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 28,2007
Item 1 Report to Shareholders
<Page>
SEMI-ANNUAL REPORT
[SM&R LOGO]
SM&R INVESTMENTS, INC.
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 GOVERNMENT BOND FUND
SM&R TAX FREE FUND
SM&R PRIMARY FUND
SM&R MONEY MARKET FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 2007
<Page>
The report contained herein is included for the general information of our
shareholders. This report is not authorized for distribution to prospective
investors unless it is preceded or accompanied by a current prospectus. ALL
INVESTORS ARE ADVISED TO CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES OF THE INVESTMENT COMPANIES CAREFULLY BEFORE INVESTING. THE
PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANIES.
YOU SHOULD READ IT CAREFULLY BEFORE INVESTING.
The investment adviser is responsible for exercising the voting rights
associated with the securities purchased and held by the Funds. A description of
the policies and procedures the investment adviser uses in fulfilling this
responsibility is included in the Funds' Statement of Additional Information and
is available without charge, upon request, by calling 1-800-231-4639. The
policies and procedures are also available on the Securities and Exchange
Commission's (SEC) website at http://www.sec.gov. Information on how the Funds
voted proxies relating to portfolio securities during the most recent 12 month
period ended June 30 is available without charge, upon request, by calling
1-800-231-4639 and is also available on the SEC's website at http://www.sec.gov.
The Funds file their complete schedule of holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q is
available on the SEC's website, beginning with the November 30, 2004 report, at
http://www.sec.gov. You may review and make copies at the SEC's Public Reference
Room in Washington, D.C. You may also obtain copies after paying a duplicating
fee by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102
or by electronic request to publicinfo@sec.gov. A copy of the quarterly holdings
report is available, without charge, upon request, by calling 1-800-231-4639.
<Page>
AN EXAMPLE OF ONGOING EXPENSES
Each shareholder of the Company may incur two types of expenses: (1)
transactional (e.g., sales charges, contingent deferred sales charges on
redemptions and redemption fees) and (2) ongoing (e.g., asset-based charges such
as investment advisory fees and distribution and/or 12b-1 fees). The example,
included below, is intended to help a shareholder better understand the ongoing
expenses of investing in this Company and to compare these expenses with other
mutual funds. The example is based on an investment of $1,000 invested at the
beginning of the period, September 1, 2006, and held for six months ending
February 28, 2007.
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 (09/01/06) RATIOS (02/28/07) (1) PERIOD (2) (02/28/07) (1) PERIOD (2)
- ---------------------------- ---------- ---------- -------------- ---------- -------------- ----------
Alger Technology Fund
Class A $1,000.00 1.85% $1,220.78 $10.19 $1,015.62 $ 9.25
Class B 1,000.00 2.50% 1,218.95 13.75 1,012.40 12.47
Alger Aggressive Growth Fund
Class A 1,000.00 1.60% 1,159.70 8.57 1,016.86 8.00
Class B 1,000.00 2.25% 1,157.16 12.03 1,013.64 11.23
Alger Small-Cap Fund
Class A 1,000.00 1.65% 1,155.95 8.82 1,016.61 8.25
Class B 1,000.00 2.30% 1,152.38 12.27 1,013.39 11.48
</Table>
1
<Page>
<Table>
<Caption>
ACTUAL HYPOTHETICAL
--------------------------- ---------------------------
BEGINNING ENDING EXPENSES ENDING EXPENSES
ACCOUNT ANNUALIZED ACCOUNT PAID ACCOUNT PAID
VALUE EXPENSE VALUE DURING VALUE DURING
FUNDS (09/01/06) RATIOS (02/28/07) (1) PERIOD (2) (02/28/07) (1) PERIOD (2)
- -------------------- ---------- ---------- -------------- ---------- -------------- ----------
Alger Growth Fund
Class A $1,000.00 1.45% $1,117.74 $ 7.61 $1,017.60 $ 7.25
Class B 1,000.00 2.10% 1,116.18 11.02 1,014.38 10.49
Growth Fund
Class A 1,000.00 1.36% 1,085.21 7.03 1,018.05 6.81
Class B 1,000.00 1.86% 1,080.47 9.59 1,015.57 9.30
Class T 1,000.00 1.18% 1,086.34 6.10 1,018.94 5.91
Equity Income Fund
Class A 1,000.00 1.26% 1,082.89 6.51 1,018.55 6.31
Class B 1,000.00 1.76% 1,080.25 9.08 1,016.07 8.80
Class T 1,000.00 1.14% 1,083.41 5.89 1,019.14 5.71
Balanced Fund
Class A 1,000.00 1.30% 1,066.19 6.66 1,018.35 6.51
Class B 1,000.00 1.80% 1,063.48 9.21 1,015.87 9.00
Class T 1,000.00 1.25% 1,066.56 6.40 1,018.60 6.26
Government Bond Fund
Class A 1,000.00 0.73% 1,027.38 3.67 1,012.17 3.66
Class B 1,000.00 1.23% 1,024.96 6.18 1,018.69 6.16
Class T 1,000.00 0.73% 1,027.46 3.67 1,021.17 3.66
Tax Free Fund
Class A 1,000.00 0.75% 1,018.02 3.75 1,021.08 3.76
Class B 1,000.00 1.25% 1,016.41 6.25 1,018.60 6.26
Class T 1,000.00 0.75% 1,019.17 3.75 1,021.08 3.76
Primary Fund 1,000.00 0.80% 1,032.60 4.03 1,020.83 4.01
Money Market Fund 1,000.00 0.50% 1,023.77 2.51 1,022.32 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, 2006 to February 28,
2007 after actual expenses and will differ from the hypothetical ending
account value which is based on each class of each of the funds' actual
expense ratios and a hypothetical annual return of 5% before expenses.
(2) Expenses are equal to the annualized expense ratios, shown in the table
above, multiplied by the average account value over the period, then
multiplied by 181/365 (to reflect the six month period).
2
<Page>
APPROVAL OF INVESTMENT ADVISORY AGREEMENTS
The Board of Directors of SM&R Investments, Inc. ("Board") has renewed the
investment advisory agreements with Securities Management and Research, Inc.
("Manager") for the SM&R Growth Fund, SM&R Equity Income Fund, SM&R Balanced
Fund, and SM&R Money Market Fund effective November 16, 2006. Additionally, the
Board renewed the investment advisory agreements with the Manager effective
February 15, 2007 for the SM&R Government Bond Fund and SM&R Primary Fund ("the
Funds"). The Board considered a variety of factors in connection with its review
of the advisory contracts ("Contracts"), also taking into account information
provided by the Manager during the course of the year as discussed below:
NATURE, EXTENT, AND QUALITY OF SERVICES
The Board considered the nature, quality and extent of the services provided to
the Funds by the Manager based upon information provided by the Manager relating
to its operations and personnel. These services included, but were not limited
to, management of the investment portfolios and a variety of activities related
to investment portfolio management.
The Board also took into account its familiarity with the Manager's investment
management through Board meetings, discussions and reports during the preceding
year. After careful consideration of these matters, the Board concluded that it
was satisfied with the nature, quality and extent of the services provided by
the Manager.
EXPENSES AND PERFORMANCE
The Board evaluated reports prepared by the Manager detailing the actual
management fee ratios (management fee ratios after voluntary waiver of expenses)
of each of the Funds as compared to other open-end investment companies deemed
to be comparable based upon the Morningstar Principia Pro database with similar
Morningstar category and prospectus objective to each Fund. The Board compared
the actual management fee ratios of the SM&R Growth Fund, SM&R Equity Income
Fund, and SM&R Balanced Fund to funds advised by other advisors that were deemed
comparable by the Morningstar database at the end of the quarter, September 30,
2006; and the SM&R Government Bond Fund and SM&R Primary Fund at the end of the
calendar year 2006. The SM&R Growth Fund's actual management fee ratio for all
three (3) share classes was higher than the Morningstar Fund average actual
management fee ratio; as was the SM&R Balanced Fund's three share classes, the
SM&R Equity Income Fund's Class A and Class B shares and the SM&R Primary Fund.
The SM&R Equity Income Fund--Class T shares and the SM&R Government Bond's three
share classes' actual management fee ratio was lower than the Morningstar Fund
average actual management fee ratios. There was no comparison produced from the
Morningstar database for the SM&R Money Market Fund. Therefore, the Board took
into account that the Manager has voluntarily agreed to waive fees and/or limit
expenses of this and the other Funds through December 31, 2007 so that total
expenses are limited to a specified percentage of average daily net assets of
each Fund. Total expenses include the management fees and administrative service
fees which are paid to the Manager, but do not include interest, taxes,
commissions, and other expenses incidental to portfolio transactions. Also taken
under consideration were the current size of each Fund, and the level and method
of computing the management fees.
The Board reviewed the Funds' average annual total returns and compared these
returns to comparable performance measures, supplied by Lipper and Morningstar.
On the basis of this evaluation of investment results, the Board concluded that
the Funds' performance was satisfactory.
COST, BENEFITS, PROFITS AND ECONOMIES OF SCALE
The Board reviewed detailed information regarding the revenues received by the
Manager under the Contracts and other benefits that the Manager may have
realized from its relationship with the Funds. The Board also received
information on the direct costs incurred by the Manager as well as profits
realized. After careful consideration of this information, the Board concluded
that the Manager's profits were reasonable in light of the services provided to
the Funds.
3
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
COMMON STOCK
SHARES VALUE
CONSUMER DISCRETIONARY--
BROADCASTING--1.76%
Unica Corp.* 2,120 $ 23,871
INTERNET & CATALOG RETAIL--3.09%
eBay Inc.* 1,310 41,998
MEDIA--10.21%
CKX, Inc.* 2,135 28,097
DreamWorks Animation SKG, Inc.* 770 20,644
Focus Media Holding Ltd. ADR* 340 27,234
Sirius Satellite Radio Inc.* 9,105 33,233
XM Satellite Radio Holdings Inc. (Class A)* 2,055 29,510
----------
138,718
----------
TOTAL CONSUMER DISCRETIONARY--15.06% 204,587
----------
HEALTH CARE--
MEDICAL TECHNOLOGY--2.17%
Allscripts Healthcare Solutions, Inc.* 1,085 29,382
----------
TOTAL HEALTH CARE--2.17% 29,382
----------
INDUSTRIALS--
BUSINESS SERVICES--3.04%
TeleTech Holdings, Inc.* 1,310 41,238
COMMERCIAL SERVICES & SUPPLIES--2.27%
Net 1 UEPS Technologies, Inc.* 1,155 30,908
----------
TOTAL INDUSTRIALS--5.31% 72,146
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--4.16%
CNET Networks, Inc.* 2,910 25,550
Research in Motion Ltd.* 220 30,934
----------
56,484
COMMUNICATIONS EQUIPMENT--7.68%
Ciena Corp.* 450 14,161
Cisco Systems, Inc.* 1,770 45,914
Corning Inc.* 2,145 44,251
----------
104,326
COMPUTER RELATED & BUSINESS SERVICES--12.06%
Apple Computer, Inc.* 560 47,382
EMC Corp. 3,110 43,385
MEMC Electronic Materials, Inc.* 1,015 52,344
Network Appliance, Inc.* 535 20,688
----------
163,799
COMPUTER SOFTWARE--5.72%
NVIDIA Corp.* 375 $ 11,625
Symantec Corp.* 1,345 23,000
TIBCO Software Inc.* 2,970 26,879
VeriFone Holdings, Inc.* 415 16,206
----------
77,710
INFORMATION TECHNOLOGY SERVICES--1.58%
SI International Inc.* 765 21,435
INTERNET SOFTWARE & SERVICES--16.11%
DealerTrack Holdings Inc.* 1,505 43,570
Digital River, Inc.* 370 20,494
Google Inc. (Class A)* 95 42,698
Omniture, Inc.* 2,615 40,663
WebEx Communications, Inc.* 525 22,801
WebSideStory, Inc.* 1,865 23,686
Yahoo! Inc.* 805 24,842
----------
218,754
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--7.21%
KLA-Tencor Corp. 545 28,198
Tessera Technologies Inc.* 1,340 54,163
Trident Microsystems, Inc.* 705 15,588
----------
97,949
SEMICONDUCTORS--1.62%
Marvell Technology Group Ltd.* 1075 22,059
SEMICONDUCTORS CAPITAL EQUIPMENT--2.66%
SiRF Technology Holdings, Inc.* 1,265 36,166
SOFTWARE--15.91%
Activision, Inc.* 1,635 27,337
Adobe Systems Inc.* 705 27,671
Electronic Arts Inc.* 270 13,613
Microsoft Corp. 1,640 46,199
Quality Systems, Inc. 940 38,474
Quest Software, Inc.* 1,610 26,275
Synchronoss Technologies, Inc.* 2,025 36,470
----------
216,039
----------
TOTAL INFORMATION TECHNOLOGY--74.71% 1,014,721
----------
TOTAL COMMON STOCK--97.25%
(Cost $1,105,219) 1,320,836
----------
4
<Page>
MONEY MARKET FUND
SHARES VALUE
SM&R Money Market Fund, 4.77% (a) 37,265 $ 37,265
----------
TOTAL MONEY MARKET FUND--2.74%
(Cost $37,265) 37,265
----------
TOTAL INVESTMENTS--99.99%
(Cost $1,142,484) 1,358,101
CASH AND OTHER ASSETS, LESS LIABILITIES--0.01% 94
----------
NET ASSETS--100.00% $1,358,195
==========
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 15.07%
Health Care 2.16%
Industrials 5.31%
Information Technology 74.72%
Miscellaneous 2.74%
</Table>
See notes to financial statements.
5
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $1,105,219) $ 1,320,836
Investment in affiliated money market fund (Cost $37,265) 37,265
------------
Total investments (Cost $1,142,484) 1,358,101
Prepaid expenses 14,642
Receivable for:
Capital stock sold 20
Dividends 164
Expense reimbursement 2,417
------------
TOTAL ASSETS 1,375,344
------------
LIABILITIES
Payable to investment adviser for fund expenses 5,593
Accrued:
Investment advisory fees 1,457
Service fees 270
Distribution fees 1,790
Other liabilities 8,039
------------
TOTAL LIABILITIES 17,149
------------
NET ASSETS (applicable to shares outstanding) $ 1,358,195
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 1,168,844
Accumulated net realized gain (loss) on investments (26,266)
Net unrealized appreciation (depreciation) of investments 215,617
------------
Net Assets $ 1,358,195
============
NET ASSETS:
Class A $ 995,921
- ---------------------------------------------------------------------------------
Class B $ 362,274
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 1,358,195
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 265,105
- ---------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 97,112
- ---------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 3.76
Offering price per share: (Net assets value of $3.76 / 95%) $ 3.96
- ---------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 3.73
- ---------------------------------------------------------------------------------
</Table>
See notes to financial statements.
6
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R ALGER TECHNOLOGY FUND
<Table>
INVESTMENT INCOME
Dividends $ 2,069
Interest from affiliated money market fund 1,174
------------
TOTAL INVESTMENT INCOME 3,243
------------
EXPENSES
Investment advisory fees 8,981
Service fees 1,663
Professional fees 2,956
Custody and transaction fees 3,143
Directors' fees 2,903
Insurance expenses 233
Compliance expenses 105
Qualification fees
Class A 1,865
Class B 1,209
Shareholder reporting expenses
Class A 804
Class B 545
Distribution fees
Class A 1,711
Class B 1,763
------------
TOTAL EXPENSES 27,881
LESS EXPENSES REIMBURSED (14,427)
------------
NET EXPENSES 13,454
------------
INVESTMENT INCOME (LOSS)--NET (10,211)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 151,856
Change in unrealized appreciation (depreciation) of investments 115,529
------------
NET GAIN (LOSS) ON INVESTMENTS 267,385
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 257,174
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
------------ ----------
2007 2006
------------ ----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (10,211) $ (23,613)
Net realized gain (loss) on investments 151,856 100,512
Change in unrealized appreciation (depreciation)
of investments 115,529 (66,574)
---------- ----------
Net increase (decrease) in net assets resulting
from operations 257,174 10,325
CAPITAL SHARE TRANSACTIONS--NET
Class A (63,681) 66,049
Class B (22,057) (23,532)
---------- ----------
Total capital share transactions--net (85,738) 42,517
---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 171,436 52,842
NET ASSETS
Beginning of period 1,186,759 1,133,917
---------- ----------
End of period $1,358,195 $1,186,759
========== ==========
See notes to financial statements.
7
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ -------- -------- -------- -------- --------
Net asset value, beginning of period $ 3.08 $ 3.02 $ 2.43 $ 2.59 $ 1.67 $ 3.24
Income (loss) from investment operations
Investment income (loss)--net (0.03) (0.05) (0.04) (0.06) (0.04) (0.20)
Net realized and unrealized gain (loss)
on investments 0.71 0.11 0.63 (0.10) 0.96 (1.37)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.68 0.06 0.59 (0.16) 0.92 (1.57)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 3.76 $ 3.08 $ 3.02 $ 2.43 $ 2.59 $ 1.67
======== ======== ======== ======== ======== ========
Total return (2) 22.08%** 1.99% 24.28% (6.18)% 55.09% (48.46)%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $995,921 $870,234 $798,200 $585,844 $449,337 $150,553
Ratio of expenses with reimbursement to
average net assets (3) 1.85%* 2.02% 2.10% 2.10% 2.10% 8.51%
Ratio of expenses without reimbursement
to average net assets 3.90%* 4.45% 6.29% 6.15% 11.46% 12.19%
Ratio of net investment loss to average
net assets (1.36)%* (1.75)% (1.36)% (1.97)% (1.84)% (8.30)%
Portfolio turnover rate 76.21% 127.07% 269.32% 215.21% 291.66% 301.01%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ -------- -------- -------- -------- --------
Net asset value, beginning of period $ 3.06 $ 3.03 $ 2.46 $ 2.64 $ 1.68 $ 3.25
Income (loss) from investment operations
Investment income (loss)--net (0.04) (0.08) (0.06) (0.08) (0.05) (0.19)
Net realized and unrealized gain (loss)
on investments 0.71 0.11 0.63 (0.10) 1.01 (1.38)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.67 0.03 0.57 (0.18) 0.96 (1.57)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 3.73 $ 3.06 $ 3.03 $ 2.46 $ 2.64 $ 1.68
======== ======== ======== ======== ======== ========
Total return (2) 21.90%** 0.99% 23.17% (6.82)% 57.14% (48.31)%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $362,274 $316,525 $335,717 $275,749 $240,382 $130,975
Ratio of expenses with reimbursement to
average net assets (3) 2.50%* 2.67% 2.75% 2.75% 2.75% 9.42%
Ratio of expenses without reimbursement
to average net assets 5.00%* 5.99% 8.53% 8.02% 14.16% 14.23%
Ratio of net investment loss to average
net assets (2.01)%* (2.40)% (2.01)% (2.62)% (2.48)% (9.22)%
Portfolio turnover rate 76.21% 127.07% 269.32% 215.21% 291.66% 301.01%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R voluntarily agreed to waive or reduce expenses to 1.85% for Class A
and 2.50% for Class B until April 30, 2007.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
8
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
COMMON STOCK
SHARES VALUE
CONSUMER DISCRETIONARY--
BROADCASTING--0.23%
Entravision Communications Corp. (Class A)* 740 $ 6,682
HOTELS, RESTAURANTS & LEISURE--2.01%
Penn National Gaming, Inc. * 625 29,144
Royal Caribbean Cruises Ltd. 740 29,992
--------
59,136
INTERNET & CATALOG RETAIL--5.69%
Coldwater Creek Inc.* 650 11,960
eBay Inc.* 3,550 113,813
NutriSystem, Inc.* 920 41,538
--------
167,311
LEISURE EQUIPMENT & PRODUCTS--0.23%
Smith & Wesson Holding Corp.* 555 6,893
MEDIA--3.02%
DreamWorks Animation SKG, Inc. (Class A)* 1,245 33,378
Focus Media Holding Ltd. ADR* 125 10,012
Regal Entertainment Group (Class A) 2,125 45,411
--------
88,801
MULTI-LINE RETAIL--0.16%
Federated Department Stores, Inc. 105 4,689
RETAILING--1.85%
CVS Corp. 1,730 54,339
SPECIALTY RETAIL--0.91%
Abercrombie & Fitch Co. (Class A) 190 14,852
GameStop Corp. (Class A)* 225 11,794
--------
26,646
TEXTILES & APPAREL--1.29%
Iconix Brand Group, Inc.* 1,725 37,829
--------
TOTAL CONSUMER DISCRETIONARY--15.39% 452,326
--------
CONSUMER STAPLES--
HOUSEHOLD PRODUCTS--1.38%
Procter & Gamble Co. (The) 640 40,634
TOBACCO--3.40%
Altria Group, Inc. 1,185 99,872
--------
TOTAL CONSUMER STAPLES--4.78% 140,506
--------
ENERGY--
ENERGY & ENERGY SERVICES--1.49%
Diamond Offshore Drilling, Inc. 345 $ 26,848
Horizon Offshore, Inc.* 825 13,678
JA Solar Holdings Co. Ltd. ADR* 175 3,369
--------
43,895
ENERGY EQUIPMENT & SERVICES--1.79%
Cameron International Corp.* 620 35,148
National-Oilwell Varco Inc.* 250 17,410
--------
52,558
OIL & GAS--6.27%
Petrobank Energy and Resources Ltd.* 2,455 48,931
Valero Energy Corp. 2,150 123,947
Warren Resources Inc.* 1,020 11,434
--------
184,312
--------
TOTAL ENERGY--9.55% 280,765
--------
FINANCIALS--
CAPITAL MARKETS--1.95%
Bear Stearns Companies (The) Inc. 130 19,791
Lazard Ltd. (Class A) 730 37,588
--------
57,379
COMMERCIAL BANKS--0.86%
Bank of America Corp. 495 25,181
CONSUMER FINANCE--1.00%
Dollar Financial Corp.* 1,150 29,463
DIVERSIFIED FINANCIALS--3.64%
AllianceBernstein Holding LP 575 49,335
Chicago Mercantile Exchange Holdings Inc. 60 32,348
National Financial Partners Corp. 550 25,388
--------
107,071
INSURANCE--0.44%
Hartford Financial Services Group (The), Inc. 135 12,766
--------
TOTAL FINANCIALS--7.89% 231,860
--------
HEALTH CARE--
BIOTECHNOLOGY--3.97%
Alexion Pharmaceuticals, Inc.* 175 6,454
Amgen Inc.* 405 26,025
Gilead Sciences, Inc.* 315 22,541
Neurocrine Biosciences, Inc.* 690 8,701
Regeneron Pharmaceuticals, Inc.* 685 13,590
United Therapeutics Corp.* 700 39,340
--------
116,651
9
<Page>
COMMON STOCK
SHARES VALUE
HEALTH CARE EQUIPMENT & SUPPLIES--2.88%
Hologic, Inc.* 370 $ 20,368
Intuitive Surgical, Inc.* 265 29,442
Thoratec Corp.* 610 11,987
Ventana Medical Systems, Inc.* 570 22,943
--------
84,740
HEALTH CARE PROVIDERS & SERVICES--4.20%
Cardinal Health, Inc. 1,215 85,159
Health Net Inc.* 315 16,843
UnitedHealth Group Inc. 410 21,402
--------
123,404
PHARMACEUTICALS--4.38%
Abbott Laboratories 500 27,310
Adams Respiratory Therapeutics, Inc.* 735 26,695
Salix Pharmaceuticals, Ltd.* 1,410 20,036
Schering-Plough Corp. 625 14,675
Sepracor Inc.* 760 39,946
--------
128,662
--------
TOTAL HEALTH CARE--15.43% 453,457
--------
INDUSTRIALS--
AEROSPACE--0.82%
BE Aerospace, Inc.* 800 24,152
AEROSPACE & DEFENSE--2.54%
Armor Holdings, Inc.* 705 44,901
Boeing Co. (The) 160 13,963
L-3 Communications Holdings, Inc. 180 15,678
--------
74,542
AIR FREIGHT & LOGISTICS--0.68%
FedEx Corp. 175 19,982
BUSINESS SERVICES--0.57%
Endeavor Acquisition Corp.* 1,490 16,703
COMMERCIAL SERVICES & SUPPLIES--1.61%
Net 1 UEPS Technologies, Inc.* 1,775 47,499
CONSTRUCTION & ENGINEERING--1.06%
McDermott International, Inc.* 645 31,089
INDUSTRIAL CONGLOMERATES--0.25%
Textron Inc. 80 7,383
MACHINERY--0.17%
Terex Corp.* 75 4,938
TRANSPORTATION--0.51%
Burlington Northern Santa Fe Corp. 190 15,046
--------
TOTAL INDUSTRIALS--8.21% 241,334
--------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--0.58%
Sprint Nextel Corp. 885 $ 17,063
COMMUNICATIONS EQUIPMENT--4.61%
Cisco Systems, Inc.* 310 8,041
Corning Inc.* 1,570 32,389
Level 3 Communications, Inc.* 4,360 28,645
Nokia Oyj ADR 1,195 26,087
Sonus Networks, Inc.* 5,230 40,219
--------
135,381
COMPUTER RELATED & BUSINESS SERVICES--4.93%
Apple, Inc.* 455 38,498
Autodesk, Inc.* 515 21,192
Hewlett-Packard Co. 805 31,701
MEMC Electronic Materials, Inc.* 1,040 53,633
--------
145,024
COMPUTER SOFTWARE--1.10%
NAVTEQ Corp.* 275 8,789
Symantec Corp.* 1,015 17,357
TIBCO Software Inc.* 675 6,109
--------
32,255
COMPUTERS & PERIPHERALS--0.50%
Seagate Technology 550 14,795
INTERNET SOFTWARE & SERVICES--8.95%
DealerTrack Holdings Inc.* 1,472 42,614
Digital River, Inc.* 590 32,680
Google Inc. (Class A)* 300 134,835
SINA Corp.* 805 27,797
Yahoo! Inc.* 815 25,151
--------
263,077
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--8.38%
Atheros Communications* 345 8,718
ON Semiconductor Corp.* 12,640 124,125
Rambus Inc.* 2,105 41,932
Tessera Technologies Inc.* 610 24,656
Trident Microsystems, Inc.* 2,125 46,984
--------
246,415
SEMICONDUCTORS--0.52%
Texas Instruments Inc. 495 15,325
SOFTWARE--3.23%
Adobe Systems Inc.* 640 25,120
Microsoft Corp. 1,230 34,649
Take-Two Interactive Software, Inc.* 1,970 35,066
--------
94,835
--------
TOTAL INFORMATION TECHNOLOGY--32.80% 964,170
--------
10
<Page>
COMMON STOCK
SHARES VALUE
MATERIALS--
METALS--0.82%
SXR Uranium One, Inc.* 1,670 $ 24,126
METALS & MINING--1.83%
Breakwater Resources, Ltd.* 12,160 21,645
Cameco Corp. 320 11,827
Yamaha Gold Inc. 1,375 20,144
----------
53,616
----------
TOTAL MATERIALS--2.65% 77,742
----------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--2.10%
America Movil S.A. de C.V. (Series L) ADR 670 29,346
American Tower Corp. (Class A)* 343 13,288
NII Holdings Inc.* 270 19,127
----------
61,761
----------
TOTAL TELECOMMUNICATION SERVICES--2.10% 61,761
----------
UTILITIES--
MULTI-UTILITIES & UNREGULATED POWER--0.01%
Dynegy Inc. (Class A)* 23 189
----------
TOTAL UTILITIES--0.01% 189
----------
TOTAL COMMON STOCK--98.81%
(Cost $2,791,733) 2,904,110
----------
MONEY MARKET FUND
SM&R Money Market Fund, 4.77% (a) 19,045 19,045
----------
TOTAL MONEY MARKET FUND--0.65%
(Cost $19,045) 19,045
----------
TOTAL INVESTMENTS--99.46%
(Cost $2,810,778) 2,923,155
CASH AND OTHER ASSETS, LESS LIABILITIES--0.54% 15,988
----------
NET ASSETS--100.00% $2,939,143
==========
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 15.47%
Consumer Staples 4.81%
Energy 9.61%
Financials 7.93%
Health Care 15.51%
Industrials 8.26%
Information Technology 32.98%
Materials 2.66%
Miscellaneous 0.65%
Telecommunication Services 2.11%
Utilities 0.01%
</Table>
See notes to financial statements.
