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: August 31, 2007
Item 1 Report to Shareholders
<Page>
ANNUAL REPORT
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
ANNUAL REPORT
AUGUST 31, 2007
<Page>
SM&R INVESTMENTS, INC. 2450 South Shore Boulevard, League City, TX 77573
The report contained herein is included for the general information of our
shareholders. This report is not authorized for distribution to prospective
investors unless it is preceded or accompanied by a current prospectus. ALL
INVESTORS ARE ADVISED TO CONSIDER THE INVESTMENT OBJECTIVES, RISKS, AND CHARGES
AND EXPENSES OF THE INVESTMENT COMPANIES CAREFULLY BEFORE INVESTING. THE
PROSPECTUS CONTAINS THIS AND OTHER INFORMATION ABOUT THE INVESTMENT COMPANIES.
YOU SHOULD READ IT CAREFULLY BEFORE INVESTING.
The investment adviser is responsible for exercising the voting rights
associated with the securities purchased and held by the Funds. A description of
the policies and procedures the investment adviser uses in fulfilling this
responsibility is included in the Funds' Statement of Additional Information and
is available without charge, upon request, by calling 1-800-231-4639. The
policies and procedures are also available on the Securities and Exchange
Commission's website at http://www.sec.gov. Information on how the Funds voted
proxies relating to portfolio securities during the most recent 12 month period
ended June 30 is available without charge, upon request, by calling
1-800-231-4639 and is also available on the SEC's website at http://www.sec.gov.
The Funds file their complete schedule of holdings with the SEC for the first
and third quarters of each fiscal year on Form N-Q. The Funds' Form N-Q is
available on the SEC's website, beginning with the November 30, 2004 report, at
http://www.sec.gov. You may review and make copies at the SEC's Public Reference
Room in Washington, D.C. You may also obtain copies after paying a duplicating
fee by writing the SEC's Public Reference Section, Washington, D.C. 20549-0102
or by electronic request to publicinfo@sec.gov. A copy of the quarterly holdings
report is available, without charge, upon request, by calling 1-800-231-4639.
<Page>
AN EXAMPLE OF ONGOING EXPENSES (UNAUDITED)
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, March 1, 2007, and held for six months ending August
31, 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 the 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 (03/01/07) RATIOS (08/31/07) (1) PERIOD (2) (08/31/07) (1) PERIOD (2)
- ----- ------------ ------------ -------------- ------------ -------------- ------------
Alger Technology Fund
Class A $ 1,000.00 1.94% $ 1,090.42 $ 10.22 $ 1,015.43 $ 9.86
Class B 1,000.00 2.58% 1,096.52 13.63 1,012.20 13.09
Alger Aggressive Growth Fund
Class A 1,000.00 1.69% 1,127.14 9.07 1,016.69 8.59
Class B 1,000.00 2.34% 1,123.12 12.53 1,013.41 11.88
Alger Small-Cap Fund
Class A 1,000.00 1.74% 1,077.21 9.11 1,016.43 8.84
Class B 1,000.00 2.39% 1,074.21 12.50 1,013.16 12.13
Alger Growth Fund
Class A 1,000.00 1.54% 1,135.13 8.29 1,017.44 7.83
Class B 1,000.00 2.19% 1,132.08 11.77 1,014.17 11.12
Growth Fund
Class A 1,000.00 1.36% 1,070.43 7.10 1,018.35 6.92
Class B 1,000.00 1.86% 1,072.56 9.72 1,015.83 9.45
Class T 1,000.00 1.12% 1,074.55 5.86 1,019.56 5.70
Equity Income Fund
Class A 1,000.00 1.26% 1,018.72 6.41 1,018.85 6.41
Class B 1,000.00 1.76% 1,020.14 8.96 1,016.33 8.94
Class T 1,000.00 1.12% 1,020.85 5.70 1,019.56 5.70
</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 (03/01/07) RATIOS (08/31/07) (1) PERIOD (2) (08/31/07) (1) PERIOD (2)
- ----- ------------ ------------ -------------- ------------ -------------- ------------
Balanced Fund
Class A $ 1,000.00 1.30% $ 1,041.96 $ 6.69 $ 1,018.65 $ 6.61
Class B 1,000.00 1.80% 1,040.86 9.26 1,016.13 9.15
Class T 1,000.00 1.20% 1,043.39 6.18 1,019.16 6.11
Government Bond Fund
Class A 1,000.00 0.73% 1,023.48 3.72 1,021.53 3.72
Class B 1,000.00 1.23% 1,021.06 6.27 1,019.00 6.26
Class T 1,000.00 0.73% 1,023.52 3.72 1,021.53 3.72
Tax Free Fund
Class A 1,000.00 0.75% 1,009.26 3.80 1,021.42 3.82
Class B 1,000.00 1.25% 1,008.13 6.33 1,018.90 6.36
Class T 1,000.00 0.75% 1,009.31 3.80 1,021.42 3.82
Primary Fund 1,000.00 0.80% 1,023.34 4.08 1,021.17 4.08
Money Market Fund 1,000.00 0.50% 1,024.08 2.55 1,022.70 2.55
</Table>
(1) The actual ending account value is based on actual total return of each
class of each of the funds for the period March 1, 2007 to August 31, 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 184/365 (to reflect the six month period).
2
<Page>
SM&R ALGER TECHNOLOGY FUND
MANAGER DISCUSSION
INVESTMENT OBJECTIVE: The SM&R Alger Technology Fund seeks to achieve long-term
capital appreciation. The fund normally invests at least 85% of its total assets
in the equity securities of companies principally engaged in offering, using, or
developing products, processes, or services that will provide or benefit
significantly from technological advances and improvements. During the recent
fiscal year, the management of the Fund remained unchanged: a research
intensive, bottom-up approach focusing on the stocks of rapidly growing
companies undergoing positive dynamic change. Over the twelve months ending
August 31, 2007, the inherent technology focus of the Fund helped relative
performance as technology stocks as a whole outperformed the broader market.
MARKET REVIEW: The twelve months ending August 31, 2007 was a decidedly positive
time period for the domestic equity markets. The Dow Jones Industrial Average
was up more than 20%, the Nasdaq Composite was up nearly 19%, and the S&P 500
index was up over 15%. Within market capitalization ranges, although all market
capitalizations fared well, mid cap stocks led the way. The Russell MidCap
(representing mid cap stocks) was up 16%, the Russell 1000 (representing large
cap stocks) posted returns greater than 15%, and the Russell 2000 (representing
small cap stocks) returned more than 11%. In regard to the growth/value
spectrum, for the first time in several years, growth stocks notably outpaced
their value counterparts. The Russell MidCap Growth was up 19.31% while the
Russell MidCap Value was up 12.43%, the Russell 1000 Growth was up 17.70% while
the Russell 1000 Value was up 12.85%, and the Russell 2000 Growth was up 16.36%
while the Russell 2000 Value was up 6.64%.
Hidden within the lofty one year performance numbers listed above is a pullback
that we saw in the markets this summer. Until mid-July, the markets were on a
roll. But panic over the meltdown in the sub-prime mortgage space led to a bout
of selling, and more troubling, created a deep sense of unease.
Given our view of the fundamental strength of many companies, of the global
economy, and of the U.S. economy, we think it's likely that the panic will
abate, and soon. Because the current problems are occurring in the heart of Wall
Street, they are generating substantial attention and causing significant angst.
Unlike the volatility in emerging markets that we saw earlier this year, the
meltdown of the sub-prime mortgage space is directly impacting the bottom line
of many Wall Street firms and hedge funds, not to mention several hundred
thousand homeowners.
Overall, however, many--including Fed chairman Bernanke--have pointed out in
recent weeks that the actual size of the sub-prime and related fallout is
perhaps 1% of the overall U.S. economy (approximately $100 billion). Even if
that figure is low, it is still dwarfed by the $55 trillion net worth of U.S.
households.
Also, the recent sell-off has obscured the fact that earnings growth has been
significantly better than Wall Street anticipated. At the beginning of the most
recent reporting season, consensus expectations were for about 4.2% growth. By
the time most companies reported at the end of August, the figure looked to be
at least 8%. Once again, companies have been outperforming for the same reasons:
global growth and low-ball estimates. Market pundits have been notably slow to
adjust their expectations and, with the current swoon, the result has been a
continued accentuation of the negative.
MARKET & ECONOMIC OUTLOOK: So where does this leave us? Is this the beginning of
"the end"? We don't think so. This has been a five-year bull market since
October 2002 and, like last summer's sell-off, we think this recent sell-off
will not end this bull. First, the U.S. housing market--the origin of the
mortgages and derivative securities based upon them--has been weakening for over
a year now. Astute banks pulled back on sub-prime lending not this year, but two
years ago. Some hedge funds, like those at Bear Stearns or Sowood Capital,
similarly chased high yields, levered them up, and then couldn't support the
margin calls when their positions declined in value. Frankly, highly levered
hedge funds are meant to do just that--they are designed to generate outsized
returns. Whether those returns will be positive or negative is another matter.
Financial stocks have suffered and may continue (individually) to do so if their
fundamentals continue to deteriorate. Perhaps we will even see further
consolidation and fund failures triggered by failures of risk management. There
will certainly be many hedge fund losses and closings, but there will also be
some spectacular "winners."
As for the overall investing climate globally, the world economy has grown at a
5% annual pace for the past several years; according to BCA Research, this is
the strongest expansion phase since 1960. We note that in the 1960s, PE
multiples often ranged from 18 to 20x plus. Today, the S&P 500 trades at roughly
15x 2007 earnings. Second, many U.S. companies are benefiting from international
sales to an extent never before seen. For the S&P 500, 30 to 40% of profits are
derived overseas; in some sectors and companies, the percentage is much higher
and the growth opportunity is unparalleled in both duration and scale. The
weakness of the U.S. dollar is yet one more factor that has benefited U.S.
companies doing business outside of the United States. Led by China, countries
with excess trade balances with the U.S. will, we believe, increasingly look to
recycle those surpluses by investing more broadly "overseas," and from their
perspective, U.S. companies and assets will look very attractive.
Also, it's worth recalling that there have been similar pullbacks each year for
at least the past three years and, each time, the markets came roaring back.
Beginning in late June of 2004, the S&P 500 declined 7%, but then recovered
beginning in mid-August, gaining nearly 8%. The market continued to gyrate ahead
of the 2004 election, down almost 5% in October and then up nearly 12% after the
election was over. In 2005,
3
<Page>
there was a late winter/early spring swoon of 7%, followed by a recovery of 9%.
In May of 2006, triggered by a bout of global selling and concern over emerging
markets, the S&P 500 declined nearly 8%, and then after mid-June rose more than
16% for the remainder of the year.
The current pullback has been a bit steeper, at about 10%, but it is still in
the realm of normal given recent trends. There have been much steeper
corrections in emerging markets over the past three years, followed by equally
steep recoveries and subsequent gains. In each of those previous sell-offs,
there was no dearth of commentary that some structural weakness in the markets
was being exposed and, however accurate, the predictions of doom and gloom
proved premature. This current imbroglio strikes us as more significant, insofar
as it has brought to an end (at least for the time being) a level of promiscuous
lending and unwise leverage in real estate and related investments. But the
fundamentals of the economy, of companies in general, and of the domestic and
global equity markets do not seem either weak or overvalued, and that is a
powerful sign that what lies ahead is likely to be another round of gains rather
than a sustained period of declines.
PORTFOLIO PERFORMANCE: The SM&R Alger Technology Fund returned 33.12% during the
fiscal year ending August 31, 2007, outperforming the 23.13% return of the
Lipper Science & Technology Fund index and the 15.13% return of the S&P 500
index.
Best regards,
Dan Chung, CFA, Portfolio Manager
SM&R Alger Technology Fund
4
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R ALGER
TECHNOLOGY FUND, CLASS A, AT OFFERING PRICE, AND LIPPER SCIENCE AND
TECHNOLOGY INDEX AND THE S&P 500
<Table>
<Caption>
LIPPER SCIENCE
SM&R ALGER AND TECHNOLOGY
TECHNOLOGY FUND S&P 500 INDEX
--------------- -------------- --------------
9/1/2000 $ 9,497 $ 10,000 $ 10,000
12/31/2000 $ 4,919 $ 8,731 $ 5,868
8/31/2001 $ 3,077 $ 7,561 $ 3,680
12/31/2001 $ 3,182 $ 7,693 $ 3,831
8/31/2002 $ 1,586 $ 6,201 $ 2,249
12/31/2002 $ 1,586 $ 5,993 $ 2,245
8/31/2003 $ 2,460 $ 6,949 $ 3,110
12/31/2003 $ 2,783 $ 7,712 $ 3,398
8/31/2004 $ 2,308 $ 7,745 $ 2,920
12/31/2004 $ 2,783 $ 8,551 $ 3,538
8/31/2005 $ 2,868 $ 8,717 $ 3,532
12/31/2005 $ 3,096 $ 8,971 $ 3,728
8/31/2006 $ 2,925 $ 9,491 $ 3,637
12/31/2006 $ 3,447 $ 10,388 $ 3,979
8/31/2007 $ 3,893 $ 10,928 $ 4,478
</Table>
SM&R Alger Technology Fund performance figures reflect reinvestment of all
dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 5.00%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year declining to 1% in the fifth year, and is eliminated
thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 09/01/00.
<Table>
<Caption>
ONE FIVE SINCE
YEAR YEAR INCEPTION
--------- -------- -----------
Class A 26.54% 18.43% -12.61%
Class B 27.02% 19.19% -11.99%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 10.09%
Energy 1.26%
Financials 1.82%
Health Care 3.16%
Industrials 1.89%
Information Technology 75.87%
Miscellaneous 3.36%
Telecommunication Services 2.55%
</Table>
5
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
BROADCASTING--1.13%
Unica Corp. * 1,310 $ 13,388
HOTELS, RESTAURANTS & LEISURE--1.02%
Ctrip.com International Ltd. ADR 285 12,110
INTERNET & CATALOG RETAIL--3.01%
eBay Inc. * 1,045 35,634
MEDIA--4.97%
DreamWorks Animation SKG, Inc. (Class A) * 1,075 33,164
XM Satellite Radio Holdings Inc. (Class A) * 2,055 25,626
----------
58,790
----------
TOTAL CONSUMER DISCRETIONARY--10.13% 119,922
----------
ENERGY--
ENERGY & ENERGY SERVICES--1.27%
JA Solar Holdings Co Ltd. ADR * 410 15,035
----------
TOTAL ENERGY--1.27% 15,035
----------
FINANCIALS--
FINANCIAL SERVICES--1.83%
Exlservice Holdings Inc. * 465 8,835
WNS Holdings Ltd. ADR * 705 12,866
----------
21,701
----------
TOTAL FINANCIALS--1.83% 21,701
----------
HEALTH CARE--
MEDICAL DEVICES--1.53%
Northstar Neuroscience, Inc. * 1,595 18,119
MEDICAL TECHNOLOGY--1.65%
Allscripts Healthcare Solutions, Inc. * 860 19,445
----------
TOTAL HEALTH CARE--3.18% 37,564
----------
INDUSTRIALS--
COMMERCIAL SERVICES & SUPPLIES--1.90%
Net 1 UEPS Technologies, Inc. * 910 22,486
----------
TOTAL INDUSTRIALS--1.90% 22,486
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--3.79%
Research In Motion Ltd. * 525 44,840
COMMUNICATIONS EQUIPMENT--9.11%
Ciena Corp. * 315 11,932
Cisco Systems, Inc. * 1,395 44,528
Corning Inc. 1,765 41,248
QUALCOMM Inc. 255 10,172
----------
107,880
COMPUTER RELATED & BUSINESS SERVICES--7.19%
Apple Inc. * 175 24,234
MEMC Electronic Materials, Inc. * 800 49,136
Network Appliance, Inc. * 420 11,701
----------
85,071
COMPUTER SOFTWARE--4.88%
NVIDIA Corp. * 295 $ 15,092
TIBCO Software Inc. * 1,955 15,464
Visual Sciences, Inc. * 1,475 27,184
----------
57,740
COMPUTERS & PERIPHERALS--1.85%
SanDisk Corp. * 390 21,863
ELECTRONICS--3.33%
Nintendo Co., Ltd. ADR 680 39,378
INTERNET SOFTWARE & SERVICES--12.43%
DealerTrack Holdings Inc. * 1,185 45,267
Google Inc. (Class A) * 65 33,491
Omniture, Inc. * 880 21,833
Vocus, Inc. * 950 23,750
Yahoo! Inc. * 1,005 22,844
----------
147,185
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--7.62%
Atheros Communications * 890 26,620
KLA-Tencor Corp. 430 24,712
Tessera Technologies Inc. * 1,060 38,828
----------
90,160
SEMICONDUCTORS--7.58%
Cree, Inc. * 440 11,704
QLogic Corp. * 1265 16,825
Spreadtrum Communications, Inc. * 1555 20,044
Varian Semiconductor Equipment Associates, Inc. * 740 41,166
----------
89,739
SEMICONDUCTORS CAPITAL EQUIPMENT--1.91%
SiRF Technology Holdings, Inc. * 1,345 22,677
SOFTWARE--16.51%
Activision, Inc. * 1,180 22,998
Adobe Systems Inc. * 555 23,726
Electronic Arts Inc. * 395 20,911
Microsoft Corp. 1,295 37,205
Quality Systems, Inc. 555 20,452
Quest Software, Inc. * 1,000 14,560
Synchronoss Technologies, Inc. * 1,600 55,584
----------
195,436
----------
TOTAL INFORMATION TECHNOLOGY--76.20% 901,969
----------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--2.56%
American Tower Corp. (Class A) * 530 20,999
On2 Technologies, Inc. * 6,250 9,313
----------
30,312
----------
TOTAL TELECOMMUNICATION SERVICES--2.56% 30,312
----------
TOTAL COMMON STOCK--97.07%
(Cost $967,584) 1,148,989
----------
</Table>
6
<Page>
<Table>
<Caption>
SHARES VALUE
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 39,893 $ 39,893
----------
TOTAL MONEY MARKET FUND--3.37%
(Cost $39,893) 39,893
----------
TOTAL INVESTMENTS--100.44%
(Cost $1,007,477) 1,188,882
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.44)% (5,191)
----------
NET ASSETS--100.00% $1,183,691
==========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at August
31, 2007. A complete listing of the fund's holdings are included in
these financial statements. This fund and the SM&R Alger Technology Fund
are affiliated by having the same investment adviser.
See notes to financial statements.
7
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R ALGER TECHNOLOGY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $967,584) $ 1,148,989
Investment in affiliated money market fund (Cost $39,893) 39,893
---------------
Total investments (Cost $1,007,477) 1,188,882
Prepaid expenses 9,799
Receivable for:
Dividends 346
Expense reimbursement 2,915
---------------
TOTAL ASSETS 1,201,942
---------------
LIABILITIES
Capital stock reacquired 2,030
Payable to investment adviser for fund expenses 10,825
Accrued:
Investment advisory fees 1,488
Administrative service fees 276
Distribution fees 1,770
Other liabilities 1,862
---------------
TOTAL LIABILITIES 18,251
---------------
NET ASSETS $ 1,183,691
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 918,468
Accumulated net realized gain (loss) on investments 83,818
Net unrealized appreciation of investments 181,405
---------------
NET ASSETS $ 1,183,691
===============
NET ASSETS:
Class A 843,627
Class B 340,064
---------------
TOTAL NET ASSETS $ 1,183,691
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,000
Outstanding 205,737
Class B:
Authorized 100,000,000
Outstanding 83,196
Class A:
Net asset value and redemption price per share $ 4.10
Offering price per share:
(Net assets value of $4.10 / 95%) $ 4.32
Class B:
Net asset value and offering price per share $ 4.09
</Table>
See notes to financial statements.
8
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R ALGER TECHNOLOGY FUND
<Table>
INVESTMENT INCOME
Dividends $ 3,197
Interest from affiliated money market fund 2,508
---------------
TOTAL INVESTMENT INCOME 5,705
---------------
EXPENSES
Investment advisory fees 18,330
Administrative service fees 2,850
Custody and transaction fees 5,588
Directors' fees and expenses 5,947
Compliance expenses 226
Qualification fees
Class A 10,103
Class B 7,331
Shareholder reporting expenses
Class A 376
Class B 158
Distribution fees
Class A 3,537
Class B 3,472
Insurance expenses 472
---------------
TOTAL EXPENSES 58,390
LESS EXPENSES REIMBURSED (29,842)
---------------
NET EXPENSES 28,548
---------------
INVESTMENT INCOME (LOSS)--NET (22,843)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 308,396
Change in unrealized appreciation of investments 81,317
---------------
NET GAIN (LOSS) ON INVESTMENTS 389,713
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 366,870
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (22,843) $ (23,613)
Net realized gain (loss) on investments 308,396 100,512
Change in unrealized appreciation of investments 81,317 (66,574)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 366,870 10,325
--------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (295,662) 66,049
Class B (74,276) (23,532)
--------------- ---------------
Total capital share transactions--net (369,938) 42,517
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (3,068) 52,842
NET ASSETS
Beginning of year 1,186,759 1,133,917
--------------- ---------------
End of year $ 1,183,691 $ 1,186,759
=============== ===============
</Table>
See notes to financial statements.
9
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of year $ 3.08 $ 3.02 $ 2.43 $ 2.59 $ 1.67
Income (loss) from investment operations
Investment income (loss)--net (0.07) (0.05) (0.04) (0.06) (0.04)
Net realized and unrealized gain (loss) on investments 1.09 0.11 0.63 (0.10) 0.96
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.02 0.06 0.59 (0.16) 0.92
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 4.10 $ 3.08 $ 3.02 $ 2.43 $ 2.59
========== ========== ========== ========== ==========
Total return (2) 33.12% 1.99% 24.28% (6.18)% 55.09%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 843,627 $ 870,234 $ 798,200 $ 585,844 $ 449,337
Ratio of expenses with reimbursement to average
net assets (3) 1.94% 2.02% 2.10% 2.10% 2.10%
Ratio of expenses without reimbursement to average
net assets 3.84% 4.45% 6.29% 6.15% 11.46%
Ratio of net investment income (loss) to average
net assets (1.52)% (1.75)% (1.36)% (1.97)% (1.84)%
Portfolio turnover rate 121.18% 127.07% 269.32% 215.21% 291.66%
<Caption>
CLASS B SHARES
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of year $ 3.06 $ 3.03 $ 2.46 $ 2.64 $ 1.68
Income (loss) from investment operations
Investment income (loss)--net (0.09) (0.08) (0.06) (0.08) (0.05)
Net realized and unrealized gain (loss) on investments 1.12 0.11 0.63 (0.10) 1.01
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.03 0.03 0.57 (0.18) 0.96
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 4.09 $ 3.06 $ 3.03 $ 2.46 $ 2.64
========== ========== ========== ========== ==========
Total return (2) 33.66% 0.99% 23.17% (6.82)% 57.14%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 340,064 $ 316,525 $ 335,717 $ 275,749 $ 240,382
Ratio of expenses with reimbursement to average
net assets (3) 2.58% 2.67% 2.75% 2.75% 2.75%
Ratio of expenses without reimbursement to average
net assets 5.64% 5.99% 8.53% 8.02% 14.16%
Ratio of net investment income (loss) to average
net assets (2.16)% (2.40)% (2.01)% (2.62)% (2.48)%
Portfolio turnover rate 121.18% 127.07% 269.32% 215.21% 291.66%
</Table>
(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 2.10% for Class A
and 2.75% for Class B until December 31, 2007.
See notes to financial statements.
10
<Page>
SM&R ALGER AGGRESSIVE GROWTH FUND
MANAGER DISCUSSION
INVESTMENT OBJECTIVE: The SM&R Alger Aggressive Growth Fund seeks to achieve
long-term capital appreciation. The fund normally invests at least 85% of its
total assets in the equity securities of companies listed on U.S. exchanges or
in the over-the-counter market. During the recent fiscal year, the management of
the Fund remained unchanged: a research intensive, bottom-up approach focusing
on the stocks of rapidly growing companies undergoing positive dynamic change.
Over the twelve months ending August 31, 2007, management's growth stock bias
provided an advantage as the Russell 3000 Growth index outperformed the Russell
3000 Value index by over 5%.
MARKET REVIEW: The twelve months ending August 31, 2007 was a decidedly positive
time period for the domestic equity markets. The Dow Jones Industrial Average
was up more than 20%, the Nasdaq Composite was up nearly 19%, and the S&P 500
index was up over 15%. Within market capitalization ranges, although all market
capitalizations fared well, mid cap stocks led the way. The Russell MidCap
(representing mid cap stocks) was up 16%, the Russell 1000 (representing large
cap stocks) posted returns greater than 15%, and the Russell 2000 (representing
small cap stocks) returned more than 11%. In regard to the growth/value
spectrum, for the first time in several years, growth stocks notably outpaced
their value counterparts. The Russell MidCap Growth was up 19.31% while the
Russell MidCap Value was up 12.43%, the Russell 1000 Growth was up 17.70% while
the Russell 1000 Value was up 12.85%, and the Russell 2000 Growth was up 16.36%
while the Russell 2000 Value was up 6.64%.
Hidden within the lofty one year performance numbers listed above is a pullback
that we saw in the markets this summer. Until mid-July, the markets were on a
roll. But panic over the meltdown in the sub-prime mortgage space led to a bout
of selling, and more troubling, created a deep sense of unease.
Given our view of the fundamental strength of many companies, of the global
economy, and of the U.S. economy, we think it's likely that the panic will
abate, and soon. Because the current problems are occurring in the heart of Wall
Street, they are generating substantial attention and causing significant angst.
Unlike the volatility in emerging markets that we saw earlier this year, the
meltdown of the sub-prime mortgage space is directly impacting the bottom line
of many Wall Street firms and hedge funds, not to mention several hundred
thousand homeowners.
Overall, however, many--including Fed chairman Bernanke--have pointed out in
recent weeks that the actual size of the sub-prime and related fallout is
perhaps 1% of the overall U.S. economy (approximately $100 billion). Even if
that figure is low, it is still dwarfed by the $55 trillion net worth of U.S.
households.
Also, the recent sell-off has obscured the fact that earnings growth has been
significantly better than Wall Street anticipated. At the beginning of the most
recent reporting season, consensus expectations were for about 4.2% growth. By
the time most companies reported at the end of August, the figure looked to be
at least 8%. Once again, companies have been outperforming for the same reasons:
global growth and low-ball estimates. Market pundits have been notably slow to
adjust their expectations and, with the current swoon, the result has been a
continued accentuation of the negative.
MARKET & ECONOMIC OUTLOOK: So where does this leave us? Is this the beginning of
"the end"? We don't think so. This has been a five-year bull market since
October 2002 and, like last summer's sell-off, we think this recent sell-off
will not end this bull. First, the U.S. housing market--the origin of the
mortgages and derivative securities based upon them--has been weakening for over
a year now. Astute banks pulled back on sub-prime lending not this year, but two
years ago. Some hedge funds, like those at Bear Stearns or Sowood Capital,
similarly chased high yields, levered them up, and then couldn't support the
margin calls when their positions declined in value. Frankly, highly levered
hedge funds are meant to do just that--they are designed to generate outsized
returns. Whether those returns will be positive or negative is another matter.
Financial stocks have suffered and may continue (individually) to do so if their
fundamentals continue to deteriorate. Perhaps we will even see further
consolidation and fund failures triggered by failures of risk management. There
will certainly be many hedge fund losses and closings, but there will also be
some spectacular "winners."
As for the overall investing climate globally, the world economy has grown at a
5% annual pace for the past several years; according to BCA Research, this is
the strongest expansion phase since 1960. We note that in the 1960s, PE
multiples often ranged from 18 to 20x plus. Today, the S&P 500 trades at roughly
15x 2007 earnings. Second, many U.S. companies are benefiting from international
sales to an extent never before seen. For the S&P 500, 30 to 40% of profits are
derived overseas; in some sectors and companies, the percentage is much higher
and the growth opportunity is unparalleled in both duration and scale. The
weakness of the U.S. dollar is yet one more factor that has benefited U.S.
companies doing business outside of the United States. Led by China, countries
with excess trade balances with the U.S. will, we believe, increasingly look to
recycle those surpluses by investing more broadly "overseas," and from their
perspective, U.S. companies and assets will look very attractive.
Also, it's worth recalling that there have been similar pullbacks each year for
at least the past three years and, each time, the markets came roaring back.
Beginning in late June of 2004, the S&P 500 declined 7%, but then recovered
beginning in mid-August, gaining nearly 8%. The market continued to gyrate ahead
of the 2004 election, down almost 5% in October and then up nearly 12% after the
election was over. In 2005, there was a late winter/early spring swoon of 7%,
followed by a recovery of 9%. In May of 2006, triggered by a bout of global
selling and concern over emerging markets, the S&P 500 declined nearly 8%, and
then after mid-June rose more than 16% for the remainder of the year.
11
<Page>
The current pullback has been a bit steeper, at about 10%, but it is still in
the realm of normal given recent trends. There have been much steeper
corrections in emerging markets over the past three years, followed by equally
steep recoveries and subsequent gains. In each of those previous sell-offs,
there was no dearth of commentary that some structural weakness in the markets
was being exposed and, however accurate, the predictions of doom and gloom
proved premature. This current imbroglio strikes us as more significant, insofar
as it has brought to an end (at least for the time being) a level of promiscuous
lending and unwise leverage in real estate and related investments. But the
fundamentals of the economy, of companies in general, and of the domestic and
global equity markets do not seem either weak or overvalued, and that is a
powerful sign that what lies ahead is likely to be another round of gains rather
than a sustained period of declines.
PORTFOLIO PERFORMANCE: It was another strong twelve month period for the SM&R
Alger Aggressive Growth Fund. The Fund returned 30.71% during the fiscal year
ended August 31, 2007 versus returns of 15.13% for the S&P 500 index and 18.65%
for the Lipper Multi-Cap Growth Fund index. Relative to the S&P 500 index, the
Fund benefited from solid security selection in all ten sectors. The greatest
impact came from our stock selection in the Financials, Consumer Discretionary,
Industrials, Health Care, Energy, Materials and Information Technology sectors.
At the sector level, there were no detractors for the one year time period.
Best regards,
Patrick Kelly, CFA, Portfolio Manager
SM&R Alger Aggressive Growth Fund
12
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R
ALGER AGGRESSIVE GROWTH FUND, CLASS A, AT OFFERING PRICE, AND LIPPER
MULTI-CAP GROWTH INDEX AND THE S&P 500
<Table>
<Caption>
SM&R ALGER
AGGRESSIVE LIPPER MULTI-CAP
GROWTH FUND S&P 500 GROWTH INDEX
------------- --------- ----------------
9/1/2000 $ 9,497 $ 10,000 $ 10,000
12/31/2000 $ 6,809 $ 8,731 $ 7,528
8/31/2001 $ 5,613 $ 7,561 $ 5,579
12/31/2001 $ 5,727 $ 7,693 $ 5,731
8/31/2002 $ 4,027 $ 6,201 $ 4,116
12/31/2002 $ 3,751 $ 5,993 $ 4,022
8/31/2003 $ 4,710 $ 6,949 $ 4,987
12/31/2003 $ 5,024 $ 7,712 $ 5,445
8/31/2004 $ 4,568 $ 7,745 $ 5,220
12/31/2004 $ 5,394 $ 8,551 $ 6,058
8/31/2005 $ 5,764 $ 8,717 $ 6,265
12/31/2005 $ 6,182 $ 8,971 $ 6,611
8/31/2006 $ 6,553 $ 9,491 $ 6,579
12/31/2006 $ 7,273 $ 10,388 $ 7,220
8/31/2007 $ 8,565 $ 10,928 $ 7,806
</Table>
SM&R Alger Aggressive Growth Fund performance figures reflect reinvestment of
all dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 5.00%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year declining to 1% in the fifth year, and is eliminated
thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 09/01/00.
