL SUBSIDIARIES
----------------------------- ------------------------------ --------------------------------
PERCENT OF SHARES PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
Growth Fund 228,349 0.82% 348 -- 2,584,705 9.29%
Equity Income Fund 21,028 0.43% -- -- -- --
Balanced Fund 153,427 9.23% -- -- 359,393 21.61%
Government Bond Fund 661,461 23.12% 5,161 0.18% 1,018,628 35.60%
Tax Free Fund 166,849 12.57% -- -- 837,698 63.12%
Primary Fund 16,728 0.06% 23,755,563 89.91% 6,193 0.02%
Money Market Fund 2,082,611 2.19% 43,316,980 45.50% 28,328,380 29.76%
</Table>
Through the investment sub-advisory agreement, Fred Alger Management, Inc. is
affiliated with SM&R. As of February 28, 2005, Fred Alger Management, Inc. had
the following ownership in these series:
<Table>
<Caption>
PERCENT OF SHARES
SHARES OUTSTANDING
Alger Technology Fund 25,000 5.19%
Alger Aggressive Growth Fund 25,000 7.15%
Alger Small-Cap Fund 25,000 9.06%
Alger Growth Fund 25,000 6.88%
</Table>
85
<Page>
The Company pays directors' fees and expenses for all the independent directors.
Fred Alger and Company, Incorporated ("Alger Inc.") is an affiliated
broker-dealer of Fred Alger Management. During the six months ended February 28,
2005, 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 $1,712, $2,112, $1,505 and $5,733, 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, 2005 were:
<Table>
Purchases $ 11,155,365
Sales $ 10,839,488
</Table>
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 $ 1,646,394 $ 1,704,715
Alger Aggressive Growth Fund $ 1,768,778 $ 1,699,639
Alger Small-Cap Fund $ 1,260,530 $ 1,206,902
Alger Growth Fund $ 3,479,587 $ 3,436,856
Growth Fund $ 2,100,466 $ 10,623,534
Equity Income Fund $ 1,029,595 $ 6,812,492
Balanced Fund $ 2,068,955 $ 2,964,014
Government Bond Fund $ 5,862,761 $ 3,758,171
Tax Free Fund $ 1,421,123 $ 431,600
Primary Fund $ -- $ 500,000
</Table>
Gross unrealized appreciation and depreciation as of February 28, 2005, is as
follows:
<Table>
<Caption>
COST APPRECIATION DEPRECIATION
Alger Technology Fund $ 971,750 $ 58,370 $ 52,405
Alger Aggressive Growth Fund $ 1,772,482 $ 191,836 $ 48,620
Alger Small-Cap Fund $ 1,619,958 $ 268,342 $ 50,176
Alger Growth Fund $ 2,609,897 $ 246,641 $ 63,838
Growth Fund $ 81,217,059 $ 36,804,802 $ 2,833,202
Equity Income Fund $ 94,553,971 $ 33,944,482 $ 10,692,263
Balanced Fund $ 26,153,677 $ 5,647,294 $ 615,838
Government Bond Fund $ 29,493,866 $ 183,803 $ 528,459
Tax Free Fund $ 13,522,292 $ 626,090 $ 14,685
Primary Fund $ 26,321,167 $ 177,056 $ 155,333
</Table>
86
<Page>
NOTE 4--CAPITAL STOCK
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED, YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 39,914 $ 112,535 76,763 $ 229,178
Class B 11,292 30,519 29,807 87,566
------------- ------------- ------------- -------------
Total sale of capital shares 51,206 143,054 106,570 316,744
Redemptions of capital shares outstanding:
Class A (23,417) (64,760) (9,623) (28,527)
Class B (17,189) (47,410) (8,789) (26,265)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (40,606) (112,170) (18,412) (54,792)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 10,600 $ 30,884 88,158 $ 261,952
============= =============
Shares outstanding at beginning of period 352,575 264,417
------------- -------------
Shares outstanding at end of period 363,175 352,575
============= =============
</Table>
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED, YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 35,526 $ 193,111 59,498 $ 311,976
Class B 12,794 67,579 29,874 155,115
------------- ------------- ------------- -------------
Total sale of capital shares 48,320 260,690 89,372 467,091
Redemptions of capital shares outstanding:
Class A (15,121) (81,073) (45,089) (234,102)
Class B (7,992) (42,076) (11,191) (59,725)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (23,113) (123,149) (56,280) (293,827)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 25,207 $ 137,541 33,092 $ 173,264
============= =============