11
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $2,791,733) $ 2,904,110
Investment in affiliated money market fund (Cost $19,045) 19,045
------------
Total investments (Cost $2,810,778) 2,923,155
Prepaid expenses 14,392
Receivable for:
Investment securities sold 14,921
Capital stock sold 100
Dividends 2,367
Expense reimbursement 7,010
------------
TOTAL ASSETS 2,961,945
------------
LIABILITIES
Payable to investment adviser for fund expenses 6,271
Accrued:
Investment advisory fees 2,474
Service fees 589
Distribution fees 4,167
Other liabilities 9,301
------------
TOTAL LIABILITIES 22,802
------------
NET ASSETS (applicable to shares outstanding) $ 2,939,143
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,447,239
Accumulated net realized gain (loss) on investments 379,527
Net unrealized appreciation (depreciation) of investments 112,377
------------
Net Assets $ 2,939,143
============
NET ASSETS:
Class A $ 1,947,762
- ---------------------------------------------------------------------------------
Class B $ 991,381
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 2,939,143
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 279,672
- ---------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 149,638
- ---------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 6.96
Offering price per share: (Net assets value of $6.96 / 95%) $ 7.33
- ---------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 6.63
- ---------------------------------------------------------------------------------
</Table>
See notes to financial statements.
12
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R ALGER AGGRESSIVE GROWTH FUND
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $9) $ 9,259
Interest from affiliated money market fund 925
--------
TOTAL INVESTMENT INCOME 10,184
--------
EXPENSES
Investment advisory fees 15,128
Service fees 3,602
Professional fees 2,956
Custody and transaction fees 19,723
Directors' fees 2,903
Insurance expenses 510
Compliance expenses 196
Qualification fees
Class A 2,476
Class B 1,683
Shareholder reporting expenses
Class A 1,408
Class B 829
Distribution fees
Class A 3,401
Class B 4,690
--------
TOTAL EXPENSES 59,505
LESS EXPENSES REIMBURSED (33,385)
--------
NET EXPENSES 26,120
--------
INVESTMENT INCOME (LOSS)--NET (15,936)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 492,726
Change in unrealized appreciation (depreciation) of investments (63,770)
--------
NET GAIN (LOSS) ON INVESTMENTS 428,956
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $413,020
========
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------
2007 2006
---------------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (15,936) $ (27,106)
Net realized gain (loss) on investments 492,726 378,625
Change in unrealized appreciation (depreciation) of investments (63,770) (69,943)
---------- ----------
Net increase (decrease) in net assets resulting from operations 413,020 281,576
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital gains
Class A (253,767) 0
Class B (127,269) 0
---------- ----------
Total distributions to shareholders (381,036) 0
---------- ----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 74,431 252,756
Class B 115,557 84,851
---------- ----------
Total capital share transactions--net 189,988 337,607
---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 221,972 619,183
NET ASSETS
Beginning of period 2,717,171 2,097,988
---------- ----------
End of period $2,939,143 $2,717,171
========== ==========
</Table>
See notes to financial statements.
13
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ---------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ ----------- ---------- ----------- --------- ---------
Net asset value, beginning of period $ 6.90 $ 6.07 $ 4.81 $ 4.96 $ 4.24 $ 5.91
Income (loss) from investment operations
Investment income (loss)--net (0.03) (0.05) (0.04) (0.08) (0.06) (0.17)
Net realized and unrealized gain
(loss) on investments 1.06 0.88 1.30 (0.07) 0.78 (1.50)
---------- ---------- ---------- ---------- -------- --------
Total from investment operations 1.03 0.83 1.26 (0.15) 0.72 (1.67)
Less distributions
Capital gains (0.97) -- -- -- -- --
---------- ---------- ---------- ---------- -------- --------
Total distributions (0.97) -- -- -- -- --
---------- ---------- ---------- ---------- -------- --------
Net asset value, end of period $ 6.96 $ 6.90 $ 6.07 $ 4.81 $ 4.96 $ 4.24
========== ========== ========== ========== ======== ========
Total return (2) 15.97%** 13.67% 26.20% (3.02)% 16.98% (28.26)%
========== ========== ========== ========== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $1,947,762 $1,845,307 $1,402,928 $1,034,437 $994,871 $666,982
Ratio of expenses with reimbursement to
average net assets (3) 1.60%* 1.76% 1.85% 1.85% 1.85% 4.48%
Ratio of expenses without reimbursement
to average net assets 3.87%* 4.02% 4.43% 4.17% 5.52% 6.01%
Ratio of net investment loss to average
net assets (0.89)%* (0.90)% (0.68)% (1.43)% (1.27)% (3.99)%
Portfolio turnover rate 138.02% 200.29% 167.62% 159.89% 179.56% 177.62%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ -------- -------- -------- -------- --------
Net asset value, beginning of period $ 6.62 $ 5.87 $ 4.69 $ 4.87 $ 4.19 $ 5.89
Income (loss) from investment operations
Investment income (loss)--net (0.05) (0.09) (0.07) (0.11) (0.08) (0.21)
Net realized and unrealized gain
(loss) on investments 1.03 0.84 1.25 (0.07) 0.76 (1.49)
-------- -------- -------- -------- -------- --------
Total from investment operations 0.98 0.75 1.18 (0.18) 0.68 (1.70)
Less distributions
Capital gains (0.97) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.97) -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 6.63 $ 6.62 $ 5.87 $ 4.69 $ 4.87 $ 4.19
======== ======== ======== ======== ======== ========
Total Return (2) 15.72%** 12.78% 25.16% (3.70)% 16.23% (28.86)%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $991,381 $871,864 $695,060 $513,817 $442,489 $328,254
Ratio of expenses with reimbursement to
average net assets (3) 2.25%* 2.41% 2.50% 2.50% 2.50% 5.56%
Ratio of expenses without reimbursement
to average net assets 4.66%* 4.95% 5.75% 5.52% 7.36% 7.78%
Ratio of net investment loss to average
net assets (1.54)%* (1.55)% (1.33)% (2.09)% (1.91)% (5.08)%
Portfolio turnover rate 138.02% 200.29% 167.62% 159.89% 179.56% 177.62%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R voluntarily agreed to waive or reduce expenses to 1.60% for Class A
and 2.25% for Class B until April 30, 2007.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
14
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R ALGER SMALL-CAP FUND
COMMON STOCK
SHARES VALUE
CONSUMER DISCRETIONARY--
APPAREL--0.86%
bebe stores, inc 1,785 $ 32,808
AUTO COMPONENTS--1.43%
LKQ Corp.* 1,161 25,217
Tenneco Inc.* 1,220 29,646
--------
54,863
HOTELS, RESTAURANTS & LEISURE--1.10%
McCormick & Schmick's Seafood Restaurants, Inc.* 1,675 42,160
INTERNET & CATALOG RETAIL--2.13%
Coldwater Creek Inc.* 1,660 30,544
Priceline.com Inc.* 970 50,838
--------
81,382
LEISURE & ENTERTAINMENT--1.00%
WMS Industries Inc.* 1,025 38,366
LEISURE EQUIPMENT & SERVICES--1.04%
LIFE TIME FITNESS, Inc.* 835 39,913
MEDIA--2.14%
NeuStar, Inc. (Class A)* 1,380 44,160
World Wresting Entertainment, Inc. 2,380 37,889
--------
82,049
RETAILING--1.25%
Phillips-Van Heusen Corp. 870 47,711
SPECIALTY RETAIL--1.82%
Aeropostale, Inc.* 1,065 39,021
DSW, Inc. (Class A)* 760 30,438
--------
69,459
TEXTILES, APPAREL & LUXURY GOODS--2.50%
Deckers Outdoor Corp.* 715 46,618
Iconix Brand Group, Inc.* 2,235 49,013
--------
95,631
--------
TOTAL CONSUMER DISCRETIONARY--15.27% 584,342
--------
CONSUMER STAPLES--
FOOD PRODUCTS--1.12%
Hain Celestial Group (The) Inc.* 1,485 43,080
--------
TOTAL CONSUMER STAPLES--1.12% 43,080
--------
ENERGY--
BUILDING & CONSTRUCTION--0.93%
North American Energy Partners Inc.* 1,870 35,773
ENERGY & ENERGY SERVICES--2.09%
Dril-Quip, Inc.* 1,060 $ 40,895
Horizon Offshore, Inc.* 2,350 38,963
--------
79,858
OIL & GAS--3.26%
Carrizo Oil & Gas, Inc.* 855 26,317
Mariner Energy Inc.* 1,695 31,357
Petrobank Energy & Resources Ltd.* 2,070 41,257
Warren Resources Inc.* 2,285 25,615
--------
124,546
--------
TOTAL ENERGY--6.28% 240,177
--------
FINANCIALS--
CAPITAL MARKETS--2.28%
Cohen & Steers, Inc. 975 40,784
Greenhill & Co., Inc. 690 46,492
--------
87,276
COMMERCIAL BANKS--4.07%
Boston Private Financial Holdings, Inc. 1,545 44,573
First Midwest Bancorp, Inc. 1,035 38,937
Signature Bank* 1,240 38,093
Wintrust Financial Corp. 745 34,151
--------
155,754
FINANCIAL SERVICES--1.95%
GFI Group Inc.* 585 36,042
WNS Holdings Ltd. ADR* 1,195 38,443
--------
74,485
INSURANCE--0.85%
First Mercury Financial Corp.* 1,445 32,643
REAL ESTATE MANAGEMENT--0.62%
HFF Inc. (Class A)* 1,270 23,749
--------
TOTAL FINANCIALS--9.77% 373,907
--------
HEALTH CARE--
BIOTECHNOLOGY--6.66%
Arena Pharmaceuticals, Inc.* 1,465 18,532
Illumina, Inc.* 1,015 34,094
Indevus Pharmaceuticals, Inc.* 3,460 23,943
InterMune, Inc.* 890 26,985
Neurocrine Biosciences, Inc.* 1,450 18,284
Omrix Biopharmaceuticals* 605 21,659
Onyx Pharmaceuticals, Inc.* 1,075 28,219
Pharmion Corp.* 700 18,326
Regeneron Pharmaceuticals, Inc.* 1,245 24,701
United Therapeutics Corp.* 715 40,183
--------
254,926
15
<Page>
COMMON STOCK
SHARES VALUE
HEALTH CARE EQUIPMENT & SUPPLIES--3.17%
Hologic, Inc.* 855 $ 47,068
Thoratec Corp.* 1,773 34,839
Ventana Medical Systems, Inc.* 975 39,244
----------
121,151
HEALTH CARE PROVIDERS & SERVICES--5.81%
Centene Corp.* 1,575 37,989
Gentiva Health Services, Inc.* 1,950 38,493
PAREXEL International Corp.* 1,507 51,253
Psychiatric Solutions, Inc.* 1,280 51,149
Sierra Health Services, Inc.* 1,165 43,291
----------
222,175
MEDICAL DEVICES--1.07%
Dexcom Inc.* 1,920 15,533
Hansen Medical, Inc.* 1,520 25,414
----------
40,947
MEDICAL TECHNOLOGY--1.03%
Allscripts Healthcare Solutions, Inc.* 1,450 39,266
PHARMACEUTICALS--2.18%
Adams Respiratory Therapeutics, Inc.* 935 33,959
POZEN Inc.* 2,230 35,078
Vanda Pharmaceuticals Inc.* 605 14,556
----------
83,593
----------
TOTAL HEALTH CARE--19.92% 762,058
----------
INDUSTRIALS--
AEROSPACE--1.36%
BE Aerospace, Inc.* 1,730 52,229
AEROSPACE & DEFENSE--1.01%
Esterline Technologies Corp.* 940 38,465
AIRLINES--0.71%
AirTran Holdings, Inc.* 2,610 27,196
BUSINESS SERVICES--1.31%
TeleTech Holdings, Inc.* 1,590 50,053
COMMERCIAL SERVICES & SUPPLIES--2.52%
American Reprographics Co.* 1,335 44,202
FTI Consulting, Inc.* 1,560 52,369
----------
96,571
CONSTRUCTION & ENGINEERING--2.29%
URS Corp.* 1,075 44,688
Williams Scotsman International Inc.* 2,110 42,960
----------
87,648
ELECTRICAL EQUIPMENT--1.22%
ITC Holdings Corp. 1,065 $ 46,764
MACHINERY--4.57%
Actuant Corp. (Class A) 805 42,021
Bucyrus International, Inc. (Class A) 820 41,779
Gardner Denver Inc.* 1,200 40,644
RBC Bearings Inc.* 1,540 50,250
----------
174,694
MANUFACTURING--1.01%
Silgan Holdings Inc. 785 38,630
----------
TOTAL INDUSTRIALS--16.00% 612,250
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--1.11%
Dobson Communications Corp.* 3,770 42,491
COMMUNICATIONS EQUIPMENT--3.40%
NICE Systems Ltd.* 1,340 45,868
Polycom, Inc.* 1,365 43,543
Sonus Networks, Inc.* 5,310 40,834
----------
130,245
COMPUTER SOFTWARE--2.27%
TIBCO Software Inc.* 4,880 44,164
VeriFone Holdings, Inc.* 1,090 42,565
----------
86,729
INFORMATION TECHNOLOGY SERVICES--0.90%
SI International Inc.* 1,230 34,465
INTERNET SOFTWARE & SERVICES--7.71%
24/7 Real Media, Inc.* 4,835 46,609
Acme Packet, Inc.* 1,460 24,251
DealerTrack Holdings Inc.* 1,765 51,097
Digital River, Inc.* 700 38,773
Internap Network Services Corp.* 2,317 43,606
Omniture, Inc.* 1,620 25,191
WebEx Communications, Inc.* 885 38,436
Wright Express Corp.* 945 26,914
----------
294,877
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT--4.82%
Applied Micro Circuits Corp.* 8,655 33,495
Atheros Communications* 1,535 38,789
FormFactor Inc.* 725 30,994
ON Semiconductor Corp.* 3,555 34,910
Tessera Technologies Inc.* 1,140 46,079
----------
184,267
16
<Page>
COMMON STOCK
SHARES VALUE
SEMICONDUCTORS--2.53%
ATMI, Inc.* 915 $ 30,415
Cirrus Logic, Inc.* 4,275 37,064
Cymer, Inc.* 710 29,508
----------
96,987
SEMICONDUCTORS CAPITAL EQUIPMENT--0.70%
SiRF Technology Holdings, Inc.* 930 26,589
SOFTWARE--1.17%
Synchronoss Technologies, Inc.* 2,490 44,845
----------
TOTAL INFORMATION TECHNOLOGY--24.61% 941,495
----------
MATERIALS--
CHEMICALS--0.79%
Zoltek Companies, Inc.* 1,020 30,151
METALS--1.01%
SXR Uranium One, Inc.* 2,685 38,790
METALS & MINING--1.66%
Breakwater Resources, Ltd.* 19,240 34,247
Hecla Mining Co.* 3,775 29,067
----------
63,314
----------
TOTAL MATERIALS--3.46% 132,255
----------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--1.09%
SBA Communications Corp. (Class A)* 41,830 41,830
----------
TOTAL TELECOMMUNICATION SERVICES--1.09% 41,830
----------
TOTAL COMMON STOCK--97.52%
(Cost $3,088,116) 3,731,394
----------
MONEY MARKET FUND
SM&R Money Market Fund, 4.77% (a) 100,631 72,916
----------
TOTAL MONEY MARKET FUND--1.91%
(Cost $72,916) 72,916
----------
TOTAL INVESTMENTS--99.43%
(Cost $3,161,032) 3,804,310
CASH AND OTHER ASSETS, LESS LIABILITIES--0.57% 21,898
----------
NET ASSETS--100.00% $3,826,208
==========
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 15.36%
Consumer Staples 1.13%
Energy 6.31%
Financials 9.83%
Health Care 20.03%
Industrials 16.09%
Information Technology 24.75%
Materials 3.48%
Miscellaneous 1.92%
Telecommunication Services 1.10%
</Table>
See notes to financial statements.
17
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R ALGER SMALL-CAP FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $3,088,116) $ 3,731,394
Investment in affiliated money market fund (Cost $72,916) 72,916
------------
Total investments (Cost $3,161,032) 3,804,310
Prepaid expenses 13,874
Receivable for:
Investment securities sold 27,381
Dividends 334
Expense reimbursement 4,109
------------
TOTAL ASSETS 3,850,008
------------
LIABILITIES
Payable to investment adviser for fund expenses 6,379
Accrued:
Investment advisory fees 3,022
Service fees 755
Distribution fees 4,785
Other liabilities 8,859
------------
TOTAL LIABILITIES 23,800
------------
NET ASSETS (applicable to shares outstanding) $ 3,826,208
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,959,442
Accumulated net realized gain (loss) on investments 223,488
Net unrealized appreciation (depreciation) of investments 643,278
------------
Net Assets $ 3,826,208
============
NET ASSETS:
Class A $ 2,911,074
- ---------------------------------------------------------------------------------
Class B $ 915,134
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 3,826,208
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 356,916
- ---------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 115,124
- ---------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 8.16
Offering price per share: (Net assets value of $8.16 / 95%) $ 8.59
- ---------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 7.95
- ---------------------------------------------------------------------------------
</Table>
See notes to financial statements.
18
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R ALGER SMALL-CAP FUND
INVESTMENT INCOME
Dividends $ 3,200
Interest from affiliated money market fund 2,833
--------
TOTAL INVESTMENT INCOME 6,033
--------
EXPENSES
Investment advisory fees 18,411
Service fees 4,603
Professional fees 2,956
Custody and transaction fees 13,128
Directors' fees 2,903
Insurance expenses 644
Compliance expenses 197
Qualification fees
Class A 1,667
Class B 1,166
Shareholder reporting expenses
Class A 1,235
Class B 724
Distribution fees
Class A 4,900
Class B 4,410
--------
TOTAL EXPENSES 56,944
LESS EXPENSES REIMBURSED (23,666)
--------
NET EXPENSES 33,278
--------
INVESTMENT INCOME (LOSS)--NET (27,245)
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 263,488
Change in unrealized appreciation (depreciation) of investments 292,117
--------
NET GAIN (LOSS) ON INVESTMENTS 555,605
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $528,360
========
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
---------------- ----------
2007 2006
---------------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (27,245) $ (40,604)
Net realized gain (loss) on investments 263,488 208,778
Change in unrealized appreciation (depreciation) of investments 292,117 37,298
---------- ----------
Net increase (decrease) in net assets resulting from operations 528,360 205,472
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital gains
Class A (116,047) (175,041)
Class B (37,202) (80,011)
---------- ----------
Total distributions to shareholders (153,249) (255,052)
---------- ----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 137,595 1,130,748
Class B 11,051 222,922
---------- ----------
Total capital share transactions--net 148,646 1,353,670
---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 523,757 1,304,090
NET ASSETS
Beginning of period 3,302,451 1,998,361
---------- ----------
End of period $3,826,208 $3,302,451
========== ==========
</Table>
See notes to financial statements.