<Table>
<Caption>
ONE FIVE SINCE
YEAR YEAR INCEPTION
--------- -------- -----------
Class A 24.23% 15.12% -2.19%
Class B 23.44% 15.26% -2.13%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 16.01%
Consumer Staples 4.93%
Energy 8.21%
Financials 10.61%
Health Care 13.38%
Industrials 13.06%
Information Technology 27.37%
Materials 2.24%
Miscellaneous 0.74%
Telecommunication Services 3.45%
</Table>
13
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
CASINOS & RESORTS--1.91%
Bally Technologies Inc. * 1,890 $ 62,691
HOTELS, RESTAURANTS & LEISURE--3.08%
Ctrip.com International Ltd. ADR 390 16,571
MGM Mirage * 235 19,733
Penn National Gaming, Inc. * 635 37,338
Starbucks Corp. * 995 27,412
----------
101,054
INTERNET & CATALOG RETAIL--2.00%
eBay Inc. * 1,930 65,813
LEISURE & ENTERTAINMENT--0.33%
Cinemark Holdings, Inc. 600 10,788
LEISURE EQUIPMENT & PRODUCTS--0.35%
Smith & Wesson Holding Corp. * 545 11,445
MEDIA--3.24%
Dolby Laboratiories Inc. * 1,000 36,430
DreamWorks Animation SKG, Inc. (Class A) * 980 30,233
Focus Media Holding Ltd. ADR * 620 24,967
NeuStar, Inc. (Class A) * 470 14,861
----------
106,491
RESTAURANTS & LODGING--2.59%
Hilton Hotels Corp. 1,855 85,237
RETAILING--1.62%
CVS Caremark Corp. 1,405 53,137
TEXTILES, APPAREL & LUXURY GOODS--1.05%
Iconix Brand Group, Inc. * 1,660 34,412
----------
TOTAL CONSUMER DISCRETIONARY--16.17% 531,068
----------
CONSUMER STAPLES--
HOUSEHOLD PRODUCTS--.93%
Procter & Gamble Co. (The) 470 30,696
TOBACCO--4.05%
Altria Group, Inc. 1,915 132,920
----------
TOTAL CONSUMER STAPLES--4.98% 163,616
----------
ENERGY--
ENERGY & ENERGY SERVICES--2.39%
Exterran Holdings Inc. * 695 53,862
Diamond Offshore Drilling, Inc. 155 16,300
First Solar, Inc. * 80 8,299
----------
78,461
ENERGY EQUIPMENT & SERVICES--3.84%
National-Oilwell Varco Inc. * 105 13,440
Weatherford International Ltd. * 1,930 112,673
----------
126,113
OIL & GAS--1.77%
Petrobank Energy & Resources Ltd. * 1,535 45,316
Range Resources Corp. 100 3,631
Warren Resources Inc. * 785 9,279
----------
58,226
OIL WELL EQUIPMENT & DRILLING--.30%
Concho Resources Inc. * 765 $ 9,708
----------
TOTAL ENERGY--8.30% 272,508
----------
FINANCIALS--
CAPITAL MARKETS--1.09%
Lazard Ltd. (Class A) 890 35,680
COMMERCIAL BANKS--0.26%
Bank of America Corp. 170 8,616
DIVERSIFIED FINANCIAL SERVICES--5.03%
AllianceBernstein Holding LP 475 39,240
CME Group Inc. 195 108,186
National Financial Partners Corp. 365 17,812
----------
165,238
FINANCE--2.09%
IntercontinentalExchange Inc. * 175 25,527
Nymex Holdings Inc. 335 43,222
----------
68,749
FINANCIAL SERVICES--1.27%
GFI Group Inc. * 563 41,662
INSURANCE--0.98%
American International Group, Inc. 485 32,010
----------
TOTAL FINANCIALS--10.72% 351,955
----------
HEALTH CARE--
BIOTECHNOLOGY--5.10%
Illumina, Inc. * 530 25,594
InterMune, Inc. * 325 6,425
Neurocrine Biosciences, Inc. * 1,010 10,070
Onyx Pharmaceuticals, Inc. * 1,040 41,205
Pharmion Corp. * 510 20,915
Regeneron Pharmaceuticals, Inc. * 555 10,800
United Therapeutics Corp. * 765 52,395
----------
167,404
HEALTH CARE EQUIPMENT & SUPPLIES--5.11%
Cytyc Corp. * 675 28,849
Hologic, Inc. * 1,911 101,570
Intuitive Surgical, Inc. * 145 32,086
Thoratec Corp. * 250 5,168
----------
167,673
HEALTH CARE PROVIDERS & SERVICES--.88%
Cardinal Health, Inc. 425 29,062
MEDICAL DEVICES--0.34%
Northstar Neuroscience, Inc. * 985 11,190
PHARMACEUTICALS--2.09%
Abbott Laboratories 770 39,971
Adams Respiratory Therapeutics, Inc. * 575 22,172
Salix Pharmaceuticals, Ltd. * 575 6,624
----------
68,767
----------
TOTAL HEALTH CARE--13.52% 444,096
----------
</Table>
14
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
INDUSTRIALS--
AEROSPACE & DEFENSE--3.79%
Boeing Co. (The) 195 $ 18,856
General Dynamics Corp. 1,345 105,663
----------
124,519
AIRLINES--0.75%
ACE Aviation Holdings Inc. (Class A) * 1,045 24,489
BUSINESS SERVICES--0.92%
Endeavor Acquisition Corp. * 2,760 30,084
COMMERCIAL SERVICES & SUPPLIES--2.08%
Monster Worldwide Inc. * 665 22,743
Net 1 UEPS Technologies, Inc. * 1,845 45,590
----------
68,333
CONSTRUCTION & ENGINEERING--0.57%
McDermott International, Inc. * 195 18,718
INDUSTRIAL CONGLOMERATES--0.65%
General Electric Co. 550 21,378
MACHINERY--4.44%
Cummins Inc. 845 100,065
Oshkosh Truck Corp. 790 45,733
----------
145,798
----------
TOTAL INDUSTRIALS--13.20% 433,319
----------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--1.12%
Research in Motion Ltd. * 145 12,384
Time Warner Telecom Inc. (Class A) * 1,105 24,255
----------
36,639
COMMUNICATIONS EQUIPMENT--0.39%
Sonus Networks, Inc. * 2,200 12,716
COMPUTER RELATED & BUSINESS SERVICES--3.06%
Apple Inc. * 345 47,776
Hewlett-Packard Co. 240 11,844
MEMC Electronic Materials, Inc. * 490 30,096
Network Appliance, Inc. * 385 10,726
----------
100,442
COMPUTERS & PERIPHERALS--1.08%
SanDisk Corp. * 635 35,598
INTERNET SOFTWARE & SERVICES--7.69%
DealerTrack Holdings Inc. * 797 30,445
Digital River, Inc. * 595 27,584
Google Inc. (Class A) * 220 113,355
SINA Corp. * 1,615 67,313
Switch and Data Facilities Co. * 210 3,629
Yahoo! Inc. * 455 10,342
----------
252,668
SEMICONDUCTORS--3.24%
Intel Corp. 1,580 40,685
Lam Research Corp. * 680 36,468
Varian Semiconductor Equipment Associates, Inc. * 525 29,206
----------
106,359
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--8.13%
Atheros Communications * 1,920 $ 57,427
ON Semiconductor Corp. * 10,690 125,287
Rambus Inc. * 245 3,695
Tessera Technologies Inc. * 2,195 80,403
----------
266,812
SOFTWARE--2.95%
Adobe Systems Inc. * 580 24,795
Microsoft Corp. 670 19,249
NAVTEQ Corp. * 585 36,855
Solera Holdings Inc. * 880 16,086
----------
96,985
----------
TOTAL INFORMATION TECHNOLOGY--27.66% 908,219
----------
MATERIALS--
CHEMICALS--0.87%
Celanese Corp. (Series A) 660 23,707
Zoltek Companies, Inc. * 120 4,955
----------
28,662
METALS--0.14%
SXR Uranium One, Inc. * 440 4,775
METALS & MINING--0.74%
Paladin Resources Ltd. * 4,900 24,353
MINING--0.51%
Freeport-McMoRan Copper & Gold, Inc. 190 16,610
----------
TOTAL MATERIALS--2.26% 74,400
----------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--3.49%
America Movil S.A.B. de C.V. (Series L) ADR 570 34,462
American Tower Corp. (Class A) * 643 25,476
NII Holdings Inc. * 690 54,634
----------
114,572
----------
TOTAL TELECOMMUNICATION SERVICES--3.49% 114,572
----------
TOTAL COMMON STOCK--100.30%
(Cost $3,113,213) 3,293,753
----------
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 24,511 24,511
----------
TOTAL MONEY MARKET FUND--0.75%
(Cost $24,511) 24,511
----------
TOTAL INVESTMENTS--101.05%
(Cost $3,137,724) 3,318,264
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.05)% (34,488)
----------
NET ASSETS--100.00% $3,283,776
==========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at August
31, 2007. A complete listing of the fund's holdings are included in
these financial statements. This fund and the SM&R Alger Aggressive
Growth Fund are affiliated by having the same investment adviser.
See notes to financial statements.
15
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $3,113,213) $ 3,293,753
Investment in affiliated money market fund (Cost $24,511) 24,511
---------------
Total investments (Cost $3,137,724) 3,318,264
Prepaid expenses 10,427
Receivable for:
Investment securities sold 61,406
Dividends 416
Expense reimbursement 6,254
---------------
TOTAL ASSETS 3,396,767
---------------
LIABILITIES
Investment securities purchased 82,068
Capital stock reacquired 7,947
Payable to investment adviser for fund expenses 11,991
Accrued:
Investment advisory fees 2,882
Administrative service fees 686
Distribution fees 4,704
Other liabilities 2,713
---------------
TOTAL LIABILITIES 112,991
---------------
NET ASSETS $ 3,283,776
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 2,441,844
Accumulated net realized gain (loss) on investments 661,392
Net unrealized appreciation of investments 180,540
---------------
NET ASSETS $ 3,283,776
===============
NET ASSETS:
Class A 2,215,164
Class B 1,068,612
---------------
TOTAL NET ASSETS $ 3,283,776
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,000
Outstanding 280,321
Class B:
Authorized 100,000,000
Outstanding 142,603
Class A:
Net asset value and redemption price per share $ 7.90
Offering price per share:
(Net assets value of $7.89 / 95%) $ 8.32
Class B:
Net asset value and offering price per share $ 7.49
</Table>
See notes to financial statements.
16
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $23) $ 22,174
Interest from affiliated money market fund 2,592
---------------
TOTAL INVESTMENT INCOME 24,766
---------------
EXPENSES
Investment advisory fees 32,202
Administrative service fees 7,667
Professional fees 226
Custody and transaction fees 43,419
Directors' fees and expenses 5,947
Compliance expenses 459
Qualification fees
Class A 10,260
Class B 7,765
Shareholder reporting expenses
Class A 929
Class B 472
Distribution fees
Class A 7,220
Class B 10,041
Insurance expenses 1,035
---------------
TOTAL EXPENSES 127,642
LESS EXPENSES REIMBURSED (69,206)
---------------
NET EXPENSES 58,436
---------------
INVESTMENT INCOME (LOSS)--NET (33,670)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 835,368
Change in unrealized appreciation of investments 4,393
---------------
NET GAIN (LOSS) ON INVESTMENTS 839,761
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 806,091
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (33,670) $ (27,106)
Net realized gain (loss) on investments 835,368 378,625
Change in unrealized appreciation of investments 4,393 (69,943)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 806,091 281,576
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital gains
Class A (253,768) --
Class B (127,269) --
--------------- ---------------
Total distributions to shareholders (381,037) --
--------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 76,278 252,756
Class B 65,273 84,851
--------------- ---------------
Total capital share transactions--net 141,551 337,607
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 566,605 619,183
NET ASSETS
Beginning of year 2,717,171 2,097,988
--------------- ---------------
End of year $ 3,283,776 $ 2,717,171
=============== ===============
</Table>
See notes to financial statements.
17
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of year $ 6.90 $ 6.07 $ 4.81 $ 4.96 $ 4.24
Income (loss) from investment operations
Investment income (loss)--net (0.07) (0.05) (0.04) (0.08) (0.06)
Net realized and unrealized gain (loss) on investments 2.04 0.88 1.30 (0.07) 0.78
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.97 0.83 1.26 (0.15) 0.72
Less distributions
Capital gains (0.97) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.97) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.90 $ 6.90 $ 6.07 $ 4.81 $ 4.96
========== ========== ========== ========== ==========
Total return (2) 30.88% 13.67% 26.20% (3.02)% 16.98%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $2,215,164 $1,845,307 $1,402,928 $1,034,437 $ 994,871
Ratio of expenses with reimbursement to average
net assets (3) 1.69% 1.76% 1.85% 1.85% 1.85%
Ratio of expenses without reimbursement to average
net assets 3.85% 4.02% 4.43% 4.17% 5.52%
Ratio of net investment income (loss) to average
net assets (0.89)% (0.90)% (0.68)% (1.43)% (1.27)%
Portfolio turnover rate 269.59% 200.29% 167.62% 159.89% 179.56%
<Caption>
CLASS B SHARES
------------------------------------------------------------------
YEAR ENDED AUGUST 31,
------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
---------- ---------- ---------- ---------- ----------
Net asset value, beginning of year $ 6.62 $ 5.87 $ 4.69 $ 4.87 $ 4.19
Income (loss) from investment operations
Investment income (loss)--net (0.11) (0.09) (0.07) (0.11) (0.08)
Net realized and unrealized gain (loss) on investments 1.95 0.84 1.25 (0.07) 0.76
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.84 0.75 1.18 (0.18) 0.68
Less distributions
Capital gains (0.97) -- -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions (0.97) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net asset value, end of year $ 7.49 $ 6.62 $ 5.87 $ 4.69 $ 4.87
========== ========== ========== ========== ==========
Total return (2) 30.14% 12.78% 25.16% (3.70)% 16.23%
========== ========== ========== ========== ==========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $1,068,612 $ 871,864 $ 695,060 $ 513,817 $ 442,489
Ratio of expenses with reimbursement to average
net assets (3) 2.34% 2.41% 2.50% 2.50% 2.50%
Ratio of expenses without reimbursement to average
net assets 4.78% 4.95% 5.75% 5.52% 7.36%
Ratio of net investment income (loss) to average
net assets (1.53)% (1.55)% (1.33)% (2.09)% (1.91)%
Portfolio turnover rate 269.59% 200.29% 167.62% 159.89% 179.56%
</Table>
(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 December 31, 2007.
See notes to financial statements.
18
<Page>
SM&R ALGER SMALL-CAP FUND
MANAGER DISCUSSION
INVESTMENT OBJECTIVE: The SM&R Alger Small-Cap Fund seeks to achieve long-term
capital appreciation. The fund normally invests at least 80% of its total assets
in the equity securities of small-capitalization companies listed on U.S.
exchanges or in the over-the-counter market. A small capitalization company is
one that has a market capitalization within the range of companies in the
Russell 2000 Growth Index or the S&P SmallCap 600 Index. During the recent
fiscal year, the management of the portfolio remained unchanged: a research
intensive, bottom-up approach focusing on the stocks of rapidly growing
companies undergoing positive dynamic change. Over the twelve months ending
August 31, 2007, management's growth stock bias provided an advantage in the
small cap space as the Russell 2000 Growth index outperformed the Russell 2000
Value index by nearly 10%.
MARKET REVIEW: The twelve months ending August 31, 2007 was a decidedly positive
time period for the domestic equity markets. The Dow Jones Industrial Average
was up more than 20%, the Nasdaq Composite was up nearly 19%, and the S&P 500
index was up over 15%. Within market capitalization ranges, although all market
capitalizations fared well, mid cap stocks led the way. The Russell MidCap
(representing mid cap stocks) was up 16%, the Russell 1000 (representing large
cap stocks) posted returns greater than 15%, and the Russell 2000 (representing
small cap stocks) returned more than 11%. In regard to the growth/value
spectrum, for the first time in several years, growth stocks notably outpaced
their value counterparts. The Russell MidCap Growth was up 19.31% while the
Russell MidCap Value was up 12.43%, the Russell 1000 Growth was up 17.70% while
the Russell 1000 Value was up 12.85%, and the Russell 2000 Growth was up 16.36%
while the Russell 2000 Value was up 6.64%.
Hidden within the lofty one year performance numbers listed above is a pullback
that we saw in the markets this summer. Until mid-July, the markets were on a
roll. But panic over the meltdown in the sub-prime mortgage space led to a bout
of selling, and more troubling, created a deep sense of unease.
Given our view of the fundamental strength of many companies, of the global
economy, and of the U.S. economy, we think it's likely that the panic will
abate, and soon. Because the current problems are occurring in the heart of Wall
Street, they are generating substantial attention and causing significant angst.
Unlike the volatility in emerging markets that we saw earlier this year, the
meltdown of the sub-prime mortgage space is directly impacting the bottom line
of many Wall Street firms and hedge funds, not to mention several hundred
thousand homeowners.
Overall, however, many--including Fed chairman Bernanke--have pointed out in
recent weeks that the actual size of the sub-prime and related fallout is
perhaps 1% of the overall U.S. economy (approximately $100 billion). Even if
that figure is low, it is still dwarfed by the $55 trillion net worth of U.S.
households.
Also, the recent sell-off has obscured the fact that earnings growth has been
significantly better than Wall Street anticipated. At the beginning of the most
recent reporting season, consensus expectations were for about 4.2% growth. By
the time most companies reported at the end of August, the figure looked to be
at least 8%. Once again, companies have been outperforming for the same reasons:
global growth and low-ball estimates. Market pundits have been notably slow to
adjust their expectations and, with the current swoon, the result has been a
continued accentuation of the negative.
MARKET & ECONOMIC OUTLOOK: So where does this leave us? Is this the beginning of
"the end"? We don't think so. This has been a five-year bull market since
October 2002 and, like last summer's sell-off, we think this recent sell-off
will not end this bull. First, the U.S. housing market--the origin of the
mortgages and derivative securities based upon them--has been weakening for over
a year now. Astute banks pulled back on sub-prime lending not this year, but two
years ago. Some hedge funds, like those at Bear Stearns or Sowood Capital,
similarly chased high yields, levered them up, and then couldn't support the
margin calls when their positions declined in value. Frankly, highly levered
hedge funds are meant to do just that--they are designed to generate outsized
returns. Whether those returns will be positive or negative is another matter.
Financial stocks have suffered and may continue (individually) to do so if their
fundamentals continue to deteriorate. Perhaps we will even see further
consolidation and fund failures triggered by failures of risk management. There
will certainly be many hedge fund losses and closings, but there will also be
some spectacular "winners."
As for the overall investing climate globally, the world economy has grown at a
5% annual pace for the past several years; according to BCA Research, this is
the strongest expansion phase since 1960. We note that in the 1960s, PE
multiples often ranged from 18 to 20x plus. Today, the S&P 500 trades at roughly
15x 2007 earnings. Second, many U.S. companies are benefiting from international
sales to an extent never before seen. For the S&P 500, 30 to 40% of profits are
derived overseas; in some sectors and companies, the percentage is much higher
and the growth opportunity is unparalleled in both duration and scale. The
weakness of the U.S. dollar is yet one more factor that has benefited U.S.
companies doing business outside of the United States. Led by China, countries
with excess trade balances with the U.S. will, we believe, increasingly look to
recycle those surpluses by investing more broadly "overseas," and from their
perspective, U.S. companies and assets will look very attractive.
Also, it's worth recalling that there have been similar pullbacks each year for
at least the past three years and, each time, the markets came roaring back.
Beginning in late June of 2004, the S&P 500 declined 7%, but then recovered
beginning in mid-August, gaining nearly 8%. The market continued to gyrate ahead
of the 2004 election, down almost 5% in October and then up nearly 12% after the
election was over. In 2005,
19
<Page>
there was a late winter/early spring swoon of 7%, followed by a recovery of 9%.
In May of 2006, triggered by a bout of global selling and concern over emerging
markets, the S&P 500 declined nearly 8%, and then after mid-June rose more than
16% for the remainder of the year.
The current pullback has been a bit steeper, at about 10%, but it is still in
the realm of normal given recent trends. There have been much steeper
corrections in emerging markets over the past three years, followed by equally
steep recoveries and subsequent gains. In each of those previous sell-offs,
there was no dearth of commentary that some structural weakness in the markets
was being exposed and, however accurate, the predictions of doom and gloom
proved premature. This current imbroglio strikes us as more significant, insofar
as it has brought to an end (at least for the time being) a level of promiscuous
lending and unwise leverage in real estate and related investments. But the
fundamentals of the economy, of companies in general, and of the domestic and
global equity markets do not seem either weak or overvalued, and that is a
powerful sign that what lies ahead is likely to be another round of gains rather
than a sustained period of declines.
PORTFOLIO PERFORMANCE: The fiscal year ended August 31, 2007 was another strong
period for the SM&R Alger Small-Cap Fund. Over the twelve month period, the Fund
returned 24.52% versus a return of 15.13% for the S&P 500 index and a return of
18.72% for the Lipper Small-Cap Growth Fund index. Relative to the S&P 500
index, the Fund benefited from solid security selection in nine out of ten
sectors, with the greatest impact coming from our stock selection in the
Consumer Staples, Health Care, Consumer Discretionary and Industrials sectors.
Relative performance was also bolstered by an underweighting in the relatively
weak Financials sector. Relative performance was hurt by an underweighting and
slight underperformance in the strong Energy sector.
Best regards,
Jill Greenwald, CPA, Portfolio Manager
SM&R Alger Small-Cap Fund
20
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R ALGER
SMALL-CAP FUND, CLASS A, AT OFFERING PRICE, AND LIPPER SMALL-CAP GROWTH INDEX
AND THE S&P 500
<Table>
<Caption>
SM&R ALGER
SMALL CAP LIPPER
FUND S&P 500 SMALL-CAP GROWTH INDEX
------------ -------------- ----------------------
9/1/2000 $ 9,497 $ 10,000 $ 10,000
12/31/2000 $ 7,863 $ 8,731 $ 7,940
8/31/2001 $ 5,261 $ 7,561 $ 6,676
12/31/2001 $ 5,508 $ 7,693 $ 6,928
8/31/2002 $ 4,112 $ 6,201 $ 5,049
12/31/2002 $ 3,998 $ 5,993 $ 5,001
8/31/2003 $ 5,185 $ 6,949 $ 6,619
12/31/2003 $ 5,708 $ 7,712 $ 7,240
8/31/2004 $ 5,442 $ 7,745 $ 6,607
12/31/2004 $ 6,578 $ 8,551 $ 8,022
8/31/2005 $ 7,218 $ 8,717 $ 8,263
12/31/2005 $ 7,592 $ 8,971 $ 8,450
8/31/2006 $ 8,029 $ 9,491 $ 8,534
12/31/2006 $ 8,985 $ 10,388 $ 9,350
8/31/2007 $ 9,998 $ 10,928 $ 10,131
</Table>
SM&R Alger Small Cap Fund performance figures reflect reinvestment of all
dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 5.00%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year declining to 1% in the fifth year, and is eliminated
thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07.
Inception date of these classes is 09/01/00.
<Table>
<Caption>
ONE FIVE SINCE
YEAR YEAR INCEPTION
-------- ------ ---------
Class A 18.25% 18.21% 0.00%
Class B 17.58% 18.67% 0.37%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 17.48%
Consumer Staples 1.28%
Energy 6.28%
Financials 10.42%
Health Care 18.24%
Industrials 16.70%
Information Technology 24.54%
Materials 3.14%
Miscellaneous 0.57%
Telecommunication Services 1.35%
</Table>
21
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
APPAREL--0.81%
bebe stores, inc 2,395 $ 33,410
AUTO COMPONENTS--2.22%
LKQ Corp. * 1,680 52,046
Tenneco Inc. * 1,240 39,370
------------
91,416
CASINOS & RESORTS--1.30%
Bally Technologies Inc. * 1,615 53,570
HOTELS, RESTAURANTS & LEISURE--2.11%
Ameristar Casinos, Inc. 1,450 41,919
McCormick & Schmicks Seafood Restaurants, Inc. * 1,700 45,050
------------
86,969
INTERNET & CATALOG RETAIL--3.17%
Coldwater Creek Inc. * 2,150 26,746
GSI Commerce, Inc. * 1,315 30,258
Priceline.com Inc. * 670 55,597
VistaPrint Ltd. * 540 17,755
------------
130,356
LEISURE EQUIPMENT & SERVICES--1.20%
LIFE TIME FITNESS, Inc. * 885 49,179
MEDIA--1.30%
NeuStar, Inc. (Class A) * 1,380 43,636
World Wresting Entertainment, Inc. (Class A) 660 9,999
------------
53,635
RETAILING--1.14%
Phillips-Van Heusen Corp. 805 46,875
SPECIALTY RETAIL--2.10%
Aeropostale, Inc. * 1,170 24,219
Carter's, Inc. * 1,460 28,820
DSW Inc. (Class A) * 1,090 33,190
------------
86,229
TEXTILES, APPAREL & LUXURY GOODS--2.14%
Deckers Outdoor Corp. * 420 39,560
Iconix Brand Group, Inc. * 2,350 48,715
------------
88,275
------------
TOTAL CONSUMER DISCRETIONARY--17.49% 719,914
------------
CONSUMER STAPLES--
FOOD PRODUCTS--1.28%
Hain Celestial Group Inc. (The) * 1,795 52,522
------------
TOTAL CONSUMER STAPLES--1.28% 52,522
------------
ENERGY--
ENERGY & ENERGY SERVICES--1.92%
Dril-Quip, Inc. * 1,055 49,648
Horizon Offshore, Inc. * 1,785 29,542
------------
79,190
ENERGY EQUIPMENT & SERVICES--1.44%
North American Energy Partners Inc. * 2,165 $ 37,368
T-3 Energy Services, Inc. * 710 21,960
------------
59,328
OIL & GAS--2.80%
Carrizo Oil & Gas, Inc. * 940 36,914
Mariner Energy Inc. * 1,910 40,053
Petrobank Energy & Resources Ltd. * 1,295 38,231
------------
115,198
OIL WELL EQUIPMENT & DRILLING--0.12%
Concho Resources Inc. * 375 4,759
------------
TOTAL ENERGY--6.28% 258,475
------------
FINANCIALS--
CAPITAL MARKETS--1.80%
Cohen & Steers, Inc. 975 32,399
Greenhill & Co., Inc. 720 41,688
------------
74,087
COMMERCIAL BANKS--3.54%
Boston Private Financial Holdings, Inc. 1,580 42,897
First Midwest Bancorp, Inc. 940 32,233
Signature Bank * 1,395 48,211
Wintrust Financial Corp. 517 22,303
------------
145,644
FINANCIAL SERVICES--1.66%
GFI Group Inc. * 740 54,760
WNS Holdings Ltd. ADR * 740 13,505
------------
68,265
INSURANCE--1.10%
First Mercury Financial Corp. * 2,220 45,244
REAL ESTATE MANAGEMENT--0.52%
HFF Inc. (Class A) * 1,835 21,433
THRIFTS & MORTGAGE FINANCE--0.77%
FirstFed Financial Corp. * 635 31,909
TRADING COMPANIES & DISTRIBUTORS--1.03%
Williams Scotsman International Inc. * 1,550 42,330
------------
TOTAL FINANCIALS--10.42% 428,912
------------
HEALTH CARE--
BIOTECHNOLOGY--8.08%
Arena Pharmaceuticals, Inc. * 1,800 24,120
Illumina, Inc. * 870 42,012
InterMune, Inc. * 870 17,200
Neurocrine Biosciences, Inc. * 2,060 20,538
Omrix Biopharmaceuticals, Inc. * 1,320 46,213
Onyx Pharmaceuticals, Inc. * 1,175 46,553
Progenics Pharmaceuticals, Inc. * 1,410 32,529
Regeneron Pharmaceuticals, Inc. * 1,355 26,368
Savient Pharmaceuticals Inc. * 1,785 23,526
United Therapeutics Corp. * 780 53,422
------------
332,481
</Table>
22
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
HEALTH CARE EQUIPMENT & SUPPLIES--3.75%
Hologic, Inc. * 900 $ 47,835
Inverness Medical Innovations, Inc. * 745 35,864
Kyphon Inc. * 490 32,766
Thoratec Corp. * 1,828 37,785
------------
154,250
HEALTH CARE PROVIDERS & SERVICES--3.19%
Gentiva Health Services, Inc. * 1,035 21,466
PAREXEL International Corp. * 1,302 55,999
Psychiatric Solutions, Inc. * 1,460 53,816
------------
131,281
MEDICAL DEVICES--0.59%
Dexcom Inc. * 2,665 24,518
MEDICAL TECHNOLOGY--1.67%
Allscripts Healthcare Solutions, Inc. * 2,080 47,029
Acorda Therapeutics Inc. * 1,200 21,588
------------
68,617
PHARMACEUTICALS--0.96%
Adams Respiratory Therapeutics, Inc. * 1,030 39,717
------------
TOTAL HEALTH CARE--18.24% 750,864
------------
INDUSTRIALS--
AEROSPACE--1.36%
BE Aerospace, Inc. * 1,430 55,727
AEROSPACE & DEFENSE--1.27%
Esterline Technologies Corp. * 1,035 52,257
AIRLINES--0.83%
AirTran Holdings, Inc. * 3,250 34,157
BUSINESS SERVICES--0.86%
TeleTech Holdings, Inc. * 1,215 35,539
COMMERCIAL SERVICES & SUPPLIES--3.55%
American Reprographics Co. * 1,385 33,836
FTI Consulting Inc. * 1,050 55,146
Geo Group Inc. (The) * 1,920 57,158
------------
146,140
CONSTRUCTION & ENGINEERING--1.29%
URS Corp. * 990 52,906
ELECTRICAL EQUIPMENT--1.36%
ITC Holdings Corp. 1,255 55,822
ENGINEERING--0.68%
Aecom Technology Corp. * 1045 28,079
MACHINERY--4.39%
Actuant Corp. (Class A) 835 50,927
Bucyrus International, Inc. (Class A) 820 51,242
CLARCOR Inc. 770 29,814
RBC Bearings Inc. * 1,375 48,812
------------
180,795
MANUFACTORING--1.12%
Silgan Holdings Inc. 905 46,236
------------
TOTAL INDUSTRIALS--16.71% 687,658
------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS--1.91%
Dobson Communications Corp. (Class-A) * 3,455 $ 43,637
Time Warner Telecom Inc. (Class-A) * 1,605 35,230
------------
78,867
COMMUNICATIONS EQUIPMENT--3.98%
Foundry Networks, Inc. * 1,730 31,988
NICE Systems Ltd. * 1,510 53,424
Polycom, Inc. * 1,570 47,587
Sonus Networks, Inc. * 5,310 30,692
------------
163,691
COMPUTER SOFTWARE--1.90%
TIBCO Software Inc. * 3,175 25,114
VeriFone Holdings, Inc. * 1,440 53,222
------------
78,336
COMPUTERS & PERIPHERALS--0.87%
Synaptics Inc. * 825 35,723
INFORMATION TECHNOLOGY SERVICES--0.92%
SI International Inc. * 1,230 37,909
INTERNET SOFTWARE & SERVICES--5.67%
Acme Packet, Inc. * 2,125 31,833
DealerTrack Holdings Inc. * 1,290 49,278
Digital River, Inc. * 910 42,188
Internap Network Services Corp. * 2,317 32,508
Omniture, Inc. * 1,255 31,137
Wright Express Corp. * 1,255 46,297
------------
233,241
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--4.78%
Atheros Communications * 1,725 51,595
FormFactor Inc. * 1,180 53,525
ON Semiconductor Corp. * 4,255 49,869
Tessera Technologies Inc. * 1,140 41,758
------------
196,747
SEMICONDUCTORS--0.71%
Cirrus Logic, Inc. * 4,275 29,113
SEMICONDUCTORS CAPITAL EQUIPMENT--0.55%
SiRF Technology Holdings, Inc. * 1,350 22,761
SOFTWARE--3.26%
ANSYS, Inc. * 1,730 57,315
Solera Holdings Inc. * 1,415 25,866
Synchronoss Technologies, Inc. * 1,465 50,894
------------
134,075
------------
TOTAL INFORMATION TECHNOLOGY--24.55% 1,010,463
------------
MATERIALS--
CHEMICALS--0.91%
Zoltek Companies, Inc. * 910 37,574
METALS--0.79%
SXR Uranium One, Inc. * 3,015 32,719
</Table>
23
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
METALS & MINING--1.44%
Breakwater Resources, Ltd. * 9,315 $ 24,312
Thompson Creek Metals Co., Inc. * 2,070 34,811
------------
59,123
------------
TOTAL MATERIALS--3.14% 129,416
------------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--1.35%
SBA Communications Corp. (Class A) * 1,706 55,564
------------
TOTAL TELECOMMUNICATION SERVICES--1.35% 55,564
------------
TOTAL COMMON STOCK--99.46%
(Cost $3,389,569) 4,093,788
------------
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 23,434 23,434
------------
TOTAL MONEY MARKET FUND--0.57%
(Cost $23,434) 23,434
------------
TOTAL INVESTMENTS--100.03% 4,117,222
(Cost $3,413,003) (1,179)
------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.03)% $ 4,116,043
NET ASSETS--100.00% ============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at
August 31, 2007. A complete listing of the fund's holdings are
included in these financial statements. This fund and the SM&R Alger
Small-Cap Fund are affiliated by having the same investment adviser.
See notes to financial statements.
24
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R ALGER SMALL-CAP FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $3,389,569) $ 4,093,788
Investment in affiliated money market fund (Cost $23,434) 23,434
---------------
Total investments (Cost $3,413,003) 4,117,222
Prepaid expenses 10,626
Receivable for:
Investment securities sold 39,016
Capital stock sold 642
Dividends 1,197
Expense reimbursement 4,567
---------------
TOTAL ASSETS 4,173,270
---------------
LIABILITIES
Investment securities purchased 31,642
Payable to investment adviser for fund expenses 12,426
Accrued:
Investment advisory fees 3,486
Administrative service fees 872
Distribution fees 5,287
Other liabilities 3,514
---------------
TOTAL LIABILITIES 57,227
---------------
NET ASSETS $ 4,116,043
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 2,953,367
Accumulated net realized gain (loss) on investments 458,457
Net unrealized appreciation of investments 704,219
---------------
NET ASSETS $ 4,116,043
===============
NET ASSETS:
Class A 3,196,394
Class B 919,649
---------------
TOTAL NET ASSETS $ 4,116,043
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,000
Outstanding 363,822
Class B:
Authorized 100,000,000
Outstanding 107,685
Class A:
Net asset value and redemption price per share $ 8.79
Offering price per share: (Net assets value of $8.79 / 95%) $ 9.25
Class B:
Net asset value and offering price per share $ 8.54
</Table>
See notes to financial statements.
25
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R ALGER SMALL-CAP FUND
<Table>
INVESTMENT INCOME
Dividends $ 8,355
Interest from affiliated money market fund 5,413
------------
TOTAL INVESTMENT INCOME 13,768
------------
EXPENSES
Investment advisory fees 39,055
Administrative service fees 9,764
Professional fees 542
Custody and transaction fees 23,792
Directors' fees and expenses 5,947
Compliance expenses 552
Qualification fees
Class A 9,472
Class B 6,716
Shareholder reporting expenses
Class A 1,617
Class B 547
Distribution fees
Class A 10,462
Class B 9,163
Insurance expenses 1,309
------------
TOTAL EXPENSES 118,938
LESS EXPENSES REIMBURSED (44,937)
------------
NET EXPENSES 74,001
------------
INVESTMENT INCOME (LOSS)--NET (60,233)
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 558,690
Change in unrealized appreciation of investments 353,058
------------
NET GAIN (LOSS) ON INVESTMENTS 911,748
------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 851,515
============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------
2007 2006
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (60,233) $ (40,604)
Net realized gain (loss) on investments 558,690 208,778
Change in unrealized appreciation of investments 353,058 37,298
------------ ------------
Net increase (decrease) in net assets resulting from operations 851,515 205,472
------------ ------------
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 176,967 1,130,748
Class B (61,641) 222,922
------------ ------------
Total capital share transactions--net 115,326 1,353,670
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 813,592 1,304,090
NET ASSETS
Beginning of year 3,302,451 1,998,361
------------ ------------
End of year $ 4,116,043 $ 3,302,451
============ ============
</Table>
See notes to financial statements.
26
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of year $ 7.35 $ 7.44 $ 5.73 $ 5.46 $ 4.33
Income (loss) from investment operations
Investment income (loss)--net (0.11) (0.08) (0.10) (0.10) (0.07)
Net realized and unrealized gain (loss)
on investments 1.88 0.87 1.96 0.37 1.20
----------- ----------- ----------- ----------- -----------
Total from investment operations 1.77 0.79 1.86 0.27 1.13
Less distributions
Capital gains (0.33) (0.88) (0.15) -- --
----------- ----------- ----------- ----------- -----------
Total distributions (0.33) (0.88) (0.15) -- --
----------- ----------- ----------- ----------- -----------
Net asset value, end of year $ 8.79 $ 7.35 $ 7.44 $ 5.73 $ 5.46
=========== =========== =========== =========== ===========
Total return (2) 24.52% 11.24% 32.64% 4.94% 26.10%
=========== =========== =========== =========== ===========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 3,196,394 $ 2,485,024 $ 1,388,538 $ 978,028 $ 789,625
Ratio of expenses with reimbursement to
average net assets (3) 1.74% 1.79% 1.90% 1.90% 1.90%
Ratio of expenses without reimbursement
to average net assets 2.79% 3.42% 4.55% 4.65% 6.89%
Ratio of net investment income (loss) to
average net assets (1.39)% (1.31)% (1.49)% (1.70)% (1.64)%
Portfolio turnover rate 80.59% 83.78% 126.84% 143.21% 131.48%
<Caption>
CLASS B SHARES
---------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
----------- ----------- ----------- ----------- -----------
Net asset value, beginning of year $ 7.19 $ 7.34 $ 5.69 $ 5.47 $ 4.32
Income (loss) from investment operations
Investment income (loss)--net (0.17) (0.13) (0.14) (0.14) (0.10)
Net realized and unrealized gain (loss)
on investments 1.85 0.86 1.94 0.36 1.25
----------- ----------- ----------- ----------- ------------
Total from investment operations 1.68 0.73 1.80 0.22 1.15
Less distributions
Capital gains (0.33) (0.88) (0.15) -- --
----------- ----------- ----------- ----------- ------------
Total distributions (0.33) (0.88) (0.15) -- --
----------- ----------- ----------- ----------- ------------
Net asset value, end of year $ 8.54 $ 7.19 $ 7.34 $ 5.69 $ 5.47
=========== =========== =========== =========== ============
Total return (2) 23.79% 10.51% 31.80% 4.02% 26.62%
=========== =========== =========== =========== ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 919,649 $ 817,427 $ 609,823 $ 453,751 $ 372,330
Ratio of expenses with reimbursement to
average net assets (3) 2.39% 2.46% 2.55% 2.55% 2.55%
Ratio of expenses without reimbursement to
average net assets 3.87% 4.58% 6.06% 6.11% 9.05%
Ratio of net investment income (loss) to
average net assets (2.04)% (1.97)% (2.14)% (2.35)% (2.29)%
Portfolio turnover rate 80.59% 83.78% 126.84% 143.21% 131.48%
</Table>
(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 1.90% for Class A
and 2.55% for Class B until December 31, 2007.