Shares outstanding at beginning of period 324,529 291,437
------------- -------------
Shares outstanding at end of period 349,736 324,529
============= =============
</Table>
87
<Page>
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED, YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 26,975 $ 174,850 38,835 $ 240,264
Class B 10,694 68,604 18,500 113,845
------------- ------------- ------------- -------------
Total sale of capital shares 37,669 243,454 57,335 354,109
Distributions from net realized gains reinvested:
Class A 3,363 22,803 -- --
Class B 1,799 12,091 -- --
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested: 5,162 34,894 -- --
Redemptions of capital shares outstanding:
Class A (13,655) (88,741) (12,631) (79,089)
Class B (3,709) (23,518) (6,919) (42,830)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (17,364) (112,259) (19,550) (121,919)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 25,467 $ 166,089 37,785 $ 232,190
============= =============
Shares outstanding at beginning of period 250,410 212,625
------------- -------------
Shares outstanding at end of period 275,877 250,410
============= =============
</Table>
SM&R ALGER GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED, YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 35,056 $ 195,811 100,919 $ 564,204
Class B 23,435 128,905 39,259 217,224
------------- ------------- ------------- -------------
Total sale of capital shares 58,491 324,716 140,178 781,428
Redemptions of capital shares outstanding:
Class A (29,513) (169,932) (30,423) (171,455)
Class B (11,520) (64,966) (15,905) (87,519)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (41,033) (234,898) (46,328) (258,974)
------------- ------------- ------------- -------------
Net increase in capital shares outstanding 17,458 $ 89,818 93,850 $ 522,454
============= =============
Shares outstanding at beginning of period 464,414 370,564
------------- -------------
Shares outstanding at end of period 481,872 464,414
============= =============
</Table>
88
<Page>
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class A 95,162 $ 375,104 312,211 $ 1,165,074
Class B 63,963 248,457 210,611 773,751
Class T 444,723 1,802,592 1,036,658 3,969,839
------------- ------------- ------------- -------------
Total sale of capital shares 603,848 2,426,153 1,559,480 5,908,694
Investment income dividends reinvested:
Class A 9,317 37,826 7,789 30,032
Class B 4,311 17,161 1,519 5,694
Class T 166,107 687,683 178,937 703,586
------------- ------------- ------------- -------------
Total investment income dividends reinvested 179,735 742,670 188,245 739,312
Redemptions of capital shares outstanding:
Class A (160,197) (633,757) (195,072) (732,135)
Class B (60,963) (237,107) (104,786) (393,854)
Class T (2,282,416) (9,285,031) (2,713,858) (10,458,533)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (2,503,576) (10,155,895) (3,013,716) (11,584,522)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (1,719,993) $ (6,987,072) (1,265,991) $ (4,936,516)
============= =============
Shares outstanding at beginning of period 29,534,051 30,800,042
------------- -------------
Shares outstanding at end of period 27,814,058 29,534,051
============= =============
</Table>
89
<Page>
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class A 22,497 $ 511,832 113,356 $ 2,427,248
Class B 16,732 369,176 53,879 1,136,604
Class T 42,717 1,001,251 151,449 3,396,666
------------- ------------- ------------- -------------
Total sale of capital shares 81,946 1,882,259 318,684 6,960,518
Investment income dividends reinvested:
Class A 3,322 75,701 4,242 92,286
Class B 2,673 58,983 2,882 60,204
Class T 37,318 876,385 53,868 1,200,006
------------- ------------- ------------- -------------
Total investment income dividends reinvested 43,313 1,011,069 60,992 1,352,496
Distributions from net realized gains reinvested:
Class A 7,533 174,607 -- --
Class B 7,180 161,342 -- --
Class T 80,812 1,930,607 -- --
------------- ------------- ------------- -------------