19
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ ---------- ---------- -------- -------- --------
Net asset value, beginning of period $ 7.35 $ 7.44 $ 5.73 $ 5.46 $ 4.33 $ 5.54
Income (loss) from investment operations
Investment income (loss)--net (0.05) (0.08) (0.10) (0.10) (0.07) (0.32)
Net realized and unrealized gain
(loss) on investments 1.19 0.87 1.96 0.37 1.20 (0.89)
---------- ---------- ---------- -------- -------- --------
Total from investment operations 1.14 0.79 1.86 0.27 1.13 (1.21)
Less distributions
Capital gains (0.33) (0.88) (0.15) -- -- --
---------- ---------- ---------- -------- -------- --------
Total distributions (0.33) (0.88) (0.15) -- -- --
---------- ---------- ---------- -------- -------- --------
Net asset value, end of period $ 8.16 $ 7.35 $ 7.44 $ 5.73 $ 5.46 $ 4.33
========== ========== ========== ======== ======== ========
Total return (2) 15.59%** 11.24% 32.64% 4.94% 26.10% (21.84)%
========== ========== ========== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $2,911,074 $2,485,024 $1,388,538 $978,028 $789,625 $436,796
Ratio of expenses with reimbursement to
average net assets (3) 1.65%* 1.79% 1.90% 1.90% 1.90% 6.60%
Ratio of expenses without reimbursement to
average net assets 2.88%* 3.42% 4.55% 4.65% 6.89% 9.68%
Ratio of net investment loss to average
net assets (1.32)%* (1.31)% (1.49)% (1.70)% (1.64)% (6.33)%
Portfolio turnover rate 50.20% 83.78% 126.84% 143.21% 131.48% 176.50%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ -------- -------- -------- -------- --------
Net asset value beginning of period $ 7.19 $ 7.34 $ 5.69 $ 5.47 $ 4.32 $ 5.65
Income (loss) from investment operations
Investment income (loss)--net (0.08) (0.13) (0.14) (0.14) (0.10) (0.41)
Net realized and unrealized gain (loss)
on investments 1.17 0.86 1.94 0.36 1.25 (0.92)
-------- -------- -------- -------- -------- --------
Total from investment operations 1.09 0.73 1.80 0.22 1.15 (1.33)
Less distributions
Capital gains (0.33) (0.88) (0.15) -- -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.33) (0.88) (0.15) -- -- --
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 7.95 $ 7.19 $ 7.34 $ 5.69 $ 5.47 $ 4.32
======== ======== ======== ======== ======== ========
Total return (2) 15.24%** 10.51% 31.80% 4.02% 26.62% (23.54)%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $915,134 $817,427 $609,823 $453,751 $372,330 $206,871
Ratio of expenses with reimbursement to
average net assets (3) 2.30%* 2.46% 2.55% 2.55% 2.55% 8.05%
Ratio of expenses without reimbursement to
average net assets 3.75%* 4.58% 6.06% 6.11% 9.05% 11.65%
Ratio of net investment loss to average
net assets (1.97)%* (1.97)% (2.14)% (2.35)% (2.29)% (7.77)%
Portfolio turnover rate 50.20% 83.78% 126.84% 143.21% 131.48% 176.50%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R voluntarily agreed to waive or reduce expenses to 1.65% for Class A
and 2.30% for Class B until April 30, 2007.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
20
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R ALGER GROWTH FUND
COMMON STOCK
SHARES VALUE
CONSUMER DISCRETIONARY--
CASINOS & RESORTS--0.80%
Melco PBL Entertainment Ltd ADR* 1,465 $ 24,319
HOTELS, RESTAURANTS & LEISURE--4.03%
Penn National Gaming, Inc.* 515 24,015
Royal Caribbean Cruises Ltd. 1,120 45,394
Starbucks Corp.* 1,725 53,303
--------
122,712
HOUSEHOLD DURABLES--1.04%
Harman International Industries, Inc. 320 31,731
INTERNET & CATALOG RETAIL--3.01%
eBay Inc.* 2,860 91,692
LEISURE & ENTERTAINMENT--1.46%
International Game Technology 1,080 44,550
MEDIA--1.78%
News Corp. (Class A) 1,005 22,643
XM Satellite Radio Holdings Inc. (Class A)* 2,185 31,377
--------
54,020
MULTI-LINE RETAIL--1.60%
Federated Department Stores, Inc. 1,090 48,679
RESTAURANTS & LODGING--0.74%
Hilton Hotels Corp. 640 22,592
RETAILING--0.99%
GAP, Inc. (The) 1,575 30,224
SPECIALTY RETAIL--1.25%
Best Buy Co., Inc. 475 22,073
Chico's FAS, Inc.* 715 16,037
--------
38,110
--------
TOTAL CONSUMER DISCRETIONARY--16.70% 508,629
--------
CONSUMER STAPLES--
BEVERAGES--1.50%
PepsiCo, Inc. 725 45,784
FOOD & STAPLES RETAILING--3.06%
Walgreen Co. 1340 59,911
Whole Foods Market, Inc. 700 33,439
--------
93,350
HOUSEHOLD PRODUCTS--2.23%
Procter & Gamble Co. (The) 1,070 67,934
TOBACCO--2.08%
Altria Group, Inc. 750 $ 63,210
--------
TOTAL CONSUMER STAPLES--8.87% 270,278
--------
ENERGY--
ENERGY & ENERGY SERVICES--0.75%
Schlumberger Ltd. 365 22,922
ENERGY EQUIPMENT & SERVICES--3.86%
Cameron International Corp.* 760 43,084
National-Oilwell Varco Inc.* 825 57,453
Transocean Inc.* 220 16,870
--------
117,407
OIL & GAS--1.96%
EOG Resources, Inc. 460 31,160
Valero Energy Corp. 495 28,537
--------
59,697
--------
TOTAL ENERGY--6.57% 200,026
--------
FINANCIALS--
CAPITAL MARKETS--1.03%
Bear Stearns Companies (The), Inc. 205 31,209
DIVERSIFIED FINANCIALS--3.36%
AllianceBernstein Holding LP 265 22,737
Chicago Mercantile Exchange Holdings Inc. 60 32,348
Goldman Sachs Group (The), Inc. 235 47,376
--------
102,461
FINANCE--0.97%
IntercontinentalExchange Inc.* 195 29,416
FINANCIAL SERVICES--1.50%
UBS AG 775 45,756
INSURANCE--2.04%
American International Group, Inc. 460 30,866
Hartford Financial Services Group (The), Inc. 525 31,205
--------
62,071
REAL ESTATE MANAGEMENT--1.23%
Jones Lang LaSalle Inc. 355 37,577
--------
TOTAL FINANCIALS--10.13% 308,490
--------
HEALTH CARE--
BIOTECHNOLOGY--1.51%
Amgen Inc.* 715 45,946
21
<Page>
COMMON STOCK
SHARES VALUE
HEALTH CARE EQUIPMENT & SUPPLIES--0.73%
Baxter International Inc. 445 $ 22,254
HEALTH CARE PROVIDERS & SERVICES--6.20%
Brookdale Senior Living Inc. 545 25,730
Cardinal Health, Inc. 335 23,480
Health Net Inc.* 1,170 62,560
Quest Diagnostics Inc. 900 45,918
UnitedHealth Group Inc. 600 31,320
--------
189,008
PHARMACEUTICALS--1.79%
Sepracor Inc.* 550 28,908
Wyeth 525 25,683
--------
54,591
--------
TOTAL HEALTH CARE--10.23% 311,799
--------
INDUSTRIALS--
AEROSPACE & DEFENSE--4.00%
Boeing Co. (The) 485 42,326
General Dynamics Corp. 600 45,876
L-3 Communications Holdings, Inc. 385 33,533
--------
121,735
AIR FREIGHT & LOGISTICS--0.99%
FedEx Corp. 265 30,258
COMMERCIAL SERVICES & SUPPLIES--0.54%
Apollo Group, Inc. (Class A)* 350 16,552
CONGLOMERATE--2.17%
ITT Corp. 1,115 66,030
INDUSTRIAL CONGLOMERATES--3.04%
3M Co. 630 46,670
General Electric Co. 1,320 46,094
--------
92,764
MACHINERY--1.29%
Caterpillar Inc. 360 23,191
Joy Global Inc. 360 15,962
--------
39,153
TRANSPORTATION--0.56%
UAL Corp.* 425 16,996
--------
TOTAL INDUSTRIALS--12.59% 383,488
--------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--3.94%
AT&T Inc. 1,335 49,128
Research In Motion Ltd.* 505 71,008
--------
120,136
COMMUNICATIONS EQUIPMENT--3.22%
Cisco Systems, Inc.* 2,045 $ 53,047
Corning Inc.* 2,190 45,180
--------
98,227
COMPUTER RELATED & BUSINESS SERVICES--7.77%
Apple Computer, Inc.* 895 75,726
EMC Corp. 2,065 28,807
Hewlett-Packard Co. 605 23,825
MEMC Electronic Materials, Inc.* 2,100 108,297
--------
236,655
COMPUTER SOFTWARE--1.03%
Symantec Corp.* 1,830 31,293
ELECTRONICS--1.93%
Nintendo Co., Ltd. ADR 1,775 58,987
INTERNET SOFTWARE & SERVICES--2.29%
Google Inc. (Class A)* 155 69,664
SEMICONDUCTORS--1.71%
Intel Corp. 1,415 28,088
Texas Instruments Inc. 775 23,994
--------
52,082
SOFTWARE--2.62%
Adobe Systems Inc.* 665 26,101
Microsoft Corp. 1,905 53,664
--------
79,765
--------
TOTAL INFORMATION TECHNOLOGY--24.51% 746,809
--------
MATERIALS--
METALS & MINING--3.24%
Goldcorp, Inc. 2,025 54,290
Phelps Dodge Corp. 355 44,343
--------
98,633
MINING--1.54%
Freeport-McMoRan Copper & Gold, Inc. 820 47,076
--------
TOTAL MATERIALS--4.78% 145,709
--------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--2.70%
American Tower Corp. (Class A)* 985 38,159
Nll Holdings Inc.* 625 44,275
--------
82,434
--------
TOTAL TELECOMMUNICATION SERVICES--2.70% 82,434
--------
22
<Page>
COMMON STOCK
SHARES VALUE
UTILITIES--
ELECTRIC & GAS COMPANIES--0.99%
Emerson Electric Co. 700 $ 30,163
MULTI-UTILITIES & UNREGULATED POWER--1.38%
Veolia Environnement ADR 595 41,948
----------
TOTAL UTILITIES--2.37% 72,111
----------
TOTAL COMMON STOCK--99.45%
(Cost $2,848,671) 3,029,773
----------
MONEY MARKET FUND
SM&R Money Market Fund, 4.77% (a) 36,426 36,426
----------
TOTAL MONEY MARKET FUND--1.20%
(Cost $36,426) 36,426
----------
TOTAL INVESTMENTS--100.65%
(Cost $2,885,097) 3,066,199
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.65)% (19,807)
----------
NET ASSETS--100.00% $3,046,392
==========
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 16.59%
Consumer Staples 8.81%
Energy 6.52%
Financials 10.06%
Health Care 10.17%
Industrials 12.51%
Information Technology 24.36%
Materials 4.75%
Miscellaneous 1.19%
Telecommunication Services 2.69%
Utilities 2.35%
</Table>
See notes to financial statements.
23
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $2,848,671) $ 3,029,773
Investment in affiliated money market fund (Cost $36,426) 36,426
------------
Total investments (Cost $2,885,097) 3,066,199
Prepaid expenses 13,921
Receivable for:
Dividends 2,314
Expense reimbursement 4,166
------------
TOTAL ASSETS 3,086,600
------------
LIABILITIES
Investment securities purchased 15,819
Payable to investment adviser for fund expenses 6,556
Accrued:
Investment advisory fees 2,062
Service fees 607
Distribution fees 4,576
Other liabilities 10,588
------------
TOTAL LIABILITIES 40,208
------------
NET ASSETS (applicable to shares outstanding) $ 3,046,392
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 2,764,770
Accumulated net realized gain (loss) on investments 100,520
Net unrealized appreciation (depreciation) of investments 181,102
------------
Net Assets $ 3,046,392
============
NET ASSETS:
Class A $ 1,898,468
- ---------------------------------------------------------------------------------
Class B $ 1,147,924
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 3,046,392
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,000
Outstanding 284,849
- ---------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 180,468
- ---------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 6.66
Offering price per share: (Net assets value of $6.66 / 95%) $ 7.01
- ---------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 6.36
- ---------------------------------------------------------------------------------
</Table>
See notes to financial statements.
24
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R ALGER GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $85) $ 15,491
Interest from affiliated money market fund 1,552
------------
TOTAL INVESTMENT INCOME 17,043
------------
EXPENSES
Investment advisory fees 13,238
Service fees 3,894
Professional fees 2,956
Custody and transaction fees 14,525
Directors' fees 2,903
Insurance expenses 592
Compliance expenses 264
Qualification fees
Class A 2,460
Class B 1,801
Shareholder reporting expenses
Class A 1,681
Class B 1,115
Distribution fees
Class A 3,428
Class B 5,780
------------
TOTAL EXPENSES 54,637
LESS EXPENSES REIMBURSED (28,288)
------------
NET EXPENSES 26,349
------------
INVESTMENT INCOME (LOSS)--NET (9,306)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 206,696
Change in unrealized appreciation (depreciation) of investments 151,882
------------
NET GAIN (LOSS) ON INVESTMENTS 358,578
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 349,272
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
(UNAUDITED) YEAR
SIX MONTHS ENDED ENDED
FEBRUARY 28, AUGUST 31,
----------------- ----------
2007 2006
----------------- ----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (9,306) $ (25,714)
Net realized gain (loss) on investments 206,696 176,202
Change in unrealized appreciation (depreciation) of investments 151,882 (210,426)
---------- ----------
Net increase (decrease) in net assets resulting from operations 349,272 (59,938)
---------- ----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital gains
Class A (116,983) 0
Class B (68,053) 0
---------- ----------
Total distributions to shareholders (185,036) 0
---------- ----------
CAPITAL SHARE TRANSACTIONS--NET
Class A (55,353) 70,295
Class B (46,223) 13,968
---------- ----------
Total capital share transactions--net (101,576) 84,263
---------- ----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 62,660 24,325
NET ASSETS
Beginning of period 2,983,732 2,959,407
---------- ----------
End of period $3,046,392 $2,983,732
========== ==========
</Table>
See notes to financial statements.
25
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R ALGER GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -----------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ ---------- ---------- ---------- ---------- --------
Net asset value, beginning of period $ 6.31 $ 6.40 $ 5.24 $ 5.20 $ 4.58 $ 6.38
Income (loss) from investment operations
Investment income (loss)--net (0.01) (0.04) (0.02) (0.06) (0.04) (0.12)
Net realized and unrealized gain (loss)
on investments 0.75 (0.05) 1.18 0.10 0.66 (1.68)
---------- ---------- ---------- ---------- ---------- --------
Total from investment operations 0.74 (0.09) 1.16 0.04 0.62 (1.80)
Less distributions
Capital gains (0.39) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- --------
Total distributions (0.39) -- -- -- -- --
---------- ---------- ---------- ---------- ---------- --------
Net asset value, end of period $ 6.66 $ 6.31 $ 6.40 $ 5.24 $ 5.20 $ 4.58
========== ========== ========== ========== ========== ========
Total return (2) 11.77%** (1.41)% 22.14% 0.77% 13.54% (28.21)%
========== ========== ========== ========== ========== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $1,898,468 $1,850,243 $1,815,584 $1,448,385 $1,071,035 $698,670
Ratio of expenses with reimbursement to
average net assets (3) 1.45%* 1.61% 1.70% 1.70% 1.70% 3.54%
Ratio of expenses without reimbursement to
average net assets 3.24%* 3.36% 3.63% 3.32% 4.76% 4.65%
Ratio of net investment loss to
average net assets (0.35)%* (0.58)% (0.33)% (1.06)% (0.86)% (2.64)%
Portfolio turnover rate 141.47% 321.34% 256.52% 162.19% 222.55% 180.20%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1) 2002 (4)
------------ ---------- ---------- -------- -------- --------
Net asset value, beginning of period $ 6.05 $ 6.18 $ 5.09 $ 5.08 $ 4.51 $ 6.31
Income (loss) from investment operations
Investment income (loss)--net (0.03) (0.08) (0.06) (0.09) (0.07) (0.15)
Net realized and unrealized gain (loss)
on investments 0.73 (0.05) 1.15 0.10 0.64 (1.65)
---------- ---------- ---------- -------- -------- --------
Total from investment operations 0.70 (0.13) 1.09 0.01 0.57 (1.80)
Less distributions
Capital gains (0.39) -- -- -- -- --
---------- ---------- ---------- -------- -------- --------
Total distributions (0.39) -- -- -- -- --
---------- ---------- ---------- -------- -------- --------
Net asset value, end of period $ 6.36 $ 6.05 $ 6.18 $ 5.09 $ 5.08 $ 4.51
========== ========== ========== ======== ======== ========
Total return (2) 11.62%** (2.10)% 21.41% 0.20% 12.64% (28.53)%
========== ========== ========== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $1,147,924 $1,133,489 $1,143,823 $956,245 $836,200 $653,702
Ratio of expenses with reimbursement to
average net assets (3) 2.10%* 2.27% 2.35% 2.35% 2.35% 4.13%
Ratio of expenses without reimbursement to
average net assets 3.97%* 4.13% 4.51% 4.20% 5.53% 5.30%
Ratio of net investment loss to average
net assets (1.01)%* (1.24)% (0.98)% (1.71)% (1.51)% (3.24)%
Portfolio turnover rate 141.47% 321.34% 256.52% 162.19% 222.55% 180.20%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Per share information has been calculated using the average number of
shares outstanding.
(2) Does not include the effect of sales charge.
(3) SM&R voluntarily agreed to waive or reduce expenses to 1.45% for Class A
and 2.10% for Class B until April 30, 2007.
(4) Per share information has been restated to reflect certain
reclassifications.
See notes to financial statements.
26
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R GROWTH FUND
COMMON STOCKS
SHARES VALUE
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--1.93%
Newell Rubbermaid Inc. 23,200 $ 710,384
Stanley Works (The) 24,200 1,344,794
-----------
2,055,178
MEDIA--1.61%
Walt Disney Co. (The) 50,000 1,713,000
MULTI-LINE RETAIL--3.40%
Citi Trends Inc.* 18,900 791,721
J.C. Penney Co., Inc. 15,700 1,273,427
Target Corp. 25,200 1,550,556
-----------
3,615,704
SPECIALTY RETAIL--3.60%
Bed Bath & Beyond Inc.* 13,900 554,471
Best Buy Co., Inc. 31,200 1,449,864
Home Depot, Inc. (The) 13,000 514,800
Limited Brands, Inc. 24,300 672,624
Lowe's Companies, Inc. 19,400 631,664
-----------
3,823,423
-----------
TOTAL CONSUMER DISCRETIONARY--10.54% 11,207,305
-----------
CONSUMER STAPLES--
BEVERAGES--2.99%
Coca-Cola Co. (The) 34,300 1,601,124
PepsiCo, Inc. 25,000 1,578,750
-----------
3,179,874
FOOD & DRUG RETAILING--0.78%
SUPERVALU INC. 9,350 345,576
Wal-Mart Stores, Inc. 10,000 483,000
-----------
828,576
HOUSEHOLD PRODUCTS--1.91%
Procter & Gamble Co. (The) 32,000 2,031,680
-----------
TOTAL CONSUMER STAPLES--5.68% 6,040,130
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--4.01%
Baker Hughes Inc. 15,800 1,028,738
Schlumberger Ltd. 26,400 1,657,920
Transocean Inc.* 14,100 1,081,188
Weatherford International Ltd.* 12,400 497,860
-----------
4,265,706
OIL & GAS--8.22%
Anadarko Petroleum Corp. 10,600 $ 426,438
BP PLC ADR 15,200 936,928
Chevron Corp. 20,922 1,435,458
Exxon Mobil Corp. 60,000 4,300,800
Noble Corp. 14,200 997,124
Royal Dutch Shell PLC, ADR 10,000 650,100
-----------
8,746,848
-----------
TOTAL ENERGY--12.23% 13,012,554
-----------
EXCHANGE-TRADED FUNDS--
PowerShares QQQ Trust Series 1 88,200 3,821,706
SPDR Trust Series 1 22,400 3,157,280
-----------
6,978,986
-----------
TOTAL EXCHANGE-TRADED FUNDS--6.56% 6,978,986
-----------
FINANCIALS--
COMMERCIAL BANKS--7.38%
Bank of America Corp. 15,000 763,050
PNC Financial Services Group, Inc. 30,000 2,199,300
U.S. Bancorp 40,000 1,426,400
Wachovia Corp. 42,600 2,358,762
Washington Mutual, Inc. 13,400 577,272
Wells Fargo & Co. 15,000 520,500
-----------
7,845,284
DIVERSIFIED FINANCIALS--4.76%
American Express Co. 5,000 284,350
Citigroup Inc. 20,000 1,008,000
Goldman Sachs Group, Inc. (The) 5,000 1,008,000
JPMorgan Chase & Co. 13,800 681,720
Merrill Lynch & Co., Inc. 5,000 418,400
Morgan Stanley 15,000 1,123,800
Charles Schwab Corp. (The) 29,400 543,312
-----------
5,067,582
INSURANCE--7.38%
Allstate Corp. (The) 12,300 738,738
American International Group, Inc. 29,260 1,963,346
Aspen Insurance Holdings Ltd. 20,350 539,275
Brown & Brown, Inc. 24,400 686,860
Hartford Financial Services Group, Inc. (The) 16,400 1,550,784
Prudential Financial, Inc. 20,200 1,836,988
RenaissanceRe Holdings Ltd. 10,400 533,312
-----------
7,849,303
-----------
TOTAL FINANCIALS--19.52% 20,762,169
-----------
27
<Page>
COMMON STOCKS
SHARES VALUE
HEALTH CARE--
BIOTECHNOLOGY--3.89%
Amgen Inc.* 7,600 $ 488,376
Celgene Corp.* 18,400 980,720
Genzyme Corp.* 12,000 741,600
Gilead Sciences, Inc.* 12,000 858,720
Given Imaging Ltd.* 36,900 792,243
PDL BioPharma Inc.* 14,600 278,714
-----------
4,140,373
HEALTH CARE EQUIPMENT & SUPPLIES--2.28%
Advanced Medical Optics, Inc.* 5,500 211,970
Dade Behring Holdings Inc. 8,100 331,776
Hologic, Inc.* 11,700 644,085
Medtronic, Inc. 24,650 1,241,374
-----------
2,429,205
HEALTH CARE PROVIDERS & SERVICES--0.75%
DaVita, Inc.* 5,025 274,114
UnitedHealth Group Inc. 10,000 522,000
-----------
796,114
PHARMACEUTICALS--4.67%
Abbott Laboratories 13,900 759,218
Endo Pharmaceuticals Holding Inc.* 11,450 357,355
Eli Lilly & Co. 41,200 2,168,768
Merck & Co., Inc. 38,000 1,678,080
-----------
4,963,421
-----------
TOTAL HEALTH CARE--11.59% 12,329,113
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--5.06%
Boeing Co. (The) 13,000 1,134,510
Goodrich Corp. 30,000 1,471,500
Honeywell International Inc. 14,500 673,380
Rockwell Collins, Inc. 17,000 1,113,160
United Technologies Corp. 15,000 984,450
-----------
5,377,000
AIR FREIGHT & COURIERS--1.49%
FedEx Corp. 4,700 536,646
United Parcel Service, Inc. (Class B) 15,000 1,052,850
-----------
1,589,496
CONSTRUCTION & ENGINEERING--0.64%
Cemex SAB de C.V. ADR 20,000 679,600
INDUSTRIAL CONGLOMERATES--2.81%
3M Co. 10,000 740,800
General Electric Co. 48,000 1,676,160
Tyco International Ltd. 18,600 573,438
-----------
2,990,398
MACHINERY--2.10%
Caterpillar Inc. 7,500 $ 483,150
Danaher Corp. 24,400 1,748,016
-----------
2,231,166
-----------
TOTAL INDUSTRIALS--12.10% 12,867,660
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--4.75%
Arris Group Inc.* 23,000 302,220
Cisco Systems, Inc.* 84,500 2,191,930
Harris Corp. 13,100 642,948
Motorola, Inc. 30,900 572,268
Nokia Oyj ADR 34,100 744,403
QUALCOMM Inc. 15,000 604,200
-----------
5,057,969
COMPUTERS & PERIPHERALS--2.38%
EMC Corp.* 30,800 429,660
Hewlett-Packard Co. 38,000 1,496,440
International Business Machines Corp. 6,500 604,565
-----------
2,530,665
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.28%
Agilent Technologies, Inc.* 9,300 294,996
SEMICONDUCTOR EQUIPMENT & PRODUCTS--3.20%
Analog Devices, Inc. 15,600 565,500
Intel Corp. 50,000 992,500
KLA-Tencor Corp. 11,600 600,184
Linear Technology Corp. 15,200 504,488
Marvell Technology Group Ltd.* 14,500 297,540
Maxim Integrated Products, Inc. 13,600 445,400
-----------
3,405,612
SOFTWARE--2.50%
Intuit Inc.* 24,800 731,848
Microsoft Corp. 30,000 845,100
Oracle Corp.* 65,700 1,079,451
-----------
2,656,399
-----------
TOTAL INFORMATION TECHNOLOGY--13.11% 13,945,641
-----------
MATERIALS--
CHEMICALS--1.65%
Dow Chemical Co. (The) 12,000 525,600
PPG Industries, Inc. 18,000 1,192,500
Tronox Inc. (Class B) 2,807 41,656
-----------
1,759,756
CONTAINERS & PACKAGING--0.91%
Sealed Air Corp.* 15,000 966,600
-----------
TOTAL MATERIALS--2.56% 2,726,356
-----------
28
<Page>
COMMON STOCKS
SHARES VALUE
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--1.77%
Sprint Nextel Corp. 34,007 $ 655,655
------------
Verizon Communications Inc. 32,800 1,227,704
------------
1,883,359
------------
TOTAL TELECOMMUNICATION SERVICES--1.77% 1,883,359
UTILITIES--
ELECTRIC UTILITIES--1.87%
Ameren Corp. 11,100 579,753
Dominion Resources, Inc. / VA 6,000 513,180
Exelon Corp. 9,100 599,963
Wisconsin Energy Corp. 6,100 292,495
------------
1,985,391
GAS UTILITIES--1.58%
El Paso Corp. 60,800 874,304
Kinder Morgan, Inc. 4,800 507,648
Sempra Energy 5,000 300,250
------------
1,682,202
------------
TOTAL UTILITIES--3.45% 3,667,593
------------
TOTAL COMMON STOCK--99.11%
(Cost $87,514,371) 105,420,866
------------
MONEY MARKET FUND
SM&R Money Market Fund, 4.77% (a) 996 996
------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $996) 996
------------
COMMERCIAL PAPER
FACE
AMOUNT
CONSUMER STAPLES--
FOOD PRODUCTS--0.45%
Kraft Foods Inc., 5.25%, 03/01/07 $474,000 474,000
------------
TOTAL ENERGY--0.45% 474,000
------------
UTILITIES--
ELECTRIC--0.35%
Hawaiian Electric Co., 5.32%, 03/05/07 $373,000 $ 372,779
------------
TOTAL UTILITIES--0.35% 372,779
------------
TOTAL COMMERCIAL PAPER--0.80%
(Cost $846,780) 846,779
------------
TOTAL INVESTMENTS--99.91%
(Cost $88,362,147) 106,268,641
CASH AND OTHER ASSETS, LESS LIABILITIES--0.09% 93,133
------------
NET ASSETS--100.00% $106,361,774
============
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 10.55%
Consumer Staples 6.13%
Energy 12.25%
Financials 26.10%
Health Care 11.60%
Industrials 12.11%
Information Technology 13.12%
Materials 2.57%
Telecommunication Services 1.77%
Utilities 3.80%
</Table>
See notes to financial statements.
29
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R GROWTH FUND
ASSETS
Investments in unaffiliated securities, at value
(Cost $88,361,151) $106,267,645
Investment in affiliated money market fund (Cost $996) 996
------------
Total investments (Cost $88,362,147) 106,268,641
Prepaid expenses 30,839
Receivable for:
Dividends 215,371
Expense reimbursement 2,128
Other assets 93,341
------------
TOTAL ASSETS 106,610,320
------------
LIABILITIES
Capital stock reacquired 32,078
Payable to investment adviser for fund expenses 36,542
Accrued:
Investment advisory fees 62,152
Service fees 20,656
Distribution fees 9,875
Other liabilities 87,243
------------
TOTAL LIABILITIES 248,546
------------
NET ASSETS (applicable to shares outstanding) $106,361,774
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 87,179,258
Undistributed net investment income 112,765
Accumulated net realized gain (loss) on investments 1,163,257
Net unrealized appreciation (depreciation) of investments 17,906,494
------------
Net Assets $106,361,774
============
NET ASSETS:
Class A $ 5,697,835
- --------------------------------------------------------------------------------
Class B $ 3,305,138
- --------------------------------------------------------------------------------
Class T $ 97,358,801
- --------------------------------------------------------------------------------
TOTAL NET ASSETS $106,361,774
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 1,261,869
- --------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 748,626
- --------------------------------------------------------------------------------
Class T:
Authorized 95,000,000
Outstanding 21,073,508
- --------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 4.52
Offering price per share: (Net Assets value of $4.52 / 95%) $ 4.76
- --------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 4.41
- --------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 4.62
Offering price per share: (Net Assets value of $4.62 / 94.25%) $ 4.90
- --------------------------------------------------------------------------------
See notes to financial statements.