See notes to financial statements.
27
<Page>
SM&R ALGER GROWTH FUND
MANAGER DISCUSSION
INVESTMENT OBJECTIVE: The SM&R Alger Growth Fund seeks to achieve long-term
capital appreciation. The fund normally invests at least 65% of its total assets
in the equity securities of large companies listed on U.S. exchanges or in the
over-the-counter market. The Fund considers a large company to have a market
capitalization of $10 billion or greater. During the recent fiscal year, the
management of the portfolio remained unchanged: a research intensive, bottom-up
approach focusing on the stocks of rapidly growing companies undergoing positive
dynamic change. Over the twelve months ending August 31, 2007, management's
growth stock bias provided an advantage in the large cap space as the Russell
1000 Growth index outperformed the Russell 1000 Value index by nearly 5%.
MARKET REVIEW: The twelve months ending August 31, 2007 was a decidedly positive
time period for the domestic equity markets. The Dow Jones Industrial Average
was up more than 20%, the Nasdaq Composite was up nearly 19%, and the S&P 500
index was up over 15%. Within market capitalization ranges, although all market
capitalizations fared well, mid cap stocks led the way. The Russell MidCap
(representing mid cap stocks) was up 16%, the Russell 1000 (representing large
cap stocks) posted returns greater than 15%, and the Russell 2000 (representing
small cap stocks) returned more than 11%. In regard to the growth/value
spectrum, for the first time in several years, growth stocks notably outpaced
their value counterparts. The Russell MidCap Growth was up 19.31% while the
Russell MidCap Value was up 12.43%, the Russell 1000 Growth was up 17.70% while
the Russell 1000 Value was up 12.85%, and the Russell 2000 Growth was up 16.36%
while the Russell 2000 Value was up 6.64%.
Hidden within the lofty one year performance numbers listed above is a pullback
that we saw in the markets this summer. Until mid-July, the markets were on a
roll. But panic over the meltdown in the sub-prime mortgage space led to a bout
of selling, and more troubling, created a deep sense of unease.
Given our view of the fundamental strength of many companies, of the global
economy, and of the U.S. economy, we think it's likely that the panic will
abate, and soon. Because the current problems are occurring in the heart of Wall
Street, they are generating substantial attention and causing significant angst.
Unlike the volatility in emerging markets that we saw earlier this year, the
meltdown of the sub-prime mortgage space is directly impacting the bottom line
of many Wall Street firms and hedge funds, not to mention several hundred
thousand homeowners.
Overall, however, many--including Fed chairman Bernanke--have pointed out in
recent weeks that the actual size of the sub-prime and related fallout is
perhaps 1% of the overall U.S. economy (approximately $100 billion). Even if
that figure is low, it is still dwarfed by the $55 trillion net worth of U.S.
households.
Also, the recent sell-off has obscured the fact that earnings growth has been
significantly better than Wall Street anticipated. At the beginning of the most
recent reporting season, consensus expectations were for about 4.2% growth. By
the time most companies reported at the end of August, the figure looked to be
at least 8%. Once again, companies have been outperforming for the same reasons:
global growth and low-ball estimates. Market pundits have been notably slow to
adjust their expectations and, with the current swoon, the result has been a
continued accentuation of the negative.
MARKET & ECONOMIC OUTLOOK: So where does this leave us? Is this the beginning of
"the end"? We don't think so. This has been a five-year bull market since
October 2002 and, like last summer's sell-off, we think this recent sell-off
will not end this bull. First, the U.S. housing market--the origin of the
mortgages and derivative securities based upon them--has been weakening for over
a year now. Astute banks pulled back on sub-prime lending not this year, but two
years ago. Some hedge funds, like those at Bear Stearns or Sowood Capital,
similarly chased high yields, levered them up, and then couldn't support the
margin calls when their positions declined in value. Frankly, highly levered
hedge funds are meant to do just that--they are designed to generate outsized
returns. Whether those returns will be positive or negative is another matter.
Financial stocks have suffered and may continue (individually) to do so if their
fundamentals continue to deteriorate. Perhaps we will even see further
consolidation and fund failures triggered by failures of risk management. There
will certainly be many hedge fund losses and closings, but there will also be
some spectacular "winners."
As for the overall investing climate globally, the world economy has grown at a
5% annual pace for the past several years; according to BCA Research, this is
the strongest expansion phase since 1960. We note that in the 1960s, PE
multiples often ranged from 18 to 20x plus. Today, the S&P 500 trades at roughly
15x 2007 earnings. Second, many U.S. companies are benefiting from international
sales to an extent never before seen. For the S&P 500, 30 to 40% of profits are
derived overseas; in some sectors and companies, the percentage is much higher
and the growth opportunity is unparalleled in both duration and scale. The
weakness of the U.S. dollar is yet one more factor that has benefited U.S.
companies doing business outside of the United States. Led by China, countries
with excess trade balances with the U.S. will, we believe, increasingly look to
recycle those surpluses by investing more broadly "overseas," and from their
perspective, U.S. companies and assets will look very attractive.
Also, it's worth recalling that there have been similar pullbacks each year for
at least the past three years and, each time, the markets came roaring back.
Beginning in late June of 2004, the S&P 500 declined 7%, but then recovered
beginning in mid-August, gaining nearly 8%. The market continued to gyrate ahead
of the 2004 election, down almost 5% in October and then up nearly 12% after the
election was over. In 2005, there was a late winter/early spring swoon of 7%,
followed by a recovery of 9%. In May of 2006, triggered by a bout of global
selling and concern over emerging markets, the S&P 500 declined nearly 8%, and
then after mid-June rose more than 16% for the remainder of the year.
28
<Page>
The current pullback has been a bit steeper, at about 10%, but it is still in
the realm of normal given recent trends. There have been much steeper
corrections in emerging markets over the past three years, followed by equally
steep recoveries and subsequent gains. In each of those previous sell-offs,
there was no dearth of commentary that some structural weakness in the markets
was being exposed and, however accurate, the predictions of doom and gloom
proved premature. This current imbroglio strikes us as more significant, insofar
as it has brought to an end (at least for the time being) a level of promiscuous
lending and unwise leverage in real estate and related investments. But the
fundamentals of the economy, of companies in general, and of the domestic and
global equity markets do not seem either weak or overvalued, and that is a
powerful sign that what lies ahead is likely to be another round of gains rather
than a sustained period of declines.
PORTFOLIO PERFORMANCE: It was a strong twelve month period for the SM&R Alger
Growth Fund. The Fund returned 26.88% versus a return of 15.13% for the S&P 500
index and a return of 16.90% for the Lipper Large-Cap Growth Fund index.
Relative to the S&P 500 index, the Fund benefited from solid security selection
within the Information Technology, Consumer Discretionary and Energy sectors.
The Fund also benefited from an underweighting in the relatively weak Financials
sector. Health Care was the only notably detracting sector.
Best regards,
Dan Chung, CFA, Portfolio Manager
SM&R Alger Growth Fund
29
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R ALGER
GROWTH FUND, CLASS A, AT OFFERING PRICE, AND LIPPER LARGE-CAP GROWTH INDEX
AND THE S&P 500
<Table>
<Caption>
SM&R
ALGER GROWTH
FUND S&P 500 LIPPER LARGE-CAP GROWTH INDEX
------------ --------- -----------------------------
9/1/2000 $ 9,497 $10,000 $10,000
12/31/2000 $ 7,265 $ 8,731 $ 7,528
8/31/2001 $ 6,059 $ 7,561 $ 5,579
12/31/2001 $ 6,125 $ 7,693 $ 5,731
8/31/2002 $ 4,349 $ 6,201 $ 4,372
12/31/2002 $ 4,065 $ 5,993 $ 4,120
8/31/2003 $ 4,938 $ 6,949 $ 4,855
12/31/2003 $ 5,423 $ 7,712 $ 5,231
8/31/2004 $ 4,976 $ 7,745 $ 4,993
12/31/2004 $ 5,689 $ 8,551 $ 5,621
8/31/2005 $ 6,078 $ 8,717 $ 5,766
12/31/2005 $ 6,306 $ 8,971 $ 6,047
8/31/2006 $ 5,992 $ 9,491 $ 5,852
12/31/2006 $ 6,577 $10,388 $ 6,332
8/31/2007 $ 7,603 $10,928 $ 6,841
</Table>
SM&R Alger Growth Fund performance figures reflect reinvestment of all dividends
and capital gains distributions and changes in net asset value. Returns for
Class A and B will vary due to differences in expenses and sales charge
structure. Average annual returns are based on the maximum sales charge and
reinvestment of all dividends and capital gains. The average annual returns for
Class A shares reflect the current maximum sales charge of 5.00%. Class B shares
reflect the applicable contingent deferred sales charge (CDSC), which is 5% in
the first year declining to 1% in the fifth year, and is eliminated thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 09/01/00.
<Table>
<Caption>
ONE FIVE SINCE
YEAR YEAR INCEPTION
----- ----- ---------
Class A 20.57% 10.68% -3.84%
Class B 20.01% 10.89% -3.76%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 11.48%
Consumer Staples 9.27%
Energy 8.35%
Financials 7.76%
Health Care 8.74%
Industrials 14.30%
Information Technology 27.95%
Materials 6.36%
Miscellaneous 0.58%
Telecommunication Services 3.36%
Utilities 1.85%
</Table>
30
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R ALGER GROWTH FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--3.71%
MGM Mirage * 715 $ 60,039
Royal Caribbean Cruises Ltd. 375 14,261
Starbucks Corp. * 1,725 47,524
-----------
121,824
INTERNET & CATALOG RETAIL--2.52%
eBay Inc. * 2,425 82,692
MEDIA--0.59%
XM Satellite Radio Holdings Inc. (Class A) * 1,555 19,391
MULTI-LINE RETAIL--1.48%
Costco Wholesale Corp. 495 30,566
Target Corp. 275 18,131
-----------
48,697
RESTAURANTS & LODGING--2.21%
Hilton Hotels Corp. 1,580 72,601
RETAILING--1.10%
CVS Caremark Corp. 955 36,118
-----------
TOTAL CONSUMER DISCRETIONARY--11.61% 381,323
-----------
CONSUMER STAPLES--
BEVERAGES--1.50%
PepsiCo, Inc. 725 49,322
FOOD & STAPLES RETAILING--2.62%
Walgreen Co. 740 33,352
Whole Foods Market, Inc. 1,190 52,669
-----------
86,021
FOOD PRODUCTS--1.53%
Kraft Foods Inc. (Class A) 1,569 50,302
HOUSEHOLD PRODUCTS--2.14%
Procter & Gamble Co. (The) 1,075 70,208
TOBACCO--1.59%
Altria Group, Inc. 750 52,057
-----------
TOTAL CONSUMER STAPLES--9.38% 307,910
-----------
ENERGY--
ENERGY & ENERGY SERVICES--0.54%
First Solar, Inc. * 170 17,636
ENERGY EQUIPMENT & SERVICES--5.80%
Cameron International Corp. * 575 47,018
National-Oilwell Varco Inc. * 710 90,880
Transocean Inc. * 500 52,545
-----------
190,443
OIL & GAS--2.10%
EOG Resources, Inc. 345 23,239
Valero Energy Corp. 670 45,902
-----------
69,141
-----------
TOTAL ENERGY--8.44% 277,220
-----------
FINANCIALS--
CAPITAL MARKETS--0.46%
Bear Stearns Companies Inc. (The) 140 15,212
DIVERSIFIED FINANCIAL SERVICES--4.10%
AllianceBernstein Holding LP 400 $ 33,044
CME Group Inc. 110 61,028
Lehman Brothers Holdings Inc. 440 24,125
Morgan Stanley 265 16,528
-----------
134,725
FINANCE--0.87%
IntercontinentalExchange Inc. * 195 28,445
FINANCIAL SERVICES--1.50%
UBS AG 940 49,106
INSURANCE--0.92%
American International Group, Inc. 460 30,360
-----------
TOTAL FINANCIALS--7.85% 257,848
-----------
HEALTH CARE--
HEALTH CARE EQUIPMENT & SUPPLIES--3.10%
Baxter International Inc. 445 24,368
Intuitive Surgical, Inc. * 350 77,448
-----------
101,816
HEALTH CARE PROVIDERS & SERVICES--2.71%
Cardinal Health, Inc. 230 15,727
Health Net Inc. * 1,335 73,145
-----------
88,872
PHARMACEUTICALS--3.03%
Abbott Laboratories 910 47,238
Bristol-Myers Squibb Co. 885 25,798
Wyeth 575 26,623
-----------
99,659
-----------
TOTAL HEALTH CARE--8.84% 290,347
-----------
INDUSTRIALS--
AEROSPACE & DEFENSE--2.86%
Boeing Co. (The) 485 46,900
General Dynamics Corp. 600 47,136
-----------
94,036
AIR FREIGHT & LOGISTICS--0.89%
FedEx Corp. 265 29,065
BUSINESS SERVICES--0.36%
Genpact Ltd. * 725 11,977
COMMERCIAL SERVICES & SUPPLIES--0.73%
Apollo Group, Inc. (Class A) * 410 24,055
CONGLOMERATE--2.31%
ITT Corp. 1,115 75,809
INDUSTRIAL CONGLOMERATES--6.66%
3M Co. 770 70,062
General Electric Co. 2,050 79,684
Textron Inc. 1,180 68,841
-----------
218,587
RAILROADS--0.66%
Norfolk Southern Corp. 420 21,508
-----------
TOTAL INDUSTRIALS--14.47% 475,037
-----------
</Table>
31
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
INFORMATION TECHNOLOGY--
COMMUNICATIONS--2.38%
Research In Motion Ltd. * 915 $ 78,150
COMMUNICATIONS EQUIPMENT--5.28%
Cisco Systems, Inc. * 2,795 89,216
Corning Inc. 2,570 60,061
QUALCOMM Inc. 605 24,133
-----------
173,410
COMPUTER RELATED & BUSINESS SERVICES--5.24%
Apple Inc. * 485 67,163
MEMC Electronic Materials, Inc. * 1,710 105,028
-----------
172,191
COMPUTERS & PERIPHERALS--3.29%
Dell Inc. * 1,190 33,618
SanDisk Corp. * 1,325 74,280
-----------
107,898
ELECTRONICS--2.64%
Nintendo Co., Ltd. ADR 1,495 86,574
INTERNET SOFTWARE & SERVICES--2.53%
Google Inc. (Class A) * 65 33,491
Yahoo! Inc. * 2,185 49,665
-----------
83,156
SEMICONDUCTORS--4.01%
Intel Corp. 2,435 62,701
Lam Research Corp. * 725 38,882
Maxim Integrated Products, Inc. 997 29,920
-----------
131,503
SOFTWARE--2.91%
Microsoft Corp. 3,270 93,947
VMware Inc. (Class A) * 25 1,722
-----------
95,669
-----------
TOTAL INFORMATION TECHNOLOGY--28.28% 928,551
-----------
MATERIALS--
CHEMICALS--1.11%
Monsato Co. 520 36,265
METALS & MINING--3.29%
Goldcorp, Inc. 1,375 32,409
Peabody Energy Corp. 665 28,269
Teck Cominco Ltd. (Class B) 1,110 47,319
-----------
107,997
MINING--2.04%
Freeport-McMoRan Copper & Gold, Inc. 767 67,051
-----------
TOTAL MATERIALS--6.44% 211,313
-----------
TELECOMMUNICATION SERVICES--
WIRELESS TELECOMMUNICATION SERVICES--3.40%
American Tower Corp. (Class A) * 1,565 62,005
Nll Holdings Inc. * 625 49,488
-----------
111,493
-----------
TOTAL TELECOMMUNICATION SERVICES--3.40% 111,493
-----------
UTILITIES--
MULTI-UTILITIES & UNREGULATED POWER--1.88%
Veolia Environnement ADR 800 $ 61,560
-----------
TOTAL UTILITIES--1.88% 61,560
-----------
TOTAL COMMON STOCK--100.59%
(Cost $2,889,493) 3,302,602
-----------
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 19,195 19,195
-----------
TOTAL MONEY MARKET FUND--0.59%
(Cost $19,195) 19,195
-----------
TOTAL INVESTMENTS--101.18%
(Cost $2,908,688) 3,321,797
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.18)% (38,659)
-----------
NET ASSETS--100% $ 3,283,138
===========
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at August 31,
2007. A complete listing of the fund's holdings are included in these
financial statements. This fund and the SM&R Alger Growth Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
32
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R ALGER GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $2,889,493) $ 3,302,602
Investment in affiliated money market fund (Cost $19,195) 19,195
---------------
Total investments (Cost $2,908,688) 3,321,797
Prepaid expenses 10,468
Receivable for:
Investment securities sold 16,066
Dividends 2,121
Expense reimbursement 2,653
---------------
TOTAL ASSETS 3,353,105
---------------
LIABILITIES
Investment securities purchased 39,941
Capital stock reacquired 6,562
Payable to investment adviser for fund expenses 12,191
Accrued:
Investment advisory fees 2,382
Administrative service fees 701
Distribution fees 5,037
Other liabilities 3,153
---------------
TOTAL LIABILITIES 69,967
---------------
NET ASSETS $ 3,283,138
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 2,636,721
Accumulated net realized gain (loss) on investments 233,308
Net unrealized appreciation of investments 413,109
---------------
NET ASSETS $ 3,283,138
===============
NET ASSETS:
Class A 2,062,835
Class B 1,220,303
---------------
TOTAL NET ASSETS $ 3,283,138
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,000
Outstanding 272,836
Class B:
Authorized 100,000,000
Outstanding 169,613
Class A:
Net asset value and redemption price per share $ 7.56
Offering price per share:
(Net assets value of $7.56 / 95%) $ 7.96
Class B:
Net asset value and offering price per share $ 7.19
</Table>
See notes to financial statements.
33
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R ALGER GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $967) $ 32,593
Interest from affiliated money market fund 2,650
---------------
TOTAL INVESTMENT INCOME 35,243
---------------
EXPENSES
Investment advisory fees 27,240
Administrative service fees 8,012
Professional fees 310
Custody and transaction fees 19,670
Directors' fees and expenses 5,947
Compliance expenses 525
Qualification fees
Class A 9,728
Class B 7,861
Shareholder reporting expenses
Class A 854
Class B 621
Distribution fees
Class A 7,029
Class B 11,963
Insurance expenses 1,194
---------------
TOTAL EXPENSES 100,954
LESS EXPENSES REIMBURSED (43,853)
---------------
NET EXPENSES 57,101
---------------
INVESTMENT INCOME (LOSS)--NET (21,858)
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 387,055
Change in unrealized appreciation of investments 383,889
---------------
NET GAIN (LOSS) ON INVESTMENTS 770,944
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 749,086
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R ALGER GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
---------------------------
2007 2006
------------ ------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ (21,858) $ (25,714)
Net realized gain (loss) on investments 387,055 176,202
Change in unrealized appreciation of investments 383,889 (210,426)
------------ ------------
Net increase (decrease) in net assets resulting from operations 749,086 (59,938)
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Capital gains
Class A (116,982) --
Class B (68,053) --
------------ ------------
Total distributions to shareholders (185,035) --
------------ ------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (142,549) 70,295
Class B (122,096) 13,968
------------ ------------
Total capital share transactions--net (264,645) 84,263
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 299,406 24,325
NET ASSETS
Beginning of year 2,983,732 2,959,407
------------ ------------
End of year $ 3,283,138 $ 2,983,732
============ ============
</Table>
See notes to financial statements.
34
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R ALGER GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 6.31 $ 6.40 $ 5.24 $ 5.20 $ 4.58
Income (loss) from investment operations
Investment income (loss)--net (0.03) (0.04) (0.02) (0.06) (0.04)
Net realized and unrealized gain
(loss) on investments 1.67 (0.05) 1.18 0.10 0.66
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.64 (0.09) 1.16 0.04 0.62
Less distributions
Capital gains (0.39) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.39) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 7.56 $ 6.31 $ 6.40 $ 5.24 $ 5.20
============ ============ ============ ============ ============
Total return (2) 26.88% (1.41)% 22.14% 0.77% 13.54%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 2,062,835 $ 1,850,243 $ 1,815,584 $ 1,448,385 $ 1,071,035
Ratio of expenses with reimbursement to
average net assets (3) 1.54% 1.61% 1.70% 1.70% 1.70%
Ratio of expenses without reimbursement
to average net assets 2.84% 3.36% 3.63% 3.32% 4.76%
Ratio of net investment income (loss) to
average net assets (0.44)% (0.58)% (0.33)% (1.06)% (0.86)%
Portfolio turnover rate 193.81% 321.34% 256.52% 162.19% 222.55%
<Caption>
CLASS B SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 (1) 2003 (1)
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 6.05 $ 6.18 $ 5.09 $ 5.08 $ 4.51
Income (loss) from investment operations
Investment income (loss)--net (0.08) (0.08) (0.06) (0.09) (0.07)
Net realized and unrealized gain (loss)
on investments 1.61 (0.05) 1.15 0.10 0.64
------------ ------------ ------------ ------------ ------------
Total from investment operations 1.53 (0.13) 1.09 0.01 0.57
Less distributions
Capital gains (0.39) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.39) -- -- -- --
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 7.19 $ 6.05 $ 6.18 $ 5.09 $ 5.08
============ ============ ============ ============ ============
Total return (2) 26.36% (2.10)% 21.41% 0.20% 12.64%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 1,220,303 $ 1,133,489 $ 1,143,823 $ 956,245 $ 836,200
Ratio of expenses with reimbursement to
average net assets (3) 2.19% 2.27% 2.35% 2.35% 2.35%
Ratio of expenses without reimbursement
to average net assets 3.67% 4.13% 4.51% 4.20% 5.53%
Ratio of net investment income (loss) to
average net assets (1.09)% (1.24)% (0.98)% (1.71)% (1.51)%
Portfolio turnover rate 193.81% 321.34% 256.52% 162.19% 222.55%
</Table>
(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 1.70% for Class A
and 2.35% for Class B until December 31, 2007.
See notes to financial statements.
35
<Page>
SM&R GROWTH FUND
MANAGER DISCUSSION
The SM&R Growth Fund seeks to achieve long-term capital appreciation in the
equity market. The Fund is guided by a strategy of investing primarily in stocks
of well established companies with records of consistent earnings and cash flow
growth. For the twelve months ended August 31, 2007, the Fund's total return to
Class T investors at net asset value was 16.73%, compared with the Lipper Large
Cap Core Index, which returned 14.65% over the same time period. Year to date
through August 31, 2007, the Fund's return was 6.76%.
The Fund's performance during the year benefited from sector allocation choices,
primarily an overweight in Energy and Information Technology and an underweight
in Consumer Staples. Holdings which produced strong gains for the year include
Dade Behring Holdings +90%, Nokia +62%, Schlumberger +53%, EMC +49% and
Weatherford Intl +40%. Underperforming selections that weighed negatively on
Fund performance include Citi Trends, Tronox, Bear Stearns, and Merrill Lynch.
Despite relatively strong performance from the equity market in the last twelve
months and the all-time high of the Dow Jones Industrial Average above 14,000 on
July 17th, investors seem uncertain on market direction as we enter 2008.
Although P/E ratios are lower than a year ago and cyclically-sensitive stocks
are posting strong results, major forces are at work on equity price volatility.
Foremost in investors' minds is the severity of the continuing decline in the
housing market triggered by sub-prime mortgage loan defaults and tighter lending
standards. This event alone has had a dramatic impact on the pricing of risk of
all financial assets and has also led to rising credit spreads and higher
interest rates. What is unclear is to what extent the popping of the housing
bubble in the U.S. will affect consumer and business psychology and potentially
spread economic weakness, seemingly contained within the residential housing
market, into the rest of the economy.
Economic growth slowed dramatically in 2007 from the pace in 2006. GDP growth
came in at 2.9% in 2006 and is estimated to fall to 2% in 2007. Weaker housing
numbers, higher rates on adjustable mortgage resets, and higher energy and food
prices place significant pressure on consumer spending, which accounts for more
than two-thirds of GDP. While the consumer continues to spend as witnessed by
the most recent rise in retail sales reported, another spike in energy prices or
a more severe than expected downturn in the housing market could restrain
household spending, thus further slowing domestic growth in 2008. The biggest
concern weighing on investors' minds is the change in economic growth
expectations as we enter 2008. The potential for a recession within the U.S.
economy has risen from nearly zero at this time last year to an estimate by the
Fed of a 1/3rd chance for a recession in 2008. At this time, the consensus
expectation for GDP growth in 2008 is 2.5%. However, the possibility for a
seventh year of economic expansion is more uncertain than in recent memory.
Economic expansion, productivity gains, cost cutting efforts, and strong demand
produced substantial corporate earnings improvement, with S&P 500 earnings gains
of 16% in 2006. However, we believe corporate profit growth for 2007 and 2008
will stagnate at 7% in both years. Further, sector specific volatility,
particularly in Energy, Materials, Home Building, and Financial sectors, may
lead to a less bullish stock market in the near term as commodity price
inflation slows and the recession within the residential housing market affects
home builders and those involved in mortgage lending.
While we believe that most stocks are fairly valued at this point, we expect the
increased market volatility to present some buying opportunities in oversold
names. Over the coming months and into 2008, we will focus on larger
capitalization holdings that have a greater proportion of sales in international
markets not as affected by the housing slowdown in the U.S. In addition, these
companies with a strong international presence have the continued earnings
benefit of a weak dollar benefiting results.
Sincerely,
Anne M. LeMire, CPA, CFA, Portfolio Manager
SM&R Growth Fund
36
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SM&R GROWTH FUND, CLASS T, AT OFFERING PRICE, AND LIPPER LARGE CAP CORE
INDEX AND THE S&P 500
<Table>
<Caption>
SM&R LIPPER
GROWTH LARGE-CAP
FUND S&P 500 CORE INDEX
---------- --------- -----------
9/1/1997 $ 9,424 $ 10,000 $ 10,000
8/31/1998 $ 8,787 $ 10,809 $ 10,668
8/31/1999 $ 12,210 $ 15,114 $ 14,388
8/31/2000 $ 15,407 $ 17,581 $ 17,404
8/31/2001 $ 9,915 $ 13,293 $ 12,858
8/31/2002 $ 7,512 $ 10,901 $ 10,720
8/31/2003 $ 8,285 $ 12,217 $ 11,774
8/31/2004 $ 9,169 $ 13,616 $ 12,714
8/31/2005 $ 9,996 $ 15,325 $ 14,171
8/31/2006 $ 10,623 $ 16,686 $ 15,390
8/31/2007 $ 12,401 $ 19,212 $ 17,645
</Table>
SM&R Growth Fund performance figures reflect reinvestment of all dividends and
capital gains distributions and changes in net asset value. Returns for Class A
and B will vary due to differences in expenses and sales charge structure.
Average annual returns are based on the maximum sales charge and reinvestment of
all dividends and capital gains. The average annual returns for Class A shares
reflect the current maximum sales charge of 5.00%. Class B shares reflect the
applicable contingent deferred sales charge (CDSC), which is 5% in the first
year declining to 1% in the fifth year, and is eliminated thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 01/01/99.
<Table>
<Caption>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION
-------- ------ ------ ---------
Class A 10.28% 9.12% -- -0.11%
Class B 10.14% 9.52% -- 0.03%
</Table>
AVERAGE ANNUAL RETURNS
Includes maximum sales charge of 5.75% through 8/31/07 for Class T shares.
<Table>
10 YEAR 2.17%
5 YEAR 9.22%
1 YEAR 9.98%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 9.84%
Consumer Staples 6.12%
Energy 13.97%
Exchange Traded Funds 2.28%
Financials 19.10%
Health Care 13.01%
Industrials 13.19%
Information Technology 15.12%
Materials 2.47%
Miscellaneous 0.01%
Telecommunication Services 1.88%
Utilities 3.01%
</Table>
37
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R GROWTH FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
CONSUMER DISCRETIONARY--
HOUSEHOLD DURABLES--1.84%
Newell Rubbermaid Inc. 23,200 $ 598,328
Stanley Works (The) 24,200 1,373,108
-------------
1,971,436
MEDIA--1.56%
Walt Disney Co. (The) 50,000 1,680,000
MULTILINE RETAIL--2.94%
Citi Trends Inc. * 18,900 410,886
J.C. Penney Co., Inc. 15,700 1,079,532
Target Corp. 25,200 1,661,436
-------------
3,151,854
SPECIALTY RETAIL--3.51%
Bed Bath & Beyond Inc. * 13,900 481,496
Best Buy Co., Inc. 31,200 1,371,240
Home Depot, Inc. (The) 13,000 498,030
Limited Brands, Inc. 24,300 562,788
Lowe's Companies, Inc. 19,400 602,564
Urban Outfitters, Inc. * 11,000 251,900
-------------
3,768,018
-------------
TOTAL CONSUMER DISCRETIONARY--9.85% 10,571,308
-------------
CONSUMER STAPLES--
BEVERAGES--3.30%
Coca-Cola Co. (The) 34,300 1,844,654
PepsiCo, Inc. 25,000 1,700,750
-------------
3,545,404
FOOD & STAPLES RETAILING--0.78%
SUPERVALU INC. 9,350 394,103
Wal-Mart Stores, Inc. 10,000 436,300
-------------
830,403
HOUSEHOLD PRODUCTS--1.95%
Procter & Gamble Co. (The) 32,000 2,089,920
-------------
TOTAL CONSUMER STAPLES--6.03% 6,465,727
-------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--5.16%
Baker Hughes Inc. 15,800 1,324,988
Schlumberger Ltd. 26,400 2,547,600
Transocean Inc. * 10,600 1,113,954
Weatherford International Ltd. * 9,400 548,772
-------------
5,535,314
OIL, GAS & CONSUMABLE FUELS--8.82%
Anadarko Petroleum Corp. 10,600 519,188
BP PLC ADR 11,700 788,112
Chevron Corp. 20,922 1,836,115
Exxon Mobil Corp. 52,500 4,500,825
Noble Corp. 21,400 1,049,884
Royal Dutch Shell PLC, ADR 10,000 773,500
-------------
9,467,624
-------------
TOTAL ENERGY--13.98% 15,002,938
-------------
EXCHANGE TRADED FUNDS--2.28%
PowerShares QQQ Trust Series 1 32,000 $ 1,563,520
SPDR Trust Series 1 6,000 885,000
-------------
2,448,520
-------------
TOTAL EXCHANGE TRADED FUNDS--2.28% 2,448,520
-------------
FINANCIALS--
COMMERCIAL BANKS--6.80%
Bank of America Corp. 15,000 760,200
PNC Financial Services Group, Inc. 30,000 2,111,100
U.S. Bancorp 40,000 1,294,000
Wachovia Corp. 42,600 2,086,548
Washington Mutual, Inc. 13,400 492,048
Wells Fargo & Co. 15,000 548,100
-------------
7,291,996
DIVERSIFIED FINANCIAL SERVICES--5.19%
American Express Co. 5,000 293,100
Bear Stearns Companies Inc. (The) 4,450 483,537
Charles Schwab Corp. (The) 29,400 582,120
Citigroup Inc. 20,000 937,600
Discover Financial Services * 7,500 173,550
Goldman Sachs Group, Inc. (The) 5,000 880,050
JPMorgan Chase & Co. 13,800 614,376
Merrill Lynch & Co., Inc. 5,000 368,500
Morgan Stanley 15,000 935,550
National Financial Partners Corp. 6,250 305,000
-------------
5,573,383
INSURANCE--7.12%
Allstate Corp. (The) 12,300 673,425
American International Group, Inc. 29,260 1,931,160
Aspen Insurance Holdings Ltd. 20,350 510,581
Brown & Brown, Inc. 24,400 656,848
Hartford Financial Services Group, Inc. (The) 16,400 1,458,124
Prudential Financial, Inc. 20,200 1,813,556
RenaissanceRe Holdings Ltd. 10,400 595,712
-------------
7,639,406
-------------
TOTAL FINANCIALS--19.11% 20,504,785
-------------
HEALTH CARE--
BIOTECHNOLOGY--4.14%
Amgen Inc. * 7,600 380,836
Celgene Corp. * 18,400 1,181,464
Genzyme Corp. * 12,000 748,920
Gilead Sciences, Inc. * 24,000 872,880
Given Imaging Ltd. * 36,900 971,577
PDL BioPharma Inc. * 14,600 284,846
-------------
4,440,523
HEALTH EQUIPMENT & SUPPLIES--2.68%
Advanced Medical Optics, Inc. * 5,500 158,070
Covidien Ltd. * 4,650 185,209
Dade Behring Holdings Inc. 8,100 611,631
Hologic, Inc. * 11,700 621,855
Medtronic, Inc. 24,650 1,302,506
-------------
2,879,271
HEALTH CARE PROVIDERS & SERVICES--0.74%
DaVita, Inc. * 5,025 289,038
UnitedHealth Group Inc. 10,000 500,100
-------------
789,138
</Table>
38
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
PHARMACEUTICALS--5.46%
Abbott Laboratories 13,900 $ 721,549
Endo Pharmaceuticals Holdings Inc. * 11,450 365,026
Eli Lilly & Co. 41,200 2,362,820
Merck & Co. Inc. 38,000 1,906,460
Wyeth 11,000 509,300
-------------
5,865,155
-------------
TOTAL HEALTH CARE--13.02% 13,974,087
-------------
INDUSTRIALS--
AEROSPACE & DEFENSE--5.83%
Boeing Co. (The) 13,000 1,257,100
Goodrich Corp. 30,000 1,894,800
Honeywell International Inc. 14,500 814,175
Rockwell Collins, Inc. 17,000 1,170,790
United Technologies Corp. 15,000 1,119,450
-------------
6,256,315
AIR FREIGHT & LOGISTICS--1.54%
FedEx Corp. 4,700 515,496
United Parcel Service, Inc. (Class B) 15,000 1,137,900
-------------
1,653,396
CONSTRUCTION & ENGINEERING--0.60%
Cemex SAB de C.V. ADR 20,000 645,800
ELECTRICAL EQUIPMENT--0.15%
Tyco Electronics Ltd. * 4650 162,145
INDUSTRIAL CONGLOMERATES--2.78%
3M Co. 10,000 909,900
General Electric Co. 48,000 1,865,760
Tyco International Ltd. 4,650 205,344
-------------
2,981,004
MACHINERY--2.30%
Caterpillar Inc. 7,500 568,275
Danaher Corp. 24,400 1,894,904
-------------
2,463,179
-------------
TOTAL INDUSTRIALS--13.20% 14,161,839
-------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--5.67%
Arris Group Inc. * 23,000 349,140
Cisco Systems, Inc. * 84,500 2,697,240
Harris Corp. 13,100 796,873
Motorola, Inc. 30,900 523,755
Nokia Oyj ADR 34,100 1,121,208
QUALCOMM Inc. 15,000 598,350
-------------
6,086,566
COMPUTERS & PERIPHERALS--3.02%
EMC Corp. 30,800 605,528
Hewlett-Packard Co. 38,000 1,875,300
International Business Machines Corp. 6,500 758,485
-------------
3,239,313
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.31%
Agilent Technologies, Inc. * 9,300 338,520
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--3.44%
Analog Devices, Inc. 15,600 $ 575,328
Intel Corp. 50,000 1,287,500
KLA-Tencor Corp. 11,600 666,652
Linear Technology Corp. 15,200 516,648
Marvell Technology Group Ltd. * 14,500 240,265
Maxim Integrated Products, Inc. 13,600 408,136
-------------
3,694,529
SOFTWARE--2.68%
Intuit Inc. * 24,800 677,288
Microsoft Corp. 30,000 861,900
Oracle Corp. * 65,700 1,332,396
-------------
2,871,584
-------------
TOTAL INFORMATION TECHNOLOGY--15.12% 16,230,512
-------------
MATERIALS--
CHEMICALS--1.73%
Dow Chemical Co. (The) 12,000 511,560
PPG Industries, Inc. 18,000 1,320,300
Tronox Inc. (Class B) 2,807 28,295
-------------
1,860,155
CONTAINERS & PACKAGING--0.74%
Sealed Air Corp. * 30,000 793,500
-------------
TOTAL MATERIALS--2.47% 2,653,655
-------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--1.88%
Sprint Nextel Corp. 34,007 643,412
Verizon Communications Inc. 32,800 1,373,664
-------------
2,017,076
-------------
TOTAL TELECOMMUNICATION SERVICES--1.88% 2,017,076
-------------
UTILITIES--
ELECTRIC UTILITIES--1.85%
Ameren Corp. 11,100 563,658
Dominion Resources, Inc. / VA 6,000 511,080
Exelon Corp. 9,100 643,097
Wisconsin Energy Corp. 6,100 270,291
-------------
1,988,126
GAS UTILITIES--1.16%
El Paso Corp. 60,800 964,896
Sempra Energy 5,000 275,150
-------------
1,240,046
-------------
TOTAL UTILITIES--3.01% 3,228,172
-------------
TOTAL COMMON STOCK--99.95%
(Cost $83,313,339) 107,258,619
-------------
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 13,025 13,025
-------------
TOTAL MONEY MARKET FUND--0.01%
(Cost $13,025) 13,025
-------------
</Table>
39
<Page>
<Table>
<Caption>
FACE
AMOUNT VALUE
COMMERCIAL PAPER
CONSUMER STAPLES--
FOOD PRODUCTS--0.10%
Kraft Foods Inc., 5.4%, 09/04/07 $ 109,000 $ 108,951
-------------
TOTAL CONSUMER STAPLES--0.10% 108,951
-------------
TOTAL COMMERCIAL PAPER--0.10%
(Cost $108,951) 108,951
-------------
TOTAL INVESTMENTS--100.06%
(Cost $83,435,315) 107,380,595
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.06)% (60,055)
-------------
NET ASSETS--100.00% $ 107,320,540
=============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTES TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at August 31,
2007. A complete listing of the fund's holdings are included in these
financial statements. This fund and the SM&R Growth Fund are affiliated by
having the same investment adviser.