Total distributions from net realized
gains reinvested: 95,525 2,266,556 -- --
Redemptions of capital shares outstanding:
Class A (21,499) (490,184) (49,600) (1,080,655)
Class B (20,366) (452,602) (31,018) (660,900)
Class T (257,729) (6,052,823) (527,147) (11,822,724)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (299,594) (6,995,609) (607,765) (13,564,279)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (78,810) $ (1,835,725) (228,089) $ (5,251,265)
============= =============
Shares outstanding at beginning of period 5,003,840 5,231,929
------------- -------------
Shares outstanding at end of period 4,925,030 5,003,840
============= =============
</Table>
90
<Page>
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sales of capital shares:
Class A 35,749 $ 640,127 76,425 $ 1,347,439
Class B 13,040 237,789 38,671 686,949
Class T 20,501 384,520 62,069 1,123,999
------------- ------------- ------------- -------------
Total sale of capital shares 69,290 1,262,436 177,165 3,158,387
Investment income dividends reinvested:
Class A 2,476 44,627 3,892 68,100
Class B 1,323 24,059 1,964 34,600
Class T 11,125 207,501 19,570 353,059
------------- ------------- ------------- -------------
Total investment income dividends reinvested 14,924 276,187 25,426 455,759
Distributions from net realized gains reinvested:
Class A 928 17,004 2,612 45,377
Class B 585 10,849 1,701 29,862
Class T 4,102 77,859 14,509 259,992
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested: 5,615 105,712 18,822 335,231
Redemptions of capital shares outstanding:
Class A (21,478) (386,797) (37,694) (667,301)
Class B (8,097) (149,109) (15,042) (264,459)
Class T (65,393) (1,225,942) (100,111) (1,813,917)
------------- ------------- ------------- -------------
Total redemptions of captial shares outstanding (94,968) (1,761,848) (152,847) (2,745,677)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding (5,139) $ (117,513) 68,566 $ 1,203,700
============= =============
Shares outstanding at beginning of period 1,667,990 1,599,424
------------- -------------
Shares outstanding at end of period 1,662,851 1,667,990
============= =============
</Table>
91
<Page>
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 23,550 $ 248,131 23,001 $ 245,659
Class B 5,855 61,474 14,598 155,483
Class T 23,646 245,613 43,336 455,315
------------- ------------- ------------- -------------
Total sale of capital shares 53,051 555,218 80,935 856,457
Investment income dividends reinvested:
Class A 1,130 11,855 2,120 22,557
Class B 969 10,162 1,997 21,246
Class T 30,673 317,765 55,114 578,455
------------- ------------- ------------- -------------
Total investment income dividends reinvested 32,772 339,782 59,231 622,258
Distributions from net realized gains reinvested:
Class A -- -- 2,742 29,006
Class B -- -- 3,736 39,494
Class T -- -- 72,885 761,648
------------- ------------- ------------- -------------
Total distributions from net realized
gains reinvested: -- -- 79,363 830,148
Redemptions of capital shares outstanding:
Class A (17,638) (185,993) (50,225) (537,556)
Class B (9,222) (96,871) (66,003) (704,682)
Class T (68,995) (716,001) (142,256) (1,497,308)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (95,855) (998,865) (258,484) (2,739,546)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (10,032) $ (103,865) (38,955) $ (430,683)
============= =============
Shares outstanding at beginning of period 2,861,096 2,900,051
------------- -------------
Shares outstanding at end of period 2,851,064 2,861,096
============= =============
</Table>
92
<Page>
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares:
Class A 355 $ 3,840 2,449 $ 26,742
Class B 417 4,500 16,947 182,000
Class T 3,357 35,986 26,360 287,510
------------- ------------- ------------- -------------
Total sale of capital shares 4,129 44,326 45,756 496,252
Investment income dividends reinvested:
Class A 891 9,604 2,041 22,085
Class B 654 7,049 1,579 17,071
Class T 20,612 220,287 44,800 480,180