30
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R GROWTH FUND
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $2,983) $ 874,998
Interest 38,229
Interest from affiliated money market fund 449
----------
TOTAL INVESTMENT INCOME 913,676
----------
EXPENSES
Investment advisory fees 394,784
Service fees 131,290
Professional fees 8,992
Custody and transaction fees 11,270
Directors' fees 2,903
Insurance expenses 20,433
Compliance expenses 9,401
Qualification fees
Class A 3,469
Class B 3,233
Class T 11,167
Shareholder reporting expenses
Class A 5,336
Class B 2,956
Class T 31,727
Distribution fees
Class A 7,300
Class B 12,351
----------
TOTAL EXPENSES 656,612
LESS EXPENSES REIMBURSED (13,960)
----------
NET EXPENSES 642,652
----------
INVESTMENT INCOME (LOSS)--NET 271,024
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 6,453,122
Change in unrealized appreciation (depreciation) of investments 1,916,142
----------
NET GAIN (LOSS) ON INVESTMENTS 8,369,264
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $8,640,288
==========
See notes to financial statements.
31
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- -----------
2007 2006
---------------- -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 271,024 $ 714,202
Net realized gain (loss) on investments 6,453,122 15,781,723
Change in unrealized appreciation (depreciation) of investments 1,916,142 (9,880,088)
------------ ------------
Net increase (decrease) in net assets resulting from operations 8,640,288 6,615,837
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (13,900) (34,714)
Class B (2,529) (7,032)
Class T (279,838) (705,872)
Capital Gains
Class A (189,752) --
Class B (107,537) --
Class T (3,084,429) --
------------ ------------
Total distributions to shareholders (3,677,985) (747,618)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (190,623) (858,993)
Class B (61,320) (412,861)
Class T (1,123,257) (13,074,575)
------------ ------------
Total capital share transactions--net (1,375,200) (14,346,429)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,587,103 (8,478,210)
NET ASSETS
Beginning of period 102,774,671 111,252,881
------------ ------------
End of period $106,361,774 $102,774,671
============ ============
Undistributed Net Investment Income $ 112,765 $ 138,008
============ ============
</Table>
See notes to financial statements.
32
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ -------
Net asset value, beginning of period $ 4.31 $ 4.09 $ 3.79 $ 3.45 $ 3.15 $ 4.18
Income (loss) from investment operations
Investment income (loss)--net 0.01 0.01 0.04 0.02 0.01 (0.01)
Net realized and unrealized gain (loss)
on investments 0.36 0.23 0.30 0.34 0.30 (1.02)
------ ------ ------ ------ ------ -------
Total from investment operations 0.37 0.24 0.34 0.36 0.31 (1.03)
Less distributions
Investment income--net (0.01) (0.02) (0.04) (0.02) (0.01) --
Capital gains (0.15) -- -- -- -- --
------ ------ ------ ------ ------ -------
Total distributions (0.16) (0.02) (0.04) (0.02) (0.01) --
------ ------ ------ ------ ------ -------
Net asset value, end of period $ 4.52 $ 4.31 $ 4.09 $ 3.79 $ 3.45 $ 3.15
====== ====== ====== ====== ====== =======
Total return (1) 8.52%** 6.00% 9.05% 10.41% 10.00% (24.61)%
====== ====== ====== ====== ====== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $5,698 $5,620 $6,154 $6,017 $5,039 $ 5,287
Ratio of expenses with reimbursement to
average net assets (2) 1.36%* 1.36% 1.36% 1.36% 1.36% 1.47%
Ratio of expenses without reimbursement
to average net assets 1.64%* 1.66% 1.69% 1.54% 1.60% 1.55%
Ratio of net investment income (loss) to
average net assets 0.35%* 0.52% 1.03% 0.44% 0.42% (0.03)%
Portfolio turnover rate 22.54% 56.05% 24.18% 4.93% 22.97% 41.74%
</Table>
<Table>
<Caption>
CLASS B SHARES
-------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ -------
Net asset value, beginning of period $ 4.22 $ 4.00 $ 3.72 $ 3.39 $ 3.11 $ 4.13
Income (loss) from investment operations
Investment income (loss)--net (0.01) -- 0.02 0.01 (0.01) (0.02)
Net realized and unrealized gain (loss)
on investments 0.35 0.23 0.29 0.33 0.29 (1.00)
------ ------ ------ ------ ------ -------
Total from investment operations 0.34 0.23 0.31 0.34 0.28 (1.02)
Less distributions
Investment income--net -- (0.01) (0.03) (0.01) (0.00)*** --
Capital gains (0.15) -- -- -- -- --
------ ------ ------ ------ ------ -------
Total distributions (0.15) (0.01) (0.03) (0.01) 0.00 0.00
------ ------ ------ ------ ------ -------
Net asset value, end of period $4.41 $ 4.22 $ 4.00 $ 3.72 $ 3.39 $ 3.11
====== ====== ====== ====== ====== =======
Total return (1) 8.05%** 5.71% 8.27% 9.93% 9.12% (24.70)%
====== ====== ====== ====== ====== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $3,305 $3,218 $3,456 $3,365 $2,700 $ 2,587
Ratio of expenses with reimbursement to
average net assets (2) 1.86%* 1.86% 1.86% 1.86% 1.86% 1.97%
Ratio of expenses without reimbursement
to average net assets 2.21%* 2.24% 2.20% 2.09% 2.24% 2.19%
Ratio of net investment income (loss) to
average net assets (0.15)%* 0.02% 0.52% (0.06)% (0.08)% (0.53)%
Portfolio turnover rate 22.54% 56.05% 24.18% 4.93% 22.97% 41.74%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.36% for Class
A and 1.86% for Class B until December 31, 2007.
See notes to financial statements.
33
<Page>
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------- -------- -------- -------- -------
Net asset value, beginning of period $ 4.40 $ 4.17 $ 3.87 $ 3.52 $ 3.21 $ 4.25
Income (loss) from investment operations
Investment income (loss)--net 0.01 0.03 0.05 0.03 0.03 0.01
Net realized and unrealized gain (loss) on investments 0.37 0.23 0.30 0.35 0.30 (1.04)
------- ------- -------- -------- -------- -------
Total from investment operations 0.38 0.26 0.35 0.38 0.33 (1.03)
Less distributions
Investment income--net (0.01) (0.03) (0.05) (0.03) (0.02) (0.01)
Capital gains (0.15) -- -- -- -- --
------- ------- -------- -------- -------- -------
Total distributions (0.16) (0.03) (0.05) (0.03) (0.02) (0.01)
------- ------- -------- -------- -------- -------
Net asset value, end of period $ 4.62 $ 4.40 $ 4.17 $ 3.87 $ 3.52 $ 3.21
======= ======= ======== ======== ======== =======
Total return (1) 8.63%** 6.28% 9.01% 10.67% 10.30% (24.24)%
======= ======= ======== ======== ======== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $97,359 $93,937 $101,643 $104,756 $100,383 $98,912
Ratio of expenses to average net assets 1.18%* 1.18% 1.19% 1.12% 1.15% 1.10%
Ratio of net investment income to average net assets 0.54%* 0.70% 1.20% 0.68% 0.63% 0.34%
Portfolio turnover rate 22.54%* 56.05% 24.18% 4.93% 22.97% 41.74%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
34
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R EQUITY INCOME FUND
COMMON STOCKS
SHARES VALUE
CONSUMER DISCRETIONARY--
HOTELS RESTAURANTS & LEISURE--0.60%
McDonald's Corp. 15,100 $ 660,172
HOUSEHOLD DURABLES--1.99%
Newell Rubbermaid Inc. 17,800 545,036
Stanley Works (The) 17,900 994,703
Tupperware Brands Corp. 27,600 646,116
-----------
2,185,855
SPECIALTY RETAIL--1.38%
Limited Brands, Inc. 46,900 1,107,200
TJX Companies, Inc. (The) 13,300 365,750
TravelCenters of America LLC * 1,140 41,382
-----------
1,514,332
-----------
TOTAL CONSUMER DISCRETIONARY--3.97% 4,360,359
-----------
CONSUMER STAPLES--
BEVERAGES--2.05%
Coca-Cola Co. (The) 24,000 1,120,320
PepsiCo, Inc. 18,000 1,136,700
-----------
2,257,020
FOOD PRODUCTS--3.51%
Bunge Limited 8,600 682,496
ConAgra Foods, Inc. 43,000 1,084,890
H.J. Heinz Co. 19,000 871,530
McCormick & Co., Inc. (b) 18,000 689,220
Sensient Technologies Corp. 21,500 526,535
-----------
3,854,671
FOOD & DRUG RETAILING--1.70%
SUPERVALU INC. 17,000 628,320
Wal-Mart Stores, Inc. 25,700 1,241,310
-----------
1,869,630
HOUSEHOLD PRODUCTS--1.97%
Kimberly-Clark Corp. 13,600 926,296
Procter & Gamble Co. (The) 19,500 1,238,055
-----------
2,164,351
PERSONAL PRODUCTS--1.43%
Alberto-Culver Co. 10,575 234,236
Avon Products, Inc. 18,025 660,797
Colgate-Palmolive Co. 8,675 584,348
Sally Beauty Holding, Inc.* 10,575 95,704
-----------
1,575,085
TOBACCO--1.04%
Altria Group, Inc. 7,000 $ 589,960
Reynolds American Inc. 9,000 549,450
-----------
1,139,410
-----------
TOTAL CONSUMER STAPLES--11.70% 12,860,167
-----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--3.07%
Boardwalk Pipeline Partners, LP 41,000 1,504,700
Schlumberger Ltd. 17,000 1,067,600
Weatherford International Ltd.* 20,000 803,000
-----------
3,375,300
OIL & GAS--10.20%
Anadarko Petroleum Corp. 27,200 1,094,256
BP PLC ADR 17,510 1,079,316
Chevron Corp. 25,000 1,715,250
Enterprise Products Partner L.P. 10,700 326,457
Exxon Mobil Corp. 50,000 3,584,000
Natural Resource Partners L.P. 18,000 1,134,720
Plains All American Pipeline, L.P. 11,700 649,350
Royal Dutch Shell PLC ADR 17,300 1,124,673
Spectra Energy Corp. 19,300 496,589
-----------
11,204,611
-----------
TOTAL ENERGY--13.27% 14,579,911
-----------
FINANCIALS--
COMMERCIAL BANKS--11.80%
Bank of America Corp. 47,000 2,390,890
Comerica Inc. 18,000 1,087,020
Fifth Third Bancorp 27,700 1,115,756
IndyMac Bancorp, Inc. 13,000 446,290
KeyCorp 17,100 645,354
National City Corp. 31,100 1,177,135
PNC Financial Services Group, Inc. 17,500 1,282,925
Regions Financial Corp. 17,782 636,951
TrustCo Bank Corp NY 87,300 863,397
U.S. Bancorp 33,700 1,201,742
Washington Mutual, Inc. 13,700 590,196
Wells Fargo & Co. 44,000 1,526,800
-----------
12,964,456
DIVERSIFIED FINANCIALS--9.20%
Allied Capital Corp. 20,500 638,575
Citigroup Inc. 68,400 3,447,360
Colonial Properties Trust 11,250 516,938
JPMorgan Chase & Co. 30,000 1,482,000
New York Community Bancorp, Inc. 64,000 1,071,360
Principal Financial Group, Inc. 16,700 1,016,863
35
<Page>
COMMON STOCKS
SHARES VALUE
Charles Schwab Corp. (The) 30,250 $ 559,020
Weingarten Realty Investors 28,000 1,384,320
-----------
10,116,436
INSURANCE--3.39%
Allstate Corp. (The) 11,000 660,660
Aspen Insurance Holdings Ltd. 20,825 551,862
Prudential Financial, Inc. 10,400 945,776
RenaissanceRe Holdings Ltd. 10,700 548,696
Travelers Companies, Inc. (The) 21,956 1,015,200
-----------
20,000 3,722,194
REAL ESTATE--5.70%
BRE Properties, Inc. 8,600 570,180
Duke Reality Corp. 12,000 528,720
General Growth Properties, Inc. 9,800 621,614
Health Care Property Investors, Inc. 28,000 1,029,560
Hospitality Properties Trust 11,400 525,198
Mack-Cali Realty Corp. 24,200 1,250,656
National Retail Properties Inc. 23,700 573,066
Plum Creek Timber Co., Inc. 29,500 1,169,970
-----------
6,268,964
-----------
TOTAL FINANCIALS--30.09% 33,072,050
-----------
HEALTH CARE--
BIOTECHNOLOGY--0.57%
Genzyme Corp.* 4,650 287,370
Gilead Sciences, Inc.* 4,650 332,754
-----------
620,124
HEALTH CARE EQUIPMENT & SUPPLIES--0.19%
Advanced Medical Optics, Inc.* 5,475 211,006
HEALTH CARE PROVIDERS & SERVICES--0.88%
DaVita, Inc.* 4,975 271,386
LTC Properties, Inc. 27,000 698,220
-----------
969,606
PHARMACEUTICALS--8.04%
Abbott Laboratories 22,850 1,248,067
Eli Lilly & Co. 20,350 1,071,224
Johnson & Johnson 35,000 2,206,750
Merck & Co. Inc. 25,300 1,117,248
Pfizer Inc. 85,580 2,136,077
Wyeth 21,700 1,061,564
-----------
8,840,930
-----------
TOTAL HEALTH CARE--9.68% 10,641,666
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--0.88%
United Technologies Corp. 14,700 $ 964,761
COMMERCIAL SERVICES & SUPPLIES--2.86%
Deluxe Corp. 26,000 802,620
ServiceMaster Co. (The) 51,500 703,490
Sovran Self Storage, Inc. 21,000 1,222,620
Standard Register Co. (The) 32,000 419,520
-----------
3,148,250
INDUSTRIAL CONGLOMERATES--4.04%
3M Co. 10,200 755,616
General Electric Co. 88,500 3,090,420
Tyco International Ltd. 19,100 588,853
-----------
4,434,889
ROAD & RAIL--0.53%
Burlington Northern Santa Fe Corp. 7,350 582,046
-----------
TOTAL INDUSTRIALS--8.31% 9,129,946
-----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--0.73%
Harris Corp. 12,750 625,770
Nokia Oyj ADR 8,000 174,640
-----------
800,410
INTERNET SOFTWARE & SERVICES--0.52%
StarTek, Inc. 55,600 568,788
SEMICONDUCTOR EQUIPMENT & PRODUCTS--0.71%
Intel Corp. 39,550 785,068
SOFTWARE--0.71%
Microsoft Corp. 27,725 781,013
-----------
TOTAL INFORMATION TECHNOLOGY--2.67% 2,935,279
-----------
MATERIALS--
CHEMICALS--1.74%
Dow Chemical Co. (The) 20,100 880,380
E.I. du Pont de Nemours and Co. 11,100 563,325
PPG Industries, Inc. 7,200 477,000
-----------
1,920,705
METALS & MINING--0.56%
Alcoa Inc. 18,400 614,744
36
<Page>
COMMON STOCKS
SHARES VALUE
PAPER & FOREST PRODUCTS--1.16%
International Paper Co. 7,725 $ 278,177
Potlatch Corp. 22,000 994,400
------------
1,272,577
------------
TOTAL MATERIALS--3.46% 3,808,026
------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--5.73%
ALLTEL Corp. 9,650 584,694
AT&T Inc. 23,500 864,800
Citizens Communications Co. 80,000 1,205,600
FairPoint Communications, Inc. 70,000 1,337,000
Verizon Communications Inc. 46,000 1,721,780
Windstream Corp. 39,000 586,950
------------
6,300,824
------------
TOTAL TELECOMMUNICATION SERVICES--5.73% 6,300,824
------------
UTILITIES--
ELECTRIC UTILITIES--8.09%
Ameren Corp. 15,200 793,896
Consolidated Edison, Inc. 23,100 1,122,198
DTE Energy Co. 24,800 1,148,240
Duke Energy Corp. 38,600 760,034
Entergy Corp. 4,600 454,020
Integrys Energy Group, Inc. 24,255 1,351,974
Pinnacle West Capital Corp. 25,500 1,209,210
Progress Energy, Inc. 25,000 1,221,500
Southern Co. 10,000 358,000
Xcel Energy, Inc. 20,000 472,600
------------
8,891,672
GAS UTILITIES--2.09%
Nicor Inc. 23,100 1,075,074
NiSource Inc. 51,600 1,227,564
------------
2,302,638
------------
TOTAL UTILITIES--10.18% 11,194,310
------------
TOTAL COMMON STOCK--99.06%
(Cost $85,272,846) 108,882,538
------------
MONEY MARKET FUND
SM&R Money Market Fund, 4.77% (a) 250 250
------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $250) 250
------------
COMMERCIAL PAPER
FACE
AMOUNT VALUE
CONSUMER STAPLES--
FOOD PRODUCTS--0.25%
Kraft Foods Inc., 5.25%, 03/01/07 $278,000 $ 278,000
------------
TOTAL CONSUMER STAPLES--0.25% 278,000
------------
TOTAL COMMERCIAL PAPER--0.25%
(Cost $278,000) 278,000
------------
TOTAL INVESTMENTS--99.31%
(Cost $85,551,096) 109,160,788
CASH AND OTHER ASSETS, LESS LIABILITIES--0.69% 758,116
------------
NET ASSETS--100.00% $109,918,904
============
* -- Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
(b) Non-voting shares
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 3.99%
Consumer Staples 12.04%
Energy 13.36%
Financials 30.30%
Health Care 9.75%
Industrials 8.36%
Information Technology 2.69%
Materials 3.49%
Telecommunication Services 5.77%
Utilities 10.25%
</Table>
See notes to financial statements.
37
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R EQUITY INCOME FUND
<Table>
<Caption>
ASSETS
Investments in unaffiliated securities, at value (Cost $85,550,846) $109,160,538
Investment in affiliated money market fund (Cost $250) 250
------------
Total investments (Cost $85,551,096) 109,160,788
Prepaid expenses 30,660
Receivable for:
Investment securities sold 593,269
Dividends 325,054
Expense reimbursement 3,304
Other assets 62,725
------------
TOTAL ASSETS 110,175,800
------------
LIABILITIES
Capital stock reacquired 61,269
Payable to investment adviser for fund expenses 32,426
Accrued:
Investment advisory fees 63,831
Service fees 21,193
Distribution fees 18,904
Other liabilities 59,273
------------
TOTAL LIABILITIES 256,896
------------
NET ASSETS (applicable to shares outstanding) $109,918,904
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 83,172,086
Undistributed net investment income 443,265
Accumulated net realized gain (loss) on investments 2,693,861
Net unrealized appreciation (depreciation) of investments 23,609,692
------------
Net Assets $109,918,904
============
NET ASSETS:
Class A $ 10,056,723
- ----------------------------------------------------------------------------------
Class B $ 6,717,715
- ----------------------------------------------------------------------------------
Class T $ 93,144,466
- ----------------------------------------------------------------------------------
TOTAL NET ASSETS $109,918,904
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 432,486
- ----------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 300,078
- ----------------------------------------------------------------------------------
Class T:
Authorized 75,000,000
Outstanding 3,851,521
- ----------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 23.25
Offering price per share: (Net Assets value of $23.25 / 95%) $ 24.47
- ----------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 22.39
- ----------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 24.18
Offering price per share: (Net Assets value of $24.18 / 94.25%) $ 25.66
- ----------------------------------------------------------------------------------
</Table>
See notes to financial statements.
38
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R EQUITY INCOME FUND
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $4,359) $2,204,576
Interest 42,626
Interest from affiliated money market fund 511
----------
TOTAL INVESTMENT INCOME 2,247,713
----------
EXPENSES
Investment advisory fees 403,906
Service fees 134,208
Professional fees 8,992
Custody and transaction fees 11,606
Directors' fees 2,903
Insurance expenses 20,375
Compliance expenses 9,371
Qualification fees
Class A 4,333
Class B 4,208
Class T 11,072
Shareholder reporting expenses
Class A 4,082
Class B 3,358
Class T 18,075
Distribution fees
Class A 12,304
Class B 25,485
----------
TOTAL EXPENSES 674,278
LESS EXPENSES REIMBURSED (21,812)
----------
NET EXPENSES 652,466
----------
INVESTMENT INCOME (LOSS)--NET 1,595,247
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 4,034,547
Change in unrealized appreciation (depreciation) of investments 3,136,323
----------
NET GAIN (LOSS) ON INVESTMENTS 7,170,870
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $8,766,117
==========
See notes to financial statements.
39
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2007 2006
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 1,595,247 $ 2,204,335
Net realized gain (loss) on investments 4,034,547 5,009,183
Change in unrealized appreciation (depreciation) of investments 3,136,323 3,046,019
------------ ------------
Net increase (decrease) in net assets resulting from operations 8,766,117 10,259,537
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (157,885) (160,310)
Class B (97,719) (95,634)
Class T (1,450,041) (1,606,342)
Capital gains
Class A (571,917) (694,010)
Class B (394,523) (618,906)
Class T (5,134,379) (7,130,605)
------------ ------------
Total distributions to shareholders (7,806,464) (10,305,807)
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 739,995 189,961
Class B (82,840) (904,275)
Class T 1,576,401 (5,090,295)
------------ ------------
Total capital share transactions--net 2,233,556 (5,804,609)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,193,209 (5,850,879)
NET ASSETS
Beginning of period 106,725,695 112,576,574
------------ ------------
End of period $109,918,904 $106,725,695
============ ============
Undistributed Net Investment Income $ 443,265 $ 553,663
============ ============
</Table>
See notes to financial statements.
40
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ -------
Net asset value, beginning of period $ 23.12 $23.22 $22.11 $20.03 $19.04 $ 22.72
Income (loss) from investment operations
Investment income (loss)--net 0.36 0.45 0.35 0.26 0.22 0.18
Net realized and unrealized gain (loss)
on investments 1.55 1.70 1.68 2.10 1.01 (3.63)
------- ------ ------ ------ ------ -------
Total from investment operations 1.91 2.15 2.03 2.36 1.23 (3.45)
Less distributions
Investment income--net (0.39) (0.40) (0.39) (0.28) (0.24) (0.23)
Capital gains (1.39) (1.85) (0.53) -- -- --
------- ------ ------ ------ ------ -------
Total distributions (1.78) (2.25) (0.92) (0.28) (0.24) (0.23)
------- ------ ------ ------ ------ -------
Net asset value, end of period $ 23.25 $23.12 $23.22 $22.11 $20.03 $ 19.04
======= ====== ====== ====== ====== =======
Total return (1) 8.29%** 9.89% 9.25% 11.79% 6.61% (15.27)%
======= ====== ====== ====== ====== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $10,057 $9,269 $9,088 $8,063 $5,940 $ 5,517
Ratio of expenses with reimbursement
to average net assets (2) 1.26%* 1.26% 1.26% 1.26% 1.26% 1.44%
Ratio of expenses without reimbursement
to average net assets 1.50%* 1.54% 1.50% 1.43% 1.50% 1.45%
Ratio of net investment income
to average net assets 2.84%* 2.00% 1.53% 1.08% 1.21% 0.88%
Portfolio turnover rate 9.82% 47.59% 18.45% 6.74% 7.57% 30.99%
</Table>
<Table>
<Caption>
CLASS B SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ -------
Net asset value, beginning of period $22.33 $22.49 $21.46 $19.44 $18.56 $ 22.22
Income (loss) from investment operations
Investment income (loss)--net 0.28 0.29 0.23 0.13 0.13 0.09
Net realized and unrealized gain (loss)
on investments 1.51 1.69 1.61 2.07 0.94 (3.57)
------ ------ ------ ------ ------ -------
Total from investment operations 1.79 1.98 1.84 2.20 1.07 (3.48)
Less distributions
Investment income--net (0.34) (0.29) (0.28) (0.18) (0.19) (0.18)
Capital gains (1.39) (1.85) (0.53) -- -- --
------ ------ ------ ------ ------ -------
Total distributions (1.73) (2.14) (0.81) (0.18) (0.19) (0.18)
------ ------ ------ ------ ------ -------
Net asset value, end of period $22.39 $22.33 $22.49 $21.46 $19.44 $ 18.56
====== ====== ====== ====== ====== =======
Total return (1) 8.03%** 9.40% 8.64% 11.36% 5.85% (15.72)%
====== ====== ====== ====== ====== =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $6,718 $6,759 $7,744 $7,375 $6,182 $ 5,806
Ratio of expenses with reimbursement
to average net assets (2) 1.76%* 1.76% 1.76% 1.76% 1.76% 1.94%
Ratio of expenses without reimbursement
to average net assets 2.05%* 2.06% 2.05% 1.95% 1.99% 1.95%
Ratio of net investment income
to average net assets 2.35%* 1.45% 1.04% 0.58% 0.71% 0.37%
Portfolio turnover rate 9.82% 47.59% 18.45% 6.74% 7.57% 30.99%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.26% for Class
A and 1.76% for Class B until December 31, 2007.
See notes to financial statements.
41
<Page>
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------- ------- ------- ------- --------
Net asset value, beginning of period $ 23.97 $ 23.97 $ 22.77 $ 20.56 $ 19.51 $ 23.26
Income (loss) from investment operations
Investment income (loss)--net 0.37 0.50 0.40 0.28 0.27 0.27
Net realized and unrealized gain (loss)
on investments 1.62 1.76 1.72 2.21 1.04 (3.74)
------- ------- ------- ------- ------- --------
Total from investment operations 1.99 2.26 2.12 2.49 1.31 (3.47)
Less distributions
Investment income--net (0.39) (0.41) (0.39) (0.28) (0.26) (0.28)
Capital gains (1.39) (1.85) (0.53) -- -- --
------- ------- ------- ------- ------- --------
Total distributions (1.78) (2.26) (0.92) (0.28) (0.26) (0.28)
------- ------- ------- ------- ------- --------
Net asset value, end of period $ 24.18 $ 23.97 $ 23.97 $ 22.77 $ 20.56 $ 19.51
======= ======= ======= ======= ======= ========
Total return (1) 8.34%** 10.04% 9.35% 12.14% 6.83% (15.03)%
======= ======= ======= ======= ======= ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $93,144 $90,698 $95,744 $97,802 $94,943 $103,396
Ratio of expenses
to average net assets 1.14%* 1.15% 1.14% 1.10% 1.12% 1.07%
Ratio of net investment income
to average net assets 2.96%* 2.09% 1.66% 1.24% 1.36% 1.26%
Portfolio turnover rate 9.82%* 47.59% 18.45% 6.74% 7.57% 30.99%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
42
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R BALANCED FUND
COMMON STOCKS
SHARES VALUE
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.38%
Host Hotels & Resorts Inc. 2,265 $ 59,524
McDonald's Corp. 2,850 124,602
Starwood Hotels & Resorts Worldwide, Inc. 3,000 197,400
Wyndham Worldwide Corp.* 1,020 35,904
----------
417,430
HOUSEHOLD DURABLES--1.01%
Newell Rubbermaid Inc. 3,800 116,356
Stanley Works (The) 3,400 188,938
----------
305,294
MEDIA--1.97%
CBS Corp. (Class B) 2,000 60,700
Time Warner Inc. 9,000 183,150
Viacom Inc. (Class B)* 2,000 78,080
Walt Disney Co. (The) 8,000 274,080
----------
596,010
MULTI-LINE RETAIL--1.22%
J.C Penney Co., Inc. (Holding Co.) 2,200 178,442
Kohl's Corp.* 1,000 68,990
Target Corp. 2,000 123,060
----------
370,492
SPECIALTY RETAIL--2.14%
Best Buy Co., Inc. 3,000 139,410
Limited Brands, Inc. 7,600 210,368
Lowe's Companies, Inc. 5,800 188,848
TJX Companies, Inc. (The) 4,000 110,000
----------
648,626
----------
TOTAL CONSUMER DISCRETIONARY--7.72% 2,337,852
----------
CONSUMER STAPLES--
BEVERAGES--1.65%
Coca-Cola Co. (The) 6,000 280,080
International Flavors & Fragrances Inc. 900 42,120
PepsiCo, Inc. 2,800 176,820
----------
499,020
FOOD PRODUCTS--1.88%
Bunge Limited 1,625 128,960
H.J. Heinz Co. 2,600 119,262
McCormick & Co., Inc. (c) 3,700 141,673
Sensient Technologies Corp. 7,400 181,226
----------
571,121
FOOD & DRUG RETAILING--1.22%
SUPERVALU INC 3,475 $ 128,436
Wal-Mart Stores, Inc. 5,000 241,500
----------
369,936
HOUSEHOLD PRODUCTS--1.61%
Kimberly-Clark Corp. 2,200 149,842
Procter & Gamble Co. (The) 5,300 336,497
----------
486,339
PERSONAL PRODUCTS--0.88%
Alberto-Culver Co. 1,800 39,870
Avon Products, Inc. 3,050 111,813
Colgate-Palmolive Co. 1,475 99,356
Sally Beauty Holdings, Inc.* 1,800 16,290
----------
267,329
----------
TOTAL CONSUMER STAPLES--7.24% 2,193,745
----------
ENERGY--
ENERGY EQUIPMENT & SERVICES--0.97%
Schlumberger Ltd. 2,400 150,720
Weatherford International Ltd.* 3,600 144,540
----------
295,260
OIL & GAS--5.48%
Anadarko Petroleum Corp. 3,600 144,828
BP PLC ADR 5,092 313,871
Chevron Corp. 6,001 411,729
Exxon Mobil Corp. 11,000 788,480
----------
1,658,908
----------
TOTAL ENERGY--6.45% 1,954,168
----------
FINANCIALS--
COMMERCIAL BANKS--4.32%
Bank of America Corp. 10,000 508,700
PNC Financial Services Group, Inc. 3,000 219,930
U.S. Bancorp 6,000 213,960
Wachovia Corp. 3,600 199,332
Wells Fargo & Co. 4,800 166,560
----------
1,308,482
DIVERSIFIED FINANCIALS--5.60%
Allied Capital Corp. 3,400 105,910
Citigroup Inc. 14,500 730,800
Goldman Sachs Group, Inc. (The) 1,000 201,600
JPMorgan Chase & Co. 2,092 103,345
Morgan Stanley 6,000 449,520
Charles Schwab Corp. (The) 5,650 104,412
----------
1,695,587
43
<Page>
COMMON STOCKS
SHARES VALUE
INSURANCE--4.70%
Allstate Corp. (The) 2,300 $ 138,138
American International Group, Inc. 5,731 384,550
Aspen Insurance Holdings Ltd. 3,925 104,012
Genworth Financial Inc. (Class A) 6,200 219,294
Prudential Financial, Inc. 3,000 272,820
RenaissanceRe Holdings Ltd. 2,000 102,560
Travelers Companies, Inc. (The) 4,000 203,040
----------
1,424,414
REAL ESTATE--0.12%
Realogy Corp.* 1,275 37,714
----------
TOTAL FINANCIALS--14.74% 4,466,197
----------
HEALTH CARE--
BIOTECHNOLOGY--0.66%
Amgen Inc.* 1,300 83,538
Genzyme Corp.* 875 54,075
Gilead Sciences, Inc.* 875 62,615
----------
200,228
HEALTH CARE EQUIPMENT & SUPPLIES--1.34%
Advanced Medical Optics, Inc.* 1,025 39,504
Beckman Coulter, Inc. 2,000 128,320
Biomet, Inc. 2,700 114,291
Zimmer Holdings, Inc.* 1,460 123,122
----------
405,237
HEALTH CARE PROVIDERS & SERVICES--0.50%
DaVita, Inc.* 925 50,459
Patterson Companies Inc.* 3,000 100,140
----------
150,599
PHARMACEUTICALS--5.87%
Abbott Laboratories 4,200 229,404
Allergan, Inc. 1,000 111,710
Eli Lilly & Co. 3,850 202,664
Endo Pharmaceuticals Holdings Inc.* 1,750 54,617
Johnson & Johnson 6,000 378,300
Merck & Co. Inc. 5,300 234,048
Pfizer Inc. 15,000 374,400
Wyeth 3,950 193,234
----------
1,778,377
----------
TOTAL HEALTH CARE--8.37% 2,534,441
----------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.23%
General Dynamics Corp. 1,400 107,044
Goodrich Corp. 1,900 93,195
L-3 Communications Holdings, Inc. 1,000 87,100
Northrop Grumman Corp. 1,200 86,220
----------
373,559
AIRFREIGHT & COURIERS--0.33%
FedEx Corp. 875 $ 99,907
COMMERCIAL SERVICES & SUPPLIES--0.85%
Avis Budget Group Inc. 510 13,561
Cintas Corp. 2,000 80,760
Equifax Inc. 2,100 81,312
R. R. Donnelley & Sons Co. 2,300 83,214
----------
258,847
INDUSTRIAL CONGLOMERATES--2.68%
3M Co. 1,925 142,604
General Electric Co. 16,000 558,720
Tyco International Ltd. 3,600 110,988
----------
812,312
MACHINERY--1.98%
Caterpillar Inc. 1,100 70,862
Danaher Corp. 1,400 100,296
Dover Corp. 1,700 81,243
Eaton Corp. 1,100 89,111
Illinois Tool Works Inc. 1,800 93,060
Ingersoll-Rand Co. Ltd (Class A) 1,900 82,289
Parker Hannifin Corp. 1,000 82,390
----------
599,251
ROAD & RAIL--0.35%
Burlington Northern Santa Fe Corp. 1,350 106,907
TRADING COMPANIES & DISTRIBUTORS--0.28%
W.W. Grainger, Inc. 1,100 84,865
TRANSPORTATION INFRASTRUCTURE--0.31%
Ryder System, Inc. 1,800 92,592
----------
TOTAL INDUSTRIALS--8.01% 2,428,240
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--2.39%
Arris Group Inc.* 3,900 51,246
Cisco Systems, Inc.* 11,700 303,498
Harris Corp. 2,300 112,884
Motorola, Inc. 6,200 114,824
Nokia Oyj ADR 6,500 141,895
----------
724,347
COMPUTERS & PERIPHERALS--1.65%
Dell Inc.* 6,800 155,380
EMC Corp.* 7,500 104,625
Electronics for Imaging, Inc.* 1,950 44,499
Hewlett-Packard Co. 5,000 196,900
----------
501,404
44
<Page>
COMMON STOCKS
SHARES VALUE
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.16%
Agilent Technologies, Inc.* 1,525 $ 48,373
IT CONSULTING & SERVICES--0.14%
Global Payments Inc. 1,075 41,355
SEMICONDUCTOR EQUIPMENT & PRODUCTS--1.25%
Intel Corp. 13,000 258,050
Linear Technology Corp. 1,500 49,785
Texas Instruments Inc. 2,300 71,208
-----------
379,043
SOFTWARE--3.02%
Electronic Arts Inc.* 1,500 75,630
Microsoft Corp. 23,300 656,361
Oracle Corp.* 11,100 182,373
-----------
914,364
-----------
TOTAL INFORMATION TECHNOLOGY--8.61% 2,608,886
-----------
MATERIALS--
CHEMICALS--0.66%
Dow Chemical Co. (The) 1,600 70,080
Eastman Chemical Co. 600 35,472
PPG Industries, Inc. 900 59,625
Sigma-Aldrich Corp. 800 32,800
-----------
197,977
CONTAINERS & PACKAGING--0.11%
Ball Corp. 700 32,410
METALS & MINING--0.55%
Nucor Corp. 1,200 73,044
Phelps Dodge Corp. 400 49,964
United States Steel Corp. 500 44,310
-----------
167,318
PAPER & FOREST PRODUCTS--0.32%
International Paper Co. 1,300 46,813
Louisiana-Pacific Corp. 1,000 20,640
MeadWestvaco Corp. 1,000 30,450
-----------
97,903
-----------
TOTAL MATERIALS--1.64% 495,608
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--1.81%
ALLTEL Corp. 2,400 145,416
Sprint Nextel Corp. 10,263 197,871
Verizon Communications Inc. 2,580 96,569
Windstream Corp. 7,100 106,855
-----------
546,711
WIRELESS TELECOMMUNICATION SERVICES--0.44%
Vodafone Group PLC ADR 4,812 $ 134,255
-----------
TOTAL TELECOMMUNICATION SERVICES--2.25% 680,966
-----------
UTILITIES--
ELECTRIC UTILITIES--2.89%
Ameren Corp. 3,000 156,690
CenterPoint Energy, Inc. 5,500 98,120
Constellation Energy Group 5,000 393,350
Exelon Corp. 1,400 92,302
Southern Co. 1,600 57,280
Wisconsin Energy Corp. 1,600 76,720
-----------
874,462
-----------
TOTAL UTILITIES--2.89% 874,462
-----------
TOTAL COMMON STOCK--67.92%
(Cost $16,231,456) 20,574,565
-----------
BONDS AND NOTES
FACE
AMOUNT
CONSUMER STAPLES--
PERSONAL PRODUCTS--1.73%
Avon Products, Inc.,
7.15%, 11/15/09 $500,000 525,097
---------
TOTAL CONSUMER STAPLES--1.73% 525,097
---------
FINANCIALS--
COMMERCIAL BANKS--2.51%
Royal Bank of Scotland GRP PLC, yankee bond, 6.40%,
04/01/09 500,000 514,111
Washington Mutual Inc.,
4.20%, 01/15/10 250,000 244,379
---------
758,490
DIVERSIFIED FINANCIALS--4.54%
General Electric Capital Corp.,
3.75%, 12/15/09 350,000 339,437
JPMorgan & Co., Inc.,
6.00%, 01/15/09 500,000 507,667
Weingarten Realty Investors,
7.35%, 07/20/09 500,000 527,155
---------
1,374,259
INSURANCE--1.79%
Mony Group Inc. (The),
8.35%, 03/15/10 500,000 542,108
---------
TOTAL FINANCIALS--8.84% 2,674,857
---------
45
<Page>
BONDS AND NOTES
FACE
AMOUNT VALUE
INDUSTRIALS--
TRANSPORTATION INFRASTRUCTURE--1.50%
Hertz Corp., 7.40%, 03/01/11 $ 455,000 $ 455,000
-----------
TOTAL INDUSTRIALS--1.50% 455,000
-----------
TOTAL BONDS--12.07%
(Cost $3,551,269) 3,654,954
-----------
U S GOVERNMENT AGENCY SECURITIES
U S GOVERNMENT AGENCY SECURITIES--15.52%
Federal Farm Credit Bank
4.70%, 10/06/08 400,000 397,852
Federal Farm Credit Bank
4.15%, 11/30/09 350,000 343,129
Federal Home Loan Bank,
2.45%, 03/23/07 (a) 1,500,000 1,497,419
Federal Home Loan Bank,
4.40%, 12/28/09 750,000 739,131
Federal Home Loan Mortgage Corp.,
5.27%, 10/12/10 1,000,000 995,565
Federal Home Loan Mortgage Corp.,
Pool #284839, 8.50%, 01/01/17 4,523 4,794
Federal National Mortgage Association,
4.75%, 08/25/08 700,000 699,157
Federal National Mortgage Association,
Pool #048974, 8.00%, 06/01/17 23,075 24,141
-----------
TOTAL US GOVERNMENT AGENCY SECURITIES--15.52%
(Cost $4,723,579) 4,701,188
-----------
MONEY MARKET FUND
SHARES
SM&R Money Market Fund, 4.77% (b) 847 847
-----------
TOTAL MONEY MARKET FUND--0.00%
(Cost $847) 847
-----------
COMMERCIAL PAPER
FACE
AMOUNT
CONSUMER STAPLES--
FOOD PRODUCTS--1.02%
Kraft Products,
5.25%, 03/01/07 $ 310,000 310,000
-----------
TOTAL CONSUMER ENERGY--1.02% 310,000
-----------
UTILITIES--
ELECTRIC--3.02%
Hawaiian Electric Co.,
5.32%, 03/02/07 $ 708,000 $ 707,895
Hawaiian Electric Co.,
5.32%, 03/05/07 208,000 207,877
-----------
915,772
-----------
TOTAL UTILITIES--3.02% 915,772
-----------
TOTAL COMMERCIAL PAPER--4.04%
(Cost $1,225,772) 1,225,772
-----------
TOTAL INVESTMENTS--99.55%
(Cost $25,732,923) 30,157,326
CASH AND OTHER ASSETS,
LESS LIABILITIES--0.45% 135,148
-----------
NET ASSETS--100.00% $30,292,474
===========
* --Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) Long term obligations that will mature in less than one year.
(b) The rate quoted is the annualized seven-day yield of the fund at February
28, 2007. 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.
(c) Non-voting shares
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 7.75%
Consumer Staples 10.04%
Energy 6.48%
Financials 23.68%
Health Care 8.41%
Industrials 9.56%
Information Technology 8.65%
Materials 1.64%
Telecommunication Services 2.26%
U.S. Government 15.59%
Utilities 5.94%
</Table>
See notes to financial statements.
46
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R BALANCED FUND
ASSETS
Investments in unaffiliated securities, at value
(Cost $25,732,076) $30,156,479
Investment in affiliated money market fund (Cost $847) 847
-----------
Total investments (Cost $25,732,923) 30,157,326
Prepaid expenses 19,756
Receivable for:
Investments securities sold 32
Dividends 52,228
Interest 138,972
Expense reimbursement 2,430
Other assets 15,067
-----------
TOTAL ASSETS 30,385,811
-----------
LIABILITIES
Capital stock reacquired 19,728
Payable to investment adviser for fund expenses 14,293
Accrued:
Investment advisory fees 17,804
Service fees 5,935
Distribution fees 7,942
Other liabilities 27,635
-----------
TOTAL LIABILITIES 93,337
-----------
NET ASSETS (applicable to shares outstanding) $30,292,474
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $25,584,273
Undistributed net investment income 86,450
Accumulated net realized gain (loss) on investments 197,348
Net unrealized appreciation (depreciation) of investments 4,424,403
-----------
Net Assets $30,292,474
===========
NET ASSETS:
Class A $ 4,496,484
- --------------------------------------------------------------------------------
Class B $ 2,689,127
- --------------------------------------------------------------------------------
Class T $23,106,863
- --------------------------------------------------------------------------------
TOTAL NET ASSETS: $30,292,474
===========
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 50,000,000
Outstanding 253,126
- --------------------------------------------------------------------------------
Class B:
Authorized 25,000,000
Outstanding 149,992
- --------------------------------------------------------------------------------
Class T:
Authorized 25,000,000
Outstanding 1,249,197
- --------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 17.76
Offering price per share: (Net Assets value of $17.76 / 95%) $ 18.70
- --------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 17.93
- --------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 18.50
Offering price per share: (Net Assets value of $18.50 / 94.25%) $ 19.63
- --------------------------------------------------------------------------------
See notes to financial statements.
47
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R BALANCED FUND
INVESTMENT INCOME
Dividends $ 240,488
Interest 278,609
Interest from affiliated money market fund 118
----------
TOTAL INVESTMENT INCOME 519,215
----------
EXPENSES
Investment advisory fees 113,616
Service fees 37,872
Professional fees 7,088
Custody and transaction fees 8,615
Directors' fees 2,903
Insurance expenses 5,705
Compliance expenses 2,601
Qualification fees
Class A 3,145
Class B 2,051
Class T 7,396
Shareholder reporting expenses
Class A 2,485
Class B 1,676
Class T 2,842
Distribution fees
Class A 5,693
Class B 10,283
----------
TOTAL EXPENSES 213,971
LESS EXPENSES REIMBURSED (15,843)
----------
NET EXPENSES 198,128
----------
INVESTMENT INCOME (LOSS)--NET 321,087
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 225,585
Change in unrealized appreciation (depreciation) of investments 1,398,430
----------
NET GAIN (LOSS) ON INVESTMENTS 1,624,015
----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $1,945,102
==========
See notes to financial statements.
48
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2007 2006
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 321,087 $ 569,854
Net realized gain (loss) on investments 225,585 1,764,695
Change in unrealized depreciation of investments 1,398,430 (951,013)
----------- -----------
Net increase (decrease) in net assets resulting from operations 1,945,102 1,383,536
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (57,462) (85,723)
Class B (29,157) (38,847)
Class T (281,764) (403,808)
Capital gains
Class A (270,917) (217,989)
Class B (158,887) (120,455)
Class T (1,312,231) (941,602)
----------- -----------
Total distributions to shareholders (2,110,418) (1,808,424)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET
Class A 102,011 (519,607)
Class B (66,269) (274,951)
Class T 846,777 (128,140)
----------- -----------
Total capital share transactions--net 882,519 (922,698)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 717,203 (1,347,586)
NET ASSETS
Beginning of period 29,575,271 30,922,857
----------- -----------
End of period $30,292,474 $29,575,271
=========== ===========
Undistributed Net Investment Income $ 86,450 $ 133,747
=========== ===========
</Table>
See notes to financial statements.
49
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS A SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ -------
Net asset value, beginning of period $17.91 $18.19 $17.60 $16.65 $15.93 $17.44
Income (loss) from investment operations
Investment income (loss)--net 0.20 0.32 0.35 0.28 0.32 0.39
Net realized and unrealized gain (loss)
on investments 0.98 0.50 0.65 1.18 0.77 (1.47)
------ ------ ------ ------ ------ ------
Total from investment operations 1.18 0.82 1.00 1.46 1.09 (1.08)
Less distributions
Investment income--net (0.23) (0.31) (0.35) (0.30) (0.37) (0.43)
Capital gains (1.10) (0.79) (0.06) (0.21) -- --
------ ------ ------ ------ ------ ------
Total distributions (1.33) (1.10) (0.41) (0.51) (0.37) (0.43)
------ ------ ------ ------ ------ ------
Net asset value, end of period $17.76 $17.91 $18.19 $17.60 $16.65 $15.93
====== ====== ====== ====== ====== ======
Total return (1) 6.62%** 4.65% 5.73% 8.83% 7.02% (6.29)%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $4,496 $4,430 $5,030 $4,409 $3,419 $3,183
Ratio of expenses with reimbursement to
average net assets (2) 1.30%* 1.30% 1.30% 1.30% 1.30% 1.45%
Ratio of expenses without reimbursement to
average net assets 1.67%* 1.71% 1.73% 1.64% 1.69% 1.73%
Ratio of net investment income to net assets 2.13%* 1.90% 1.85% 1.51% 2.02% 2.27%
Portfolio turnover rate 5.47% 21.82% 23.18% 11.15% 23.83% 25.80%
</Table>
<Table>
<Caption>
CLASS B SHARES
----------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ -------
Net asset value, beginning of period $18.08 $18.37 $17.78 $16.83 $16.18 $17.72
Income (loss) from investment operations
Investment income (loss)--net 0.15 0.24 0.25 0.20 0.24 0.30
Net realized and unrealized gain (loss)
on investments 1.00 0.51 0.66 1.19 0.72 (1.47)
------ ------ ------ ------ ------ ------
Total from investment operations 1.15 0.75 0.91 1.39 0.96 (1.17)
Less distributions
Investment income--net (0.20) (0.25) (0.26) (0.23) (0.31) (0.37)
Capital gains (1.10) (0.79) (0.06) (0.21) -- --
------ ------ ------ ------ ------ ------
Total distributions (1.30) (1.04) (0.32) (0.44) (0.31) (0.37)
------ ------ ------ ------ ------ ------
Net asset value, end of period $17.93 $18.08 $18.37 $17.78 $16.83 $16.18
====== ====== ====== ====== ====== ======
Total return (1) 6.35%** 4.20% 5.15% 8.33% 6.10% (6.69)%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $2,689 $2,772 $3,095 $2,952 $2,336 $2,105
Ratio of expenses with reimbursement to
average net assets (2) 1.80%* 1.80% 1.80% 1.80% 1.80% 1.95%
Ratio of expenses without reimbursement to
average net assets 2.20%* 2.24% 2.23% 2.13% 2.18% 2.22%
Ratio of net investment income to average
net assets 1.62%* 1.40% 1.36% 1.00% 1.51% 1.77%
Portfolio turnover rate 5.47% 21.82% 23.18% 11.15% 23.83% 25.80%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 1.30% for Class
A and 1.80% for Class B until December 31, 2007.
See notes to financial statements.
50
<Page>
<Table>
<Caption>
CLASS T SHARES
--------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ -----------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 18.60 $ 18.85 $ 18.21 $ 17.18 $ 16.42 $ 17.91
Income (loss) from investment operations
Investment income (loss)--net 0.21 0.36 0.36 0.29 0.34 0.43
Net realized and unrealized gain (loss)
on investments 1.03 0.51 0.68 1.24 0.77 (1.50)
------- ------- ------- ------- ------- -------
Total from investment operations 1.24 0.87 1.04 1.53 1.11 (1.07)
Less distributions
Investment income--net (0.24) (0.33) (0.34) (0.29) (0.35) (0.42)
Capital gains (1.10) (0.79) (0.06) (0.21) -- --
------- ------- ------- ------- ------- -------
Total distributions (1.34) (1.12) (0.40) (0.50) (0.35) (0.42)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 18.50 $ 18.60 $ 18.85 $ 18.21 $ 17.18 $ 16.42
======= ======= ======= ======= ======= =======
Total return (1) 6.66%** 4.79% 5.77% 8.95% 6.95% (6.07)%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $23,107 $22,373 $22,798 $22,785 $21,569 $21,631
Ratio of expenses with reimbursement to
average net assets 1.25%* 1.25% 1.24% 1.23% 1.25% 1.25%
Ratio of expenses without reimbursement to
average net assets 1.27%* 1.29% 1.24% 1.23% 1.26% 1.27%
Ratio of net investment income to
average net assets 2.18%* 1.95% 1.92% 1.58% 2.08% 2.47%
Portfolio turnover rate 5.47% 21.82% 23.18% 11.15% 23.83% 25.80%
</Table>
* Ratios annualized
** Returns are not annualized
(1) Does not include the effect of sales charge
See notes to financial statements.
51
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R GOVERNMENT BOND FUND
CORPORATE BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED
DATE RATE(%) FACE AMOUNT VALUE
FINANCIALS--
DIVERSIFIED FINANCIALS--1.85%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 524,680
-----------
TOTAL FINANCIALS--1.85% 524,680
-----------
MATERIALS--
METALS & MINING--3.72%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 1,051,359
-----------
TOTAL MATERIALS--3.72% 1,051,359
-----------
TOTAL CORPORATE BONDS--5.57%
(Cost $17,432,008) 1,576,039
-----------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--56.07%
Federal Home Loan Bank (a) 10/05/07 3.375 1,500,000 1,483,698
Federal Home Loan Mortgage Corp. (a) 03/15/07 7.000 463 462
Federal Home Loan Mortgage Corp. 11/15/13 4.875 1,000,000 1,001,509
Federal National Mortgage Assoc. 02/01/08 3.875 500,000 494,632
Federal National Mortgage Assoc. 02/15/09 3.250 1,100,000 1,067,548
Federal National Mortgage Assoc. 02/15/10 3.875 1,100,000 1,073,075
Federal National Mortgage Assoc. 12/15/10 4.750 1,900,000 1,897,032
Federal National Mortgage Assoc. 02/01/11 6.250 1,850,000 1,933,641
Federal National Mortgage Assoc. 03/15/11 5.500 1,300,000 1,331,546
Federal National Mortgage Assoc. 03/29/11 5.600 1,925,000 1,925,212
Federal National Mortgage Assoc. 04/26/11 5.670 1,000,000 1,000,336
Federal National Mortgage Assoc. 07/13/11 6.000 1,000,000 1,002,076
Federal National Mortgage Assoc. 11/15/11 5.375 1,610,000 1,648,168
Private Export Funding Corp. 01/15/10 7.200 15,000 15,927
-----------
15,874,862
U S GOVERNMENT SECURITIES--33.37%
U S Treasury Note 05/15/08 5.625 500,000 504,746
U S Treasury Note 05/15/08 2.625 700,000 682,336
U S Treasury Note 10/15/08 3.125 800,000 780,531
U S Treasury Note 02/15/09 3.000 1,000,000 969,414
U S Treasury Note 10/15/10 4.250 1,700,000 1,685,191
U S Treasury Note 11/15/12 4.000 2,000,000 1,951,016
U S Treasury Note 05/15/14 4.750 1,319,000 1,336,106
U S Treasury Note 02/15/15 4.000 600,000 578,157
U S Treasury Note 05/15/16 7.250 800,000 958,656
-----------
9,446,153
-----------
TOTAL U S GOVERNMENT AGENCY and
U S GOVERNMENT SECURITIES--89.44%
(Cost $9,435,005) 25,321,015
-----------
</Table>
52
<Page>
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
<Table>
<Caption>
MATURITY INTEREST/
DATE STATED RATE(%) FACE AMOUNT VALUE
GOVERNMENT AGENCIES--3.82%
Federal Farm Credit Bank 03/01/07 5.120 $332,000 $ 332,000
Federal Home Loan Note 03/09/07 5.150 500,000 499,427
Federal National Mortgage Association 03/12/07 5.170 250,000 249,604
-----------
1,081,031
-----------
TOTAL U S GOVERNMENT AGENCY
SHORT-TERM OBLIGATIONS--3.82%
(Cost $1,081,031) 1,081,031
-----------
MONEY MARKET FUND SHARES
SM&R Money Market Fund, 4.77% (b) 26,564 26,564
-----------
TOTAL MONEY MARKET FUND--0.09%
(Cost $26,564) 26,564
-----------
TOTAL INVESTMENTS--98.92%
(Cost $27,974,608) 28,004,649
CASH AND OTHER ASSETS, LESS LIABILITIES--1.08% 306,314
-----------
NET ASSETS--100.00% $28,310,963
===========
</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, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Financials 1.87%
Materials 3.75%
Miscellaneous 0.10%
U.S. Government 94.28%
</Table>
See notes to financial statements.
53
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
ASSETS
Investments in unaffiliated securities, at value (Cost $27,948,044) $ 27,978,085
Investment in affiliated money market fund (Cost $26,564) 26,564
------------
Total investments (Cost $27,974,608) 28,004,649
Prepaid expenses 16,512
Receivable for:
Interest 332,167
Expense reimbursement 7,013
Other assets 2,782
------------
TOTAL ASSETS 28,363,123
------------
LIABILITIES
Capital stock reacquired 3,878
Distribution payable 634
Payable to investment adviser for fund expenses 12,301
Accrued:
Investment advisory fees 10,785
Service fees 5,393
Distribution fees 1,816
Other liabilities 17,353
------------
TOTAL LIABILITIES 52,160
------------
NET ASSETS (applicable to shares outstanding) $ 28,310,963
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 28,787,557
Accumulated net realized gain (loss) on investments (506,635)
Net unrealized appreciation (depreciation) of investments 30,041
------------
Net Assets $ 28,310,963
============
NET ASSETS:
Class A $ 1,034,762
- ----------------------------------------------------------------------------------
Class B $ 644,117
- ----------------------------------------------------------------------------------
Class T $ 26,632,084
- ----------------------------------------------------------------------------------
TOTAL NET ASSETS $ 28,310,963
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,001,150
Outstanding 99,767
- ----------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 62,196
- ----------------------------------------------------------------------------------
Class T:
Authorized 23,000,000
Outstanding 2,601,971
- ----------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.37
Offering price per share: (Net Assets value of $10.37 / 95.25%) $ 10.89
- ----------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.36
- ----------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.24
Offering price per share: (Net Assets value of $10.24 / 95.5%) $ 10.72
- ----------------------------------------------------------------------------------
</Table>
See notes to financial statements.
54
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R GOVERNMENT BOND FUND
INVESTMENT INCOME
Interest $668,984
Interest from affiliated money market fund 791
--------
TOTAL INVESTMENT INCOME 669,775
--------
EXPENSES
Investment advisory fees 69,587
Service fees 34,794
Professional fees 6,458
Custody and transaction fees 3,984
Directors' fees 2,903
Compliance expenses 2,429
Insurance expenses 5,235
Qualification fees
Class A 4,241
Class B 2,374
Class T 10,092
Shareholder reporting expenses
Class A 878
Class B 715
Class T 1,091
Distribution fees
Class A 1,248
Class B 2,432
--------
TOTAL EXPENSES 148,461
LESS EXPENSES REIMBURSED (45,208)
--------
NET EXPENSES 103,253
--------
INVESTMENT INCOME (LOSS)--NET 566,522
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (71,745)
Change in unrealized appreciation (depreciation) of investments 258,150
--------
NET GAIN (LOSS) ON INVESTMENTS 186,405
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $752,927
========
See notes to financial statements.
55
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2007 2006
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 566,522 $ 967,609
Net realized gain (loss) on investments (71,745) (257,242)
Change in unrealized appreciation (depreciation) of investments 258,150 (285,397)
----------- -----------
Net increase (decrease) in net assets resulting from operations 752,927 424,970
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (20,391) (33,623)
Class B (11,616) (25,134)
Class T (535,091) (908,798)
----------- -----------
Total distributions to shareholders (567,098) (967,555)
CAPITAL SHARE TRANSACTIONS--NET
Class A 51,500 (40,465)
Class B (56,092) (293,136)
Class T 263,962 (144,086)
----------- -----------
Total capital share transactions--net 259,370 (477,687)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 445,199 (1,020,272)
NET ASSETS
Beginning of period 27,865,764 28,886,036
----------- -----------
End of period $28,310,963 $27,865,764
=========== ===========
Undistributed Net Investment Income $ -- $ 576
=========== ===========
</Table>
See notes to financial statements.
56
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ---------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $10.30 $10.50 $10.56 $10.75 $10.88 $10.75
Income (loss) from investment operations
Investment income (loss)--net 0.21 0.36 0.25 0.23 0.40 0.48
Net realized and unrealized gain (loss)
on investments 0.07 (0.20) (0.06) 0.11 (0.13) 0.13
------ ------ ------ ------ ------ ------
Total from investment operations 0.28 0.16 0.19 0.34 0.27 0.61
Less distributions
Investment income--net (0.21) (0.36) (0.25) (0.23) (0.40) (0.48)
Capital gains -- -- (0.00)*** (0.30) -- --
------ ------ ------ ------ ------ ------
Total distributions (0.21) (0.36) (0.25) (0.53) (0.40) (0.48)
------ ------ ------ ------ ------ ------
Net asset value, end of period $10.37 $10.30 $10.50 $10.56 $10.75 $10.88
====== ====== ====== ====== ====== ======
Total return (1) 2.74%** 1.57% 1.93% 3.14% 2.51% 5.82%
====== ====== ====== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $1,035 $ 976 $1,036 $ 983 $1,240 $1,137
Ratio of expenses with reimbursement to average
net assets (2) 0.73%* 0.73% 0.73% 0.73% 0.73% 1.12%
Ratio of expenses without reimbursement to average
net assets 2.18%* 2.19% 2.32% 2.04% 1.75% 1.80%
Ratio of net investment income to average net assets 4.08%* 3.46% 2.43% 2.13% 3.62% 4.73%
Portfolio turnover rate 24.15% 78.38% 51.35% 50.62% 99.26% 25.87%
</Table>
<Table>
<Caption>
CLASS B SHARES
------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ---------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------ ------ ------ ------ ------
Net asset value, beginning of period $10.29 $10.49 $10.55 $10.74 $10.86 $10.74
Income (loss) from investment operations
Investment income (loss)--net 0.18 0.31 0.20 0.17 0.33 0.43
Net realized and unrealized gain (loss)
on investments 0.07 (0.20) (0.06) 0.11 (0.12) 0.12
------ ------ ----- ------ ------ ------
Total from investment operations 0.25 0.11 0.14 0.28 0.21 0.55
Less distributions
Investment income--net (0.18) (0.31) (0.20) (0.17) (0.33) (0.43)
Capital gains -- -- (0.00)*** (0.30) -- --
------ ------ ----- ------ ------ ------
Total distributions (0.18) (0.31) (0.20) (0.47) (0.33) (0.43)
------ ------ ----- ------ ------ ------
Net asset value, end of period $10.36 $10.29 $10.49 $10.55 $10.74 $10.86
====== ====== ===== ====== ====== ======
Total return (1) 2.50%** 1.10% 1.44% 2.65% 1.96% 5.27%
====== ====== ===== ====== ====== ======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $ 644 $ 696 $1,009 $1,131 $1,643 $ 758
Ratio of expenses with reimbursement to
average net assets (2) 1.23%* 1.23% 1.23% 1.23% 1.23% 1.57%
Ratio of expenses without reimbursement to
average net assets 2.60%* 2.55% 2.34% 2.06% 1.95% 2.61%
Ratio of net investment income to average net assets 3.58%* 2.94% 1.92% 1.65% 2.99% 4.20%
Portfolio turnover rate 24.15% 78.38% 51.35% 50.62% 99.26% 25.87%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
A and 1.23% for Class B until December 31, 2007.
See notes to financial statements.
57
<Page>
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------- ------- ------- ------- -------
Net asset value, beginning of period $ 10.17 $ 10.36 $ 10.43 $ 10.62 $ 10.75 $ 10.64
Income (loss) from investment operations
Investment income (loss)--net 0.21 0.35 0.25 0.22 0.40 0.52
Net realized and unrealized gain (loss)
on investments 0.07 (0.19) (0.07) 0.11 (0.13) 0.11
------- ------- ------- ------- ------- -------
Total from investment operations 0.28 0.16 0.18 0.33 0.27 0.63
Less distributions
Investment income--net (0.21) (0.35) (0.25) (0.22) (0.40) (0.52)
Capital gains -- -- (0.00)*** (0.30) -- --
------- ------- ------- ------- ------- -------
Total distributions (0.21) (0.35) (0.25) (0.52) (0.40) (0.52)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.24 $ 10.17 $ 10.36 $ 10.43 $ 10.62 $ 10.75
======= ======= ======= ======= ======= =======
Total return (1) 2.75%** 1.65% 1.84% 3.15% 2.46% 6.08%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $26,632 $26,194 $26,841 $27,750 $27,946 $26,807
Ratio of expenses with reimbursement to
average net assets (2) 0.73%* 0.73% 0.73% 0.73% 0.73% 0.93%
Ratio of expenses without reimbursement to
average net assets 0.99%* 0.99% 0.96% 0.95% 0.91% 0.95%
Ratio of net investment income to average net assets 4.08%* 3.47% 2.43% 2.12% 3.60% 4.92%
Portfolio turnover rate 24.15% 78.38% 51.35% 50.62% 99.26% 25.87%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.73% for Class
T until December 31, 2007.
See notes to financial statements.
58
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R TAX FREE FUND
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
ALABAMA--1.34%
Aaa/AAA Alabama Drinking Water Financing Authority,
Revolving Fund Loan - Revenue Bonds, Series A 08/15/16 4.000 $180,000 $ 181,480
ARIZONA--1.90%
Aaa/AAA Scottsdale Industrial Development Authority
Hospital - Revenue Bonds, Series A 09/01/12 6.000 250,000 257,750
CALIFORNIA--0.19%
A1/A+ California State - General Obligation Bonds Unlimited 06/01/11 5.250 25,000 25,217
FLORIDA--9.28%
Aaa/AAA Dade County, Florida Water & Sewer System - Revenue Bonds 10/01/16 5.375 400,000 411,628
Aaa/AAA Miami - Dade County, Florida Expressway Authority
Toll System - Revenue Bonds, Prerefunded to 07/01/2010 (b) 07/01/29 6.375 400,000 436,728
Aaa/AAA Miami - Dade County, Florida Solid Waste System - Revenue Bonds 10/01/18 4.750 400,000 408,904
----------
1,257,260
HAWAII--1.98%
Aaa/AAA Honolulu, Hawaii City & County - General Obligation Bonds Unlimited 07/01/13 5.000 250,000 268,355
ILLINOIS--4.71%
Aaa/AAA Chicago, Illinois - General Obligation Bonds Limited, Unrefunded,
Series B 01/01/25 5.125 15,000 15,145
Aaa/AAA Chicago, Illinois Park District - General Obligation Bonds
Unlimited, Series C 01/01/16 4.850 230,000 234,080
Aaa/NR Rockford, Illinois - General Obligation Bonds Unlimited 12/15/18 4.500 180,000 182,922
Aaa/AAA State of Illinois - General Obligation Bonds Unlimited 03/01/19 5.000 200,000 206,334
----------
638,481
INDIANA--4.27%
Aaa/AAA Aurora, Indiana Building Corp. - Revenue Bonds 07/15/13 4.500 405,000 422,779
Aaa/AAA South Bend, Indiana Building Corp. - Revenue Bonds 02/01/13 4.500 150,000 155,923
----------
578,702
LOUISIANA--8.62%
Aaa/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Prerefunded, Series C to 07/01/2008 (b) 07/01/19 5.000 335,000 344,001
Aaa/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Unrefunded, Series C 07/01/19 5.000 65,000 66,428
Aaa/AAA Monroe, Louisiana Sales and Use Tax - Revenue Bonds 07/01/16 4.000 200,000 201,262
Aaa/AAA New Orleans, Louisiana Sewer Service - Revenue Bonds 06/01/18 5.000 300,000 306,504
Ba2/BB Plaquemines, Louisiana Port, Harbor & Terminal District,
Marine Terminal Facilities - Revenue Bonds 09/01/07 5.000 250,000 250,050
----------
1,168,245
MISSISSIPPI--3.82%
NR/AAA Greenville Mississippi Public School District - General
Obligation Bonds Unlimited 12/15/11 3.250 205,000 198,985
Aaa/AAA Mississippi Development Bank Special Obligation
Clinton Recreational Facilities & Municipal Building -
Revenue Bonds 11/01/10 4.500 310,000 318,649
----------
517,634
NEW YORK--7.88%
A1/AA- New York City, New York - General Obligation Bonds Unlimited,
Series J 08/01/18 5.000 200,000 204,880
</Table>
59
<Page>
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
NEW YORK--CONTINUED
Aa1/AAA New York City, New York - Transitional Financial Authority
Revenue Bonds, Prerefunded, Series C to 05/01/2009 (b) 05/01/19 5.000 $145,000 $ 150,607
Aa1/AAA New York City, New York - Transitional Financial Authority
Revenue Bonds, Unrefunded, Series C 05/01/19 5.000 105,000 109,060
Aaa/AAA New York State Tollway Authority Highway & Bridge - Revenue
Bonds, Series B 04/01/10 3.850 200,000 201,422
Aa2/AAA Triborough Bridge & Tunnel Authority, New York - Revenue Bonds,
General Purpose, Prerefunded, Series B to 01/01/2022 (b) 01/01/27 5.200 350,000 402,168
----------
1,068,137
NORTH CAROLINA--1.51%
Aa1/AAA North Carolina State - General Obligation Bonds Unlimited 03/01/15 4.000 200,000 204,920
OHIO--2.43%
Aaa/AAA Ohio State Department of Administrative Services - Certificate
Participation 09/01/15 5.250 300,000 329,292
TEXAS--34.89%
Aaa/AAA Aransas County, Texas Correctional Facility Improvements - General
Obligation Bonds Limited 02/15/13 3.875 250,000 251,653
Aaa/AAA Austin, Texas Community College District - Revenue Bonds 02/01/10 4.000 100,000 100,905
Aaa/AAA Austin, Texas Independent School District - General Obligation
Bonds Unlimited, Series A 08/01/12 3.750 150,000 150,363
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/13 4.125 200,000 203,430
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/14 4.250 65,000 66,448
Aaa/AAA Collin County, Texas Community College District, Consolidated
Fund - Revenue Bonds 02/01/15 5.250 400,000 400,504
Aaa/AAA Dallas, Texas Independent School District - General Obligation
Bonds Unlimited 02/15/09 4.200 100,000 101,043
Aaa/AAA El Paso, Texas Public Improvement - General Obligation
Bonds Limited 08/15/17 4.000 270,000 271,804
Aaa/AA- Flower Mound, Texas Refunding and Improvement - General
Obligation Bonds Limited, Prerefunded to 03/01/2007 (b) 03/01/17 5.500 190,000 190,028
Aaa/AA- Flower Mound, Texas Refunding and Improvement - General
Obligation Bonds Limited, Unrefunded 03/01/17 5.500 10,000 10,015
Aaa/NR Galveston County, Texas Public Improvements - General
Obligation Bonds Unlimited 02/01/10 4.300 25,000 25,432
Aaa/NR Galveston County, Texas Public Improvements - General
Obligation Bonds Limited 02/01/11 4.375 125,000 127,719
Aaa/AAA Jefferson County, Texas - Public Improvement Certificates of
Obligation, Series B 08/01/16 4.125 255,000 259,067
Aaa/AAA League City, Texas Public Improvements - General Obligation
Bonds Limited 02/15/13 4.750 100,000 104,536
Aaa/AAA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 271,652
Aaa/AAA Lubbock, Texas Municipal Drainage Utility - General Obligation
Bonds Limited 02/15/14 4.000 250,000 252,917
Aaa/AAA Mission, Texas Consolidated Independent School District - General
Obligation Bonds Unlimited 02/15/18 4.500 200,000 201,138
Aaa/AAA Montgomery County, Texas Public Improvements - General
Obligation Bonds Limited 03/01/12 4.000 250,000 253,170
Aaa/AAA Rockwell, Texas Waterworks & Sewer - General Obligation
Bonds Limited 08/01/11 3.700 115,000 114,932
</Table>
60
<Page>
MUNICIPAL BONDS
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
RATING(a) DATE RATE(%) AMOUNT VALUE
TEXAS--CONTINUED
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited,
Prerefunded to 08/01/2009 (b) 08/01/11 4.400 $100,000 $ 101,793
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited,
Unrefunded 08/01/11 4.400 150,000 152,166
Aaa/AAA San Antonio, Texas River Authority Sewer Refunding and
Improvement - Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 100,092
Aaa/NR Tarrant County Health Facilities Development Corp. - Health
System Revenue Bonds, (Harris Methodist Health System),
Series 1994 (c) 09/01/14 6.000 200,000 224,270
Aa1/AA+ Texas A&M University Revenue and Financing System - Revenue
Refunding Bonds, Series A 05/15/17 5.000 250,000 265,173
Aaa/AAA University of Texas Permanent University Fund - Revenue
Bonds, Prerefunded, Series A To 07/01/2011 (b) 07/01/13 6.250 45,000 49,599
Aaa/AAA University of Texas Permanent University Fund - Revenue
Bonds, Prerefunded, Series A To 01/01/2012 (b) 07/01/13 6.250 55,000 61,162
Aaa/AAA University of Texas Permanent University Fund - Revenue
Bonds, Prerefunded, Series A To 01/01/2013 (b) 07/01/13 6.250 55,000 62,304
Aaa/AAA Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 251,863
NR/AAA Wylie, Texas Independent School District - General
Obligation Bonds Unlimited 08/15/12 4.375 100,000 102,670
-----------
4,727,848
UTAH--0.04%
Aa2/AA Utah State Housing Financial Agency - Single Family Revenue
Bonds (d) 07/01/21 6.000 5,000 5,083
WASHINGTON--5.12%
Aaa/AAA Seattle, Washington Municipal Light & Power - Revenue
Bonds, Series B 06/01/24 5.000 100,000 102,247
Aa1/AA State of Washington - General Obligation Bonds Unlimited,
Series B 05/01/18 5.500 300,000 330,147
Aa2/NR Tumwater, Washington Office Building - Revenue Bonds 07/01/15 5.250 240,000 260,659
-----------
693,053
-----------
TOTAL MUNICIPAL BONDS--87.98%
(Cost $11,610,009) 11,921,457
-----------
U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--10.90%
Farm Credit Discount Note 03/01/07 5.150 278,000 278,000
Federal Home Loan Note 03/09/07 5.170 400,000 399,540
Federal National Mortgage Association 03/07/07 5.200 800,000 799,306
-----------
1,476,846
-----------
TOTAL U S GOVERNMENT AND AGENCY SHORT-TERM OBLIGATIONS--10.90%
(Cost $1,476,846) 1,476,846
-----------
</Table>
61
<Page>
MONEY MARKET FUND
SHARES VALUE
SM&R Money Market Fund, 4.77% (e) 27,940 $ 27,940
-----------
TOTAL MONEY MARKET FUND--0.21%
(Cost $27,940) 27,940
-----------
TOTAL INVESTMENTS--99.09%
(Cost $13,114,795) 13,426,243
CASH AND OTHER ASSETS, LESS LIABILITIES--0.91% 123,282
-----------
TOTAL NET ASSETS--100.00% $13,549,525
===========
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) Collateral for these prerefunded bonds are U.S. Government or U.S.
Treasury or state or local government securities.
(c) Issuer has defeased these bonds. Collateral for such defeasance is
U.S. Government obligations.
(d) Security subject to the alternative minimum tax.
(e) The rate quoted is the annualized seven-day yield of the fund at
February 28, 2007. 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.
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Development 5.49%
Education 17.64%
General Obligation 30.14%
Housing 0.04%
Medical 6.63%
Miscellaneous 6.09%
Pollution 3.08%
Transportation 9.62%
Utilities 10.27%
US Government 11.00%
</Table>
See notes to financial statements.
62
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value
(Cost $13,086,855) $ 13,398,303
Investment in affiliated money market fund (Cost $27,940) 27,940
------------
Total investments (Cost $13,114,795) 13,426,243
Prepaid expenses 13,452
Receivable for:
Capital stock sold 200
Interest 128,059
Expense reimbursement 4,872
Other assets 3,211
------------
TOTAL ASSETS 13,576,037
------------
LIABILITIES
Distribution payable 1,758
Payable to investment adviser for fund expenses 6,704
Accrued:
Investment advisory fees 5,212
Service fees 2,606
Distribution fees 979
Other liabilities 9,253
------------
TOTAL LIABILITIES 26,512
------------
NET ASSETS (applicable to shares outstanding) $ 13,549,525
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $ 13,238,047
Undistributed net investment income 30
Net unrealized appreciation (depreciation) of investments 311,448
------------
Net Assets $ 13,549,525
============
NET ASSETS:
Class A $ 372,276
- ---------------------------------------------------------------------------------
Class B $ 274,822
- ---------------------------------------------------------------------------------
Class T $ 12,902,427
- ---------------------------------------------------------------------------------
TOTAL NET ASSETS $ 13,549,525
============
CAPITAL STOCK, $0.01 PAR VALUE PER SHARE:
Class A:
Authorized 100,000,101
Outstanding 35,489
- ---------------------------------------------------------------------------------
Class B:
Authorized 100,000,000
Outstanding 26,200
- ---------------------------------------------------------------------------------
Class T:
Authorized 21,000,000
Outstanding 1,239,959
- ---------------------------------------------------------------------------------
Class A:
Net asset value and redemption price per share $ 10.49
Offering price per share: (Net Assets value of $10.49 / 95.25%) $ 11.01
- ---------------------------------------------------------------------------------
Class B:
Net asset value and offering price per share $ 10.49
- ---------------------------------------------------------------------------------
Class T:
Net asset value and redemption price per share $ 10.41
Offering price per share: (Net Assets value of $10.41 / 95.5%) $ 10.90
- ---------------------------------------------------------------------------------
</Table>
See notes to financial statements.
63
<Page>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
SM&R TAX FREE FUND
INVESTMENT INCOME
Interest $305,677
Interest from affiliated money market fund 835
--------
TOTAL INVESTMENT INCOME 306,512
--------
EXPENSES
Investment advisory fees 33,759
Service fees 16,880
Professional fees 4,196
Custody and transaction fees 3,558
Directors' fees 2,903
Compliance expenses 1,202
Insurance expenses 2,577
Qualification fees
Class A 2,975
Class B 1,693
Class T 10,360
Shareholder reporting expenses
Class A 277
Class B 277
Class T 461
Distribution fees
Class A 430
Class B 1,599
--------
TOTAL EXPENSES 83,147
LESS EXPENSES REIMBURSED (31,438)
--------
NET EXPENSES 51,709
--------
INVESTMENT INCOME (LOSS)--NET 254,803
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Change in unrealized appreciation (depreciation) of investments (8,442)
--------
NET GAIN (LOSS) ON INVESTMENTS (8,442)
--------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $246,361
========
See notes to financial statements.
64
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS YEAR ENDED
ENDED FEBRUARY 28, AUGUST 31,
------------------ -----------
2007 2006
------------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 254,803 $ 518,713
Net realized gain (loss) on investments 0 3,036
Change in unrealized appreciation (depreciation) of investments (8,442) (256,053)
----------- -----------
Net increase (decrease) in net assets resulting from operations 246,361 265,696
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (6,530) (17,723)
Class B (6,982) (17,124)
Class T (241,332) (483,874)
Capital gains
Class A (76) (34)
Class B (103) (35)
Class T (2,944) (865)
----------- -----------
Total distributions to shareholders (257,967) (519,655)
CAPITAL SHARE TRANSACTIONS--NET
Class A 40,526 (176,842)
Class B (174,453) (78,509)
Class T 93,848 51,195
----------- -----------
Total capital share transactions--net (40,079) (204,156)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (51,685) (458,115)
NET ASSETS
Beginning of period 13,601,210 14,059,325
----------- -----------
End of period $13,549,525 $13,601,210
=========== ===========
Undistributed Net Investment Income $ 30 $ 71
=========== ===========
</Table>
See notes to financial statements.
65
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the periods
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ --------------------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------------ ------------- -------- -------- --------
Net asset value, beginning of period $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.89 $ 10.80
Income (loss) from investment operations
Investment income (loss)--net 0.20 0.41 0.40 0.42 0.44 0.43
Net realized and unrealized gain (loss)
on investments (0.01) (0.20) (0.11) 0.12 (0.18) 0.09
-------- -------- -------- -------- -------- --------
Total from investment operations 0.19 0.21 0.29 0.54 0.26 0.52
Less distributions
Investment income--net (0.20) (0.41) (0.40) (0.42) (0.44) (0.43)
Capital gains -- (0.00)*** (0.00)*** (0.02) -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.20) (0.41) (0.40) (0.44) (0.44) (0.43)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.49 $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.89
======== ======== ======== ======== ======== ========
Total return (1) 1.80%** 2.05% 2.72% 5.12% 2.40% 4.99%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $372,276 $331,989 $519,889 $542,502 $643,287 $384,438
Ratio of expenses with reimbursement to
average net assets (2) 0.75%* 0.75% 0.75% 0.75% 0.75% 0.93%
Ratio of expenses without reimbursement to
average net assets 3.10%* 3.14% 2.73% 1.26% 1.24% 1.26%
Ratio of net investment income to average
net assets 3.79%* 3.80% 3.68% 3.84% 4.09% 4.14%
Portfolio turnover rate 0.00% 2.05% 7.50% 1.15% 18.23% 8.80%
</Table>
<Table>
<Caption>
CLASS B SHARES
-----------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED AUGUST 31,
FEBRUARY 28, --------------------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------------ ------------- -------- -------- --------
Net asset value, beginning of period $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.90 $ 10.79
Income (loss) from investment operations
Investment income (loss)--net 0.18 0.35 0.34 0.36 0.40 0.37
Net realized and unrealized gain (loss)
on investments (0.01) (0.20) (0.11) 0.12 (0.19) 0.11
-------- -------- -------- -------- -------- --------
Total from investment operations 0.17 0.15 0.23 0.48 0.21 0.48
Less distributions
Investment income--net (0.18) (0.35) (0.34) (0.36) (0.40) (0.37)
Capital gains -- (0.00)*** (0.00)*** (0.02) -- --
-------- -------- -------- -------- -------- --------
Total distributions (0.18) (0.35) (0.34) (0.38) (0.40) (0.37)
-------- -------- -------- -------- -------- --------
Net asset value, end of period $ 10.49 $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.90
======== ======== ======== ======== ======== ========
Total return (1) 1.64%** 1.43% 2.20% 4.59% 1.91% 4.57%
======== ======== ======== ======== ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period $274,822 $449,767 $538,594 $536,101 $496,912 $513,273
Ratio of expenses with reimbursement to
average net assets (2) 1.25%* 1.25% 1.25% 1.25% 1.25% 1.42%
Ratio of expenses without reimbursement to
average net assets 2.65%* 2.77% 2.85% 1.78% 1.74% 1.75%
Ratio of net investment income to average
net assets 3.29%* 3.29% 3.18% 3.34% 3.59% 3.65%
Portfolio turnover rate 0.00% 2.05% 7.50% 1.15% 18.23% 8.80%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
A and 1.25% for Class B until December 31, 2007.
See notes to financial statements.
66
<Page>
<Table>
<Caption>
CLASS T SHARES
-------------------------------------------------------------------------
(UNAUDITED)
SIX MONTHS
ENDED
FEBRUARY 28, YEAR ENDED AUGUST 31,
------------ ----------------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------------ ------------- ------- ------- -------
Net asset value, beginning of period $ 10.41 $ 10.61 $ 10.72 $ 10.61 $ 10.80 $ 10.71
Income (loss) from investment operations
Investment income (loss)--net 0.20 0.39 0.39 0.41 0.44 0.46
Net realized and unrealized gain (loss)
on investments (0.00) (0.20) (0.11) 0.13 (0.18) 0.08
------- ------- ------- ------- ------- -------
Total from investment operations 0.20 0.19 0.28 0.54 0.26 0.54
Less distributions
Investment income--net (0.20) (0.39) (0.39) (0.41) (0.45) (0.45)
Capital gains -- (0.00)*** (0.00)*** (0.02) -- --
------- ------- ------- ------- ------- -------
Total distributions (0.20) (0.39) (0.39) (0.43) (0.45) (0.45)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 10.41 $ 10.41 $ 10.61 $ 10.72 $ 10.61 $ 10.80
======= ======= ======= ======= ======= =======
Total return (1) 1.92%** 1.91% 2.72% 5.20% 2.38% 5.24%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $12,902 $12,819 $13,001 $13,154 $13,330 $12,472
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 1.13%* 1.18% 1.05% 1.04% 1.03% 1.05%
Ratio of net investment income to average
net assets 3.79%* 3.79% 3.68% 3.83% 4.08% 4.34%
Portfolio turnover rate 0.00% 2.05% 7.50% 1.15% 18.23% 8.80%
</Table>
* Ratios annualized
** Returns are not annualized
*** Amount less than $0.01
(1) Does not include the effect of sales charge
(2) SM&R has voluntarily agreed to waive or reduce expenses to 0.75% for Class
T until December 31, 2007.
See notes to financial statements.
67
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R PRIMARY FUND
COMMERCIAL PAPER
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
CONSUMER DISCRETIONARY--
AUTOMOBILES--5.38%
DaimlerChrysler NA Hldg 03/13/07 5.340 $1,100,000 $1,098,037
Nissan Motor 03/05/07 5.310 313,000 312,815
----------
1,410,852
MEDIA--9.54%
Gannett Co. 03/23/03 5.300 769,000 766,507
New York Times (The) 03/30/07 5.300 971,000 966,854
Walt Disney Co. (The) 04/11/07 5.240 772,000 767,391
----------
2,500,752
----------
TOTAL CONSUMER DISCRETIONARY--14.92% 3,911,604
----------
CONSUMER STAPLES--
FOOD STAPLES--5.50%
General Mills Inc. 03/12/07 5.270 1,139,000 1,137,161
Kraft Foods Inc. 03/23/07 5.280 307,000 306,009
----------
1,443,170
HOUSEHOLD PRODUCTS--2.92%
Fortune Brands 03/05/07 5.300 764,000 763,548
----------
TOTAL CONSUMER STAPLES--8.42% 2,206,718
----------
ENERGY--
OIL & GAS--4.57%
Weatherford Intl Ltd 03/15/07 5.300 1,200,000 1,197,522
----------
TOTAL ENERGY--4.57% 1,197,522
----------
FINANCIALS--
DIVERSIFIED FINANCIALS--12.45%
Block Financial Corp. 03/02/07 5.350 1,000,000 999,851
Textron Financial Corp. 03/01/07 5.280 1,246,000 1,246,000
Vectren Utility Hldgs. 03/07/07 5.300 1,020,000 1,019,096
----------
3,264,947
INSURANCE--4.29%
St Paul Companies, Inc. 03/14/07 5.280 1,126,000 1,123,848
----------
TOTAL FINANCIALS--16.74% 4,388,795
----------
HEALTH CARE--
HEALTH CARE PROVIDERS & SERVICES--7.60%
St. Jude Medical 03/09/07 5.310 1,009,000 1,007,806
Wellpoint Inc. 03/19/07 5.310 986,000 983,379
----------
1,991,185
PHARMACEUTICALS--3.83%
Schering-Plough Corp. 03/20/07 5.280 1,007,000 1,004,185
----------
TOTAL HEALTH CARE--11.43% 2,995,370
----------
</Table>
See notes to financial statements.
68
<Page>
COMMERCIAL PAPER
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
INDUSTRIALS--
ROAD & RAIL--3.78%
Ryder Systems Inc. 03/27/07 5.300 $ 994,000 $ 990,188
-----------
TOTAL INDUSTRIALS--3.78% 990,188
-----------
INFORMATION TECHNOLOGY--
COMPUTERS & PERIPHERALS--7.30%
Hewlett - Packard Co. 03/08/07 5.240 819,000 818,163
Motorola Corp. 03/16/07 5.280 1,099,000 1,096,579
-----------
1,914,742
-----------
TOTAL INFORMATION TECHNOLOGY--7.30% 1,914,742
-----------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--3.80%
Verizon Global Funding Corp. 03/21/07 5.270 1,000,000 997,069
-----------
TOTAL TELECOMMUNICATION SERVICES--3.80% 997,069
-----------
UTILITIES--
ELECTRIC UTILITIES--11.44%
Dominion Resources 03/22/07 5.310 1,229,000 1,225,185
Idacorp Inc. 03/06/07 5.300 779,000 778,424
Virginia Electric & Power Co. 03/28/07 5.300 1,000,000 996,024
-----------
2,999,633
-----------
TOTAL UTILITIES--11.44% 2,999,633
-----------
TOTAL COMMERCIAL PAPER--82.40%
(Cost $21,601,641) 21,601,641
-----------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--13.33%
Federal Home Loan Bank (a) 03/01/07 4.875 1,000,000 1,000,000
Federal Home Loan Bank (a) 04/25/07 4.000 1,000,000 997,985
Federal Home Loan Bank (a) 06/21/07 3.870 500,000 497,886
Federal Home Loan Mortgage Corp. (a) 03/30/07 5.050 1,000,000 999,869
-----------
3,495,740
U S GOVERNMENT SECURITIES--4.07%
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--17.40%
(Cost $4,391,780) 4,561,912
-----------
TOTAL INVESTMENTS--99.80%
(Cost $25,993,421) 26,163,553
CASH AND OTHER ASSETS, LESS LIABILITIES--0.20% 52,821
-----------
TOTAL NET ASSETS--100.00% $26,216,374
===========
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Long term obligations that will mature in less than one year.
See notes to financial statements.
69
<Page>
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
[CHART]
<Table>
Consumer Discretionary 14.95%
Consumer Staples 8.43%
Energy 4.58%
Financials 16.77%
Health Care 11.45%
Industrials 3.78%
Information Technology 7.32%
Telecommunication Services 3.81%
U.S. Government 15.59%
Utilities 11.47%
</Table>
70
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $25,993,421) $26,163,553
Cash 909
Prepaid expenses 21,548
Receivable for:
Interest 68,436
Expense reimbursement 3,268
Other assets 2,782
-----------
TOTAL ASSETS 26,260,496
-----------
LIABILITIES
Capital stock reacquired 247
Distribution payable 653
Payable to investment adviser for fund expenses 22,488
Accrued:
Investment advisory fees 9,896
Service fees 4,948
Other liabilities 5,890
-----------
TOTAL LIABILITIES 44,122
-----------
NET ASSETS $26,216,374
===========
Shares of capital stock outstanding, (1,176,000,000 shares authorized, $.01 par value per share) 26,327,324
===========
Net asset value $ 1.00
===========
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) $26,326,981
Accumulated net realized gain (loss) on investments (280,739)
Net unrealized appreciation (depreciation) of investments 170,132
-----------
Net Assets $26,216,374
===========
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 685,518
---------
EXPENSES
Investment advisory fees 65,257
Service fees 32,629
Professional fees 3,783
Custody and transaction fees 6,048
Directors' fees 2,903
Compliance expenses 2,199
Insurance expenses 5,068
Qualification fees 5,540
Shareholder reporting expenses 1,434
---------
TOTAL EXPENSES 124,861
LESS EXPENSES REIMBURSED (20,438)
---------
NET EXPENSES 104,423
---------
INVESTMENT INCOME (LOSS)--NET 581,095
---------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (139,399)
Change in unrealized appreciation (depreciation) of investments 270,798
---------
NET GAIN (LOSS) ON INVESTMENTS 131,399
---------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 712,494
=========
</Table>
See notes to financial statements.
71
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
---------------- ------------
2007 2006
---------------- ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 581,095 $ 962,324
Net realized gain (loss) on investments (139,399) --
Change in unrealized appreciation (depreciation) of investments 270,798 (175,194)
----------- -----------
Net increase (decrease) in net assets resulting from operations 712,494 787,130
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (581,095) (962,324)
----------- -----------
CAPITAL SHARE TRANSACTIONS--NET (157,886) 1,172,962
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (26,487) 997,768
NET ASSETS
Beginning of period 26,242,861 25,245,093
----------- -----------
End of period $26,216,374 $26,242,861
=========== ===========
</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,
------------ ------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------- ------- ------- ------- --------
Net asset value, beginning of period $ 0.99 $ 1.00 $ 0.99 $ 0.99 $ 0.99 $ 1.00
Income (loss) from investment operations
Investment income (loss)--net 0.02 0.04 0.02 0.01 0.01 0.02
Net realized and unrealized gain (loss)
on investments 0.01 (0.01) 0.01 -- -- (0.01)
------- ------- ------- ------- ------- -------
Total from investment operations 0.03 0.03 0.03 0.01 0.01 0.01
Less distributions
Investment income--net (0.02) (0.04) (0.02) (0.01) (0.01) (0.02)
------- ------- ------- ------- ------- -------
Total distributions (0.02) (0.04) (0.02) (0.01) (0.01) (0.02)
------- ------- ------- ------- ------- -------
Net asset value, end of period $ 1.00 $ 0.99 $ 1.00 $ 0.99 $ 0.99 $ 0.99
======= ======= ======= ======= ======= =======
Total return 3.26%** 2.73% 2.99% 0.83% 1.35% 1.33%
======= ======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $26,216 $26,243 $25,245 $26,197 $27,409 $27,304
Ratio of expenses with reimbursement to
average net assets (1) 0.80%* 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses without reimbursement to
average net assets 0.96%* 0.92% 0.91% 0.91% 0.89% 0.92%
Ratio of net investment income to average
net assets 4.45%* 3.70% 1.94% 0.83% 1.35% 2.29%
Portfolio turnover rate 0.00% 25.75% 0.00 70.47% 0.00 0.00
</Table>
* Ratios annualized
** Returns are not annualized
(1) SM&R has voluntarily agreed to waive or reduce expenses to 0.80%
until December 31, 2007.
See notes to financial statements.
72
<Page>
SCHEDULE OF INVESTMENTS February 28, 2007 (Unaudited)
SM&R MONEY MARKET FUND
COMMERCIAL PAPER
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
FINANCIALS--
DIVERSIFIED FINANCIALS--6.82%
Paccar Financial Corp. 03/08/07 5.230 $2,984,000 $ 2,980,962
UBS Finance 03/20/07 5.240 4,556,000 4,543,362
------------
7,524,324
INSURANCE--4.41%
ING America Insurance Hldgs 03/02/07 5.250 4,867,000 4,866,289
------------
TOTAL FINANCIALS--11.23% 12,390,613
------------
HEALTH CARE--
PHARMACEUTICALS--4.58%
Merck & Co., Inc. 03/12/07 5.210 5,059,000 5,050,939
------------
TOTAL HEALTH CARE--4.58% 5,050,939
------------
MATERIALS--
CONSTRUCTION MATERIALS--4.28%
Illinois Tool Work 03/21/07 5.210 4,743,000 4,729,238
------------
TOTAL MATERIALS--4.28% 4,729,238
------------
TOTAL COMMERCIAL PAPER--20.09%
(Cost $22,170,790) 22,170,790
------------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
GOVERNMENT AGENCIES--79.98%
Federal Home Loan Bank 03/01/07 5.110 4,906,000 4,906,000
Federal Home Loan Bank 03/08/07 5.170 3,325,000 3,321,657
Federal Home Loan Bank 03/09/07 5.140 7,320,000 7,311,615
Federal Home Loan Bank 03/14/07 5.150 6,132,000 6,120,572
Federal Home Loan Bank 03/15/07 5.190 6,394,000 6,381,091
Federal Home Loan Bank 03/16/07 5.175 5,837,000 5,824,398
Federal Home Loan Bank 03/19/07 5.180 5,570,000 5,555,567
Federal Home Loan Bank 04/04/07 5.170 7,449,000 7,412,586
Federal Home Loan Mortgage Corp 03/05/07 5.130 8,382,000 8,377,207
Federal Home Loan Mortgage Corp 03/06/07 5.145 8,453,000 8,446,948
Federal Home Loan Mortgage Corp 03/13/07 5.135 7,769,000 7,755,645
Federal Home Loan Mortgage Corp 03/30/07 5.135 6,814,000 6,785,721
Federal National Mortgage Association 03/07/07 5.135 10,063,000 10,054,353
------------
88,253,360
------------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM
OBLIGATIONS--79.98%
(Cost $88,253,360) 88,253,360
------------
TOTAL INVESTMENTS--100.07%
(Cost $110,424,150) 110,424,150
LIABILITIES IN EXCESS OF OTHER ASSETS--(.07)% (72,739)
------------
TOTAL NET ASSETS--100.00% $110,351,411
============
</Table>
See notes to financial statements.
73
<Page>
STATEMENT OF ASSETS AND LIABILITIES February 28, 2007 (Unaudited)
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $110,424,150
Cash 1,062
Prepaid expenses 8,796
Receivable for:
Expense reimbursement 3,732
------------
TOTAL ASSETS 110,437,740
------------
LIABILITIES
Capital stock reacquired 11,683
Distribution payable 1,658
Payable to investment adviser for fund expenses 25,745
Accrued:
Investment advisory fees 21,346
Service fees 20,912
Other liabilities 4,985
------------
TOTAL LIABILITIES 86,329
------------
NET ASSETS $110,351,411
============
Shares of capital stock outstanding, (3,000,000,000 shares
authorized, $.01 par value per share) 110,351,411
============
Net asset value $ 1.00
============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 110,351,411
------------
Net Assets $110,351,411
============
</Table>
STATEMENT OF OPERATIONS Six Months Ended February 28, 2007 (Unaudited)
<Table>
INVESTMENT INCOME
Interest $ 2,657,664
------------
EXPENSES
Investment advisory fees 126,520
Service fees 125,406
Professional fees 3,872
Custody and transaction fees 9,509
Directors' fees 2,903
Compliance expenses 5,209
Insurance expenses 14,301
Qualification fees 37,805
Shareholder reporting expenses 2,420
------------
TOTAL EXPENSES 327,945
LESS EXPENSES REIMBURSED (74,825)
------------
NET EXPENSES 253,120
------------
INVESTMENT INCOME (LOSS)--NET $ 2,404,544
============
</Table>
See notes to financial statements.
74
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
(UNAUDITED)
SIX MONTHS
ENDED YEAR ENDED
FEBRUARY 28, AUGUST 31,
------------ -----------
2007 2006
------------ -----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 2,404,544 $ 2,811,636
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (2,404,544) (2,811,636)
------------ -----------
CAPITAL SHARE TRANSACTIONS--NET 21,581,911 11,879,752
------------ -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 21,581,911 11,879,752
------------ -----------
NET ASSETS
Beginning of period 88,769,500 76,889,748
------------ -----------
End of period $110,351,411 $88,769,500
============ ===========
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,
------------ -------------------------------------------------
2007 2006 2005 2004 2003 2002
------------ ------- ------- ------- -------- --------
Net asset value, beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income (loss) from investment operations
Investment income (loss)--net 0.02 0.04 0.02 0.01 0.01 0.02
-------- ------- ------- ------- -------- --------
Total from investment operations 0.02 0.04 0.02 0.01 0.01 0.02
Less distributions
Investment income--net (0.02) (0.04) (0.02) (0.01) (0.01) (0.02)
-------- ------- ------- ------- -------- --------
Total distributions (0.02) (0.04) (0.02) (0.01) (0.01) (0.02)
-------- ------- ------- ------- -------- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======== ========
Total return 2.38%** 4.04% 2.03% 0.58% 0.80% 1.53%
======== ======= ======= ======= ======== ========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of period (000's omitted) $110,351 $88,769 $76,890 $95,202 $103,469 $154,610
Ratio of expenses with reimbursement to
average net assets 0.50%* 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of expenses without reimbursement to
average net assets 0.65%* 0.73% 0.59% 0.60% 0.58% 0.56%
Ratio of net investment income to average net
assets 4.75%* 4.01% 1.98% 0.58% 0.84% 1.48%
</Table>
* Ratios annualized
** Returns are not annualized
See notes to financial statements.
75
<Page>
NOTES TO FINANCIAL STATEMENTS February 28, 2007 (Unaudited)
SM&R INVESTMENTS, INC.
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES
SM&R Investments, Inc. (the "Company"), is a diversified open-end management
investment company registered as a series fund under the Investment Company Act
of 1940, as amended. The Company is comprised of the SM&R Alger Technology Fund
("Alger Technology Fund"), SM&R Alger Aggressive Growth Fund ("Alger Aggressive
Growth Fund"), SM&R Alger Small-Cap Fund ("Alger Small-Cap Fund"), SM&R Alger
Growth Fund ("Alger Growth Fund"), SM&R Growth Fund ("Growth Fund"), SM&R Equity
Income Fund ("Equity Income Fund"), SM&R Balanced Fund ("Balanced Fund"), SM&R
Government Bond Fund ("Government Bond Fund"), SM&R Tax Free Fund ("Tax Free
Fund"), SM&R Primary Fund ("Primary Fund") and SM&R Money Market Fund ("Money
Market Fund"). The Government Bond Fund, Tax Free Fund, Primary Fund and Money
Market Fund are collectively referred to as the "Fixed Income Funds", while the
Alger Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap Fund, Alger
Growth Fund, Growth Fund, Equity Income Fund and Balanced Fund are referred to
as the "Equity Funds".
The Growth Fund, Equity Income Fund, Balanced Fund, Government Bond Fund and Tax
Free Fund have adopted a Multiple Class Plan pursuant to Rule 12b-1 under the
Investment Company Act of 1940, as amended. Each has three single classes of
shares. Class T shares are subject to an initial sales charge. The Class A
shares are subject to an initial sales charge and a distribution and shareholder
servicing plan ("12b-1 Plan"). The Class B shares are subject to a contingent
deferred sales charge and a 12b-1 Plan.
The Alger Technology Fund, Alger Aggressive Growth Fund, Alger Small-Cap Fund
and Alger Growth Fund each offer two classes of shares. They are: the Class A
shares subject to an initial sales charge and a 12b-1 Plan; and the Class B
shares subject to a contingent deferred sales charge and a 12b-1 Plan.
CHANGE IN FISCAL YEAR END:
The Growth Fund, Equity Income Fund and Balanced Fund changed their fiscal year
end from December 31 to August 31, effective January 1, 2001 when they were
added as a separate series of the Company.
The following is a summary of significant accounting policies consistently
followed by the Company in the preparation of its financial statements. The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
SECURITY VALUATION:
Investments in securities listed on national exchanges are valued at the last
sales price of the day, or if there were no sales, then at the last bid price.
Other securities are valued based on market quotations or at fair value as
determined by a pricing service approved by the Board of Directors. Prices
provided by the pricing service represent valuations at bid prices or on a basis
determined without exclusive reliance on quoted prices and may reflect
appropriate factors such as institution-size trading in similar groups of
securities, yield quality, coupon rate, maturity, type of issue, individual
trading characteristics and other market data. Securities for which market
quotations are not readily available are valued as determined by the Board of
Directors. Commercial paper and short-term obligations are stated at amortized
cost, which is equivalent to value. Investments in the affiliated money market
fund are valued at the net asset value per share.
76
<Page>
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
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.
TAX YEAR ENDING AUGUST 31, 2006 LOSS CARRYFORWARDS EXPIRATION DATES
Alger Technology Fund $ 79,763 2009
$ 113,717 2010
Growth Fund $1,908,148 2011
Government Bond Fund $ 140 2013
$ 177,508 2014
Primary Fund $ 36,349 2007
$ 88 2008
$ 242 2009
$ 104,661 2010
Capital loss carryovers are available to offset future realized capital gains
and thereby reduce further taxable gain distributions. As of August 31, 2006 the
Government Bond Fund had $257,242 of post-October losses which are deferred
until September 1, 2006 for tax purposes. Net capital losses incurred after
October 31, and within the taxable year are deemed to arise on the first day of
the fund's next taxable year.
CAPITAL STOCK TRANSACTIONS AND DISTRIBUTIONS TO SHAREHOLDERS:
Fund shares are sold in a continuous public offering at net asset value plus a
sales charge, except for Class B shares of the respective funds and for the
Primary and Money Market Funds. All transactions for the Primary and Money
Market Funds are made at net asset value. The Company may repurchase shares at
net asset value. Dividends and other distributions are recorded by each fund on
the ex-dividend date and may be reinvested at net asset value.
Each Fund may periodically make reclassifications among certain of its capital
accounts as a result of the timing and characterization of certain income and
capital gains distributions determined in accordance with federal tax
regulations, which may differ from accounting principles generally accepted in
the United States of America. These reclassifications are due to differing
treatment for items such as deferral of wash sales, net operating losses and
post-October capital losses.
77
<Page>
NOTE 1--SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
EXPENSES:
Qualification fees, distribution fees or other expenses directly
attributable to a series' class of shares are charged to that series'
class operations. All other operating expenses not directly
attributable to a series are prorated among all of the series based on
the relative amount of each series' net assets or shareholders, and
then allocated among the classes of that series.
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES
INVESTMENT ADVISORY FEES:
Securities Management and Research, Inc. ("SM&R") is the investment
adviser and principal underwriter for the Company. Investment advisory
fees paid to SM&R are computed as a percentage of the average daily net
assets as follows:
EQUITY FUNDS
INVESTMENT
SM&R ALGER FUNDS ADVISORY FEE
Alger Technology Fund 1.35%
Alger Aggressive Growth Fund 1.05%
Alger Small-Cap Fund 1.00%
Alger Growth Fund 0.85%
Through an investment sub-advisory agreement, SM&R has delegated the
day-to-day investment management of Alger Technology Fund, Alger
Aggressive Growth Fund, Alger Small-Cap Fund and Alger Growth Fund to
Fred Alger Management, Inc. Fred Alger Management, Inc. makes
investment decisions for each of these funds and continuously reviews
and administers the investment program. SM&R monitors Fred Alger
Management, Inc.'s buying and selling of securities and administration
of these series' investment program. Pursuant to the sub-advisory
agreement, SM&R is responsible for paying a sub-advisory fee to Fred
Alger Management, Inc. for each of these series. The series are not
responsible for paying the sub-advisory fee directly.
Growth, Equity Income and Balanced Funds
INVESTMENT
NET ASSETS ADVISORY FEE
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%
78
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
Primary Fund
All average daily net assets 0.50%
Money Market Fund
All average daily net assets 0.25%
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:
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%
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, 2007, SM&R has
voluntarily agreed to reimburse expenses which exceed the following
percentages of each fund's average daily net assets:
CLASS A CLASS B CLASS T UNIVERSAL
Growth Fund 1.36% 1.86% --
Equity Income Fund 1.26% 1.76% --
Balanced Fund 1.30% 1.80% --
Government Bond Fund 0.73% 1.23% 0.73%
Tax Free Fund 0.75% 1.25% 0.75%
Primary Fund 0.80%
SM&R has voluntarily agreed to reimburse expenses which exceed the
following percentages of each fund's average daily net assets:
<Table>
<Caption>
EFFECTIVE JUNE 1, 2002 EFFECTIVE MAY 1, 2006 EFFECTIVE MAY 1, 2007
UNTIL APRIL 30, 2006 UNTIL APRIL 30, 2007 UNTIL DECEMBER 31, 2007
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
Alger Technology Fund 2.10% 2.75% 1.85% 2.50% 2.10% 2.75%
Alger Aggressive Growth Fund 1.85% 2.50% 1.60% 2.25% 1.85% 2.50%
Alger Small-Cap Fund 1.90% 2.55% 1.65% 2.30% 1.90% 2.55%
Alger Growth Fund 1.70% 2.35% 1.45% 2.10% 1.70% 2.35%
</Table>
79
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
Fee waivers and/or reductions, other than those stated in the
Administrative Service Agreement, may be rescinded by SM&R at any time
after April 30, 2007 and December 31, 2007, respectively as shown
above, without notice to investors.
DISTRIBUTION AND SHAREHOLDER SERVICING FEES:
The Company has adopted a 12b-1 Plan, for each series, except the
Primary and Money Market Funds, with respect to each series' Class A
shares and Class B shares (the "Class A Plan" and the "Class B Plan",
respectively and collectively, the "Plans"). The Plans permit each
class a distribution fee to compensate SM&R, or enable SM&R to
compensate other persons, including Distributors, for distribution
costs such as service fees paid to dealers, printing and distribution
of prospectuses to prospective investors, sales literature and other
sales and distribution related activities. The Plans also permit a
shareholder servicing fee to compensate SM&R, or enable SM&R to
compensate Service Providers, for providing ongoing servicing to
shareholders of the Company. These fees are computed as an annual
percentage of the average daily net assets of each class of shares of a
series, as follows:
GROWTH, EQUITY INCOME, BALANCED,
GOVERNMENT BOND AND TAX FREE FUNDS
DISTRIBUTION SERVICE TOTAL 12b-1
FEE FEE FEE
Class A Shares 0.25% -- 0.25%
Class B Shares 0.50% 0.25% 0.75%
ALGER TECHNOLOGY, ALGER AGGRESSIVE GROWTH,
ALGER SMALL-CAP AND ALGER GROWTH FUNDS
Class A Shares 0.35% -- 0.35%
Class B Shares 1.00% -- 1.00%
For the period ended February 28, 2007, each series paid or accrued the
following, as compensation under the Plans:
Alger Technology Fund $ 3,474
Alger Aggressive Growth Fund $ 8,091
Alger Small-Cap Fund $ 9,310
Alger Growth Fund $ 9,208
Growth Fund $19,651
Equity Income Fund $37,789
Balanced Fund $15,976
Government Bond Fund $ 3,680
Tax Free Fund $ 2,029
80
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
SALES CHARGES:
During the period ended February 28, 2007, SM&R, as principal underwriter,
received as sales charges on sales of capital stock of each series and made
reallowances to dealers as follows:
SALES CHARGES SALES CHARGES
RECEIVED BY REALLOWED
SM&R TO DEALERS
Alger Technology Fund $ 1,489 $ 26
Alger Aggressive Growth Fund $ 1,570 $ 51
Alger Small-Cap Fund $ 3,450 $156
Alger Growth Fund $ 2,391 $365
Growth Fund $24,892 $755
Equity Income Fund $44,577 $880
Balanced Fund $ 7,840 $196
Government Bond Fund $ 3,201 $ 99
Tax Free Fund $ 1,090 $ 0
For the period ended February 28, 2007, SM&R received $21,875 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, 2007, SM&R and American National had
the following ownership in these series:
<Table>
<Caption>
AMERICAN NATIONAL
SM&R AMERICAN NATIONAL AFFILIATES
----------------------- ------------------------ ------------------------
PERCENT OF PERCENT OF PERCENT OF
SHARES SHARES SHARES
SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
Growth Fund 239,179 1.04% 1,074,392 4.65% 1,570,764 6.80%
Equity Income Fund 25,085 0.55% -- 0.00% -- 0.00%
Balanced Fund 176,306 10.67% 100,847 6.10% 317,172 19.20%
Government Bond Fund 708,178 25.62% 129,254 4.68% 965,415 34.93%
Tax Free Fund 180,079 13.83% -- 0.00% 899,132 69.08%
Primary Fund 17,957 0.07% 22,948,479 87.17% 1,497,029 5.69%
Money Market Fund 2,856,039 2.59% 56,226,024 50.95% 36,130,728 32.74%
</Table>
Through the investment sub-advisory agreement, Fred Alger Management, Inc. is
affiliated with SM&R. As of February 28, 2007, Fred Alger Management, Inc. had
the following ownership in these series:
PERCENT OF SHARES
SHARES OUTSTANDING
Alger Technology Fund 25,000 6.90%
Alger Aggressive Growth Fund 25,000 5.82%
Alger Small-Cap Fund 25,000 5.30%
Alger Growth Fund 25,000 5.37%
The Company pays directors' fees and expenses for all the independent directors.
The Company also pays the salary and other expenses of the Chief Compliance
Officer.
81
<Page>
NOTE 2--OTHER TRANSACTIONS WITH AFFILIATES--CONTINUED
Fred Alger and Company, Incorporated ("Alger Inc.") is an affiliated
broker-dealer of Fred Alger Management, Inc. During the period ended February
28, 2007, 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 $971, $4,407, $1,781 and $5,662, 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 period
ended February 28, 2007 were:
Purchases $9,580,634
Sales $9,724,660
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
Aggregate purchases and sales of investments in securities, other than
commercial paper, were as follows:
PURCHASES SALES
Alger Technology Fund $ 971,605 $ 1,036,271
Alger Aggressive Growth Fund $ 3,938,250 $ 4,164,270
Alger Small-Cap Fund $ 1,800,830 $ 1,795,664
Alger Growth Fund $ 4,335,218 $ 4,629,502
Growth Fund $23,697,767 $26,102,448
Equity Income Fund $10,619,979 $14,080,561
Balanced Fund $ 2,097,291 $ 1,533,063
Government Bond Fund $ 6,473,792 $ 6,470,191
Tax Free Fund $ 0 $ 863,500
Primary Fund $ 0 $ 3,860,601
Gross unrealized appreciation and depreciation as of February 28, 2007, based on
the cost for federal income tax purposes is as follows:
<Table>
<Caption>
NET APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
Alger Technology Fund $ 1,142,484 $ 236,773 $ 21,156 $ 215,617
Alger Aggressive Growth Fund $ 2,810,778 $ 199,309 $ 86,932 $ 112,377
Alger Small-Cap Fund $ 3,161,032 $ 699,538 $ 56,260 $ 643,278
Alger Growth Fund $ 2,885,097 $ 243,096 $ 61,994 $ 181,102
Growth Fund $88,362,147 $19,260,227 $ 1,353,733 $17,906,494
Equity Income Fund $85,551,096 $26,903,278 $ 3,293,586 $23,609,692
Balanced Fund $25,732,923 $ 4,973,095 $548,692.00 $ 4,424,403
Government Bond Fund $27,974,608 $ 223,871 $ 193,830 $ 30,041
Tax Free Fund $13,114,795 $ 344,626 $ 33,178 $ 311,448
Primary Fund $25,993,421 $ 172,682 $ 2,550 $ 170,132
</Table>
82
<Page>
NOTE 4--CAPITAL STOCK
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ---------
Sale of capital shares:
Class A 25,381 $ 92,182 42,193 $ 139,760
Class B 4,761 16,661 10,369 33,065
------- --------- ------- ---------
Total sale of capital shares 30,142 108,843 52,562 172,825
Redemptions of capital shares outstanding:
Class A (43,033) (155,863) (23,970) (73,711)
Class B (11,022) (38,718) (17,913) (56,597)
------- --------- ------- ---------
Total redemptions of capital shares outstanding (54,055) (194,581) (41,883) (130,308)
------- --------- ------- ---------
Net increase (decrease) in capital shares outstanding (23,913) $ (85,738) 10,679 $ 42,517
========= =========
Shares outstanding at beginning of period 386,130 375,451
------- -------
Shares outstanding at end of period 362,217 386,130
======= =======
</Table>
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ---------
Sale of capital shares:
Class A 12,848 $ 91,618 69,943 $ 469,329
Class B 6,795 46,726 27,662 177,347
------- --------- ------- ---------
Total sale of capital shares 19,643 138,344 97,605 646,676
Distributions from net realized gains reinvested
Class A 33,795 229,472 -- --
Class B 19,671 127,268 -- --
------- --------- ------- ---------
Total distributions from net realized gains reinvested 53,466 356,740 -- --
Redemptions of capital shares outstanding:
Class A (34,534) (246,659) (33,401) (216,573)
Class B (8,530) (58,437) (14,371) (92,496)
------- --------- ------- ---------
Total redemptions of capital shares outstanding (43,064) (305,096) (47,772) (309,069)
------- --------- ------- ---------
Net increase (decrease) in capital shares outstanding 30,045 $ 189,988 49,833 $ 337,607
========= =========
Shares outstanding at beginning of period 399,265 349,432
------- -------
Shares outstanding at end of period 429,310 399,265
======= =======
</Table>
83
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
------------------- --------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ----------
Sale of capital shares:
Class A 38,975 $ 298,509 151,580 $1,144,229
Class B 3,055 23,524 27,000 201,061
------- --------- ------- ----------
Total sale of capital shares 42,030 322,033 178,580 1,345,290
Distributions from net realized gains reinvested:
Class A 13,567 107,857 21,857 153,001
Class B 4,794 37,202 11,629 80,010
------- --------- ------- ----------
Total distributions from net realized gains reinvested 18,361 145,059 33,486 233,011
Redemptions of capital shares outstanding:
Class A (33,554) (268,771) (22,244) (166,482)
Class B (6,348) (49,675) (8,130) (58,149)
------- --------- ------- ----------
Total redemptions of capital shares outstanding (39,902) (318,446) (30,374) (224,631)
------- --------- ------- ----------
Net increase (decrease) in capital shares outstanding 20,489 $ 148,646 181,692 $1,353,670
========= ==========
Shares outstanding at beginning of period 451,551 269,859
------- -------
Shares outstanding at end of period 472,040 451,551
======= =======
</Table>
SM&R ALGER GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
------------------- -------------------
SHARES AMOUNT SHARES AMOUNT
------- --------- ------- ---------
Sale of capital shares:
Class A 20,867 $ 139,566 70,902 $ 476,435
Class B 8,557 54,485 28,203 179,080
------- --------- ------- ---------
Total sale of capital shares 29,424 194,051 99,105 655,515
Distributions from net realized gains reinvested:
Class A 16,143 107,191 -- --
Class B 10,734 68,052 -- --
------- --------- ------- ---------
Total distributions from net realized gains reinvested 26,877 175,243 -- --
Redemptions of capital shares outstanding:
Class A (45,300) (302,110) (61,337) (406,140)
Class B (26,062) (168,760) (25,975) (165,112)
------- --------- ------- ---------
Total redemptions of capital shares outstanding (71,362) (470,870) (87,312) (571,252)
------- --------- ------- ---------
Net increase (decrease) in capital shares outstanding (15,061) $(101,576) 11,793 $ 84,263
========= =========
Shares outstanding at beginning of period 480,378 468,585
------- -------
Shares outstanding at end of period 465,317 480,378
======= =======
</Table>
84
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R GROWTH FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
------------------------ -------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- ------------
Sale of capital shares:
Class A 43,419 $ 197,805 146,187 $ 612,616
Class B 29,540 131,316 88,812 364,497
Class T 247,131 1,149,995 623,489 2,680,561
---------- ----------- ---------- ------------
Total sale of capital shares 320,090 1,479,116 858,488 3,657,674
Investment income dividends reinvested:
Class A 2,943 13,507 8,241 34,714
Class B 551 2,476 1,669 6,907
Class T 58,080 272,395 160,013 688,159
---------- ----------- ---------- ------------
Total investment income dividends reinvested 61,574 288,378 169,923 729,780
Distributions from net realized gains reinvested:
Class A 40,172 184,391 -- --
Class B 23,950 107,537 -- --
Class T 643,141 3,016,333 -- --
---------- ----------- ---------- ------------
Total distributions from net realized gains reinvested 707,263 3,308,261 -- --
Redemptions of capital shares outstanding:
Class A (128,406) (586,326) (356,821) (1,506,323)
Class B (67,911) (302,649) (191,192) (784,265)
Class T (1,200,912) (5,561,980) (3,820,172) (16,443,295)
---------- ----------- ---------- ------------
Total redemptions of capital shares outstanding (1,397,229) (6,450,955) (4,368,185) (18,733,883)
---------- ----------- ---------- ------------
Net increase (decrease) in capital shares outstanding (308,302) $(1,375,200) (3,339,774) $(14,346,429)
=========== ============
Shares outstanding at beginning of period 23,392,305 26,732,079
---------- ----------
Shares outstanding at end of period 23,084,003 23,392,305
========== ==========
</Table>
85
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R EQUITY INCOME FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
----------------------- -------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- -------------
Sale of capital shares:
Class A 33,886 $ 799,426 47,053 $ 1,056,963
Class B 13,520 308,764 36,413 792,566
Class T 41,693 1,026,754 69,200 1,604,347
--------- ----------- --------- ------------
Total sale of capital shares 89,099 2,134,944 152,666 3,453,876
Investment income dividends reinvested:
Class A 6,474 150,107 7,181 160,038
Class B 4,320 96,567 4,389 94,683
Class T 58,219 1,402,407 67,232 1,551,903
--------- ----------- --------- ------------
Total investment income dividends reinvested 69,013 1,649,081 78,802 1,806,624
Distributions from net realized gains reinvested:
Class A 22,573 525,950 31,509 693,209
Class B 17,532 393,765 29,100 618,371
Class T 205,960 4,990,419 304,202 6,926,676
--------- ----------- --------- ------------
Total distributions from net realized gains reinvested 246,065 5,910,134 364,811 8,238,256
Redemptions of capital shares outstanding:
Class A (31,250) (735,488) (76,423) (1,720,249)
Class B (38,010) (881,936) (111,441) (2,409,895)
Class T (237,735) (5,843,179) (652,127) (15,173,221)
--------- ----------- --------- ------------
Total redemptions of capital shares outstanding (306,995) (7,460,603) (839,991) (19,303,365)
--------- ----------- --------- ------------
Net increase (decrease) in capital shares outstanding 97,182 $ 2,233,556 (243,712) $ (5,804,609)
=========== ============
Shares outstanding at beginning of period 4,486,903 4,730,615
--------- ---------
Shares outstanding at end of period 4,584,085 4,486,903
========= =========
</Table>
86
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R BALANCED FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
----------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ------------
Sale of capital shares:
Class A 12,123 $ 220,425 28,125 $ 496,899
Class B 3,900 70,967 13,266 236,994
Class T 14,224 269,611 33,390 615,020
--------- ----------- --------- -----------
Total sale of capital shares 30,247 561,003 74,781 1,348,913
Investment income dividends reinvested:
Class A 3,156 56,520 4,840 85,714
Class B 1,584 28,655 2,123 37,988
Class T 14,654 272,888 21,234 389,775
--------- ----------- --------- -----------
Total investment income dividends reinvested 19,394 358,063 28,197 513,477
Distributions from net realized gains reinvested:
Class A 14,724 263,271 12,421 217,982
Class B 8,756 158,139 6,721 119,230
Class T 69,556 1,294,446 50,646 923,271
--------- ----------- --------- -----------
Total distributions from net realized gains reinvested 93,036 1,715,856 69,788 1,260,483
Redemptions of capital shares outstanding:
Class A (24,151) (438,205) (74,691) (1,320,202)
Class B (17,571) (324,030) (37,230) (669,163)
Class T (52,212) (990,168) (111,774) (2,056,206)
--------- ----------- --------- -----------
Total redemptions of capital shares outstanding (93,934) (1,752,403) (223,695) (4,045,571)
--------- ----------- --------- -----------
Net increase (decrease) in capital shares outstanding 48,743 $ 882,519 (50,929) $ (922,698)
=========== ===========
Shares outstanding at beginning of period 1,603,572 1,654,501
--------- ---------
Shares outstanding at end of period 1,652,315 1,603,572
========= =========
</Table>
87
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
--------------------- ------------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ------------
Sale of capital shares:
Class A 9,632 $ 99,462 16,840 $ 173,494
Class B 1,569 16,210 7,934 81,221
Class T 16,748 170,899 49,765 504,256
--------- --------- --------- -----------
Total sale of capital shares 27,949 286,571 74,539 758,971
Investment income dividends reinvested:
Class A 1,971 20,391 3,273 33,624
Class B 1,111 11,473 2,425 24,889
Class T 52,031 531,122 89,015 902,344
--------- --------- --------- -----------
Total investment income dividends reinvested 55,113 562,986 94,713 960,857
Redemptions of capital shares outstanding:
Class A (6,603) (68,353) (24,035) (247,583)
Class B (8,126) (83,775) (38,881) (399,246)
Class T (42,896) (438,059) (152,619) (1,550,686)
--------- --------- --------- -----------
Total redemptions of capital shares outstanding (57,625) (590,187) (215,535) (2,197,515)
--------- --------- --------- -----------
Net increase (decrease) in capital shares outstanding 25,437 $ 259,370 (46,283) $ (477,687)
========= ===========
Shares outstanding at beginning of period 2,738,497 2,784,780
--------- ---------
Shares outstanding at end of period 2,763,934 2,738,497
========= =========
</Table>
88
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R TAX FREE FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
--------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT
--------- --------- --------- ---------
Sale of capital shares:
Class A 4,129 $ 43,426 648 $ 6,806
Class B -- -- -- --
Class T 9,714 101,216 2,069 21,595
--------- --------- --------- ---------
Total sale of capital shares 13,843 144,642 2,717 28,401
Investment income dividends reinvested:
Class A 629 6,518 1,690 17,723
Class B 548 5,594 1,406 14,741
Class T 22,316 232,623 44,634 463,868
--------- --------- --------- ---------
Total investment income dividends reinvested 23,493 244,735 47,730 496,332
Distributions from net realized gains reinvested:
Class A -- -- 3 34
Class B 8 87 3 30
Class T 274 2,858 80 836
--------- --------- --------- ---------
Total distributions from net realized gains reinvested 282 2,945 86 900
Redemptions of capital shares outstanding:
Class A (896) (9,418) (19,297) (201,405)
Class B (17,181) (180,134) (8,941) (93,280)
Class T (23,276) (242,849) (41,691) (435,104)
--------- --------- --------- ---------
Total redemptions of capital shares outstanding (41,353) (432,401) (69,929) (729,789)
--------- --------- --------- ---------
Net increase (decrease) in capital shares outstanding (3,735) $ (40,079) (19,396) $(204,156)
========= =========
Shares outstanding at beginning of period 1,305,383 1,324,779
--------- ---------
Shares outstanding at end of period 1,301,648 1,305,383
========= =========
</Table>
SM&R PRIMARY FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ----------- ---------- -----------
Sale of capital shares 8,469,816 $ 8,468,218 5,621,665 $ 5,574,810
Investment income dividends reinvested 576,145 573,072 970,805 961,699
Redemptions of capital shares outstanding (9,203,814) (9,199,176) (5,414,836) (5,363,547)
---------- ----------- ---------- -----------
Net increase (decrease) in capital shares outstanding (157,853) $ (157,886) 1,177,634 $ 1,172,962
=========== ===========
Shares outstanding at beginning of period 26,485,177 25,307,543
---------- ----------
Shares outstanding at end of period 26,327,324 26,485,177
========== ==========
</Table>
89
<Page>
NOTE 4--CAPITAL STOCK--CONTINUED
SM&R MONEY MARKET FUND
<Table>
<Caption>
(UNAUDITED)
SIX MONTHS ENDED YEAR ENDED
FEBRUARY 28, 2007 AUGUST 31, 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
Sale of capital shares 131,892,576 $ 131,892,576 267,655,107 $ 267,655,107
Investment income dividends reinvested 2,393,965 2,393,965 2,787,943 2,787,943
Redemptions of capital shares outstanding (112,704,630) (112,704,630) (258,563,298) (258,563,298)
------------ ------------- ------------ -------------
Net increase (decrease) in capital shares outstanding 21,581,911 $ 21,581,911 11,879,752 $ 11,879,752
============= =============
Shares outstanding at beginning of period 88,769,500 76,889,748
------------ ------------
Shares outstanding at end of period 110,351,411 88,769,500
============ ============
</Table>
RECLASSIFICATION OF CAPITAL ACCOUNTS:
Accounting principles generally accepted in the United States of America require
that certain components of net assets be reclassified between financial and tax
reporting. These reclassifications have no net effect on net assets or net asset
value per share. For the six months ended February 28, 2007, each series
recorded the following reclassification to the accounts listed below:
<Table>
<Caption>
ACCUMULATED NET
ACCUMULATED NET REALIZED GAIN
PAID IN CAPITAL INVESTMENT LOSS (LOSS)
Alger Technology Fund $(10,211) $10,211 0
Alger Aggressive Growth Fund $(15,936) $15,936 0
Alger Small Cap Fund $(27,245) $27,245 0
Alger Growth Fund $ (9,306) $ 9,306 0
Government Bond Fund $ (7) $ 7 0
Tax Free Fund $ (1) $ 0 1
</Table>
NOTE 5--NOTICE TO FUND SHAREHOLDERS
Effective June 1, 2007, the SM&R Alger Small-Cap Fund's shares will be available
for purchase only by existing shareholders of the Fund who maintain open
accounts. The Fund may resume sales to all investors at some future date if it
is determined that doing so would be in the best interest of shareholders.
NOTE 6--NEW ACCOUNTING STANDARD
In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, Accounting for Uncertainty in Income Taxes ("FIN 48").
FIN 48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement for a tax position taken or
expected to be taken in a tax return. FIN 48 also provides guidance on
derecognition, classification, interest and penalties, accounting in interim
periods, disclosure and transition. The provisions for FIN 48 are effective for
fiscal years beginning after December 15, 2006. Management is currently
assessing the impact of FIN 48, if any, on the Funds' financial statements and
intends for the Funds to adopt the FIN 48 provisions during 2007.
90
<Page>
(This page has been left blank intentionally.)
<Page>
(This page has been left blank intentionally.)
<Page>
(This page has been left blank intentionally.)
<Page>
SM&R INVESTMENTS, INC. 2450 South Shore Boulevard, League City, TX 77573
- --------------------------------------------------------------------------------
DIRECTORS
Florentino F. Gonzalez
Lea McLeod Matthews
Michael W. McCroskey
Ann McLeod Moody
Edwin K. Nolan
Robert V. Shattuck, Jr.
Donald P. Stevens
Steven H. Stubbs
Jamie G. Williams
OFFICERS
Michael W. McCroskey, President
Brenda T. Koelemay, Vice President and Treasurer
Teresa E. Axelson, Vice President, Secretary, and Chief Compliance Officer
INVESTMENT ADVISER AND MANAGER
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
CUSTODIAN
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
LEGAL COUNSEL
Greer, Herz & Adams, LLP
One Moody Plaza
Galveston, TX 77550
UNDERWRITER AND REDEMPTION AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
TRANSFER AGENT, REGISTRAR AND DIVIDEND PAYING AGENT
Securities Management and Research, Inc.
P.O. Box 58969
Houston, TX 77258-8969
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
BKD, LLP
2800 Post Oak Blvd., Suite 3200
Houston, TX 77056
Form 9429 02/07
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 1, 2007, 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 1, 2007, the companys
disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940, as amended) were
reasonably designed so as to ensure that material information
relating to the Company is made known to the CEO and CFO.
(b) During the second fiscal quarter of the period covered by this
report, there have been no significant changes in the Companys
internal controls or in other factors that could significantly
affect these controls subsequent to the date of their evaluation
and until the filing of this report, including any corrective
actions with regard to significant deficiencies and material
weaknesses.
Item 12 Exhibits.
(a) (1) Code of Ethics - not applicable to this semi-annual report.
(2) Certifications pursuant to Rule 30a-2(a) under the
Investment Act of 1940 are filed and attached hereto.
(b) Certifications pursuant to Section 906 of the Sarbanes-Oxley Act of
2002 are filed and attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
SM&R Investments, Inc.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 1, 2007
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registant and in the capacities and on the
dates indicated.
By: \S\ Michael W. McCroskey
-------------------------------------
Principal Executive Officer
Date: May 1, 2007
By: \S\ Brenda T. Koelemay
-------------------------------------
Principal Financial Officer
Date: May 1, 2007