See notes to financial statements.
40
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R GROWTH FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $83,422,290) $ 107,367,570
Investment in affiliated money market fund (Cost $13,025) 13,025
---------------
Total investments (Cost $83,435,315) 107,380,595
Prepaid expenses 46,192
Receivable for:
Dividends 199,379
Other assets 93,341
---------------
TOTAL ASSETS 107,719,507
---------------
LIABILITIES
Capital stock reacquired 187,396
Payable to investment adviser for fund expenses 67,075
Accrued:
Investment advisory fees 67,324
Administrative service fees 22,393
Distribution fees 9,887
Other liabilities 44,892
---------------
TOTAL LIABILITIES 398,967
---------------
NET ASSETS $ 107,320,540
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 80,690,732
Undistributed net investment income 118,396
Accumulated net realized gain (loss) on investments 2,566,132
Net unrealized appreciation of investments 23,945,280
---------------
NET ASSETS $ 107,320,540
===============
NET ASSETS:
Class A 5,698,111
Class B 2,862,322
Class T 98,760,107
---------------
TOTAL NET ASSETS $ 107,320,540
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 1,179,737
Class B:
Authorized 25,000,000
Outstanding 605,101
Class T:
Authorized 95,000,000
Outstanding 19,965,018
Class A:
Net asset value and redemption price per share $ 4.83
Offering price per share:
(Net assets value of $4.83 / 95%) $ 5.08
Class B:
Net asset value and offering price per share $ 4.73
Class T:
Net asset value and redemption price per share $ 4.95
Offering price per share:
(Net assets value of $4.95 / 94.25%) $ 5.25
</Table>
See notes to financial statements.
41
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R GROWTH FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $9,922) $ 1,793,069
Interest 51,841
Interest from affiliated money market fund 1,045
-------------
TOTAL INVESTMENT INCOME 1,845,955
-------------
EXPENSES
Investment advisory fees 804,343
Administrative service fees 267,390
Professional fees 33,522
Custody and transaction fees 21,914
Directors' fees and expenses 5,947
Compliance expenses 18,536
Qualification fees
Class A 5,409
Class B 5,022
Class T 18,083
Shareholder reporting expenses
Class A 1,798
Class B 1,095
Class T 7,161
Distribution fees
Class A 14,699
Class B 24,851
Insurance expenses 41,172
-------------
TOTAL EXPENSES 1,270,942
LESS EXPENSES REIMBURSED (12,120)
-------------
NET EXPENSES 1,258,822
-------------
INVESTMENT INCOME (LOSS)--NET 587,133
-------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 7,856,000
Change in unrealized appreciation of investments 7,954,927
-------------
NET GAIN (LOSS) ON INVESTMENTS 15,810,927
-------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 16,398,060
=============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------
2007 2006
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 587,133 $ 714,202
Net realized gain (loss) on investments 7,856,000 15,781,723
Change in unrealized appreciation of investments 7,954,927 (9,880,088)
------------- -------------
Net increase (decrease) in net assets resulting from operations 16,398,060 6,615,837
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (24,253) (34,714)
Class B (2,530) (7,032)
Class T (579,962) (705,872)
Capital gains
Class A (189,752) --
Class B (107,537) --
Class T (3,084,431) --
------------- -------------
Total distributions to shareholders (3,988,465) (747,618)
------------- -------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (589,528) (858,993)
Class B (728,123) (412,861)
Class T (6,546,075) (13,074,575)
------------- -------------
Total capital share transactions--net (7,863,726) (14,346,429)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 4,545,869 (8,478,210)
NET ASSETS
Beginning of year 102,774,671 111,252,881
------------- -------------
End of year $ 107,320,540 $ 102,774,671
------------- -------------
Undistributed Net Investment Income $ 118,396 $ 138,008
============= =============
</Table>
See notes to financial statements.
42
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R GROWTH FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 4.31 $ 4.09 $ 3.79 $ 3.45 $ 3.15
Income (loss) from investment operations
Investment income (loss)--net 0.02 0.01 0.04 0.02 0.01
Net realized and unrealized gain
(loss) on investments 0.67 0.23 0.30 0.34 0.30
------------ ------------ ------------ ------------ ------------
Total from investment operations 0.69 0.24 0.34 0.36 0.31
Less distributions
Investment income--net (0.02) (0.02) (0.04) (0.02) (0.01)
Capital gains (0.15) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.17) (0.02) (0.04) (0.02) (0.01)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 4.83 $ 4.31 $ 4.09 $ 3.79 $ 3.45
============ ============ ============ ============ ============
Total return (1) 16.16% 6.00% 9.05% 10.41% 10.00%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 5,698 $ 5,620 $ 6,154 $ 6,017 $ 5,039
Ratio of expenses with reimbursement to
average net assets (2) 1.36% 1.36% 1.36% 1.36% 1.36%
Ratio of expenses without reimbursement
to average net assets 1.47% 1.66% 1.69% 1.54% 1.60%
Ratio of net investment income (loss) to
average net assets 0.34% 0.52% 1.03% 0.44% 0.42%
Portfolio turnover rate 23.79% 56.05% 24.18% 4.93% 22.97%
<Caption>
CLASS B SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 4.22 $ 4.00 $ 3.72 $ 3.39 $ 3.11
Income (loss) from investment operations
Investment income (loss)--net (0.04) -- 0.02 0.01 (0.01)
Net realized and unrealized gain
(loss) on investments 0.70 0.23 0.29 0.33 0.29
------------ ------------ ------------ ------------ ------------
Total from investment operations 0.66 0.23 0.31 0.34 0.28
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
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 4.73 $ 4.22 $ 4.00 $ 3.72 $ 3.39
============ ============ ============ ============ ============
Total return (1) 15.89% 5.71% 8.27% 9.93% 9.12%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 2,863 $ 3,218 $ 3,456 $ 3,365 $ 2,700
Ratio of expenses with reimbursement to
average net assets (2) 1.86% 1.86% 1.86% 1.86% 1.86%
Ratio of expenses without reimbursement
to average net assets 2.03% 2.24% 2.20% 2.09% 2.24%
Ratio of net investment income (loss) to
average net assets (0.17)% 0.02% 0.52% (0.06)% (0.08)%
Portfolio turnover rate 23.79% 56.05% 24.18% 4.93% 22.97%
</Table>
*** 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.
43
<Page>
<Table>
<Caption>
CLASS T SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 4.40 $ 4.17 $ 3.87 $ 3.52 $ 3.21
Income (loss) from investment operations
Investment income (loss)--net 0.03 0.03 0.05 0.03 0.03
Net realized and unrealized gain
(loss) on investments 0.70 0.23 0.30 0.35 0.30
------------ ------------ ------------ ------------ ------------
Total from investment operations 0.73 0.26 0.35 0.38 0.33
Less distributions
Investment income--net (0.03) (0.03) (0.05) (0.03) (0.02)
Capital gains (0.15) -- -- -- --
------------ ------------ ------------ ------------ ------------
Total distributions (0.18) (0.03) (0.05) (0.03) (0.02)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 4.95 $ 4.40 $ 4.17 $ 3.87 $ 3.52
============ ============ ============ ============ ============
Total return (1) 16.73% 6.28% 9.01% 10.67% 10.30%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 98,760 $ 93,937 $ 101,643 $ 104,756 $ 100,383
Ratio of expenses to average net assets 1.12% 1.18% 1.19% 1.12% 1.15%
Ratio of net investment income (loss) to
average net assets 0.58% 0.70% 1.20% 0.68% 0.63%
Portfolio turnover rate 23.79% 56.05% 24.18% 4.93% 22.97%
</Table>
(1) Does not include the effect of sales charge
See notes to financial statements.
44
<Page>
SM&R EQUITY INCOME FUND
MANAGER DISCUSSION
The SM&R Equity Income Fund's primary investment objective remains providing
current income for shareholders with a secondary objective of long-term capital
appreciation. The Fund's strategy is to invest principally in the stocks of
well-established companies with records of consistent and increasing dividend
payments. For the fiscal year ended August 31, 2007, the Fund's total return was
10.60%, before sales charges (but after other expenses), to Class T investors at
net asset value. Over that same time period, the total return of the Fund's
benchmark, the Lipper Equity Income Fund Index, was 14.30%. The Fund continues
to meet its goal of maintaining a dividend yield greater than that of the
market, as represented by the Standard & Poor's 500 Index. The dividend yield at
August 31 for the fund was 3.5% (before expenses) versus about 1.8% for the S&P
500. As of August 31st, the Fund was almost fully invested, with stocks
representing 99.4% of the portfolio. Year to date through August 31, 2007, the
Fund's return was 2.04%.
The Fund's performance during the year benefited significantly from an
overweight position in the Energy sector as well as an underweight in the
Consumer Discretionary sector. The Fund's overweight position in Financials and
underweight in Information Technology restrained performance. Stock selection in
the Industrials and Consumer Discretionary sectors contributed positively to
performance while selection in the Health Care, Information Technology and
Utilities sectors hindered performance. Standout performers for the year include
Deluxe Corp. (+112%), Tupperware Brands (+71%), Bunge (+62%), and Nokia Corp.
(+57.5%). The worst performing holdings were Advanced Medical Optics (-40%),
IndyMac Bancorp (-38%), Colonial Properties Trust (-27.6%) and National City
Corp. (-22%). The Financials sector remains the largest percentage weighting in
the Fund due to the above average dividend yields paid by many companies in the
sector. For example, the current yield on Bank of America stock is 5.2%, almost
three times the average for the S&P 500. Companies in the Financials sector also
regularly increase their dividends, so we believe it is appropriate for the
objectives of the Fund to continue to overweight the sector.
The recent well-documented turmoil in global capital markets and softness in
housing markets appear to be beginning to take a toll on the broader economy.
Payrolls declined by 4,000 jobs in August, the first such decline since 2003.
Additionally, revisions removed 81,000 jobs from the prior two months. Although
the unemployment rate remained at 4.6% due to people leaving the available
workforce, various reports indicate that labor demand growth is slowing.
Declining housing prices, rising defaults on mortgages, and the prospect of
rising unemployment seem likely to have a restraining effect on consumer
spending in the months ahead. On the positive side, recent declines in gasoline
prices of about forty cents/gallon may help offset these negatives for
consumers.
The National Association of Realtors reported that pending home sales fell 12.2%
in July, the highest monthly decline since it began tracking the data in 2001.
Existing home sales fell 0.2% for the month while the inventory of unsold homes
was up 19% and median sale prices were down 0.6% compared to July of last year.
Housing starts will likely bottom sometime next year, but a recovery is likely
to be very slow due to large unsold inventories.
The Federal Reserve's Beige Book, which publishes anecdotal surveys conducted by
the twelve Federal Reserve Banks on current economic conditions in their
districts, was released September 5th with data through August 27th. The report
continued to paint a positive picture of the economy with six Banks reporting
"moderate" or "modest" growth, two reporting "mixed" activity and four reporting
"economies continued to grow; however the pace of activity has slowed." This
report confirms that domestic economic growth appears to be slowing but does not
seem to suggest that a recession is in the offing.
Increased uncertainty in the capital markets and the economy over the past
several months has led to a rise in volatility in U.S. equities markets. Between
July 13th and August 15th, the S&P 500 declined 9.4%, then rallied 4.8% through
the end of the month. For 2007, consensus forecasts for the S&P 500 are for 7%
earnings growth over 2006 following 16% growth last year, a significant slowing.
Currently, the trailing twelve-month P/E ratio for the S&P 500 is approximately
16x. Based on forecasted earnings, the year-end 2007 P/E is 15x. This compares
to an historical long-term average P/E of 15.5x. Given expectations for slowing
growth in corporate operating margins and profits, equities appear to be
relatively fairly valued at these levels. With the anticipation of a slowing
economy along with the probability of slowing corporate earnings growth, it does
not seem likely that price/earnings multiples will expand meaningfully from
these levels until market participants believe economic conditions have
stabilized and corporate profits are poised to improve. This environment should
favor stocks with above-average expected total returns including dividends. We
plan to adhere to our conservative stock selection discipline of purchasing
attractively valued equities for long-term appreciation potential while
maintaining an above-market dividend yield.
We believe the Fund is well-positioned to provide an attractive return over the
long-term for conservative equity investors. Its well-diversified portfolio of
companies expected to generate consistent earnings growth while continuing to
provide an above-average dividend yield should make the Fund an attractive core
holding for many investors.
Sincerely,
John S. Maidlow, CFA, Portfolio Manager
SM&R Equity Income Fund
45
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SM&R EQUITY INCOME FUND, CLASS T, AT OFFERING PRICE, AND
LIPPER EQUITY INCOME FUND INDEX AND THE S&P 500
<Table>
<Caption>
SM&R
EQUITY INCOME LIPPER
FUND S&P 500 EQUITY INCOME FUND INDEX
------------- -------------- ------------------------
9/1/1997 $ 9,426 $ 10,000 $ 10,000
8/31/1998 $ 9,635 $ 10,809 $ 10,122
8/31/1999 $ 11,681 $ 15,114 $ 12,507
8/31/2000 $ 12,227 $ 17,581 $ 13,071
8/31/2001 $ 11,014 $ 13,293 $ 12,771
8/31/2002 $ 9,359 $ 10,901 $ 11,051
8/31/2003 $ 9,998 $ 12,217 $ 12,009
8/31/2004 $ 11,212 $ 13,616 $ 13,769
8/31/2005 $ 12,261 $ 15,325 $ 15,731
8/31/2006 $ 13,491 $ 16,686 $ 17,403
8/31/2007 $ 14,921 $ 19,212 $ 19,892
</Table>
SM&R Equity Income Fund performance figures reflect reinvestment of all
dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 5.00%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
5% in the first year declining to 1% in the fifth year, and is eliminated
thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 01/01/99.
<Table>
<Caption>
ONE FIVE FIVE SINCE
YEAR YEAR YEAR INCEPTION
---- ----- ----- ---------
Class A 4.79% 8.44% -- 2.27%
Class B 4.67% 8.85% -- 2.19%
</Table>
AVERAGE ANNUAL RETURNS
Includes maximum sales charge of 5.75% through 8/31/07 for Class T shares.
<Table>
10 YEAR 4.08%
5 YEAR 8.49%
1 YEAR 4.25%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 4.67%
Consumer Staples 12.16%
Energy 15.04%
Financials 28.60%
Health Care 10.17%
Industrials 7.55%
Information Technology 3.46%
Materials 3.21%
Miscellaneous 0.03%
Telecommunication Services 5.77%
Utilities 9.34%
</Table>
46
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R EQUITY INCOME FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--0.71%
McDonald's Corp. 15,100 $ 743,675
HOUSEHOLD DURABLES--2.11%
Newell Rubbermaid Inc. 17,800 459,062
Stanley Works (The) 16,000 907,840
Tupperware Brands Corp. 27,600 849,804
-------------
2,216,706
MEDIA--0.54%
CBS Corp. (Class B) 17,900 564,029
SPECIALITY RETAIL--1.31%
Limited Brands, Inc. 40,000 926,400
TJX Companies, Inc. (The) 13,300 405,517
TravelCenters of America LLC * 1,140 40,607
-------------
1,372,524
-------------
TOTAL CONSUMER DISCRETIONARY--4.67% 4,896,934
-------------
CONSUMER STAPLES--
BEVERAGES--2.15%
Coca-Cola Co. (The) 23,000 1,236,940
PepsiCo, Inc. 15,000 1,020,450
-------------
2,257,390
FOOD PRODUCTS--3.64%
Bunge Limited 6,000 548,640
ConAgra Foods, Inc. 40,000 1,028,400
H.J. Heinz Co. 19,000 856,710
Kraft Foods Inc. (Class A) 4,844 155,299
McCormick & Co., Inc. (b) 18,000 645,120
Sensient Technologies Corp. 21,500 582,435
-------------
3,816,604
FOOD & STAPLES RETAILING--1.59%
SUPERVALU INC 13,000 547,950
Wal-Mart Stores, Inc. 25,700 1,121,291
-------------
1,669,241
HOUSEHOLD PRODUCTS--2.10%
Kimberly-Clark Corp. 13,600 934,184
Procter & Gamble Co. (The) 19,500 1,273,545
-------------
2,207,729
PERSONAL PRODUCTS--1.35%
Alberto-Culver Co. 10,575 245,023
Avon Products, Inc. 15,000 515,250
Colgate-Palmolive Co. 8,675 575,326
Sally Beauty Holdings, Inc. * 9,000 76,680
-------------
1,412,279
TOBACCO--0.97%
Altria Group, Inc. 7,000 485,870
Reynolds American Inc. 8,000 528,960
-------------
1,014,830
-------------
TOTAL CONSUMER STAPLES--11.80% 12,378,073
-------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--3.44%
Boardwalk Pipeline Partners, LP 30,000 $ 996,000
Schlumberger Ltd. 15,000 1,447,500
Weatherford International Ltd. * 20,000 1,167,600
-------------
3,611,100
OIL, GAS & CONSUMABLE FUELS--11.60%
Anadarko Petroleum Corp. 24,000 1,175,520
BP PLC ADR 17,510 1,179,474
Chevron Corp. 25,000 2,194,000
Enterprise Products Partners L.P. 10,700 315,757
Exxon Mobil Corp. 45,000 3,857,850
Natural Resource Partners L.P. 30,000 982,500
Plains All American Pipeline, L.P. 11,700 673,335
Royal Dutch Shell PLC, ADR 17,300 1,338,155
Spectra Energy Corp. 19,300 448,725
-------------
12,165,316
-------------
TOTAL ENERGY--15.04% 15,776,416
-------------
FINANCIALS--
COMMERCIAL BANKS--11.05%
Bank of America Corp. 47,000 2,381,960
Comerica Inc. 18,000 1,004,040
Fifth Third Bancorp 24,000 856,560
IndyMac Bancorp, Inc. 13,000 314,600
KeyCorp 17,100 569,430
National City Corp. 31,100 836,901
PNC Financial Services Group, Inc. 16,000 1,125,920
Regions Financial Corp. 17,782 556,577
TrustCo Bank Corp NY 80,000 894,400
U.S. Bancorp 33,700 1,090,195
Washington Mutual, Inc. 13,700 503,064
Wells Fargo & Co. 40,000 1,461,600
-------------
11,595,247
DIVERSIFIED FINANCIAL SERVICES--8.37%
Allied Capital Corp. 18,000 536,760
Charles Schwab Corp. (The) 30,250 598,950
Citigroup Inc. 68,400 3,206,592
Colonial Properties Trust 11,250 403,987
JPMorgan Chase & Co. 30,000 1,335,600
New York Community Bancorp, Inc. 46,000 813,740
Principal Financial Group, Inc. 16,700 926,683
Weingarten Realty Investors 24,000 965,040
-------------
8,787,352
INSURANCE--3.40%
Allstate Corp. (The) 9,000 492,750
Aspen Insurance Holdings Ltd. 20,825 522,499
Prudential Financial, Inc. 10,400 933,712
RenaissanceRe Holdings Ltd. 10,700 612,896
Travelers Companies, Inc. (The) 20,000 1,010,800
-------------
3,572,657
</Table>
47
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
REAL ESTATE INVESTMENT TRUSTS--5.78%
BRE Properties, Inc. 8,600 $ 477,644
Duke Reality Corp. 12,000 405,480
General Growth Properties, Inc. 9,800 487,158
HCP, Inc. 28,000 851,760
Health Care REIT, Inc. 12,500 498,750
Hospitality Properties Trust 11,400 449,844
Liberty Property Trust 11,300 441,378
Mack-Cali Realty Corp. 24,200 1,010,592
National Retail Properties Inc. 23,700 556,713
Plum Creek Timber Co., Inc. 21,000 880,530
-------------
6,059,849
-------------
TOTAL FINANCIALS--28.60% 30,015,105
-------------
HEALTH CARE--
BIOTECHNOLOGY--0.60%
Genzyme Corp. * 4,650 290,206
Gilead Sciences, Inc. * 9,300 338,241
-------------
628,447
HEALTH EQUIPMENT & SUPPLIES--0.29%
Advanced Medical Optics, Inc. * 5,475 157,352
Covidien Ltd. * 3,750 149,362
-------------
306,714
HEALTH CARE PROVIDERS & SERVICES--0.80%
DaVita, Inc. * 4,000 230,080
LTC Properties, Inc. 27,000 609,660
-------------
839,740
PHARMACEUTICALS--8.48%
Abbott Laboratories 22,850 1,186,143
Eli Lilly & Co. 20,350 1,167,073
Johnson & Johnson 35,000 2,162,650
Merck & Co. Inc. 25,300 1,269,301
Pfizer Inc. 85,580 2,125,807
Wyeth 21,325 987,348
-------------
8,898,322
-------------
TOTAL HEALTH CARE--10.17% 10,673,223
-------------
INDUSTRIALS--
AEROSPACE & DEFENSE--0.92%
United Technologies Corp. 13,000 970,190
COMMERCIAL SERVICES & SUPPLIES--1.72%
Deluxe Corp. 13,000 494,260
Sovran Self Storage, Inc. 21,000 947,310
Standard Register Co. (The) 28,000 358,120
-------------
1,799,690
ELECTRICAL EQUIPMENT--0.13%
Tyco Electronics Ltd. * 3,750 130,763
INDUSTRIAL CONGLOMERATES--4.32%
3M Co. 10,200 928,098
General Electric Co. 88,500 3,439,995
Tyco International Ltd. 3,750 165,600
-------------
4,533,693
ROAD & RAIL--0.46%
Burlington Northern Santa Fe Corp. 6,000 $ 486,900
-------------
TOTAL INDUSTRIALS--7.55% 7,921,236
-------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--0.99%
Harris Corp. 12,750 775,582
Nokia Oyj ADR 8,000 263,040
-------------
1,038,622
INTERNET SOFTWARE & SERVICES--0.49%
StarTek, Inc. * 50,000 516,500
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--0.97%
Intel Corp. 39,550 1,018,412
SOFTWARE--0.76%
Microsoft Corp. 27,725 796,539
-------------
TOTAL INFORMATION TECHNOLOGY--3.21% 3,370,073
-------------
MATERIALS--
CHEMICALS--1.79%
Dow Chemical Co. (The) 20,100 856,863
E. I. du Pont de Nemours and Co. 10,000 487,500
PPG Industries, Inc. 7,200 528,120
-------------
1,872,483
METALS & MINING--0.52%
Alcoa Inc. 15,000 547,950
PAPER & FOREST PRODUCTS--0.90%
International Paper Co. 7,725 271,225
Potlatch Corp. 15,000 675,600
-------------
946,825
-------------
TOTAL MATERIALS--3.21% 3,367,258
-------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--5.77%
ALLTEL Corp. 9,650 658,709
AT&T Inc. 23,500 936,945
Citizens Communications Co. 70,000 1,015,700
FairPoint Communications, Inc. 65,000 1,087,450
Verizon Communications Inc. 43,000 1,800,840
Windstream Corp. 39,000 556,920
-------------
6,056,564
-------------
TOTAL TELECOMMUNICATION SERVICES--5.77% 6,056,564
-------------
UTILITIES--
ELECTRIC UTILITIES--7.50%
Ameren Corp. 15,200 771,856
Consolidated Edison, Inc. 23,100 1,061,214
DTE Energy Co. 24,800 1,185,688
Duke Energy Corp. 38,600 707,924
Integrys Energy Group, Inc. 24,255 1,216,873
Pinnacle West Capital Corp. 25,500 1,015,920
Progress Energy, Inc. 25,000 1,147,000
Southern Co. 10,000 354,900
Xcel Energy, Inc. 20,000 412,200
-------------
7,873,575
</Table>
48
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
GAS UTILITIES--1.84%
Nicor Inc. 23,100 $ 960,036
NiSource Inc. 51,600 972,144
-------------
1,932,180
-------------
TOTAL UTILITIES--9.34% 9,805,755
-------------
TOTAL COMMON STOCK--99.36%
(Cost $81,801,699) 104,260,637
-------------
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 27,350 27,350
-------------
TOTAL MONEY MARKET FUND--0.03%
(Cost $27,350) 27,350
-------------
<Caption>
FACE
AMOUNT
COMMERCIAL PAPER
CONSUMER STAPLES--
FOOD PRODUCTS--0.36%
Kraft Foods Inc., 5.65%, 09/04/07 $ 384,000 383,819
-------------
TOTAL CONSUMER STAPLES--0.36% 383,819
-------------
INFORMATION TECHNOLOGY--
IT SERVICES--0.25%
Computer Sciences Corp., 6.1%, 09/05/07 260,000 259,824
-------------
TOTAL INFORMATION TECHNOLOGY--0.25% 259,824
-------------
TOTAL COMMERCIAL PAPER--0.61%
(Cost $643,643) 643,643
-------------
TOTAL INVESTMENTS--100.00%
(Cost $82,472,692) 104,931,630
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.00)% (213)
-------------
NET ASSETS--100.00% $ 104,931,417
=============
</Table>
*--Non-income producing securities
ABBREVIATIONS
ADR--American Depositary Receipt
NOTE TO SCHEDULE OF INVESTMENTS
(a) The rate quoted is the annualized seven-day yield of the fund at
August 31, 2007. A complete listing of the fund's holdings are
included in these financial statements. This fund and the SM&R Equity
Income Fund are affiliated by having the same investment adviser.
(b) Non-voting shares
See notes to financial statements.
49
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R EQUITY INCOME FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $82,445,342) $ 104,904,280
Investment in affiliated money market fund (Cost $27,350) 27,350
---------------
Total investments (Cost $82,472,692) 104,931,630
Prepaid expenses 44,375
Receivable for:
Dividends 270,630
Expense reimbursement 1,453
Other assets 62,725
---------------
TOTAL ASSETS 105,310,813
---------------
LIABILITIES
Capital stock reacquired 177,634
Payable to investment adviser for fund expenses 59,943
Accrued:
Investment advisory fees 65,762
Administrative service fees 21,893
Distribution fees 18,584
Other liabilities 35,580
---------------
TOTAL LIABILITIES 379,396
---------------
NET ASSETS $ 104,931,417
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 77,122,158
Undistributed net investment income 521,429
Accumulated net realized gain (loss) on investments 4,828,892
Net unrealized appreciation of investments 22,458,938
---------------
NET ASSETS $ 104,931,417
===============
NET ASSETS:
Class A 10,524,079
Class B 5,373,480
Class T 89,033,858
---------------
TOTAL NET ASSETS $ 104,931,417
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 449,777
Class B:
Authorized 25,000,000
Outstanding 237,462
Class T:
Authorized 75,000,000
Outstanding 3,648,717
Class A:
Net asset value and redemption price per share $ 23.40
Offering price per share:
(Net assets value of $23.40 / 95%) $ 24.63
Class B:
Net asset value and offering price per share $ 22.63
Class T:
Net asset value and redemption price per share $ 24.40
Offering price per share:
(Net assets value of $24.40 / 94.25%) $ 25.89
</Table>
See notes to financial statements.
50
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R EQUITY INCOME FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $8,119) $ 4,172,151
Interest 58,366
Interest from affiliated money market fund 936
---------------
TOTAL INVESTMENT INCOME 4,231,453
---------------
EXPENSES
Investment advisory fees 813,626
Administrative service fees 270,360
Professional fees 33,553
Custody and transaction fees 23,050
Directors' fees and expenses 5,947
Compliance expenses 18,848
Qualification fees
Class A 6,252
Class B 6,037
Class T 15,861
Shareholder reporting expenses
Class A 2,573
Class B 1,166
Class T 3,917
Distribution fees
Class A 25,303
Class B 50,413
Insurance expenses 41,021
---------------
TOTAL EXPENSES 1,317,927
LESS EXPENSES REIMBURSED (30,236)
---------------
NET EXPENSES 1,287,691
---------------
INVESTMENT INCOME (LOSS)--NET 2,943,762
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 6,169,578
Change in unrealized appreciation of investments 1,985,569
---------------
NET GAIN (LOSS) ON INVESTMENTS 8,155,147
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 11,098,909
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R EQUITY INCOME FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------
2007 2006
------------- -------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 2,943,762 $ 2,204,335
Net realized gain (loss) on investments 6,169,578 5,009,183
Change in unrealized appreciation of investments 1,985,569 3,046,019
------------- -------------
Net increase (decrease) in net assets resulting from operations 11,098,909 10,259,537
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (282,083) (160,310)
Class B (159,657) (95,634)
Class T (2,534,256) (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 (9,076,815) (10,305,807)
------------- -------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 1,129,114 189,961
Class B (1,484,680) (904,275)
Class T (3,460,806) (5,090,295)
------------- -------------
Total capital share transactions--net (3,816,372) (5,804,609)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (1,794,278) (5,850,879)
NET ASSETS
Beginning of year 106,725,695 112,576,574
------------- -------------
End of year $ 104,931,417 $ 106,725,695
============= =============
Undistributed Net Investment Income $ 521,429 $ 553,663
============= =============
</Table>
See notes to financial statements.
51
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R EQUITY INCOME FUND
<Table>
<Caption>
CLASS A SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 23.12 $ 23.22 $ 22.11 $ 20.03 $ 19.04
Income (loss) from investment operations
Investment income (loss)--net 0.64 0.45 0.35 0.26 0.22
Net realized and unrealized gain
(loss) on investments 1.71 1.70 1.68 2.10 1.01
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.35 2.15 2.03 2.36 1.23
Less distributions
Investment income--net (0.68) (0.40) (0.39) (0.28) (0.24)
Capital gains (1.39) (1.85) (0.53) -- --
------------ ------------ ------------ ------------ ------------
Total distributions (2.07) (2.25) (0.92) (0.28) (0.24)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 23.40 $ 23.12 $ 23.22 $ 22.11 $ 20.03
============ ============ ============ ============ ============
Total return (1) 10.31% 9.89% 9.25% 11.79% 6.61%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 10,524 $ 9,269 $ 9,088 $ 8,063 $ 5,940
Ratio of expenses with reimbursement to
average net assets (2) 1.26% 1.26% 1.26% 1.26% 1.26%
Ratio of expenses without reimbursement
to average net assets 1.43% 1.54% 1.50% 1.43% 1.50%
Ratio of net investment income (loss) to
average net assets 2.57% 2.00% 1.53% 1.08% 1.21%
Portfolio turnover rate 11.40% 47.59% 18.45% 6.74% 7.57%
<Caption>
CLASS B SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 22.33 $ 22.49 $ 21.46 $ 19.44 $ 18.56
Income (loss) from investment operations
Investment income (loss)--net 0.40 0.29 0.23 0.13 0.13
Net realized and unrealized gain
(loss) on investments 1.84 1.69 1.61 2.07 0.94
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.24 1.98 1.84 2.20 1.07
Less distributions
Investment income--net (0.55) (0.29) (0.28) (0.18) (0.19)
Capital gains (1.39) (1.85) (0.53) -- --
------------ ------------ ------------ ------------ ------------
Total distributions (1.94) (2.14) (0.81) (0.18) (0.19)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 22.63 $ 22.33 $ 22.49 $ 21.46 $ 19.44
============ ============ ============ ============ ============
Total return (1) 10.20% 9.40% 8.64% 11.36% 5.85%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 5,373 $ 6,759 $ 7,744 $ 7,375 $ 6,182
Ratio of expenses with reimbursement to
average net assets (2) 1.76% 1.76% 1.76% 1.76% 1.76%
Ratio of expenses without reimbursement
to average net assets 1.95% 2.06% 2.05% 1.95% 1.99%
Ratio of net investment income (loss) to
average net assets 2.09% 1.45% 1.04% 0.58% 0.71%
Portfolio turnover rate 11.40% 47.59% 18.45% 6.74% 7.57%
</Table>
(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.
52
<Page>
<Table>
<Caption>
CLASS T SHARES
--------------------------------------------------------------------------------
YEAR ENDED AUGUST 31,
--------------------------------------------------------------------------------
2007 2006 2005 2004 2003
------------ ------------ ------------ ------------ ------------
Net asset value, beginning of year $ 23.97 $ 23.97 $ 22.77 $ 20.56 $ 19.51
Income (loss) from investment operations
Investment income (loss)--net 0.69 0.50 0.40 0.28 0.27
Net realized and unrealized gain
(loss) on investments 1.81 1.76 1.72 2.21 1.04
------------ ------------ ------------ ------------ ------------
Total from investment operations 2.50 2.26 2.12 2.49 1.31
Less distributions
Investment income--net (0.68) (0.41) (0.39) (0.28) (0.26)
Capital gains (1.39) (1.85) (0.53) -- --
------------ ------------ ------------ ------------ ------------
Total distributions (2.07) (2.26) (0.92) (0.28) (0.26)
------------ ------------ ------------ ------------ ------------
Net asset value, end of year $ 24.40 $ 23.97 $ 23.97 $ 22.77 $ 20.56
============ ============ ============ ============ ============
Total return (1) 10.60% 10.04% 9.35% 12.14% 6.83%
============ ============ ============ ============ ============
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 89,034 $ 90,698 $ 95,744 $ 97,802 $ 94,943
Ratio of expenses to average net assets 1.12% 1.15% 1.14% 1.10% 1.12%
Ratio of net investment income (loss) to
average net assets 2.72% 2.09% 1.66% 1.24% 1.36%
Portfolio turnover rate 11.40% 47.59% 18.45% 6.74% 7.57%
</Table>
(1) Does not include the effect of sales charge
See notes to financial statements.
53
<Page>
SM&R BALANCED FUND
MANAGER DISCUSSION
The SM&R Balanced Fund's investment objectives are to conserve principal,
produce current income and achieve long-term capital appreciation. The Fund
seeks to accomplish these objectives with a balance of both growth and income
through its well-diversified portfolio of stocks of primarily large-cap
companies, U.S. Government agency and corporate fixed income securities, and
money market instruments. As of the fiscal year end on August 31, 2007, the
Fund's allocation was approximately 72% equities, 23% bonds and 5% cash
equivalents (which includes bonds and cash equivalents as they are both
considered fixed income investments). For the twelve months ended August 31st,
the Fund's total return was 11.28%, before sales charges (but after other
expenses), to Class T investors at net asset value. Over that same time period,
the total return of the Fund's benchmark, the Lipper Balanced Fund Index, was
11.66%. Year to date through August 31, 2007, the Fund's return was 4.17%. The
equity portion of the Fund produced a total return (capital appreciation and
dividend income) of 16.66%, while the bond portion returned 5.95% for the year.
The broad equity market, as measured by the S&P 500, returned 15.13% for the
twelve months, and the Lehman Intermediate Government/Credit Index returned
5.5%.
The Fund's performance during the year benefited significantly from holdings in
the Industrials and Information Technology sectors. Stock selection in the
Health Care and Telecommunication Services sectors negatively impacted
performance. Standout performers for the year include EMC Corp. (+69%), United
States Steel (+62%), Bunge (+62%) and Goodrich (+62%). The poorest performing
holdings were Advanced Medical Optics (-40%), Motorola (-27.5%), Amgen (-26%)
and Bear Stearns (purchased during the year, -16.6%).
The fixed income allocation of the Balanced Fund has an average A1 (Moody's), A+
(Standard & Poor's) rating, 4.676% average coupon, and an average modified
duration of 1.6 years. Fund performance benefited from a shorter average
duration than the index as shorter dated assets outperformed longer maturities
throughout the period.
A flight to quality in the Treasury market caused a significant rally in
government bond prices in late summer amid the turmoil in the credit markets.
The era of low interest rates, easy credit, loose mortgage underwriting, and
complicated, highly leveraged structured debt instruments seemed to end
abruptly. Cracks appeared in the facade, and the true underlying quality of many
debt instruments, particularly sub-prime mortgages and CDOs (collateralized debt
obligations) emerged. Credit markets reacted severely, and continue to, with
credit spreads widening and decreased liquidity. The underpricing of risk that
has occurred over the last four or five years has finally been recognized.
The recent well-documented turmoil in global capital markets and softness in
housing markets appear to be beginning to take a toll on the broader economy.
Payrolls declined by 4,000 jobs in August, the first such decline since 2003.
Additionally, revisions removed 81,000 jobs from the prior two months. Although
the unemployment rate remained at 4.6% due to people leaving the available
workforce, various reports indicate that labor demand growth is slowing.
Declining housing prices, rising defaults on mortgages, and the prospect of
rising unemployment seem likely to have a restraining effect on consumer
spending in the months ahead. On the positive side, recent declines in gasoline
prices of about forty cents/gallon may help offset these negatives for
consumers.
The National Association of Realtors reported that pending home sales fell 12.2%
in July, the highest monthly decline since it began tracking the data in 2001.
Existing home sales fell 0.2% for the month while the inventory of unsold homes
was up 19% and median sale prices were down 0.6% compared to July of last year.
Housing starts will likely bottom sometime next year, but a recovery is likely
to be very slow due to large unsold inventories.
The Federal Reserve's Beige Book, which publishes anecdotal surveys conducted by
the twelve Federal Reserve Banks on current economic conditions in their
districts, was released September 5th with data through August 27th. The report
continued to paint a positive picture of the economy with six Banks reporting
"moderate" or "modest" growth, two reporting "mixed" activity and four reporting
"economies continued to grow; however the pace of activity has slowed." This
report confirms that domestic economic growth appears to be slowing but does not
seem to suggest that a recession is in the offing.
Increased uncertainty in the capital markets and the economy over the past
several months has led to a rise in volatility in U.S. equities markets. Between
July 13th and August 15th the S&P 500 declined 9.4%, then rallied 4.8% through
the end of the month. For 2007, consensus forecasts for the S&P 500 are for 7%
earnings growth over 2006 following 16% growth last year, a significant slowing.
Currently, the trailing twelve-month P/E ratio for the S&P 500 is approximately
16x. Based on forecasted earnings, the year-end 2007 P/E is 15x. This compares
to an historical long-term average P/E of 15.5x. Given expectations for slowing
growth in corporate operating margins and profits, equities appear to be
relatively fairly valued at these levels. With the anticipation of a slowing
economy along with the probability of slowing corporate earnings growth, it does
not seem likely that price/earnings multiples will expand meaningfully from
these levels until market participants believe economic conditions have
stabilized and corporate profits are poised to improve. This environment should
favor stocks with above-average expected total returns including dividends.
We plan to continue our conservative stock selection discipline of purchasing
attractively valued equities for long-term appreciation potential while
maintaining a high-quality, well-diversified fixed income allocation. Thus, we
believe the Fund will provide an attractive total return over the long-term for
conservative investors seeking both capital appreciation and current income
through a balanced portfolio of equities and debt. This strategy should make the
Fund an attractive core holding for many investors.
Sincerely,
Anne M. LeMire, CPA, CFA, and John S. Maidlow, CFA, Co-Portfolio Managers
SM&R Balanced Fund
54
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SM&R BALANCED FUND, CLASS T, AT OFFERING PRICE, AND LIPPER BALANCED FUND INDEX
AND THE S&P 500
<Table>
<Caption>
SM&R
BALANCED LIPPER
FUND S&P 500 BALANCED FUND INDEX
-------- -------------- -------------------
9/1/1997 $ 9,426 $ 10,000 $ 10,000
8/31/1998 $ 9,587 $ 10,809 $ 10,449
8/31/1999 $ 11,455 $ 15,114 $ 12,530
8/31/2000 $ 13,757 $ 17,581 $ 14,039
8/31/2001 $ 12,122 $ 13,293 $ 12,946
8/31/2002 $ 11,386 $ 10,901 $ 11,818
8/31/2003 $ 12,178 $ 12,217 $ 13,005
8/31/2004 $ 13,268 $ 13,616 $ 14,188
8/31/2005 $ 14,034 $ 15,325 $ 15,784
8/31/2006 $ 14,706 $ 16,686 $ 16,874
8/31/2007 $ 16,366 $ 19,212 $ 18,842
</Table>
SM&R Balanced Fund performance figures reflect reinvestment of all dividends and
capital gains distributions and changes in net asset value. Returns for Class A
and B will vary due to differences in expenses and sales charge structure.
Average annual returns are based on the maximum sales charge and reinvestment of
all dividends and capital gains. The average annual returns for Class A shares
reflect the current maximum sales charge of 5.00%. Class B shares reflect the
applicable contingent deferred sales charge (CDSC), which is 5% in the first
year declining to 1% in the fifth year, and is eliminated thereafter.
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 01/01/99.
<Table>
<Caption>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION
------ ------ ------ ---------
Class A 5.55% 6.34% -- 3.53%
Class B 5.17% 6.66% -- 3.81%
</Table>
AVERAGE ANNUAL RETURNS
Includes maximum sales charge of 5.75% through 8/31/07 for Class T shares.
<Table>
10 YEAR 5.05%
5 YEAR 6.26%
1 YEAR 4.91%
</Table>
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 7.59%
Consumer Staples 10.56%
Energy 8.08%
Financials 23.45%
Health Care 8.31%
Industrials 10.23%
Information Technology 12.47%
Materials 1.58%
Telecommunication Services 2.40%
U S Government 10.69%
Utilities 4.64%
</Table>
55
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R BALANCED FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--1.35%
Host Hotels & Resorts Inc. 2,265 $ 50,487
McDonald's Corp. 2,850 140,363
Starwood Hotels & Resorts Worldwide, Inc. 3,000 183,360
Wyndham Worldwide Corp. 1,020 32,538
-------------
406,748
HOUSEHOLD DURABLES--0.96%
Newell Rubbermaid Inc. 3,800 98,002
Stanley Works (The) 3,400 192,916
-------------
290,918
MEDIA--1.93%
CBS Corp. (Class B) 2,000 63,020
Time Warner Inc. 9,000 170,820
Viacom Inc. (Class B) * 2,000 78,920
Walt Disney Co. (The) 8,000 268,800
-------------
581,560
MULTILINE RETAIL--1.13%
J.C. Penney Co., Inc. 2,200 151,272
Kohl's Corp. * 1,000 59,300
Target Corp. 2,000 131,860
-------------
342,432
SPECIALTY RETAIL--2.18%
Best Buy Co., Inc. 3,000 131,850
Limited Brands, Inc. 7,600 176,016
Lowe's Companies, Inc. 5,800 180,148
TJX Companies, Inc. (The) 4,000 121,960
Urban Outfitters, Inc. * 2,175 49,808
-------------
659,782
-------------
TOTAL CONSUMER DISCRETIONARY--7.55% 2,281,440
-------------
CONSUMER STAPLES--
BEVERAGES--1.85%
Coca-Cola Co. (The) 6,000 322,680
International Flavors & Fragrances Inc. 900 45,207
PepsiCo, Inc. 2,800 190,484
-------------
558,371
FOOD PRODUCTS--1.98%
Bunge Limited 1,625 148,590
H.J. Heinz Co. 2,600 117,234
McCormick & Co., Inc. (c) 3,700 132,608
Sensient Technologies Corp. 7,400 200,466
-------------
598,898
FOOD & STAPLES RETAILING--1.21%
SUPERVALU INC 3,475 146,471
Wal-Mart Stores, Inc. 5,000 218,150
-------------
364,621
HOUSEHOLD PRODUCTS--1.65%
Kimberly-Clark Corp. 2,200 151,118
Procter & Gamble Co. (The) 5,300 346,143
-------------
497,261
PERSONAL PRODUCTS--0.86%
Alberto-Culver Co. 1,800 $ 41,706
Avon Products, Inc. 3,050 104,768
Colgate-Palmolive Co. 1,475 97,822
Sally Beauty Holdings, Inc. * 1,800 15,336
-------------
259,632
-------------
TOTAL CONSUMER STAPLES--7.55% 2,278,783
-------------
ENERGY--
ENERGY EQUIPMENT & SERVICES--1.46%
Schlumberger Ltd. 2,400 231,600
Weatherford International Ltd. * 3,600 210,168
-------------
441,768
OIL, GAS & CONSUMABLE FUELS--6.59%
Anadarko Petroleum Corp. 3,600 176,328
BP PLC ADR 5,092 342,997
Chevron Corp. 6,001 526,648
Exxon Mobil Corp. 11,000 943,030
-------------
1,989,003
-------------
TOTAL ENERGY--8.05% 2,430,771
-------------
FINANCIALS--
COMMERCIAL BANKS--4.19%
Bank of America Corp. 10,000 506,800
PNC Financial Services Group, Inc. 3,000 211,110
U.S. Bancorp 6,000 194,100
Wachovia Corp. 3,600 176,328
Wells Fargo & Co. 4,800 175,392
-------------
1,263,730
DIVERSIFIED FINANCIAL SERVICES--5.84%
Allied Capital Corp. 3,400 101,388
Bear Stearns Companies Inc. (The) 900 97,794
Charles Schwab Corp. (The) 5,650 111,870
Citigroup Inc. 14,500 679,760
Discover Financial Services * 3,000 69,420
Goldman Sachs Group, Inc. (The) 1,000 176,010
JPMorgan Chase & Co. 2,092 93,136
Morgan Stanley 6,000 374,220
National Financial Partners Corp. 1,250 61,000
-------------
1,764,598
INSURANCE--4.53%
Allstate Corp. (The) 2,300 125,925
American International Group, Inc. 5,731 378,246
Aspen Insurance Holdings Ltd. 3,925 98,478
Genworth Financial Inc. (Class A) 6,200 179,676
Prudential Financial, Inc. 3,000 269,340
RenaissanceRe Holdings Ltd. 2,000 114,560
Travelers Companies, Inc. (The) 4,000 202,160
-------------
1,368,385
-------------
TOTAL FINANCIALS--14.56% 4,396,713
-------------
HEALTH CARE--
BIOTECHNOLOGY--0.61%
Amgen Inc. * 1,300 65,143
Genzyme Corp. * 875 54,609
Gilead Sciences, Inc. * 1,750 63,647
-------------
183,399
</Table>
56
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
HEALTH EQUIPMENT & SUPPLIES--1.07%
Advanced Medical Optics, Inc. * 1,025 $ 29,458
Beckman Coulter, Inc. 2,000 143,900
Covidien Ltd. * 900 35,847
Zimmer Holdings, Inc. * 1,460 114,362
-------------
323,567
HEALTH CARE PROVIDERS & SERVICES--0.54%
DaVita, Inc. * 925 53,206
Patterson Companies Inc. * 3,000 110,340
-------------
163,546
PHARMACEUTICALS--6.05%
Abbott Laboratories 4,200 218,022
Allergan, Inc. 2,000 120,020
Eli Lilly & Co. 3,850 220,797
Endo Pharmaceuticals Holdings Inc. * 1,750 55,790
Johnson & Johnson 6,000 370,740
Merck & Co. Inc. 5,300 265,901
Pfizer Inc. 15,000 372,600
Wyeth 4,400 203,720
-------------
1,827,590
-------------
TOTAL HEALTH CARE--8.27% 2,498,102
-------------
INDUSTRIALS--
AEROSPACE & DEFENSE--1.40%
General Dynamics Corp. 1,400 109,984
Goodrich Corp. 1,900 120,004
L-3 Communications Holdings, Inc. 1,000 98,510
Northrop Grumman Corp. 1,200 94,608
-------------
423,106
AIR FREIGHT & LOGISTICS--0.32%
FedEx Corp. 875 95,970
COMMERCIAL SERVICES & SUPPLIES--0.82%
Avis Budget Group, Inc. * 510 11,837
Cintas Corp. 2,000 73,300
Equifax Inc. 2,100 80,892
R. R. Donnelley & Sons Co. 2,300 82,386
-------------
248,415
ELECTRICAL EQUIPMENT--0.11%
Tyco Electronics Ltd. * 900 31,383
INDUSTRIAL CONGLOMERATES--2.77%
3M Co. 1,925 175,156
General Electric Co. 16,000 621,920
Tyco International Ltd. 900 39,744
-------------
836,820
MACHINERY--2.29%
Caterpillar Inc. 1,100 83,347
Danaher Corp. 1,400 108,724
Dover Corp. 1,700 83,980
Eaton Corp. 1,100 103,642
Illinois Tool Works Inc. 1,800 104,706
Ingersoll-Rand Co. Ltd (Class A) 1,900 98,667
Parker Hannifin Corp. 1,000 107,470
-------------
690,536
ROAD & RAIL--0.36%
Burlington Northern Santa Fe Corp. 1,350 $ 109,552
TRADING COMPANIES & DISTRIBUTORS--0.33%
W.W. Grainger, Inc. 1,100 100,771
TRANSPORTATION INFRASTRUCTURE--0.33%
Ryder System, Inc. 1,800 98,550
-------------
TOTAL INDUSTRIALS--8.73% 2,635,103
-------------
INFORMATION TECHNOLOGY--
COMMUNICATIONS EQUIPMENT--2.95%
Arris Group Inc. * 3,900 59,202
Cisco Systems, Inc. * 11,700 373,464
Harris Corp. 2,300 139,909
Motorola, Inc. 6,200 105,090
Nokia Oyj ADR 6,500 213,720
-------------
891,385
COMPUTERS & PERIPHERALS--2.11%
Dell Inc. * 6,800 192,100
EMC Corp. 7,500 147,450
Electronics for Imaging, Inc. * 1,950 50,856
Hewlett-Packard Co. 5,000 246,750
-------------
637,156
ELECTRONIC EQUIPMENT & INSTRUMENTS--0.18%
Agilent Technologies, Inc. * 1,525 55,510
IT SERVICES--0.14%
Global Payments Inc. 1,075 42,441
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT--1.54%
Intel Corp. 13,000 334,750
Linear Technology Corp. 1,500 50,985
Texas Instruments Inc. 2,300 78,752
-------------
464,487
SOFTWARE--3.23%
Electronic Arts Inc. * 1,500 79,410
Microsoft Corp. 23,300 669,409
Oracle Corp. * 11,100 225,108
-------------
973,927
-------------
TOTAL INFORMATION TECHNOLOGY--10.15% 3,064,906
-------------
MATERIALS--
CHEMICALS--0.70%
Dow Chemical Co. (The) 1,600 68,208
Eastman Chemical Co. 600 40,056
PPG Industries, Inc. 900 66,015
Sigma-Aldrich Corp. 800 35,840
-------------
210,119
CONTAINERS & PACKAGING--0.12%
Ball Corp. 700 36,666
METALS & MINING--0.44%
Freeport-McMoRan Copper & Gold, Inc. 268 23,429
Nucor Corp. 1,200 63,480
United States Steel Corp. 500 47,240
-------------
134,149
</Table>
57
<Page>
<Table>
<Caption>
SHARES VALUE
COMMON STOCKS
PAPER & FOREST PRODUCTS--0.32%
International Paper Co. 1,300 $ 45,643
Louisiana-Pacific Corp. 1,000 18,730
MeadWestvaco Corp. 1,000 31,590
-------------
95,963
-------------
TOTAL MATERIALS--1.58% 476,897
-------------
TELECOMMUNICATION SERVICES--
DIVERSIFIED TELECOMMUNICATION SERVICES--1.88%
ALLTEL Corp. 2,400 163,824
Sprint Nextel Corp. 10,263 194,176
Verizon Communications Inc. 2,580 108,050
Windstream Corp. 7,100 101,388
-------------
567,438
WIRELESS TELECOMMUNICATION SERVICES--0.52%
Vodafone Group PLC ADR 4,812 155,909
-------------
TOTAL TELECOMMUNICATION SERVICES--2.40% 723,347
-------------
UTILITIES--
ELECTRIC UTILITIES--2.92%
Ameren Corp. 3,000 152,340
CenterPoint Energy, Inc. 5,500 89,210
Constellation Energy Group 5,000 414,700
Exelon Corp. 1,400 98,938
Southern Co. 1,600 56,784
Wisconsin Energy Corp. 1,600 70,896
-------------
882,868
-------------
TOTAL UTILITIES--2.92% 882,868
-------------
TOTAL COMMON STOCK--71.76%
(Cost $16,357,340) 21,668,930
-------------
<Caption>
FACE
AMOUNT
CORPORATE BONDS
CONSUMER STAPLES--
PERSONAL PRODUCTS--1.73%
Avon Products, Inc., 7.15%, 11/15/09 $ 500,000 522,699
-------------
TOTAL CONSUMER STAPLES--1.73% 522,699
-------------
FINANCIALS--
COMMERCIAL BANKS--2.49%
Royal Bank of Scotland GRP PLC,
yankee bond, 6.40%, 04/01/09 500,000 513,309
Washington Mutual Inc., 4.20%, 01/15/10 250,000 239,814
-------------
753,123
DIVERSIFIED FINANCIAL SERVICES--4.52%
General Electric Capital Corp., 3.75%, 12/15/09 350,000 341,806
JPMorgan & Co., Inc., 6.00%, 01/15/09 500,000 504,323
Weingarten Realty Investors, 7.35%, 07/20/09 500,000 517,448
-------------
1,363,577
INSURANCE--1.78%
Mony Group Inc. (The), 8.35%, 03/15/10 500,000 537,544
-------------
TOTAL FINANCIALS--8.79% 2,654,244
-------------
INDUSTRIALS--
TRANSPORTATION--1.46%
Hertz Corp., 7.40%, 03/01/11 $ 455,000 $ 441,350
-------------
TOTAL INDUSTRIALS--1.46% 441,350
-------------
TOTAL CORPORATE BONDS--11.98%
(Cost $3,553,986) 3,618,293
-------------
U S GOVERNMENT AGENCY SECURITIES--
U S GOVERNMENT AGENCY SECURITIES--10.64%
Federal Farm Credit Bank, 4.70%, 10/06/08 400,000 398,657
Federal Farm Credit Bank, 4.15%, 11/30/09 350,000 345,274
Federal Home Loan Bank, 4.40%, 12/28/09 750,000 742,801
Federal Home Loan Mortgage Corp., 5.27%, 10/12/10 1,000,000 1,000,014
Federal Home Loan Mortgage Corp., Pool #284839, 8.50%, 01/01/17 4,171 4,428
Federal National Mortgage Association, 4.75%, 08/25/08 (b) 700,000 699,307
Federal National Mortgage Association, Pool #048974, 8.00%,
06/01/17 22,353 23,416
-------------
TOTAL US GOVERNMENT AGENCY SECURITIES--10.64%
(Cost $3,223,317) 3,213,897
-------------
<Caption>
SHARES
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 900 900
-------------
TOTAL MONEY MARKET FUND--0.00%
(Cost $900) 900
-------------
<Caption>
FACE
AMOUNT
COMMERCIAL PAPER
CONSUMER STAPLES--
FOOD PRODUCTS--1.24%
Kraft Foods Inc., 5.65%, 09/04/07 $ 373,000 372,824
-------------
TOTAL CONSUMER STAPLES--1.24% 372,824
INFORMATION TECHNOLOGY--
IT SERVICES--2.27%
Computer Sciences Corp., 6.10%, 09/05/07 685,000 684,535
-------------
TOTAL INFORMATION TECHNOLOGY--2.27% 684,535
-------------
UTILITIES--
ELECTRIC UTILITIES--1.69%
Pacific Gas& Electric, 6.15%, 09/06/07 512,000 511,563
-------------
TOTAL UTILITIES--1.69% 511,563
-------------
TOTAL COMMERCIAL PAPER--5.20%
(Cost $1,568,922) 1,568,922
-------------
TOTAL INVESTMENTS--99.58%
(Cost $24,704,465) 30,070,942
CASH AND OTHER ASSETS, LESS LIABILITIES--0.42% 127,230
-------------
NET ASSETS--100.00% $ 30,198,172
=============
</Table>
58
<Page>
*--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 August 31,
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.
(b) Long term obligations that will mature in less than one year.
(c) Non-voting shares
See notes to financial statements.
59
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R BALANCED FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $24,703,565) $ 30,070,042
Investment in affiliated money market fund (Cost $900) 900
---------------
Total investments (Cost $24,704,465) 30,070,942
Prepaid expenses 18,088
Receivable for:
Investment securities sold 232
Dividends 44,350
Interest 122,937
Expense reimbursement 358
Other assets 15,067
---------------
TOTAL ASSETS 30,271,974
---------------
LIABILITIES
Investment securities purchased 151
Capital stock reacquired 6,759
Payable to investment adviser for fund expenses 22,345
Accrued:
Investment advisory fees 19,164
Administrative service fees 6,388
Distribution fees 7,625
Other liabilities 11,370
---------------
TOTAL LIABILITIES 73,802
---------------
NET ASSETS $ 30,198,172
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 24,454,989
Undistributed net investment income 103,490
Accumulated net realized gain (loss) on investments 273,216
Net unrealized appreciation of investments 5,366,477
---------------
NET ASSETS $ 30,198,172
===============
NET ASSETS:
Class A 4,376,417
Class B 2,170,949
Class T 23,650,806
---------------
TOTAL NET ASSETS $ 30,198,172
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 50,000,000
Outstanding 238,286
Class B:
Authorized 25,000,000
Outstanding 116,947
Class T:
Authorized 25,000,000
Outstanding 1,236,577
Class A:
Net asset value and redemption price per share $ 18.37
Offering price per share:
(Net assets value of $18.37 / 95%) $ 19.34
Class B:
Net asset value and offering price per share $ 18.56
Class T:
Net asset value and redemption price per share $ 19.13
Offering price per share:
(Net assets value of $19.13 / 94.25%) $ 20.30
</Table>
See notes to financial statements.
60
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R BALANCED FUND
<Table>
INVESTMENT INCOME
Dividends (Net of foreign tax withheld of $1,051) $ 453,094
Interest 538,232
Interest from affiliated money market fund 151
---------------
TOTAL INVESTMENT INCOME 991,477
---------------
EXPENSES
Investment advisory fees 230,737
Administrative service fees 76,912
Professional fees 3,355
Custody and transaction fees 17,125
Directors' fees and expenses 5,947
Compliance expenses 5,207
Qualification fees
Class A 5,980
Class B 4,124
Class T 14,413
Shareholder reporting expenses
Class A 1,011
Class B 758
Class T 653
Distribution fees
Class A 11,331
Class B 20,134
Insurance expenses 11,493
---------------
TOTAL EXPENSES 409,180
LESS EXPENSES REIMBURSED (18,422)
---------------
NET EXPENSES 390,758
---------------
INVESTMENT INCOME (LOSS)--NET 600,719
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 301,453
Change in unrealized appreciation of investments 2,340,504
---------------
NET GAIN (LOSS) ON INVESTMENTS 2,641,957
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 3,242,676
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R BALANCED FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 600,719 $ 569,854
Net realized gain (loss) on investments 301,453 1,764,695
Change in unrealized appreciation of investments 2,340,504 (951,013)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 3,242,676 1,383,536
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (90,358) (85,723)
Class B (43,762) (38,847)
Class T (496,856) (403,808)
Capital gains
Class A (270,917) (217,989)
Class B (158,886) (120,455)
Class T (1,312,231) (941,602)
--------------- ---------------
Total distributions to shareholders (2,373,010) (1,808,424)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (179,987) (519,607)
Class B (669,560) (274,951)
Class T 602,782 (128,140)
--------------- ---------------
Total capital share transactions--net (246,765) (922,698)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 622,901 (1,347,586)
NET ASSETS
Beginning of year 29,575,271 30,922,857
--------------- ---------------
End of year $ 30,198,172 $ 29,575,271
=============== ===============
Undistributed Net Investment Income $ 103,490 $ 133,747
=============== ===============
</Table>
See notes to financial statements.
61
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R BALANCED FUND
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 17.91 $ 18.19 $ 17.60 $ 16.65 $ 15.93
Income (loss) from investment operations
Investment income (loss)--net 0.36 0.32 0.35 0.28 0.32
Net realized and unrealized gain (loss) on investments 1.57 0.50 0.65 1.18 0.77
--------- --------- --------- --------- ---------
Total from investment operations 1.93 0.82 1.00 1.46 1.09
Less distributions
Investment income--net (0.37) (0.31) (0.35) (0.30) (0.37)
Capital gains (1.10) (0.79) (0.06) (0.21) --
--------- --------- --------- --------- ---------
Total distributions (1.47) (1.10) (0.41) (0.51) (0.37)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 18.37 $ 17.91 $ 18.19 $ 17.60 $ 16.65
========= ========= ========= ========= =========
Total return (1) 11.09% 4.65% 5.73% 8.83% 7.02%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 4,376 $ 4,430 $ 5,030 $ 4,409 $ 3,419
Ratio of expenses with reimbursement to average net assets (2) 1.30% 1.30% 1.30% 1.30% 1.30%
Ratio of expenses without reimbursement to average net assets 1.54% 1.71% 1.73% 1.64% 1.69%
Ratio of net investment income (loss) to average net assets 1.93% 1.90% 1.85% 1.51% 2.02%
Portfolio turnover rate 8.35% 21.82% 23.18% 11.15% 23.83%
<Caption>
CLASS B SHARES
---------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 18.08 $ 18.37 $ 17.78 $ 16.83 $ 16.18
Income (loss) from investment operations
Investment income (loss)--net 0.21 0.24 0.25 0.20 0.24
Net realized and unrealized gain (loss) on investments 1.67 0.51 0.66 1.19 0.72
--------- --------- --------- --------- ---------
Total from investment operations 1.88 0.75 0.91 1.39 0.96
Less distributions
Investment income--net (0.30) (0.25) (0.26) (0.23) (0.31)
Capital gains (1.10) (0.79) (0.06) (0.21) --
--------- --------- --------- --------- ---------
Total distributions (1.40) (1.04) (0.32) (0.44) (0.31)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 18.56 $ 18.08 $ 18.37 $ 17.78 $ 16.83
========= ========= ========= ========= =========
Total return (1) 10.70% 4.20% 5.15% 8.33% 6.10%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 2,171 $ 2,772 $ 3,095 $ 2,952 $ 2,336
Ratio of expenses with reimbursement to average net assets (2) 1.80% 1.80% 1.80% 1.80% 1.80%
Ratio of expenses without reimbursement to average net assets 2.07% 2.24% 2.23% 2.13% 2.18%
Ratio of net investment income (loss) to average net assets 1.43% 1.40% 1.36% 1.00% 1.51%
Portfolio turnover rate 8.35% 21.82% 23.18% 11.15% 23.83%
</Table>
(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.
62
<Page>
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 18.60 $ 18.85 $ 18.21 $ 17.18 $ 16.42
Income (loss) from investment operations
Investment income (loss)--net 0.39 0.36 0.36 0.29 0.34
Net realized and unrealized gain (loss) on investments 1.65 0.51 0.68 1.24 0.77
--------- --------- --------- --------- ---------
Total from investment operations 2.04 0.87 1.04 1.53 1.11
Less distributions
Investment income--net (0.41) (0.33) (0.34) (0.29) (0.35)
Capital gains (1.10) (0.79) (0.06) (0.21) --
--------- --------- --------- --------- ---------
Total distributions (1.51) (1.12) (0.40) (0.50) (0.35)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 19.13 $ 18.60 $ 18.85 $ 18.21 $ 17.18
========= ========= ========= ========= =========
Total return (1) 11.28% 4.79% 5.77% 8.95% 6.95%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 23,651 $ 22,373 $ 22,798 $ 22,785 $ 21,569
Ratio of expenses with reimbursement to average net assets 1.20% 1.25% 1.24% 1.23% 1.25%
Ratio of expenses without reimbursement to average net assets 1.20% 1.29% 1.24% 1.23% 1.26%
Ratio of net investment income (loss) to average net assets 2.02% 1.95% 1.92% 1.58% 2.08%
Portfolio turnover rate 8.35% 21.82% 23.18% 11.15% 23.83%
</Table>
(1) Does not include the effect of sales charge
See notes to financial statements.
63
<Page>
SM&R GOVERNMENT BOND FUND
MANAGER DISCUSSION
The SM&R Government Bond Fund is focused on providing competitive levels of
current income to the conservative investor through investments in securities
issued or guaranteed by the U.S. Government, its agencies or instrumentalities,
as well as securities of corporate issuers deemed by the portfolio manager to be
of higher credit quality and financial strength.
Over the past fiscal year ending August 31, 2007, the fund has provided a total
return of 5.16% to class T investors at net asset value. The year-to-date total
return for the eight months ended August 31, 2007 was 3.56%. The fund has an
average maturity of 4.3 years, a market-weighted average coupon of 5.02%, and a
modified duration of 3.58 years.
During the past fiscal year, Fund performance benefited from positioning in the
3-5 year area of the yield curve. Traditionally the bond market offers a much
greater yield advantage when longer maturities are purchased, but over the past
fiscal year this relationship has been a bit challenged. The Fund has been able
to capture virtually all the yield available in longer maturities by investing
in a much more conservative fashion. This offered investors a less volatile
experience in owning shares of the fund, as interest rate moves affect shorter
maturities much less than longer maturities. We view investors in the Government
Bond Fund as conservative, and thus feel good about our positioning in
relatively shorter term bonds.
The credit markets have been rocked in recent weeks with a crisis of confidence.
The seeds of this disruption were being sown over the last four or five years
but have been largely invisible until only recently. The reasons for this can be
traced to a number of factors. One factor is the abundance of cash on a
worldwide basis. Several years of Federal Reserve short-term interest rate cuts
fueled consumer spending and corporate profits. A strengthening global economy
and a rising U.S. stock market led investors, institutional and individual, to
underestimate risk levels. As a result, risk premiums, or the extra yield
required for holding financial instruments such as mortgage securities and
corporate bonds, narrowed or tightened, hitting a record low in February of
2007.
Lower interest rates led to some other situations at the root of this crisis of
confidence. Creative mortgage financing designed to entice homebuyers resulted
in sub-prime mortgages with adjustable rates, little or no down payments, and
inadequate documentation of income levels and other measures of
credit-worthiness. These sub-prime loans were "packaged" or securitized by Wall
Street firms into CDO's (collateralized debt obligations) and other
mortgage-backed securities and sold to investors. The credit rating companies
blessed these securities with some of their highest ratings. The assessment and
modeling of the risks involved did not reflect the true level of risk, as there
was not enough historical performance on these often exotic types of structured
financing for mortgages. The mortgage industry had record volume of more than $3
trillion in 2005 resulting in $750 billion of adjustable rate mortgages due to
reset through June 2008.
Concurrent with the growing sub-prime mortgage problem was the growth of private
equity, investment firms that buy-out underperforming public companies using
funds generated from complex investment structures. Collateralized loan
obligations, or CLO's, pool and package low-rated loans from banks funding
private equity buy-outs. These CLO's raised $100 billion in 2006, four times the
amount in 2004. Corporate leverage as measured by total debt divided by
operating earnings increased from 4.7 in 2004 to 7.0 in the second quarter of
2007 according to Standard & Poor's Leveraged Commentary & Debt. Private equity
financing increased both the use of leverage and the supply of and appetite for
debt-based securities.
The mispricing of risk became more evident through the investments of hedge
funds. While losses on sub-prime loans began rising as early as mid-2006, it
wasn't until June 2007 when Bear Stearns made public problems in two of its
hedge funds, leading to investment losses of $1.4 billion, that world investment
markets became alarmed. Hedge funds' limited disclosure requirements allowed the
sub-prime mortgage problems to spread, largely undetected. This raised
uncertainty as to both the extent of the sub-prime mortgage problem and the
number and types of financial securities affected.
The credit crisis spread to all areas of the credit market. Investors are
hesitant about loaning money, unsure as to whether their investment would be in
some way impacted by the widening scope of the sub-prime loan problem. This has
driven up the cost of funds through higher lending rates for even the most
stable of corporate borrowers. Worse yet, many lenders are not taking on debt of
any kind other than U.S. Treasuries, resulting in a credit squeeze that could
result in a lack of investment capital for some firms or a recession if not
resolved.
It is still unclear what actions or course of events will lead us out of the
current credit crisis brought about by these recent trends in credit markets and
lending. The Federal Reserve recently cut the discount rate by 50 basis points
to 5.75% and extended the term to 30 days from overnight. Several major U.S.
banks have stepped up to the discount window while the Fed has pumped more than
$62 billion into the financial system to keep credit markets functioning. Most
believe the Federal Reserve will move to lower interest rates at future
meetings, and President Bush has recently announced plans to expand the role of
the Federal Housing Administration to guarantee loans for delinquent borrowers
to avoid foreclosures by refinancing at more favorable rates. The European
Central Bank pumped $57.7 billion into money markets on September 6th, while
central banks worldwide added more than $350 billion to the global financial
system from August 9th to August 14th. Despite these corrective measures, it may
take at least until mid-2008 for the current credit crisis to completely play
out. While we have no direct exposure to any sub-prime instruments in our funds,
the entire credit market remains affected.
Sincerely,
Anne M. LeMire, CPA, CFA, Portfolio Manager
SM&R Government Bond Fund
64
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SM&R GOVERNMENT BOND FUND, CLASS T, AT OFFERING PRICE, AND THE LIPPER GENERAL
US GOVERNMENT FUND INDEX
<Table>
<Caption>
SM&R
GOVERNMENT
BOND FUND LIPPER GENERAL US GOVERNMENT FUND INDEX
--------- ---------------------------------------
9/1/1997 $ 9,548 $ 10,000
8/31/1998 $ 10,345 $ 11,042
8/31/1999 $ 10,423 $ 10,897
8/31/2000 $ 11,005 $ 11,672
8/31/2001 $ 12,315 $ 12,985
8/31/2002 $ 13,063 $ 14,056
8/31/2003 $ 13,385 $ 14,288
8/31/2004 $ 13,807 $ 15,015
8/31/2005 $ 14,060 $ 15,566
8/31/2006 $ 14,292 $ 15,754
8/31/2007 $ 15,030 $ 16,454
</Table>
SM&R Government Bond Fund performance figures reflect reinvestment of all
dividends and capital gains distributions and changes in net asset value.
Returns for Class A and B will vary due to differences in expenses and sales
charge structure. Average annual returns are based on the maximum sales charge
and reinvestment of all dividends and capital gains. The average annual returns
for Class A shares reflect the current maximum sales charge of 4.75%. Class B
shares reflect the applicable contingent deferred sales charge (CDSC), which is
3% in the first year declining to 1% in the third year, and is eliminated
thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 01/01/99.
<Table>
<Caption>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION
-------- ------ ------ ---------
Class A 0.19% 1.86% -- 3.47%
Class B 1.50% 2.35% -- 3.57%
</Table>
AVERAGE ANNUAL RETURNS
Includes maximum sales charge of 4.5% through 8/31/07 for Class T shares.
<Table>
10 YEAR 4.16%
5 YEAR 1.89%
1 YEAR 0.42%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Financials 1.82%
Materials 3.70%
Miscellaneous 0.12%
U S Government 94.36%
</Table>
65
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
CORPORATE BONDS
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--1.80%
MBNA Master Credit Card Trust 02/15/12 7.000 $ 500,000 $ 519,064
--------------
TOTAL FINANCIALS--1.80% 519,064
--------------
MATERIALS--
METALS & MINING--3.66%
Carpenter Technology Corp. 05/15/13 6.625 1,000,000 1,051,661
--------------
TOTAL MATERIALS--3.66% 1,051,661
--------------
TOTAL CORPORATE BONDS--5.46%
(Cost $1,509,251) 1,570,725
--------------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--58.99%
Federal Home Loan Bank (b) 10/05/07 3.375 1,500,000 1,497,522
Federal Home Loan Bank (b) 07/15/08 2.625 1,000,000 980,119
Federal Home Loan Mortgage Corp. 11/15/13 4.875 1,000,000 998,386
Federal National Mortgage Assoc. (b) 02/01/08 3.875 500,000 497,207
Federal National Mortgage Assoc. 02/15/09 3.250 1,100,000 1,075,677
Federal National Mortgage Assoc. 02/15/10 3.875 1,100,000 1,079,285
Federal National Mortgage Assoc. 12/15/10 4.750 1,900,000 1,901,013
Federal National Mortgage Assoc. 02/01/11 6.250 1,850,000 1,937,464
Federal National Mortgage Assoc. 03/15/11 5.500 1,300,000 1,331,200
Federal National Mortgage Assoc. 01/23/12 5.500 1,400,000 1,403,773
Federal National Mortgage Assoc. 03/26/12 5.400 1,100,000 1,103,288
Private Export Funding Corp. 01/15/10 7.200 15,000 15,804
U S Treasury Bond 05/15/17 8.750 2,375,000 3,134,444
--------------
16,955,182
U S GOVERNMENT SECURITIES--27.24%
U S Treasury Bond 05/15/16 7.250 800,000 952,562
U S Treasury Note (b) 05/15/08 5.625 500,000 503,828
U S Treasury Note (b) 05/15/08 2.625 700,000 691,086
U S Treasury Note 10/15/08 3.125 800,000 790,250
U S Treasury Note 02/15/09 3.000 1,000,000 982,813
U S Treasury Note 11/15/12 4.000 2,000,000 1,975,468
U S Treasury Note 05/15/14 4.750 1,319,000 1,348,883
U S Treasury Note 02/15/15 4.000 600,000 583,406
--------------
7,828,296
--------------
TOTAL U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES--86.23%
(Cost $24,767,612) 24,783,478
--------------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--7.21%
Federal Farm Credit Bank Discount Note 09/06/07 5.000 600,000 599,583
Federal Home Loan Bank 09/06/07 4.550 1,075,000 1,074,184
Federal National Mortgage Association 09/04/07 5.050 400,000 399,832
--------------
2,073,599
--------------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--7.21%
(Cost $2,073,599) 2,073,599
--------------
</Table>
66
<Page>
<Table>
<Caption>
SHARES VALUE
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (a) 33,319 $ 33,319
-------------
TOTAL MONEY MARKET FUND--0.12%
(Cost $33,319) 33,319
-------------
TOTAL INVESTMENTS--99.02%
(Cost $28,383,781) 28,461,121
CASH AND OTHER ASSETS, LESS LIABILITIES--0.98% 280,843
-------------
NET ASSETS--100.00% $ 28,741,964
=============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) The rate quoted is the annualized seven-day yield of the fund at
August 31, 2007. A complete listing of the fund's holdings are
included in these financial statements. This fund and the SM&R
Government Bond Fund are affiliated by having the same investment
adviser.
(b) Long term obligations that will mature in less than one year.
See notes to financial statements.
67
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R GOVERNMENT BOND FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $28,350,462) $ 28,427,802
Investment in affiliated money market fund (Cost $33,319) 33,319
---------------
Total investments (Cost $28,383,781) 28,461,121
Prepaid expenses 18,151
Receivable for:
Interest 306,224
Expense reimbursement 4,001
Other assets 2,782
---------------
TOTAL ASSETS 28,792,279
---------------
LIABILITIES
Capital stock reacquired 2,151
Distribution payable 621
Payable to investment adviser for fund expenses 18,815
Accrued:
Investment advisory fees 12,120
Administrative service fees 6,060
Distribution fees 1,875
Other liabilities 8,673
---------------
TOTAL LIABILITIES 50,315
---------------
NET ASSETS $ 28,741,964
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 29,124,506
Undistributed net investment income 108
Accumulated net realized gain (loss) on investments (459,990)
Net unrealized appreciation of investments 77,340
---------------
NET ASSETS $ 28,741,964
===============
NET ASSETS:
Class A 1,066,927
Class B 587,947
Class T 27,087,090
---------------
TOTAL NET ASSETS $ 28,741,964
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,001,150
Outstanding 102,541
Class B:
Authorized 100,000,000
Outstanding 56,603
Class T:
Authorized 23,000,000
Outstanding 2,637,944
Class A:
Net asset value and redemption price per share $ 10.40
Offering price per share:
(Net assets value of $10.40 / 95.25%) $ 10.92
Class B:
Net asset value and offering price per share $ 10.39
Class T:
Net asset value and redemption price per share $ 10.27
Offering price per share:
(Net assets value of $10.27 / 95.5%) $ 10.75
</Table>
See notes to financial statements.
68
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R GOVERNMENT BOND FUND
<Table>
INVESTMENT INCOME
Interest $ 1,348,252
Interest from affiliated money market fund 1,774
---------------
TOTAL INVESTMENT INCOME 1,350,026
---------------
EXPENSES
Investment advisory fees 140,956
Administrative service fees 70,478
Professional fees 3,936
Custody and transaction fees 7,528
Directors' fees and expenses 5,947
Compliance expenses 4,784
Qualification fees
Class A 6,391
Class B 3,911
Class T 15,609
Share holder reporting expenses
Class A 230
Class B 171
Class T 86
Distribution fees
Class A 2,577
Class B 4,860
Insurance expenses 10,531
---------------
TOTAL EXPENSES 277,995
LESS EXPENSES REIMBURSED (68,905)
---------------
NET EXPENSES 209,090
---------------
INVESTMENT INCOME (LOSS)--NET 1,140,936
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (25,100)
Change in unrealized appreciation (depreciation) of investments 305,449
---------------
NET GAIN (LOSS) ON INVESTMENTS 280,349
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,421,285
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 1,140,936 $ 967,609
Net realized gain (loss) on investments (25,100) (257,242)
Change in unrealized appreciation (depreciation) of investments 305,449 (285,397)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 1,421,285 424,970
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (41,848) (33,623)
Class B (23,067) (25,134)
Class T (1,076,489) (908,798)
--------------- ---------------
Total distributions to shareholders (1,141,404) (967,555)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET
Class A 80,057 (40,465)
Class B (114,106) (293,136)
Class T 630,368 (144,086)
--------------- ---------------
Total capital share transactions--net 596,319 (477,687)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 876,200 (1,020,272)
NET ASSETS
Beginning of year 27,865,764 28,886,036
--------------- ---------------
End of year $ 28,741,964 $ 27,865,764
=============== ===============
Undistributed Net Investment Income $ 108 $ 576
=============== ===============
</Table>
See notes to financial statements.
69
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
CLASS A SHARES
---------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2007 2006 2005 2004 2003
------- ------- ------- ------- -------
Net asset value, beginning of year $ 10.30 $ 10.50 $ 10.56 $ 10.75 $ 10.88
Income (loss) from investment operations
Investment income (loss)--net 0.42 0.36 0.25 0.23 0.40
Net realized and unrealized gain (loss) on investments 0.10 (0.20) (0.06) 0.11 (0.13)
------- ------- ------- ------- -------
Total from investment operations 0.52 0.16 0.19 0.34 0.27
Less distributions
Investment income--net (0.42) (0.36) (0.25) (0.23) (0.40)
Capital gains -- -- (0.00)*** (0.30) --
------- ------- ------- ------- -------
Total distributions (0.42) (0.36) (0.25) (0.53) (0.40)
------- ------- ------- ------- -------
Net asset value, end of year $ 10.40 $ 10.30 $ 10.50 $ 10.56 $ 10.75
======= ======= ======= ======= =======
Total return (1) 5.15% 1.57% 1.93% 3.14% 2.51%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 1,067 $ 976 $ 1,036 $ 983 $ 1,240
Ratio of expenses with reimbursement to average net assets (2) 0.73% 0.73% 0.73% 0.73% 0.73%
Ratio of expenses without reimbursement to average net assets 1.76% 2.19% 2.32% 2.04% 1.75%
Ratio of net investment income (loss) to average net assets 4.06% 3.46% 2.43% 2.13% 3.62%
Portfolio turnover rate 50.01% 78.38% 51.35% 50.62% 99.26%
<Caption>
CLASS B SHARES
---------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2007 2006 2005 2004 2003
------- ------- ------- ------- -------
Net asset value, beginning of year $ 10.29 $ 10.49 $ 10.55 $ 10.74 $ 10.86
Income (loss) from investment operations
Investment income (loss)--net 0.37 0.31 0.20 0.17 0.33
Net realized and unrealized gain (loss) on investments 0.10 (0.20) (0.06) 0.11 (0.12)
------- ------- ------- ------- -------
Total from investment operations 0.47 0.11 0.14 0.28 0.21
Less distributions
Investment income--net (0.37) (0.31) (0.20) (0.17) (0.33)
Capital gains -- -- (0.00)*** (0.30) --
------- ------- ------- ------- -------
Total distributions (0.37) (0.31) (0.20) (0.47) (0.33)
------- ------- ------- ------- -------
Net asset value, end of year $ 10.39 $ 10.29 $ 10.49 $ 10.55 $ 10.74
======= ======= ======= ======= =======
Total return (1) 4.66% 1.10% 1.44% 2.65% 1.96%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 588 $ 696 $ 1,009 $ 1,131 $ 1,643
Ratio of expenses with reimbursement to average net assets (2) 1.23% 1.23% 1.23% 1.23% 1.23%
Ratio of expenses without reimbursement to average net assets 2.25% 2.55% 2.34% 2.06% 1.95%
Ratio of net investment income (loss) to average net assets 3.56% 2.94% 1.92% 1.65% 2.99%
Portfolio turnover rate 50.01% 78.38% 51.35% 50.62% 99.26%
</Table>
*** 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.
70
<Page>
<Table>
<Caption>
CLASS T SHARES
---------------------------------------------------------
YEAR ENDED AUGUST 31,
---------------------------------------------------------
2007 2006 2005 2004 2003
------- ------- ------- ------- -------
Net asset value, beginning of year $ 10.17 $ 10.36 $ 10.43 $ 10.62 $ 10.75
Income (loss) from investment operations
Investment income (loss)--net 0.41 0.35 0.25 0.22 0.40
Net realized and unrealized gain (loss) on investments 0.10 (0.19) (0.07) 0.11 (0.13)
------- ------- ------- ------- -------
Total from investment operations 0.51 0.16 0.18 0.33 0.27
Less distributions
Investment income--net (0.41) (0.35) (0.25) (0.22) (0.40)
Capital gains -- -- (0.00)*** (0.30) --
------- ------- ------- ------- -------
Total distributions (0.41) (0.35) (0.25) (0.52) (0.40)
------- ------- ------- ------- -------
Net asset value, end of year $ 10.27 $ 10.17 $ 10.36 $ 10.43 $ 10.62
======= ======= ======= ======= =======
Total return (1) 5.16% 1.65% 1.84% 3.15% 2.46%
======= ======= ======= ======= =======
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $27,087 $26,194 $26,841 $27,750 $27,946
Ratio of expenses with reimbursement to average net assets (2) 0.73% 0.73% 0.73% 0.73% 0.73%
Ratio of expenses without reimbursement to average net assets 0.93% 0.99% 0.96% 0.95% 0.91%
Ratio of net investment income (loss) to average net assets 4.06% 3.47% 2.43% 2.12% 3.60%
Portfolio turnover rate 50.01% 78.38% 51.35% 50.62% 99.26%
</Table>
*** 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.
71
<Page>
SM&R TAX-FREE FUND
MANAGER DISCUSSION
The SM&R Tax Free Fund is a well-diversified portfolio designed to produce
monthly tax-free dividends to investors seeking current income, while minimizing
federal tax liability. The Fund focuses primarily on issuers of the highest
quality rating and often in insured issues. We analyze the credit-worthiness and
financial strength of both the insurers and the underlying issuers in an effort
to minimize the default risk within the portfolio to a level below the municipal
market in general. Our overall average credit rating is maintained at AAA
because we do not believe that the market adequately compensates for the risk
profile of lower rated issuers.
Over the past fiscal year ending August 31, 2007, the fund has provided a total
return of 2.87% to class T investors at net asset value. The year to date total
return for the eight months ended August 31, 2007 was 1.66%. The fund has an
average maturity of 5.59 years, a market-weighted average coupon of 4.76%, and a
modified duration of 5.49 years.
In the earlier part of the latest fiscal year, as credit concerns in mortgage
and corporate markets were becoming more evident, municipal markets were largely
un-affected, and municipal bond prices reflected this perception of insulation,
with the Fund's net asset value relatively stable. However, as the depth of
potential for possible crisis in the mortgage market translated into property
valuation concerns, thus shrinking tax revenue streams, municipal bond prices
began to drop as credit spreads widened. This price drop obviously had somewhat
of a negative impact on fund performance, although much less than would have
been the case had we been positioned more aggressively. The end of the fiscal
year featured bond prices firming, however, benefiting fund shareholders.
The Fund's duration has benefited performance as short and intermediate
maturities have outperformed longer dated paper. We expect this trend to
continue in the near term, as Federal Reserve action is likely to drive down
short term interest rates.
We expect the municipal market performance to remain in positive territory for
the remainder of the year, marking the eighth consecutive year of positive
performance for the asset class. Municipal bonds remain a core holding in the
portfolio of investors in many tax brackets, and the positively sloped curve
provides an opportunity for incremental yield absent in the taxable market.
Sincerely,
Anne M. LeMire, CPA, CFA, Portfolio Manager
SM&R Tax Free Fund
72
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN SM&R TAX FREE
FUND, CLASS T, AT OFFERING PRICE, AND THE LIPPER GENERAL MUNICIPAL DEBT INDEX
<Table>
<Caption>
SM&R
TAX FREE
FUND LIPPER GENERAL MUNICIPAL DEBT INDEX
-------- -----------------------------------
9/1/1997 $ 9,549 $ 10,000
8/31/1998 $ 10,373 $ 10,860
8/31/1999 $ 10,344 $ 10,734
8/31/2000 $ 10,981 $ 11,310
8/31/2001 $ 12,034 $ 12,446
8/31/2002 $ 12,665 $ 13,029
8/31/2003 $ 12,966 $ 13,365
8/31/2004 $ 13,640 $ 14,278
8/31/2005 $ 14,010 $ 15,084
8/31/2006 $ 14,279 $ 15,579
8/31/2007 $ 14,689 $ 15,798
</Table>
SM&R Tax Free Fund performance figures reflect reinvestment of all dividends and
capital gains distributions and changes in net asset value. Returns for Class A
and B will vary due to differences in expenses and sales charge structure.
Average annual returns are based on the maximum sales charge and reinvestment of
all dividends and capital gains. The average annual returns for Class A shares
reflect the current maximum sales charge of 4.75%. Class B shares reflect the
applicable contingent deferred sales charge (CDSC), which is 3% in the first
year declining to 1% in the third year, and is eliminated thereafter.
AVERAGE ANNUAL RETURNS
Includes maximum sales charge through 8/31/07. Inception date of these classes
is 01/01/99.
<Table>
<Caption>
ONE FIVE TEN SINCE
YEAR YEAR YEAR INCEPTION
------ ------ ------ ---------
Class A -2.11% 2.01% -- 3.17%
Class B -0.56% 2.51% -- 3.25%
</Table>
AVERAGE ANNUAL RETURNS
Includes maximum sales charge of 4.5% through 8/31/07 for Class T shares.
<Table>
10 YEAR 3.92%
5 YEAR 2.06%
1 YEAR -1.75%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Development 5.53%
Education 17.86%
General Obligation 28.77%
U.S. Government 11.79%
Housing 0.04%
Medical 6.68%
Miscellaneous 6.27%
Pollution 3.11%
Transportation 9.59%
Utilities 10.36%
</Table>
73
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R TAX FREE FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
MUNICIPAL BONDS
RATING (a)
ALABAMA--1.34%
Aaa/AAA Alabama Drinking Water Financing Authority, Revolving
Fund Loan - Revenue Bonds, Series A 08/15/16 4.000 $ 180,000 $ 177,836
ARIZONA--1.92%
Aaa/AAA Scottsdale Industrial Development Authority Hospital -
Revenue Bonds, Series A 09/01/12 6.000 250,000 255,042
CALIFORNIA--0.15%
A1/A+ California State - General Obligation Bonds Unlimited 06/01/11 5.250 20,000 20,168
FLORIDA--9.36%
Aaa/AAA Dade County, Florida Water & Sewer System - Revenue Bonds 10/01/16 5.375 400,000 408,468
Aaa/AAA Miami - Dade County, Florida Expressway Authority Toll
System - Revenue Bonds, 07/01/29 6.375 400,000 431,664
Aaa/AAA Miami - Dade County, Florida Solid Waste System - Revenue Bonds 10/01/18 4.750 400,000 405,156
------------
1,245,288
HAWAII--2.00%
Aaa/AAA Honolulu, Hawaii City & County - General Obligation
Bonds Unlimited 07/01/13 5.000 250,000 265,820
ILLINOIS--4.65%
Aaa/AAA Chicago, Illinois Park District - General Obligation Bonds
Unlimited, Series C 01/01/16 4.850 230,000 232,955
Aaa/NR Rockford, Illinois - General Obligation Bonds Unlimited 12/15/18 4.500 180,000 180,805
Aaa/AAA State of Illinois - General Obligation Bonds Unlimited 03/01/19 5.000 200,000 204,916
------------
618,676
INDIANA--4.31%
Aaa/AAA Aurora, Indiana Building Corp. - Revenue Bonds 07/15/13 4.500 405,000 418,681
Aaa/AAA South Bend, Indiana Building Corp. - Revenue Bonds 02/01/13 4.500 150,000 154,204
------------
572,885
LOUISIANA--8.71%
Aaa/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Prerefunded, Series C to 07/01/2008 (b) 07/01/19 5.000 335,000 341,747
Aaa/AAA Louisiana Public Facilities Authority Hospital - Revenue Bonds,
Unrefunded, Series C 07/01/19 5.000 65,000 66,048
Aaa/AAA Monroe, Louisiana Sales and Use Tax - Revenue Bonds 07/01/16 4.000 200,000 196,920
Aaa/AAA New Orleans, Louisiana Sewer Service - Revenue Bonds 06/01/18 5.000 300,000 304,299
Ba1/BB Plaquemines, Louisiana Port, Harbor & Terminal District, Marine
Terminal Facilities - Revenue Bonds 09/01/07 5.000 250,000 250,000
------------
1,159,014
MISSISSIPPI--3.88%
NR/AAA Greenville Mississippi Public School District - General
Obligation Bonds Unlimited 12/15/11 3.250 205,000 199,760
Aaa/AAA Mississippi Development Bank Special Obligation Clinton
Recreational Facilities & Municipal Building - Revenue Bonds 11/01/10 4.500 310,000 316,932
------------
516,692
NEW YORK--7.84%
Aa3/AA New York City, New York - General Obligation Bonds Unlimited,
Series J 08/01/18 5.000 200,000 203,360
Aa1/AAA New York City, New York - Transitional Financial Authority
Revenue Bonds, Unrefunded, Series C 05/01/19 5.000 250,000 257,820
Aaa/AAA New York State Tollway Authority Highway & Bridge -
Revenue Bonds, Series B 04/01/10 3.850 200,000 200,972
Aa2/AAA Triborough Bridge & Tunnel Authority, New York - Revenue Bonds,
General Purpose, Prerefunded, Series B to 01/01/2022 (b) 01/01/27 5.200 350,000 380,681
------------
1,042,833
NORTH CAROLINA--1.52%
Aaa/AAA North Carolina State - General Obligation Bonds Unlimited 03/01/15 4.000 200,000 201,900
</Table>
74
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
MUNICIPAL BONDS
RATING (a)
OHIO--2.43%
Aaa/AAA Ohio State Department of Administrative Services - Certificate
Participation 09/01/15 5.250 $ 300,000 $ 322,623
TEXAS--33.83%
Aaa/AAA Aransas County, Texas Correctional Facility Improvements -
General Obligation Bonds Limited 02/15/13 3.875 250,000 249,875
Aaa/AAA Austin, Texas Community College District - Revenue Bonds 02/01/10 4.000 100,000 100,586
Aaa/AAA Austin, Texas Independent School District - General Obligation
Bonds Unlimited, Series A 08/01/12 3.750 150,000 149,717
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/13 4.125 200,000 202,128
Aaa/AAA College Station, Texas Utility Systems - Revenue Bonds 02/01/14 4.250 65,000 65,829
Aaa/AAA Collin County, Texas Community College District, Consolidated
Fund - Revenue Bonds 02/01/15 5.250 400,000 400,452
Aaa/AAA Dallas, Texas Independent School District - General Obligation
Bonds Unlimited 02/15/09 4.200 100,000 100,715
Aaa/AAA El Paso, Texas Public Improvement - General Obligation
Bonds Limited 08/15/17 4.000 270,000 264,306
Aaa/AA- Flower Mound, Texas Refunding and Improvement - General
Obligation Bonds Limited, Unrefunded 03/01/17 5.500 10,000 10,014
Aaa/NR Galveston County, Texas Public Improvements - General Obligation
Bonds Unlimited 02/01/10 4.300 25,000 25,318
Aaa/NR Galveston County, Texas Public Improvements - General Obligation
Bonds Limited 02/01/11 4.375 125,000 127,360
Aaa/AAA Jefferson County, Texas - Public Improvement Certificates of
Obligation, Series B 08/01/16 4.125 255,000 254,860
Aaa/AAA League City, Texas Public Improvements - General Obligation
Bonds Limited 02/15/13 4.750 100,000 103,610
Aaa/AAA Lubbock County, Texas - General Obligation Bonds Limited 02/15/17 5.500 250,000 270,503
Aaa/AAA Lubbock, Texas Municipal Drainage Utility - General Obligation
Bonds Limited 02/15/14 4.000 250,000 250,685
Aaa/AAA Mission, Texas Consolidated Independent School District -
General Obligation Bonds Unlimited 02/15/18 4.500 200,000 200,134
Aaa/AAA Montgomery County, Texas Public Improvements - General
Obligation Bonds Limited 03/01/12 4.000 250,000 252,152
Aaa/AAA Rockwell, Texas Waterworks & Sewer - General Obligation Bonds
Limited 08/01/11 3.700 115,000 114,648
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited, Prerefunded
to 08/01/2009 (b) 08/01/11 4.400 100,000 101,392
Aaa/AAA Round Rock, Texas Independent School District Refunding and
Improvement - General Obligation Bonds Unlimited, Unrefunded 08/01/11 4.400 150,000 151,572
Aaa/AAA San Antonio, Texas River Authority Sewer Refunding and
Improvement - Martinez Salatrillo, Revenue Bonds 07/01/12 3.750 100,000 99,646
Aaa/NR Tarrant County Health Facilities Development Corp. - Health
System Revenue Bonds, (Harris Methodist Health System),
Series 1994 (c) 09/01/14 6.000 200,000 220,742
Aa1/AA+ Texas A&M University Revenue and Financing System - Revenue
Refunding Bonds, Series A 05/15/17 5.000 250,000 262,315
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 49,013
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 60,541
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 61,390
Aaa/AAA Waco, Texas - General Obligation Bonds Limited 02/01/16 4.000 250,000 247,318
NR/AAA Wylie, Texas Independent School District - General Obligation
Bonds Unlimited 08/15/12 4.375 100,000 102,011
------------
4,498,832
UTAH--0.04%
Aa2/AA Utah State Housing Financial Agency - Single Family Revenue
Bonds (d) 07/01/21 6.000 5,000 5,082
</Table>
75
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
MUNICIPAL BONDS
RATING (a)
WASHINGTON--5.12%
Aaa/AAA Seattle, Washington Municipal Light & Power - Revenue Bonds,
Series B 06/01/24 5.000 $ 100,000 $ 100,898
Aa1/AA State of Washington - General Obligation Bonds Unlimited,
Series B 05/01/18 5.500 300,000 323,091
Aa2/NR Tumwater, Washington Office Building - Revenue Bonds 07/01/15 5.250 240,000 256,289
------------
680,278
------------
TOTAL MUNICIPAL BONDS--87.10%
(Cost $11,391,618) 11,582,969
------------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--11.68%
Federal Farm Credit Bank Discount Note 09/07/07 4.600 350,000 349,732
Federal Farm Credit Bank Discount Note 09/10/07 4.850 675,000 674,180
Federal Home Loan Bank 09/13/07 4.750 356,000 355,436
Federal National Mortgage Association 09/04/07 5.050 175,000 174,926
------------
1,554,274
------------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--11.68%
(Cost $1,554,274) 1,554,274
------------
<Caption>
SHARES
MONEY MARKET FUND
SM&R Money Market Fund, 4.57% (e) 49,202 49,202
------------
TOTAL MONEY MARKET FUND--0.37%
(Cost $49,202) 49,202
------------
TOTAL INVESTMENTS--99.15%
(Cost $12,995,094) 13,186,445
CASH AND OTHER ASSETS, LESS LIABILITIES--0.85% 112,408
------------
TOTAL NET ASSETS--100.00% $ 13,298,853
============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Ratings assigned by Moody's Investor's Service, Inc. ("Moody's") and
Standard & Poor's Corp. ("S&P"). Ratings are unaudited.
(b) 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 August
31, 2007. A complete listing of the fund's holdings are included in
these financial statements. This fund and the SM&R Tax Free Fund are
affiliated by having the same investment adviser.
See notes to financial statements.
76
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R TAX FREE FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $12,945,892) $ 13,137,243
Investment in affiliated money market fund (Cost $49,202) 49,202
---------------
Total investments (Cost $12,995,094) 13,186,445
Prepaid expenses 14,347
Receivable for:
Capital stock sold 240
Interest 122,641
Expense reimbursement 2,972
Other assets 3,211
---------------
TOTAL ASSETS 13,329,856
---------------
LIABILITIES
Distribution payable 1,325
Payable to investment adviser for fund expenses 16,087
Accrued:
Investment advisory fees 5,685
Administrative service fees 2,843
Distribution fees 510
Other liabilities 4,553
---------------
TOTAL LIABILITIES 31,003
---------------
NET ASSETS $ 13,298,853
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 13,107,312
Undistributed net investment income 42
Accumulated net realized gain (loss) on investments 148
Net unrealized appreciation of investments 191,351
---------------
NET ASSETS $ 13,298,853
===============
NET ASSETS:
Class A 277,034
Class B 168,933
Class T 12,852,886
---------------
TOTAL NET ASSETS $ 13,298,853
===============
CAPITAL STOCK ($.01 PAR VALUE PER SHARE):
Class A:
Authorized 100,000,101
Outstanding 26,677
Class B:
Authorized 100,000,000
Outstanding 16,244
Class T:
Authorized 21,000,000
Outstanding 1,246,290
Class A:
Net asset value and redemption price per share $ 10.38
Offering price per share:
(Net assets value of $10.38 / 95.25%) $ 10.90
Class B:
Net asset value and offering price per share $ 10.40
Class T:
Net asset value and redemption price per share $ 10.31
Offering price per share:
(Net assets value of $10.31 / 95.5%) $ 10.80
</Table>
See notes to financial statements.
77
<Page>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R TAX FREE FUND
<Table>
INVESTMENT INCOME
Interest $ 609,193
Interest from affiliated money market fund 1,578
---------------
TOTAL INVESTMENT INCOME 610,771
---------------
EXPENSES
Investment advisory fees 67,556
Administrative service fees 33,778
Professional fees 2,286
Custody and transaction fees 7,142
Directors' fees and expenses 5,947
Compliance expenses 2,340
Qualification fees
Class A 4,757
Class B 3,026
Class T 17,214
Shareholder reporting expenses
Class A 28
Class B 6
Class T 74
Distribution fees
Class A 822
Class B 2,294
Insurance expenses 5,176
---------------
TOTAL EXPENSES 152,446
LESS EXPENSES REIMBURSED (49,575)
---------------
NET EXPENSES 102,871
---------------
INVESTMENT INCOME (LOSS)--NET 507,900
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments 148
Change in unrealized appreciation of investments (128,539)
---------------
NET GAIN (LOSS) ON INVESTMENTS (128,391)
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 379,509
===============
</Table>
STATEMENT OF CHANGES IN NET ASSETS
SM&R TAX FREE FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 507,900 $ 518,713
Net realized gain (loss) on investments 148 3,036
Change in unrealized appreciation of investments (128,539) (256,053)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 379,509 265,696
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net
Class A (12,418) (17,723)
Class B (10,002) (17,124)
Class T (485,509) (483,874)
Capital gains
Class A (76) (34)
Class B (103) (35)
Class T (2,944) (865)
--------------- ---------------
Total distributions to shareholders (511,052) (519,655)
--------------- ---------------
CAPITAL SHARE TRANSACTIONS--NET
Class A (51,604) (176,842)
Class B (278,609) (78,509)
Class T 159,399 51,195
--------------- ---------------
Total capital share transactions--net (170,814) (204,156)
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (302,357) (458,115)
NET ASSETS
Beginning of year 13,601,210 14,059,325
--------------- ---------------
End of year $ 13,298,853 $ 13,601,210
=============== ===============
Undistributed Net Investment Income $ 42 $ 71
=============== ===============
</Table>
See notes to financial statements.
78
<Page>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R TAX FREE FUND
<Table>
<Caption>
CLASS A SHARES
-----------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.89
Income (loss) from investment operations
Investment income (loss)--net 0.40 0.41 0.40 0.42 0.44
Net realized and unrealized gain (loss) on
investments (0.12) (0.20) (0.11) 0.12 (0.18)
--------- --------- --------- --------- ---------
Total from investment operations 0.28 0.21 0.29 0.54 0.26
Less distributions
Investment income--net (0.40) (0.41) (0.40) (0.42) (0.44)
Capital gains -- (0.00)*** (0.00)*** (0.02) --
--------- --------- --------- --------- ---------
Total distributions (0.40) (0.41) (0.40) (0.44) (0.44)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.38 $ 10.50 $ 10.70 $ 10.81 $ 10.71
========= ========= ========= ========= =========
Total return (1) 2.74% 2.05% 2.72% 5.12% 2.40%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 277,034 $ 331,989 $ 519,889 $ 542,502 $ 643,287
Ratio of expenses with reimbursement to average
net assets (2) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses without reimbursement to average
net assets 2.63% 3.14% 2.73% 1.26% 1.24%
Ratio of net investment income (loss) to average
net assets 3.78% 3.80% 3.68% 3.84% 4.09%
Portfolio turnover rate 0.00% 2.05% 7.50% 1.15% 18.23%
<Caption>
CLASS B SHARES
-----------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 10.50 $ 10.70 $ 10.81 $ 10.71 $ 10.90
Income (loss) from investment operations
Investment income (loss)--net 0.35 0.35 0.34 0.36 0.40
Net realized and unrealized gain (loss) on
investments (0.10) (0.20) (0.11) 0.12 (0.19)
--------- --------- --------- --------- ---------
Total from investment operations 0.25 0.15 0.23 0.48 0.21
Less distributions
Investment income--net (0.35) (0.35) (0.34) (0.36) (0.40)
Capital gains -- (0.00)*** (0.00)*** (0.02) --
--------- --------- --------- --------- ---------
Total distributions (0.35) (0.35) (0.34) (0.38) (0.40)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.40 $ 10.50 $ 10.70 $ 10.81 $ 10.71
========= ========= ========= ========= =========
Total return (1) 2.47% 1.43% 2.20% 4.59% 1.91%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year $ 168,933 $ 449,767 $ 538,594 $ 536,101 $ 496,912
Ratio of expenses with reimbursement to average
net assets (2) 1.25% 1.25% 1.25% 1.25% 1.25%
Ratio of expenses without reimbursement to average
net assets 2.69% 2.77% 2.85% 1.78% 1.74%
Ratio of net investment income (loss) to average
net assets 3.28% 3.29% 3.18% 3.34% 3.59%
Portfolio turnover rate 0.00% 2.05% 7.50% 1.15% 18.23%
</Table>
*** 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.
79
<Page>
<Table>
<Caption>
CLASS T SHARES
-----------------------------------------------------------------
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 10.41 $ 10.61 $ 10.72 $ 10.61 $ 10.80
Income (loss) from investment operations
Investment income (loss)--net 0.39 0.39 0.39 0.41 0.44
Net realized and unrealized gain (loss) on
investments (0.10) (0.20) (0.11) 0.13 (0.18)
--------- --------- --------- --------- ---------
Total from investment operations 0.29 0.19 0.28 0.54 0.26
Less distributions
Investment income--net (0.39) (0.39) (0.39) (0.41) (0.45)
Capital gains -- (0.00)*** (0.00)*** (0.02) --
--------- --------- --------- --------- ---------
Total distributions (0.39) (0.39) (0.39) (0.43) (0.45)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 10.31 $ 10.41 $ 10.61 $ 10.72 $ 10.61
========= ========= ========= ========= =========
Total return (1) 2.87% 1.91% 2.72% 5.20% 2.38%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 12,853 $ 12,819 $ 13,001 $ 13,154 $ 13,330
Ratio of expenses with reimbursement to average
net assets (2) 0.75% 0.75% 0.75% 0.75% 0.75%
Ratio of expenses without reimbursement to average
net assets 1.05% 1.18% 1.05% 1.04% 1.03%
Ratio of net investment income (loss) to average
net assets 3.77% 3.79% 3.68% 3.83% 4.08%
Portfolio turnover rate 0.00% 2.05% 7.50% 1.15% 18.23%
</Table>
*** 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.
80
<Page>
SM&R PRIMARY FUND
MANAGER DISCUSSION
The SM&R Primary Fund is focused on providing competitive levels of current
income to the conservative investor through investments in short-term government
and corporate securities.
Over the past fiscal year ending August 31, 2007, the fund has provided a total
return of 5.67% to class T investors at net asset value. The year-to-date total
return for the eight months ended August 31, 2007 was 3.11%.
The credit markets have been rocked in the waning weeks of the fiscal year, yet
fund shareholders were spared the pain experienced by many in the fixed income
market. Our conservative management of the fund has precluded us from owning
many of the securities that have caused so much volatility recently. In fact,
the fund has experienced improved results as the short end of the bond market
has rallied in the face of uncertainty.
The seeds of this crisis of this crisis of confidence were actually being sown
over the last four or five years but have been largely invisible until only
recently. The reasons for this can be traced to a number of factors. One factor
is the abundance of cash on a worldwide basis. Several years of Federal Reserve
short-term interest rate cuts fueled consumer spending and corporate profits. A
strengthening global economy and a rising U.S. stock market led investors,
institutional and individual, to underestimate risk levels. As a result, risk
premiums, or the extra yield required for holding financial instruments such as
mortgage securities and corporate bonds, narrowed or tightened, hitting a record
low in February of 2007.
Lower interest rates led to some other situations at the root of this crisis of
confidence. Creative mortgage financing designed to entice homebuyers resulted
in sub-prime mortgages with adjustable rates, little or no down payments, and
inadequate documentation of income levels and other measures of
credit-worthiness. These sub-prime loans were "packaged" or securitized by Wall
Street firms into CDO's (collateralized debt obligations) and other
mortgage-backed securities and sold to investors. The credit rating companies
blessed these securities with some of their highest ratings. The assessment and
modeling of the risks involved did not reflect the true level of risk as there
was not enough historical performance on these often exotic types of structured
financing for mortgages. The mortgage industry had record volume of more than $3
trillion in 2005 resulting in $750 billion of adjustable rate mortgages due to
reset through June 2008.
One corner of the financial markets greatly impacted by the sub-prime mortgage
problem is the commercial paper market. Asset-backed commercial paper (ABCP),
which accounts for half the market, fell 3.1% to $966.7 billion in the week
ended September 6th and declined 18% in the past month. Outstanding commercial
paper has fallen $298.2 billion or 13% in the past month indicating that efforts
to bring buyers back to the short-term debt market have fallen short. Yields
have risen to the highest levels in six years, with an average yield on
September 5th at 6.26%, as investors opt for the security provided by Treasury
bills. According to Standard & Poors, about 26% of ABCP outstanding as of July
was used to fund purchases of mortgage-related securities. ABCP issuance has
essentially doubled over the past three years from $600 billion to $1.2
trillion. Problems in the commercial paper market are likely to persist in the
near term as investors move to government and agency paper.
Three month Treasury bill yields in the week of August 20th reached a two year
low as institutional investors sold asset-backed commercial paper in favor of
safer short-term government debt. The rate was below 3% at one point due to high
demand. The difference in yields between government and corporate debt widened
to the largest gap in more than ten years. In contrast, between late 2005 and
May 2007, the spread between non-investment grade bonds and Treasuries dropped
from 3.8 points to a twenty year low of 2.6 points. The demand for Treasuries is
strong, driving down the yield and driving up the price.
The Fund has benefited from the bond market rally, particularly as related to
the short end of the yield curve. We have no direct exposure to any sub-prime
instruments or asset-backed commercial paper.
Sincerely,
Anne M. LeMire, CPA, CFA, Portfolio Manager
SM&R Primary Fund
81
<Page>
[CHART]
ANNUAL COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN
SM&R PRIMARY FUND, AT OFFERING PRICE, AND THE LIPPER
SHORT INVESTMENT GRADE FUND INDEX
<Table>
<Caption>
LIPPER SHORT
INVESTMENT
SM&R PRIMARY GRADE FUND
FUND INDEX
------------ ------------
9/1/1997 $ 10,000 $ 10,000
8/31/1998 $ 10,515 $ 10,641
8/31/1999 $ 11,015 $ 10,996
8/31/2000 $ 11,530 $ 11,611
8/31/2001 $ 12,253 $ 12,713
8/31/2002 $ 12,415 $ 13,182
8/31/2003 $ 12,583 $ 13,590
8/31/2004 $ 12,688 $ 13,936
8/31/2005 $ 13,067 $ 14,183
8/31/2006 $ 13,423 $ 14,619
8/31/2007 $ 14,185 $ 15,266
</Table>
SM&R Primary Fund performance figures reflect reinvestment of all dividends and
capital gains distributions and changes in net asset value. The Primary Fund
does not have a sales charge. Average annual returns include reinvestment of all
dividends and capital gains.
AVERAGE ANNUAL RETURNS
Inception date of this fund is 3/16/92
<Table>
10 YEAR 3.56%
5 YEAR 2.70%
1 YEAR 5.67%
</Table>
PERFORMANCE DATA QUOTED REPRESENTS PAST PERFORMANCE AND DOES NOT GUARANTEE
FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL
FLUCTUATE SO THAT THE INVESTORS SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS
THAN THEIR ORIGINAL COST. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE
PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT
MONTH-END, PLEASE CALL SM&R AT (877) 239-2049.
Returns shown do not reflect the deduction of taxes that a shareholder would pay
on fund distributions or redemption of fund shares.
[CHART]
SECTOR WEIGHTINGS
BY
TOTAL INVESTMENTS
<Table>
Consumer Discretionary 19.94%
Consumer Staples 19.18%
Financials 23.06%
Health Care 7.73%
Industrials 8.43%
Information Technology 7.55%
Materials 2.99%
U S Government 7.65%
Utilities 3.47%
</Table>
82
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R PRIMARY FUND
<Table>
<Caption>
SHARES VALUE
COMMON STOCK
INDUSTRIALS --
HOUSEHOLD DURABLES--0.01%
Armstrong World Industries, Inc. * 88 $ 3,696
------------
TOTAL INDUSTRIALS--0.01% 3,696
------------
TOTAL COMMON STOCK--0.01%
(Cost $.01) 3,696
------------
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT
COMMERCIAL PAPER
CONSUMER DISCRETIONARY--
HOTELS, RESTAURANTS & LEISURE--3.74%
Marriott International Inc. 09/11/07 5.450 $1,004,000 1,002,474
HOUSEHOLD DURABLES--3.86%
Whirlpool Corp. 10/02/07 6.100 1,039,000 1,033,540
MEDIA--4.47%
Dow Jones & Co. Inc. 09/21/07 6.150 1,202,000 1,197,885
MULTILINE RETAIL--3.78%
Wal-Mart Stores Inc. 09/05/07 5.230 1,015,000 1,014,407
TEXTILES, APPAREL & LUXURY GOODS--4.09%
VF Corp. 09/24/07 6.250 1,100,000 1,095,601
------------
TOTAL CONSUMER DISCRETIONARY--19.94% 5,343,907
------------
CONSUMER STAPLES--
BEVERAGES--3.20%
Coco-Cola Co. (The) 09/18/07 5.250 859,000 856,864
FOOD PRODUCTS--6.86%
General Mills Inc. 09/07/07 5.320 994,000 993,115
Heinz (HJ) Finance Co. 09/25/07 5.950 849,000 845,626
------------
1,838,741
HOUSEHOLD PRODUCTS--9.12%
Clorox Co. 09/28/07 5.900 1,195,000 1,189,705
Fortune Brands Inc. 10/01/07 6.050 1,261,000 1,254,638
------------
2,444,343
------------
TOTAL CONSUMER STAPLES--19.18% 5,139,948
------------
FINANCIALS--
COMMERCIAL BANKS--3.14%
JP Morgan Chase & Co. 09/17/07 5.250 843,000 841,028
DIVERSIFIED FINANCIAL SERVICES--12.19%
CIT Group Inc. 09/04/07 5.280 1,124,000 1,123,503
Nissan Motor 10/03/07 6.100 1,123,000 1,116,909
Vectren Utility Hldgs. 10/04/07 6.250 1,032,000 1,026,086
------------
3,266,498
INSURANCE--7.73%
Alfa Corp. 09/14/07 5.320 922,000 920,223
Torchmark Corp. 09/26/07 6.050 1,157,000 1,152,131
------------
2,072,354
------------
TOTAL FINANCIALS--23.06% 6,179,880
------------
</Table>
83
<Page>
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
HEALTH CARE--
HEALTH EQUIPMENT & SUPPLIES--3.75%
Becton Dickinson & Co. 09/13/07 5.350 $1,008,000 $ 1,006,196
HEALTH CARE PROVIDERS & SERVICES--3.97%
St. Jude Medical Inc. 09/06/07 5.900 1,065,000 1,064,125
------------
TOTAL HEALTH CARE--7.72% 2,070,321
------------
INDUSTRIALS--
BUILDING PRODUCTS--3.50%
Rinker Materials Corp 09/10/07 5.420 940,000 938,721
COMMERCIAL SERVICES & SUPPLIES--4.91%
Avery Dennison Corp. 09/20/07 5.850 1,321,000 1,316,911
------------
TOTAL INDUSTRIALS--8.41% 2,255,632
------------
INFORMATION TECHNOLOGY--
INTERNET SOFTWARE & SERVICES--3.79%
Time Warner Cable Inc. 09/06/07 5.370% 1,017,000 1,016,238
IT SERVICES--3.76%
Computer Sciences Corp. 09/12/07 5.500% 1,010,000 1,008,297
------------
TOTAL INFORMATION TECHNOLOGY--7.55% 2,024,535
------------
MATERIALS--
CHEMICALS--2.99%
Dupont EI DE Nemours Co. 09/27/07 5.220 804,000 800,967
------------
TOTAL MATERIALS--2.99% 800,967
------------
UTILITIES--
ELECTRIC UTILITIES--3.47%
Idaho Power Co. 09/19/07 5.800 933,000 930,287
------------
TOTAL UTILITIES--3.47% 930,287
------------
TOTAL COMMERCIAL PAPER--92.32%
(Cost $24,745,477) 24,745,477
------------
U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES
U S GOVERNMENT AGENCY SECURITIES--3.73%
Federal Home Loan Bank 04/23/12 5.700 1,000,000 1,000,497
------------
U S GOVERNMENT SECURITIES--3.92%
U S Treasury Bond 02/15/29 5.250 1,000,000 1,049,844
------------
TOTAL U S GOVERNMENT AGENCY AND U S GOVERNMENT SECURITIES--7.65%
(Cost $1,894,687) 2,050,341
------------
TOTAL INVESTMENTS--99.98%
(Cost $26,640,164) 26,799,514
CASH AND OTHER ASSETS, LESS LIABILITIES--0.02% 6,138
------------
TOTAL NET ASSETS--100.00% $ 26,805,652
============
</Table>
NOTES TO SCHEDULE OF INVESTMENTS:
*--Non income producing securities
See notes to financial statements.
84
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R PRIMARY FUND
<Table>
ASSETS
Investments in unaffiliated securities, at value (Cost $26,640,164) $ 26,799,514
Cash and cash equivalents 655
Prepaid expenses 15,048
Receivable for:
Dividends
Capital stock sold 763
Interest 22,692
Expense reimbursement 4,289
Other assets 2,782
---------------
TOTAL ASSETS 26,845,743
---------------
LIABILITIES
Distribution payable 583
Payable to investment adviser for fund expenses 15,570
Accrued:
Investment advisory fees 11,323
Administrative service fees 5,662
Other liabilities 6,953
---------------
TOTAL LIABILITIES 40,091
---------------
NET ASSETS $ 26,805,652
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 26,888,885
Accumulated net realized gain (loss) on investments (242,583)
Net unrealized appreciation of investments 159,350
---------------
NET ASSETS $ 26,805,652
===============
SHARES OUTSTANDING ($.01 par value per share) 26,917,582
===============
NET ASSET VALUE $ 1.00
===============
SHARES AUTHORIZED 1,176,000,000
</Table>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R PRIMARY FUND
<Table>
INVESTMENT INCOME
Interest $ 1,417,628
---------------
TOTAL INVESTMENT INCOME 1,417,628
---------------
EXPENSES
Investment advisory fees 133,118
Administrative service fees 66,559
Professional fees 9,057
Custody and transaction fees 11,982
Directors' fees and expenses 5,947
Compliance expenses 4,451
Qualification fees 17,304
Shareholder reporting expenses 340
Insurance expenses 10,184
---------------
TOTAL EXPENSES 258,942
LESS EXPENSES REIMBURSED (45,947)
---------------
NET EXPENSES 212,995
---------------
INVESTMENT INCOME (LOSS)--NET 1,204,633
---------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on investments (137,592)
Change in unrealized appreciation (depreciation) of investments 260,017
---------------
NET GAIN (LOSS) ON INVESTMENTS 122,425
---------------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS $ 1,327,058
===============
</Table>
See notes to financial statements.
85
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R PRIMARY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 1,204,633 $ 962,324
Net realized gain (loss) on investments (137,592) --
Change in unrealized appreciation (depreciation) of investments 260,017 (175,194)
--------------- ---------------
Net increase (decrease) in net assets resulting from operations 1,327,058 787,130
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (1,204,633) (962,324)
CAPITAL SHARE TRANSACTIONS--NET 440,366 1,172,962
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 562,791 997,768
NET ASSETS
Beginning of year 26,242,861 25,245,093
--------------- ---------------
End of year $ 26,805,652 $ 26,242,861
=============== ===============
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R PRIMARY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 0.99 $ 1.00 $ 0.99 $ 0.99 $ 0.99
Income (loss) from investment operations
Investment income (loss)--net 0.04 0.04 0.02 0.01 0.01
Net realized and unrealized gain (loss) on
investments 0.01 (0.01) 0.01 -- --
--------- --------- --------- --------- ---------
Total from investment operations 0.05 0.03 0.03 0.01 0.01
Less distributions
Investment income--net (0.04) (0.04) (0.02) (0.01) (0.01)
--------- --------- --------- --------- ---------
Total distributions (0.04) (0.04) (0.02) (0.01) (0.01)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 1.00 $ 0.99 $ 1.00 $ 0.99 $ 0.99
========= ========= ========= ========= =========
Total return 5.67% 2.73% 2.99% 0.83% 1.35%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 26,806 $ 26,243 $ 25,245 $ 26,197 $ 27,409
Ratio of expenses with reimbursement to average
net assets (1) 0.80% 0.80% 0.80% 0.80% 0.80%
Ratio of expenses without reimbursement to average
net assets 0.97% 0.92% 0.91% 0.91% 0.89%
Ratio of net investment income (loss) to average
net assets 4.52% 3.70% 1.94% 0.83% 1.35%
Portfolio turnover rate 22.30% 25.75% 0.00% 70.47% 0.00%
</Table>
(1) SM&R has voluntarily agreed to waive or reduce expenses to 0.80% until
December 31, 2007.
See notes to financial statements.
86
<Page>
SCHEDULE OF INVESTMENTS August 31, 2007
SM&R MONEY MARKET FUND
<Table>
<Caption>
INTEREST/
MATURITY STATED FACE
DATE RATE(%) AMOUNT VALUE
COMMERCIAL PAPER
FINANCIALS--
DIVERSIFIED FINANCIAL SERVICES--8.98%
International Lease Finance 09/11/07 5.240 $ 4,544,000 $ 4,537,375
UBS Finance 09/17/07 5.300 4,595,000 4,584,152
------------
9,121,527
INSURANCE--4.81%
Alfa Corp. 09/14/07 5.350 4,900,000 4,890,527
------------
TOTAL FINANCIALS--13.79% 14,012,054
------------
INFORMATION TECHNOLOGY--4.05%
Sharp Electronics Corp. 10/03/07 5.270 4,128,000 4,108,651
------------
TOTAL INFORMATION TECHNOLOGY--4.05% 4,108,651
------------
TOTAL COMMERCIAL PAPER--17.84%
(Cost $18,120,705) 18,120,705
------------
U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS
U S GOVERNMENT AGENCY SECURITIES--82.28%
Federal Home Loan Bank 09/05/07 4.990 5,289,000 5,286,066
Federal Home Loan Bank 09/05/07 5.150 602,000 601,654
Federal Home Loan Bank 09/12/07 4.450 8,552,000 8,540,359
Federal Home Loan Bank 09/13/07 4.750 5,888,000 5,878,671
Federal Home Loan Bank 09/19/07 4.620 5,699,000 5,685,818
Federal Home Loan Bank 09/21/07 4.780 6,085,000 6,068,824
Federal Home Loan Mortgage Corp 09/07/07 5.150 8,479,000 8,471,704
Federal National Mortgage Assoc. 09/04/07 4.280 8,113,000 8,110,106
Federal National Mortgage Assoc. 09/04/07 5.140 5,141,000 5,138,791
Federal National Mortgage Assoc. 09/10/07 5.080 11,207,000 11,192,733
Federal National Mortgage Assoc. 09/18/07 4.700 7,206,000 7,189,982
Tennessee Valley Authority 09/06/07 4.850 5,050,000 5,046,591
Tennessee Valley Authority 09/27/07 4.900 6,400,000 6,377,345
------------
83,588,644
------------
TOTAL U S GOVERNMENT AGENCY SHORT-TERM OBLIGATIONS--82.28%
(Cost $83,588,644) 83,588,644
------------
TOTAL INVESTMENTS--100.12%
(Cost $101,709,349) 101,709,349
LIABILITIES IN EXCESS OF OTHER ASSETS--(0.12)% (124,279)
------------
TOTAL NET ASSETS--100.00% $101,585,070
============
</Table>
See notes to financial statements.
87
<Page>
STATEMENT OF ASSETS AND LIABILITIES August 31, 2007
SM&R MONEY MARKET FUND
<Table>
ASSETS
Investments in unaffiliated securities, at cost and value $ 101,709,349
Cash and cash equivalents 815
Prepaid expenses 33,313
Receivable for:
Expense reimbursement 12,283
---------------
TOTAL ASSETS 101,755,760
---------------
LIABILITIES
Capital stock reacquired 58,395
Distribution payable 1,698
Payable to investment adviser for fund expenses 38,112
Accrued:
Investment advisory fees 20,681
Administrative service fees 20,677
Other liabilities 31,127
---------------
TOTAL LIABILITIES 170,690
---------------
NET ASSETS $ 101,585,070
===============
NET ASSETS ARE COMPRISED OF THE FOLLOWING:
Capital (par value and additional paid-in) 101,585,070
---------------
NET ASSETS $ 101,585,070
===============
SHARES OUTSTANDING ($.01 par value per share) 101,585,070
===============
NET ASSET VALUE $ 1.00
===============
SHARES AUTHORIZED 3,000,000,000
</Table>
STATEMENT OF OPERATIONS Year Ended August 31, 2007
SM&R MONEY MARKET FUND
<Table>
INVESTMENT INCOME
Interest $ 5,216,516
---------------
TOTAL INVESTMENT INCOME 5,216,516
---------------
EXPENSES
Investment advisory fees 248,785
Administrative service fees 246,801
Professional fees 37,625
Custody and transaction fees 18,707
Directors' fees and expenses 5,947
Compliance expenses 14,779
Qualification fees 26,625
Shareholder reporting expenses 1,501
Insurance expenses 28,735
---------------
TOTAL EXPENSES 629,505
LESS EXPENSES REIMBURSED (131,718)
---------------
NET EXPENSES 497,787
---------------
INVESTMENT INCOME (LOSS)--NET $ 4,718,729
===============
</Table>
See notes to financial statements.
88
<Page>
STATEMENT OF CHANGES IN NET ASSETS
SM&R MONEY MARKET FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------
2007 2006
--------------- ---------------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS
Investment income (loss)--net $ 4,718,729 $ 2,811,636
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Investment income--net (4,718,729) (2,811,636)
CAPITAL SHARE TRANSACTIONS--NET 12,815,570 11,879,752
--------------- ---------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 12,815,570 11,879,752
--------------- ---------------
NET ASSETS
Beginning of year 88,769,500 76,889,748
--------------- ---------------
End of year $ 101,585,070 $ 88,769,500
=============== ===============
</Table>
FINANCIAL HIGHLIGHTS
Selected data for a share of capital stock outstanding throughout the years
indicated.
SM&R MONEY MARKET FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
-----------------------------------------------------------------
2007 2006 2005 2004 2003
--------- --------- --------- --------- ---------
Net asset value, beginning of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
Income (loss) from investment operations
Investment income (loss)--net 0.05 0.04 0.02 0.01 0.01
--------- --------- --------- --------- ---------
Total from investment operations 0.05 0.04 0.02 0.01 0.01
Less distributions
Investment income--net (0.05) (0.04) (0.02) (0.01) (0.01)
--------- --------- --------- --------- ---------
Total distributions (0.05) (0.04) (0.02) (0.01) (0.01)
--------- --------- --------- --------- ---------
Net asset value, end of year $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========= ========= ========= ========= =========
Total return 4.84% 4.04% 2.03% 0.58% 0.80%
========= ========= ========= ========= =========
RATIOS (IN PERCENTAGES)/SUPPLEMENTAL DATA
Net assets, end of year (000's omitted) $ 101,585 $ 88,769 $ 76,890 $ 95,202 $ 103,469
Ratio of expenses with reimbursement to average
net assets 0.50% 0.50% 0.50% 0.50% 0.50%
Ratio of expenses without reimbursement to average
net assets 0.63% 0.73% 0.59% 0.60% 0.58%
Ratio of net investment income (loss) to average
net assets 4.74% 4.01% 1.98% 0.58% 0.84%
</Table>
See notes to financial statements.
89
<Page>
NOTES TO FINANCIAL STATEMENTS August 31, 2007
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.
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.
SECURITY TRANSACTIONS AND RELATED INVESTMENT INCOME:
The Company records security transactions based on trade date. Dividend income
is recognized on the ex-dividend date and interest income is recognized on an
accrual basis. Premiums and discounts on securities are amortized over the lives
of the respective securities. Withholding taxes on foreign dividends have been
provided for in accordance with the Company's understanding of the applicable
country's tax rules and rates.
On a daily basis, income, unrealized and realized gains and losses, and expenses
which are not class specific are allocated to each class based on their
respective net assets. Class specific expenses, such as distribution expenses,
are applied to the class to which they are attributed.
FEDERAL INCOME TAXES:
For federal income tax purposes, each series is treated as a separate entity.
The Company intends to comply with requirements of the Internal Revenue Code
relating to regulated investment companies and intends to distribute
substantially all of its taxable income to its shareholders. Therefore, no
provision for federal income taxes is recorded in the accompanying financial
statements.
<Table>
<Caption>
TAX YEAR ENDING EXPIRATION
AUGUST 31, 2007 LOSS CARRYFORWARDS DATES
--------------- ------------------ -----
Government Bond Fund $ 140 2013
$ 177,508 2014
$ 282,342 2015
Primary Fund $ 88 2008
$ 242 2009
$ 104,661 2010
$ 137,592 2015
</Table>
Capital loss carryovers are available to offset future realized capital gains
and thereby reduce further taxable gain distributions.
As of August 31, 2007, the Government Bond Fund had $257,242 of post-October
losses which were deferred until September 1, 2006 for tax purposes. However,
the Fund generated net capital losses during the year ended August 31, 2007
which deferred the post-October losses to September 1, 2007. 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.
90
<Page>
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.
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
<Table>
<Caption>
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%
</Table>
Through an investment sub-advisory agreement, SM&R has delegated the day-to-day
investment management of Alger Technology Fund, Alger Aggressive Growth Fund,
Alger Small-Cap Fund and Alger Growth Fund to Fred Alger Management, Inc. Fred
Alger Management, Inc. makes investment decisions for each of these funds and
continuously reviews and administers the investment program. SM&R monitors Fred
Alger Management, Inc.'s buying and selling of securities and administration of
these series' investment programs. Pursuant to the sub-advisory agreement, SM&R
is responsible for paying a sub-advisory fee to Fred Alger Management, Inc. for
each of these series. The series are not responsible for paying the sub-advisory
fee directly.
<Table>
<Caption>
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%
</Table>
FIXED INCOME FUNDS
<Table>
Government Bond and Tax Free Funds
NET ASSETS
Not exceeding $100,000,000 0.50%
Exceeding $100,000,000 but not exceeding $300,000,000 0.45%
Exceeding $300,000,000 0.40%
Primary Fund
All average daily net assets 0.50%
Money Market Fund
All average daily net assets 0.25%
</Table>
91
<Page>
ADMINISTRATIVE SERVICE FEES:
Administrative service fees paid to SM&R by the each of the series are computed
as a percentage of average daily net assets as follows:
<Table>
<Caption>
ADMINISTRATIVE
NET ASSETS SERVICE FEES
Not exceeding $100,000,000 0.25%
Exceeding $100,000,000 but not exceeding $200,000,000 0.20%
Exceeding $200,000,000 but not exceeding $300,000,000 0.15%
Exceeding $300,000,000 0.10%
</Table>
SM&R has contractually agreed to reimburse the Growth Fund, Equity Income Fund,
Balanced Fund, Government Bond Fund, Tax Free Fund and Primary Fund for regular
operating expenses in excess of 1.25% per year of the average daily net assets,
and the Money Market Fund in excess of 0.50%. Regular operating expenses include
the advisory fee and administrative service fee, but do not include the
distribution and shareholder servicing fee.
Effective June 1, 2002, and until December 31, 2007, SM&R has voluntarily agreed
to reimburse expenses which exceed the following percentages of each fund's
average daily net assets:
<Table>
<Caption>
CLASS A CLASS B CLASS T UNIVERSAL
Growth Fund 1.36% 1.86% --
Equity Income Fund 1.26% 1.76% --
Balanced Fund 1.30% 1.80% --
Government Bond Fund 0.73% 1.23% 0.73%
Tax Free Fund 0.75% 1.25% 0.75%
Primary Fund 0.80%
</Table>
Effective May 1, 2007, 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:
<Table>
<Caption>
CLASS A CLASS B
Alger Technology Fund 2.10% 2.75%
Alger Aggressive Growth Fund 1.85% 2.50%
Alger Small-Cap Fund 1.90% 2.55%
Alger Growth Fund 1.70% 2.35%
</Table>
Fee waivers and/or reductions, other than those stated in the Administrative
Service Agreement, may be rescinded by SM&R at any time after December 31, 2007
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:
<Table>
<Caption>
DISTRIBUTION SERVICE TOTAL 12b-1
FEE FEE FEE
GROWTH, EQUITY INCOME, BALANCED,
GOVERNMENT BOND AND TAX FREE FUNDS
Class A Shares 0.25% -- 0.25%
Class B Shares 0.50% 0.25% 0.75%
ALGER TECHNOLOGY, ALGER AGGRESSIVE GROWTH,
ALGER SMALL-CAP AND ALGER GROWTH FUNDS
Class A Shares 0.35% -- 0.35%
Class B Shares 1.00% -- 1.00%
</Table>
92
<Page>
For the period ended August 31, 2007, each series paid or accrued the following,
as compensation under the Plans:
<Table>
Alger Technology Fund $ 7,009
Alger Aggressive Growth Fund $ 17,261
Alger Small-Cap Fund $ 19,625
Alger Growth Fund $ 18,992
Growth Fund $ 39,550
Equity Income Fund $ 75,716
Balanced Fund $ 31,465
Government Bond Fund $ 7,437
Tax Free Fund $ 3,116
</Table>
SALES CHARGES:
During the period ended August 31, 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:
<Table>
<Caption>
SALES SALES
CHARGES CHARGES
RECEIVED BY SM&R REALLOWED TO DEALERS
Alger Technology Fund $ 2,565 $ 43
Alger Aggressive Growth Fund $ 6,300 $ 103
Alger Small-Cap Fund $ 10,112 $ 277
Alger Growth Fund $ 7,027 $ 706
Growth Fund $ 51,051 $ 2,128
Equity Income Fund $ 83,529 $ 2,222
Balanced Fund $ 16,490 $ 317
Government Bond Fund $ 6,086 $ 177
Tax Free Fund $ 1,157 $ --
</Table>
For the period ended August 31, 2007, SM&R received $37,087 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 August 31, 2007, SM&R and American National had the
following ownership in these series:
<Table>
<Caption>
SM&R AMERICAN NATIONAL AMERICAN NATIONAL AFFILIATES
------------------------------- ------------------------------- -------------------------------
PERCENT OF SHARES PERCENT OF SHARES PERCENT OF SHARES
SHARES OUTSTANDING SHARES OUTSTANDING SHARES OUTSTANDING
Growth Fund 239,683 1.10% 1,076,860 4.95% 1,575,346 7.24%
Equity Income Fund 25,327 0.58% -- 0.00% -- 0.00%
Balanced Fund 177,828 11.17% 99,294 6.24% 320,037 20.11%
Government Bond Fund 722,585 25.83% 125,676 4.49% 985,232 35.22%
Tax Free Fund 183,396 14.23% -- 0.00% 916,324 71.08%
Primary Fund 18,376 0.07% 21,903,627 81.37% 3,215,179 11.94%
Money Market Fund 2,678,356 2.64% 57,134,302 56.24% 29,830,044 29.36%
</Table>
Through the investment sub-advisory agreement, Fred Alger Management, Inc. is
affiliated with SM&R. As of August 31, 2007, Fred Alger Management, Inc. had the
following ownership in these series:
<Table>
<Caption>
PERCENT OF SHARES
SHARES OUTSTANDING
Alger Technology Fund 25,000 8.65%
Alger Aggressive Growth Fund 25,000 5.91%
Alger Small-Cap Fund 25,000 5.30%
Alger Growth Fund 25,000 5.65%
</Table>
The Company pays directors' fees and expenses for all the independent directors.
The Company also pays the salary and other expenses of the Chief Compliance
Officer.
93
<Page>
Fred Alger and Company, Incorporated ("Alger Inc.") is an affiliated
broker-dealer of Fred Alger Management, Inc. During the period ended August 31,
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 $1,643, $8,216, $2,784 and $7,393, 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 August 31, 2007 were:
<Table>
Purchases $ 19,003,953
Sales $ 19,139,397
</Table>
NOTE 3--COST, PURCHASES AND SALES OF INVESTMENT SECURITIES
Aggregate purchases and sales of investments in securities, other than
commercial paper, were as follows:
<Table>
<Caption>
PURCHASES SALES
Alger Technology Fund $ 1,561,752 $ 1,920,013
Alger Aggressive Growth Fund $ 8,094,366 $ 8,341,136
Alger Small-Cap Fund $ 3,081,057 $ 3,039,872
Alger Growth Fund $ 6,092,650 $ 6,494,369
Growth Fund $25,442,846 $ 33,281,680
Equity Income Fund $12,339,128 $ 21,316,042
Balanced Fund $ 2,361,354 $ 3,200,573
Government Bond Fund $13,403,927 $ 14,027,383
Tax Free Fund $ -- $ 1,073,675
Primary Fund $ 1,000,000 $ 7,360,603
</Table>
Gross unrealized appreciation and depreciation as of August 31, 2007, based on
the cost for federal income tax purposes is as follows:
<Table>
<Caption>
NET APPRECIATION
COST APPRECIATION DEPRECIATION (DEPRECIATION)
Alger Technology Fund $ 1,010,981 $ 235,672 $ 57,771 $ 177,901
Alger Aggressive Growth Fund $ 3,146,906 $ 244,768 $ 73,410 $ 171,358
Alger Small-Cap Fund $ 3,417,569 $ 846,637 $ 146,984 $ 699,653
Alger Growth Fund $ 2,864,125 $ 529,030 $ 71,358 $ 457,672
Growth Fund $ 83,435,315 $ 25,937,720 $ 1,992,440 $ 23,945,280
Equity Income Fund $ 82,472,692 $ 27,089,671 $ 4,630,733 $ 22,458,938
Balanced Fund $ 24,704,465 $ 5,955,176 $ 588,699 $ 5,366,477
Government Bond Fund $ 28,383,781 $ 193,274 $ 115,934 $ 77,340
Tax Free Fund $ 12,995,094 $ 247,310 $ 55,959 $ 191,351
Primary Fund $ 26,640,164 $ 159,350 $ -- $ 159,350
</Table>
94
<Page>
NOTE 4--CAPITAL STOCK
SM&R ALGER TECHNOLOGY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------------------------
2007 2006
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Sale of capital shares:
Class A 48,193 $ 186,260 42,193 $ 139,760
Class B 7,998 29,786 10,369 33,065
---------- ---------- ---------- ----------
Total sale of capital shares 56,191 216,046 52,562 172,825
Redemptions of capital shares outstanding:
Class A (125,213) (481,922) (23,970) (73,711)
Class B (28,175) (104,062) (17,913) (56,597)
---------- ---------- ---------- ----------
Total redemptions of capital shares outstanding (153,388) (585,984) (41,883) (130,308)
---------- ---------- ---------- ----------
Net increase (decrease) in capital shares outstanding (97,197) $ (369,938) 10,679 $ 42,517
========== ==========
Shares outstanding at beginning of year 386,130 375,451
---------- ----------
Shares outstanding at end of year 288,933 386,130
========== ==========
</Table>
SM&R ALGER AGGRESSIVE GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------------------------
2007 2006
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Sale of capital shares:
Class A 39,703 $ 294,494 69,943 $ 469,329
Class B 11,252 78,695 27,662 177,347
---------- ---------- ---------- ----------
Total sale of capital shares 50,955 373,189 97,605 646,676
Distributions from net realized gains reinvested:
Class A 33,796 229,473 -- --
Class B 19,671 127,269 -- --
---------- ---------- ---------- ----------
Total distributions from net realized gains reinvested 53,467 356,742 -- --
---------- ---------- ---------- ----------
Subtotals 104,422 729,931 97,605 646,676
Redemptions of capital shares outstanding:
Class A (60,741) (447,689) (33,401) (216,573)
Class B (20,022) (140,691) (14,371) (92,496)
---------- ---------- ---------- ----------
Total redemptions of capital shares outstanding (80,763) (588,380) (47,772) (309,069)
---------- ---------- ---------- ----------
Net increase (decrease) in capital shares outstanding 23,659 $ 141,551 49,833 $ 337,607
========== ==========
Shares outstanding at beginning of year 399,265 349,432
---------- ----------
Shares outstanding at end of year 422,924 399,265
========== ==========
</Table>
95
<Page>
SM&R ALGER SMALL-CAP FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------------------------
2007 2006
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Sale of capital shares:
Class A 72,655 $ 586,857 151,580 $1,144,229
Class B 7,038 56,892 27,000 201,061
---------- ---------- ---------- ----------
Total sale of capital shares 79,693 643,749 178,580 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
---------- ---------- ---------- ----------
Subtotals 98,054 788,808 212,066 1,578,301
Redemptions of capital shares outstanding:
Class A (60,329) (517,747) (22,244) (166,482)
Class B (17,769) (155,735) (8,130) (58,149)
---------- ---------- ---------- ----------
Total redemptions of capital shares outstanding (78,098) (673,482) (30,374) (224,631)
---------- ---------- ---------- ----------
Net increase (decrease) in capital shares outstanding 19,956 $ 115,326 181,692 $1,353,670
========== ==========
Shares outstanding at beginning of year 451,551 269,859
---------- ----------
Shares outstanding at end of year 471,507 451,551
========== ==========
</Table>
SM&R ALGER GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
----------------------------------------------------
2007 2006
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ---------- ---------- ----------
Sale of capital shares:
Class A 44,781 $ 311,282 70,902 $ 476,435
Class B 14,765 97,091 28,203 179,080
---------- ---------- ---------- ----------
Total sale of capital shares 59,546 408,373 99,105 655,515
Distributions from net realized gains reinvested:
Class A 16,143 107,190 -- --
Class B 10,734 68,053 -- --
---------- ---------- ---------- ----------
Total distributions from net realized gains reinvested 26,877 175,243 -- --
---------- ---------- ---------- ----------
Subtotals 86,423 583,616 99,105 655,515
Redemptions of capital shares outstanding:
Class A (81,227) (561,021) (61,337) (406,140)
Class B (43,125) (287,240) (25,975) (165,112)
---------- ---------- ---------- ----------
Total redemptions of capital shares outstanding (124,352) (848,261) (87,312) (571,252)
---------- ---------- ---------- ----------
Net increase (decrease) in capital shares outstanding (37,929) $ (264,645) 11,793 $ 84,263
========== ==========
Shares outstanding at beginning of year 480,378 468,585
---------- ----------
Shares outstanding at end of year 442,449 480,378
========== ==========
</Table>
96
<Page>
SM&R GROWTH FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Sale of capital shares:
Class A 131,308 $ 613,711 146,187 $ 612,616
Class B 56,328 257,907 88,812 364,497
Class T 512,529 2,445,948 623,489 2,680,561
------------ ------------ ------------ ------------
Total sale of capital shares 700,165 3,317,566 858,488 3,657,674
Investment income dividends reinvested:
Class A 5,047 23,860 8,241 34,714
Class B 551 2,476 1,669 6,907
Class T 116,052 564,573 160,013 688,159
------------ ------------ ------------ ------------
Total investment income dividends reinvested 121,650 590,909 169,923 729,780
Distributions from net realized gains reinvested:
Class A 40,172 184,391 -- --
Class B 23,950 107,537 -- --
Class T 643,142 3,016,336 -- --
------------ ------------ ------------ ------------
Total distributions from net realized gains reinvested 707,264 3,308,264 -- --
------------ ------------ ------------ ------------
Subtotals 1,529,079 7,216,739 1,028,411 4,387,454
Redemptions of capital shares outstanding:
Class A (300,531) (1,411,490) (356,821) (1,506,323)
Class B (238,225) (1,096,043) (191,192) (784,265)
Class T (2,632,772) (12,572,932) (3,820,172) (16,443,295)
------------ ------------ ------------ ------------
Total redemptions of capital shares outstanding (3,171,528) (15,080,465) (4,368,185) (18,733,883)
------------ ------------ ------------ ------------
Net increase (decrease) in capital shares outstanding (1,642,449) $ (7,863,726) (3,339,774) $(14,346,429)
============ ============
Shares outstanding at beginning of year 23,392,305 26,732,079
------------ ------------
Shares outstanding at end of year 21,749,856 23,392,305
============ ============
</Table>
SM&R EQUITY INCOME FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Sale of capital shares:
Class A 94,208 $ 2,211,338 47,053 $ 1,056,963
Class B 20,747 473,962 36,413 792,566
Class T 78,317 1,931,543 69,200 1,604,347
------------ ------------ ------------ ------------
Total sale of capital shares 193,272 4,616,843 152,666 3,453,876
Investment income dividends reinvested:
Class A 11,618 272,562 7,181 160,038
Class B 6,991 157,764 4,389 94,683
Class T 100,845 2,457,786 67,232 1,551,903
------------ ------------ ------------ ------------
Total investment income dividends reinvested 119,454 2,888,112 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
------------ ------------ ------------ ------------
Subtotals 558,791 13,415,089 596,279 13,498,756
Redemptions of capital shares outstanding:
Class A (79,425) (1,880,736) (76,423) (1,720,249)
Class B (110,524) (2,510,171) (111,441) (2,409,895)
Class T (519,789) (12,840,554) (652,127) (15,173,221)
------------ ------------ ------------ ------------
Total redemptions of capital shares outstanding (709,738) (17,231,461) (839,991) (19,303,365)
------------ ------------ ------------ ------------
Net increase (decrease) in capital shares outstanding (150,947) $ (3,816,372) (243,712) $ (5,804,609)
============ ============
Shares outstanding at beginning of year 4,486,903 4,730,615
------------ ------------
Shares outstanding at end of year 4,335,956 4,486,903
============ ============
</Table>
97
<Page>
SM&R BALANCED FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Sale of capital shares:
Class A 34,793 $ 631,966 28,125 $ 496,899
Class B 6,874 126,462 13,266 236,994
Class T 38,196 723,206 33,390 615,020
------------ ------------ ------------ ------------
Total sale of capital shares 79,863 1,481,634 74,781 1,348,913
Investment income dividends reinvested:
Class A 4,954 89,416 4,840 85,714
Class B 2,356 43,045 2,123 37,988
Class T 25,563 481,420 21,234 389,775
------------ ------------ ------------ ------------
Total investment income dividends reinvested 32,873 613,881 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 69,557 1,294,446 50,646 923,271
------------ ------------ ------------ ------------
Total distributions from net realized gains reinvested 93,037 1,715,856 69,788 1,260,483
------------ ------------ ------------ ------------
Subtotals 205,773 3,811,371 172,766 3,122,873
Redemptions of capital shares outstanding:
Class A (63,459) (1,164,640) (74,691) (1,320,202)
Class B (54,363) (997,206) (37,230) (669,163)
Class T (99,713) (1,896,290) (111,774) (2,056,206)
------------ ------------ ------------ ------------
Total redemptions of capital shares outstanding (217,535) (4,058,136) (223,695) (4,045,571)
------------ ------------ ------------ ------------
Net increase (decrease) in capital shares outstanding (11,762) $ (246,765) (50,929) $ (922,698)
============ ============
Shares outstanding at beginning of year 1,603,572 1,654,501
------------ ------------
Shares outstanding at end of year 1,591,810 1,603,572
============ ============
</Table>
SM&R GOVERNMENT BOND FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Sale of capital shares:
Class A 20,423 $ 210,976 16,840 $ 173,494
Class B 5,449 56,127 7,934 81,221
Class T 39,756 406,160 49,765 504,256
------------ ------------ ------------ ------------
Total sale of capital shares 65,628 673,263 74,539 758,971
Investment income dividends reinvested:
Class A 4,049 41,840 3,273 33,624
Class B 2,208 22,780 2,425 24,889
Class T 104,808 1,068,902 89,015 902,344
------------ ------------ ------------ ------------
Total investment income dividends reinvested 111,065 1,133,522 94,713 960,857
------------ ------------ ------------ ------------
Subtotals 176,693 1,806,785 169,252 1,719,828
Redemptions of capital shares outstanding:
Class A (16,698) (172,759) (24,035) (247,583)
Class B (18,696) (193,013) (38,881) (399,246)
Class T (82,708) (844,694) (152,619) (1,550,686)
------------ ------------ ------------ ------------
Total redemptions of capital shares outstanding (118,102) (1,210,466) (215,535) (2,197,515)
------------ ------------ ------------ ------------
Net increase (decrease) in capital shares outstanding 58,591 $ 596,319 (46,283) $ (477,687)
============ ============
Shares outstanding at beginning of year 2,738,497 2,784,780
------------ ------------
Shares outstanding at end of year 2,797,088 2,738,497
============ ============
</Table>
98
<Page>
SM&R TAX FREE FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Sale of capital shares:
Class A 5,772 $ 60,503 648 $ 6,806
Class B -- -- -- --
Class T 10,235 106,598 2,069 21,595
------------ ------------ ------------ ------------
Total sale of capital shares 16,007 167,101 2,717 28,401
Investment income dividends reinvested:
Class A 1,159 12,119 1,690 17,723
Class B 723 7,574 1,406 14,741
Class T 45,142 468,090 44,634 463,868
------------ ------------ ------------ ------------
Total investment income dividends reinvested 47,024 487,783 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
------------ ------------ ------------ ------------
Subtotals 63,313 657,829 50,533 525,633
Redemptions of capital shares outstanding:
Class A (11,881) (124,226) (19,297) (201,405)
Class B (27,312) (286,270) (8,941) (93,280)
Class T (40,292) (418,147) (41,691) (435,104)
------------ ------------ ------------ ------------
Total redemptions of capital shares outstanding (79,485) (828,643) (69,929) (729,789)
------------ ------------ ------------ ------------
Net increase (decrease) in capital shares outstanding (16,172) $ (170,814) (19,396) $ (204,156)
============ ============
Shares outstanding at beginning of year 1,305,383 1,324,779
------------ ------------
Shares outstanding at end of year 1,289,211 1,305,383
============ ============
</Table>
SM&R PRIMARY FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------ ------------ ------------
Sale of capital shares: 11,828,447 $ 11,824,661 5,621,665 $ 5,574,810
Investment income dividends reinvested 1,196,240 1,191,177 970,805 961,699
Redemptions of capital shares outstanding (12,592,282) (12,575,472) (5,414,836) (5,363,547)
------------ ------------ ------------ ------------
Net increase (decrease) in capital shares outstanding 432,405 $ 440,366 1,177,634 $ 1,172,962
============ ============
Shares outstanding at beginning of year 26,485,177 25,307,543
------------ ------------
Shares outstanding at end of year 26,917,582 26,485,177
============ ============
</Table>
SM&R MONEY MARKET FUND
<Table>
<Caption>
YEAR ENDED AUGUST 31,
------------------------------------------------------------
2007 2006
---------------------------- ----------------------------
SHARES AMOUNT SHARES AMOUNT
------------ ------------- ------------ -------------
Sale of capital shares: 256,039,416 $ 256,039,416 267,655,107 $ 267,655,107
Investment income dividends reinvested 4,690,221 4,690,221 2,787,943 2,787,943
Redemptions of capital shares outstanding (247,914,067) (247,914,067) (258,563,298) (258,563,298)
------------ ------------- ------------ -------------
Net increase (decrease) in capital shares outstanding 12,815,570 $ 12,815,570 11,879,752 $ 11,879,752
============= ============
Shares outstanding at beginning of year 88,769,500 76,889,748
------------ ------------
Shares outstanding at end of year 101,585,070 88,769,500
============ ============
</Table>
99
<Page>
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 year ended August 31, 2007, each series recorded the
following reclassification to the accounts listed below:
<Table>
<Caption>
ACCUMULATED
ACCUMULATED NET REALIZED
NET INVESTMENT LOSS GAIN (LOSS)
------------------- ------------
Alger Technology Fund $ 22,843 $ (22,843)
Alger Aggressive Growth Fund $ 33,670 $ (33,670)
Alger Small Cap Fund $ 60,233 $ (60,233)
Alger Growth Fund $ 21,858 $ (21,858)
</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.
100
<Page>
NOTE 6--DISTRIBUTIONS TO SHAREHOLDERS AND TAX COMPONENTS OF NET ASSETS
DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the following years ended August
31:
<Table>
<Caption>
2007 2006
--------------- ---------------
ALGER AGGRESSIVE GROWTH FUND
CLASS A
Distributions paid from:
Ordinary income $ 109,989 $ --
Long-term capital gain 143,779 --
--------------- ---------------
$ 253,768 $ --
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ 55,161 $ --
Long-term capital gain 72,108 --
--------------- ---------------
$ 127,269 $ --
=============== ===============
ALGER SMALL-CAP
CLASS A
Distributions paid from:
Ordinary income $ -- $ 93,400
Long-term capital gain 116,047 81,641
--------------- ---------------
$ 116,047 $ 175,041
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ -- $ 42,690
Long-term capital gain 37,202 37,321
--------------- ---------------
$ 37,202 $ 80,011
=============== ===============
ALGER GROWTH FUND
CLASS A
Distributions paid from:
Ordinary income $ 78,635 $ --
Long-term capital gain 38,347 --
--------------- ---------------
$ 116,982 $ --
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ 45,745 $ --
Long-term capital gain 22,308 --
--------------- ---------------
$ 68,053 $ --
=============== ===============
GROWTH FUND
CLASS A
Distributions paid from:
Ordinary income $ 24,253 $ 34,714
Long-term capital gain 189,752 --
--------------- ---------------
$ 214,005 $ 34,714
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ 2,530 $ 7,032
Long-term capital gain 107,537 --
--------------- ---------------
$ 110,067 $ 7,032
=============== ===============
CLASS T
Distributions paid from:
Ordinary income $ 579,962 $ 705,872
Long-term capital gain 3,084,431 --
--------------- ---------------
$ 3,664,393 $ 705,872
=============== ===============
EQUITY INCOME FUND
CLASS A
Distributions paid from:
Ordinary income $ 336,620 $ 167,919
Long-term capital gain 517,380 686,401
--------------- ---------------
$ 854,000 $ 854,320
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ 197,283 $ 102,420
Long-term capital gain 356,897 612,120
--------------- ---------------
$ 554,180 $ 714,540
=============== ===============
CLASS T
Distributions paid from:
Ordinary income $ 3,023,856 $ 1,684,527
Long-term capital gain 4,644,779 7,052,420
--------------- ---------------
$ 7,668,635 $ 8,736,947
=============== ===============
BALANCED FUND
CLASS A
Distributions paid from:
Ordinary income $ 101,226 $ 91,023
Long-term capital gain 260,049 212,689
--------------- ---------------
$ 361,275 $ 303,712
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ 50,137 $ 41,776
Long-term capital gain 152,511 117,526
--------------- ---------------
$ 202,648 $ 159,302
=============== ===============
CLASS T
Distributions paid from:
Ordinary income $ 549,507 $ 426,701
Long-term capital gain 1,259,580 918,709
--------------- ---------------
$ 1,809,087 $ 1,345,410
=============== ===============
GOVERNMENT BOND FUND
CLASS A
Distributions paid from:
Ordinary income $ 41,848 $ 33,623
--------------- ---------------
$ 41,848 $ 33,623
=============== ===============
CLASS B
Distributions paid from:
Ordinary income $ 23,067 $ 25,134
--------------- ---------------
$ 23,067 $ 25,134
=============== ===============
CLASS T
Distributions paid from:
Ordinary income $ 1,076,489 $ 908,798
--------------- ---------------
$ 1,076,489 $ 908,798
=============== ===============
</Table>
101
<Page>
<Table>
<Caption>
2007 2006
--------------- ---------------
TAX FREE FUND
CLASS A
Distributions paid from:
Exempted interest dividends $ 10,611 $ 16,889
Ordinary income 1,807 834
Long-term capital gain 76 34
--------------- ---------------
$ 12,494 $ 17,757
=============== ===============
CLASS B
Distributions paid from:
Exempted interest dividends $ 8,324 $ 16,196
Ordinary income 1,678 928
Long-term capital gain 103 35
--------------- ---------------
$ 10,105 $ 17,159
=============== ===============
CLASS T
Distributions paid from:
Exempted interest dividends $ 414,827 $ 461,103
Ordinary income 70,682 22,771
Long-term capital gain 2,944 865
--------------- ---------------
$ 488,453 $ 484,739
=============== ===============
PRIMARY FUND
Distributions paid from:
Ordinary income $ 1,204,633 $ 962,323
--------------- ---------------
$ 1,204,633 $ 962,323
=============== ===============
MONEY MARKET FUND
Distributions paid from:
Ordinary income $ 4,718,729 $ 2,811,636
--------------- ---------------
$ 4,718,729 $ 2,811,636
=============== ===============
</Table>
102
<Page>
TAX COMPONENTS OF NET ASSETS
As of August 31, 2007, the components of accumulated earnings (deficit) on a tax
basis were as follows:
<Table>
ALGER TECHNOLOGY FUND
Undistributed long-term capital gains $ 80,424
---------------
Tax Accumulated Earnings 80,424
Accumulated capital and other losses 6,898
Unrealized appreciation (depreciation) 177,901
---------------
Total Accumulated Earnings (Deficit) $ 265,223
===============
ALGER AGGRESSIVE GROWTH FUND
Undistributed ordinary income $ 570,484
Undistributed long-term capital gains 183,822
---------------
Tax Accumulated Earnings 754,306
Accumulated capital and other losses (83,732)
Unrealized appreciation (depreciation) 171,358
---------------
Total Accumulated Earnings (Deficit) $ 841,932
===============
ALGER SMALL-CAP FUND
Undistributed ordinary income $ 87,871
Undistributed long-term capital gains 374,875
---------------
Tax Accumulated Earnings 462,746
Accumulated capital and other losses 277
Unrealized appreciation (depreciation) 699,653
---------------
Total Accumulated Earnings (Deficit) $ 1,162,676
===============
ALGER GROWTH FUND
Undistributed ordinary income $ 216,016
Undistributed long-term capital gains 28,475
---------------
Tax Accumulated Earnings 244,491
Accumulated capital and other losses (55,746)
Unrealized appreciation (depreciation) 457,672
---------------
Total Accumulated Earnings (Deficit) $ 646,417
===============
GROWTH FUND
Undistributed ordinary income $ 118,396
Undistributed long-term capital gains 2,566,132
---------------
Tax Accumulated Earnings 2,684,528
Unrealized appreciation (depreciation) 23,945,280
---------------
Total Accumulated Earnings (Deficit) $ 26,629,808
===============
EQUITY INCOME FUND
Undistributed ordinary income $ 1,369,072
Undistributed long-term capital gains 3,981,249
---------------
Tax Accumulated Earnings 5,350,321
Unrealized appreciation (depreciation) 22,458,938
---------------
Total Accumulated Earnings (Deficit) $ 27,809,259
===============
BALANCED FUND
Undistributed ordinary income $ 196,676
Undistributed long-term capital gains 180,030
---------------
Tax Accumulated Earnings 376,706
Unrealized appreciation (depreciation) 5,366,477
---------------
Total Accumulated Earnings (Deficit) $ 5,743,183
===============
GOVERNMENT BOND FUND
Undistributed ordinary income $ 108
---------------
Tax Accumulated Earnings 108
Accumulated capital and other losses (459,990)
Unrealized appreciation (depreciation) 77,340
---------------
Total Accumulated Earnings (Deficit) $ (382,542)
===============
TAX FREE FUND
Undistributed ordinary income $ 42
Undistributed long-term capital gains 148
---------------
Tax Accumulated Earnings 190
Unrealized appreciation (depreciation) 191,351
---------------
Total Accumulated Earnings (Deficit) $ 191,541
===============
PRIMARY FUND
Accumulated capital and other losses $ (242,583)
Unrealized appreciation (depreciation) 159,350
---------------
Total Accumulated Earnings (Deficit) $ (83,233)
===============
</Table>
NOTE 7--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.
In September 2006 and February 2007, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards No. 157, Fair Value
Measurements ("FAS 157") and Statement of Financial Accounting Standards No.
159, The Fair Value Option for Financial Assets and Financial Liabilities ("FAS
159"). FAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles (GAAP) and expands disclosures
about fair value measurement. FAS 159 permits entities to choose to measure many
financial instruments and certain other items at fair value. The provisions of
FAS 157 and FAS 159 are effective for fiscal years beginning after November 15,
2007. Management is currently assessing the impact of FAS 157 and FAS 159, if
any, on the Funds' financial statements and intends for the Funds to adopt the
FAS 157 and FAS 159 provisions during 2008.
NOTE 8--SUBSEQUENT EVENTS
On August 23, 2007, the Board of Directors of SM&R Investments, Inc. approved,
subject to the approval of an Agreement and Plan of Reorganization of the SM&R
Funds to allow the SM&R Alger Aggressive Growth, SM&R Alger Growth, and SM&R
Alger Small-Cap Funds to transfer all of their assets in a tax-free
reorganization into Alger Capital Appreciation Fund, Alger LargeCap Growth Fund
or Alger SmallCap Growth Fund (each an "Acquiring Fund"), each a series of The
Alger Funds. In addition, shareholders of record of the SM&R Alger Technology
Fund as of October 5, 2007 will be asked to allow SM&R Alger Technology Fund to
transfer all of its assets in a tax-free exchange for shares of Spectra
Technology Fund, a series of The Spectra Funds. The Board of Directors of the
Company determined that action should be taken because of the small asset size
of each SM&R Alger Fund. The Board determined that the SM&R Alger Funds may not
continue to be a competitive long-term investment option for current and
potential investors. The Joint Special Meeting of Shareholders will be held on
November 26, 2007.
103
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Audit Committee, Board of Directors and Shareholders
SM&R Investments, Inc.
League City, Texas
We have audited the accompanying statements of assets and liabilities of the
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 and SM&R Money Market Fund (all the funds comprising SM&R Investments,
Inc., hereafter referred to as "the Funds"), including the schedules of
investments, as of August 31, 2007, and the related statements of operations for
the year then ended and changes in net assets and the financial highlights for
the two years then ended. These financial statements and the financial
highlights are the responsibility of the Funds' management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of August 31, 2007, by correspondence with the custodian and
brokers or by other appropriate auditing procedures with respect to unsettled
portfolio security transactions. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of the
Funds as of August 31, 2007, and the results of their operations, changes in
their net assets and their financial highlights for the periods then ended in
conformity with accounting principles generally accepted in the United States of
America.
/s/ BKD, LLP
Houston, Texas
October 15, 2007
104
<Page>
SUPPLEMENTAL INFORMATION (Unaudited) (As of 08/31/07)
Information pertaining to the Directors and Officers of the Fund is set forth
below. The statement of additional information (SAI) includes additional
information about the Directors and is available without charge, upon request by
calling (800) 231-4639.
INDEPENDENT DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND AGE WITH FUND TIME SERVED DURING PAST 5 YEARS DIRECTOR
- ----------------------- ---------------- -------------- --------------------------------------------------------- --------------
Florentino F. Gonzalez Director Indefinite HR Consultant, The University of Texas Medical Branch 19*
2450 South Shore Blvd., Since 11/05 at Galveston
League City, TX 77573
Age 47
Edwin K. Nolan Director Indefinite Investor and Attorney, Law Offices, Edwin K. Nolan, P.C. 19*
2450 South Shore Blvd., Since 11/97
League City, TX 77573
Age 63 Nominating Indefinite Director/Owner of Canyon Lake Aviation, Inc.
Committee Since 11/00
Audit Indefinite Director of Hancock Mini Mart, Inc.
Committee Since 11/03
Robert V. Shattuck Director Indefinite Attorney, Law Offices, Robert V. Shattuck, Jr. 19*
2450 South Shore Blvd., Since 11/97
League City, TX 77573
Age 65 Nominating Indefinite
Committee Since 11/00
Donald P. Stevens Director Indefinite Assistant to the President for Governmental Relations 19*
2450 South Shore Blvd., Since 9/00 of the University of Texas Medical Branch, Galveston, TX
League City, TX 77573
Age 60 Nominating Indefinite Vice President and Director, Jamail Galveston Foundation
Committee Since 11/00 (a family charitable foundation)
Audit Indefinite
Committee Since 11/05
Steven H. Stubbs Director Indefinite President and Director of Dancing Rabbit Press, Inc. 19*
2450 South Shore Blvd., Since 9/00 (a publishing company)
League City, TX 77573
Age 68 Audit Indefinite Director, Neshoba County Public Library
Committee Since 8/03
Chairman
</Table>
105
<Page>
INTERESTED DIRECTORS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX INTERESTED
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF OVERSEEN BY DIRECTOR
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS DIRECTOR RELATIONSHIP
- ----------------------- ---------------- -------------- ------------------------------------------- ------------- ------------
Michael W. McCroskey President & Indefinite President, CEO, Director and member of 19* (1)
2450 South Shore Blvd., Director Since 8/94 Executive Committee of Securities
League City, TX 77573 Management and Research, Inc. (SM&R)^
Age 64
Executive Vice President and Treasurer of
American National Insurance Company
Vice President of Garden State Life
Insurance Company^
Vice President of American National
Property & Casualty Company^
Vice President of Standard Life & Accident
Insurance Company^
Vice President of Pacific Property and
Casualty Company^
Assistant Secretary of American National
General Insurance Company^
Assistant Secretary of American National
Life Insurance Company of Texas^
Director and President of ANREM Corporation
(real estate management company)^
Vice President and Director of ANTAC
Corporation (real estate management
company)^
Director of Comprehensive Investment
Services, Inc. (investment services
company)^
Vice President of Farm Family Life
Insurance Company^
Vice President of Farm Family Casualty
Insurance Company^
Vice President of United Farm Family
Insurance Company^
Vice President and Director of Eagle 99,
Inc. (a real estate investment company)^
President and Director of ANH2O, Inc. (a
real estate investment company)^
Lea McLeod Matthews Director Indefinite Writer/Communications Specialist, 19* (2)
2450 South Shore Blvd., Since 8/94 Nashville, TN (10/06-present)
League City, TX 77573
Age 45 Psychology Intern, Vanderbilt University
Medical Center, Division of Adult
Psychiatry (8/05-10/06)
Communications Specialist, National Western
Life Insurance Company (5/02-8/05)
Director of Garden State Life Insurance
Company^
Senior Communications Specialist, Texas
Guaranteed Student Loan Corporation
(1/01-5/02)
Ann McLeod Moody Director Indefinite Housewife, Personal Investments 19* (3,2)
2450 South Shore Blvd., Since 11/97
League City, TX 77573 Director of Moody Gardens, Inc. (a
Age 70 charitable organization)
</Table>
106
<Page>
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX INTERESTED
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF OVERSEEN BY DIRECTOR
AND AGE WITH FUND TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS DIRECTOR RELATIONSHIP
- ----------------------- ---------------- -------------- ------------------------------------------- ------------- ------------
Jamie G. Williams Director Indefinite Regional Grants Director, The Moody 19* (4)
2450 South Shore Blvd., Since 11/97 Foundation (a charitable foundation)
League City, TX 77573
Age 61 President's Advisory Council, Dallas Center
for the Performing Arts Foundation (an
organization that supports the arts in the
Dallas, TX area)
</Table>
(1) Mr. McCroskey serves as an officer and director of SM&R, the Company's
investment adviser. He also serves as an officer of SM&R's parent company,
American National Insurance Company ("American National").
(2) Ms. Matthews is the step-daughter of Robert L. Moody. Mr. Moody is the
Chairman of the Board and Chief Executive Officer of American National, the
parent of SM&R. Mr. Moody is also a trustee of The Moody Foundation, a
charitable foundation established for charitable and educational purposes,
which owns approximately 23.23% of the outstanding common shares of
American National, and he serves as Chairman of the Board, President, and
Chief Executive Officer of The Moody National Bank of Galveston (the
"Bank"), which, in its capacity as trustee and custodian, votes
approximately 46.55% of the outstanding common shares of American National.
Mr. Moody is also the President and a director of the companies owning the
controlling interests in such bank, and he is a life income beneficiary of
one of such trusts.
Ms. Matthews is the daughter of Funds' director Ann McLeod Moody.
(3) Ms. Moody is the spouse of Robert L. Moody. See footnote 2 above. Ms. Moody
is the mother of Funds' director Lea McLeod Matthews.
(4) Ms. Williams is an employee of The Moody Foundation, which owns
approximately 23.23% of American National, the parent of SM&R.
* Also a Director of American National Investment Accounts, Inc., another
investment company advised by SM&R, which has 8 portfolios.
^ Under control of American National.
OFFICERS
<Table>
<Caption>
NUMBER OF
PORTFOLIOS IN
TERM OF OFFICE FUND COMPLEX
NAME, ADDRESS, POSITION(S) HELD AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
AND AGE WITH FUND TIME SERVED DURING PAST 5 YEARS OFFICER
- ----------------------- ---------------- -------------- --------------------------------------------------------- --------------
Michael W. McCroskey President & Indefinite SEE INTERESTED DIRECTOR TABLE ABOVE 19
Director@ Since 8/94
Brenda T. Koelemay Vice President Indefinite Vice President & Treasurer of SM&R 19
2450 South Shore Blvd., & Treasurer@ Since 7/92
League City, TX 77573 Vice President, Assistant Corporate Treasurer
Age 52
Teresa E. Axelson Vice President Indefinite Vice President, Secretary & Chief Compliance Officer of 19
2450 South Shore Blvd., & Secretary@ Since 5/83 SM&R
League City, TX 77573
Age 59
</Table>
@ Positions also held with American National Investment Accounts, Inc.,
another investment company advised by SM&R.
107
<Page>
APPROVAL OF INVESTMENT ADVISORY AGREEMENT--SM&R TAX FREE FUND
The Board of Directors of SM&R Investments, Inc. has renewed the investment
advisory arrangements with Securities Management and Research, Inc. ("Manager")
for the SM&R Tax Free Fund effective June 7, 2007. The Board considered a
variety of factors in connection with its review of the advisory contract, 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 fund 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 fund's portfolios and a variety of activities related to
portfolio management. The Board also took into account its familiarity with the
Manager's investment management through Board meetings, discussions and reports
during the preceding year. After careful consideration of these matters, the
Board concluded that it was satisfied with the nature, quality and extent of the
services provided by the Manager.
EXPENSES AND PERFORMANCE
The Board evaluated reports prepared by the Manager detailing the advisory fee
and total expense ratios of each of the fund's share classes as compared to
other open-end investment companies deemed to be comparable based upon the
Morningstar Principia Pro database with similar Morningstar category and
prospectus objective to each class of the funds. The Board took into account the
Manager's current undertakings to maintain the expense limitations for the
funds. Also taken under consideration was the current size of each class of the
fund, and the level and method of computing the management fees.
In addition to these qualitative factors, the directors also reviewed pertinent
quarterly quantitative data, such as reports of relevant performance data
calculated according to standardized formulas for 1, 5 and 10 years or as
applicable. They also compared the fund's quarterly performance with a
representative sample of comparable funds and recognized indexes, including
those supplied by Lipper and Morningstar. Finally, they evaluated the volatility
of investment returns and the risk levels of Fund securities. Lastly, the Board
of Directors were provided an analysis of the number and types of complaints
that SM&R had received from shareholders, and the specific policies followed by
SM&R to address such complaints. On the basis of this evaluation and the Board's
ongoing reviews of investment results, the Board concluded that the funds'
performance was satisfactory.
COST, BENEFITS, PROFITS AND ECONOMIES OF SCALE
The Board reviewed detailed information regarding the revenues received by the
Manager under the Contracts and other benefits that the Manager may have
realized from its relationship with the funds. This review included SM&R's
financial information. The Board also received information on the direct costs
incurred by the Manager as well as profits realized. There was a discussion
regarding the Advent system, which will provide straight-through trade
processing, how it works and SM&R's investment in this system. It was stated
that MOXIE, the programming which provides automatic electronic trading, was
being tested and that FIXED should be implemented by the end of June. It was
stated that by 9/30/07, the Advent system should be fully operational.
APPROVAL OF EXTENSION OF INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS--SM&R
ALGER FUNDS
Additionally, the Board temporarily extended the existing investment advisory
arrangements with the Manager and the sub-advisory arrangement with Fred Alger
Management, Inc. on August 23, 2007 for the SM&R Alger Technology Fund, SM&R
Alger Aggressive Growth Fund, SM&R Alger Small-Cap Fund and SM&R Alger Growth
Fund. The temporary extension was approved as part of reorganization efforts
underway for the four SM&R Alger Funds as discussed in a proposed draft
proxy/prospectus and prospectus supplement, both of which were approved by the
directors at the August 23, 2007 meeting. The prospectus supplement was filed
with the SEC on August 28, 2007 and mailed to all shareholders. The
proxy/prospectus will be mailed to shareholders of the SM&R Alger Funds on or
about October 22, 2007. The proposed reorganization is expected to close on or
about December 7, 2007.
108
<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, L.L.P.
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 9202 10/07
Item 2 Code of Ethics.
(a) The registrant has adopted a code of ethics that applies to the
registrants principal executive officer, principal financial
officer, principal accounting officer or controller, or persons
performing similar functions (the Code).
(b) For purposes of this Item, the term code of ethics means
written standards that are reasonably designed to deter wrong-
dong and to promote:
(1) Honest and ethical conduct, including the ethical
handling of actual or apparent conflicts of interest
between personal and professional relationships;
(2) Full, fair, accurate, timely, and understandable
disclosure in reports and documents that a registrant
files with, or submits to, the Commission and in other
public communications made by the registrant;
(3) Compliance with applicable governmental laws, rules,
and regulations;
(4) The prompt internal reporting of violations of the Code
to an appropriate person or persons identified in the
Code; and
(5) Accountability for adherence to the Code.
(c) There were no amendments to the Code during the perid covered
by the report.
(d) The registrant did not grant any waivers, including implicit
waivers, from any provisions of the Code to the principal executive
officer, principal financial officer, principal accounting officer
or controller, or persons performing similar functions during the
period covered by this report.
(e) Not applicable
(f) See item 12 (a) (1) regarding the filing of the Code of Ethics for
Principal Executive and Principal Financial Officers of SM&R
Investments, Inc.
Item 3 Audit Committee Financial Expert.
(a) The Board of Directors has determined that the registrant has at
least one Audit committee financial expert serving on its Audit
Committee.
(b) The Audit Committee financial expert is Steven H. Stubbs. Mr. Stubbs
is "independent" within the meaning of that term used in Form N-CSR.
Item 4 Principal Accountant Fees and Services.
(a) Audit fees for SM&R Investments, Inc. totaled approximately $90,000
in 2007 and approximately $84,700 in 2006, including fees associated
with the annual audit and filings of the Portfolios Form N-1A and
Form N-SAR.
(b) None
(c) Fees for tax services to SM&R Investments, Inc., including tax
compliance, tax advice and tax planning, totaled approximately
$0 in 2007 and $0 in 2006.
(d) None
(e) (1) The registrants audit committee has adopted policies and
procedures that require the audit committee to pre-approve
all audit and non-audit services provided to the registrant
by the principal accountant.
(2) All of the services described in paragraphs (b) through (d)
of Item 4 were approved by the audit committee.
(f) All services performed on the engagement to audit the registrants
financial statements for the most recent fiscal year-end were
performed by the principal accountants full-time, permanent
employees.
(g) None
(h) The registrants independent auditor did not provide any non-audit
services to the registrants investment adviser or any entity
controlling, controlled by or controlled with the registrants
investment adviser that provides ongoing services to the registrant.
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 October 15, 2007, an evaluation was performed under the
supervision and with the participation of the officers of SM&R
Investments, Inc. (the "Company"), including the Chief Executive
Officer ("CEO") and Chief Financial Officer ("CFO"), of the
effectiveness of the Company's disclosure controls and procedures.
Based on that evaluation, the officers, including the CEO and CFO,
conclude that, as of October 15, 2007, the Company's disclosure
controls and procedures were reasonably designed so as to ensure
that material information relating to the Company is made known
to the CEO and CFO.
(b) There have been no significant changes in the Company's 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 pursuant to Item 2 of Form N-CSR is filed and
attached hereto.
(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: October 30, 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: October 30, 2007
By: \S\ Brenda T. Koelemay
-------------------------------------
Principal Financial Officer
Date: October 30, 2007