------------- ------------- ------------- -------------
Total investment income dividends reinvested 22,157 236,940 48,420 519,336
Distributions from net realized gains reinvested:
Class A -- -- 105 1,149
Class B -- -- 91 998
Class T -- -- 2,343 25,417
------------- ------------- ------------- -------------
Total distributions from net realized gains reinvested: -- -- 2,539 27,564
Redemptions of capital shares outstanding:
Class A (1,090) (11,784) (14,496) (157,303)
Class B (627) (6,816) (15,423) (166,543)
Class T (11,491) (123,195) (102,397) (1,093,102)
------------- ------------- ------------- -------------
Total redemptions of capital shares outstanding (13,208) (141,795) (132,316) (1,416,948)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 13,078 $ 139,471 (35,601) $ (373,796)
============= =============
Shares outstanding at beginning of period 1,327,176 1,362,777
------------- -------------
Shares outstanding at end of period 1,340,254 1,327,176
============= =============
</Table>
93
<Page>
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares 365,926 $ 363,414 2,094,512 $ 2,073,568
Investment income dividends reinvested 186,834 185,692 203,831 201,793
Redemptions of capital shares outstanding (526,282) (523,534) (3,554,816) (3,519,268)
------------- ------------- ------------- -------------
Net increase (decrease) in capital shares outstanding 26,478 $ 25,572 (1,256,473) $ (1,243,907)
============= =============
Shares outstanding at beginning of period 26,421,947 27,678,420
------------- -------------
Shares outstanding at end of period 26,448,425 26,421,947
============= =============
</Table>
SM&R MONEY MARKET
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2005 AUGUST 31, 2004
------------------------------ ------------------------------
SHARES AMOUNT SHARES AMOUNT
------------- ------------- ------------- -------------
Sale of capital shares 109,187,980 $ 109,187,980 232,967,298 $ 232,967,298
Investment income dividends reinvested 691,849 691,849 450,077 450,077
Redemptions of capital shares outstanding (112,500,695) (112,500,695) (241,684,944) (241,684,944)
------------- ------------- ------------- -------------
Net decrease in capital shares outstanding (2,620,866) $ (2,620,866) (8,267,569) $ (8,267,569)
============= =============
Shares outstanding at beginning of period 95,201,534 103,469,103
------------- -------------
Shares outstanding at end of period 92,580,668 95,201,534
============= =============
</Table>
RECLASSIFICATION OF CAPITAL ACCOUNTS:
The Company accounts and reports for distributions to shareholders in accordance
with the American Institute of Certified Public Accountant's 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, 2005, the following funds decreased
paid-in capital due to net investment losses during the period: Alger Technology
Fund, $6,082, Alger Aggressive Growth Fund, $5,568, Alger Small-Cap Fund,
$14,926, and Alger Growth Fund, $3,422. Accumulated net realized gain on
investments and net assets were not affected by this change.
94
<Page>
2450 South Shore Blvd, League City, Texas 77573
DIRECTORS
Ernest S. Barratt, Ph.D.
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, Texas 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, L.L.P.
One Moody Plaza
Galveston, Texas 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, Texas 77258-8969
REGISTERED PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker
1818 Market Street, Suite 2400
Philadelphia, Pennsylvania 19103
Form 9202S 04/05
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 4, 2005, 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 4, 2005, 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.
Securities Management and Research, Inc.
By:
Michael W. McCroskey, Principal Executive Officer
Date:
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 registrant and in the capacities and on the
dates indicated.
By:
Michael W. McCroskey, Principal Executive Officer
Date:
By:
Brenda T. Koelemay, Principal Financial Officer
Date: